FLYHT AEROSPACE SOLUTIONS LTD.
Annual Report
2013
THE
FUTURE OF
CONNECTIVITY
TABLE OF CONTENTS
LETTER TO SHAREHOLDERS .........................................................................17
MANAGEMENT DISCUSSION & ANALYSIS .....................................................20
CONSOLIDATED STATEMENT OF FINANCIAL POSITION .................................42
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) ...........43
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIENCY) .........44
CONSOLIDATED STATEMENT OF CASH FLOWS .............................................45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ...........................46
CORPORATE INFORMATION ..........................................................................75
Global flights January 1, 2014
COMMONLY
USED FINANCIAL
TERMS & AVIATION
ACRONYMS
ACARS: Aircraft Communications Addressing and Reporting System
ICE:
Iridium Compatible Equipment
ADCC:
Aircraft Data Communication Corporation
IFRS:
International Financial Reporting Standards
AFIRSTM: Automated Flight Information Reporting System
MD&A: Management Discussion and Analysis
AVIC:
Aviation Industry Corporation of China
NCAA:
Nigerian Civil Aviation Authority
CAAC:
Civil Aviation Administration of China
OEM:
Original Equipment Manufacturer
COMAC: Commercial Aircraft Corporation of China, Ltd.
R&D:
Research and Development
EASA:
European Aviation Safety Agency
SADI:
Strategic Aerospace and Defence Initiative
FAA:
Federal Aviation Administration
SFP:
Statement of Financial Position
FIRST:
Fuel Initiative Reporting System Tracker
STC:
Supplemental Type Certificate
GAMA: General Aviation Manufacturers Association
TCCA:
Transport Canada Civil Aviation
GAAP:
Generally Accepted Accounting Principles
YTD:
Year-to-date
ICAO:
International Civil Aviation Organization
THE AVIATION
INDUSTRY
Today
the air transport
industry operates a network
of some 40,000
routes over which
3.3 billion people
and 50 million
tonnes of cargo will be
carried in 2014. 1
The industry
is celebrating a
huge milestone in
2014,
100 years
of commercial
flight.
Passenger
demand increased
5.2%
in 2013. 2
Load factors at
79.5%
in 2013. 2
Airbus
deliveries
increased for the
12th
year in a row. 3
There is a positive market outlook for FLYHT with its new product, the DragonTM. “The
industry’s positive numbers across all categories fuel cautious optimism as we move into
2014,” GAMA President and CEO Pete Bunce said. “The introduction of new products will be
key to strong future growth, which is why GAMA continues to work with authorities across
the globe to streamline certification processes.” 4
1
2
3
4
www.iata.org/pressroom/pr/Pages/2014-02-10-01.aspx
www.iata.org/pressroom/pr/Pages/2014-02-06-01.aspx
www.airbus.com/newsevents/news-events-single/detail/airbus-sets-new-records-in-orders-deliveries-and-backlog/
www.gama.aero/media-center/press-releases/content/gama-releases-2013-year-end-aircraft-shipment-and-billing-number
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
2
COMPANY PROFILE
THE
FUTURE OF
CONNECTIVITY
What was impossible
yesterday is an
accomplishment today,
while tomorrow heralds
the unbelievable.
Percible Elliot Fansler
In 1903 the Wright brothers pioneered the first aircraft and human
flight. In 1914 the first commercial flight took place. Over the course
of the past century the industry has exploded. With more than
3.3 billion passengers traveling in 2013, it took under a decade for
passenger numbers to double; demontstrating just how many people
are connected through flight in our global community.
Percible Elliot Fansler, the entrepreneur who started the first commercial
air flight said, “what was impossible yesterday is an accomplishment
today, while tomorrow heralds the unbelievable.”
At FLYHT we strive to support the modernization of the aerospace
industry by creating innovative solutions that facilitate seamless
communication with aircraft. FLYHT is the innovator of a data
streaming technology called FLYHTStreamTM. If an airplane encounters
an emergency, live flight data will stream from the aircraft in real
time. This technology opens new doors for increased safety and data
analysis in the aerospace industry.
FLYHT Aerospace Solutions Ltd. got its start in 1998 with the technology
to collect and interpret data from an aircraft and deliver it directly to
the airline. Over the course of the past 14 years FLYHT has become a
leader in real-time data communications for the aerospace industry.
The technologies FLYHT offers are the Future of ConnectivityTM.
FLYHT’s main product and service offering to the industry is the
Automated Flight Information Reporting System, or AFIRSTM. The
system operates on multiple aircraft types and provides functions such
as voice and text messaging, data collection and transmission, and
on-demand streaming of black box data. Through its relationship with
Iridium Communications Inc., FLYHT offers global satellite coverage
that provides service to whoever needs it, whenever they need it,
anywhere on the planet. AFIRS sends information to its companion
software, UpTimeTM, which stores and transfers the data to the
customer in real time. Aircraft operators can use this information to
increase safety, improve service, and enhance profitability.
In November 2013, FLYHT introduced the Dragon™, a revolutionary,
lightweight, portable satellite communications device that blends
existing FLYHT technology with that of the iPad. FLYHT developed the
new product to meet a growing demand from small aircraft, business
jet and helicopter operators for a satellite communications solution
similar to AFIRS.
FLYHT is headquartered in Calgary, Canada and has clients using its
products on every continent. FLYHT has been publicly traded on the
Toronto Venture Exchange since March 2003, first under the symbol
AMA and now under FLY.
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
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INVESTMENT
HIGHLIGHTS
HIGHLIGHTS
OF THE YEAR
• An unparalleled technology that saves money, time and drives
efficiencies previously unavailable to the airline industry.
• Technology installed on over 400 aircraft.
• High margin operations – 75-85% gross margin with recurring
revenues resulting from multi-year contracts.
• Multiple revenue streams to increase monthly average
revenue per aircraft.
• Historical longevity of technology in the aviation industry means that
once a technology has been accepted, it tends to remain for
an extended period of time.
• FLYHT executed an agreement with Jabil Defense and Aerospace
Inc
Services
(a wholly-owned subsidiary of Jabil Circuit,
(NYSE:JBL)) to manufacture the AFIRS 228 product line.
• AFIRS 228 was approved on the SITA and ARINC Inc. (“ARINC”)
networks to provide ACARS over Iridium messages. Certification
expands the market for customers requiring this type of
communications system.
• AFIRS 228 received the Iridium Compatible Equipment (“ICE”)
certification for the commercial use of the AFIRS 228S on the
Iridium satellite network.
• FLYHT introduced the Dragon as an exciting new member of the
FLYHT family of products. The Dragon is a revolutionary lightweight
portable satellite communications device that blends existing
FLYHT technology with that of the iPad. FLYHT developed the new
product to meet a growing demand from small aircraft, business jet
and helicopter operators for a satellite communications solution
similar to AFIRS.
• FLYHT added another commercial Original Equipment Manufacturer
(“OEM”) to its customer list with the agreement with Datang
Mobile Aviation division in China for the AFIRS 228 to be standard
fit on production ARJ21 aircraft.
• Shareholders exercised warrants and stock options for an aggregate
of $6,144,886.
• FLYHT grew revenues by 23.7% over 2012, decreased cash used in
operating activities by 36.4% and saw a 16.8% decrease in
operating losses.
• Continued to secure Supplemental Type Certificates (“STCs”).
Received two from TCCA and one from the FAA for the
AFIRS 228.
Highlights:
Total revenue
increased 23.7%
from $6,469,806 in
2012 to $8,000,364
in 2013.
Research and Development
(“R&D”) is down $227,510: Note:
R&D includes certification
engineering which will be an
ongoing cost for the company
as we secure customers with
different aircraft types.
Increase in Gross
Margin: 59.2%
annual (up from
57.2% in 2012).
FLY STOCK CHART 2013
2013
Apr
Jul
Oct
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
0.50
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
2.00m
1.50m
1.00m
500.0k
0.00
6
2013 FLYHT
REVIEW
LAST YEAR, WE SET A NUMBER OF OBJECTIVES.
HERE’S AN OVERVIEW OF HOW WE DID:
Drive a substantially higher valuation through accelerated
revenue growth and profitability
• Successfully increased revenues by 23.7% over the previous year.
Major Airbus operator for fleet retrofit 2013 and begin
shipping from Airbus factory by late 2013
• SITA and ARINC ACARS over Iridium certification received in
July allowed the company to progress with L-3 Communications
Corporation, Aviation Recorders Inc. (“L-3”).
• Began shipping units in December 2013 and January 2014.
Build on strategic relationships to accelerate growth
Continued to build relationships around the world and with various
organizations:
• China: Continued to ship units to airlines in the country. Partnered
to provide products to AVIC and COMAC. Agreement established
to install AFIRS on the ARJ21 fleet.
• NetJets Transportes Aereos SA (“NetJets”): Installations on
10 aircraft complete in Q2 2013 with resulting AFIRS UpTime
sales revenue and recurring usage revenue being realized each
month. We continue to work with NetJets to advance
the program.
• Nigeria: Continued flight tracking and safety management system
dashboard with newly appointed Nigerian Civil Aviation Authority
(“NCAA”) Director General. Signed two new contracts with
Nigerian airlines and added AFIRS to three existing customers’
aircraft while supporting current operations and the flight following
center.
Protect our markets by providing superior
technology and service
2014 FLYHT
PLAN
OBJECTIVES FOR 2014 INLCUDE:
• Expanded our STC list with activation STCs for the B767-200/300
from
and B737-700/800
from TCCA and on
the B777
the FAA.
• Launched the Dragon: Responded to an emerging trend in iPad
connectivity and coupled it with our core competencies in aircraft
communications and reporting to provide a light weight portable
product for helicopters and general aviation.
Become cash flow positive in 2013
• Closer to cash flow positive by the end of 2013, as the result
of revenue growth of 23.7%, an operating loss decrease of 16.8%
and a decrease in cash used in operating activities of 36.4%.
• Increase installations in China to meet mandate;
• Install on two business aircraft OEMs;
• Expand service modules to increase revenues;
• Pursue additional commercial OEM opportunity; and
• Positive cash flow from operations.
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
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REVENUE SOURCES
REVENUE BASED ON LOCATION
12.7%
8.2%
33.8%
45.3%
AFIRS UpTime Sales: 33.8%
AFIRS UpTime Usage: 45.3%
Services: 12.7%
Parts: 8.2%
Dollar amounts available
on page 25.
AFIRS UPTIME USAGE GROWTH
$3,853,788
48.1%
$549,718
6.9%
$1,047,979
13.1%
350000
300000
250000
200000
150000
100000
50000
0
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$460,184
5.8%
$1,391,446
17.4%
2008
2009
2010
2011
2012
2013
$8,000,364
Flight Hours
Recurring Revenue
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
$697,249
8.7%
10
NORTH AMERICAEUROPEAUSTRALASIAASIACENTRAL & SOUTH AMERICATOTALAFRICA & MIDDLE EAST AFIRS 228 UPDATE
THE AFIRS 228 IS FLYHT’S NEXT GENERATION COMMUNICATIONS
TECHNOLOGY. HERE’S A SUMMARY OF HOW ITS DEVELOPMENT
HAS PROGRESSED OVER THE PAST FEW YEARS.
2011
FLYHT brought AFIRS 228 development in-house
First AFIRS 228 demonstration May 2011 in Chester, UK
Activation STCs received for AFIRS 228 on Boeing 747-200, ATR 42/72
and Boeing 777 from Transport Canada
First European Aviation Safety Agency (“EASA”) activation STC for
Hawker 987 series
Activation STCs received on Bombardier CRJ 900, Hawker 987 series
from TCCA
Introduced the next version of the AFIRS 228, the AFIRS 228S to
enable ACARS over Iridium
2012
54 AFIRS 228B and six AFIRS 228S units built
Contract with L-3 to deliver 228S for installation on Airbus A320
production line
Option to install 228B on the factory floor at Bombardier for Chinese
customers
2013
An agreement is made with Jabil Defense and Aerospace Services, to
manufacture the AFIRS 228 product line
Activation STC received for the AFIRS 228 on Boeing 777 from the
FAA, and Boeing 767-200/300, 737-700/800 from TCCA
AFIRS 228 approved for use on SITA and ARINC which enables it to
send ACARS messages through Iridium
AFIRS 228S passed ICE certification for the commercial use on the
Iridium satellite network
FLYHT assessed the
current market and
responded with a new
product...
