AirIQ Inc.
TSX : IQ

AirIQ Inc.

April 01, 2009 08:55 ET

AirIQ Announces 2008 Year End Results

TORONTO, ONTARIO--(Marketwire - March 31, 2009) - AirIQ Inc. ("AirIQ") (TSX:IQ), a leader in Wireless Location-Based Services, specializing in Telematics and Security, today announced its financial results for the year ended December 31, 2008.

"2008 was a year of focus, re-alignment and right-sizing", said Steve Willey, President and Chief Executive Officer of AirIQ, "from which we emerged an agile, compact and highly efficient team. The Company succeeded in demonstrating incremental improvements over the course of the year, despite a backdrop of sharp increases in fuel costs that introduced delays in purchases of telematics services, and despite a rapidly worsening macro-economy."

"From a marketing perspective AirIQ shifted its emphasis away from large and relatively amorphous markets to targeting demands of narrower but higher-value vertical segments", continued Mr. Willey. "The successful development of new software applications marked a first step in pivoting the Company from commodity location services towards the higher-margin, Software as a Service (SaaS) model. Our Board, management and staff are fully aligned in efforts to finalize this transition and eager to deliver further evidence of its success."

Highlights

Management Review

- 2008 was a year of 'right-sizing' and renewal. AirIQ delivered four consecutive quarters of reduced EBITDAS loss.

- AirIQ entered 2008 with the following four goals:

- Actively and continuously reduce expenses and re-size the Company consistent with its smaller but higher quality subscriber base;

- Re-align the organization into separate Land (in Canada) and Marine (in the United States) business units, each led by management tasked with improving respective operating profits;

- Focus sales teams on higher profit niche markets; and

- Reduce cost of our heavy equipment device and upgrade software infrastructure to facilitate planned strategies for application enhancement.

- The AirIQ team not only delivered consistent cost cutting, improved operations productivity, penetrated several new markets, and saved a non-performing product, but did so after a 23% reduction in workforce in November 2007. AirIQ also further reduced its staff at the end of 2008 by 36%. Employee headcount was 75 at the end of the third quarter 2007, compared to 59 at the end of December 2007, compared to 32 as at December 31, 2008.

- Specific accomplishments included:

- Marine

- Despite a government-mandated cancellation of commercial fishing in a key geography, Boatracs sold more units in 2008 than in seven of the eight past years.

- Testing of three new products and services.

- Land

- Successful launch of an enhanced, "single portal", heavy construction service

- Partnership with a national construction equipment rental company.

- Targeting and launch of a high-value service to western Canada oil and gas market.

- Successes were not limited to new markets and operations. During the year AirIQ announced the following:

- Completion of the sale of certain assets and liabilities of our vehicle finance business in order to receive 100% of the funds that had been held in a performance escrow account.

- Completion of a strategic review of merger and acquisition opportunities by a special committee of the Board of Directors.

- Suspension of a patent infringement claim that had been filed against the Company.

- Right-sizing of staffing, a substantial consolidation of senior management roles, and continuous reduction in direct expenses.

Financial Highlights

- Gross margin (as a percentage of sales) increased each quarter in fiscal year 2008 and was 44.2% for the year versus 34.9% in the prior fiscal year.

- Loss before other expenses and taxes declined from approximately $9.1 million in fiscal 2007 to $3.5 million in 2008.

- Expenses declined from approximately $3.6 million in the fourth quarter of 2007 to approximately $2.0 million in the fourth quarter of 2008.

- EBITDAS loss was reduced from approximately $1.2 million in the first quarter of fiscal 2008 to $300,000 in the fourth quarter of 2008.

- Use of cash in operating activities declined from approximately $9.7 million in fiscal 2007 to $2.9 million in 2008.

- The Company reduced its work force by approximately 36% and has taken a restructuring charge of approximately $800,000.

- Despite the economic turmoil in the marketplace, the Company's marine unit has been able to retain over 90% of its customers each year.

- The decline of the Canadian dollar against the US dollar has resulted in a foreign exchange gain in fiscal 2008 of $614,000 versus a loss of $2,241,000 in 2007.

