AirIQ Inc.
TSX : IQ

AirIQ Inc.

April 02, 2007 07:00 ET

AirIQ Announces 2006 Fourth Quarter and Year End Results

Recent Events Top Steady Year of Progress

TORONTO, ONTARIO--(CCNMatthews - April 2, 2007) - AirIQ Inc. (TSX:IQ), a leader in Telematics and Machine to Machine (M2M) Wireless Services, today announced its financial results for the fourth quarter and year ended December 31, 2006.

Highlights

- Gross profit increase of 6.8% year over year to $15,793,178;

- EBITDA improvement of 62.4% or $4,894,536 year over year;

- Cash flow from operating activities, less deferred service contract costs, was $(85,121) in 2006 and $899,523 in Q4 compared with $(5,840,805) in 2005 and $(3,453,178) in Q4 2005;

- Net loss for the year was reduced by 42.4% from $13,147,799 in 2005 to $7,578,038 in 2006;

- Operating expense reduction of 17.2% or $3,888,803 year over year;

- Annual expense to revenue ratio improvement to 46.3% in 2006 from 56.5% in 2005;

- Completed Transition to Digital Platform (GSM);

- Launched AirIQ service to the Service Fleet Market;

- Signed MOU with Siemens to Deliver M2M Digital Solutions (Post Year End);

- U.S. executive, Stephen Willey, appointed as Interim CEO (Post Year End);

- Vehicle Finance Division sold for $22,350,000 (Post Year End)

"2006 represented a steady year of progress for AirIQ in an improved industry climate" reports Donald E. Simmonds, Executive Chairman. "Although a strategic decision to reduce expenses paused our 10,000% revenue growth experienced over the last five years, the Company improved in virtually all other operating metrics."

Equally important are several major subsequent events which have served to further strengthen and reposition the Company for its next phase.

- In February 2007, AirIQ announced a memorandum of understanding with Siemens that would provide an additional channel for digital Machine to Machine (M2M) wireless services in North America.

- In February 2007, Mr. Stephen Willey, was appointed to lead the Company as its interim President and Chief Executive Officer. A board member since 2001, and already knowledgeable about the Company, Mr. Willey is leading the next phase of growth both in North America and around the world.

- In March 2007, AirIQ announced the sale of its Vehicle Finance Division for $22,350,000 (at a U.S dollar exchange rate of $1.1764) resulting in significant improvement to its working capital position and allowing the Company increased flexibility to respond to opportunities in its target markets. Management estimates the gain from this asset sale to be at least $3,000,000.

"Reducing operating expenses was a priority during 2006," said Mark Kohler, Chief Financial Officer of AirIQ. "This focus has improved EBITDA results reducing the need for additional funding for operations. Combined with the balance sheet strength from the sale of the Vehicle Finance Division, we are in a strong financial position for the future."

"AirIQ will continue to leverage its telecom quality infrastructure through continued activity in both existing and new commercial markets," explained Stephen Willey. "In particular, we are enthusiastic about the results from our recent entry into the service fleet market and will fund growth consistent with market demand. Likewise, we are testing various models for growth in consumer markets where interest in this segment remains high."

During 2006 AirIQ was awarded:

- BAC Value Added Reseller of the Year by Cingular Wireless;

- 15th on Canadian Deloitte's Technology Fast 50 (5 year Revenue growth); and

- 90th on the North American Deloitte Fast 500 (5 year Revenue growth).

Overview

The accompanying condensed consolidated financial statements of loss and deficit are presented for the years and quarters ended December 31, 2006 and December 31, 2005, comparatively, and include the operating results of AirIQ Inc. and its subsidiaries. The Company's audited consolidated financial statements as at and for the year ended December 31, 2006, including notes thereto, and the accompanying Management's Discussion and Analysis were filed with the Canadian securities regulatory authorities on March 30, 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.

