AirIQ Inc.
TSX : IQ

AirIQ Inc.

August 14, 2007 07:00 ET

AirIQ Announces Second Quarter Results

Renewed Focus on Core Businesses

TORONTO, ONTARIO--(Marketwire - Aug. 14, 2007) - AirIQ Inc. (TSX:IQ), a leader in global wireless security, today announced its results for the three and six months ended June 30, 2007.

Second Quarter Highlights

- Increased core business quarterly gross profit as a percentage of revenue from 37.8% to 39.0% (excluding certain product-only sales to the purchaser of the vehicle finance tracking business);

- Reduced quarterly operating expenses by over $1 million, excluding foreign exchange loss and stock-based compensation expense;

- Reduced quarterly net interest expense by approximately $940,000;

- Maintained investment in, and finalized plans for, third quarter introduction of a new web-enabled Consumer Stolen Vehicle Recovery ("SVR") application;

- Recruited three independent Board members who bring to AirIQ highly relevant operations, sales, marketing, and business development experience;

- Announced normal course issuer bid to provide the Company the option to re-purchase up to 8 million, or approximately 5%, of its outstanding shares; and

- Used less than $500,000 net cash for combined operating and capital expenditures in the quarter, excluding foreign exchange effect on US cash balances and the fluctuation in non-cash working capital.

"AirIQ is right on track with the objectives we have set," said Steve Willey, President and Chief Executive Officer. "The detailed financial results below portray a solid improvement in the health of the operating entity."

At its recent Annual and Special Meeting, the Company defined its 2007 objectives as follows:

1. Focus on high-ARPU (average revenue per unit) service business;

2. Continued pursuit of global and strategic partnerships;

3. Expansion of management; and

4. Further leverage the AirIQ platform.

AirIQ has made strong progress in meeting these Objectives:

1. Focus on high-ARPU service business

AirIQ sold certain assets of its vehicle finance business on March 16, 2007. To allow the purchaser to prepare fully for the sale, the Company was obliged to provide interim operational support. This work is now substantially complete and the Company expects to finalize it before the end of the third quarter. As a result of this sale, AirIQ staff have been able to re-focus on the Company's service-driven commercial businesses.

2. Continued pursuit of global and strategic partnerships

The Company has maintained its relationships with certain global partners. The potential exists for AirIQ to further maximize its "value-add" through use of a Software as a Service ("SaaS") model whereby large customers would be able to select from a suite of AirIQ's telematics applications to market under their brand. The Company has also begun to explore new geographies, such as India, for both supply and customer partners. Partners are selected on the basis of AirIQ's ability to leverage its unique domain knowledge and field experience.

3. Expansion of management

The changes to the Company's board reflects its intention to expand its current management in order to be fully prepared for potential new telematics opportunities.

4. Further leverage the AirIQ platform

Consistent with gaining maximum re-use of our existing telematics platforms and with improving our customer concentricity (and hence responsiveness to market feedback), the Company intends to re-package and release a second consumer solution (the SVR application).

Overview

The accompanying unaudited interim condensed consolidated statements of loss and deficit are presented for the three months and six months ended June 30, 2007 and June 30, 2006, comparatively, and include the operating results of AirIQ Inc. and its subsidiaries. The Company's unaudited interim consolidated financial statements as at and for the period ended June 30, 2007, including notes thereto and the accompanying Management's Discussion and Analysis will be filed with the Canadian securities regulatory authorities by end of day August 14, 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.

Revenue

Revenues for the three months ended June 30, 2007, decreased 34.1% to $6,737,255 from $10,217,687 for the three months ended June 30, 2006; and decreased 24.8% to $15,306,857 from $20,355,878 for the six months ended June 30, 2007 and 2006, respectively. The decrease in revenues was 21.2% over the previous three months ended March 31, 2007.

The decrease in revenues resulted primarily from the transfer of certain customers and customer contracts upon the sale of certain assets of the Company's subsidiary, AirIQ U.S., Inc. ("AirIQ US") relating to its vehicle finance industry tracking business to CalAmp DataCom, Inc. ("CalAmp") on March 16, 2007.

Included in the Company's reported revenues during the three months and six months ended June 30, 2007 is approximately $27,500 and $299,500, respectively, primarily from product only sales which are in addition to the Company's contracted service revenue arrangements with its customers, plus approximately $2,048,000 and $2,440,000, respectively, in sales to CalAmp for product under the Company's transition agreements with CalAmp. During the comparative periods in 2006, the Company recorded approximately $385,000 and $635,000, respectively, from product only sales.

Gross Profit

Gross profit for the three months ended June 30, 2007 was $1,829,793, representing a decrease from gross profit of $4,055,773 for the same period in 2006.