Overview

The accompanying condensed consolidated financial statements of loss and deficit are presented for the twelve months ended December 31, 2008 and the amended twelve months ended December 31, 2007, comparatively, and include the operating results of AirIQ Inc. and its subsidiaries, AirIQ U.S. Holdings, Inc. ("AirIQ Holdings"), AirIQ U.S., Inc. ("AirIQ USA"), AirIQ Marine, Inc. ("AirIQ Marine" or "Boatracs"), Oceantrac Incorporated ("Oceantrac") and AirIQ, LLC ("AirIQ LLC"). The Company's audited consolidated financial statements as at and for the year ended December 31, 2008, including notes thereto, and the accompanying Management's Discussion and Analysis were filed with the Canadian securities regulatory authorities on March 31, 2009; and will be available on the Company's website (www.airiq.com) and are available 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 thousands of Canadian dollars.

Amendment of Financial Statements

The 2007 comparative financial statements of the Company have been amended in relation to the period over which certain amounts of deferred revenue were recognized in the statement of loss. Previously, revenues related to sales of equipment in the marine reporting unit were deferred and recognized as revenue over the term of the related service contract. Canadian GAAP requires that such revenue related to sale of equipment that cannot be separated from the service contract be deferred and recognized over a period representing the longer of the service contract term and the customer life, although not over a period longer than the estimated life of the actual equipment. Therefore, management has determined that revenue from the sale of equipment in the marine reporting unit that was previously recognized over a one year period should have been recognized over a period of four years. This amendment to the revenue of the marine reporting unit located in San Diego, California, USA now brings the Company's marine reporting unit into full compliance with Canadian GAAP, and the amendments relate to the deferred revenue and deferred service contract costs, which are non-cash items.

A summary of the impact of the amendment on the Company's past eight quarters' results is as follows:



Revenue Gross Profit
--------------------------------------------------------------------------
Three As As
months previously As previously As
ended, reported amended Change reported amended Change
--------------------------------------------------------------------------
31-Dec-08 $3,079,466 no change no change $1,556,212 no change no change
30-Sep-08 $3,078,636 $3,025,447 ($53,189) $1,506,735 $1,484,822 ($21,913)
30-Jun-08 $3,237,234 $3,159,453 ($77,781) $1,362,892 $1,339,636 ($23,256)
31-Mar-08 $3,545,771 $3,392,485 ($153,286) $1,270,682 $1,219,441 ($51,241)

31-Dec-07 $4,004,396 $3,832,862 ($171,534) $676,010 $615,284 ($60,726)
30-Sep-07 $4,673,202 $4,479,192 ($194,010) $1,735,930 $1,667,624 ($68,306)
30-Jun-07 $6,737,255 $6,539,982 ($197,273) $1,829,793 $1,760,079 ($69,714)
31-Mar-07 $8,547,857 $8,356,904 ($190,953) $3,110,067 $3,042,497 ($67,570)

Net Income (Loss) Loss per Share
--------------------------------------------------------------------------
Three As As
months previously As previously As
ended, reported amended Change reported amended Change
--------------------------------------------------------------------------
31-Dec-08 ($3,903,581) No change No change ($0.02) ($0.02) no change
30-Sep-08 ($1,132,977)($1,154,890) ($21,913) ($0.01) ($0.01) no change
30-Jun-08 ($1,477,523)($1,500,779) ($23,256) ($0.01) ($0.01) no change
31-Mar-08 ($1,542,918)($1,594,159) ($51,241) ($0.01) ($0.01) no change

31-Dec-07 ($2,976,571)($3,037,297) ($60,726) ($0.02) ($0.02) no change
30-Sep-07 ($3,395,608)($3,463,914) ($68,306) ($0.02) ($0.02) no change
30-Jun-07 ($2,238,539)($2,308,253) ($69,714) ($0.01) ($0.01) no change
31-Mar-07 $671,927 $604,357 ($67,570) $0.00 $0.00 no change


Revenues

Revenues for the year ended December 31, 2008, decreased 45.5% to $12,656,851 from $23,208,940 for the comparative year ended December 31, 2007.