INTRODUCING
THE DRAGON
In November 2013 FLYHT introduced the Dragon as its latest product. The Dragon is
a lightweight portable satellite communications device that is coupled with the iPad
to bring existing FLYHT technology to new customers around the globe.
FLYHT addressed the current market and responded with a new
product, called the Dragon, to meet the demand of the growing small
aircraft, business jet and helicopter operators. The Dragon enables a
new level of connectivity previously not available to general aviation
operators.
FEATURES
As with FLYHT’s AFIRS product line, the Dragon uses the Iridium
satellite network to bring global communications to aircraft operators.
That means when they’re flying, they’re not alone. The Dragon enables
two-way text messaging through the iPad or iPad Mini so pilots can
send messages to dispatch and receive weather and flight-critical
information.
The device is portable so it allows operators the flexibility of using it
where and when they need it. FLYHT does not have to secure STCs,
which are costly and take time to obtain, because the device is not
installed on an aircraft. It is also an affordable satellite communications
device for operators, allowing them greater operational awareness
and connectivity, wherever they fly.
The Dragon also comes with a satellite phone enabled by the Iridium
satellite network for rapid, reliable and private communication channel
from the cockpit to the ground. In the event of an emergency, the
single-touch emergency button directs the call to a pre-programmed
contact on the ground.
The Dragon also meets the need of operators required to comply with
specific regulations for flight following. With the Dragon, operators
will know where their aircraft are and better respond to scheduling
and maintenance issues as they arise.
The Dragon gives operators information to make key decisions.
UpTime, FLYHT’s ground based software, is the interface for operators
to track aircraft information and respond accordingly. Collecting and
monitoring the time the aircraft are on the ground or on route to a
destination is important to determine crew pay, crew duty time and
maintenance tracking. The Dragon allows operators to record these
times on the iPad and sends the information to the operator. This
increases the accuracy and speed of the reporting with far less labour
from the staff and crew and eliminates the paper process.
MARKET
The Dragon has a global market as a product for tens of thousands of
general aviation enthusiasts, corporate jet and helicopter operators. It
has been tested and approved to meet the ADCC requirements for a
satellite communications device on aircraft in China. At a cost of under
$10,000 per unit, the Dragon will support operators world-wide while
generating recurring revenues for FLYHT.
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
12
2013 MAJOR
ANNOUNCEMENTS
CONTRACTS: In 2013 FLYHT signed a total of seven
contracts with customers worldwide. Of the aircraft contracted, 26
were for the AFIRS 220, 21 for the AFIRS 228 and five were for the
Dragon.
JANUARY 2: FLYHT signed a contract with a domestic
Nigerian airline for the AFIRS 220 on five Airbus A319 and A320
aircraft.
JANUARY 7: FLYHT executed an agreement with Jabil
Defense and Aerospace Services, to manufacture the AFIRS 228
product line.
Scott Gebicke, President of Jabil Defense & Aerospace Services
and VP Global Business Units said: “FLYHT and the AFIRS product
represent a disruptive innovation that can transform avionics data
management and dissemination. We are proud to help FLYHT
deliver the highest quality certified product to its growing customer
base and will continue to support them in the development and
delivery of their product family.”
MAY 3: FLYHT received a purchase order from a major
avionics integrator for AFIRS 228 equipment for seven Lockheed
C-130 Hercules aircraft owned and operated by a Middle Eastern
country’s air force.
Bill Tempany, President and CEO of FLYHT stated: “We are excited
to continue our success in the global C-130 upgrade programs and
look forward to supplying the major global avionic integrators with
the many benefits AFIRS 228 provides airlines. This is the second
Middle Eastern air force to employ FLYHT’s technology.”
MAY 8: FLYHT appointed Mr. Derek Graham as Chief
Operating Officer.
MAY 15: FLYHT signed a contract with a Maldivian airline to
install AFIRS 220 on one Boeing 757 and the AFIRS 228B on two
Boeing 767 aircraft.
MAY 28: FLYHT announced it closed the final tranche of its
previously announced debt offering of non-convertible debentures.
FLYHT closed on an aggregate $2.1 million of debentures (pursuant
to two tranches) which FLYHT anticipates will be sufficient to meet
anticipated liquidity needs.
JUNE 26: FLYHT received an activation STC for the AFIRS
228 on the Boeing 777 aircraft from the FAA.
Bill Tempany, President and CEO of FLYHT stated: “FLYHT has been
diligently working towards securing the Boeing 777 STC from the
FAA. This popular aircraft is flown around the world by several
of our existing customers as well as several prospects we are
pursuing. The receipt of this activation STC is the first from the FAA
for the AFIRS 228.”
JULY 19: FLYHT reported that the AFIRS 228 has been
approved for use on the SITA network as a result of the completion
of SITA’s VHF AIRCOM Qualification (“VAQ”) testing in Montreal,
Canada. For AFIRS 228 to be qualified and validated to send
ACARS and other Datalink messages over the SITA network it
was a requirement that the Satcom system pass SITA’s VAQ and
compliance procedures.
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
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NOVEMBER 6: FLYHT reported that its Chinese partner
Skyblue Technology Development Co. Ltd. issued a press release
updating its commitment with FLYHT.
Skyblue stated “We are pleased to announce today that we have
received commitments from the first seven airlines we have been
working on to install the FLYHT AFIRS solution over the next three
years and they have placed orders with us for 218 units. Installation of
these is anticipated to commence in first quarter 2014 and we plan to
add other airlines to this list in the coming months.”
NOVEMBER 7: FLYHT received an activation STC for the
AFIRS 228 on the Boeing 737- 700/800 series aircraft from TCCA.
NOVEMBER 12: FLYHT signed a contract with a South
American cargo airline for AFIRS on 12 Boeing 737-400 and 12 ATR-
200 aircraft. The airline is a cargo carrier with plans to be the dominant
cargo carrier in the region with an integrated ground and air cargo
operation. The company intends to use AFIRS as a key component of
its paperless operational strategy, which is designed to reduce total
operating costs and increase efficiencies.
Bill Tempany, President and CEO of FLYHT stated: “We are excited to
be partnering with an operator who has a similar vision to ours and
can see the competitive advantage of AFIRS for operational control
and cost savings. We are confident that our AFIRS-based solutions will
enable our customer’s vision.”
NOVEMBER 25: FLYHT introduced the Dragon as an
exciting new member of the FLYHT family of products. The Dragon
is a revolutionary, lightweight, portable satellite communications
device that blends existing FLYHT technology with that of the iPad.
FLYHT developed the new product to meet a growing demand from
small aircraft, business jet and helicopter operators for a satellite
communications solution similar to AFIRS.
Bill Tempany, President and CEO of FLYHT stated: “We are very excited
to gain access into a new market with the Dragon, previously out of
reach for our products. The tens of thousands of general aviation
enthusiasts, corporate jet and helicopter operators will now be able
to take full advantage of FLYHT’s revolutionary technology. The device
has been tested and approved by the ADCC of China for input into
their Global Aircraft Management System (“GAMS”). We are looking
forward to a rapid adoption of the technology by aviators globally.”
DECEMBER 3: FLYHT announced an agreement to provide
through Datang Mobile Aviation division, the AFIRS 228 real-time data
communications and SATCOM solution complete with FLYHTStream.
The system for Satcom voice and all other data services has been
successfully installed on the ARJ21 and used during icing tests for
the final validation of the Type Certificate for this aircraft. The ARJ21
has been under development by COMAC and certification testing by
AVIC for several years and to date, has ordered 415 units from Chinese
airlines, customers in Pakistan and various African countries. The first
customer deliveries of the aircraft are expected in late 2014.
DECEMBER 4: FLYHT announced agreements with three
investor relations (“IR”) firms for services into 2014. The lead IR firm
will remain The Howard Group Inc. with continued support from Bristol
Institutional Relations, a division of Bristol Capital Ltd. and the addition
of Kin Communications Inc., who will add a retail presence to the 2014
investor relations strategy.
DECEMBER 10: FLYHT announced the sale and shipment
of five of its recently released Dragon products to DAC Aviation
International Ltee./DAC Aviation (EA) Ltd. (“DAC”) for five Cessna
Caravan Aircraft to provide voice and data services in support of their
humanitarian missions in Africa.
DECEMBER 24: FLYHT announced the exercise of warrants
and stock options for an aggregate of $6,087,733 to date in Q4 of 2013.
JULY 30: FLYHT reported that the AFIRS 228 has been approved
for use on the ARINC network to provide ACARS over Iridium
messages. The approval was the result of completion of ARINC’s
GLOBALink/Iridium Phase 3 AQP testing in Annapolis, Maryland,
which required AFIRS 228 to have the ability to send ACARS and other
Datalink messages over the ARINC network through Iridium.
Bill Tempany, President and CEO of FLYHT stated: “This is a key
milestone for the Company and its customers. To successfully
pass the AQP testing on the first attempt is not the industry norm.
We are thrilled that the certification program for FLYHT’s products
is proceeding as smoothly as planned, which is the result of the
highly skilled and dedicated team that FLYHT has assembled. The
certification of the AFIRS 228 opens an expanded market to major
carriers requiring the AOI capability for FANS or CPDLC compliance for
FLYHT. These approvals underpin an aggressive marketing push, which
is well underway.”
AUGUST 16: FLYHT reported that it received an activation
STC for its AFIRS 228 on the Boeing 767-200/300 series aircraft from
TCCA.
AUGUST 26: FLYHT’s AFIRS 228 received ICE certification
from Iridium for the commercial use of the AFIRS 228S on the Iridium
satellite network.
Bill Tempany, President and CEO of FLYHT stated: “This is a key
milestone for the Company and its customers. The ICE certification is
another important step in the process of the AFIRS 228 development
and allows activation of the units on the Iridium satellite network. We
are pleased to continue to complete these tests on schedule and are
excited to see shipment of these products occurring on schedule to all
of our customers. All of the building blocks are coming into place for
a very bright future and the AFIRS 228 product continues to show its
strengths through the thorough testing it is being subjected to.”
SEPTEMBER 23: FLYHT signed a contract with a Nigerian
airline for AFIRS 220 on four Boeing 737 aircraft.
NOVEMBER 4: FLYHT signed a contract with an eastern
European airline for AFIRS on four Boeing 757. The airline will use
AFIRS to provide real-time flight data monitoring.
Bill Tempany, President and CEO of FLYHT stated: “We are excited to
be catching a great opportunity in a part of the world that is expanding
and needing global communications and data tools. We see the growth
potential in Russia and the former Soviet countries as a strong growth
market for us”.
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
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TO OUR
SHAREHOLDERS
A YEAR OF BUILDING STRENGTH
To our shareholders and loyal supporters;
2013 saw the culmination of many efforts that have consumed our company for several years. The final certification and delivery of an AFIRS 228S,
the commercialization of the AFIRS 228B, the announcement and shipment of the Dragon and the completion of the program with L-3 for factory
installation of AFIRS on the Airbus A320 are all major accomplishments for our company.
As we continue to progress in 2014 here’s a review of what we achieved from our 2013 objectives.
Major Airbus operator for fleet retrofit 2013 and begin shipping from Airbus factory by late 2013
Important milestones during the year included the receipt of certification for the AFIRS 228S from SITA and ARINC in July 2013 to send ACARS
messages over Iridium. The ACARS aviation protocol has been a mainstay of communicating air traffic messages for over 50 years. SITA and ARINC
are the only two organizations approved to route those messages on the ground and from the ground to airborne equipment. In 2011 Iridium was
approved to carry those messages by satellite instead of traditional VHF radio. With the certifications received from SITA and ARINC as well as the ICE
certification in August of last year, AFIRS 228S can provide safety services voice and data communications between pilots and air traffic controllers.
This capability was an original goal in the initiation of the AFIRS 228 project.
Continued development and receipt of certifications led to the first factory install shipment of AFIRS 228S in December of 2013 to a major European
operator of Airbus A320 aircraft. The initial shipments achieved a small royalty payment in 2013. The initial deployment of these units will not generate
recurring revenue for us as the ACARS over Iridium revenues go to the two ACARS providers, though we are working to secure the voice and Electronic
Flight Bag (“EFB”) data revenues for FLYHT and will expand services to those customers over time as we gain a foothold with major carriers from
having our hardware on their fleets.
