FLYHT Aerospace Solutions Ltd. — Interim / Quarterly Report 2024

Nov 14, 2024

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THIRD QUARTER

FLYHT AEROSPACE SOLUTIONS LTD. MANAGEMENT DISCUSSION & ANALYSIS

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LETTER TO SHAREHOLDERS

It is with mixed emotions that I write this shareholder letter, given my deep sense of pride for all the accomplishments that our team at FLYHT has achieved over the past 25 years. At the same time, I recognize that we are at a crossroads and must take necessary steps for the company’s industry leading portfolio of products and solutions to realize their full potential.

As you know, our company has invested substantially in the development of the industry’s first 5G compatible wireless QAR (WQAR) and aircraft interface device (AID), the AFIRS Edge. While we stay confident that the AFIRS Edge will be a requirement for the global airline community as the 3G and 4G networks are phased out, it has also become increasingly clear this year that the market opportunity will be realized on a timeline that we are unable to support independently.

In recent months we took several substantial but necessary measures in an effort to strengthen the balance sheet, drive revenue growth, and realize positive EBITDA. This included debt financing, a significant strategic restructuring, cost reductions, and changes at the senior leadership level. Simultaneously, we engaged in a process to review the strategic options for the company. A key element of which was to engage our advisors in the exploration of potential strategic partners or investors who had the financial strength, market access and scale necessary to satisfy the requirements of our larger potential enterprise customers. We wanted to secure and realize the potential of the FLYHT portfolio of actionable intelligence and weather solutions going forward.

Through this process and in consideration of the available options, we determined that the best opportunity for FLYHT to achieve our goal of scaled distribution for our first-class products was to align with an organization with more significant resources than our own. After an extensive search supported by our advisors, we identified Firan Technology Group Corporation (TSX: FTG) (OTCQX: FTGFF) (“FTG”) as a potential acquirer of the business. This subsequently led to the negotiation and execution of a definitive arrangement agreement (the “Arrangement”) for acquisition of FLYHT in a cash and share transaction valued at approximately CAD$13.2 million. The consideration is comprised of cash and common shares of FTG (see our press release dated October 21, 2024). After careful consideration, the recommendations and reasons of the special committee of FLYHT’s board of directors, receipt of an objective fairness opinion, the advice of legal and financial advisors, and such other matters as it considered relevant, FLYHT’s board of directors unanimously concluded that this transaction is in the best interests of FLYHT and recommends that FLYHT shareholders vote in favor of the Arrangement. FTG, a Canadian company listed on the Toronto Stock Exchange, is one of the world’s leading suppliers of aerospace and defense electronic products and together we believe we will be positioned to accelerate our growth initiatives and serve our customers better.

During this process, we worked hard to ensure that FLYHT’s shareholders would be able to continue to take part in the upside from the successful adoption of our products. Under the Arrangement, FLYHT shareholders may elect to receive, for each common share of FLYHT held (i) CAD$0.1103 in cash and 0.0333 common shares of FTG, (ii) CAD$0.3379 in cash or (iii) 0.0495 common shares of FTG, in each case subject to pro-ration (collectively, the “Consideration”). The Consideration will be subject to maximum aggregate cash consideration of CAD$4.3 million and 1,300,000 common shares of FTG. FLYHT shareholders who do not make an election will be deemed to have elected to receive a combination of cash and common shares of FTG for their FLYHT common shares. The Consideration implies a price of CAD$0.3379 per FLYHT common share, representing a 41% premium to the closing price of the FLYHT common shares on the TSX Venture Exchange on October 21, 2024 and a 46% premium to the 10-day volume-weighted average price per FLYHT common share for the period ended on October 21, 2024. We are pleased to deliver value to our dedicated stockholders, find a well-aligned company culture for our valuable staff, and position FLYHT to embark on its next phase for growth as part of an industry-leading corporation.

The closing of the transaction with FTG is subject to receipt of FLYHT shareholder and court approvals, any required regulatory approvals and consents, and customary closing conditions and is expected to close in the fourth quarter of 2024. A virtual meeting of shareholders via teleconference call (the “Special Meeting”) has been scheduled for December 16, 2024. Further details on the Arrangement, the consideration and other related matters will be included in the management information circular to be mailed to FLYHT shareholders in connection with the Special Meeting of FLYHT shareholders to be held to approve the Arrangement.

We look forward to ending 2024 on solid footing being part of a larger organization, whose goals and values are aligned with FLYHT’s. We are confident that this is the right opportunity to scale our business and achieve our vision of bringing a portfolio of world-class products and solutions that have scalable distribution. We believe that this is the right opportunity at the right time for our shareholders, our employees, and our customers.

Let me take this opportunity to thank our shareholders, our employees, our partners and our customers for their support in all of our endeavours. We are excited about the new opportunities that this transaction will bring for all you. Yours truly,

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Mary McMillan Interim CEO and Executive Chair of the Board

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Table of Contents

Letter to Shareholders .................................................................................................................................................. Forward Management Discussion & Analysis ....................................................................................................................................... 4 Non-GAAP Financial Measures .......................................................................................................................................... 4 Forward-Looking Statements .............................................................................................................................................. 4 FLYHT Overview ................................................................................................................................................................. 5 Trends and Economic Factors .......................................................................................................................................... 10 Environmental, Social and Corporate Governance .......................................................................................................... 12 Results of Operations ....................................................................................................................................................... 15 Selected Results ......................................................................................................................................... 15 Financial Position ........................................................................................................................................ 15 Comprehensive Loss .................................................................................................................................. 19 Other ........................................................................................................................................................... 23 Auditors’ Involvement ....................................................................................................................................................... 27 Corporate Information ........................................................................................................................................................... 28

FLYHT AEROSPACE SOLUTIONS LTD. Q3 2024 REPORT

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Management Discussion & Analysis

This management discussion and analysis (“MD&A”) is as of November 13, 2024 and should be read in conjunction with the audited annual consolidated financial statements of FLYHT Aerospace Solutions Ltd. (“FLYHT” or the “Company”) as at and for the years ended December 31, 2023 and 2022 and the accompanying notes. Additional information with respect to FLYHT can be found on SEDAR at www.sedar.com. The Company has prepared its September 30, 2024 condensed consolidated interim financial statements and the notes thereto in accordance with International Accounting Standards 34, Interim Financial Reporting, under IFRS Accounting Standards, as issued by the International Accounting Standards Board (“IASB”). The Company’s material accounting policies are provided in note 3 to the condensed consolidated interim financial statements.

Non-GAAP Financial Measures

The Company reports its financial results in accordance with International Financial Reporting Standards (“IFRS”) or Generally Accepted Accounting Principles (“GAAP”). It also occasionally uses certain non-GAAP financial measures, such as working capital, non-current financial liabilities and earnings before interest, income tax, depreciation and amortization (“EBITDA”) and Adjusted EBITDA. FLYHT defines working capital as current assets less current liabilities. Non-current financial liabilities include the non-current portion of loans and borrowings and lease liabilities. EBITDA is defined as income for the period, before net finance costs, income tax, depreciation and amortization of assets. These non-GAAP financial measures are always clearly indicated. Working capital can be used to assess a company’s liquidity, operational efficiency, and short-term financial health. Non-current financial liabilities can be used to assess the solvency and leverage of a company. EBITDA can be used to analyze and compare profitability among companies and industries, as it eliminates the effects of financing and capital expenditures. FLYHT defines Adjusted EBITDA as EBITDA less non-recurring restructuring costs. The Company believes that these non-GAAP financial measures provide investors and analysts with useful information so they can better understand the financial results and perform a better analysis of the Company’s performance and profitability. Since non-GAAP financial measures do not have a standardized definition, they may differ from the non-GAAP financial measures used by other companies. The Company strongly encourages investors to review its financial statements and other publicly filed reports in their entirety and not rely on a single non-GAAP measure.

Forward-Looking Statements

This discussion and the letter to the shareholders accompanying this discussion include certain statements that may be deemed “forwardlooking statements” or “forward-looking information” that are subject to risks and uncertainty. All statements, other than statements of historical facts included in this discussion, including, without limitation, those regarding the Company’s financial position, business strategy, projected costs, future plans, projected revenues, objectives of management for future operations, the Company’s ability to meet any repayment obligations, the use of non-GAAP financial measures, trends in the airline industry, the global financial outlook, expanding markets, research and development (“R&D”) of next generation products and any government assistance in financing such developments, foreign exchange rate outlooks, new revenue streams and sales projections, cost increases as related to marketing, R&D, administration expenses, litigation matters, and sales order backlog may be or include forward-looking statements. Although the Company believes the expectations expressed in such forward-looking statements are based on a number of reasonable assumptions regarding the global economic environments, local and foreign government policies/regulations and actions, and assumptions made based upon discussions to date with the Company’s customers and advisers, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements.

Forward-looking information is based on the opinions and estimates of management at the date the statements are made and are founded on the basis of expectations, assumptions and hypotheses made by the Company, including, but not limited to, the following: projected costs, future plans, projected revenues, objectives of management for future operations, trends in the airline industry, the global financial outlook, including, but not limited to, the effects of expanding markets, foreign exchange rate outlooks, sales projections, cost increases and/or decreases as related to marketing, R&D, administration expenses. The forward-looking information included in this discussion and the letter to the shareholders accompanying this discussion have been prepared using assumptions (all of which are supportable and reflect the Company’s planned courses of action for the next 12 months) as to the most probable set of economic conditions. Such assumptions are consistent with the purpose of the information but are not necessarily the most probable in management’s judgement. Factors that could cause actual results to differ materially from those in the forward-looking statements include but are not limited to production rates, timing for product deliveries and installations, government activities, volatility within the aviation market for FLYHT’s products and services, factors that result in significant and prolonged disruption of air travel worldwide, global military activity, market prices, availability of satellite communication, foreign exchange rates, continued availability of capital and financing, and general economic, market, or business conditions in the aviation industry, including, but not limited to, the effects of the COVID-19 pandemic, worldwide political stability or any effect those may have on the Company’s customer base. Investors are cautioned that any such statements are not guarantees of future performance, and that actual results or developments may differ materially from those projected in the forward-looking statements.

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Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. The Company cannot assure investors that actual results will be consistent with any forward-looking statements; accordingly, readers should not place undue reliance on forward-looking statements. The forward-looking statements contained herein are current only as of the date of this document. The Company disclaims any intentions or obligation to update or revise any forward-looking statements or comments as a result of any new information, future event or otherwise, unless such disclosure is required by law. The forward-looking information has been provided to the readers to assist in assessing the impact of the information disclosed herein on the Company and such forward-looking information may not be appropriate for other purposes. We undertake no duty to update any of the forward-looking information to conform such information to actual results or to changes in our expectations except as otherwise required by applicable securities legislation. Readers are cautioned not to place undue reliance on forward-looking information.

FLYHT Overview

FLYHT provides airlines with Actionable Intelligence to transform operational insight into immediate, quantifiable actions, and delivers industry leading solutions to improve aviation safety, efficiency, and profitability. This unique capability is driven by a suite of patented aircraft certified hardware products, which comprise FLYHT’s Automated Flight Information Reporting System (“AFIRS™”). Solutions include an aircraft satcom/interface device that enables cockpit voice communications, transmission of aircraft data both while inflight via satellite and post-flight via 5G, real-time aircraft state and fleet status analysis, and preventative maintenance solutions. FLYHT’s hardware products can also be interfaced with FLYHT’s proprietary relative humidity sensors to deliver airborne weather and humidity data in real-time.

FLYHT is headquartered in Calgary, Canada, and is an AS9100 Quality registered company. For more information, visit www.flyht.com.