The decrease in gross profit is due primarily from the transfer of certain customers and customer contracts upon the sale of certain assets of the Company's subsidiary, AirIQ US relating to its vehicle finance industry tracking business to CalAmp on March 16, 2007.

As a percentage of revenues, gross profit for the three months ended June 30, 2007, increased to 39.0% from 37.8% in the first quarter of 2007 in the core businesses (excluding product only sales to the purchaser of the vehicle finance tracking business in the quarter).

The Company anticipates that gross profit as a percentage of revenues will increase, as the Company and CalAmp conclude transitional service and product fulfillment commitments over the coming months, and as the full effect of the Company's currently higher average gross profit per units is generated by the Company's remaining core businesses.

Expenses

Expenses totaled approximately $2,800,000 (excluding foreign exchange loss and stock-based compensation expenses) for the three months ended June 30, 2007, a decrease of approximately 35% compared to approximately $4,300,000 for the comparable period in 2006. The year over year decrease in operating expenses is primarily due to the sale of the assets of the vehicle finance division referenced earlier, and the associated employee reductions in Lake Forest, California, the Lake Forest office premise transfer, and related insurance premium reductions.

The US dollar exchange rate decreased from approximately $1.16 as at March 31, 2007 to $1.06 as at June 30, 2007. The quarter over quarter fluctuation had the effect of reducing the recorded value of the US dollar restricted cash balance by approximately $149,000, and other US cash balances by approximately $675,000 during the quarter.

Team count totaled 83 as at June 30, 2007, a further reduction from 89 as at March 31, 2007, and 123 as at December 31, 2006.

Expenses as a percentage of revenues (excluding foreign exchange loss and stock-based compensation expenses) were 41.7% for the three months ended June 30, 2007, compared with 41.9% for the three months ended June 30, 2006, and 44.6% for the three months ended March 31, 2007.

Net Interest

Net interest expense and other financing charges for the three months and six months ended June 30, 2007, totaled $48,792 and $988,181, respectively, compared to $535,264 and $761,336, respectively, for the three months and six months ended June 30, 2006, and $938,618 for the three months ended March 31, 2007. Of the total net interest expense and other financing charges for the three months ended June 30, 2007, $95,325 represented cash interest.

Included in the net interest expense and other financing charges for the three months and six months ended June 30, 2007 was the amount of $23,560 and $51,501, respectively, related to the accreted interest on the term loan.

Amortization

Amortization for the three months and six months ended June 30, 2007, was $225,723 and $684,772, respectively, compared with $767,512 and $1,524,704, respectively for the three months ended June 30, 2006, and $459,405 for the three months ended March 31, 2007.

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

The quarter over quarter reduction in amortization is primarily due to the sale of certain assets of AirIQ US' vehicle finance industry tracking business to CalAmp on March 16, 2007.

Net Loss per Share

Net loss for the three months and six months ended June 30, 2007 was $2,238,539 and $1,566,612, respectively, or $0.01 and $0.01 per share, respectively, compared with a net loss $1,869,319 and $3,632,838, or $0.01 and $0.03 per share, respectively, for the three and six months ended June 30, 2006, and net income of $671,927 for the three months ended March 31, 2007.

The comparative six month period improvement relates primarily to the after-tax gain on sale in the amount of $3,568,649 resulting from the sale of certain tangible and intangible assets of AirIQ US related to its vehicle finance industry tracking business on March 16, 2007, offset by an additional loss on foreign exchange of approximately $942,000 incurred in the second quarter of 2007.

Liquidity and Capital Resources

As at June 30, 2007, the Company had unrestricted cash and cash equivalents of $8,774,143 and positive working capital of $9,471,729. 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.

Subsequent Events

Subsequent to the quarter end, the Company finalized its agreement terms with its Chief Executive Officer and with its Chairman. As part of the arrangements, the Company granted 3,117,200 options for common shares at an exercise price of $0.18 per share to its Chief Executive Officer, and paid cash of $500,000 (less applicable withholdings) to its Chairman in consideration for terminating his previous employment arrangements with the Company as legally required pursuant to his employment agreement with the Company.