In 2014, FLYHT will continue to participate in working groups of the Airlines Electronic Engineering Committee (“AEEC”) and the Radio Technical
Commission for Aeronautics (“RTCA”) that set industry standards, influence regulations and create value for airlines and the aviation industry. FLYHT’s
involvement enables a voice among industry participants, gains insight into customer needs and allows the company to better prepare AFIRS for
industry requirements.
Priority to drive a substantially higher valuation through accelerated revenue growth and profitability
While we did not become cash flow positive in 2013 as we had hoped, we moved closer as the result of revenue growth of 23.7%. We will continue to
strive to be cash flow positive throughout 2014. The increase in revenues is an outstanding achievement in our view because we did not finish many of
the major products until the fourth quarter of the year. These project completions put us in good stead going forward to achieve even stronger growth
in revenues, become a self-sustaining cash flow positive organization and start to show returns for the loyal shareholders who have been with us for
many years.
We continued to reduce our cash burn, seen in the decrease in cash used in operating activities of 36.4% and the decrease of 16.8% in our operating
losses. It is important to note that the engineering work associated with STC development is shown as R&D and therefore will always be an expense
due to our continued expansion of STCs on different aircraft types.
One of the most exciting developments in 2013 was the exercise of warrants at the end of the year by shareholders. We were very pleased when
all but 1.2 million of the 16.5 million $0.40 warrants expiring in December 2013 were exercised contributing to 2013’s total of $6,144,886. The cash
brought in from those warrants will be used to pay off our debts and we plan to have the convertible debenture converted this year or we will be
repaying it in December. Even with the move of the principal payment of the $3,159,000, for that debenture into current liabilities, we have positive
modified working capital and that is the measure we will be watching closely to make sure it continues to grow throughout the coming year.
Build on our strategic relationships to accelerate growth
We built on our strategic relationships in China to secure a partner to provide our products to AVIC and COMAC and see our continued strength in the
China market as being a strong part of our core competencies acknowledged by shareholders.
China continued to expand with the installation of over 30 units now in place, an order in hand for another 218 units and the agreement to put AFIRS
on as standard fit on the ARJ21 fleet (a twin engine airliner under development by COMAC). We are confident we have strengthened our position in
China and that 2014 and beyond will be very good years for us in that market.
NetJets has used our system for eight months and have indicated they are very pleased with the results. We are currently working with them to
identify a NetJets internal sponsor to move the program forward. As with everything in the aviation industry, it will take time but we are confident
the end result will be very positive.
We continue to expand our presence with our three partners doing C-130 upgrades and as these time-tried aircraft come up for renewal, we plan to
be an important part of their communications infrastructure.
Protect our markets by providing superior technology and service
As for protecting our markets with superior technology, we took an immerging trend, iPad connectivity, and coupled it with our core competencies in
UpTime with Iridium to provide a lightweight portable product for helicopters and general aviation aircraft, the Dragon. We will continue to expand
and protect our markets by providing innovative products to the industry.
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
18
Our team at FLYHT has been working hard to achieve our desired results and objectives. It is always a pat on the back when we receive customer
feedback on the quality of our work. Here is some recent recognition we received.
MANAGEMENT DISCUSSION & ANALYSIS
“I have worked Tech Pubs for over 30 years and worked from various source data. I have seen many levels of quality. Working from your ICA and STC for
the B767 AFIRS 220 data, I must say it is the most pristine documentation I have ever seen! Your content stands out head and shoulders above the rest.”
“FIRST [Fuel Initiative Reporting System Tracker] is a key element to any fuel conservation initiative, it is the big “M” within the PEMC framework – Plan,
Execute, Measure, Correct. And the system does it accurately and timely, always.“
“FLYHT knowledge and flexibility to accommodate specific requirements is remarkable and makes the AFIRS and FIRST solutions a “must have” solution
for the aviation companies engaged to be the most efficient as possible in terms of fuel usage.”
2014 OBJECTIVES
As with last year, we have published a list of objectives that management will aim for in 2014.
The objectives are:
• Increase China installs to meet mandate
• Install on two business aircraft OEMs
• Expand service modules to increase revenues
• Pursue additional commercial OEM opportunity
• Positive cash flow from operations
Already in 2014 we have seen some positive news when in February we were recognized as a top ten performer in the Technology & Life Sciences
Category of the 2014 TSX Venture 50®. The list is a ranking of strong performing companies trading on the TSX Venture Exchange. This marks our
third appearance on the list, previously in 2008 and 2010, and we plan to continue to grow in the coming year.
We trust that 2014 is going to be a memorable year for FLYHT and want to thank our shareholders, our staff, our suppliers and customers who have
been with us through thick and thin and assure everyone we are working toward a bright and positive future.
Bill Tempany, Chief Executive Officer
This management discussion and analysis (“MD&A”) is as of April
14, 2014 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, 2013 and 2012 and the accompanying notes. Additional information
with respect to FLYHT can be found on SEDAR at www.sedar.com. The
Company has prepared its December 31, 2013 consolidated financial
statements in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting Standards
Board (“IASB”). The Company’s accounting policies are provided in note
3 to the consolidated financial statements.
NON-GAAP FINANCIAL MEASURES
The Company reports its financial results in accordance with IFRS or
Generally Accepted Accounting Principles (”GAAP”). It also occasionally
uses certain non-GAAP financial measures, such as working capital,
modified working capital, and loss before research and development
(“R&D”). FLYHT defines working capital as current assets less current
liabilities. The Company defines modified working capital as current
assets less current liabilities not including customer deposits or the
current portion of unearned revenue. A clearer picture of short-term net
cash requirements can be drawn by excluding these two items because
those customer deposits and unearned revenue are nonrefundable.
Loss before R&D is defined as the net loss before the direct costs
associated with R&D. These non-GAAP financial measures are always
clearly indicated. 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 growth and profitability potential. 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 includes certain statements that may be deemed
“forward-looking statements” 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, 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 (including AFIRS 228),
administration expenses, and litigation matters, 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 Canadian, U.S.,
and 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.
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, Canadian, U.S., and
foreign government activities, volatility of the aviation market for FLYHT’s
products and services, factors that result in significant and prolonged
disruption of air travel worldwide, U.S. military activity, market prices,
foreign exchange rates, continued availability of capital and financing,
and general economic, market, or business conditions in the aviation
industry, 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.
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 forwardlooking 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.
OVERVIEW
FLYHT is a designer, developer and service provider of innovative
solutions to the global aerospace industry. The Company’s solutions are
designed to improve the productivity and profitability of its customers
and enable communication between pilots and ground support. FLYHT’s
tools deliver data from the aircraft to operations groups on the ground,
on demand. The Company’s products are available for commercial,
business and military aircraft. FLYHT’s emergency data streaming
program, FLYHTStreamTM, can stream position reports and data from an
aircraft in flight to ground support in real time.
FLYHT’s products and services, featured below, are marketed globally
by a team of employees and agents based in Canada, the United States,
China, the United Kingdom, Singapore, Ireland, Abu Dhabi, and Argentina.
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
20
AFIRS™ UPTIME™
FLYHT FUEL MANAGEMENT SYSTEM
UNDERFLOOR STOWAGE UNIT
FLYHT’s Automated Flight Information Reporting System (“AFIRS”) is a
device installed on aircraft and monitors hundreds of essential functions
from the plane and the black box. AFIRS sends the information to the
UpTime server on the ground, which stores and relays the data to the airline
in real time. Airlines use this information to increase passenger safety,
improve productivity, maximize efficiency and enhance profitability. In
addition to its data monitoring functions, AFIRS provides voice and text
messaging capabilities that give pilots the ability to communicate with
ground support. FLYHT also builds value added applications for operators
such as FLYHTStream and the FLYHT Fuel Management System that
run on the AFIRS hardware and its UpTime servers. FLYHT offers global
satellite coverage, providing service to whoever needs it, when they
need it, anywhere on the planet.
The AFIRS 220 has been FLYHT’s signature product since 2004. The unit
has received regulatory certification for installation in approximately 30
widely used commercial aircraft brands and models.
FLYHT’s AFIRS 228 device continues to demonstrate its value in the
marketplace. In 2013, it achieved new certification requirements for
Supplemental Type Certificates (“STCs”) and safety services messaging.
FLYHT sold another 21 AFIRS 228 units during the year. The unit has
received regulatory certification for installation on approximately eight
widely used commercial aircraft brands and models.
The 228 incorporates improvements over the 220 in several important
areas: processing capacity, data transmission characteristics and
programmability. The 228’s features cater to the evolving needs of
airlines by providing a flexible product that is programmed for the
information they need. AFIRS 228 is an addition to FLYHT’s product line,
not a replacement for the 220. The Company will continue to sell its
AFIRS 220.
FLYHTSTREAM™
On July 12, 2012 the BEA - the French Civil Aviation Safety Investigation
Authority - published their final report on the June 1st 2009 accident of
Air France flight AF 447 from Rio de Janeiro to Paris. In the report the
BEA recommends “…that EASA and ICAO make mandatory as quickly
as possible, for airplanes making public transport flights with passengers
over maritime or remote areas, triggering of data transmission to facilitate
localisation as soon as an emergency situation is detected on board”.
FLYHT is the only aerospace company that has demonstrated the ability
to fulfill the BEA’s recommendation.
FLYHT’s patent-pending technology FLYHTStream is a revolutionary new
technology that performs real-time triggered alerting and black-box data
streaming in the event of an emergency on the aircraft. FLYHTStream
uses AFIRS’ onboard logic and processing capabilities on the aircraft in
combination with UpTime’s ground-based servers to interpret and route
alerts and messages from the aircraft in trouble to parties on the ground
that need to know such as the airline, operation centers and regulators.
The FLYHT Fuel Management System is a powerful way to focus
attention on areas of greatest savings potential automatically, and to
provide the information necessary to make decisions about the operation.
Most airlines currently rely on a system of reports, manually generated
and analyzed to make fuel savings decisions within the operation. This
is time-consuming and relies on the user to calculate areas of potential
by cross-referencing a great number of queries. The FLYHT Fuel
Management System is not just a report-generation tool; it is a dynamic,
interactive application that answers key questions by generating alerts
and providing the user with the ability to quickly identify trends. FLYHT
designed this unique application that highlights exceptions to best
practices, provides quick drill downs to spot the root cause of issues, and
identifies trends. It is an intuitive tool that enables fuel managers to act
on information instead of compiling and analyzing data.
FIRST
The Fuel Initiative Reporting System Tracker (“FIRST”) is a component of
the FLYHT Fuel Management System (FIRST can also be purchased as a
stand-alone module) that eliminates uncertainty about the effectiveness
of an airline’s fuel savings initiatives. The system allows operators to
customize and choose settings that are important to their operation.
It uses real-time flight data acquired from the aircraft’s onboard
systems, and presents the data to operations personnel in an easy to
read dashboard. The dashboard compares how pilots are operating the
aircraft to how they could be flying in order to maximize efficiency and
fuel savings. Where compliance has not been met, associated costs,
in a dollar amount, are shown. The tool is de-identified to meet pilot
union requirements, but can be filtered to display performance by pilot
if desired.
is a
revolutionary,
THE DRAGON™
lightweight, portable satellite
The Dragon
communications device that blends existing FLYHT technology with
that of the iPad. FLYHT developed the new product to meet a growing
demand from small aircraft, business jet and helicopter operators for a
satellite communications solution similar to AFIRS.
The device is portable, allowing operators the flexibility to use it where
and when they need it. Because the Dragon is not installed on the
aircraft, there is no need for STCs. The Dragon allows real-time voice and
data communications enabled by the Iridium satellite network connected
through the cockpit and the pilot’s headset, though does not have data
analysis or the safety services capabilities of other AFIRS products.
An iPad application acts as an interface for the user in the cockpit to
send and receive messages, such as weather updates, from the ground.
Another key feature is flight following, so operators always know where
their assets are in the sky.