1. Actionable Intelligence Solutions

Actionable Intelligence solutions maximize customers’ operational efficiency and safety with reliable, easy to use, flexible, and costeffective solutions. This industry differentiator provides not only economic value but also opportunities for customers and FLYHT to meet their sustainability goals. FLYHT aims to leave no data stranded and no related opportunity to take corrective or opportunistic action left unrealized.

Cloud-based enterprise servers complement AFIRS data with external airline, airport, and other industry data sources. These external sources have many components aiding in aircraft operations, maintenance, and ground operations as well as flight planning and scheduling. The consolidation of this diverse collection of information provides the data for artificial intelligence and machine learning systems to run against.

FLYHT continues to add to its suite of Actionable Intelligence solutions. The service offering provides FLYHT with a recurring, Software as a Service (“SaaS”) revenue stream that is incremental to its existing revenue sources. While every Actionable Intelligence solution will thrive with real-time inputs from an AFIRS unit, the broader approach to incorporate third-party inputs allows FLYHT’s solutions to be leveraged in any airline environment.

WQAR

As 2G/3G/LTE cellular networks around the world are decommissioned, FLYHT’s AFIRS Edge provides a seamless transition to Wireless Quick Access Recorder (“WQAR”) post-flight file transmission over existing 3G/4G and new 5G networks. 5G networks allow for a significant increase in data volumes transmitted from an aircraft, enabling additional Actionable Intelligence solutions to be implemented. As these become available FLYHT can provide immediate access for airlines to maximize benefits of the new networks, setting up airlines for long term success. WQAR data forms one of the foundations for the Actionable Intelligence solutions that FLYHT provides.

Opportunities to enhance airline operational control and decrease airline costs are derived from Quick Access Recorder (“QAR”) recordings and by expanding data harvesting that is now fully under airline control.

Aircraft Interface Device

AFIRS Edge provides Aircraft Interface Device (“AID”) functions to supply an aircraft’s own data to the flight deck for Electronic Flight Bag (“EFB”, usually via iPad) applications. Information from a variety of systems connected to the AFIRS Edge can now be forwarded to the flight deck for use in applications accessed by the flight crew. Any application running on an EFB will have access to the data from the Edge, whether the application is developed by FLYHT or by a third party.

These AFIRS Edge functions are easily and remotely configurable. As airlines update or add new applications to run on the flight deck, the need for new aircraft data will arise. Amazon Web Services (“AWS”) technologies incorporated into the design of the Edge allow ground personnel to remotely update the AID functions of an Edge and in turn, provide additional aircraft data to the flight deck.

FLYHT AEROSPACE SOLUTIONS LTD. Q3 2024 REPORT

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FleetWatch

Situational awareness remains a primary objective for any Operations Control Centre (“OCC”) and airline staff. FLYHT’s FleetWatch provides a fleet wide situational awareness platform in a form configurable to be most relevant to the role of the receiver. In addition to taking direct inputs from any AFIRS unit, FleetWatch can incorporate third-party inputs as part of its situational display.

Unlike traditional Aircraft Situational Displays (“ASD”), FleetWatch incorporates the concept of Actionable Intelligence into its design. The primary user interface is not only a source of real-time aircraft position and state but is also a tool for OCCs to receive Actionable Intelligence information. Information relevant to the efficient operation of an airline is directly displayed in FleetWatch.

Airline operations that need immediate attention or that require direct action from staff can be displayed on the FleetWatch main page. By providing this real-time display with meaningful information, airline staff are immediately notified when situations requiring their attention are identified. From diagnosing a fault while airborne to instructing ground crews of unnecessary Auxiliary Power Unit (“APU”) operation, FleetWatch is a primary conveyor of Actionable Intelligence to our airline customers.

FuelSense

Fuel usage and emissions are a significant concern for all airlines. FLYHT’s FuelSense application provides valuable insight into an airline’s management and usage of fuel. By providing targeted guidance through impactful decision support, airline operational change can be achieved. FuelSense incorporates the concept of Actionable Intelligence to provide meaningful information to an operator. Fuel optimization includes minimizing APU usage and optimizing dispatch, pilot and ground personnel actions.

ClearPort

Better asset utilization has a direct impact on airlines’ long-term sustainability. ClearPort provides Actionable Intelligence to support optimizing ground operations. By providing a clear view into the status of an aircraft in a turn, ClearPort allows an airline to move beyond reporting of operational delays into a state where Actionable Intelligence can be used to manage and avoid situations that affect operations. ClearPort draws attention to opportunities for personnel to better manage aircraft turns and immediately mitigate risks of late departures.

ClearPort allows an airline to minimize the time an aircraft is on the ground. Monitoring and reporting of events that are known to occur while an aircraft prepares for the next flight will allow ground crews to have the aircraft ready on time for the next flight. Events such as passenger and cargo doors opening and closing, fuel being uploaded, passengers boarding are actively tracked and reported so dispatch crews can monitor the state of a turn and inject corrective action as needed.

2. Airborne Hardware

AFIRS Edge™

The Edge is FLYHT’s latest addition to the AFIRS hardware family and is delivered as an extensible multifunction avionics platform. The Edge’s modular functionality allows different configurations and features to be implemented as an airline needs them. Communication options include 5G/4G/3G cellular capabilities (the first 5G solution on the market), a modular Iridium Certus satcom, Bluetooth and WiFi capabilities, and the ability to interface with existing onboard broadband solutions.

AFIRS Edge turn-key applications include the ability to transmit recorded aircraft data over 5G networks, provide flight deck applications with data from a variety of aircraft systems, bulk aircraft system data acquisition and recording, and AFIRS analytics through our enhanced, customized aircraft health monitoring system.

The WQAR function of the AFIRS Edge provides an industry-first move towards 5G transmission of aircraft recorded black box data. By using the most efficient method of data transfer off an aircraft post-flight, data volumes can be increased while the cost of transmission decreases. Being backwards compatible, the Edge can use 5G, 4G, or 3G networks, allowing for continuous service at airports around the world as older networks are decommissioned. With the future of 5G expected to last beyond 2040, the WQAR functions of the AFIRS Edge provide an opportunity for airlines to upgrade their avionics in one move that will serve them for many years.

The AFIRS Edge provides a configurable airborne platform for FLYHT to implement current and future Actionable Intelligence solutions for our customers and for the industry. There are two models within the AFIRS Edge product line: the AFIRS Edge, a smaller flange mounted device that requires a larger installation effort, and the Edge+, which can take advantage of 2G/3G/LTE existing installations on aircraft and allows for a simple 5 minute replacement. The two different Edge models provide airlines flexibility in how they wish to equip their aircraft and allow them to obtain common functions across diverse fleets.

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AFIRS

AFIRS is a family of avionics installed on aircraft that captures and monitors hundreds of essential functions from the aircraft including data recorded by the black box. AFIRS transmits this information in real-time through various technologies to FLYHT’s servers, which use that data to power solutions such as displaying real-time fleet visualizations and providing fleet wide Actionable Intelligence.

In addition to data monitoring and flight tracking functions, the AFIRS family of products provides voice and text messaging capabilities in both safety services level security and regular satcom. The system supports many value-added solutions including tracking aircraft, fuel management and monitoring aircraft health as well as communicating weather observations that include relative humidity data captured by aircraft sensors. FLYHT’s real-time, global coverage is enabled through the Iridium satellite network, providing service to customers anywhere on the planet.

FLYHT has received regulatory certification for installation of AFIRS on most commercial aircraft types and models (see systems approvals section). The AFIRS 228S features cater to the evolving needs of airlines by providing a customizable and flexible product. FLYHT’s in-house aircraft certification group allows for easy addition of new data sources to the reporting capabilities of AFIRS.

Various certifications granted by Transport Canada to FLYHT for the AFIRS 228S allow for provision of safety services voice and data, and ensure customers are able to benefit from a more efficient route structure, reduced flight times, reduced fuel burns, and enhanced communications between Air Traffic Control and the aircraft.

FLYHT’s systems and solutions provide enhanced global flight tracking capabilities that meet and exceed International Civil Aviation Organization’s (“ICAO”) Global Aeronautical Distress and Safety System (“GADSS”) definitions for both normal and abnormal tracking.

FLYHT-WVSS-II (Water Vapour Sensing System)

The FLYHT-WVSS-II is an aircraft sensor that detects and reports water vapour as relative humidity. This relative humidity value is incorporated with other aircraft weather information to generate Aircraft Based Observations (“ABOs”) which can be fed to different weather models around the world.

By adding relative humidity to the standard weather data collected by various aircraft sensors during the ascent and descent phases, FLYHT significantly increases the value of aircraft weather data. A FLYHT-WVSS-II can be paired with an AFIRS 228 unit, or with an AFIRS Edge for transmission of weather sounding data in real-time.

FLYHT-WVSS-II enhanced ABOs are provided to government and private weather modeling agencies around the world using industry standardized and accepted formats for data transmission of weather data, thereby ensuring maximum benefit of this data to meteorological agencies around the world.

TAMDAR™

FLYHT’s Tropospheric Airborne Meteorological Data Reporting (“TAMDAR”) system is a unique sensor device installed on aircraft that captures temperature, atmospheric pressure, winds aloft, icing, turbulence, and relative humidity. It bundles this information with Global Positioning System (“GPS”) data and transmits the payload in real-time over satellite networks. TAMDAR provides real-time, high-quality atmospheric data collected from aircraft in North America, Asia, and Europe through continuous observations including all the metrics of radiosonde observations plus icing and turbulence.

Like the data traditionally gathered by weather balloons, the information collected by TAMDAR is used to update weather models. Unlike weather balloons, TAMDAR collects the data continuously and in real-time by transmitting “soundings” or batches of data to weather offices. The relative humidity data gathered throughout an aircraft’s flight makes these weather soundings particularly valuable to meteorologists.

3. Communications

FLYHT provides two-way text messaging to the flight deck through the multi-control display unit (“MCDU”) or an iPad application. Updated crew assignments, crew repositioning, and tail swaps can be sent to the aircraft directly and in real-time. Real-time text messaging helps manage diversions due to weather, mechanical issues, or other unforeseen situations making it easy for the flight crew and dispatch personnel to keep each other updated on the progress of their flight or any required deviations from plan. Our latest auxiliary hardware products provide both power and connectivity to the devices used by pilots to create a secure, reliable platform for these systems.

The AFIRS voice solution uses the Iridium satellite constellation with global coverage and an onboard satellite phone to provide a rapid and reliable private satcom communication channel to the flight deck. When operating remote or oceanic flights, this allows for communication between dispatch and crew with no delay. The voice capability is particularly valuable when operating in remote regions with little to no VHF/HF coverage.

FLYHT’s AFIRS 228 voice and data communication solutions provide alternatives to legacy systems that are unreliable, heavy, and expensive. Aircraft flying routes where ground-based VHF communication is not available are supported with communication between the flight deck and either company operation or to Air Traffic Control. The AFIRS Edge includes 5G/4G/3G cellular capabilities, a modular Iridium Certus satcom capability, and the flexibility to integrate with existing onboard broadband solutions.

FLYHT AEROSPACE SOLUTIONS LTD. Q3 2024 REPORT

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4. MRO Services

CrossConsense supports the aviation industry with its expertise in the application and utilization of SWISS AviationSoftware's comprehensive Aircraft Maintenance and Engineering Operating System (“AMOS”) software solution. With a profound understanding of airline maintenance operations and supporting Maintenance, Repair, and Overhaul (“MRO”) products, the company offers a range of solutions in this market including maintenance, engineering, and logistics solutions, as well as data migration, business intelligence, customization, and consulting services. Core offerings include:

AMOS Support

Offering a single point of contact for both 1st and 2nd level support, CrossConsense ensures seamless troubleshooting and assistance for clients. CrossConsense specializes in meticulously planned and executed data migration projects, ensuring smooth transitions for airline customers. The company also excels in reporting and business intelligence analytics, providing crucial insights to optimize operations.

