Aeroquest International Limited
TSX : AQL

Aeroquest International Limited

August 13, 2008 19:02 ET

Aeroquest International Limited (TSX:AQL) Announces Financial Results for the Three Months Ended June 30, 2008

- Revenue of $14.5 million, up 55% including acquisitions - Operating cash flow of $2.2 million in the period, or $0.06 per share - Contract backlog a healthy $17 million

MISSISSAUGA, ONTARIO--(Marketwire - Aug. 13, 2008) -

Attention business/financial editors and reporters:

Aeroquest International Limited today reported financial results for the three month period ended June 30, 2008.

On October 23, 2007 the Company announced its intention to change the financial year end to September 30th. As a result of this change in financial year end, comparative periods do not line up precisely. The comparative period used in this report is for the three month period ending July 31, 2007.

"The quarter was another record quarter from a revenue standpoint for Aeroquest International." said Roy Graydon, President & CEO of Aeroquest; "However, we can do better; our helicopter operations suffered with weaker than expected productivity. Revenue growth, while strong, was below our expectations due to delays in bringing new AeroTEM systems online."

Consolidated revenue for the three months ended June 30, 2008 was $14.5 million, an increase of $5.2 million or 55% over the most comparable period last year. Revenue from helicopter operations contributed $7.2 million in the quarter, while revenue from fixed wing operations totaled $7.0 million in the quarter. Other revenue was $0.4 million. For the nine months ended June 30, 2008, revenue was $39.0 million, up from $19.4 million in the most comparable nine month period last year.

Gross profit in the period was $5.6 million, or 39% of revenue, driven by improved margins in the fixed wing business offset by lower than expected margins in the helicopter business.

EBITDA in the quarter was $2.7 million, or 18% of revenue, an increase of $0.3 million or 13% over the comparable period last year although EBITDA as a percentage of revenue did decrease from historical levels. Management expects this to improve in the fourth quarter as helicopter systems productivity improve to those in prior quarters. For the nine month period, EBITDA was $7.7 million, as compared to $4.1 million in the most comparable period last year.

Net income in the quarter was $0.3 million, a decrease of $0.6 million or 68% over the comparable period last year. Earnings per share for the quarter are $0.01 compared to $0.04 per share for the comparable period last year.

Operating cash flow before changes in working capital was $2.2 million, or $0.06 per share for the period, as compared to $1.6 million, or $0.08 per share in the most comparable period last year, and reflects the underlying health of the Company's operations. On a year-to-date basis, operating cash flow was $6.5 million, or $0.21 per share.

Capital expenditures totaled $1.9 million for the quarter, representing 13% of revenue, which was in line with the Company's expectations.

Contract backlog showed a modest decrease over the last quarter and sits at $17 million at period end. Backlog is composed of $5.1 million in helicopter backlog and $11.9 million in fixed wing backlog. Contract backlog was affected somewhat by timing issues. For example, at June 30, 2008, the Company had been awarded several jobs that were still in the contract negotiation phase. Many of these were signed in July and, as a result, at July 31, 2008, the Company's contract backlog stood at over $18 million.

As indicated in its recent press release dated July 17, 2008, the Company expects fourth quarter 2008 revenue to be in the range of $16 to $18 million, and that gross margins will be comparable to those of previous quarters. As a result, the Company expects fiscal year 2008 revenue to be in the range of $55 to $57 million. The Company is continuing to add systems to its fleet and to deploy these systems at select locations around the globe. Aeroquest expects to finish the fiscal 2008 year with approximately 30 systems.

Analyst Conference Call

Aeroquest International Limited will hold a Q3 2008 conference call at 10:00 a.m. ET on Thursday, August 14, 2008. The conference call will review Aeroquest's results for the quarter ended June 30, 2008. The scheduled speakers for the Company on the conference call are: Roy Graydon, President and Chief Executive Officer, and Robert Motz, Chief Financial Officer.

Interested parties can access the conference call in North America by dialing 1-888-789-9572 and entering passcode 3267840. The international or local dial-in number is 416- 695-7806. Please dial in approximately 5-10 minutes prior to the 10:00 a.m. Eastern Standard Time.

A replay service will be available two weeks following the conference call until midnight on August 28, 2008. To access this recording, dial 1-800-408-3053 or 1-416-695-5800 and enter passcode 3267840.

About Aeroquest International

Aeroquest International is a global information and technology services company and a leader in the development and operation of innovative and proprietary geophysical surveying platforms for the mineral and petroleum exploration, and environmental services industries. Directly, and through its sister companies UTS Geophysics and Geophex, Aeroquest fields a fleet of approximately two dozen helicopter and fixed wing systems and is active around the world. More information about Aeroquest can be found at www.aeroquest.ca. More information on UTS Geophysics can be found at www.uts.com.au. More information on Geophex can be found at www.geophex.com.