The year-over-year decrease in revenues resulted primarily from the transfer of certain customers and customer contracts upon the sale of certain assets and liabilities of the Company's subsidiary, AirIQ USA relating to its vehicle finance industry tracking business on March 16, 2007 (the "Asset Sale"). The decrease in revenues year-over-year due to the above-noted transaction was approximately $5,400,000.

The year-over-year decrease in revenues was also due to lower airtime revenues of approximately $1,950,000 resulting from the reduction of the Company's Canadian and U.S. analog subscriber base following the termination of the analog network in Canada on May 31, 2007 and in the U.S. on January 31, 2008. In addition, the Company recorded lower revenues of approximately $2,400,000 due to reduced product sales to the purchaser in the Asset Sale transaction. Revenues also decreased by approximately $805,000 due to the expiration of customer hardware contracts.

Revenues for the three months ended December 31, 2008, decreased by 19.7% to $3,079,466 from $3,832,862 for the three months ended December 31, 2007, and increased by 1.8% from $3,025,447 for the three months ended September 30, 2008.

Gross Profit

Gross profit for the year ended December 31, 2008, decreased 21.0% to $5,600,111 from $7,085,483 for the comparative year ended December 31, 2007.

The majority of the reduction in gross profit year-over-year is due primarily to the transfer of certain customers and customer contracts in connection with the Asset Sale. The reduction in gross profit, yearover-year, related to the Asset Sale was approximately $1,225,000.

Gross profits were further reduced, year-over-year, by approximately $200,000 due to a reduction in the Company's Canadian and U.S. analog subscriber base resulting from the termination of the analog networks in North America.

Gross profit for the three months ended December 31, 2008, increased by 152.9% to $1,556,212 from $615,284 for the three months ended December 31, 2007, and increased by 4.8% from $1,484,822, for the three months ended September 30, 2008.

Expenses and Other Items

Expenses totalled $9,145,958 and $16,234,332 for the years ended December 31, 2008 and December 31, 2007, respectively.

Year-over-year expense reductions were achieved due to (a) the consolidation of the Company's operating segments following the Asset Sale resulting in expense savings of approximately $1,100,000, (b) the strengthening of the U.S. dollar compared to the Canadian dollar resulting in a reduction of foreign exchange expense of approximately $2,900,000 and, (c) expense reductions of approximately $3,100,000 in other areas primarily due to the reduction in personnel and other operating expenses.

Included in the expenses for the year ended December 31, 2008 was a bad debt reserve of approximately $1,027,000 compared to approximately $1,209,000 for the year ended December 31, 2007 recorded in conjunction with management's review of its entire customer base and estimated collectability of accounts due to changes in economic conditions.

For the twelve months ended December 31, 2008, the Company recorded foreign exchange gain of $613,584 and stock-based compensation expense of $199,493. This compares with recorded foreign exchange loss of $2,241,036 and $304,107 in stock-based compensation expense for the twelve months ended December 31, 2007.

Net Interest

Net interest expense for the year ended December 31, 2008, was $489,704 compared to $1,101,169 for the year ended December 31, 2007.

The decrease in net interest expense for the year ended December 31, 2008 compared to the previous year is primarily due to the repayment by the Company of both the secured debenture and revolving operating loans during the first quarter of 2007. As a result, the Company did not incur interest or financing charges in the first quarter of 2008, relating to the secured debenture and revolving operating loans.

Restructuring charges

During 2008, the Company finalized severance arrangements with approximately 36% of its employees. As a result, the Company recorded restructuring charges of $801,691 (2007 - $608,699) for the year ended December 31, 2008. The amount remaining to be paid under these restructuring arrangements at December 31, 2008 is approximately $598,000.

Depreciation and Amortization

Amortization for the year ended December 31, 2008, was $1,043,808 compared with $1,338,182 for the year ended December 31, 2007.