The Underfloor Stowage Unit offers the flight crew additional stowage
space in the cockpit. With this addition, manuals are always within reach
of the seated crew and are kept safe, dry and clean inside the stowage
unit. In addition, safety equipment and other items required by the flight
crew can be accessed any time throughout the flight without leaving
the cockpit. The stowage unit is certified to be installed in Bombardier
CRJ series, Challenger and DHC-8s and can also be installed in other
aircraft types.
SYSTEM APPROVALS
A Supplemental Type Certificate (“STC”) is an airworthiness certification
required to modify an aircraft from its original design and is issued by
an aviation regulator. FLYHT’s AFIRS equipment is an addition to an
aircraft and therefore an STC is required prior to installation. FLYHT
has received or applied for AFIRS product approvals from Transport
Canada Civil Aviation (“TCCA”), the Federal Aviation Administration
(“FAA”) in the United States, the European Aviation Safety Agency
(“EASA”) in Europe, and the General Administration of Civil Aviation
of China (“CAAC”) for various aircraft models, depending on customer
requirements.
FLYHT’s expertise in airworthiness certification enabled it to join a
select group of Canadian companies in October 2008 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 with minimal TCCA oversight. This speeds up the process by
lessening waiting time, cost and reliance on contractors.
In addition to its DAO status, the Company also has two engineers on
staff with delegated authority, allowing them to approve electrical and
structural design aspects of an airworthiness certification. If an issue
is encountered during the STC process, the delegated staff member(s)
have the authority to approve necessary changes and continue the
process without the involvement of an external party.
The process to receive a STC takes some time to complete, but always
starts with an application for the STC through any one of TCCA, FAA
or EASA. Generally, FLYHT starts the process with TCCA by opening
an application with the regulator, after which an STC data package is
created. The data package consists of the engineering documents that
outline how the AFIRS equipment will be installed on the aircraft. Once
the data package and first stage of approvals are granted by the regulator,
ground and flight tests takes place. To fulfill the flight test requirement,
FLYHT must have access to the appropriate type and model of aircraft.
This is done in cooperation with an existing or potential customer. Once
these tests are completed, FLYHT submits an activation data package
to TCCA that enables the AFIRS unit to be integrated with the aircraft
systems. If TCCA approves the submission, an STC is issued. To obtain
an STC from another regulator, FLYHT prepares an application, which is
sent through TCCA to the regulator such as FAA, EASA or CAAC along
with the STC package previously approved by TCCA. The regulator
reviews the package and issues the STC.
The time required for the approval process through TCCA varies
depending on the aircraft and workloads. A general rule of thumb is
about three months, with a minimum of another three months if an STC
is required from another regulator such as FAA, EASA or CAAC.
FLYHT has received STC approvals for AFIRS 220 on the following
aircraft:
• Airbus A319, A320, A321
• Airbus A330
• Boeing B737-200, 300, 400, 500
• Boeing B737-600, 700, 800
• Boeing B757-200
• Boeing B767-200, 300
• Bombardier DHC-8-100, 200, 300, 400
• Bombardier CRJ100, 200, 440
• DC-10
• Fokker F100
• Hawker Beech 750, 800XP, 850XP, 900XP
• Viking Air DHC-7 (LSTC)
FLYHT has received STC approvals for AFIRS 228 on the following
aircraft:
• Airbus A319, 320, 321
• ATR 42, 72
• Boeing B737–700, 800
• Boeing 747-200
• Boeing B767-200, 300
• Boeing B777
• Bombardier CRJ-700, 900
• Hawker Beech 750, 800XP, 850XP, 900XP
FLYHT has received provisions-only STC approvals for AFIRS 228 on
the following aircraft and expects full STCs in 2014:
• McDonnell Douglas MD-81, 82, 83, 87, 88
FLYHT has STC applications in process for AFIRS 220, expected to be
submitted, depending on market requirements, for the following aircraft:
• Embraer Legacy 600
FLYHT has STC applications in process for AFIRS 228, expected to be
submitted, depending on market requirements, for the following aircraft:
• Boeing B737-200, 300, 400, 500
• Boeing B747-400
• Boeing B757-200
• Bombardier DHC-8-400
• Dassault Falcon 2000
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
22
In addition, the Company will be filing the necessary documents to
obtain approval for the AFIRS 228 for a majority of currently approved
220 STCs, depending on market requirements over the next several
years. Portions of those costs, including salaries and salary burden,
will be covered by funding committed by Industry Canada in February
2011 under the Strategic Aerospace and Defence Initiative (“SADI”)
program.
TRENDS AND ECONOMIC FACTORS
FLYHT examines the results of growth and measurements made by
leading aviation groups in order to determine the health of the industry.
AFIRS is a technology that can be installed on commercial, business
or military aircraft while the Company’s latest product, the Dragon, is
available to the General Aviation market.
The airline industry saw a 5.2% increase in passenger demand in 2013
compared to the previous year. Load factors, meaning how close to
capacity the flights were for the year, were near record levels at 79.5%,
up 0.4 percentage points over 2012. Demand in international markets
expanded at a faster rate (5.4%) than domestic travel (4.9%)1. Global
freight traffic measured in Freight Tonne Kilometers (“FTK”) was very
slow at the beginning of 2013 and only grew by 1.4% over the whole
year. 2014 is expected to be slow year for the cargo market.2 RPK and
FTK measure passenger and freight contributions to airline revenue.
These are significant measures to determine the health of the industry
because the larger the increase, the more people are flying, suggesting
growth in the industry.
Large commercial aircraft manufacturers recorded solid numbers for
deliveries and new orders in 2013. Airbus delivered 626 commercial
aircraft, including 1619 gross orders beating the previous record set
in 2011 by 11 aircraft3. Boeing delivered 648 aircraft in 2013, an 8%
increase from the previous year. The OEM also had record revenue for
the year, a 6% increase from 20124. Embraer delivered 90 commercial
jets in 2013, a decrease from the previous year though they made up
for it with an increase of the difference in deliveries of business jets5.
Bombardier delivered 238 aircraft, compared to 233 for the previous
year. During this same period, Bombardier received 81 firm orders for
commercial aircraft6.
The General Aviation Manufacturers Association (“GAMA”) reported
that numbers in worldwide general aviation airplane shipments rose
4.3% to 2,256 shipments in 2013 from 2,164 in 2012. Total shipments of
helicopters also increased 7% in the year.7
FLYHT continues to meet the needs of the aviation industry through the
introduction of value-added information products and specialty services
that build customer value and FLYHT revenues from existing and new
installations. Key achievements in 2013 were the certification of the
AFIRS 228S in order to send Aircraft Communications Addressing and
Reporting System (“ACARS”) messages over Iridium; as well, as the
Iridium Compatible Environment (“ICE”) certification to send voice and
data safety services messaging on the Iridium satellite network. The
Company will continue to participate in industry working groups in 2014
to advance engineering and technical requirements and prepare for
future development of the AFIRS product line to meet industry needs.
On the economic side of industry trends, the weakening of the Canadian
dollar relative to the U.S. dollar during the fourth quarter of 2013 versus
the same quarter of 2012 had a positive impact on the Company’s
revenue and income compared to the same quarter of 2012. As a result
of these movements, the Company’s revenues, which are substantially
all denominated in U.S. dollars, were higher than they would have
been had the foreign exchange rates not changed. It is the standard
of the aviation industry to conduct business in U.S. dollars. While the
majority of the Company’s costs are denominated in Canadian dollars, a
significant portion of the cost of sales, marketing and component costs
are U.S. dollar denominated, and therefore create a natural hedge
against fluctuations of the Canadian dollar.
1. http://www.iata.org/pressroom/pr/Pages/2014-02-06-01.aspx
2. http://www.iata.org/pressroom/pr/Pages/2014-02-05-01.aspx
3. http://www.airbus.com/newsevents/news-events-single/detail/airbus-
sets-new-records-in-orders-deliveries-and-backlog/
4. http://boeing.mediaroom.com/2014-01-29-Boeing-Reports-Record-2013-
Revenue-EPS-and-Backlog-and-Provides-2014-Guidance
5. http://www.embraer.com.br/Documents/noticias/008-Results%204Q13-
Ins-VPF-I-14.pdf
6. http://www.bombardier.com/en/media-centre/newsList/details.
bombardier-inc-q4c2013financialresults20140213.html?
7. http://www.gama.aero/media-center/press-releases/content/gama-
releases-2013-year-end-aircraft-shipment-and-billing-number
CONTRACTS AND ACHIEVEMENTS
OF FISCAL 2013
Contracts
FLYHT Aerospace Solutions Ltd. signed a total of a total of seven
contracts on 52 aircraft with customers worldwide. 26 were for the
AFIRS 220, 21 for the AFIRS 228 and five were for the Dragon.
In January, FLYHT signed a contract with a domestic Nigerian airline for
the AFIRS 220 on five Airbus A319 and A320 Aircraft.
In May, FLYHT received a purchase order from a major avionics
integrator for AFIRS 228 equipment for seven Lockheed C-130 Hercules
aircraft owned and operated by a Middle Eastern country’s air force.
Achievements
• AFIRS 228 was approved on the SITA and ARINC networks
to provide ACARS over Iridium messages.
• AFIRS 228 received the ICE certification for the commercial use of
the AFIRS 228S on the Iridium satellite network.
• FLYHT introduced the Dragon as an exciting new member of the
FLYHT family of products. The Dragon is a revolutionary, lightweight,
portable satellite communications device that blends existing FLYHT
technology with that of the iPad. FLYHT developed the new product
to meet a growing demand from small aircraft, business jet and
helicopter operators for a satellite communications solution similar
to AFIRS.
Also in May, FLYHT signed a contract with a schedule Maldivian airline
to install AFIRS 220 on one Boeing 757 and the AFIRS 228B on two
Boeing 767 aircraft.
• FLYHT added another commercial OEM to its customer list with the
agreement with Datang Mobile Aviation division in China for the
AFIRS 228 to be standard fit on production ARJ21 aircraft.
In September, FLYHT signed a contract with a Nigerian airline for AFIRS
220 on four Boeing 737 aircraft.
• Shareholders exercised warrants and stock options for an aggregate
of $6,144,886.
In November, FLYHT signed a contract with an eastern European airline
for AFIRS on four Boeing 757.
• FLYHT received an activation STC in June for the AFIRS 228 on
the Boeing 777 aircraft from the FAA.
Also in November, FLYHT signed a contract with a South American
cargo airline for AFIRS on 12 Boeing 737-400 and 12 ATR-200 aircraft.
The airline is a cargo carrier with plans to be the dominant cargo carrier
in the region with an integrated ground and air cargo operation.
In December, FLYHT announced the sale and shipment of five of its
recently released Dragon products to DAC Aviation International
Ltee./DAC Aviation (EA) Ltd. (“DAC”) for five Cessna Caravan Aircraft
to provide voice and data services in support of their humanitarian
missions in Africa.
• FLYHT received an activation STC in August for its AFIRS 228 on the
Boeing 767-200/300 series aircraft from TCCA.
• In September, FLYHT received an activation STC for the AFIRS 228
on the Boeing 737- 700/800 series aircraft from TCCA.
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
24
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2013 AND 2012
Loss per share (basic & fully diluted)
0.01
0.00
0.01
Quarterly Results
AFIRS UpTime sales
AFIRS UpTime usage
Parts
Services
Revenue
Loss
Loss before R&D
AFIRS UpTime sales
AFIRS UpTime usage
Parts
Services
Revenue
Loss
Loss before R&D
Loss per share (basic & fully diluted)
Selected Annual Information
Q4 2013
$
592,483
1,080,503
79,716
184,055
Q3 2013
$
Q2 2013
$
583,742
1,009,837
881,903
307,588
409,804
846,438
61,586
245,573
Q1 2013
$
521,777
815,874
206,672
172,813
1,936,757
2,183,037
2,163,434
1,717,136
1,438,795
615,950
1,038,283
745,444
174,987
680,936
Q4 2012
$
1,063,933
774,657
85,138
296,673
Q3 2012
$
555,413
799,872
48,591
145,885
Q2 2012
$
581,290
756,705
19,168
227,312
2,220,401
1,549,761
1,584,475
1,115,169
621,446
40,436
0.00
133,102
1,954,303
2,174,901
290,563
1,183,274
961,742
0.00
0.02
0.02
970,136
281,570
0.01
Q1 2012
$
264,148
760,392
49,523
41,106
Liquidity and Capital Resource
The Company’s cash at December 31, 2013 increased to $5,184,803 from $676,246 at December 31, 2012. The Company has an available operating
line of $250,000 that was undrawn as at December 31, 2013. The operating line bears an interest rate of Canadian chartered bank prime plus 1.5%,
and is secured by assignment of cash collateral and a general security agreement.