AMOS Hosting & Operation

Hosting and operation services offer a comprehensive solution for aviation businesses seeking a reliable, secure, and efficient platform to manage their software applications.

Aircraft Fleet View

The Aircraft Fleet View application is a tool that provides real-time insights into an airline's fleet status. Displaying crucial information with precision and clarity, Aircraft Fleet View offers updates on Aircraft on Ground (“AOG”) situations, delays, and other vital data without overwhelming the user.

ACSIS

Recognizing the collective, untapped value of data stored in maintenance databases like AMOS, CrossConsense developed their Aircraft Condition and Status Information System (“ACSIS”) product. This robust software empowers airlines, operators, MRO facilities, and OEMs to identify trends and report on conditions that optimizes aircraft utilization and enhances safety, thereby contributing to improved overall operational efficiency.

AviationDW

Aviation Data Warehouse (“AviationDW”) is a managed data warehouse solution tailored for seamless integration with backend systems such as AMOS. By simplifying Key Performance Indicator (“KPI”) creation through comprehensive MRO system data analysis, AviationDW offers a strategic advantage in decision-making and performance optimization.

SYSTEM APPROVALS

FLYHT is a Transport Canada Civil Aviation (“TCCA”) Approved Manufacturer, a TCCA Approved Maintenance Organization (“AMO”) and a European Aviation Safety Council (“EASA”) and a Civil Aviation Administration of China (“CAAC”) Part 145 Repair Facility. FLYHT’s quality system is AS9100D and is certified with the registrar Intertek. The Company also holds STCs to make appropriate modifications, such as installing FLYHT’s AFIRS, FlightLink and TAMDAR technologies to an aircraft’s approved design. An STC is required when the original type design of the aircraft is altered or modified. In order to install FLYHT’s hardware solutions on an aircraft, the type design is altered, and thus the STC certification process must be followed in whichever jurisdiction the aircraft operates. In addition to STCs, FLYHT also holds a Technical Standard Order (“TSO”) certification for its AFIRS 228S product. A TSO is a minimum performance standard for a specific material, part, or appliance. In this case, AFIRS conforms to TSO-C159b, making it a conforming Next Generation Satellite System (“NGSS”) using Iridium satcom.

FLYHT has STC approvals from TCCA (Canada), the FAA (United States), EASA (European Union), CAAC (China), ANAC (Brazil), DGAC (Mexico), SAAU (Ukraine) and ECAA (Egypt) for various aircraft models to address a variety of customer requirements.

FLYHT’s expertise in airworthiness certification allowed the Company to join a select group of Canadian companies who are approved by TCCA as a Design Approval Organization (“DAO”). Very few organizations achieve DAO status because of the time and expertise required to meet TCCA standards. FLYHT’s DAO status, along with the delegations it has received, allows the Company to obtain and revise its own STCs and revise its TSOs with minimal TCCA oversight. This lessens application wait times and reduces costs and reliance on contractors.

As a component of its DAO status, FLYHT employs the services of delegated engineers, allowing for the approval of changes to the structural or systems and electrical design aspects of an airworthiness certification. If an issue is encountered during the STC or TSO process, the delegate has the authority to approve necessary changes and continue the process without the involvement of an external party.

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Further, for FLYHT-held Federal Aviation Administration (“FAA”) STCs, FLYHT has a Minor Change Agreement with the FAA which allows a range of changes to be made to the STC data package without direct involvement from the FAA.

The process to receive an STC can take considerable time, but in all cases, it starts with an STC application through the TCCA, FAA, CAA, or EASA. FLYHT typically starts the process by opening an application with the regulator before an STC package is created. The data package is prepared, including engineering documents outlining how FLYHT equipment is substantiated and installed on the aircraft, and the package is submitted to the regulator for provisional approval (this process can vary depending on the jurisdiction).

Once the provisional approval is received, first-of-type ground and flight testing takes place to fulfill regulatory requirements. FLYHT requires access to the proposed types and models of aircraft, which is done in cooperation with an existing or potential customer.

After all tests are complete, FLYHT submits an application for the activation approval to the regulator, confirming all regulatory requirements have been met and the unit is fit for operation on that aircraft type as designed. From there, the regulator approves the submission and an STC is issued.

To acquire an STC validation from a new national regulator, FLYHT submits an application to the new regulator such as the FAA or EASA with the STC data package previously approved by TCCA. The new regulator then reviews the package, confers with the original issuing regulator if required and issues an STC for that country based on their validation of the original STC.

Timelines required for the approval process vary depending on aircraft and workloads, but typically take about three to four months to obtain TCCA approval, with an additional three to eight months if an STC is required from an additional regulator.

STC Chart: AFIRS 220 and 228

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TCCA FAA EASA CAAC ANAC
Canada USA EU China Brazil Aircraft Type
220 228 220 228 220 228 220 228 220 228
A A A A A A A A Airbus A319, A320, A321
P Airbus A330
A A A ATR42-300
A ATR42-500 and ATR72-212A "500 Version"
A A A ATR72-100, -200
A ATR42-500 "600 Version" STC Twenty One
A ATR72-212A "600 Version" STC Twenty One
A A A A Boeing B737-200
A A A A A A A A A Boeing B737-300, -400, -500
A A A A A Boeing B737-600
A A A A A A A A A Boeing B737-700, -800
A Boeing B737 MAX 8
A Boeing B737-900ER
A Boeing 747-200
A A A A A A A A Boeing 757-200
A A A A A A A A Boeing 767-200, -300
A A Boeing B777-200, -300
A A A A A A Bombardier DHC-8-100, -200, -300 Avmax
A A A A Bombardier DHC-8-400
A A A A A A A Bombardier CRJ-100, -200, -440
A A A A Bombardier CRJ-700, -900
A Comac ARJ21 China Express Airlines Co. Ltd.
A A P A Embraer ERJ 190-100
A Embraer Legacy 600 and ERJ–135, -145
A Fokker 100
A A A A A A Hawker Beechcraft 750, 800XP, 850XP, 900XP
A A A McDonnell Douglas DC-10 (KC-10 military)
A McDonnell Douglas MD-82
A A McDonnell Douglas MD-83
A Viking Air DHC-7 (LSTC)
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FLYHT has also received AFIRS 228 STCs for the Bombardier CRJ-700, -900, Boeing 737-300, -400, -500 and 737-700, -800 from the DGAC (Mexico). FLYHT has received AFIRS 228 STCs for the Boeing 737-300, -400, -500, -700, -800 and the 767-300 from the State Aviation Administration of the Ukraine (SAAU). FLYHT has also received an AFIRS 228 STC validation from CAAM (Civil Aviation Authority of Malaysia) for the Boeing 767-200, -300.

FLYHT AEROSPACE SOLUTIONS LTD. Q3 2024 REPORT

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STC Chart: AFIRS Edge

TCCA Canada	FAA USA	EASA EU	Aircraft Type
A		I	Airbus A319,A320,A321
A	I		BoeingB737-600,-700,-800
P			BoeingB737-MAX 8
		P	Embraer ERJ-145

STC Chart: AFIRS Edge+

TCCA Canada	EASA EU	Aircraft Type
I	I	AirbusA319,A320,A321

STC Chart: FLYHT-WVSS-II

TCCA Canada	EASA EU	Aircraft Type
I		Boeing B737-600,-700,-800
I		Boeing B737-MAX 8
	P	Embraer ERJ-145

STC Chart: TAMDAR

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DGCA DCA DGAC CAA CAA
FAA EASA Indonesia Malaysia Mexico Philippines Thailand Aircraft Type
TR FL TR FL TR FL TR FL TR FL TR FL TR FL
A A A A A A A A A A Airbus A318, A319, A320, A321
A Boeing 757
A A A A A A Boeing 737-700, -800, -900
A A A A Boeing 737Max 8, 9
A DHC-8-100, -200, -300, -400
A A EMB 135/145
A A EMB ERJ 190-100, -200
A * EMB ERJ 190-100, -200
A Hawker Beechcraft 1900
A Saab 340
A A Saab 2000
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*Chart Legend: A = Approved, P = Pending (Provisions STC has been received; in final stages before receiving a full STC), I = In Progress.

Trends and Economic Factors

FLYHT examines the results of measurements made by leading aviation associations and corporations in order to gain insight into the status of the industry. A few key points are as follows[1,2,3] .

• Industry total Revenue Passenger-Kilometer (RPK) grew 7.1% year-on-year (YoY), reaching an all-time high for the month of September. Available Seat-Kilometer (ASK) rose 5.8% YoY. Passenger load factor (PLF) is up by 2.0 percentage points (ppt) compared to the previous year, totaling 83.6% of the seat occupation in the industry on average.

• Domestic traffic for the industry grew 3.7% YoY. PR China remained in the leading position with 7.7% YoY, while all monitored markets showed signs of stabilization around pre-pandemic growth trends.

• Industry international passenger traffic climbed 9.2% YoY in September. Monthly growth rates remained comparable to previous values while quieting down as we move closer to the end of the year.

• Air travel demand growth is expected to maintain a positive trend, as indicated by ticket sales. The latest data suggest an increase of 7.4% YoY in ticket sales volumes for travel in October and November.

• Global Cargo Tonne-Kilometers (CTK) increased by 9.4% year-on-year (YoY) last month, delivering the 14th consecutive month of demand growth. Demand contracted by 0.4% month-on-month (MoM), net of seasonal adjustment.

• International CTK added 10.5% from last year, with growth in all regions and major trade lanes. Latin America and Caribbean carriers led the expansion with 19.8% YoY. Cargo demand for the within-Europe trade lane outpaced other route areas with an 18.0% annual surge.

• Global air cargo capacity, measured in Available Cargo Tonne-Kilometers (ACTK), saw a 6.4% growth YoY in September, slower growth than before while delivering record high capacity.

• Global air cargo yield maintains a moderate upward trend while jet fuel prices fall.

• In September, Airbus booked an impressive 235 new jets compared to 65 for Boeing. One of the highlights of the September orders haul was China Development Bank’s order for 80 Airbus A320neo Family aircraft (65 A321neos and 15 A320neos). The order was placed by the company’s leasing arm, CDB Leasing and the aircraft are slated for delivery in the 2030-32 timeframe.

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The Aviation Industry in Q3 2024

Industry-wide air passenger traffic, measured in Revenue Passenger-Kilometers (RPK), grew 7.1% year-on-year in September. In seasonally adjusted terms, RPK contracted 0.3% month-on-month (MoM) after five months of consecutive increases. Since the start of this year, the industry has seen only two months of slight contraction in MoM terms, hinting at an overall positive trajectory for total passenger traffic. Airline seat capacity, measured in Available Seat Kilometers (ASK), increased 5.8% YoY and 0.3% MoM and was again outpaced this month by the rise in passenger demand. The industry average passenger load factor (PLF) reached 83.6%, an all-time high for the month of September. While the average load factor has been growing over the past decades, recent industry dynamics, such as lower numbers of new aircraft deliveries, may drive lower seat capacity growth and, thus, higher load factors in the near term.

The passenger load factor in domestic and international markets also exceeded previous records, at 83.3% and 83.8%, respectively. The world's airlines saw diverse developments in passenger load factors. North American and Latin American carriers achieved, on average, lower load factors this month compared to the previous year; on the other hand, the remaining regions saw an increase. Africa saw the largest increase, with September 2024 PLF being 3.6 percentage points (ppt) higher than the previous year, reaching 76.0%.