AirIQ Inc.
Consolidated Balance Sheets
(Unaudited)

As at June 30, 2007 December 31, 2006
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Assets
Current
Cash and cash equivalents $ 8,774,143 $ 2,292,475
Accounts receivable 4,795,233 7,250,744
Inventory 1,649,392 1,717,630
Prepaid expenses 217,962 499,244
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Total current assets 15,436,730 11,760,093

Restricted cash 2,044,556 -

Property, plant and equipment, net 2,316,812 2,923,896
Intangible assets, net 2,144,849 5,218,400
Goodwill 1,985,391 16,620,353
Deferred financing, net - 288,692
Deferred service contract costs, net 3,149,343 7,693,961
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$ 27,077,681 $ 44,505,395
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Liabilities and Shareholders'
Equity
Current
Accounts payable and accrued
liabilities $ 5,569,811 $ 8,795,943
Income taxes payable 202,736 202,736
Revolving operating loan - 3,900,000
Deferred revenue 3,032,045 8,391,081
Obligations for service contracts 256,597 547,878
Obligations under capital lease 192,454 244,085
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Total current liabilities 9,253,643 22,081,723

National Research Council loan 73,209 82,304
Deferred revenue 1,000,589 1,200,350
Obligations for service contracts 35,601 78,869
Term loan and secured debenture 2,575,985 5,443,997
Obligations under capital lease 123,348 155,656
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Total liabilities 13,062,375 29,042,899
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Shareholders' equity
Share capital 89,071,993 89,072,046
Other paid-in capital 4,447,754 4,447,754
Contributed surplus 1,707,944 1,588,469
Deficit (81,212,385) (79,645,773)
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Total shareholders' equity 14,015,306 15,462,496
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$ 27,077,681 $ 44,505,395
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AirIQ Inc.
Consolidated Statements of Loss and Deficit
(Unaudited)

Three months ended June 30, 2007 June 30, 2006
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Revenues $ 6,737,255 $ 10,217,687
Direct cost of sales 4,907,462 6,161,914
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Gross profit 1,829,793 4,055,773
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Expenses
Sales and marketing 581,353 1,146,112
Engineering and research 719,355 844,993
General and administration 1,506,461 2,294,206
Stock-based compensation 44,475 102,500
Loss on foreign exchange 942,173 106,932
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3,793,817 4,494,743
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Loss before the following (1,964,024) (438,970)
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Other
Net interest and other
financing charges 48,792 535,264
Other charges - 127,573
Amortization 225,723 767,512
Gain on sale of assets - -
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274,515 1,430,349
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Loss before income taxes (2,238,539) (1,869,319)

Provision for income taxes
Current - -
Future - -
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- -
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Net loss for the period (2,238,539) (1,869,319)

Deficit, beginning of period (79,645,773) (73,831,254)
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Deficit, end of period $ (81,884,312) $ (75,700,573)
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Loss per share - basic and diluted $ (0.01) $ (0.01)
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Weighted average number of common
shares used in computing loss per
share, basic and diluted 160,860,908 143,536,877

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AirIQ Inc.
Consolidated Statements of Loss and Deficit
(Unaudited)

Six months ended June 30, 2007 June 30, 2006
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Revenues $ 15,306,857 $ 20,355,878
Direct cost of sales 10,352,446 12,130,544
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Gross profit 4,954,411 8,225,334
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Expenses
Sales and marketing 1,589,601 2,553,628
Engineering and research 1,621,837 1,823,221
General and administration 3,831,058 4,373,128
Stock-based compensation 119,475 202,500
Loss on foreign exchange 1,254,748 265,220
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8,416,719 9,217,697
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Loss before the following (3,462,308) (992,363)
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Other
Net interest and other financing
charges 988,181 761,336
Other charges - 354,435
Amortization 684,772 1,524,704
Gain on sale of assets (3,568,649) -
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(1,895,696) 2,640,475
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Loss before income taxes (1,566,612) (3,632,838)

Provision for income taxes
Current - -
Future - -
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- -
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Net loss for the period (1,566,612) (3,632,838)

Deficit, beginning of period (79,645,773) (72,067,735)
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Deficit, end of period $ (81,212,385) $ (75,700,573)
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Loss per share - basic and diluted $ (0.01) $ (0.03)
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Weighted average number of common
shares used in computing loss per
share, basic and diluted 160,860,908 135,993,552
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AirIQ Inc.
Consolidated Statements of Cash Flows
(Unaudited)

Three months ended June 30, 2007 June 30, 2006
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Operating activities
Net loss for the period $ (2,238,539) $ (1,869,319)
Add items not involving cash
Foreign exchange loss on
restricted cash 149,184 -
Stock-based compensation 44,475 102,500
Interest accreted on term loan 23,560 187,329
Amortization of property,
plant and equipment 322,773 555,719
Amortization of deferred service
contract costs 1,412,316 3,821,521
Amortization of intangible assets 141,321 598,316
Amortization of deferred
financing costs 4,093 -

