Interview with David Loflin, Air-q's CEO

Turn on a television anywhere and you'll see 'it' advertised. Catch some chatter on a financial news network and you'll hear 'it' analyzed on a daily basis. The 'new tech sector' is alive and thriving... outing bells and whistles that'll make even the staunchest of neophytes sit up and take notice.

Despite what seems like an employment rate flat line, the GDP is increasing and 3rd quarter earnings expectations are positive. Soothsayers at Goldman Sachs, targeting the industry, have laid out that tech capital spending will be rising 3.5%+ in the next couple of quarters to come.

And manufactures are only too eager to fulfill this destiny.

The newest of the new on the market enables something that most all of us demand in our 24-7 lives: portability. Our Internet, cell phones and PDA's not only need to do double and triple duty, but they need be our constant companions as well, no matter the locale. To that end, an evolution in wireless and portable computing is in full swing, that of Wireless Internet.

Next-generation cellular systems, public wireless LANs and new multifunction phones and PDA's offer significantly increased sector value and abound in their availability. Customers are also savvier this time around. 44% of all Internet users have at least three years of experience online, according to Pew Internet & American Life Project, suggesting that they have become reliant on the Internet and, very likely, more demanding of superior and advanced service.

It simply goes without saying that the market is in need for cost-effective, broadband wireless access solutions, providing performance and reliability for the end-user.

Air-q, (OTCBB: AQWF) is a wireless Internet Service (Wi-Fi) Provider focused on bringing high-speed connectivity to businesses and residential customers as well as to that of visitors to its markets with Wi-Fi compatible laptop computers and other such capable devices. They're presently servicing parts of the Louisiana market, but will soon be rolling out to markets throughout the southern United States.

An Interview with David Loflin, Air-q's CEO, conducted by Eric David & Sons, Inc. September 10, 2003, follows:

Eric David & Sons (EDS): Let's start off with a more broad strokes investment industry question. Internet-esque companies are enjoying a resurgence in public market appreciation. Technical-oriented issues are gaining rapidly and the NASDAQ is in a 52-week high range. How is Air-q positioned to grab some of this revitalized market?

David Lofflin (DL): Indeed a great number of the Internet and tech companies were hit pretty hard in the past couple of years. I believe it was just a temporary thing, a readjustment if you will, culminating in the Internet venue, as a whole, re-emerging as a stronger and leaner machine. T This has resulted, among others, in more opportunity for service provision, especially to those in the professional markets. And the potentials moving forward in that sector seem almost limitless.

A recent statistic outlined that there will be an 80% increase in professionals using Wi-Fi enabled PC notebooks. In the wireless arena, analysts are further projecting 83 million of these notebooks to be in active service over the next couple of years. Businesses employing this method of mobile work will ultimately become more efficient. And greater efficiency equates to greater production and a stronger bottom-line... who doesn't want that for their business?

Beyond the work mode, we also have to consider the enhancement of quality of improvement of life and functionality that these technical products will bring us.

The overall market will grow solidly and the Wi-Fi service providers, of which Air-q is one, will be definite leaders in the charge.

EDS: You refer to your Internet access service as Wi-Fi. How do you define Wi-Fi in a revolutionary provisional sense? What makes it different from that of DSL and cable broadband systems, commenting specifically on important issues as access, reliability and higher speeds of transmission?

DL: Wi-Fi is strictly a term imparted on this end of the wireless industry, distinguishing it from all other forms of wireless service. The term 'wireless' can refer to not only this but to that of the entire cell phone industry as well. It gives it a standard and sets it apart. Technically speaking, the term Wi-Fi, or wireless fidelity, refers to an industry standard for wireless equipment that meets published 802.11 standards. The equipment operates in unlicensed spectra, such as 2.4 and 5.8 Ghz.

Speaking to Wi-Fi access being different than that of DSL and cable broadband, all three products are virtually the same to the end user, in that they have the same access to the Internet.

The biggest difference, of course, is that Wi-Fi customers have the ability to roam and move about with their service; hence the apropos moniker, 'wireless access'... no wires to chain you to the physical modem connection.

Wireless and Wi-Fi aren't recent phenomenon. They've been around in a useable capacity for the past 7–8 years; it's just been paid a greater degree of attention the past couple of years as it's grown and become more user-accessible. People have happily discovered how fundamentally sound the systems are and how economically they can be deployed, particularly in larger areas and in a relatively short period of time.

As all are considered broadband suppliers, the question of speed of material transmission varies from operator to operator. If you purchased a broadband connection from one of our Wi-Fi hot-spots (area providing Internet access) on a monthly basis, you'll obtain the same speed, ie 50–100x faster than dial up, over our wireless broadband; the same as you would over either DSL or cable delivery. Speeds are burstable up to 3 mg's.

