AirIQ Inc.
TSX : IQ

AirIQ Inc.

May 14, 2009 08:00 ET

AirIQ Reports Positive Cash-Flow

Fifth Consecutive Quarter of Reduced Expenses and Increased Gross Profits

TORONTO, ONTARIO--(Marketwire - May 14, 2009) - AirIQ Inc. ("AirIQ") (TSX:IQ), a leader in Wireless Location-Based Services, specializing in Telematics and Security, today announced its results for the quarter ended March 31, 2009.

"We have essentially completed a realignment of operations structure, staffing, and business focus", said Mr. Stephen Willey, President and Chief Executive Officer of AirIQ. "The process which was started at the end of 2007 has yielded five consecutive quarters of improved gross profit (both in dollars and as a percent of revenue), of reduced operating expenses (both dollars and as a percent of revenue), and of increased EBITDAS. The financial results summarized below speak for themselves: positive cash-flow and positive EBITDAS earnings for this first quarter of 2009."

"While we are unable to comment on future results", continued Mr. Willey, "I am pleased to report on behalf our hard-working team at AirIQ that, despite a brutally weak macro-economy, the many changes made during the past eighteen months are now yielding positive results. The process of continuous improvement is by no means complete, but clearly well underway."

Highlights

First Quarter Business Review

- We are very pleased to report that the Company delivered in this first quarter of 2009 both positive cash-flow and, for the first time in the Company's history since its merger in 2001, positive EBITDAS earnings.

- A difficult economy and reduction in capital equipment investment by most all of the Company's customer groups continues to challenge our marketing teams. However, the Company achieved internal sales goals during this first quarter of 2009 by shifting application and geographic emphasis, a benefit derived from our ownership of a multi-segment business portfolio.

- Consistent with our decision to focus resources on development and marketing of higher-value customer applications, the Company released for commercial testing two new marine Software as a Service ("SaaS") products.

- In January of this year the Company announced the receipt of a non-binding Letter of Intent ("LOI") expected to provide funding to the Company. Since that time, the potential investor and AirIQ management discussed terms of a potential definitive agreement. A difficult funding environment has limited the number of available options and mutually agreeable terms were not finalized. Both parties have agreed to cease discussions at this time.

Financial Highlights

- The Company's operating activities generated positive cash-flow for this quarter.

- Quarterly revenue remains stable at approximately $3 million despite uncertain economic times.

- Gross profit and gross profit as a percentage of revenue improved in each of the last five quarters and was 55.8% at March 31, 2009 compared to 35.9% at the same time the previous year.

- As a result of a continuous process of expense reduction, total expenses, as adjusted, declined by approximately 38% from approximately $2.6 million for the three months ended March 31, 2008 to approximately $1.6M for the three months ended March 31, 2009.

- EBITDAS earnings have improved in each of the last five quarters, from approximately negative $1.2 million for the three months ended March 31, 2008 to approximately positive $243 thousand for the current period ended March 31, 2009.

Overview

The accompanying condensed unaudited interim balance sheets are presented as at March 31, 2009 and December 31, 2008, and the consolidated statements of loss, comprehensive loss and cash flows are presented for the three months ended March 31, 2009 and March 31, 2008, comparatively, and include the operating results of AirIQ Inc. and its subsidiaries. The accompanying 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, 2009, including notes thereto and the accompanying Management's Discussion and Analysis for the three months ended March 31, 2009 will be filed with the Canadian securities regulatory authorities 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.

Amendment of Financial Statements

The quarter ended March 31, 2008 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, 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.

The impact of the amendment on the quarter ended March 31, 2008 results is as follows:



As previously As
reported Change amended
$ $ $
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Statements of Loss and
Comprehensive Loss
Revenues 3,545,771 (153,286) 3,392,485
Direct cost of sales 2,275,089 (102,045) 2,173,044
Gross profit 1,270,682 (51,241) 1,219,441
Net loss and comprehensive loss (1,542,918) (51,241) (1,594,159)
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Per Share
Loss per share $0.01 - $0.01
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Statement of Cash Flows
Operating activities
Deferred revenue (293,785) 153,286 (140,499)
Deferred service contract costs 394,138 (102,045) 292,093
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Revenues

Revenues for the three months ended March 31, 2009, decreased 4.2% to $3,250,220 from $3,392,485 for the comparative three month period ended March 31, 2009, and increased by 5.5% from $3,079,466 for the three months ended December 31, 2008.