In September 2024, airlines in the Asia Pacific region contributed the most to the industry’s total RPK growth, accounting for over half of the increase in traffic. Europe played a significant role in the annual rise in RPK this month again, while North America had the lowest growth among all regions, in contrast to these two important regions.[1 ]

Air cargo demand sustains 14-month consecutive growth: September marked the global air cargo industry's 14th consecutive month of demand growth, with a 9.4% YoY. Concurrently, last month’s CTK volumes were the highest on record. In MoM terms, the industry CTK fell for the second consecutive month by -0.4% (after seasonal adjustment).

For the sixth consecutive month, the largest contributors to the annual CTK surge were carriers from Asia Pacific and Europe. They contributed 42% and 26% to the global increase, respectively, in September. Middle East airlines contributed 15%, while North America contributed 11% during the same period. So far this year, air cargo demand in September surged 12.6% compared to 2023, setting a new year-to-date record.

International routes have experienced exceptional traffic levels for the fifth month, with a 10.5% YoY increase in September. Airlines are benefiting from rising e-commerce demand in the US and Europe amid ongoing capacity limits in ocean shipping. Carriers from all regions have seen growth in international traffic for most of the year compared to the previous year, and September continues this trend, showing strong growth rates between 1.8% and 19.8%. Airlines in Latin America and Caribbean marked the highest annual growth in international CTK at 19.8% YoY. Asia Pacific airlines followed with 12.0%, and European airlines saw an 11.7% increase.[2 ]

In September, aircraft deliveries were slow but orders were strong – in particular for Airbus, which set yet another all-time backlog record for the commercial aircraft industry. On the deliveries front, Boeing handed over 33 commercial jets (compared to 40 in August and 43 in July) while Airbus delivered 50 units, up from 47 last month. This compares to 27 deliveries for Boeing and 55 for Airbus in September of last year. Boeing’s deliveries are currently affected by a major strike involving 33,000 of its unionized workers. In September, 27 Boeing 737 MAX were handed over to customers, down from 32 last month. Regulators have allowed Boeing to produce up to 38 737s per month, however, the company has opted to slow its production until it feels ready to return to the official production rate of 38 jets per month. With 27-34 737 MAX’s shipped out monthly in the June-September timeframe, Boeing is still hovering well below the official rate.

Year-to-date, Boeing and Airbus have delivered 291 and 497 aircraft compared to 371 and 488, respectively, during the first three quarters of 2023. As of September, Boeing is 80 deliveries behind compared to last year’s totals to date, while Airbus is eight deliveries ahead. In 2023, in total, Boeing and Airbus delivered 528 and 735 aircraft compared to 480 and 663, respectively, in 2022. In 2023, Airbus won the deliveries crown for the fifth consecutive year. 1 https://www.iata.org/en/iata-repository/publications/economic-reports/air-passenger-market-analysis-september-2024/ 2 https://www.iata.org/en/iata-repository/publications/economic-reports/air-cargo-market-analysis-september-2024/ 3 https://flightplan.forecastinternational.com/2024/10/21/airbus-and-boeing-report-september-2024-commercial-aircraft-orders-and-deliveries/

FLYHT’s Market

FLYHT’s primary markets are commercial passenger and air freight transport operators who seek safer, more efficient, and more reliable operations through making better use of available data, connectivity and information technologies. While competitors offer various point solutions to address one or some of the challenges airlines face, FLYHT offers a unique and wide-ranging combination of avionics hardware, services and SaaS solutions that leverage the latest technologies available. Other markets include business jets and government/military air transport aircraft.

An expanding market for FLYHT is the world’s meteorological agencies and weather services providers. FLYHT enables these weather data customers to work with airlines to implement FLYHT’s weather systems and solutions. FLYHT is the only provider that enables the full suite of Aircraft Based Observations, uniquely including water vapour humidity data that enables enhanced weather forecasting capabilities. The resulting predictive weather intelligence can also help airlines avoid disruptions, recover more quickly following better predicted weather disruptions, and fly more efficiently by updating flight plans to avert weather systems that may impact fuel consumption and flight comfort, as well as costly re-routing for airport closures or planning for ground support and gate shutdowns due to severe weather.

FLYHT AEROSPACE SOLUTIONS LTD. Q3 2024 REPORT

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Detecting atmospheric conditions that create contrails from aircraft has become increasingly critical, as scientists confirm that contrails have a net warming effect that could be as significant as aircraft carbon dioxide emissions. FLYHT has been working with our Actionable Intelligence and weather offerings to develop services to support the broad array of airlines, scientists & regulators that are looking for ways to further reduce the climate impacts of aviation through contrail detection and avoidance.

Foreign Currency

The Canadian dollar weakened relative to both the U.S. dollar and the euro throughout YTD 2024, with the Company experiencing an overall positive foreign exchange impact to net income compared to YTD 2023. As a result of these currency movements, the Company’s revenues, of which a majority are denominated in U.S. dollars, with the proportion contributed by CrossConsense denominated in euros, were higher than they would have been had the foreign exchange rates not changed throughout 2024. It is generally the standard of the aviation industry to conduct business in U.S. dollars. While a majority of the Company’s operating and overhead costs are denominated in Canadian dollars, a significant portion of costs are U.S. dollar and euro denominated, and therefore a partial natural hedge exists against fluctuations of the Canadian dollar.

Environmental, Social and Governance

FLYHT considers Environmental, Social and Governance (“ESG”) factors in decisions made throughout operations. ESG factors are important to business operations and can impact company value and investor decision making. The Company has been working to set reporting metrics and is continually updating a roadmap and implementation timelines. The recent focus of this program was on understanding reporting requirements and developing systems to address those requirements. This includes not only assessing potential risks, but also the opportunities for the Company to provide additional services to other companies working to achieve their ESG and broader sustainability goals. FLYHT has selected the financial reports as the communication method for our ESG programs to ensure visibility for investors into FLYHT’s ESG commitments and opportunities, with the Forced Labour reporting component more fully communicated via the annual report that accompanies our annual financial statements.

Environment

Sustainability has been integral to FLYHT’s operations for many years. Early initiatives had FLYHT playing a key role in the effort to achieve a paperless cockpit, reducing waste, and improving operational efficiency. The Company’s products support the industry’s assessment and implementation of opportunities to increase operational efficiencies and reduce fuel-burn related emissions and impacts to assess in meeting near-term and net-zero emissions 2050 goals in the key areas of increased operational efficiency and reduction of emissions.

More recently, FLYHT has been focused on helping our customers improve their environmental impact by optimizing their use of aircraft and ground infrastructure for efficiency and safety. FLYHT’s FuelSense and ClearPort products provide support to make policy improvements and justify performance-based maintenance activities. With the addition of real-time notifications to frontline personnel, FLYHT’s customers can mitigate the negative impact of inefficiencies as situations develop. In 2022, FLYHT showcased its partnership with Swoop Airlines to reduce emissions by eliminating non-essential 3[rd] engine / APU usage. The FLYHT real-time APU monitoring and notification program allows an airline to reduce its APU run times by providing timely, targeted, and actionable notifications, thereby reducing carbon dioxide (“CO2”) emissions and providing cost savings for the airline. This initiative is aligned with FLYHT’s goal of providing environmentally beneficial solutions that enhance the profit potential for an airline and that contribute to a greener, safer world. The APU consumes approximately 250 lbs of fuel per hour under normal operation. The very nature of FLYHT’s business also supports long-term sustainability. Historically, many of the Company’s sales have come from the retrofit market, in which the Company, by making upgrades to improve the functionality and safety of existing machinery, facilitates the re-use and recycling of aircraft and equipment that might otherwise be scrapped as obsolete.

With the partnership between the UK’s Met Office, Loganair and FLYHT agreed to in 2023, FLYHT will be providing the FLYHT-WVSSII humidity sensors to improve the accuracy of weather forecasts and specifically the prediction of severe weather in the UK, with additional expected benefits for the aviation industry such as more efficient route planning and supporting aims to reduce CO2 emissions. Furthermore, FLYHT was awarded a contract by the National Oceanic and Atmospheric Administration (“NOAA”) to provide its water vapour sensor technology to help the U.S. National Weather Service (“NWS”) improve weather forecasting and warnings. The agreement and its recently announced amendment that confirmed additional orders represent an expansion of FLYHT’s long-standing relationship with NOAA and a recognition of the important role that ABOs play in improving weather forecasting and warning models.

Measurable environmental impacts internal to FLYHT over the past several years include a significant reduction in our operation’s reliance on paper and the diversion of technology equipment from landfills to be repurposed for those in need in the local community. We have upgraded our on-premises server from previous generation hardware to a more energy efficient hyper-converged model, allowing for greater virtualization with less hardware. FLYHT has also moved most users to smaller, more efficient laptop computers, replacing inefficient desktop computers. In addition, FLYHT has shifted to increased virtualization, relying on AWS data centers, which operate with 65% renewable energy as well as utilizing more efficient services and facilities to reduce consumption of non-renewable energy.

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Social

FLYHT has established corporate policies dedicated to improving efficiency in the use of resources and staying abreast of the United Nation’s Sustainable Development Goals and ESG frameworks. FLYHT’s focus on product quality, continuous improvement, data security, and safety has been consistent and has been of the utmost importance to the success of the Company and its products.

FLYHT has established a policy to address requirements as outlined in Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act. By May 31 of each year we share the steps we have taken to prevent and reduce the risk that forced labour or child labour is used at any step of the production of goods in Canada or imported into Canada.

FLYHT prioritizes a healthy work life balance by having flexible hours, encouraging a flexible hybrid workplace, providing paid time off for sickness and family responsibilities, opportunities and support to pursue training and professional development, and comprehensive health benefits. Policies that confirm FLYHT’s commitment in these areas include a career development and training policy, and a flexible workplace policy. In addition, FLYHT conducts a periodic staff survey that gives all employees the opportunity to provide anonymous feedback on company culture, workplace satisfaction, workload and recognition, among others. FLYHT also tracks employee health and safety statistics to monitor that procedures are being followed to protect staff.

The development of a robust ESG policy is important to our employees. As the Company becomes more conscious of our contributions, a focus on ESG affects our employees’ well-being and is an example of how we can operate as environmental and social citizens. Employee participation continues to be critical in forming the Company’s ESG direction and identifying key areas to focus on in each area of the business.

FLYHT is committed to providing a workplace that is diverse, inclusive, and welcoming. Responsible recruitment, increased flexibility and balance, as well as training and development opportunities have resulted in creating an environment that fosters engaged contribution, innovation, and collaboration. Improvements in diversity can be seen over the past several years and can be measured from entry level to the senior management team and Board of Directors, providing a workplace where everyone contributes to our vision of being a global force in innovative data solutions. FLYHT is fully committed to doing what it takes to succeed in this area.

The Board of Directors and the senior management team believe that diversity is important to provide a range of perspectives, experiences and expertise to achieve effective stewardship. The Board of Directors and senior management teams have been developed with a wide range of viewpoints, backgrounds, skills, and expertise specific to the aviation technology sector and other industries or sectors that the Board of Directors believe are beneficial to the Company and its shareholders. At this time, the Company has not adopted: (i) a written diversity policy relating to the identification and nomination of members of designated groups; nor (ii) a target number or percentage, or range, for members of designated groups.

