AirIQ Inc.
TSX : IQ

AirIQ Inc.

May 14, 2008 17:04 ET

AirIQ Announces First Quarter 2008 Results

Reduced Use of Cash in Operations by 78% and Anticipated Completion of Strategic Review

TORONTO, ONTARIO--(Marketwire - May 14, 2008) - AirIQ Inc. (TSX:IQ), a leader in Wireless Location-Based Services, specializing in Telematics and Security, today announced its results for the first quarter ended March 31, 2008.

"As a result of an intense focus on productivity improvements and the reduction of operating expenses during 2007, the first quarter of 2008 marked the emergence of a leaner and more focused AirIQ," said Steve Willey, President and Chief Executive Officer. "Management now believes that barring unforeseen circumstances, the Company should have sufficient cash resources to fund planned investments and developments throughout 2008."

In November of 2007, a Special Committee of the Board was created to review strategic alternatives for AirIQ, with a view to maximizing value to its shareholders. The Committee expects to conclude its discussions with interested parties by the end of June 2008, and reach a decision as to the best course of action for the Company going forward. The Committee is working with its financial advisors and will consider all options, including continuing operations as a stand alone company.

First Quarter Highlights

- Total expenses were reduced 46.5% from $4.6 million for the three months ended March 31, 2007, to $2.5 million for the three months ended March 31, 2008.

- Employee headcount was reduced by over 30%, from 86 at the end of the first quarter of 2007 to 60 at the end of March, 2008 (and from a total of 123 at the beginning of the year 2007).

- Net loss in the period (not including the gain on the sale of certain assets and liabilities of the Company's subsidiary, AirIQ U.S., Inc. ("AirIQ US") on March 16, 2007) was reduced 48.3% from $2.9 million at March 31, 2007 to $1.5 million at March 31, 2008. Loss before interest expense and amortization was reduced 25.2% from $1.5 million at March 31, 2007 to $1.2 million at March 31, 2008.

- Use of cash in operations decreased by 78% or $1.1 million to $0.3 million for the three months ended March 31, 2008, from $1.4 million for the three months ended March 31, 2007.

- Primarily as a result of the sale of certain of assets and liabilities of the vehicle finance industry tracking business in March 2007, and from the termination of subscriber accounts operating on the analog networks that were terminated by the wireless network carriers in 2007 and 2008, the Company's revenues declined to $3.5 million for the three months ended March 31, 2008 from $8.5 million during the same period a year earlier. However, due to the quality of the Company's recurring revenue base, gross margin dropped by less than 1% of revenue (35.8% at March 31, 2008 compared to 36.4% at March 31, 2007).

- Heavy Equipment / Commercial Fleet management solutions were developed and launched into the construction and oil and gas markets.

- A web-enabled Spanish language Consumer service was developed and delivered to the Mexico market.

- Vessel monitoring systems for fisheries management in the Northwest United States were deployed.

"While the many changes in 2007 created challenges for our staff, it also created the environment to improve productivity and re-focus services to new markets that are more consistent with maintaining the quality of the Company's recurring revenue base. AirIQ enters the second quarter with market diversification, improved service breadth, greater geographical reach, advances in brand diversification, and further cost reductions already built into operations. The Company looks forward to delivering further improvements as the year progresses," said Steve Willey.

Overview

The accompanying condensed unaudited interim balance sheets are presented as at March 31, 2008 and December 31, 2007, and the consolidated statements of loss, comprehensive loss and cash flows are presented for the three months ended March 31, 2008 and March 31, 2007, comparatively, and include the operating results of AirIQ Inc. and its subsidiaries. These 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 March 31, 2008, including notes thereto and the accompanying Management's Discussion and Analysis for the three months ended March 31, 2008 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.

Revenues

Revenues for the three months ended March 31, 2008, decreased 58.5% to $3,545,771 from $8,547,857 for the three months ended March 31, 2007.

The decrease in revenues for the three months ended March 31, 2008 was primarily due to the sale of certain assets and liabilities of the Company's subsidiary, AirIQ US, related to the vehicle finance industry tracking business on March 16, 2007. Total revenues decreased from the comparable three month period in the prior year by $3,568,649 due to the asset sale transaction.

In addition, the Company recorded lower revenues of approximately $392,000 in the first quarter of 2008 compared to the same period in the previous year due to reduced product sales to the purchaser of certain assets and liabilities of AirIQ US in March 2007.

The Company also experienced lower airtime revenues of approximately $525,000 for the three months ended March 31, 2008, compared to the three months ended March 31, 2007, due to the reduction in its Canadian and U.S. analog subscriber base resulting from the termination of the analog networks in Canada on May 31, 2007 and in the United States on January 31, 2008 by the wireless network carriers.

Gross Profit

Gross profit for the three months ended March 31, 2008 was $1,270,682, representing a decrease of 59.1% compared to gross profit of $3,110,067 for the three months ended March 31, 2007.

As a percentage of revenues, gross profit for the three months ended March 31, 2008, was 35.8% compared to 36.4% for the three months ended March 31, 2007.