The average U.S. dollar exchange rate increased to $1.265 for the three months ended March 31, 2009 from $1.002 for the three months ended March 31, 2008. The difference in the average US dollar exchange rates had an estimated notional positive effect on the Company's quarterly revenues of approximately $308,000. As a result, revenues decreased by approximately $450,000 without the effect of the U.S. exchange impact. The decrease in revenues (before the foreign exchange impact) can be attributed to the expiration of customer hardware and service contracts due to a lower subscriber based following the termination of the analog networks in Canada and the United States.

Included in the Company's reported revenues during the three months ended March 31, 2009, is approximately $134,000 primarily from product only sales which are in addition to the Company's contracted service revenue arrangements with its customers. During the comparative three month period ended March 31, 2008, the Company recorded approximately $151,000 from product only sales.

Gross Profit

Gross profit for the three months ended March 31, 2009, increased 48.8% to $1,815,130 from $1,219,441 for the comparative three month period ended March 31, 2008.

Overall, gross profit increased by $595,689 during the three months ended March 31, 2009 when compared to the same three month period the previous year. The difference in the average US dollar exchange rates had an estimated notional positive effect on the Company's quarterly gross profit of approximately $210,000. In addition, the Company reduced its wireless service costs by approximately $166,000 when compared to the same three month period the previous year. Also, the Company's gross profit improved by approximately $219,000 related to costs associated with the subscriber and dealer transition incentive programs that were completed at the end of the first quarter of 2008 which were not incurred in the three months ended March 31, 2009.

Expenses

Expenses totaled $1,632,295 and $2,467,739 for the three months ended March 31, 2009 and March 31, 2008, respectively.

Overall, expenses were reduced by $835,444 for the three month period ended March 31, 2009 when compared to the same three month period the previous year. Expense reductions were achieved in the following areas; a) wages and related expense reductions of approximately $480,000 due the Company's restructuring initiatives completed in December 2008, b) consulting fees of approximately $183,000, c) Special Committee cost reductions of approximately $112,000 and, d) other general net cost reductions of approximately $60,000.

For the three months ended March 31, 2009, the Company recorded foreign exchange gain of $86,850 and stock-based compensation expense of $60,000. This compares with recorded foreign exchange gains of $198,887 and $45,000 in stock-based compensation expense for the three months ended March 31, 2008.

Net Interest and other financing charges

Net interest expense for the three months ended March 31, 2009, was $108,376 compared to $115,360 for the three months ended March 31, 2008.

The decrease in net interest expense for the three months ended March 31, 2009 compared to the same three month period the previous year is primarily due to the repayment of principal by the Company of the term loans.

Restructuring charges

During 2008, the Company finalized severance arrangements with approximately 36% of its employees. The amount remaining to be paid under these restructuring arrangements at March 31, 2009 is approximately $323,059 and is included in accounts payable and accrued liabilities.

Depreciation and Amortization

Amortization for the three months ended March 31, 2009, was $289,558 compared with $230,501 for the three months ended March 31, 2008.

Net Loss

The net loss for the three months ended March 31, 2009 was $215,099, or ($0.00) per share, compared with $1,594,159, or ($0.01) per share for the three months ended March 31, 2008.

Liquidity and Capital Resources

As at March 31, 2009, the Company had unrestricted cash of $2,520,580 and positive working capital of $168,021. 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 $215,099 for the three months ended March 31, 2009, and has an accumulated deficit of $96,497,951as at March 31, 2009.

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.

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, 2009 December 31, 2008
$ $
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ASSETS
Current
Cash 2,521 2,439
Accounts receivable 1,592 2,397
Inventory 715 739
Prepaid expenses 123 154
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Total current assets 4,951 5,729
Property, plant and equipment, net 1,023 1,183
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Intangible assets, net 1,082 1,272
Deferred service contract costs, net 2,020 2,450
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9,076 10,634
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LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
Current
Accounts payable and accrued liabilities 3,436 4,086
Income taxes payable 250 241
Deferred revenue 2,156 2,487
Obligations under capital lease 132 141
Current portion of term loan 965 1,053
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Total current liabilities 6,939 8,008
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Deferred revenue 1,631 1,838
Obligations under capital lease 90 117
Term loan 1,248 1,348
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Total liabilities 9,908 11,311
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Shareholders' equity (deficiency)
Share capital 89,066 89,066
Other paid-in capital 4,448 4,448
Contributed surplus 2,152 2,092
Deficit (96,498) (96,283)
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Total shareholders' equity (deficiency) (832) (677)
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9,076 10,634
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Commitments and contingencies



AirIQ Inc.