At December 31, 2013, the Company had negative working capital of $894,887 compared to negative $2,772,247 as of December 31, 2012, an
improvement of $1,877,360. Neither customer deposits, nor the current portion of unearned revenue are refundable, and if those two items are not
included in the working capital calculation, the resulting modified working capital at December 31, 2013 would be positive $760,174 compared to
positive $742,068 at December 31, 2012.
The Company funded 2013 operations primarily through cash received from sales, the proceeds of private placements, and funding received through
the SADI grant program. If the costs associated with R&D were factored out, there would have been an increase in cash of $6,703,863. It is expected
that R&D expenses will continue to decrease as the AFIRS 228 project moves into the next phase of enhancements and the finished product continues
to generate revenues. The resulting increase in cash inflows from sales will reduce the requirement for further funding. The Company believes that if
funding is required to meet cash flow requirements in 2014, it will be able to do so either through debt or equity instruments.
Cash and cash equivalents
Restricted cash
Trade and other receivables
Deposits and prepaid expenses
Inventory
December 31,
2013
December 31,
2012
$
5,184,803
250,000
784,426
145,554
$
676,246
250,000
1,209,497
99,464
1,308,243
1,663,918
Trade payables and accrued liabilities
(3,704,496)
(3,658,254)
Variance
$
4,508,557
-
(425,071)
46,090
(355,675)
(46,242)
1,613,411
Unearned revenue
Loans and borrowings
Finance lease obligations
Current tax liabilities
Working capital
Unearned revenue
Customer deposits
Modified working capital
(1,103,834)
(2,717,245)
(3,745,513)
(271,832)
(3,473,681)
(13,175)
(19,963)
(895)
(4,078)
6,788
3,183
(894,887)
(2,772,247)
1,877,360
1,103,834
2,717,245
(1,613,411)
551,227
760,174
797,070
742,068
(245,843)
18,106
Assets
Non-current financial liabilities
Revenue
Comprehensive loss
Comprehensive loss per share – basic & fully diluted
2013
$
8,435,962
1,992,028
8,000,364
4,063,164
0.03
2012
$
4,968,972
3,118,142
6,469,806
4,883,752
0.04
2011
$
5,509,709
2,519,337
5,467,199
6,543,049
0.06
25
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
26
As of December 31, 2013, the Canadian equivalent of the Company’s outstanding accounts payable to Sierra Nevada Corporation (“SNC”) was
$1,921,384 (December 31, 2012: $1,790,571) relating to their involvement with the development of the AFIRS 228. The outstanding amount in USD
remained unchanged from 2012 to 2013. If this amount was removed from the working capital it would be positive $1,026,497 at December 31,
2013 and negative $981,676 at December 31, 2012. As well, the modified working capital would be a positive $2,681,558 at December 31, 2013 and
positive $2,532,639 at December 31, 2012. As reported in the 2010 Annual Report the development effort for the AFIRS 228 program was split into
four general modules: (1) hardware, (2) board support software (both developed by a Calgary contractor), (3) Embedded Logic Applications (“ELA”)
(developed by FLYHT staff in Calgary), and (4) core software (the responsibility of SNC). Late in 2010, it was recognized by management that progress
on the AFIRS 228 program was on track for year end delivery for the hardware, board support software and ELA. However, time estimates to complete
the core software continued to slip and costs had escalated. In the third quarter of 2011, management of FLYHT reviewed the state of the core
software development with SNC in order to develop a plan and prepare for the transition from a SNC deliverable to FLYHT maintained software. It was
determined by management that the best course of action to successfully complete the 228 in a timely fashion was to repatriate the core software
development to Calgary and build a team around the existing resources of FLYHT’s Calgary based contractors and staff. The transition occurred in
February 2011, and as anticipated, the first customer test flight was completed before the end of 2011. Full certification has begun to meet the timelines
required by our current customers and prospects. The current accounts payable amount outstanding of $1,921,384 is presently under dispute in the
courts. See the Contingency section on page 39 for further clarification.
In two tranches on April 18 and May 28, 2013, the Company issued an aggregate $2,110,000 of debentures in a debt offering. The debentures mature
on June 30, 2016 and bear interest at a rate of 12% per annum on the contributed amounts, which shall be accrued and paid annually in arrears
commencing December 1, 2013. Purchasers of debentures received a capital discount premium of 10% on the financing, meaning that for every $1.00
debenture acquired, FLYHT shall owe, on the maturity date, principal equal to $1.10 to the debenture holder. The purchasers of the debentures were
also issued one common share of the Corporation for every $1.00 principal amount of debentures acquired pursuant to the offering. A total of 2,110,000
common shares were issued under these tranches. All of the securities issued thereunder were subject to a 4-month hold period. The debentures
are not listed on any stock exchange and are not convertible into common shares. The debentures are secured against all personal property of
FLYHT, including FLYHT’s intellectual property and are subordinated in right of payment to all existing and future secured bank and/or governmental
indebtedness of FLYHT and any existing security already registered against FLYHT’s assets. The fair value of the debenture was determined at the time
of issue as the difference between the principal value of the debentures and the discounted cash flows assuming an 18% rate.
In 2013 a total of 16,007,102 warrants were exercised, each exercisable into one common share for total proceeds of $6,051,986:
(a) 1,071,522 warrants were exercised with an exercise price of $0.20 per share for proceeds of $214,304
(b) 1,365,500 warrants were exercised with an exercise price of $0.30 per share for proceeds of $409,650, and
(c) 13,570,080 warrants were exercised with an exercise price of $0.40 per share for proceeds of $5,428,032
Also in 2013, a total of 314,000 stock options were exercised for total proceeds of $92,900, with each stock option exercised into one common share:
(a) 224,000 stock options were exercised with an exercise price of $0.25 for proceeds of $56,000, and
(b) 90,000 stock options were exercised with an exercise price of $0.41 per share for proceeds of $36,900
As at April 14, 2014, FLYHT’s issued and outstanding share capital was 163,045,548.
The achievement of positive earnings before interest and amortization is necessary before the Company can improve liquidity. The Company has
continued to expand its cash flow potential through its continued marketing drive to clients around the world. Management believes that the Company’s
installation momentum, conversion of installations to recurring revenue, new revenue streams, and ongoing sales will be sufficient to meet standard
liquidity requirements going forward. To continue as a going concern, the Company will need to attain profitability and/or obtain additional financing
to fund ongoing operations. If general economic conditions or the financial condition of a major customer deteriorates, then the Company may have to
scale back operations to create positive cash flow from existing revenue and/or raise the necessary financing in the capital markets. It is the Company’s
intention to continue to fund operations by adding revenue and its resulting cash flow as well as continue to manage outgoing cash flows. If the need
arises due to market opportunities, the Company may meet those needs via the capital markets. These material uncertainties may cast significant
doubt upon the Company’s ability to continue as a going concern.
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,
though it is important to identify risks that could have a material effect on business or results of operations. Such risks are listed below. The areas
defined are not inclusive.
Installations at c-checks
The Company’s product, AFIRS 220, can take approximately 200 person-hours or more to install on an aircraft, depending on the aircraft type and
crew. Since the box needs a longer period to be installed, 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,
though it can take as long as two or three years before an aircraft is out of service for an extended period. Waiting for a c-check for AFIRS installation
is a risk to the Company because it results in a delay in initial revenue from the sale of the box and the Company does not receive recurring revenue
connected with the monthly service offerings until the device is installed and running.
The Company takes steps to mitigate this risk by encouraging customers to install AFIRS at their aircraft’s earliest availability and works with them to
provide the box 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 money as possible. Another risk mitigation tool used by the Company is to offer special discounts to airlines that pay for all
units up front. This discount decreases FLYHT’s gross margin slightly, but allows the Company to bring in cash immediately after signing an agreement.
As well, the terms of the Company’s standard agreement states that payment is due a minimum of 45 days prior to the shipment of kits.
Foreign currency fluctuations
The Company does a majority of its business in U.S. dollars so there is a risk of currency fluctuation. The majority of the Company’s costs are
denominated in Canadian dollars, though a significant portion of costs of goods sold and distribution costs are U.S. dollar denominated, and therefore
create a 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. Since the economic recession in 2008, all sectors including
the commercial sector have slowed down. As an airline’s spending is tied to their income, they may be unwilling or unable to spend money, particularly
on a value-added product such as AFIRS.
In order to address this risk, the sales team has developed a number of strategies. One strategy the Company has achieved is a global sales presence.
FLYHT has established sales agents on every continent. While some economies of the world may be in a bit of a slump or downturn, there is a place
for FLYHT in growing markets. FLYHT also demonstrates to potential customers its impressive return on investment model, how quickly potential
customers can improve operational efficiency, and ultimately how much money AFIRS will save them.
Dependence on key personnel and consultants
FLYHT’s ability to maintain its competency in the industry is dependent on maintaining a specially skilled workforce. The Company’s Design Approval
Organization 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. The Company has worked hard over the past few
years to distribute the specified knowledge among a number of key individuals. This reduces risk and ensures the Company can still function effectively
were it to lose specialized staff.
Dependence on new products
Over the past few years, the Company has been in the R&D stage of its next generation product, AFIRS 228. FLYHT is confident the product does fill
a gap in the industry, as evidenced by sales of the AFIRS 228 throughout 2013. The Company expanded its reach to meet the needs of another sector
of the industry, general aviation operators. FLYHT released the Dragon in the fall of 2013, to fill the demand for a portable satellite communications
device. The product was invented after industry research was conducted, as well of the Company’s awareness of general aviation operators’ demand
for increased connectivity. The Company’s success will ultimately depend on the success of both products, and future enhancements made to both.
27
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
28
Availability of key supplies
Unearned revenue
FLYHT produces and builds all AFIRS 220 units in-house, while AFIRS 228 units are built by a contract manufacturer. The Company relies on partners,
suppliers and special parts to complete unit builds. Certain parts can be delayed in shipping or availability, which can cause a delay in building the
AFIRS 220 or in receiving AFIRS 228 completed units. FLYHT aims to avoid the risk of not having the necessary supplies by managing inventories
and storing extra key parts. The contract manufacturer is a global supplier 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 AFIRS units will be available into the future.
Proprietary protection
Patent rights are extremely important to the continuation of the Company because the AFIRS technology is the Company’s primary revenue source.
The Company relies on contract, copyright and trademark laws and has received patents from the United States, China, 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 claiming patent infringement, though the Company has defended patent claims in court and been successful. FLYHT conducted due
diligence on its technology and the conditions of its patent before applying and maintains that it holds unique characteristics from other technologies
in the marketplace and does not infringe on the rights of any third parties.
Revenue recognition cycle
FLYHT’s revenue recognition for AFIRS Uptime sales and parts revenue occurs in a series of steps. The process begins with the receipt of customer
deposits, followed by shipment, installation and finally customer usage of the AFIRS product.
Customers are required to pay for installation kits prior to the planned shipment date. This prepayment is recorded as a customer deposit, which is
recognized as an accrued liability upon receipt. Upon shipment of an installation kit, the customer deposit is reclassified to unearned revenue, where it
will remain until the AFIRS UpTime solution has been installed and is fully functional, at which point the installation kit is recognized as AFIRS UpTime
sales revenue.
When customers order spare parts or Underfloor Stowage Units a prepayment is required, which is recorded as a customer deposit. When the
shipment of the ordered part or unit occurs, the customer deposits are recognized as Parts revenue.
Customer deposits
Customer deposits are amounts received for AFIRS UpTime sales and parts that have not yet been shipped to the customer, and services that have
not yet been completed. These deposits are nonrefundable, and are included on the Statement of Financial Position (“SFP”) in trade payables and
accrued liabilities.
The chart below outlines the movement in the Company’s customer deposits throughout the periods ending December 31, 2013 and 2012. Payment
was received for 10 installation kits in the fourth quarter of 2013, compared to 17 received in the fourth quarter of 2012, bringing 2013 year-to-date
(“YTD”) total payments for installation kits to 42, compared to a total of 78 in 2012.
