Aeroquest International Limited (TSX:AQL) Announces Financial Results for the Three Months Ended December 31, 2008

MISSISSAUGA, ONTARIO--(Marketwire - Feb. 4, 2009) -

Attention business/financial editors and reporters:

Aeroquest International Limited (TSX:AQL) today reported financial results for its first quarter of fiscal 2009, the three months ended December 31, 2008. The quarterly results reflect the rapid pace of the unprecedented economic slowdown in the global economy in general and the mineral and petroleum exploration sectors in particular.

"Our customers' exploration activities slowed significantly, especially in the second half of the quarter, to the point where our revenue was short of our previously released guidance of $13-$15 million" said Roy Graydon, President & CEO of Aeroquest; "at the request of several customers we deferred contracted work to allow them time to reflect on economic events and adjust their business strategies in response." Consolidated revenue for the three months ended December 31 2008 was $11.3 million, an increase of $0.1 million or one percent over the first quarter last year. Revenue from helicopter operations contributed $6.9 million in the quarter, while revenue from fixed wing operations totaled $3.8 million in the quarter. Other revenue was $0.5 million.

While overall revenue did grow on a year-over-year basis, profit margins in both fixed wing and helicopter services suffered. Fixed wing margins suffered from a significant decline in quarter over quarter production, and helicopter margins, while down as compared to the same quarter last year, actually improved in the quarter compared to the previous quarter, as the contracts that gave rise to many of the Company's recent problems were completed. Gross profit in the period was $2.9 million, or 26% of revenue. EBITDA in the quarter was a decline of $1.9 million over the comparable quarter last year resulting in an EBITDA loss of $0.3 million. Included in general and administrative expenses in the quarter was an allowance for doubtful accounts of $1.3 million related to a single customer.

Net loss in the quarter was $1.5 million or $0.04 per share compared to net earnings of $0.1 million or $0.00 per share in the first quarter last year.

Cash flow from operating activities was $1.1 million, or $0.03 per share for the period, as compared to $5.2 million, or $0.19 per share in the first quarter last year. Capital expenditures totaled $2.0 million for the quarter, representing 17.7% of revenue, most of which related to the delivery of a new airborne gravity meter that the Company had committed to purchase in early 2008.

Contract backlog showed a sizeable decrease over year-end and sits at $14.0 million at quarter end. Backlog is composed of $2.7 million in helicopter backlog, $9.7 million in fixed wing backlog and $1.6 million in other backlog.

On February 4, 2009, the Company announced that it and Spectrem Air have jointly agreed to terminate the previously announced Letter of Intent regarding the long term outsourcing of Spectrem assets."

Revenue Guidance - Q2

The Company expects second quarter 2008 revenue to be in the range of $6 to $10 million. Given the recent unprecedented uncertainty in the economy and, in particular, in the mining and petroleum industries, management is not providing guidance on gross margin or earnings. However, management has taken measures to reduce the Company's overall cost structure to reflect anticipated business volumes in Q2 and thereafter. The Company implemented a staff reduction in January, 2009 that reduced overall workforce by approximately 20% and management is continuing to aggressively manage its cash position, which stood at $14.2 million at quarter-end, through this period of economic uncertainty.

Analyst Conference Call

Aeroquest International Limited will hold a Q1 2009 conference call at 10:00 a.m. ET on Thursday, February 5, 2009. The conference call will review Aeroquest's results for the quarter ended December 31, 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 888-789-0089. The international or local dial-in number is 416- 695-9701. 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 February 19, 2009. To access this recording, dial 1-800-408-3053 or 1-416-695-5800 and enter passcode 3281385.

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.

Consolidated Balance Sheets (Unaudited - Prepared by Management)


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                                         As at   Dec. 31, 08    Sep. 30, 08
Assets                                            (Unaudited)      (Audited)
 Current
  Cash and cash equivalents                     $ 14,202,268   $ 15,373,132
  Accounts receivable                              7,699,937      8,640,293
  Income taxes recoverable                           104,217              -
  Unbilled contracts in progress                   1,721,027      2,169,861
  Inventory                                          144,357        132,853
  Prepaid expenses and deposits                    1,017,705        640,875
                                                ---------------------------
Total current assets                              24,889,511     26,957,014
 Long term
  Long term investments                              117,316         30,501
  Capital assets                                  12,112,225     10,890,000
  Intangible assets                               19,340,673     19,847,842
  Goodwill                                        12,049,421     11,662,115
  Future income taxes                                151,138        152,584
                                                ---------------------------
Total long term assets                            43,770,773     42,583,042
                                                ---------------------------
                                  Total Assets  $ 68,660,284   $ 69,540,056
                                                ---------------------------
                                                ---------------------------


Liabilities and Shareholders' Equity
 Current
  Accounts payable and accrued liabilities      $  7,196,265   $  5,946,706
  Income taxes payable                                     -      1,083,701
  Deferred revenue                                 3,322,632      3,274,382
  Capital lease obligations                          319,905        321,426
                                                ---------------------------
Total current liabilities                         10,838,802     10,626,215
 Long term
  Capital lease obligations                          385,967        469,575
  Future income taxes                              6,507,244      6,640,227
                                                ---------------------------
Total liabilities                                 17,732,013     17,736,017
                                                ---------------------------