The reduction in gross profit from the three months ended March 31, 2008 compared to the same three month period ended March 31, 2007 was primarily due to the transfer of certain customers and customer contracts upon the sale of certain assets and liabilities of the Company's subsidiary, AirIQ US, relating to its vehicle finance industry tracking business on March 16, 2007. The reduction in gross profit in the three months ended March 31, 2008 compared to same three month period the previous year attributable to this transaction was approximately $1.5 million.

The remaining reduction of approximately $340,000 in gross profit is primarily attributable to a reduction in the Company's Canadian and U.S. analog subscriber base due to the termination of the analog networks in North America.

Expenses

Expenses totaled $2,467,739 for the three months ended March 31, 2008, compared to $4,608,766 for the three months ended March 31, 2007.

Included in expenses for the three months ended March 31, 2007 was a bad debt expense of approximately $293,000. No bad debt expense was recorded during the three months ended March 31, 2008.

For the three months ended March 31, 2008, the Company recorded foreign exchange gains of $198,887 and stock-based compensation expense of $45,000. This compares with recorded foreign exchange losses of $305,460 and $75,000 in stock-based compensation expense for the three months ended March 31, 2007.

Net Interest and other financing charges

Net interest expense for the three months ended March 31, 2008, totaled $115,360, compared to $938,618 for the three months ended March 31, 2007.

The decrease in net interest expense quarter over quarter is primarily due to the fact that the Company repaid both its Secured Debenture and Revolving Operating Loans during the first quarter of 2007. As a result, the Company did not incur interest or financing charges on these instruments in the first quarter of 2008.

Amortization

Amortization for the three months ended March 31, 2008, was $230,501, compared with $459,405 for the three months ended March 31, 2007.

Net Loss

Net loss for the three months ended March 31, 2008 was $1,542,918, or $0.01 per share, compared with a net loss of $2,896,722 or $0.02 per share for the three months ended March 31, 2007 excluding gains from the transaction relating to the sale of certain tangible and intangible assets and liabilities of AirIQ US on March 16, 2007.

The Company reported a net income of $671,927 for the three months ended March 31, 2007 including the one time gain of $3,568,649 related to the sale of certain tangible and intangible assets and liabilities of AirIQ US related to its vehicle finance industry tracking business on March 16, 2007.

Liquidity and Capital Resources

As at March 31, 2008, the Company had cash of $4,929,442 and positive working capital of $4,497,691.

During the first quarter of 2008, the escrowed funds of approximately US$1.9 million related to the sale of certain assets and liabilities of AirIQ US in March 2007 were released to the Company and have been reflected as Cash on the balance sheet as at March 31, 2008.

Working capital has been calculated by netting current assets and current liabilities, excluding restricted cash, and deferred revenue and obligations for service contracts that are non-cash items.

The Company has incurred significant losses, including $1,542,918 for the three months ended March 31, 2008, and has an accumulated deficit of $89,127,482 as at March 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 accompanying condensed unaudited interim consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.



AirIQ Inc.
Notice to Reader: The following condensed unaudited interim 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 at March 31, 2008 December 31, 2007
$ $
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ASSETS
Current
Cash 4,929 4,120
Restricted cash - 1,946
Accounts receivable 4,716 5,490
Inventory 1,215 1,009
Prepaid expenses 215 164
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Total current assets 11,075 12,729
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Property, plant and equipment, net 1,588 1,805
Intangible assets, net 1,853 1,996
Goodwill 1,985 1,985
Deferred service contract costs, net 2,481 2,875
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18,982 21,390
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 5,724 6,298
Income taxes payable 241 241
Deferred revenue 3,151 2,307
Obligations for service contracts 42 65
Obligations under capital lease 150 179
Current portion of term loan 462 462
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Total current liabilities 9,770 9,552
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Deferred revenue 462 1,599
Obligations for service contracts 5 15
Obligations under capital lease 172 194
Term loan and secured debenture 2,249 2,208
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Total liabilities 12,658 13,568
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Shareholders' equity
Share capital 89,066 89,066
Other paid-in capital 4,448 4,448
Contributed surplus 1,938 1,893
Deficit (89,128) (87,585)
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Total shareholders' equity 6,324 7,822
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18,982 21,390
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AirIQ Inc.