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

Unaudited

Three months ended March 31, 2009 March 31, 2008
$ $
----------------------------------------------------------------------------
(amended)

Revenues 3,250 3,392
Direct cost of sales 1,435 2,173
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Gross profit 1,815 1,219
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Expenses
Sales and marketing 464 470
Engineering and research 227 644
General and administration 968 1,508
Stock-based compensation 60 45
Foreign exchange loss (gain) (87) (199)
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1,632 2,468
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Income (loss) before the following 183 (1,249)
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Interest expense, net 108 115
Amortization and depreciation 290 230
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398 345
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Net loss and comprehensive loss for
the period (215) (1,594)
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Loss per share - basic and diluted ($0.00) ($0.01)
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Weighted average number of common shares
used in computing loss per share, basic
and diluted 160,813,408 160,813,408
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AirIQ Inc.

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

Unaudited

Three months ended March 31, 2009 March 31, 2008
$ $
----------------------------------------------------------------------------
(amended)
OPERATING ACTIVITIES
Net loss for the period (215) (1,594)
Add (deduct) items not involving cash
Stock-based compensation 60 45
Interest accreted on term loan 34 41
Amortization of property, plant and
equipment 171 263
Amortization of intangible assets 190 143
Changes in non-cash balances related
to operations
Accounts receivable 805 774
Inventory 24 (205)
Prepaid expenses 31 (52)
Accounts payable and accrued
liabilities (651) (574)
Income taxes payable 8 -
Deferred revenue (538) (140)
Deferred service contract costs 431 292
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Cash provided by (used in) operating
activities 350 (1,007)
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INVESTING ACTIVITIES
Purchase of property, plant and
equipment (11) (47)
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Cash provided by (used in) investing
activities (11) (47)
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FINANCING ACTIVITIES
Transfer of proceeds to (from) sale
of certain assets and liabilities
transferred to restricted cash - 1,946
Repayment of obligations under capital
lease (34) (51)
Repayment of term loan (223) -
Repayment of obligations for service
contracts - (32)
----------------------------------------------------------------------------
Cash provided by (used in) financing
activities (257) 1,863
----------------------------------------------------------------------------
Net increase (decrease) in cash during
the period 82 809
Cash, beginning of year 2,439 4,120
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Cash, end of period 2,521 4,929
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Supplementary cash flow information
Cash interest 81 107
Non-cash investing and financing
transactions
Property, plant and equipment
purchased under capital leases 4 17
----------------------------------------------------------------------------
----------------------------------------------------------------------------



AirIQ Inc.

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

Unaudited

Other paid- Contributed
Share capital in capital surplus Deficit Total
# $ $ $ $ $
----------------------------------------------------------------------------
Balance,
December 31,
2007, as
amended 160,813,408 89,066 4,448 1,893 (88,130) 7,277
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Stock-based
compensation - - - 199 - 199
Net loss for
the year - - - - (8,153) (8,153)
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Balance,
December 31,
2008 160,813,408 89,066 4,448 2,092 (96,283) (677)
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Three months
ended March
31, 2009 - - - 60 (215) (155)
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Balance,
March 31,
2009 160,813,408 89,066 4,448 2,152 (96,498) (832)
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No Conference Call

AirIQ will not be holding a conference call to discuss results. The Company's quarterly report, including complete financial statements, notes and Management's Discussion and Analysis will be available today on SEDAR at www.sedar.com and later on the Company's website www.airiq.com.

Annual Meeting

The Company will hold an Annual and Special Meeting of Shareholders on Tuesday, June 30th, 2009 at 10:00 a.m. EST at the offices of the Company located at 1099 Kingston Road, Suite 233, Pickering, Ontario.

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 yields recurring revenues for each device deployed. AirIQ delivers services to three primary markets: Commercial Fleets; dealers that service Consumer segments; and Marine Fleets (fisheries and workboat). AirIQ provides vehicle and vessel owners with the ability to monitor, manage and protect their mobile assets. Services include: instant vehicle locating, boundary notification, automated inventory reports, maintenance reminders, security alerts and vehicle disabling and unauthorized movement alerts. Management believes that AirIQ maintains a dominant market share in North America, in three segments, namely, rental vehicle fleets, regulated fisheries, and marine workboat markets. 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" section included in management's discussion and analysis of the financial condition and results of operations for the three months ended March 31, 2009.

For additional information on AirIQ or its products and services, please visit the Company's website at www.airiq.com.

Contact Information