 Shareholders' equity
  Share capital                                   46,770,708     46,506,445
  Contributed surplus                              2,142,509      2,411,281
  Accumulated other comprehensive income (loss)   (1,204,534)    (1,794,758)
  Retained earnings                                3,219,588      4,681,071
                                                ---------------------------
Total shareholders' equity                        50,928,271     51,804,039
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    Total Liabilities and Shareholders' Equity  $ 68,660,284   $ 69,540,056
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Consolidated Statements of Operations (Unaudited - Prepared by Management)


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                   For the three months ending   Dec. 31, 08    Dec. 31, 07


Sales                                           $ 11,297,694   $ 11,196,541
 Cost of sales                                     8,369,934      7,279,219
                                                ---------------------------
Gross profit                                       2,927,760      3,917,322
                                                ---------------------------


Expenses and other items
 General and administrative                        4,350,563      1,991,731
 Foreign exchange (gain)/loss                     (1,205,586)       (56,463)
 Stock based compensation expense                    104,392        382,755
 Amortization of intangible assets                   885,050        892,587
 Depreciation of capital assets                      801,563        511,633
                                                ---------------------------
Total operating expenses                           4,935,982      3,722,243


Operating profit (loss)                           (2,008,222)       195,079
 Interest Income                                     (70,770)       (81,691)
 Interest Expense                                     14,585         93,278
                                                ---------------------------
Income (loss) before income taxes                 (1,952,037)       183,492
Income taxes
 Current                                            (147,067)       437,200
 Future (recovery)                                  (291,400)      (374,370)
                                                ---------------------------
 Total income tax                                   (438,467)        62,830
                                                ---------------------------
Net income (loss) for the period                $ (1,513,570)     $ 120,662


Earnings (loss) per share
 Basic                                          $      (0.04)     $    0.00
 Fully diluted                                  $      (0.04)     $    0.00
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Consolidated Statements of Retained Earnings (Unaudited - Prepared by
 Management)


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                   For the three months ending   Dec. 31, 08    Dec. 31, 07


Retained earnings, beginning of period           $ 4,681,071    $ 2,758,967


Excess of purchase price over cost on
 redemption of shares                                 52,087       (204,846)
 Net income (loss)                                (1,513,570)       120,662
                                                ---------------------------


Retained earnings, end of period                 $ 3,219,588    $ 2,674,783
                                                ---------------------------
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Consolidated Statements of Comprehensive Income


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                   For the three months ending   Dec. 31, 08    Dec. 31, 07


              Net Income (loss) for the period  $ (1,513,570)    $  120,662


Revaluation of long term investments to fair
 market value (Net of tax $1,360, 2007 - $1,030)      (2,640)        (2,000)
Unrealized gain(loss) on translation of
 self-sustaining foreign operations (Note 20)        592,864       (410,265)
                                                ---------------------------
Total Other Comprehensive Income (loss)              590,224       (412,265)
                                                ---------------------------
Total Comprehensive Income (loss)               $   (923,346)    $ (291,603)
                                                ---------------------------


Accumulated Other Comprehensive Income (loss):
Revaluation of long term investments to fair
 market value                                   $      6,280     $   45,000
Unrealized gain(loss) on translation of
 self-sustaining foreign operations               (1,210,814)      (994,540)
                                                ---------------------------
Total Accumulated Other Comprehensive
 Income (loss)                                  $ (1,204,534)    $ (949,540)
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Consolidated Statements of Cash Flow (Unaudited - Prepared by Management)


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                   For the three months ending   Dec. 31, 08    Dec. 31, 07
Cash provided by (used in)
Operating activities
 Net income (loss) for the period               $ (1,513,570)   $   120,662
 Operating items not requiring cash
 Amortization of intangible assets                   885,050        892,587
 Depreciation of capital assets                      801,563        511,633
 Future income taxes (recovery)                     (291,400)      (374,370)
 Interest accretion on promissory notes                    -         78,345
 Stock based compensation                            104,392        382,755
Loss/(gain) on disposal of capital assets                  -        (20,032)
                                                ---------------------------
Operating cash flow before changes in
 non-cash working capital                            (13,965)     1,591,580
 Changes in non cash working capital               1,110,747      3,593,884
                                                ---------------------------
Total cash flow from operating activities          1,096,782      5,185,464
                                                ---------------------------
                                                ---------------------------
Investing activities
 Capital asset purchases                          (2,039,702)    (1,231,669)
 Mineral rights acquired                             (86,000)             -
 Cash cost of acquisition                                  -     (2,021,446)
                                                ---------------------------
Total cash flow from investing activities         (2,125,702)    (3,253,115)
                                                ---------------------------
                                                ---------------------------
Financing activities
 Capital lease payments                              (85,130)      (157,726)
 Aeroquest shares redeemed                           (56,814)      (375,337)
 Proceeds: issuance of common shares                       -        635,958
                                                ---------------------------
Total cash flow from financing activities           (141,944)       102,895
                                                ---------------------------
                                                ---------------------------


Net change in cash and cash equivalents
 for the period                                 $ (1,170,864)   $ 2,035,244
Cash and cash equivalents, beginning of period    15,373,132      5,398,777
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Cash and cash equivalents, end of period        $ 14,202,268    $ 7,434,021
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