Changes in non-cash working capital
balances related to operations
Accounts receivable (736,132) (392,661)
Inventory (19,142) 132,541
Prepaid expenses 73,153 82,180
Accounts payable and accrued
liabilities (224,772) (682,455)
Accrual for earn-out payment - (4,964,000)
Income taxes payable - (37,500)
Deferred revenue (434,106) (924,176)
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(1,481,816) (3,390,005)
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Investing activities
Purchase of property, plant and
equipment (168,384) (21,225)
Deferred financing (372,150)
Deferred service contract costs (1,079,335) (3,448,221)
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(1,247,719) (3,841,596)
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Financing activities
Repayment of obligations under
capital lease (42,544) (55,453)
Repayment of National Research
Council loan - (25,434)
Proceeds from revolving operating
loan - 5,000,000
Repayment of non-revolving credit
facility - (6,985,968)
Repayment of term loan and secured
debenture - (1,000,000)
Proceeds from term loan and secured
debenture - 7,000,000
Repayment of obligations for
service contracts (153,707) (307,922)
Issuance of common shares and
equity instruments - 4,611,946
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(196,251) 8,237,169
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Net decrease in cash and cash
equivalents (2,925,786) 1,005,568

Cash and cash equivalents,
beginning of period 11,699,929 1,868,266
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Cash and cash equivalents, end of
period $ 8,774,143 $ 2,873,834
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Supplementary disclosure
Cash interest $ 95,325 $ 167,531
Non-cash investing and financing
activities
Property, plant and equipment
purchased under capital leases - 61,802
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AirIQ Inc.
Consolidated Statements of Cash Flows
(Unaudited)

Six months ended June 30, 2007 June 30, 2006
-------------------------------------------------------------------------

Operating activities
Net loss for the period $ (1,566,612) $ (3,632,838)
Add items not involving cash
Foreign exchange loss on
restricted cash 149,184 -
Stock-based compensation 119,475 202,500
Interest accreted on term loan 194,752 187,329
Amortization of property, plant and
equipment 650,164 1,160,833
Amortization of deferred service
contract costs 4,363,800 7,477,234
Amortization of intangible assets 484,245 1,189,134
Amortization of deferred financing
costs 225,929 -
Gain on sale of assets (3,568,649) -

Changes in non-cash working capital
balances related to operations
Accounts receivable 894,091 (1,514,920)
Inventory 68,238 3,020,995
Prepaid expenses 205,382 47,127
Accounts payable and accrued
liabilities (3,718,710) (1,373,112)
Accrual for earn-out payment - (4,942,750)
Income taxes payable - (37,500)
Deferred revenue (1,351,526) 44,179
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(2,850,237) 1,828,211
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Investing activities
Purchase of property,
plant and equipment (373,421) (42,129)
Deferred financing - (372,150)
Deferred service contract costs (3,080,939) (7,755,736)
-------------------------------------------------------------------------
(3,454,360) (8,170,015)
-------------------------------------------------------------------------

Financing activities
Proceeds from sale of assets 22,328,800
Proceeds from sale of assets
transferred to escrow (2,193,740)
Repayment of obligations under
capital lease (87,515) (112,789)
Repayment of National Research
Council loan (26,731) (80,958)
Proceeds from revolving operating
loan 5,000,000
Repayment of non-revolving credit
facility (6,985,968)
Repayment of term loan and secured
debenture (1,000,000)
Proceeds from term loan and secured
debenture 7,000,000
Proceeds from short term loan 1,250,000 -
Repayments of short term loan (1,250,000) -
Repayment of operating loan (3,900,000) -
Repayment of secured debenture (3,000,000) -
Repayment of obligations for
service contracts (334,549) (601,203)
Issuance of common shares and
equity instruments 4,612,729
-------------------------------------------------------------------------
12,786,265 7,831,811
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Net increase in cash and cash
equivalents 6,481,668 1,490,007

Cash and cash equivalents,
beginning of period 2,292,475 1,383,827
-------------------------------------------------------------------------
Cash and cash equivalents, end of
period $ 8,774,143 $ 2,873,834
-------------------------------------------------------------------------
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Supplementary disclosure
Cash interest $ 428,532 $ 352,581
Non-cash investing and financing
activities
Property, plant and equipment
purchased under capital leases 30,740 61,802
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Conference Call and Webcast

AirIQ will hold a conference call today, Tuesday, August 14, 2007, at 10:00 a.m. ET. To access the call, please dial 416-641-6110 or 1-866-266-1798. A replay of the conference call will be available as of noon the same day until midnight August 21, 2007. To access the replay, dial 416-695-5800 or 1-800-408-3053 followed by the pass code 3230534#. 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 at www.airiq.com and at www.sedar.com by end of day August 14, 2007.

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. 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 Wireless Location Services, specializing in Telematics and 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