Year over year decrease in the amortization was primarily due to the Asset Sale in March 2007 related to property, plant and equipment and customer contracts. In addition, certain assets had been fully amortized early in 2007.

Net Loss

The net loss for the year ended December 31, 2008 was $8,153,409, or ($0.05) per share, compared with $8,205,108, or ($0.05) per share, for the year ended December 31, 2007.

Liquidity and Capital Resources

As at December 31, 2008, the Company had unrestricted cash of $2,439,156 and positive working capital of $207,026. 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 $8,153,909 for the year ended December 31, 2008, and has an accumulated deficit of $96,283,853 as at December 31, 2008.

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.



AirIQ Inc.

CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars)
(Going Concern Uncertainty)

As at December 31


2008 2007
$ $
------------------------------------------------------------------------
(amended)
ASSETS
Current
Cash 2,439 4,120
Restricted cash - 1,946
Accounts receivable 2,397 5,490
Inventory 739 1,009
Prepaid expenses 154 164
------------------------------------------------------------------------
Total current assets 5,729 12,729
------------------------------------------------------------------------
Property, plant and equipment, net 1,183 1,805
Intangible assets, net 1,272 1,996
Goodwill - 1,985
Deferred service contract costs, net 2,450 4,048
------------------------------------------------------------------------
10,634 22,563
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current
Accounts payable and accrued liabilities 4,086 6,298
Income taxes payable 241 241

Deferred revenue 2,487 2,737
Obligations for service contracts - 65
Obligations under capital lease 141 179
Current portion of term loan 1,053 462
------------------------------------------------------------------------
Total current liabilities 8,008 9,982
------------------------------------------------------------------------
Deferred revenue 1,838 2,887
Obligations for service contracts - 15
Obligations under capital lease 117 194
Term loan 1,348 2,208
------------------------------------------------------------------------
Total liabilities 11,311 15,286
------------------------------------------------------------------------

Shareholders' equity (deficiency)
Share capital 89,066 89,066
Other paid-in capital 4,448 4,448
Contributed surplus 2,092 1,893
Deficit (96,283) (88,130)
------------------------------------------------------------------------
Total shareholders' equity (deficiency) (677) 7,277
------------------------------------------------------------------------
10,634 22,563
------------------------------------------------------------------------
------------------------------------------------------------------------



AirIQ Inc.

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE
LOSS
(in thousands of Canadian dollars except share information)

Years ended December 31

2008 2007
$ $
------------------------------------------------------------------------
(amended)


Revenues 12,657 23,209
Direct cost of sales 7,057 16,123
------------------------------------------------------------------------
Gross profit 5,600 7,086
------------------------------------------------------------------------

Expenses
Sales and marketing 1,689 2,631
Engineering and research 2,376 3,105
General and administration 5,495 7,953
Stock-based compensation 199 305
Foreign exchange loss (gain) (614) 2,241
------------------------------------------------------------------------
9,145 16,235
------------------------------------------------------------------------
Loss before the following (3,545) (9,149)
------------------------------------------------------------------------
Interest expense, net 490 1,101
Restructuring charges 802 609
Special Committee charges 287 -
Amortization and depreciation 1,044 1,338
Goodwill impairment 1,985 -
Gain on sale of certain assets and liabilities - (4,030)
------------------------------------------------------------------------
4,608 (982)
------------------------------------------------------------------------
Loss before income taxes (8,153) (8,167)
Provision for income taxes - 38
------------------------------------------------------------------------
Net loss and comprehensive loss for the year (8,153) (8,205)
------------------------------------------------------------------------
------------------------------------------------------------------------

Loss per share - basic and diluted $(0.05) $(0.05)
------------------------------------------------------------------------
------------------------------------------------------------------------

Weighted average number of common shares
used in computing loss per share, basic
and diluted 160,813,408 160,845,160
------------------------------------------------------------------------
------------------------------------------------------------------------



AirIQ Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars)

Years ended December 31

2008 2007
$ $
------------------------------------------------------------------------
(amended)