Governance

The Company’s Corporate Disclosure Policy assists in governance of the conduct of its directors, officers, employees and consultants as it relates to communications with the public. Multiple Company policies form a code of conduct for this group. The Board of Directors believes that the Company's size also facilitates informal review of and discussions with employees and consultants. The Company has a whistleblower policy in place which is acknowledged by all employees upon hire, and which is periodically reviewed with all staff. A comprehensive anti-corruption policy ensures all relevant staff and consultants are aware and are trained appropriately. Relevant consultants are required to attest to compliance on a regular basis and all business opportunities are evaluated with this policy in mind. Directors are kept apprised of activities undertaken to minimize risk in this area. The Board of Directors monitors ethical conduct of the Company and ensures that it complies with applicable legal and regulatory requirements, including those of relevant securities commissions and stock exchanges. The fiduciary duties placed on individual directors by the Company's governing corporate legislation and the common law, as well as the restrictions placed by applicable corporate legislation on the individual director's participation in decisions of the Board of Directors in which the director has an interest, ensure that the Board of Directors operates independently of management and in the best interests of the Company.

Next steps

A key activity within FLYHT’s ESG strategy has been preparation for climate-related disclosures. Although as a TSX Venture issuer FLYHT’s implementation effort at this point will be largely voluntary, the Company believes it is important to assess material implications for the business regarding climate change risks and opportunities. Jurisdictions around the world are requiring that companies report within disclosure frameworks, and it is a strategic decision to evaluate the Company’s efforts using a framework such as the Task Force on Climate Related Disclosures (“TCFD”) or the emerging IFRS climate and sustainability disclosure standard issued by the International Sustainability Standards Board ("ISSB"). FLYHT has also seen an increase in reporting requirements and evaluations from customers and suppliers. In Q2 2024, climate change and ESG measures were moved under the direct purview of the governance committee, which continues work on establishing policies and processes for this sub-committee. FLYHT has completed a review of climate change risks and opportunities, and an assessment of finance and investment policy alignment with environmental goals. Next steps involve establishing consistent review of and reporting on our material climate risks, while monitoring further mandates and requirements for disclosure.

FLYHT AEROSPACE SOLUTIONS LTD. Q3 2024 REPORT

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In June 2023, the ISSB issued IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures, which are effective for annual reporting periods beginning on or after January 1, 2024, subject to local jurisdictional adoption. These standards provide for transition relief in IFRS S1, allowing reporting entities to report on only climate-related risks and opportunities in the first year of reporting under the sustainability standards. The proposed standards are aligned with the global baseline disclosure standards IFRS S1 and IFRS S2 with the exception of a Canadian-specific effective date for annual reporting periods beginning on or after January 1, 2025 and incremental transition relief. On March 13, 2024 the Canadian Sustainability Standards Board (CSSB) released proposals on its first two Canadian Sustainability Disclosure Standards (CSDS): Exposure Draft CSDS 1 (proposed general requirements standard) and Exposure Draft CSDS 2 (proposed climate standard).

The Canadian Securities Administrators ("CSA") are responsible for determining the reporting requirements for public companies in Canada and are responsible for decisions related to the adoption of the sustainability disclosure standard, including the effective annual reporting dates. The CSA issued proposed National Instrument NI-51-107 - Disclosure of Climate-related Matters in October 2021. In parallel with the CSSB’s release of its proposals on March 13, 2024, the Canadian Securities Administrators (CSA) issued a statement noting that they will seek consultation on a revised climate-related disclosure rule following the finalization of CSDS 1 and 2. There is no requirement for public companies in Canada to adopt the ISSB standards until the CSA and CSSB have issued a decision on reporting requirements in Canada. While FLYHT is reviewing the ISSB standards as well as the recently released CSSB proposals, we have not yet determined the impact on future financial statements nor has the Company quantified the costs to comply with such standards.

Security Management

FLYHT has implemented a Security Management System (“SecMS”) to ensure that cyber, corporate, and product security protocols consistently fulfill all requirements mandated by government regulation and industry standards, are based on accurate assessment and effective mitigation of security risks, support the Company’s vision and mission, values, and core business objectives, and are conducted in the most efficient and cost-effective manner, considering the operational and business environment. The SecMS applies to the protection of FLYHT’s people, data, assets, technology systems, intellectual property, and products and services. It consists of eight core elements that provide the overall governance, risk, business resilience, and continuous improvement protocols that can be scaled to include various operational security functions. FLYHT remains active in aviation industry security forums.

Q3 2024 Key Activities

• FLYHT entered into a definitive arrangement agreement to be acquired by Firan Technology Group Corporation.

• WestJet partnered with FLYHT and NOAA to improve weather forecasting, with a contracted adoption of the FLYHT-WVSS-II.

• FLYHT announced the successful integration of the AFIRS Edge solution within Air North’s Boeing 737 NG operations.

• FLYHT underwent a strategic restructuring; Captain Mary I. McMillan was named Interim CEO.

• NOAA exercised the option to purchase additional FLYHT-WVSS-II sensors under a previously issued purchase order.

• CrossConsense secured two additional contracts for aircraft data migration projects.

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Results of Operations

Selected Results

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Q3 2024 Q2 2024 Q1 2024 Q4 2023
$ $ $ $
Assets 13,081,498 15,166,111 13,169,842 13,204,621
Non-current financial liabilities 9,357,384 9,441,468 5,229,502 5,197,714
Revenue 4,398,225 4,311,999 4,790,594 4,244,787
Cost of sales 1,897,844 1,642,840 1,723,252 1,736,607
Gross profit 2,500,381 2,669,159 3,067,342 2,508,180
Gross profit % 56.8% 61.9% 64.0% 59.1%
Distribution expenses 1,740,638 1,670,067 1,561,038 1,532,646
Administration expenses 1,455,190 970,538 1,054,730 1,028,202
Research, development and certification
1,236,801 1,578,117 1,206,407 1,339,924
engineering expenses
Results from operating activities (1,932,248) (1,549,563) (754,833) (1,392,592)
Depreciation and amortization 178,062 168,646 160,828 165,809
EBITDA (1,754,186) (1,380,917) (594,005) (1,226,783)
Non-recurring restructuring expenses 719,508 - - -
Adjusted EBITDA (1,034,678) (1,380,917) (594,005) (1,226,783)
Loss (2,244,504) (1,796,131) (794,382) (1,494,795)
Loss per share (basic) (0.05) (0.05) (0.02) (0.04)
Loss per share (diluted) (0.05) (0.05) (0.02) (0.04)
Q3 2023 Q2 2023 Q1 2023 Q4 2022
$ $ $ $
Assets 13,469,943 14,293,601 14,988,847 16,540,154
Non-current financial liabilities 5,439,092 5,677,518 5,912,886 6,322,769
Revenue 5,099,019 6,043,543 4,757,230 7,241,758
Cost of sales 2,108,313 2,442,082 2,030,311 2,384,329
Gross profit 2,990,706 3,601,461 2,726,919 4,857,429
Gross profit % 58.7% 59.6% 57.3% 67.1%
Distribution expenses 1,543,074 1,587,397 1,759,353 1,661,256
Administration expenses 897,031 1,060,111 1,062,840 1,209,188
Research, development and certification
1,146,019 950,995 1,411,873 1,079,052
engineering expenses
Results from operating activities (595,418) 2,958 (1,507,147) 907,933
Depreciation and amortization 164,553 165,087 163,233 262,250
EBITDA (430,865) 168,045 (1,343,914) 1,170,183
Income (loss) (728,655) (168,807) (1,657,114) 718,689
Income (loss) per share (basic) (0.02) (0.01) (0.04) 0.01
Income (loss) per share (diluted) (0.02) (0.01) (0.04) 0.01
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*See Non-GAAP Financial Measures

Financial Position

Liquidity and Capital Resource

The Company’s cash and cash equivalents at September 30, 2024 decreased to $1,289,217 from $1,542,203 at December 31, 2023. The Company has an operating demand loan available through a Canadian chartered bank for up to a maximum of $2.0 million. The operating demand loan bears interest at the Canadian chartered bank prime plus 1.5%. Security includes accounts receivable, cash collateral of $500,000 in the form of a Guaranteed Investment Certificate (“GIC”), a guarantee under the Export Development Canada’s Export Guarantee Fund and a general security agreement including a security interest in all personal property. The draw on this facility was $670,000 at September 30, 2024.

FLYHT AEROSPACE SOLUTIONS LTD. Q3 2024 REPORT

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The Company funded Q3 2024 operations primarily through the proceeds received from the June 2024 unsecured debenture.

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September 30, 2024 December 31, 2023 Variance
$ $ $
Cash and cash equivalents 1,289,217 1,542,203 (252,986)
Other financial assets 500,000 500,000 -
Trade and other receivables 2,175,408 2,896,200 (720,792)
Contract assets 359,580 282,136 77,444
Deposits and prepaid expenses 224,497 263,798 (39,301)
Inventory 1,801,006 1,180,757 620,249
Tax receivable 1,570 24,643 (23,073)
Credit facility (670,000) - (670,000)
Trade payables and accrued liabilities (3,505,481) (3,097,494) (407,987)
Customer deposits (1,187,384) (1,022,829) (164,555)
Contract liabilities (167,935) (1,052,969) 885,034
Loans and borrowings (1,131,229) (1,234,335) 103,106
Lease liability (476,473) (466,670) (9,803)
Working capital (787,224) (184,560) (602,664)
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*See Non-GAAP Financial Measures

As at November 13, 2024 FLYHT’s issued and outstanding share capital was 38,997,650.

The consistent achievement of positive earnings is necessary before the Company can consistently improve liquidity. The Company has continued to expand its cash flow potential through its continued marketing drive to clients around the world, contracts for delivery of hardware units and related services, and development of hardware and software solutions designed to access opportunities presented by changing industry technology, airline industry need for real-time data analysis, for solutions supportive of airlines’ sustainability objectives, and growing interest from meteorological agencies in airborne weather observations.

With the Edge product line functionally complete, the Company announced a restructuring of its business operations following the second quarter, lowering fixed costs by $1.75 million on an annualized basis. It is the Company’s intention to fund operations by adding revenue and its resulting cash flow, as well as continuing to manage outgoing cash flows. The Company’s results showed losses from operating activities in the quarter and year to date for both 2023 and 2024. At September 30, 2024, the Company had negative working capital of $787 thousand compared to negative $185 thousand as of December 31, 2023, a decrease of $603 thousand. The Company ended Q3 2024 with a balance of 1.3 million in cash and cash equivalents, $0.5 million in GIC, and a credit facility draw of $670 thousand.

For the Company to continue as a going concern longer-term, it will need to consistently achieve profitability and positive operating cash flows. The Company plans to expand its earnings and cash flow potential through its focused marketing efforts, particularly the presentation of AFIRS Edge and associated Actionable Intelligence tools to customers and prospects, and the pursuit of opportunities for the deployment of FLYHT’s weather sensors, which are expected to result in additional contracts for delivery of hardware units and related services. Until achieving consistent positive earnings and cash flows, it is the Company’s intention to continue to fund operations through revenue and its resulting cash flow as well as continue to manage outgoing cash flows. General economic conditions in the industry and the financial condition of major customers may affect the Company’s ability to achieve positive earnings and cash flows. The Company may elect to scale back operations further to create positive cash from existing revenue and/or raise additional financing in the capital markets through debt and/or equity.

There is no assurance that the Company will be successful in attaining and sustaining profitable operations and positive cash flow and/or raising additional capital to meet its capital requirements. If the Company is unable to satisfy its working capital requirements from these sources, the Company’s ability to continue as a going concern and to achieve its intended business objectives will be adversely affected. These material uncertainties may cast doubt upon the Company’s ability to continue as a going concern. These financial statements do not reflect adjustments that would otherwise be necessary if the going concern assumption was not valid, such as revaluation to liquidation values and reclassification of statement of financial position items.

Financial Instruments

The Company is exposed to fluctuations in the exchange rates between the Canadian dollar and other currencies, primarily the U.S. dollar and the euro, with respect to assets, liabilities, sales, expenses, and purchases. The Company monitors fluctuations and may take action if deemed necessary to mitigate its risk.