For Investors

This news release may include statements about expected future events and/or financial results that are forward-looking in nature and subject to risks and uncertainties. The Company cautions that actual performance will be affected by a number of factors, many of which are beyond its control. Future events and results may vary substantially from what the Company currently foresees. Discussion of the various factors that may affect future results is contained in the Company's recent filings, available on SEDAR.

Aeroquest International Limited

Unaudited Consolidated Financial Statements

For the three and nine months ended June 30, 2008

In accordance with National Instrument 51-102 released by the Canadian Securities Administrators, the Company discloses that its auditors have not reviewed these unaudited financial statements for the period ended June 30, 2008.



Aeroquest International Limited

Consolidated Balance Sheets
Unaudited - Prepared by Management

----------------------------------------------------------------------------
As at Jun. 30, 08 Sep. 30, 07
Assets (Unaudited) (Audited)
Current
Cash and cash equivalents $ 16,951,402 $ 5,398,777
Accounts receivable 7,679,790 8,014,717
Unbilled contracts in progress 1,727,448 2,312,098
Inventory 53,037 -
Prepaid expenses and deposits 738,564 462,109
-------------------------------
Total current assets 27,150,241 16,187,701
Long term
Long term investments 62,001 90,001
Capital assets 11,021,411 7,618,873
Intangible assets 21,500,858 20,431,860
Goodwill 11,649,318 9,199,108
Future income taxes 152,847 143,747
-------------------------------
Total long term assets 44,386,435 37,483,589
-------------------------------
Total Assets $ 71,536,676 $ 53,671,290
-------------------------------
-------------------------------

Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities $ 5,902,249 $ 5,325,928
Income taxes payable 679,106 2,238,543
Deferred revenue 3,168,591 3,838,463
Promissory notes - 536,449
Capital lease obligations 309,025 292,466
-------------------------------
Total current liabilities 10,058,971 12,231,849
Long term
Promissory notes - 2,597,339
Capital lease obligations 501,783 720,230
Future income taxes 6,904,137 6,566,056
-------------------------------
Total liabilities 17,464,891 22,115,474
-------------------------------
Shareholders' equity
Share capital 48,310,010 27,403,594
Contributed surplus 1,952,802 1,320,461
Accumulated other comprehensive income 435,023 72,794
Retained earnings 3,373,950 2,758,967
-------------------------------
Total shareholders' equity 54,071,785 31,555,816
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Total Liabilities and Shareholders' Equity $ 71,536,676 $ 53,671,290
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Aeroquest International Limited

Consolidated Statement of Operations and Comprehensive Income
Unaudited - Prepared by Management

----------------------------------------------------------------------------

Three months Three months Nine months Nine months
For the ended ended ended ended
period Jun. 30, 08 Jul. 31, 07 Jun. 30, 08 Jul.31, 07


Sales $ 14,537,044 $ 9,355,350 $ 39,027,862 $ 19,389,937
Cost of sales 8,933,278 5,496,132 23,433,834 11,314,279
----------------------------------------------------------
Gross profit 5,603,766 3,859,218 15,594,028 8,075,658
----------------------------------------------------------

Expenses and
other items
General and
administrative 2,524,212 1,195,796 6,735,349 3,252,643
Development
expense 117,017 172,426 326,637 388,598
Foreign
exchange
(gain)/loss 135,940 144,538 103,790 255,944
Stock based
compensation
expense 173,209 6,875 729,171 98,351
Amortization of
intangible
assets 1,155,666 358,088 3,226,554 358,088
Depreciation of
capital assets 907,751 323,734 2,074,221 870,813
----------------------------------------------------------
Total operating
expenses 5,013,795 2,201,457 13,195,722 5,224,437

Operating profit 589,971 1,657,761 2,398,306 2,851,221
Other costs
(income) (110,945) (38,766) (122,471) (258,267)
Contract
cancellations
costs - - - 270,000
----------------------------------------------------------
Income before
income taxes 700,916 1,696,527 2,520,777 2,839,488
Income taxes
Current 751,780 758,768 2,350,698 1,332,061
Future (354,987) 217 (1,070,287) 38,650
----------------------------------------------------------
Total income
tax 396,793 758,985 1,280,411 1,370,711
----------------------------------------------------------
Net income for
the period $ 304,123 $ 937,542 $ 1,240,366 $ 1,468,777
----------------------------------------------------------

Revaluation of
long term
investments
to fair market
value (3,000) - (28,000) -
Unrealized gain
(loss) on
translation of
self-sustaining
foreign
operations 199,530 1,803 390,229 1,803
----------------------------------------------------------
Total
comprehensive
income, for
the period $ 500,653 $ 939,345 $ 1,602,595 $ 1,470,580
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Aeroquest International Limited

Consolidated Statements of Retained Earnings
Unaudited - Prepared by Management

----------------------------------------------------------------------------

Three months Three months Nine months Nine months
ended ended ended ended
For the period Jun. 30, 08 Jul. 31, 07 Jun. 30, 08 Jul. 31, 07


Retained earnings,
beginning of
period, as
previously
reported $ 3,280,994 $ 530,561 $ 2,758,967 $ 260,054