As far as reliability is concerned, wireless access has proven over and over to be as reliable as either of the aforementioned dedicated connections.

EDS: Any special equipment needed to receive your service?

DL: A user would simply have to be equipped with a Wi-Fi ready card for either your PC or desktop unit & a Wi-Fi capable wireless modem. The price varies for the card. You can get one for under $40 that plugs right into the side of your laptop, but we'll be finding that most laptops manufactured forward will be equipped with a built-in Wi-Fi card. It'll become a secondary nature for the laptop.

There's been much industry discussion suggesting that all laptops manufactured after the end of this years line will virtually all be equipped, as a standard, with either a Wi-Fi card or one of the new Intel Centrino chips which is also Wi-Fi capable. Once equipped with such a laptop you can effectively roam, using our access service, from hot spot to hot spot without interruption. If you wanted to use your desktop/fixed station, the only requirement is that of your wireless modem mounted anywhere in proximity in the home, from inside by the PC to outside alongside your telephone and cable equipment.

With the availability of the Internet provision service we offer, you can move about freely in the home (inside or out) feeding off a fixed PC connection and further take mobile advantage of it with your laptop, taking your work activity to the office, the shopping center or the mall. While in the same service hot spot, no matter where you go, you'll always be connected and remain mobile.

There is further commentary from the manufacturers and analysts in the Wi-Fi industry suggesting that there would be a 60% increase in work efficiency from those employees that are not, in fact, 'chained' to the limited capabilities of the desktop PC.

EDS: There's a huge movement of Internet users to that of broadband provision. Case in point being AOL Broadband, once only, however massive they are, strictly a dial up service.

How many of the existing DSL / Cable customers do you feel you can convert to your services? Are there any marketing plans in place?

DL: We actually don't have a marketing plan in place to convert such existing broadband customers. Rather, we're looking for a new breed of user, the more mobile user, one that enjoys the flexibility of this type of service as well as being able to access the service either for only a hour or on a monthly basis, for a recurring monthly fee. No long-term contracts required, like virtually all of the DSL and Cable providers out there.

EDS: Referencing one of your latest news releases, you mention Q-Ports in relation to branding your product. Have you identified extended areas in which to establish yourself as such and what has been the early response to those already up and running?

DL: The early response has been very good. The areas that we've fired up have had a tremendous amount of activity. As we activate them, we leave them free to the public for two weeks of usage while we're in our trial and testing period. We've been quite pleased with the initial response.

The Q-Port label refers to the actual hot spot. The services will be branded as Q-Spot Wi-Fi or Q-Spot hot spot service. An example would be that of a participating business having a sticker in their window designating that they are a Q-Spot - although, if there's no sticker posted it doesn't necessarily mean that our service isn't available at that location - and you'll be to access the Internet.

As far as Q-Port growth, it's our intention to have over 125 hot spots in the Greater Baton Rouge, LA area, as well as deployment in the outer perimeters of New Orleans, by year's end.

There are 8 - 10 other areas that have been targeted to establish in, but they haven't been announced as we're still in the process of completing the business logistics and infrastructure engineering. I can, however, comment that we're actively looking at the rest of Louisiana, Texas, the Mississippi coast, Arizona, New Mexico and California. We're not far enough along at present for me to comment on secondary phase rollout states, but I will mention it would likely include Florida, as it would be a lucrative market for us.

EDS: Security in material delivery is foremost in people's minds. What does your brand of connectivity offer in that respect?

DL: We are a complete 128-bit security system, which has proven very secure for the end user.

If we have customers that are looking to VPN materials back to their corporate headquarters, we can certainly supply them with an extra layer of security allowing them a virtual private pipe back to their offices. Security isn't an issue with our service.

The only way that this type of a security system isn't secure is if you, quite simply, run it in a matter that is not secure, thereby opening yourself up to hackers and those looking for such holes. Media of late may try to suggest otherwise, but, all in all, it's been, and will continue to be, a very reliable technology.

EDS: What's Air-q's target service market: residential, business? And, that said, what is the present and forecasted capability / infrastructure of the nation's ability to tap into your wireless service?

DL:
Our service will be geared more towards the business traveler, less than that of the residential users. Although I refer primarily to the traveler's mobility, those business users will also be using the services in a residential mode, that is, in more pleasure use situation.

As far as connection capability, we will be building out the infrastructure ourselves and then obtaining an Internet connection from some of the major telco and cable providers throughout the country. We're purchasing our bandwidth for our service from our competitors, but, realistically speaking, that's where all wireless service comes from anyway.