Q4 2013
$
Q4 2012
$
Variance
$
YTD 2013
$
YTD 2012
$
Variance
$
Opening balance
622,082
1,033,613
(411,531)
797,070
980,955
(183,885)
Payments received from
customers
188,809
763,366
(574,557)
1,204,677
3,262,045 (2,057,368)
Moved to unearned revenue
(259,664)
(999,909)
740,245 (1,450,520)
(3,445,930)
1,995,410
Balance, December 31
551,227
797,070
(245,843)
551,227
797,070
(245,843)
The chart below outlines the movement in the Company’s unearned revenue throughout the periods ending December 31, 2013 and 2012. Revenue
was recognized for 15 installation kits in 2013’s fourth quarter compared to 26 in the fourth quarter of 2012. Revenue was recognized for 62 installation
kits in 2013, as compared to 59 in 2012. In 2013, 77.7% of the unearned revenue balance at December 31, 2012 was recognized as earned revenue
(2012: 71.1%).
Q4 2013
$
Q4 2012
$
Variance
$
YTD 2013
$
YTD 2012
$
Variance
$
Opening balance
1,494,153
2,741,596 (1,247,443)
2,717,245
1,897,204
820,041
AFIRS UpTime sales: shipped,
not accepted
259,664
999,909
(740,245)
1,450,520
3,445,930 (1,995,410)
AFIRS UpTime usage: prepaid
25,090
116,694
(91,604)
414,228
376,981
37,247
AFIRS UpTime sales: revenue
recognized
AFIRS UpTime usage: revenue
recognized
License fees: revenue
recognized
(578,936)
(1,063,933)
484,997 (2,694,292)
(2,464,784)
(229,508)
(31,757)
(12,641)
(19,116)
(526,347)
(280,566)
(245,781)
(64,380)
(64,380)
-
(257,520)
(257,520)
-
Balance, December 31
1,103,834
2,717,245 (1,613,411)
1,103,834
2,717,245 (1,613,411)
Revenue
For the revenue categories listed in the Revenue sources chart, AFIRS Uptime sales includes the income from an AFIRS hardware sale as well as the
parts required to install the unit. AFIRS Uptime usage is the recurring revenue from customers’ usage of data they receive from AFIRS and use of
functions such as the satellite phone. Parts revenue includes the sale of spare AFIRS units, spare installation parts, and Underfloor Stowage Units.
Services revenue includes technical services, repairs and expertise the Company offers such as the installation of operations control centres, including
two FLYHT set up in Nigeria.
Overall, total revenue increased 23.7% from $6,469,806 in 2012 to $8,000,364 in 2013. AFIRS Uptime sales increased by 9.9%, AFIRS Uptime usage
increased by 17.2%, Parts sales increased by 223.9%, and Services revenue increased by 42.4%. Fourth quarter revenue decreased 12.8% from
$2,220,401 in Q4 2012 to $1,936,757 in Q4 2013, due to decreases in AFIRS Uptime sales of 44.3%, Parts sales of 6.4% and Services revenue of
38.0%. These decreases were partially offset by a 39.5% increase in AFIRS Uptime usage.
The Company has two types of revenue streams relating to AFIRS equipment, depending on the type of service agreement: rental and sales. In
accordance with the Company’s revenue recognition policy for rental type agreements, the arrangement consideration is deferred as unearned
revenue and revenue is recognized over the initial term of the contracts. At December 31, 2013, there were no customers with a rental type contract
(2012: one customer). For sales type agreements, AFIRS fees are deferred as unearned revenue and corresponding expenses are recorded as work in
progress. When the system is fully functional and the customer has accepted the system, the deferred amount is fully recognized in revenue along with
the work in progress as cost of sales. Under both forms of agreement, UpTime usage fees are recognized as the service is provided based on actual
customer usage each month. The amounts recorded in unearned revenue are nonrefundable.
29
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
30
Revenue sources
Gross Profit and Cost of Sales
Q4 2013
$
Q4 2012
$
Variance
$
YTD 2013
$
YTD 2012
$
Variance
$
AFIRS UpTime sales
592,483
1,063,933
(471,450)
2,707,839
2,464,784
243,055
AFIRS UpTime usage
1,080,503
774,657
305,846
3,624,718
3,091,626
533,092
Parts
Services
Total
79,716
85,138
(5,422)
655,562
202,420
453,142
184,055
296,673
(112,618)
1,012,245
710,976
301,269
1,936,757
2,220,401
(283,644)
8,000,364
6,469,806
1,530,558
The Company’s long-term investment in marketing and relationship building has created a strong pipeline of prospective clients around the world.
The revenue breakdown based on geographical location is displayed in the next table. Recurring revenue accounted for 45.3% of revenue in 2013,
compared to 47.8% in 2012. Approximately 55.8% of the Company’s revenue in the fourth quarter of 2013 was recurring, compared to 34.9% in the
fourth quarter of 2012. Recurring revenue as a percentage of overall revenue will fluctuate from period to period depending on the mix of revenue
during each period. Recurring revenue from FLYHT’s existing client base is expected to continue to expand throughout 2013 and future years.
Geographical sources of revenue
The following revenue split is based on the geographical location of customers.
North America
South/Central America
Africa/Middle East
Europe
Australasia
Asia
Total
North America
South/Central America
Africa/Middle East
Europe
Australasia
Asia
Total
Q4 2013
$
731,995
167,765
590,523
41,488
187,923
217,063
Q4 2012
$
1,162,883
87,861
817,314
13,036
135,363
3,944
1,936,757
2,220,401
Q4 2013
%
Q4 2012
%
37.8
8.7
30.5
2.1
9.7
11.2
100.0
52.3
4.0
36.8
0.6
6.1
0.2
100.0
YTD 2013
$
3,853,788
460,184
1,391,446
549,718
697,249
1,047,979
8,000,364
YTD 2013
%
48.1
5.8
17.4
6.9
8.7
13.1
100.0
YTD 2012
$
3,522,317
472,850
1,729,862
150,247
520,843
73,687
6,469,806
YTD 2012
%
54.5
7.3
26.7
2.3
8.1
1.1
100.0
FLYHT’s cost of sales include the direct costs associated with specific revenue types, including the AFIRS unit, installation kits, training and installation
support, as well as associated shipping expenses and travel expenses for the Company’s engineering personnel’s 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 the fourth quarter of
2013 was 39.6% compared to 34.1% in 2012’s fourth quarter. A review of the annual results shows the cost of sales as a percentage of revenue also
decreased from 42.8% in 2012 to 40.8% in 2013. The decrease was due to a difference in the mix of revenue sources, as AFIRS Uptime usage, Parts
sales, and Services have higher margins than AFIRS Uptime sales. Gross margin will fluctuate quarter over quarter depending on customer needs and
corresponding with the revenue type.
Gross margin for the last eight quarters was:
Gross Margin %
Cost of Sales %
Q1
60.4
39.6
Q2
56.9
43.1
Q3
54.5
45.5
2013201320132013
Q4
66.6
33.4
Q1
65.9
34.1
Q2
60.1
39.9
Q3
43.7
56.3
2012
2012
2012
2012
Q4
54.8
45.2
Operating Activities
Other income
Other income consists of the recognition of the SNC license fee that was deferred as unearned revenue when received, and is being recognized over
the initial five-year term of the agreement.
Distribution expenses (recovery)
Consist of overhead expenses associated with the delivery of products and services to customers, sales and marketing.
Major Category
Q4 2013
$
Q4 2012
$
Variance
$
YTD 2013
$
YTD 2012
$
Variance
$
Salaries and benefits
388,747
463,650
(74,903)
1,506,626
1,829,053
(322,427)
Share based compensation
-
(40,645)
40,645
85,071
95,458
(10,387)
Contract labour
Office
Travel
Equipment & maintenance
Depreciation
Marketing
Other
Total
79,900
87,594
106,426
9,157
11,817
15,797
134,890
120,945
(41,045)
275,059
559,096
(284,037)
81,078
65,429
5,369
13,281
12,550
12,987
6,516
40,997
3,788
(1,464)
3,247
366,439
403,319
25,413
46,129
41,441
121,903
206,949
345,648
315,797
31,820
52,956
61,773
69,604
20,791
87,522
(6,407)
(6,827)
(20,332)
137,345
834,328
734,644
99,684
2,956,446
3,361,205
(404,759)
31
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
32
Salaries and benefits decreased in 2013 as compared to 2012 both in the quarter and YTD mainly due to decreased staffing requirements to meet
AFIRS 228 development needs. The decreased costs were allocated between distribution and research and development expenses as the decreased
staff’s efforts had been split between meeting the needs of existing and future customers, and AFIRS 228 development. A portion of the decrease
was the result of non-renewal of a sales director’s employment agreement.
Share based compensation decreased YTD due to a higher option grant in 2012 than in 2013, partially offset by the vesting in the first three
quarters of 2013 of options granted in 2012. The recovery in Q4 2012 was due to a decrease in the calculated fair value per share of unvested options.
Contract labour decreased compared with the same periods last year. There has been a reduction in contractors supplying distribution related
services.
Office expenses increased in the quarter and YTD 2013 from 2012 mainly as the result of additional membership fees for industry groups FLYHT has
become involved with in 2013, together with an increased YTD rent allocation, offset partially by decreased communication and other costs in 2013
YTD due to cost containment measures.
Travel expenses increased in 2013 versus 2012 largely as the result of increased travel and meals associated with sales activities. It is anticipated
that as the AFIRS 228 rollout continues, travel expenses will continue to increase on an annual basis and quarterly fluctuations will continue to occur.
Equipment and maintenance decreases throughout 2013 were due to costs associated with the movement of the UpTime hosting centre in 2012
to accommodate growth in the installation base that was not repeated in 2013. This decrease is partially offset in the fourth quarter by increased
maintenance and costs associated with supporting the growth that prompted the move and with additional steps taken to ensure maximum reliability
of UpTime data.
Depreciation expense decreased in the quarter and throughout 2013 due to a decrease in the need to acquire capital equipment.
Marketing expenses decreased throughout 2013 partially offset by an increase in Q4, due to the reduced requirement for marketing collateral
throughout 2013 as well as a reduction in the number of tradeshows attended. The Company has analyzed the effectiveness of tradeshows and has
targeted the most beneficial to the business objectives of the Company.
Other expenses expenses decreased from 2012 to 2013 due to differences in bad debt adjustments. An increase in reserve of $12,897 was recorded
in Q4 2012, whereas the adjustment made in Q4 2013 for potential bad debt amounted to $134,890.
Administration expenses
Consist of expenses associated with the general operations of the Company that are not directly associated with delivery of services or sales.
Major Category
Q4 2013
$
Q4 2012
$
Variance
$
YTD 2013
$
YTD 2012
$
Variance
$
Salaries and benefits
520,345
359,289
161,056
1,498,854
1,253,401
245,453
Share based compensation
Contract labour
Office
Legal fees
Audit and accounting
Investor relations
Brokerage, stock exchange, and
transfer agent fees
Travel
Equipment and maintenance
Depreciation
Other
Total
8,558
25,250
76,660
12,636
27,000
67,432
13,075
(4,517)
260,091
227,808
48,608
(23,358)
141,271
112,366
32,283
28,905
78,561
15,169
21,550
33,250
(1,901)
305,104
324,465
(19,361)
(2,533)
36,405
142,378
(105,973)
5,450
122,625
104,855
17,770
34,182
243,975
93,709
150,266
2,865
1,941
924
27,377
26,961
416
24,368
16,025
5,980
18,396
38,319
(13,951)
15,419
7,240
7,608
606
(1,260)
10,788
96,585
55,462
23,920
47,453
106,586
(10,001)
57,844
28,874
17,522
(2,382)
(4,954)
29,931
805,515
640,029
165,486
2,859,122
2,496,769
362,353
Salaries and benefits increased throughout 2013 compared with 2012, mainly due to an increase in project management staff to effect greater
efficiency, partially offset by the reduction of a full time investor relations staff member, replaced by the reengagement of an Investor Relations (“IR”)
consultant in Q3 2012.