Subsequent Events

On March 16, 2007, the Company concluded the sale of certain tangible and intangible assets of its subsidiary, AirIQ U.S. Inc., relating to its vehicle finance industry tracking business, to CalAmp DataCom, Inc. ("CalAmp"), a subsidiary of CalAmp Corp., for gross proceeds of US$19,000,000 ($22,350,000 at an exchange rate of $1.1764), and the assumption by CalAmp of certain trade accounts payable and accrued liabilities. As part of the transaction, the parties entered into an escrow agreement whereby US$1,900,000 of the total gross proceeds was directed to be held in escrow for a period of twelve months from the closing date in support of certain representations and warranties made by the Company to CalAmp.

Management estimates that the sale of assets in the first quarter 2007 will result in a pro forma gain on disposition of at least $3,000,000.

On March 19, 2007, the Company repaid the remaining outstanding principal on the revolving operating loan and the senior secured debenture in the aggregate amount of $6,400,000, and the $1,250,000 owing under the short-term loan entered into on February 28, 2007.

The table below presents a consolidated pro forma balance sheet as if the asset sale and debt repayments described above had occurred as at December 31, 2006:



(1) (2) (3)
Sale of Other Repayments
Consolidated Assets Adjustments of Debt Pro Forma
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Assets
Current assets
Cash and cash
equivalents 2,292,475 19,928,340 - (6,962,970) 15,257,845
Other current
assets 9,467,618 (1,623,668) - - 7,843,950
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Total current
assets 11,760,093 18,304,672 - (6,962,970) 23,101,795
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Receivable from
Purchaser - 2,214,260 - - 2,214,260
Long term
assets 32,745,301 (20,921,935) (217,904) - 11,605,462
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44,505,394 (403,003) (217,904) (6,962,970) 36,921,517
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Current
liabilities
Operating loan 3,900,000 - - (3,900,000) -
Other current
liabilities 18,181,722 (3,857,262) - - 14,324,460
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Total current
liabilities 22,081,722 (3,857,262) - (3,900,000) 14,324,460
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Term loan
and secured
debenture 5,443,997 - 143,250 (3,000,000) 2,587,247
Other long term
liabilities 1,517,179 - - - 1,517,179
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Total
liabilities 29,042,898 (3,857,262) 143,250 (6,900,000) 18,428,886
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Total
shareholders'
equity 15,462,496 3,454,259 (361,154) (62,970) 18,492,631
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44,505,394 (403,003) (217,904) (6,962,970) 36,921,517
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(1) This column reflects the gross proceeds of the sale including tangible assets sold and liabilities assumed by the purchaser, management's best estimate of the goodwill and intangible assets attributable to the vehicle finance industry tracking business, and estimated transaction costs of approximately $770,000 that will be expensed in the first quarter 2007. The pro forma balance sheet does not reflect any income tax implications, and management estimates that no income taxes will be owing by the Company as a result of the sale of the assets.

(2) As a result of paying off the secured debenture early, the Company will incur a non-cash charge of $143,250 and deferred financing fees of $217,904 will be expensed.

(3) Total cash payments to the Company's senior lender amounted to $6,962,970, comprised of $6,900,000 of principal and $62,970 of interest and additional charges.

Revenues

Revenues for the year ended December 31, 2006 increased 1.0% to $40,455,897 from $40,048,499 for the comparative year ended December 31, 2005. The increase in revenues resulted from continuing hardware sales and net additions to the Company's subscriber base as hardware units are shipped and put into service.

Revenues for the three months ended December 31, 2006 increased by 2.4% to $10,188,842 from $9,954,546 for the three months ended December 31, 2005, and increased by 2.8% from $9,911,177, for the three months ended September 30, 2006. The increase in revenues from third quarter 2006 resulted from the recognition of revenue from the Company's vehicular subscriber base.

The average U.S. dollar exchange rate decreased from $1.21 for the year ended December 31, 2005 to $1.13 for the year ended December 31, 2006. The year over year fluctuation on the average US dollar exchange rate had an estimated notional effect on the Company's annual revenues in excess of $1,400,000.