On a national basis, we'll be further working with some of the regional and national hot spot providers to work out roaming arrangements whereby our customers can freely use our service while out of the range of our existing provisions. It's similar to how the cellular industry works. In fact, that's already established with the likes of our industry colleagues I-Pass and Boingo. And with industry names like Toshiba, Nextel and SBC Communications actively getting into the Wi-Fi sector, the roaming agreements will be increasing at an even more rapid rate. Nobody can build every market out, or every hot spot, so it will become, in rather short order, a national system where you'll have the ability to use Wi-Fi service wherever you are.

The business traveler will applaud this innovation.

EDS: TDo you see dial up service going the 'way of the dinosaur'?

DL: Dial up service will always have a place in the Internet provision market. There are a number of people that don't necessarily use the Internet in the same manner as a more active or business user would. They primarily use it just to check email.

It's somewhat analogous to the introduction of DVD players into the home entertainment equation. Industry players thought that it would virtually eliminate the desire for VCR's, but judging by the numbers of units and videotapes still being sold, there'll always be an audience for them. The same may likely be true for digital cameras versus conventional units that use film needing to be professionally processed.

Always in appreciation for the wide spectrum of Internet users out there, our target remains the individual that that requires mobile Internet access.

EDS: How many subscribers do you have presently? What is the cost of service to the end user?

DL: As we're only in the beginning stages of rolling out our system, our subscriber base is non-existent at present. Every person on the system right now is, as per our initial trials, is a non-paying customer.

But, that said, the indicators from the two-week trials outline that the traffic has been tremendous, and that will translate into a solid group of paying customers, as many of them are ready to move into a permanent customer status. It's our intention to continue the two-week free trial, with a migration into a 'for pay' system. It's a successful formula for us.

Our subscription charges for an hour of time will be $3.95. If a user wanted to maintain a recurring monthly connection, it would be $39.95. We also offer options for two-hour use packages as well as those for one day and one week. The prices are established accordingly.

When we branch out into establishing our service with the likes of the hotel industry, we'll be integrating a price structure that will run concurrent with price packages offered to patrons, as well as catering to that hotel's requirement. We include shopping centers in the above rollout as well.

With the influx of more and more Wi-Fi ready devices on the horizons, it's really somewhat of a 'land grab' out there right now. Build-out your market and they will come.

EDS: Does the Blackberry unit use the same type of technology as you offer, or is it cellular-based?

DL: It's cellular technology. However, in the Wi-Fi business, you could use a product like that in the same sense, but it's more robust. With a Wi-Fi ready pocket PC or Palm Pilot, the user will have the capability to tap into the access service. Therefore all can be used in the exact same manner as the Blackberry.

Taking it a step further, there's also going to be a whole new generation of Wi-Fi enabled cell phones coming out. That's a big part of the reasoning for Nextel jumping into the fold. Their cell phones will soon start to offer Wi-Fi connectivity capability; they'll have a dual mode.

A good number of people live by their cell phones, and having that extent of capability will allow for integration for many functions into one piece of equipment. As an aside, Bill Joy at Sun Microsystems recently commented that it's his firm belief that the cell phone, one day, will be equipped with a chip that will hold all of your identification and banking information and will, in essence, become your wallet. The Wi-Fi capability certainly fits into that 'expansion'.

EDS: Does the rise in consumer confidence a factor in increasing your subscriber base, or is it your opinion that the inherent need for the Internet in day-to-day business and personal lives will be enough to see your business expand?

DL: Both will certainly have an effect on our business success, but we believe that the enhancement of quality of life and business that this service will provide will, in itself, drive the market.

Although consumer confidence is most certainly an important factor and one that dives the stock market, we as a population really do grasp and hold onto anything that will enhance our ability to make our lives more efficient, dependable and enjoyable. Mobility, to us, is a key factor. Case in point…how many people do you know without a cell phone? Fifteen years ago, almost no one had such a device, now it's the easiest thing in the world to get one…children to the elderly. It's almost an assumed way of life and communication. The convenience that the cell phone has brought to people's life is migrating into that of Internet on-the-go demand. Once you have one, it would seem that other naturally follows.

EDS: Do you see Air-q expanding into markets outside of the United States as the ranks of Internets users grow globally?

DL: There's always that possibility, but one that we haven't much discussed to this point. We are concentrating on the initial stages of our rollout and making them a success before we move outside of the boundaries. Globally-speaking, China would be a great market to get established in. The infrastructure doesn't exist there, but, and here's the ironic thing, sometimes the countries that do not have the wired infrastructure, very often have the most modern technology introduced to them, and that prior to it being established here. We could feed off the infrastructure set up by the likes of an industry giant like a Nextel.