Share based compensation increased YTD due to the vesting throughout 2013 of options granted to IR consultants in the third quarter of 2012 and
the first and fourth quarters of 2013, in addition to employee options issued in the second quarter of 2013. The variance in Q4 is due to a decrease in
the calculated fair value per share of unvested options.
Contract labour increased YTD due to the engagement in mid-2012 of a consultant working to identify new corporate opportunities. The QTD
decrease was due to a non-recurring consulting fee in late 2012.
Office expenses decreased in both the fourth quarter and year over year from 2012 to 2013 mainly as the result of a decreased YTD rent allocation.
Legal fees decreased in both the quarter and YTD, due to reduced requirements for legal services with regards to research on international business
processes and the implementation of the appropriate policies and documentation, the Q2 2012 closure of legal proceedings with the Toronto-based
company, and the reduced legal services requirements in the action against SNC throughout 2013 (Contingencies, page 39). Non-recurring legal fees
associated with FLYHT’s name change in Q2 2012 also contributed to the quarter and YTD decreases.
Audit and accounting increases in the quarter and YTD are mainly due to an increased requirement for international tax consulting.
33
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
34
Investor relations expenses increased in the third quarter of 2013 and YTD, due to the reengagement of an IR consultant near the end of 2012 and
the addition of a second IR consultant in the first quarter of 2013.
Components requirements decreased in the quarter while increasing YTD, due to a requirement in earlier 2013 for a number of test parts used in
developing enhanced functionality of recently developed products.
Travel expenses decreased in the quarter and throughout 2013 compared to 2012 as a result of decreased operations staff attendance at industry
meetings. It is anticipated that with the roll out of an investor outreach program in conjunction with the engagement of an investor relation advisor,
travel expenses will increase over future quarters.
Equipment and maintenance decreases are due to the decreased requirement for maintenance on administrative-related equipment in 2013,
partially offset in the fourth quarter.
Depreciation expense decreased in the quarter and throughout 2013 due to a decrease in the need to acquire capital equipment.
Other expense increased in the quarter and year to date due to an employee relocation expense in 2013.
Research and development expenses (recovery)
Major Category
Q4 2013
$
Q4 2012
$
Variance
$
YTD 2013
$
YTD 2012
$
Variance
$
Salaries and benefits
412,139
302,017
110,122
1,536,904
1,544,718
(7,814)
Government grants variance YTD is due to a larger portion of SADI grant funds received in 2012 than 2013. The expense in Q4 2012 was the result
of an adjustment to the effective interest rate of the repayment portion of SADI grant funds received.
SRED credit expense in Q4 2012 was the result of the Canada Revenue Agency Scientific Research and Experimental Development (“SRED”)
program’s final review of the Company’s 2010 SRED claim.
Net finance costs
Major Category
Interest income
Net foreign exchange gain
Bank service charges
Interest expense
Q4 2013
$
Q4 2012
$
Variance
$
YTD 2013
$
YTD 2012
$
Variance
$
-
-
4,772
1,315
11
-
5,291
1,641
(11)
-
(519)
(326)
7,093
2,221
-
21,388
10,187
123,460
1,958
10,830
20,721
12,300
70,508
263
(10,830)
667
(2,113)
52,952
Share based compensation
Contract labour
Office
Travel
Equipment & maintenance
Components
Government grants
SRED credit
Depreciation
Other
Total
-
145,480
94,731
8,210
1,799
25,622
-
-
4,415
955
-
68,135
35,261
14,278
13,423
65,908
44,870
31,512
5,607
-
13,542
12,615
927
Government grant accretion
35,413
28,320
77,345
59,470
(6,068)
(11,624)
533,107
1,265,032
(731,925)
188,579
303,740
(115,161)
48,734
33,154
60,419
48,704
63,267
(11,685)
(15,550)
201,320
(40,286)
264,587
Debenture interest and accretion
200,748
106,061
94,687
657,620
402,275
255,345
Debenture cost amortization
Net foreign exchange loss
21,822
75,619
19,744
31,643
2,078
84,136
78,546
5,590
43,976
165,432
-
165,432
Net finance costs
339,689
192,689
147,000
1,060,002
571,562
488,440
(44,870)
(130,801)
(585,705)
454,904
Interest income decreased in the quarter and YTD as a result of decreased average cash balances in 2013 as compared to 2012.
(31,512)
(326,195)
(327,438)
(1,192)
17,661
22,385
-
955
955
-
1,243
(4,724)
955
Net foreign exchange losses were recorded in 2013 compared to Net foreign exchange gains in 2012 due to the relative weakness of the Canadian
dollar in relation to the U.S. dollar. Net foreign exchange losses were recorded in the fourth quarter of both 2012 and 2013, also due to the relative
weakness of the Canadian dollar in relation to the U.S. dollar.
693,351
581,011
112,340
2,180,227
2,407,737
(227,510)
Interest expense decreased YTD mainly due to differences in interest owing on a short-term loan.
Salaries and benefits expended on research and development decreased throughout 2013, as the 228B moved toward full production. This was
partially offset by increases in Q4 as R&D needs increased due to the requirements for launching the Dragon in late 2013, together with a short-term
increase required to complete Chinese installation documentation.
Contract labour decreased from 2012 YTD, mainly as the result of reduced utilization of consultants for hardware development. The YTD decrease
was partially offset due to the increased activity required for launching the Dragon in late 2013.
Office expenses decreased YTD as the result of decreased costs associated with patent applications. Legal requirements associated with the SNC
legal action were lower in 2013 than 2012 overall, with an increase in Q4 2013 as compared to Q4 2012.
Government grant accretion is the recognition of the effective interest component of the SADI grant, which increased throughout 2013 as more
funding was received.
Debenture interest increases are the result of increased interest accretion on the debentures issued in December 2010, and also the accretion of
interest throughout 2013 on the debentures issued in April and May 2013.
Net loss
Major Category
Q4 2013
$
Q4 2012
$
Variance
$
YTD 2013
$
YTD 2012
$
Variance
$
Net loss
1,438,795
621,446
817,349
4,063,164
4,883,752
(820,588)
Net loss without R&D
745,444
40,436
705,008
1,882,937
2,476,015
(593,078)
35
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
36
FOREIGN EXCHANGE
All international and a majority of domestic sales of the Company’s products and services are denominated in U.S. dollars. Accordingly, the Company
is susceptible to foreign exchange fluctuations. In 2013, 95.4% of the Company’s gross sales were made in U.S. dollars, compared to 96.1% in 2012.
The Company expects this to continue since the aviation industry conducts the majority of its transactions in U.S. dollars, thus limiting the opportunity
for sales in Canadian dollars or other major currencies. The Company also contracts in U.S. dollars for certain services and products related to cost of
sales, which creates a natural hedge.
TRANSACTIONS WITH RELATED PARTIES
a) Throughout 2012, the Company engaged in transactions with a company owned by a director to supply consulting services. The related party
provides business development services such as trade show attendance and corporate introductions related to the business jet initiatives of the
Company.
b) During the fourth quarter of 2012, the Company did not engage in transactions with a company owned by another director to supply consulting
services that had been used throughout 2011 and into the first quarter of 2012. The related party provided business development services such
as market analysis and corporate introductions related to the commercial aviation initiatives of the Company.
Included in contract labour:
Included in accounts payable and accrued liabilities:
For the three months ended
December 31
For the year ended
December 31
2013
$
-
-
-
2012
$
22,394
16,219
22,394
2013
$
-
17,984
2012
$
89,875
41,596
-
107,859
(a)
(b)
Total
December 31
2013
$
-
-
-
2012
$
14,915
6,192
14,915
All of the transactions with these related parties were amounts that were agreed upon by the parties and approximated fair value. All other
transactions with related parties were normal business transactions related to their positions within the Company. These transactions included
expense reimbursements for business travel and other expenses paid by the related party and were measured at exchange amounts that the related
party paid to a third party and were substantiated with a third party receipt
CONTRACTUAL OBLIGATIONS
The following table details the contractual maturities of financial liabilities, including estimated interest payments.
2-12 months
$
1-2 years
$
2-5 years
$
> 5 years
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$
600,283
1,921,384
512,806
14,029
116,608
344,026
344,026
2,781,399
2,781,399
1,507,480
8,384,600
1,507,480
11,549,710
18,726
-
216,583
9,970
75,930
3,751,695
4,072,904
December 31, 2013
Accounts payable
< 2 months
$
581,557
Accounts payable – SNC*
1,921,384
Compensation and
statutory deductions
Finance lease liabilities
Accrued liabilities
Loans and borrowings
Total
296,223
4,059
40,678
-
2,843,901
* See contingencies section on page 39.
37
In addition, the Company has repayment obligations related to three Government of Canada loan programs.
Under the Industrial Research Assistance Program (“IRAP”), the outstanding balance at December 31, 2013 was nil compared to $66,690 at December
31, 2012. The initial amount was repaid as a percentage of gross revenues over a 5 to 10 year period commencing October 2005.
Under the Technology Partnerships Canada (“TPC”) program, the Company has an outstanding balance of $12,364 at December 31, 2013, compared
to $28,074 at December 31, 2012. The initial amount is to be repaid based on 15% of the initial contribution, which equates to $19,122 per year for a
10 year repayment period. The yearly repayment is due if the Company has achieved more than a 10% increase in gross revenue over the previous
year and the gross revenue exceeds the gross revenue that was set in fiscal 2004 of $556,127. The repayment period commenced January 1, 2005.
Under SADI, the Company has, at December 31, 2013, an outstanding repayable balance of $1,967,507, compared to $1,770,756 at December 31,
2012. The amount is repayable over 15 years on a stepped basis commencing April 30, 2014. The initial payment on April 30, 2014 is 3.5% of the total
contribution received and increases yearly by 15% until April 30, 2028 when the final payment is 24.5% of the total contribution received.
In the fourth quarter of 2013, FLYHT entered into an operating lease agreement covering equipment valued at $27,657 required for a security system
in the new premises effective March 1, 2014. The lease has a term of 36 months, with the option to purchase the equipment at the end of the lease
term. During the fourth quarter of 2012, FLYHT did not enter into any new lease agreements. Current lease agreements are scheduled to be paid in
full in 2014. Minimum lease payments in 2014 for existing finance leases total $14,028. The imputed interest included in the payments is $853 (2012
- $5,240) leaving a total obligation of $13,175 (2012 - $33,138).
CRITICAL ACCOUNTING ESTIMATES
The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in Canada. The preparation
of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses. These estimates are based on management’s historical experiences and various other assumptions that are
believed by management to be reasonable under the circumstances. Such assumptions are evaluated on an ongoing basis and form the basis for
making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from
these estimates.
The following are the Company’s critical accounting policies, significant estimates, and assumptions used in preparing our financial statements:
1. The Company maintains an allowance for doubtful accounts for estimated losses that may occur if customers are unable to pay trade balances
owing to the Company. This allowance is determined based on a review of specific customers, historical experience, and economic circumstances.
2. The Company evaluates its deferred tax assets at each reporting date and recognizes deferred tax assets to the extent that it is probable that future
taxable profits will be available against which they can be utilized. At December 31, 2013, no deferred tax assets were recognized.
3. The Company records amounts for warranty based on historical warranty data and are recognized upon shipment of the underlying products.
4. Intangible assets are stated at cost less accumulated amortization and comprise of a license, customer contracts, and customer relationships. The
license has an indefinite life. The customer contracts and relationships are amortized using the straight line method over the remaining life of the
assumed contract. Indefinite lived intangible assets are subject to an annual impairment test or more frequently if events or circumstances change
that indicate that the carrying value may not be recoverable.
5. The Company recognizes revenue from lease type agreements as agreement consideration, which is recorded as unearned revenue and recognized
into revenue over the term of the lease agreement. Sales type agreement consideration is deferred as unearned revenue and corresponding
expenses are recorded as work in progress until the system is fully functional and customer acceptance has been obtained, at which time the full
deferred amount is recognized in revenue along with the work in progress as cost of sales. For both types of agreements, the revenue from UpTime
usage fees is recognized at the end of each month and is based on actual usage during that month.