Gross Profit

Gross profit for the year ended December 31, 2006, increased 6.8% to $15,793,178 from $14,787,445 for the comparative year ended December 31, 2005.

Gross profit for the three months ended December 31, 2006, increased by 76.1% to $3,707,112 from $2,105,313 for the three months ended December 31, 2005, and decreased by 3.9% from $3,860,732, for the three months ended September 30, 2006.

Expenses and Other Items

Expenses totaled $18,742,668 and $22,631,471 for the years ended December 31, 2006 and December 31, 2005, respectively. The year over year decrease in operating expenses is primarily due to integration activities during 2005 and 2006.

For the twelve months ended December 31, 2006, the Company recorded foreign exchange losses of $113,360 and stock-based compensation expense of $397,500. This compares with recorded foreign exchange losses of $108,806 and $623,889 in stock-based compensation expense for the twelve months ended December 31, 2005.

Net Interest

Net interest expense for the year ended December 31, 2006, was $1,441,945 compared to $1,123,686 for the year ended December 31, 2005.

Included in the net interest expenses for the 12 months ended December 31, 2006 was the amount of $281,497 related to the fair market value of warrants issued in connection with the term loan and secured debenture financings during the year. Of this amount, $156,811 related to the early repayment of $1,000,000 of the term loan on June 20, 2006.

Amortization

Amortization for the year ended December 31, 2006, was $2,861,918 compared with $3,256,776 for the year ended December 31, 2005.

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

In the fourth quarter ended December 31, 2006, the Company recorded approximately $220,000 of depreciation expense relating to the net book value of analogue-based service contract equipment that was no longer in use.

Gain on sale of trade name

During the year ended December 31, 2006 the Company sold the rights to the Aircept trademark and recognized a gain of $113,750. The Company retained the right to use this trademark until December 31, 2007.

Other charges

Other charges in the amount of $354,435 and $415,173 for the years ended December 31, 2006 and December 31, 2005, respectively, relate primarily to payroll obligations for staff reductions resulting from integration activities subsequent to the acquisitions made in 2004.

The other charges noted above have all been paid for as at December 31, 2006.

Provision for income taxes

The Company has recorded a net current tax expense resulting from future potential withholding taxes on interest earned from inter-company debt.

Net Loss

The net loss for the year ended December 31, 2006 was $7,578,038, or $0.05 per share, compared with $13,147,799, or $0.11 per share, for the year ended December 31, 2005.

Liquidity and Capital Resources

As at December 31, 2006, the Company had cash and cash equivalents of $2,292,475 and negative working capital of $1,382,671. Working capital has been calculated by netting current assets and current liabilities and excluding deferred revenue and obligations for service contracts that are non-cash items.

The Company increased its cash and cash equivalents balance by approximately $19,900,000 as a result of the completion of a transaction on March 16, 2007, whereby the Company sold certain tangible and intangible assets of its subsidiary, AirIQ U.S. Inc., relating to its vehicle finance industry tracking business, to CalAmp DataCom, Inc., a subsidiary of CalAmp Corp. (see discussion above).



Consolidated Financial Statements

Consolidated Balance Sheets

As at December 31 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 2,292,475 $ 1,383,827
Accounts receivable 7,250,744 5,641,893
Inventory 1,717,630 4,824,907
Prepaid expenses 499,244 468,949
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Total current assets 11,760,093 12,319,576

Property, plant and equipment, net 2,923,896 4,534,196
Intangible assets, net 5,218,400 7,176,667
Goodwill 16,620,353 16,620,353
Deferred financing, net 288,692 -
Deferred service contract costs, net 7,693,961 9,677,759
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$ 44,505,395 $ 50,328,551
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---------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities $ 8,795,943 $ 7,970,721
Accrual for earn-out payment(note3) - 4,942,750
Income taxes payable 202,736 118,736
Non-revolving credit facility - 6,985,968
Revolving operating loan 3,900,000 -
Deferred revenue 8,391,081 10,042,872
Obligations for service contracts 547,878 882,235
Obligations under capital lease 244,085 213,921
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Total current liabilities 22,081,723 31,157,203