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(in thousands of Canadian dollars except per share information)

Unaudited


Three months ended March 31, 2008 March 31, 2007
$ $
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Revenues 3,546 8,548
Direct cost of sales 2,275 5,438
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Gross profit 1,271 3,110
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Expenses
Sales and marketing 470 1,013
Engineering and research 644 902
General and administration 1,508 2,313
Stock-based compensation 45 75
Foreign exchange (gain) loss (199) 306
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2,468 4,609
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Loss before the following (1,197) (1,499)
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Interest expense, net 115 939
Amortization 231 459
Gain on sale of certain assets and
liabilities - (3,569)
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346 (2,171)
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Loss before income taxes (1,543) 672
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Net loss and comprehensive loss for the
period (1,543) 672
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Loss and comprehensive loss per share -
basic and diluted $(0.01) $(0.00)
----------------------------------------------------------------------------
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Weighted average number of common shares
used in computing loss and comprehensive
loss per share, basic and diluted 160,813,408 160,860,908
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AirIQ Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of Canadian dollars)

Unaudited


Three months ended March 31, 2008 March 31, 2007
$ $
---------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss for the period (1,543) 672
Add (deduct) items not involving cash
Stock-based compensation 45 75
Interest accreted on term loan 41 171
Amortization of property, plant and
equipment 263 328
Amortization of deferred service contract
costs 1,067 2,952
Amortization of intangible assets 143 343
Amortization of deferred financing costs - 222
Gain on sale of certain assets and
liabilities - (3,569)
Changes in non-cash working capital
balances related to operations
Accounts receivable 774 1,630
Inventory (205) 87
Prepaid expenses (52) 132
Accounts payable and accrued liabilities (574) (3,494)
Deferred revenue (294) (917)
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Cash provided by (used in) operating
activities (335) (1,368)
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INVESTING ACTIVITIES
Purchase of property, plant and equipment (47) (205)
Deferred service contract costs (672) (2,002)
---------------------------------------------------------------------------
Cash provided by (used in) investing
activities (719) (2,207)
---------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of certain assets - 22,329
Transfer of proceeds to (from) sale of
certain assets and liabilities
transferred to restricted cash 1,946 (2,194)
Repayment of obligations under capital
lease (51) (45)
Repayment of National Research Council loan - (26)
Proceeds from short-term loan - 1,250
Repayment of short-term loan - (1,250)
Repayment of revolving operating loan - (3,900)
Repayment of secured debenture - (3,000)
Repayment of obligations for service
contracts (32) (181)
---------------------------------------------------------------------------
Cash provided by (used in) financing
activities 1,863 (12,983)
---------------------------------------------------------------------------
Net increase in cash during the period 809 9,408
Cash, beginning of year 4,120 2,292
---------------------------------------------------------------------------
Cash, end of period 4,929 11,700
---------------------------------------------------------------------------
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Supplementary cash flow information
Cash interest 107 171
Non-cash investing and financing
transactions
Property, plant and equipment purchased
under capital leases 17 62
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AirIQ Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(in thousands of Canadian dollars except per share information)

Unaudited


Other
paid-in Contributed
Share capital capital surplus Deficit Total
# $ $ $ $ $
---------------------------------------------------------------------------
---------------------------------------------------------------------------

---------------------------------------------------------------------------
Balance, January
1, 2006 128,364,916 83,592 3,610 1,191 (72,068) 16,325
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Balance, December
31, 2006 160,860,908 89,072 4,448 1,589 (79,646) 15,463
---------------------------------------------------------------------------

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Purchased under
Normal Course
Issuer Bid (47,500) (6) - - - -
Stock-based
compensation - - - 304 - 304
Net loss for the
year - - - - (7,939) (7,939)
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Balance, December
31, 2007 160,813,408 89,066 4,448 1,893 (87,585) 7,822
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Three months ended
March 31, 2008 - - - 45 (1,542) (1,497)
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Balance, March 31,
2008 160,813,408 89,066 4,448 1,938 (89,127) 6,325
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Conference Call and Webcast

AirIQ will hold a conference call on Thursday, May 15, 2008, at 10 a.m. ET. To access the call, please dial 1-866-852-2121. A replay of the conference call will be available as of noon the same day until midnight May 22, 2007. To access the replay, dial 1-800-408-3053 followed by the pass code 3260716. The call will also be webcast live on the Company's web site at www.airiq.com.

The Company's quarterly report, including complete financial statements and Management's Discussion and Analysis will be available on May 14, 2007 at www.airiq.com and at www.sedar.com.

Annual Meeting

The Company will hold an Annual and Special Meeting of Shareholders on Wednesday, June 25th at 10:00 a.m. ET at the Downtown Centre of the Toronto Board of Trade, 1 First Canadian Place, Toronto Ontario.

Non-GAAP Disclosure

EBITDA is defined by the Company as operating income before interest expense, income taxes, other charges, depreciation and amortization. The Company has included information concerning EBITDA because it believes that it may be used by certain investors as one measure of the Company's financial performance. EBITDA is not a measure of financial performance under Canadian GAAP and is not necessarily comparable to similarly titled measures used by other companies. EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with Canadian GAAP) as a measure of liquidity.

Forward-looking Statements

This news release contains forward-looking information based on management's best estimates and the current operating environment. These forward-looking statements are related to, but not limited to, AirIQ's operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains words such as "anticipate", "believe", "expect", "plan" or similar words suggesting future outcomes. 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 and results 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 new information, future events or otherwise.

About AirIQ

AirIQ trades on the Toronto Stock Exchange under the symbol IQ. A leader in Wireless Location Services, specializing in Telematics and Security, AirIQ 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's 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.

Contact Information