EDS: Some fundamental structure questions: Number of shares outstanding?

DL: There is presently 12.5 million shares outstanding.

EDS: Fully diluted?

DL: Approximately 27 million.

EDS: How many in the float?

DL: Approximately 1 million.

EDS: Percentage of the outstanding held by management?

DL: 70% is held by management and insiders; just myself and a handful of others.

EDS: Anything held by institutions?

DL: Not at this point, but we are looking to introduce the company to them as we grow fundamentally and revenue-wise.

EDS: Any plans to move from the bulletin board to a more senior exchange listing?

DL: We're definitely looking at listing on one of the more senior exchanges in the near future. We're leaning towards listing on the AMEX. It's a well-respected and innovative exchange and would eliminate the Market Maker action.

EDS: What is your present revenue model?

DL: I can't really comment on that too specifically at the moment, as we've adjusted the numbers many times in the past few months. The industry is ever evolving and has changed totally in the past 90 days. With new numbers and projections coming out, we've had to revamp our model many times, and usually to the upside.

It's safe to say, however, that within the next 18 months, we can easily see $12–$15 million in annual revenues, based on what we've proposed and have on the table now to build out.

EDS: What does the long-term financial picture look like? How does, if at all, the 20 million warrant position figure into the next 12–18 months?

DL:We do have funding commitments for $7 million, based on the fully diluted share position. We have a plan in place now for those warrants to be exercised, over the next 6–9 month period, effectively giving us the cash infusions we need to bring our business plan to fruition.

That money would be used specifically to build out our targeted markets. And because of the low cost of maintenance and the back office of the hot spot sector, virtually all of those funds will be earmarked for the fundamentals of the hot spot build out. Of that and our existing budgets, 15% is also set aside for sales & marketing, both to the general public and hotels and like businesses that can do a co-revenue share with us.

Our main concern is to get through the next 12 months, evaluate where we are as far as growth and see where the industry as a whole is at. We would then like to do a secondary funding somewhere in the $20–$30 million range, to initiate an even broader rollout. All in all, I would think that we'll see a share price in the $2 range by the end of this year.

EDS: ETA for profitability?

DL: 18 months. That is, based on the money and markets we have at present. As that changes and more markets are added to the mix and more funding is required, that may change accordingly.

EDS: Any plans for mergers, acquisitions, signing strategic partners or acquiring like entities with that money?

DL: Because of the infancy of the hot spot industry, there really aren't many merger candidates out there at this point. Regarding strategic alliances, we continue to evaluate opportunities as they present themselves. Aligning ourselves with other players would most certainly help achieve a wider rollout.

Taking giants like Nextel and SBC into consideration, there is possibility that Air-q could be a target acquisition. Perhaps even some of the smaller cable providers as well. If we get enough footprints built, we could become a very attractive target. We're right on the forefront, and the goal continues to be to gain as much solid ground and market in as short a period of time as possible.

EDS: What's your general outlook for the Internet provision industry as a whole over the next 3–5 years and, given your Company's 'next stage' offering, Air-q's benchmarks therein?

DL: The outlook for the sector as a whole is extremely positive. The entire Internet industry has rebounded and recovered from some of the 'dot come bust', and taken a more sensible and more appreciative fundamental stance. As far as actual Internet users go, the growth there will be astronomical over the next 2–3 years, as current trends and demographics indicate. And those consumers will be demanding more of the way of portable connectivity.

Our milestones will be first and foremost to achieve a solid presence in territories. We would like to see our hot spot growth to hit 6,000 to 10,000 over the next 12–18 months. Regarding customer base and revenue, as mentioned, projections are very speculative as the industry is so new. However, based on some predictable industry numbers, it'll be quite robust, as items like roaming agreements are established, providing us the platform to become more of a national presence.

The revenues will most assuredly follow. The last 90 days the landscape has changed so much. Some of original numbers are now more than we had anticipated…and that all culminates in a long-term and prosperous opportunity for all of us.

Jennifer Gardiner, an Investor Relations veteran and a freelance business writer, is presently consulting with Eric, David and Sons, Inc. Working primarily with micro and smallcap Companies, she has assembled and actively maintains international relationships in her roles as Marketing/Communications Strategist, and Investor/Public Relations Managerial consultant.

Please view the EDS disclaimer/disclosure on Air-q.

2003 © Eric, David & Sons, Inc. All Rights Reserved.

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