National Research Council loan 82,304 117,637
Deferred revenue 1,200,350 1,909,605
Obligations for service contracts 78,869 581,142
Term loan and secured debenture 5,443,997 -
Obligations under capital lease 155,656 237,773
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Total liabilities 29,042,899 34,003,360
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Shareholders' equity
Share capital 89,072,046 83,591,703
Other paid-in capital 4,447,754 3,610,254
Contributed surplus 1,588,469 1,190,969
Deficit (79,645,773) (72,067,735)
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Total shareholders' equity 15,462,496 16,325,191
---------------------------------------------------------------------------
$ 44,505,395 $ 50,328,551
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Consolidated Statements of Loss and Deficit

Three months ended Twelve months ended
December December December December
31, 2006 31, 2005 31, 2006 31, 2005
---------------------------------------------------------------------------

Revenues $ 10,188,842 $ 9,954,546 $ 40,455,897 $ 40,048,499
Direct cost
of sales 6,481,730 5,764,233 24,662,719 23,176,054
Write-down of
inventory due to
technology change - 2,085,000 - 2,085,000
---------------------------------------------------------------------------

Gross profit 3,707,112 2,105,313 15,793,178 14,787,445

Expenses
Sales and
marketing 1,184,133 1,412,624 4,854,232 5,801,196
Engineering and
research 838,561 1,282,833 3,454,389 5,080,406
General and
administration 3,362,908 4,146,195 9,923,187 11,017,174
Stock-based
compensation 90,000 128,889 397,500 623,889
Loss on foreign
exchange (166,646) (111,371) 113,360 108,806
---------------------------------------------------------------------------
5,308,956 6,859,170 18,742,668 22,631,471

Loss before the
following (1,601,844) (4,753,857) (2,949,490) (7,844,026)
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Interest
expense, net 357,872 73,901 1,441,945 1,123,686
Other charges - 77,414 354,435 415,173
Amortization 794,027 784,343 2,861,918 3,256,776
Gain on sale
of trade name (113,750) - (113,750) -
---------------------------------------------------------------------------
1,038,149 935,658 4,544,548 4,795,635
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Loss before
income taxes (2,639,993) (5,689,515) (7,494,038) (12,639,661)

Provision for
income taxes
Current 84,000 (177,862) 84,000 (41,862)
Future - 215,000 - 550,000
---------------------------------------------------------------------------
84,000 37,138 84,000 508,138
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Net loss for
the period (2,723,993) (5,726,653) (7,578,038) (13,147,799)

Deficit, beginning
of period (76,921,780) (66,341,082) (72,067,735) (58,919,936)
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Deficit, end
of period $(79,645,773) $ (72,067,735) $ (79,645,773) $ (72,067,735)
---------------------------------------------------------------------------
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Loss per
share - basic
and diluted $ (0.02) $ (0.05) $ (0.05) $ (0.11)
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---------------------------------------------------------------------------

Weighted average number
of common shares
used in computing
loss per share,
basic and
diluted 155,559,958 124,527,235 145,458,544 120,033,750
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---------------------------------------------------------------------------



Consolidated Statements of Cash Flows

Three months ended Twelve months ended
December December December December
31, 2006 31, 2005 31, 2006 31, 2005
---------------------------------------------------------------------------