The Company may be exposed to changes in interest rates as a result of the operating loan bearing interest based on the Company’s lenders’ prime rate. The operating demand loan bears interest at the Canadian chartered bank prime plus 1.5%. The facility draw was $670 thousand at September 30, 2024.

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There is a credit risk associated with accounts receivable where the customer fails to pay invoices. The Company extends credit to creditworthy or well-established customers. In the case of Hardware sales, the invoiced amount is frequently payable before the product is shipped to the customer. The Company assesses the financial risk of a customer and based on that analysis may require that a deposit payment be made before services are provided. To further minimize credit exposure, credit insurance is obtained on select customers whose balances have not been prepaid. In the case of monthly recurring revenue, the Company may disable data transmissions where the customer has not fulfilled its financial obligations, or halt provision of service and support.

Contractual Obligations

The following table details the contractual maturities of financial liabilities, including estimated interest payments.

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September 30, 2024 < 1 year 1-2 years 2-5 years > 5 years Total
$ $ $ $ $
Accounts payable 2,646,240 - - - 2,646,240
Revolving credit facility 670,000 - - - 670,000
Compensation and statutory deductions 756,425 - - - 756,425
Accrued liabilities 102,816 - - - 102,816
Lease payments 470,141 364,593 1,071,354 494,410 2,400,498
Loans and borrowings 1,768,708 1,765,480 8,406,556 47,915 11,988,659
Total 6,414,330 2,130,073 9,477,910 542,325 18,564,638
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Government Loans

Funding obtained via four governmental programs are included in the Loans and Borrowings totals on the Consolidated Statement of Financial Position.

Under the Strategic Aerospace and Defence Initiative (“SADI”), at September 30, 2024 the Company has an outstanding repayable balance of $822,219. The amount is repayable over 15 years on a stepped basis that commenced on April 30, 2014. The initial payment on April 30, 2014 was 3.5% of the total contribution received and the payment increases yearly by 15% until January 31, 2029 (adjusted from April 30, 2028 in response to the COVID-19 pandemic) when the final payment will be 24.5% of the total contribution received. No repayment was made in Q3 2024 nor in Q3 2023. The carrying value of the amount owing under this program at September 30, 2024 is $1,478,299 (December 31, 2023: $1,329,622).

In November 2016, the Company signed a contribution agreement with Western Economic Diversification Canada for a Western Innovation Initiative (“WINN”) loan, to support plans for technology development in the air and ground components of the Company’s products. Under the terms of the agreement, a repayable unsecured WINN contribution of $2,350,000 was received. The amount is repayable over five years commencing January 1, 2020. Contract amendments in 2020 adjusted the payment dates, with the final payment date pushed back to September 2025; while an amendment in March 2024 reduced payments required from April 2024 – March 2025, with the resulting difference added to the amount of each payment due from April 2025 – September 2025. Repayments in Q3 2024 totaled $60,600 (Q3 2023: $117,000). The carrying value of the amount owing under this program at September 30, 2024 is $551,266 (December 31, 2023: $757,953).

In November 2018, the Company signed a second contribution agreement with Western Economic Diversification Canada for a WINN loan, to support development of the next generation of AFIRS hardware and embedded software to address parts obsolescence issues and add new market-driven features. Under the terms of this agreement, a repayable unsecured WINN contribution of $2,761,000 was received, repayable over five years commencing October 1, 2021. Contract amendments in 2021 adjusted the repayment start date to October 1, 2023 and a March 2024 amendment reduced payments required from April 2024 – March 2025, with the difference added to the amount of each payment due from April 2025 – October 1, 2028. Repayments in Q3 2024 totaled $6,900 (Q3 2023: $nil). The carrying value of the amount owing under this program at September 30, 2024 is $2,033,146 (December 31, 2023: $2,221,217).

In May 2021, the Company received funding of $250,000 through the Business Development Bank of Canada’s (“BDC”) Highly Affected Sectors Credit Availability Program (“HASCAP”) loan program, designed to support small and medium sized businesses affected by COVID-19. This loan carries interest of 4% per annum over a 10-year term commencing May 10, 2021. Payments in the first year following funding were comprised of interest only, with the principal and accrued interest payable over the remaining 9 years. Principal repayments in Q3 2024 totaled $6,945 (Q3 2023: $6,945). The carrying value of the amount owing under this program at September 30, 2024 is $170,178 (December 31, 2023: $187,742).

FLYHT AEROSPACE SOLUTIONS LTD. Q3 2024 REPORT

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A summary of the carrying value of the government loans as at September 30, 2024 and 2023 and changes during these three and nine months is presented below.

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For the three months ended September 30 For the nine months ended September 30
2024 2023 Variance 2024 2023 Variance
$ $ $ $ $ $
Opening Balance 4,201,008 4,650,803 (449,795) 4,496,534 4,877,773 (381,239)
Gain on loan modification - - - (169,755) - (169,755)
Interest accretion 108,239 118,166 (9,927) 322,924 352,348 (29,424)
Repayments (76,358) (126,139) 49,781 (416,814) (587,291) 170,477
Carrying amount at
4,232,889 4,642,830 (409,941) 4,232,889 4,642,830 (409,941)
September 30
Less current portion 1,131,229 1,228,179 (96,950) 1,131,229 1,228,179 (96,950)
Non-current portion 3,101,660 3,414,651 (312,991) 3,101,660 3,414,651 (312,991)
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Debenture

Effective June 10, 2024 the Company executed an unsecured debenture in the principal amount of $5,000,000 with Pinnacle Island II LP, an unrelated third-party lender. Proceeds were discounted by 5% (with such discount fee for the benefit of the Lender). On the closing date of the Debenture, as additional consideration for the loan, the Company issued 2,000,000 common share purchase warrants, with each Warrant exercisable for a period of three years into one common share, for the exercise price of $0.4839. The Debenture carries a term of three years, with an annual interest of 12%, payable on a quarterly basis. Interest is accreted, and issue costs amortized, based on a calculated effective interest rate of 17.04%.

A summary of the carrying value of the debenture as at September 30, 2024 and changes during the three and nine months are presented below.

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Q3 2024 YTD 2024
$ $
Proceeds on issuance - 4,750,000
Transaction costs allocated - (215,638)
Amount classified as equity (net of transaction costs) - (141,857)
Opening balance 4,436,599 4,392,505
Amortization of issuance costs 12,036 16,045
Accrued interest 177,999 218,084
Interest payments (34,426) (34,426)
Balance September 30, 2024 4,592,208 4,592,208
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Customer Deposits

Customers are frequently required to pay for Hardware prior to the planned shipment date, or for Technical Services in advance of delivery. This non-refundable prepayment is recorded as a Customer Deposit liability upon receipt. When the associated items are shipped, or technical services provided, the deposit is applied to clear the resulting trade receivable.

The chart below outlines the movement in the Company’s customer deposits throughout the periods ending September 30, 2024 and 2023. In addition to hardware deposits, larger than average prepayments were received in 2024 relating to Technical Services, with recognition of these amounts starting to occur in Q3 2024 and anticipated to continue into Q1 2025.

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For the three months ended September 30 For the nine months ended September 30
2024 2023 Variance 2024 2023 Variance
$ $ $ $
Opening balance 1,464,945 564,123 900,822 1,022,829 376,668 646,161
Payments received 985,466 753,034 232,432 2,512,820 2,031,485 481,335
Recognized as revenue (1,263,027) (447,321) (815,706) (2,348,265) (1,538,317) (809,948)
Balance, September 30 1,187,384 869,836 317,548 1,187,384 869,836 317,548
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Overall, payments were received towards 8 installation kits in the third quarter of 2024 compared to 16 received in the third quarter of 2023. In the nine months ended September 30, 2024 payment was received towards 26 kits, compared to the 68 kits in the same timeframe of 2023, with variations in aircraft configuration and installation kit requirements resulting in pricing differences per kit.

Comprehensive Loss

Revenue

SaaS is the recurring revenue from the Company’s products that allow customers to utilize and analyze data they receive from hardware, use of functions such as the satellite phone, weather data, and hosting and support of maintenance systems and associated data. These fees are recognized as the service is provided each month. Hardware includes the income from hardware sales and related parts required to install the unit, spare units and installation parts. Licensing includes sales of modems with a related manufacturing license fee. Technical Services includes all services offered by the Company, including repairs, training services and other expertise.

Revenue sources

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For the three months ended September 30 For the nine months ended September 30
2024 2023 Variance 2024 2023 Variance
$ $ $ $
SaaS 2,167,003 2,787,664 (620,661) 7,638,386 7,891,437 (253,051)
Hardware 1,061,822 1,001,817 60,005 2,353,110 3,945,523 (1,592,413)
Licensing 22,889 494,573 (471,684) 102,979 1,936,574 (1,833,595)
Technical Services 1,146,511 814,965 331,546 3,406,343 2,126,258 1,280,085
Total 4,398,225 5,099,019 (700,794) 13,500,818 15,899,792 (2,398,974)
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For the nine months ended September 30, 2024, total revenue decreased 15.1% from $15,899,792 in 2023 to $13,500,818 in 2024.

SaaS revenue decreased 22.3% in Q3 2024 over Q3 2023 and a 3.2% decrease was seen YTD 2024 over YTD 2023. A reduction in TAMDAR soundings was the main contributor to decreases in both QTD and YTD periods.

Hardware revenue in Q3 2024 increased 6.0% as compared to Q3 2023, with a total of 11 installation kits shipped in Q3 2024 compared to 18 kits shipped in Q3 2023. Hardware revenue will vary between quarters mainly due to varying quantities of installations being performed and the associated customer installation schedules for the contracted AFIRS 228 product, together with per kit pricing variances attributable to the type/size of contracted customer aircraft.

Licensing revenue decreased 95.4% from Q3 2023 due to differences in license fees realized in comparative periods. Licensing requirements will vary between years depending on the customer requests.

Technical Services revenue increased 40.7% for Q3 2024 compared to Q3 2023 mainly as the result of an increased amount of AMOS data migration project work completed, together with an increase in certification services provided.

Revenue sources for the last eight quarters were:

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Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022
SaaS 2,167,003 2,707,667 2,763,716 2,801,661 2,787,664 2,690,573 2,413,200 2,253,618
Hardware 1,061,822 627,756 663,532 327,941 1,001,817 1,172,261 1,771,445 1,217,860
Licensing 22,889 931 79,159 25,649 494,573 1,433,264 8,737 3,030,368
Technical Services 1,146,511 975,645 1,284,187 1,089,536 814,965 747,445 563,848 739,912
Total 4,398,225 4,311,999 4,790,594 4,244,787 5,099,019 6,043,543 4,757,230 7,241,758
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FLYHT AEROSPACE SOLUTIONS LTD. Q3 2024 REPORT

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Geographical distribution of revenue sources was:

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Q3 2024 Q3 2023 YTD 2024 YTD 2023
$ % $ % $ % $ %
United States & Mexico 900,829 20.5 1,908,288 37.4 2,617,029 19.4 4,810,639 30.2
Asia 59,958 1.4 419,829 8.2 860,185 6.4 1,240,993 7.8
China 839,360 19.1 229,807 4.5 1,750,306 12.9 964,872 6.1
Middle East 95,308 2.2 167,892 3.3 547,823 4.0 504,963 3.2
Canada 241,976 5.5 265,717 5.2 1,019,703 7.6 2,863,717 18.0
Australia 155,639 3.5 124,993 2.5 522,715 3.9 526,869 3.3
Africa 145,865 3.3 143,853 2.8 449,364 3.3 409,104 2.6
Europe 1,939,579 44.1 1,816,004 35.6 5,668,355 42.0 4,522,246 28.4
South/Central America 19,711 0.4 22,636 0.5 65,338 0.5 56,389 0.4
Total 4,398,225 100.0 5,099,019 100.0 13,500,818 100.0 15,899,792 100.0
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Gross Profit and Cost of Sales

FLYHT’s cost of sales includes the direct costs associated with specific revenue types, including the hardware unit, installation kits, training, installation support, project management and software implementation, as well as associated shipping expenses and travel expenses for the Company’s engineering personnel while performing on-site installation support. Installations on aircraft are performed by third parties at the customer’s expense. Cost of sales as a percentage of revenue in Q3 2024 was 43.2% compared to 41.3% in Q3 2023. Gross profit decreased due to differences in the mix of revenue sources, mainly due to differences in the hardware and technical services revenue categories. Gross profit will fluctuate quarter over quarter depending on the mix of revenue categories.