Cumulative effect
of change in
accounting policy - 245,029 - 209,967
-------------------------------------------------------
Retained earnings,
beginning of
period, as restated $ 3,280,994 $ 775,590 $ 2,758,967 $ 470,021
-------------------------------------------------------
Excess of purchase
price over
cost on redemption
of shares (211,167) - (625,383) (225,666)

Net income 304,123 937,542 1,240,366 1,468,777
-------------------------------------------------------
Retained earnings,
end of period $ 3,373,950 $ 1,713,132 $ 3,373,950 $ 1,713,132
-------------------------------------------------------

Earnings per share
Basic $ 0.01 $ 0.04 $ 0.04 $ 0.08
Fully diluted $ 0.01 $ 0.04 $ 0.03 $ 0.07
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Aeroquest International Limited

Consolidated Statements of Cash Flow
Unaudited - Prepared by Management

----------------------------------------------------------------------------

Three months Three months Nine months Nine months
ended ended ended ended
For the period Jun. 30, 08 Jul. 31, 07 Jun. 30, 08 Jul. 31, 07

Cash provided by
(used in)
Operating
activities

Net income for
the period $ 304,123 $ 937,542 $ 1,240,366 $ 1,468,777
Operating items
not requiring cash
Amortization of
intangible assets 1,155,666 358,088 3,226,554 358,088
Depreciation of
capital assets 907,751 323,734 2,074,221 870,813
Translation of
self sustaining
foreign operations 72,063 - 262,764 -
Future income
taxes (354,987) 217 (1,070,287) 38,650
Interest
accretion on
promissory notes - - 221,213 -
Stock based
compensation 173,209 6,875 729,171 98,351
Write down of
long term
investment - - - 110,000
Loss (Gain) on
disposal of
capital assets (86,275) - (135,751) 7,377
-------------------------------------------------------
Operating cash
flow before
changes in
non-cash working
capital 2,171,550 1,626,456 6,548,251 2,952,056
Changes in non
cash working
capital 605,668 1,015,618 (818,665) 2,331,153
-------------------------------------------------------
Total cash flow
from operating
activities 2,777,218 2,642,074 5,729,586 5,283,209
-------------------------------------------------------
Investing
activities
Capital asset
purchases (1,883,266) (980,238) (5,057,268) (2,188,923)
Proceeds from
sale of
equipment 187,710 - 421,050 -
Loan receivable - - - 44,250
Cash cost of
acquisition (34,125) (8,037,657) (2,150,741) (8,037,657)
-------------------------------------------------------
Total cash flow
from investing
activities (1,729,681) (9,017,895) (6,786,959) (10,182,330)
-------------------------------------------------------
Financing
activities
Promissory note
payments - - (5,337,600) -
Capital lease
payments (44,840) (23,823) (273,899) (23,823)
Aeroquest shares
redeemed (611,282) - (1,426,650) (327,477)
Proceeds:
issuance of
common shares 334,615 7,667,750 19,648,147 7,806,500
-------------------------------------------------------
Total cash flow
from financing
activities (321,507) 7,643,927 12,609,998 7,455,200
-------------------------------------------------------
-------------------------------------------------------

Net change in
cash and cash
equivalents
for the period $ 726,030 $ 1,268,106 $ 11,552,625 $ 2,556,079
Cash and cash
equivalents,
beginning
of period 16,225,372 4,706,035 5,398,777 3,418,062
----------------------------------------------------------------------------
Cash and cash
equivalents, end
of period $ 16,951,402 $ 5,974,141 $ 16,951,402 $ 5,974,141
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Aeroquest International Limited

Consolidated Statements of Shareholders' Equity
Unaudited - Prepared by Management
For the nine months ending June 30, 2008
----------------------------------------------------------------------------
Accumu-
lated
Other Share-
Share Contributed Retained Comp. holders'
Capital Surplus Earnings Income Equity

Balance Sep.
30, '07 $27,403,594 $1,320,461 $2,758,967 $72,794 $31,555,816
Aeroquest
shares
purchased
for
cancellation (770,522) (30,745) (625,383) (1,426,650)

Issuance of
common
shares for
cash, net of
expenses 18,524,419 18,524,419

Issuance of
common
shares on
acquisition 1,962,708 1,962,708

Share
issuances
pursuant to
restricted
stock unit
vesting 22,500 (22,500) -

Share
issuances
pursuant to
stock
options
exercised 169,040 (43,585) 125,455

Warrants
exercised 998,271 998,271

Net income
for the
period 1,240,366 1,240,366

Stock based
compensation
expense 729,171 729,171

Unrealized
gain on
translation
of self
sustaining
foreign
operations 390,229 390,229

Revaluation
of long
term
investments
to fair
market
value (28,000) (28,000)
----------------------------------------------------------------------------

Balance Jun.
30 08 $48,310,010 $1,952,802 $3,373,950 $435,023 $54,071,785
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