Operating activities
Net loss for
the year $ (2,723,993) $ (5,726,653) $ (7,578,038) $ (13,147,799)
Add items not
involving cash
Future tax expense - 100,000 - 550,000
Stock-based
compensation 90,000 128,889 397,500 623,889
Interest accreted
on term loan 48,104 - 281,497 358,526
Amortization of
property, plant
and equipment 407,314 635,857 2,010,805 2,564,615
Amortization of
deferred service
contract costs 3,832,500 3,562,617 15,283,377 14,109,905
Amortization of
intangible assets 363,939 590,818 1,958,267 2,363,274
Amortization of
deferred financing
costs 64,400 - 83,461 102,778
Gain on sale of
trade name (113,570) - (113,570) -
Changes in non-cash
working capital
balances related to
operations
Payment
regarding dispute
with component
supplier (728,375) - (728,375) -
Accounts receivable 534,698 (672,686) (880,476) (568,955)
Inventory (311,661) 419,999 3,325,116 (1,016,576)
Prepaid expenses (66,768) 511,851 (30,295) 25,352
Accounts payable
and accrued
liabilities 2,582,090 754,258 1,566,234 1,115,738
Income taxes
payable - (63,013) - (46,264)
Deferred revenue (1,219,899) 92,270 (2,361,046) 1,000,521
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2,758,779 334,207 13,214,457 8,035,004
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Investing activities
Earn-out payment - - (4,942,750) -
Purchase of
intangible assets - (71,250) - (71,250)
Proceeds from sale
of trade name 113,570 - 113,570 -
Purchase of
property, plant
and equipment (354,817) (116,015) (404,237) (861,604)
Deferred
financing - - (372,154) -
Deferred service
contract costs (1,859,256) (3,787,385) (13,299,578) (13,875,809)
---------------------------------------------------------------------------
(2,100,503) (3,974,650) (18,905,149) (14,808,663)
---------------------------------------------------------------------------

Financing activities
Repayment of
obligations
under capital
lease 125,413 (67,166) (51,953) (241,931)
Repayment of
National Research
Council loan (35,333) (13,372) (35,333) (83,444)
Proceeds from
term loan - - 4,000,000 -
Repayment of term loan - - (1,000,000) (5,319,484)
Proceeds from
revolving
operating loan - - 5,000,000 -
Repayment of
revolving
operating loan - - (1,100,000) -
Proceeds from
secured debenture - - 3,000,000 -
Proceeds
from(repayment
of) non-revolving
credit facility - 1,875,000 (6,985,968) 6,985,968
Repayment of
obligations for
service contracts (195,445) (229,634) (836,630) (1,075,216)
Share issuance
costs - (28,734) (699,867) (28,734)
Issuance of common
shares and equity
instruments - 43,996 5,309,091 3,018,238
---------------------------------------------------------------------------
(105,365) 1,580,090 6,599,340 3,255,397
---------------------------------------------------------------------------

Net increase or
(decrease) in
cash and cash
equivalents 552,911 (2,060,353) 908,648 (3,518,262)

Cash and cash
equivalents,
beginning of period 1,739,564 3,444,180 1,383,827 4,902,089
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Cash and cash
equivalents, end
of period $ 2,292,475 $ 1,383,827 $ 2,292,475 $ 1,383,827
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Supplementary
disclosure
Cash interest $ 312,718 $ 59,073 $ 836,031 $ 517,661

Non-cash
investing
and financing
activities

Property, plant
and equipment
purchased under
capital leases 57,135 36,562 180,522 487,961

Accrual for
earn-out
settlement - 4,942,750 - 4,942,750
Common shares issued
on acquisition - 2,480,786 - 2,480,786
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Conference Call and Webcast

AirIQ will hold a conference call on Monday, April 2, 2007, at 10 a.m. ET. To access the call, please dial 416-695-6623 or 1-877-888-3855. A replay of the conference call will be available as of noon the same day until midnight April 12, 2006. To access the replay, dial 416-695-5275 or 1-888-509-0081 followed by the pass code 642369. The call will also be webcast live on the Company's web site at www.airiq.com.

The Company's complete financial statements, including notes thereto, and the accompanying Management's Discussion and Analysis will be available at www.airiq.com and at www.sedar.com.

Non-GAAP Disclosure

"EBITDA" is defined by the Company as net 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. In addition, the Company has included information concerning adjustments to gross profit, expenses and working capital because it believes that it may be used by certain investors as further measures of the Company's financial performance, and such adjustments to expenses or assets and liabilities are highlighted due to their nature or to their magnitude.

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 an office in 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 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