Gross profit and cost of sales for the last eight quarters was:

Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022	Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022	Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022	Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022	Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022	Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022	Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022	Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022	Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022
Gross Profit % 56.8 61.9 64.0 59.1 58.7 59.6 57.3 67.1
Cost of Sales %	43.2	38.1	36.0	40.9	41.3	40.4	42.7	32.9

Distribution Expenses

Consists of overhead expenses associated with the sale and delivery of products and services to customers, and marketing.

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Major Category Q3 2024 Q3 2023 Variance YTD 2024 YTD 2023 Variance
$ $ $ $ $ $
Salaries and benefits 1,117,581 957,208 160,373 3,287,491 3,148,705 138,786
Share based compensation 369 14,125 (13,756) 21,157 38,644 (17,487)
Contract labour 323,680 256,909 66,771 734,786 720,445 14,341
Office 64,129 70,561 (6,432) 175,612 206,739 (31,127)
Travel 62,406 44,361 18,045 225,495 252,095 (26,600)
Equipment and maintenance 72,588 60,758 11,830 198,941 178,877 20,064
Depreciation and amortization 66,480 53,813 12,667 190,038 161,110 28,928
Marketing 34,293 14,878 19,415 130,939 97,869 33,070
Bad debt reserve (888) 70,461 (71,349) 7,284 85,340 (78,056)
Total 1,740,638 1,543,074 197,564 4,971,743 4,889,824 81,919
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Distribution expenses increased 12.8% from Q3 2023 to Q3 2024, and increased by 1.7% YTD 2024 compared to YTD 2023, reflecting an increased focus on sales and marketing of our Edge products.

Salaries and benefits increased both for Q3 2024 and YTD 2024 against comparative periods in 2023, reflecting the restructuring that occurred in August 2024.

Contract Labour increases in the quarter reflect an increased focus on sales and marketing activities in support of the Edge product.

Bad debt reserve variances reflect differences in bad debt estimates in each comparative period.

20-

Administration Expenses

Consists of expenses associated with the general operations of the Company that are not directly associated with delivery of services or sales.

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Major Category Q3 2024 Q3 2023 Variance YTD 2024 YTD 2023 Variance
$ $ $ $ $ $
Salaries and benefits 865,256 389,964 475,292 1,652,636 1,278,250 374,386
Share based compensation 1,824 17,000 (15,176) 23,127 53,386 (30,259)
Contract labour 97,876 30,820 67,056 392,552 233,601 158,951
Office 163,021 168,672 (5,651) 484,154 524,660 (40,506)
Legal fees 38,893 19,803 19,090 61,742 40,982 20,760
Audit and accounting 104,890 83,474 21,416 270,021 253,394 16,627
Investor relations 23,415 36,930 (13,515) 106,230 138,318 (32,088)
Travel 11,542 10,732 810 39,386 32,962 6,424
Equipment and maintenance 73,936 66,934 7,002 234,120 245,692 (11,572)
Depreciation and amortization 74,511 72,702 1,809 216,307 218,281 (1,974)
Other 26 - 26 183 456 (273)
Total 1,455,190 897,031 558,159 3,480,458 3,019,982 460,476
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Administration expenses increased by 62.2% from Q3 2023 to Q3 2024 and 15.2% YTD, mainly due to the costs associated with the restructuring in Q3 2024.

Salaries and benefits increase both for the quarter as well as YTD 2024 were a result of non-recurring restructuring costs in August 2024.

Contract labour increases are a result of additional tax and advisory services rendered during 2024.

Office costs decreased in the quarter as well as YTD due to the receipt of a credit resulting from the reconciliation of prior years for our German office common area maintenance costs as well as a reduction in technology subscription costs.

Investor relations costs decreased both in the quarter and YTD as the number of advisors in this area of the business decreased from 2023.

Research, Development and Certification Engineering Expenses

Consists of expenses related to the improvement of existing and development of new technology and products, and the effort involved in obtaining regulatory approval for FLYHT’s product set.

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Major Category Q3 2024 Q3 2023 Variance YTD 2024 YTD 2023 Variance
$ $ $ $ $ $
Salaries and benefits 943,602 970,901 (27,299) 2,928,697 3,044,692 (115,995)
Share based compensation (2,302) 6,722 (9,024) 6,619 17,993 (11,374)
Contract labour 205,314 59,480 145,834 881,727 448,961 432,766
Office 34,754 34,543 211 114,459 103,223 11,236
Travel 5,941 13,086 (7,145) 43,915 25,576 18,339
Equipment and maintenance 23,142 17,201 5,941 67,135 81,547 (14,412)
Components 14,464 11,671 2,793 52,397 59,175 (6,778)
Depreciation and amortization 37,071 38,038 (967) 101,191 113,482 (12,291)
SR&ED credit - - - (124,630) (342,639) 218,009
Government grants (25,185) (5,623) (19,562) (50,185) (43,123) (7,062)
Total 1,236,801 1,146,019 90,782 4,021,325 3,508,887 512,438
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FLYHT AEROSPACE SOLUTIONS LTD. Q3 2024 REPORT

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Research and Development expenses were 7.9% higher in Q3 2024 compared to the prior year’s third quarter. The first nine months of 2024 saw an expense increase of 14.6% compared to the same period in 2023. Research and development costs vary according to specific project requirements between periods.

Salaries and benefits decreased for both Q3 2024 and YTD as the largest head count reduction from the August 2024 corporate restructuring was within this division, as well as an overall reduction in R&D related personnel year over year.

Contract labour showed a net increase both in the quarter and YTD, representing the final push required to complete both the AFIRS Edge+ and the FLYHT-WVSS-II development work, and moving those products into their new phase of commercialization, including required certifications.

The variance in SR&ED credit amounts recognized in 2024 versus 2023 reflects year over year differences in R&D expenses eligible for the reimbursable portion of this tax credit under Canadian governmental programs.

Government grants booked within 2024 and in 2023 consisted of Alberta government funding received in support of certain R&D programs.

Net Finance Costs

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Q3 2024 Q3 2023 Variance YTD 2024 YTD 2023 Variance
Major Category
$ $ $ $ $ $
Interest income (15,108) (7,874) (7,234) (30,428) (29,760) (668)
Net foreign exchange loss (gain) (32,973) (39,763) 6,790 21,293 (38,139) 59,432
Bank service charges 14,935 29,194 (14,259) 87,356 62,105 25,251
Other loss (gain) - - - (169,755) - (169,755)
Interest expense 219,102 27,367 191,735 329,617 84,476 245,141
Government loan accretion 113,021 118,166 (5,145) 335,847 352,348 (16,501)
Net finance costs 298,977 127,090 171,887 573,930 431,030 142,900
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Net foreign exchange loss (gain) will vary between periods due mainly to fluctuations in the value of the Canadian dollar in relation to the U.S. dollar and the euro. A weakening of the Canadian dollar in relation to the U.S. dollar as well as to the euro in Q3 2024 gave rise to larger foreign exchange losses in Q3 2024 compared to Q3 2023 on foreign currency denominated sales and purchases, in combination with fluctuations in U.S. denominated assets and liabilities.

Bank service charges reflect the costs of usage of the credit facility at varying periods during the nine months of 2024.

Interest expense increases are due to differences in accretion of outstanding government loans, together with the addition of the interest in connection with the Q2 2024 unsecured debenture.

Net Loss, EBITDA, Adjusted EBITDA

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Q3 2024 Q3 2023 Variance YTD 2024 YTD 2023 Variance
Major Category
$ $ $ $ $ $
Net loss (2,244,504) (728,655) (1,515,849) (4,835,017) (2,554,576) (2,280,441)
Finance costs 298,977 127,090 171,887 573,930 431,030 142,900
Tax expense 13,279 6,147 7,132 24,443 23,939 504
Depreciation and amortization 178,062 164,553 13,509 507,536 492,873 14,663
EBITDA (1,754,186) (430,865) (1,323,321) (3,729,108) (1,606,734) (2,122,374)
Non-recurring restructuring expenses 719,508 - 719,508 719,508 - 719,508
Adjusted EBITDA (1,034,678) (430,865) (603,813) (3,009,600) (1,606,734) (1,402,866)
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Other

Risks and Uncertainties

FLYHT operates in the aviation industry and part of the business involves risks and uncertainties. The Company takes steps to manage these risks, but it is important to identify those that could have a material effect on business or results of operations. Such risks are listed below; the areas defined are not exhaustive.

Production and Physical Workspace Risk

FLYHT relies on a physical infrastructure to carry out certain activities. Local as well as widespread impacts such as fire and extreme weather could impact FLYHT’s ability to carry out operations. FLYHT maintains a business continuity plan to mitigate the impact of such events.

Climate Change Risk

The transportation sector is responsible for a significant portion of the emissions that are known to have negative climate impact. This is both an opportunity and a risk for FLYHT. FLYHT’s products can aid our customers in reducing their environmental impact through optimizing the use of their assets, including a reduction in emissions. The most significant risk to FLYHT is a reduction in customers’ operations due to social or other pressures, or regulation, to limit flights. If this risk were to be realized, it could eventually erode FLYHT’s revenue in tandem with that of our customers.

Policy and Regulation Risk

FLYHT customers operate in a variety of jurisdictions. Government policy and regulation changes could have an impact on FLYHT, both positively and negatively. Impacts could include, but not be limited to, FLYHT’s ability to collect data, disseminate data and other constraints related to provision of services. Changes to governmental policy and regulations are an inherently challenging area and could have material impact to FLYHT’s future revenue and expenses.

Geo-political Risk

Geopolitical risk covers a wide array of risks associated with any sort of conflict or tension between states, with the potential to impact global trade, security, and political relations, with secondary results including impacts to commercial aviation, and commodity pricing increases. The Company has a globally diverse customer base, with diversity also in customer operations, including both passenger travel and freight operations. This multi-level diversity helps mitigate the impact of regional reductions and market segment reductions in aviation due to travel restrictions, sanctions, or degradation in infrastructure. If further pressure due to geopolitical factors emerges, FLYHT will respond accordingly.

Employee Travel Risk

FLYHT staff travels globally to meet with current and potential customers, some of whom are in jurisdictions where there may be increased risk to their personal safety and security. Travel requests are reviewed to ensure that staff are not travelling to locations that place them at undue risk. Travel safety and security resources are available to staff, including pre-departure risk assessments, travel briefings, safety awareness training, flight and hotel itinerary tracking, and access to a 24/7 contact for emergency travel medical assistance.

Installations at C-checks

Some of the Company’s hardware products can take approximately 150-200 person-hours to install on an aircraft, depending on the product, aircraft type and installation crew. Since the installation period is non-trivial, the installation is usually scheduled when the aircraft is undergoing its routine c-check or scheduled maintenance. The timing of c-checks depends on how many segments the aircraft has flown and is based on the manufacturer’s guidelines; it can take as long as two or three years before an aircraft is out of service for an extended period, though most aircraft are available annually. The timing of a c-check for hardware installation is an uncertainty to the Company because it results in a delay in initial revenue from the sale of the hardware and the Company will not receive recurring revenue connected with the monthly service offerings until the hardware components are installed and operating.