OPERATING ACTIVITIES
Net loss for the year (8,153) (8,205)
Add (deduct) items not involving cash
Foreign exchange loss on restricted cash (92) 247
Stock-based compensation 199 305
Amortization of property, plant and equipment 760 1,396
Amortization of intangible assets 723 762
Amortization of deferred financing costs - 196
Gain on sale of certain assets and liabilities - (4,030)
Goodwill impairment 1,985 -
Other 203 118
Changes in non-cash balances related
to operations
Accounts receivable 855 199
Inventory 271 708
Prepaid expenses 10 260
Accounts payable and accrued liabilities 27 (2,037)
Income taxes payable - 38
Deferred revenue (1,299) (724)
Deferred service contract costs 1,598 1,069
------------------------------------------------------------------------
Cash used in operating activities (2,913) (9,698)
------------------------------------------------------------------------

INVESTING ACTIVITIES
Proceeds from sale of certain assets - 22,329
Release of proceeds from restricted cash to cash 2,039 (2,194)
Purchase of property, plant and equipment (142) (828)
------------------------------------------------------------------------
Cash provided by investing activities 1,897 19,307
------------------------------------------------------------------------

FINANCING ACTIVITIES
Repayment of obligations under capital lease (153) (246)
Repayment of National Research Council loan - (82)
Proceeds from short-term loan - 1,250
Repayment of short-term loan (426) (1,250)
Repayment of revolving operating loan - (3,900)
Repayment of secured debenture - (3,000)
Repayment of obligations for service contracts (86) (547)
Repurchase of common shares and equity investments - (6)
------------------------------------------------------------------------
Cash used in financing activities (665) (7,781)
------------------------------------------------------------------------

Net increase (decrease) in cash during the year (1,681) 1,828
Cash, beginning of year 4,120 2,292
------------------------------------------------------------------------
Cash, end of year 2,439 4,120
------------------------------------------------------------------------
------------------------------------------------------------------------

Supplementary cash flow information
Cash interest 402 856
Non-cash investing and financing transactions
Property, plant and equipment purchased
under capital leases 70 251
------------------------------------------------------------------------
------------------------------------------------------------------------



AirIQ Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)
(in thousands of Canadian dollars except share information)

Other Contri-
paid in buted
Share capital capital surplus Deficit Total
# $ $ $ $ $
----------------------------------------------------------------------------
(amended) (amended)
Balance,
January 1,
2007, as
previously
reported 160,860,908 89,072 4,448 1,588 (79,646) 15,462
Amendment (279) (279)
Balance, January
1, 2007,
as amended 160,860,908 89,072 4,448 1,588 (79,925) 15,183
Purchased under
Normal Course
Issuer Bid (47,500) (6) - - - (6)
Stock-based
compensation - - - 305 - 305
Net loss for the
year, as amended - - - - (8,205) (8,205)
----------------------------------------------------------------------------
Balance,
December 31,
2007, as amended 160,813,408 89,066 4,448 1,893 (88,130) 7,277
----------------------------------------------------------------------------
Stock-based
compensation - - - 199 - 199
Net loss for the year - - - - (8,153) (8,153)
----------------------------------------------------------------------------
Balance,
December 31,
2008 160,813,408 89,066 4,448 2,092 (96,283) (677)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


No Conference Call

AirIQ will not be holding a conference call to discuss results. The Company's annual report, including complete financial statements and Management's Discussion and Analysis will be available on the Company's website www.airiq.com and at www.sedar.com by end of day March 31, 2009.

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.

About AirIQ

AirIQ trades on the Toronto Stock Exchange (the "TSX") under the symbol IQ. A leader in Wireless Location Services specializing in Telematics and Security, 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 results in recurring revenues for each device deployed. AirIQ offers service to three primary markets: Commercial Fleets; dealers that service Consumer segments; and Marine Fleets (fisheries and workboat). AirIQ gives vehicle and vessel owners the ability to monitor, manage and protect their mobile assets. Services include: instant vehicle locating, boundary notification, automated inventory reports, maintenance reminders, security alerts, vehicle disabling and unauthorized movement alerts. 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" included later in this management's disclosure and analysis.

Contact Information