The Company takes steps to mitigate this uncertainty by encouraging customers to install hardware at their aircraft’s earliest availability and works with them to provide the product at the right time for installation, preferably while the aircraft is down for normal service. The goal is to reduce aircraft downtime and save the customer as much expense as possible, while installing as early as possible within the contract term. The Company’s standard agreement requires payment a minimum of 90 days prior to the shipment of kits.

Enterprise Network Risks

The Company currently operates several different types of networks to provide its SaaS products to our customer base. UpTime Classic software services many of FLYHT’s early adopters and is implemented on redundant fixed server platforms in Canada. CrossConsense hosts software services on redundant fixed server platforms in Germany. Other services are implemented in the AWS cloud in various regions. All the enterprise services exist with the possibility that their security could be compromised. FLYHT employs best practices to ensure that all services are as secure as practical and periodically engages third parties for security assessment and to test the penetrability of the systems according to best practices within the enterprise community. A security breach could expose data to external, unauthorized third parties, result in a limited loss of data and cause various contractual breaches. To date, no such breach has knowingly occurred on any of the Company’s systems. FLYHT continues to make improvements to the security posture of systems, with a particular emphasis on transitioning systems to the cloud where it is contractually and financially viable.

FLYHT AEROSPACE SOLUTIONS LTD. Q3 2024 REPORT

23-

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Foreign Currency Fluctuations

The Company recognizes most of its sales in U.S. dollars with a lesser amount recognized in euros, so there is a risk of currency fluctuation. The major portion of operating and overhead costs are denominated in Canadian dollars, though certain payroll costs, costs of goods sold, marketing and distribution costs are U.S. dollar and euro denominated, and therefore create a partial natural hedge against fluctuations of the Canadian dollar.

General Economic and Financial Market Conditions

In an industry such as the aviation industry, finances are tied to global trends and patterns. As an airline’s spending is tied to their income, they may be unwilling or unable to spend, particularly on a value-added product such as the Company offers. To address this risk, FLYHT’s sales team has developed several strategies. FLYHT has established a global sales presence, with agents responsible for every continent. While some economies of the world may be in a slump or downturn, FLYHT often finds success in growing markets. The Company also demonstrates to potential customers the impressive return on investment model, how quickly customers are able to improve operational efficiency, and ultimately how much AFIRS will save them in operating costs.

Dependence on Key Personnel and Consultants

FLYHT’s ability to maintain its competency in the industry is dependent on maintaining a specialty skilled workforce. The Company’s DAO status, delegated by TCCA, enables a smooth implementation of STCs required to install AFIRS on aircraft. Key staff with TCCA delegation status enables the Company to complete STCs in a timely and cost-efficient manner. Similarly, the Company must interact with the FAA for its United States based STCs. The Company continually documents and distributes the specified knowledge among several key individuals. This reduces risk and ensures the Company can still function effectively were it to lose specialized staff.

Revenues Associated with TAMDAR

TAMDAR has been installed on almost 300 aircraft for the purpose of collecting weather data, which is supplemented with Aircraft Meteorological Data Relay (“AMDAR”) weather data. FLYHT supplies collected weather data to Synoptic Data PBC as part of their participation in the National Mesonet program. FLYHT is receiving revenues from Synoptic based upon this participation, which is correlated to the number and quality of the weather soundings provided. If these observations fall in number or if they are not perceived to have the original perceived value, then the existing payments for the TAMDAR and AMDAR data could be diminished or stopped. This lack of perceived value could depend upon a variety of factors including procurement changes from the United States Government. FLYHT’s strategy to mitigate these potential problems has been to invest in quality control programs to ensure that sensors are properly calibrated and producing valid and valuable data, to supplement this data whenever possible with AMDAR weather data, and to expand and diversify sources of weather revenues and install base via the FLYHT-WVSS-II sensor program.

Employee Retention

The high demand for technology workers, particularly in the areas of software development and data science, together with employee retention challenges faced by most companies, present challenges for FLYHT in attracting and retaining top talent. The pandemic related shift to remote-first workplaces has been both an opportunity and a threat to FLYHT. As FLYHT has embraced aspects of remote-first work, the Company has been able to benefit from a larger talent pool. Conversely, FLYHT employees are likely targets for recruitment. FLYHT mitigates this risk by encouraging a healthy work environment, work-life balance and competitive compensation.

Availability of Key Supplies

FLYHT services its products differently, depending on the product.

• The AFIRS 220 is no longer in production and all units are repaired in-house at FLYHT. Certain parts can be delayed in shipping or availability, which could cause a delay in servicing the AFIRS 220. FLYHT aims to avoid the risk of not having the necessary supplies by managing existing inventories of key parts. Additionally, the Company maintains close communication with its partners and suppliers to manage key components for the AFIRS 220 units.

• Both the AFIRS 228 and AFIRS Edge units are assembled by contract manufacturers, with final manufacturing completed at FLYHT. The Company relies on partners, suppliers and special parts to complete unit builds. Certain parts could be delayed in shipping or availability, which can cause a delay in receiving newly built units. FLYHT aims to avoid the risk of not having the necessary supplies by managing inventories and storing extra key parts. Both contract manufacturers are global suppliers with the ability to meet FLYHT’s requirements. Additionally, the Company maintains close communication with its partners and suppliers to ensure all key components for the units will be available in the future. Units are serviced in different ways; by the contract manufacturer, at FLYHT’s facility or in the case of the AFIRS 228, by the Company’s contract maintenance facility in China. Where a unit is repaired or serviced depends on a multitude of factors and is managed by FLYHT’s customer support team.

Proprietary Protection

Patent rights are important to the Company, with the AFIRS technology being one of the Company’s primary revenue sources. The Company relies on contract, copyright and trademark laws and has received patents from the United States, Chinese, Turkish and European patent offices. These patents are generally respected in other international jurisdictions as well. The risks involved with proprietary protection lie in other companies infringing on FLYHT patents or claiming patent infringement by FLYHT.

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In general, there are many risks associated with the pursuit, the prosecution, the ultimate receipt of and the enforceability or defense of patents. The scope of patent protection available to us in the United States and in other countries is uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions, obtain, maintain, and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our owned patents.

The patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection.

Generally, the patent position of advanced technology companies is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability, and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or product candidates or which effectively prevent others from commercializing competitive technologies and products.

The ultimate outcome of any pending or allowed patent application we file is uncertain, and the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Any patents that we hold may be challenged, narrowed, circumvented, or invalidated by third parties. Consequently, FLYHT does not know with certainty whether our technology will be protectable or remain protected by valid and enforceable patents.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability and our patents may be challenged in the courts or patent offices in the United States and in other jurisdictions. Competitors may claim that they invented the inventions claimed in such issued patents or patent applications prior to our inventors or may have filed patent applications before our inventors did. A competitor may also claim that our products and services infringe their patents and that we therefore cannot practice our technology as claimed under our patent applications, if issued. Competitors may also contest our patents, if issued, by showing that the invention was not patent-eligible, was not novel, was obvious or that the patent claims failed to meet any other requirement for patentability.

Cyber Security Risk

Cyber security incudes the protection and resiliency of both the Company’s corporate and customer facing systems from information disclosure, theft or damage to hardware, software, electronic data, as well as the disruption or misdirection of the services they provide. FLYHT is an IATA Aviation Cyber Security Strategic Partner, which provides FLYHT a key opportunity to contribute to the development of industry standards, influence the cyber security regulatory environment for aviation, and to collaborate with key aviation cyber security leaders, including major international airlines, equipment manufactures, and international regulatory bodies.

FLYHT has responded to the increase in cyber threats within our SecMS, with an emphasis on addressing these threats within the industry. Specifically, the Company has taken actions to assess potential threats, identify and implement recommendations, including the addition of dedicated resources to further harden our systems, and improve our preparedness.

Contractual Arrangement

Certain of the Company’s sales contracts require that, in the event the Chinese government restricts use of the Iridium satellite network, the Company may be required to repurchase, at discounted rates, certain AFIRS units. The Chinese government has continued with a process of issuing waivers for the use of the Iridium frequency to aircraft needed for usage in China. This is the same process that has been used for many years, but more recently they moved to issuing three-year grants to Iridium Satellite LLC. versus the former annual grant system. Given the prevalent use of Iridium services in China and the extensions of waivers reported by Iridium Satellite LLC, FLYHT believes the likelihood of a liability under these contracts is remote.

Transactions with Related Parties

Since 2020, a company related to an officer of FLYHT has provided marketing services to FLYHT. All of the transactions with the related party are considered in the normal course of business and have been measured at their exchange amount.

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For the three months ended September 30 For the nine months ended September 30
2024 2023 2024 2023
Amounts included in: $ $ $ $
Contract labour 30,000 22,500 98,500 72,500
Accounts payable 10,000 22,500 10,000 22,500
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FLYHT AEROSPACE SOLUTIONS LTD. Q3 2024 REPORT

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Subsequent event

FLYHT entered into a definitive arrangement agreement to be acquired by Firan Technology Group Corporation (“FTG”). The transaction is valued at approximately $13.2 million CAD, with consideration including a combination of cash and common shares of FTG.

Under the Arrangement, FLYHT shareholders may elect to receive, for each common share of FLYHT held (a “Common Share”) (i) CAD$0.1103 in cash and 0.0333 FTG Shares, (ii) CAD$0.3379 in cash or (iii) 0.0495 FTG Shares, in each case subject to pro-ration (collectively, the “Consideration”). The Consideration will be subject to maximum aggregate cash consideration of CAD$4.3 million and 1,300,000 FTG Shares.

The Transaction is subject to receipt of FLYHT shareholder and court approvals, any required regulatory approvals and consents, and customary closing conditions and is expected to close in the fourth quarter of 2024.

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Auditors’ Involvement

National Instrument 51-102, Part 4, subsection 4.3 (3) (a), requires that if an auditor has not performed a review of the condensed consolidated interim financial statements there must be an accompanying notice indicating that the condensed consolidated interim financial statements have not been reviewed by an auditor.

The auditors of FLYHT Aerospace Solutions Ltd. have not performed a review of the condensed consolidated interim financial statements for the three and nine months ended September 30, 2024 and 2023.

FLYHT AEROSPACE SOLUTIONS LTD. Q3 2024 REPORT

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CORPORATE INFORMATION

Registrar and Transfer Agent

Odyssey Trust Company 1.587.885.0960 https://odysseytrust.com/

Share Listing

Shares are traded on the TSX Venture Exchange (TSX.V: FLY) and the OTCQX Marketplace (OTCQX: FLYLF)

Investor Relations

investors@flyht.com 1.403.250.9956 www.flyht.com

FNK IR LLC flyht@fnkir.com 1.646.809.2183

Directors

Mary McMillan Brent Rosenthal Doug Marlin Lorne Sugarman Nancy Young Paul Takalo Peter Large

Executive Chairman Mountain Hawk Capital Partners, LLC President, Marlin Ventures Ltd. Director Director Director Director

Officers

Mary McMillan Alana Forbes Darrel Deane Gurjot Bhullar Scott Chambers

Interim Chief Executive Officer and Executive Chairman Chief Financial Officer Chief Revenue Officer Chief Operating Officer Vice President Sales and Marketing

Auditor

KPMG LLP

Calgary, Alberta

Legal Counsel Chris Croteau

Head Office

Tingle Merrett LLP, Calgary, Alberta #500, 1212 - 31 Avenue NE Calgary, Alberta T2E 7S8

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