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
38
RECENT ACCOUNTING PRONOUNCEMENTS
The following new standards, interpretations, amendments and improvements to existing standards issued by the IASB or International Financial
Reporting Interpretations Committee (“IFRIC”) were adopted as of January 1, 2013 without any material impact to FLYHT’s financial statements: IFRS
7 Financial Instruments: Disclosures, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of interests in Other
Entities, IFRS 13 Fair Value Measurement, and IAS 9 Employee Future Benefit, IAS 36 Fair Value Measurement (IAS 36 was early adopted by FLYHT).
The following new accounting pronouncements have been issued but are not effective and may have an impact on the Company. All of the following
new or revised standards permit early adoption with transitional arrangements depending upon the date of initial application:
IFRS 7 / IAS 32 – Offsetting Financial Assets and Liabilities clarifies that an entity currently has a legally enforceable right to set-off if it is not
contingent on a future event, situations under which it is enforceable, and defines related disclosure requirements (January 1, 2014).
IFRS 9 – Financial Instruments replaces the current multiple classification and measurement models for financial assets and liabilities with a single
model that has only two classification categories: amortized cost and fair value. (January 1, 2018).
IAS 1 – Presentation of Financial Statements requires that an entity present separately the items of OCI that may be reclassified to profit and loss in
the future from those that would never be reclassified (annual periods beginning on or after July 1, 2013).
IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting provides some relief from the discontinuation of hedge accounting when
a novation is made as a consequence of laws or regulations or the introduction of laws or regulations, subject to certain criteria (January 1, 2014).
IFRIC 21 Levies requires a liability for a levy be recognized only when the triggering event specified in the legislature occurs, even if an entity has no
realistic opportunity to avoid the triggering event (January 1, 2014).
The Company has not completed its evaluation of the effect of adopting these standards on its consolidated annual financial statements.
6. Revenue from the sale of Underfloor Stowage Units and other parts is recognized when the unit is shipped, title is transferred, and collection is
reasonably assured. Certain customers have prepaid for products or services not yet delivered. These amounts are included in trade payables and
accrued liabilities on the SFP, and are recorded as revenue in the period in which such products or services are delivered.
7. Technical services are provided based upon orders and contracts with customers that include fixed or determinable prices that are based upon daily,
hourly or contracted rates. Revenue is recognized as services are rendered and when collectability is reasonably assured. .
FINANCIAL INSTRUMENTS
The Company is exposed to fluctuations in the exchange rates between the Canadian dollar and other currencies with respect to assets, sales, and
purchases. The Company monitors fluctuations and may take action if deemed necessary to mitigate its risk.
The Company is exposed to changes in interest rates as a result of the operating loan, bearing interest based on the Company’s lenders’ prime rate.
All outstanding debentures have a fixed rate of interest and therefore do not expose the Company’s cash flow to interest rate changes.
There is a credit risk associated with accounts receivable where the customer fails to pay invoices. The Company extends credit generally to credit-
worthy or well-established customers. In the case of agreement consideration or product sales, the invoiced amount is generally 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 a service is provided. As well, for monthly recurring revenue the Company has the ability to disable AFIRS UpTime in cases
where the customer has not fulfilled its financial obligations.
CONTINGENCIES
The Company took action against SNC and is defending itself against an action by SNC related to the development of the AFIRS 228. The Company
has accrued a liability of $1,921,384, which represents the total amount of invoices received from SNC. The Company maintains that the claims are
without merit and that the services invoiced were not provided. Management intends to vigorously defend the matter and believes the outcome will
be in its favour.
In November 2011, the Company formally notified SNC that they were in material breach of the License and Manufacturing Agreement that was
entered into between the two parties on December 28, 2008. The Company demanded payment of $1,329,976 USD and $2,650,000 CDN and
terminated the agreement. As well, the Company applied to the Alberta courts for arbitration under the provisions of the agreement. The courts
granted the request for arbitration on November 29, 2011. Subsequent to the grant, SNC refused to recognize the jurisdiction of the court and has
contested the cancellation of the agreement and the arbitration.
In November 2011, SNC filed an action in Utah alleging that FLYHT failed to pay $2,042,000 USD.
As all invoices presented to the Company by SNC have been accrued, management does not expect the outcome to have a material effect on the
Company’s financial position.
SUBSEQUENT EVENT
As of April 14, 2014, the Company issued a total of 4,228,280 shares due to warrant and option exercises for total proceeds of $1,333,387, including:
a) 1,971,500 warrants exercised at $0.30 for proceeds of $591,450
b) 1,405,780 warrants exercised at $0.40 for proceeds of $562,312
c) 718,500 options exercised at $0.25 for proceeds of $179,625
39
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
40
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of FLYHT Aerospace Solutions Ltd.
We have audited the accompanying consolidated financial statements of FLYHT Aerospace Solutions Ltd., which comprise the consolidated statements
of financial position as at December 31, 2013 and December 31, 2012, the consolidated statements of comprehensive income (loss), changes in equity
(deficiency) and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory
information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International
Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance
with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The
procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation
of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of FLYHT Aerospace
Solutions Ltd. as at December 31, 2013 and December 31, 2012, and its consolidated financial performance and its consolidated cash flows for the
years then ended in accordance with International Financial Reporting Standards.
Emphasis of Matter
Without modifying our opinion, we draw attention to Note 2 (e) in the consolidated financial statements, which indicates that FLYHT Aerospace Solutions
Ltd. has a net loss and negative cash flows from operating activities for the year ended December 31, 2013 and, as at that date, its current liabilities
exceeded its current assets. These conditions, along with other matters as set forth in Note 2 (e) in the consolidated financial statements, indicate
the existence of a material uncertainty that may cast significant doubt about FLYHT Aerospace Solutions Ltd’s ability to continue as a going concern..
Chartered Accountants
April 14, 2014
Calgary, Canada
41
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December 31, 2013
$
December 31, 2012
$
Assets
Current assets
Cash and cash equivalents (note 6)
Restricted cash (note 13)
Trade and other receivables (note 7)
Deposits and prepaid expenses
Inventory (note 8)
Total current assets
Non-current assets
Property and equipment (note 9)
Rental assets
Intangible assets (note 10)
Inventory (note 8)
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade payables and accrued liabilities (note 11)
Unearned revenue (note 12)
Loans and borrowings (note 13)
Finance lease obligations
Current tax liabilities (note 25)
Total current liabilities
Non-current liabilities
Loans and borrowings (note 13)
Finance lease obligations
Provisions (note 15)
Total non-current liabilities
Total liabilities
Equity (deficiency)
Share capital (note 16)
Convertible debenture – equity feature (note 13)
Warrants (note 16)
Contributed surplus
Accumulated other comprehensive income (loss)
Deficit
Total equity (deficiency)
Total liabilities and equity (deficiency)
5,184,803
250,000
784,426
145,554
1,308,243
7,673,026
191,695
-
34,992
536,249
762,936
8,435,962
3,704,496
1,103,834
3,745,513
13,175
895
8,567,913
1,992,028
-
148,428
2,140,456
10,708,369
48,318,003
231,318
1,057,652
7,458,093
-
(59,337,473)
(2,272,407)
8,435,962
676,246
250,000
1,209,497
99,464
1,663,918
3,899,125
240,725
38,726
62,623
727,773
1,069,847
4,968,972
3,658,254
2,717,245
271,832
19,963
4,078
6,671,372
3,104,967
13,175
46,452
3,164,594
9,835,966
39,877,966
231,318
3,340,222
6,957,809
-
(55,274,309)
(4,866,994)
4,968,972
See accompanying notes to consolidated financial statements. Going concern (note 2e), Contingencies (note 27)
On behalf of the board
Director – Douglas Marlin
Director – Paul Takalo
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
42
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME (LOSS)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIENCY)
For the years ended December 31, 2013 and 2012
Revenue (note 18)
Cost of sales
Gross profit
Other (income) (note 19)
Distribution expenses (note 21)
Administration expenses (note 22)
Research and development expenses (note 23)
Results from operating activities
Finance (income) (note 24)
Finance costs (note 24)
Net finance costs
Loss for the year before income tax
Income tax expense (note 25)
Total comprehensive loss for the year
Earnings (loss) per share
Basic and diluted loss per share (note 17)
See accompanying notes to consolidated financial statements.
For the year ended December 31
2013
$
8,000,364
3,264,786
4,735,578
(257,520)
2,956,446
2,859,122
2,180,227
(3,002,697)
(2,221)
1,062,223
(1,060,002)
(4,062,699)
465
(4,063,164)
(0.03)
2012
$
6,469,806
2,769,996
3,699,810
(257,520)
3,361,205
2,496,769
2,407,737
(4,308,381)
(12,788)
584,350
(571,562)
(4,879,943)
3,809
(4,883,752)
(0.04)
Share
Capital
$
Convertible
Debenture
$
Warrants
$
Contributed
Surplus
$
Foreign
Currency
Translation
Reserve*
$
Deficit
$
Total Equity
(Deficit)
$
Balance at January 1, 2012
Loss for the year
Total comprehensive loss
for the year
Contributions by and
distributions to owners
Issue of common shares
Share issue cost
Bifurcation of warrants
issued
Issues of warrants
Share-based payment
transactions
Share options exercised
Total contributions by and
distributions to owners
36,741,492
-
231,318
-
2,499,778
-
6,622,606
-
-
4,349,940
(492,227)
(723,417)
-
-
2,178
3,136,474
-
-
-
-
-
-
-
-
-
-
-
-
840,444
-
-
840,444
-
-
-
-
-
335,881
(678)
335,203
Balance at December 31, 2012
39,877,966
231,318
3,340,222
6,957,809
Balance at January 1, 2013
Loss for the year
39,877,966
-
231,318
-
3,340,222
-
6,957,809
-
Total comprehensive loss
for the year
Contributions by and
distributions to owners
Issue of common shares
Share issue cost
Share-based payment
transactions
Share options exercised
Warrants exercised
Warrants expired
Total contributions by and
distributions to owners
-
157,280
(3,121)
-
148,007
8,137,871
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,085,885)
(196,685)
358,705
(55,107)
-
196,685
8,440,037
-
(2,282,570)
500,284
Balance at December 31, 2013
48,318,003
231,318
1,057,652
7,458,093
*Accumulated other comprehensive income (loss) - See accompanying notes to consolidated financial statements.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(50,390,557)
(4,883,752)
(4,295,363)
(4,883,752)
(4,883,752)
(4,883,752)
-
-
-
-
-
-
-
4,349,940
(492,227)
(723,417)
840,444
335,881
1,500
4,312,121
(55,274,309)
(4,866,994)
(55,274,309)
(4,063,164)
(4,866,994)
(4,063,164)
(4,063,164)
(4,063,164)
-
-
-
-
-
-
-
157,280
(3,121)
358,706
92,900
6,051,986
-
6,657,751
(59,337,473)
(2,272,407)
43
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
44
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31
1. REPORTING ENTITY
Cash flows from operating activities
Loss for the year
Adjustments for:
Depreciation
Depreciation of rental assets
Amortization of intangible assets
Convertible debenture accretion
Payment of debenture interest
Amortization of debenture issue costs
Government grant accretion
Government grant (note 3g, 23)
Loss on disposal of property and equipment and rental assets
Equity-settled share-based payment transactions
Change in inventories
Change in trade and other receivable
Change in deposits and prepaid expenses
Change in trade payables and accrued liabilities
Change in provisions
Change in unearned revenue
Unrealized foreign exchange
Interest expense
Interest paid
Income tax expense
Income tax paid
Net cash used in operating activities
Cash flows from investing activities
Acquisitions of property and equipment
Disposal (acquisitions) of rental assets
Interest income
Interest received
Net cash used in investing activities
Cash flows from financing activities
Share issue (cost) recovery
Proceeds from issue of shares and warrants
Proceeds from issue of debenture
Proceeds from exercise of share options and warrants
Proceeds from government grant
Repayment of loans and borrowings
Payment of finance lease liabilities
Net cash from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at January 1
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents
See accompanying notes to consolidated financial statements.
2013
$
(4,063,164)
87,710
11,735
27,631
657,620
(406,836)
84,135
123,460
(130,801)
-
358,706
547,199
400,326
(46,090)
(87,174)
101,976
(1,613,411)
173,240
10,187
(10,187)
465
(3,648)
(3,776,921)
(38,680)
26,991
(2,221)
2,221
(11,689)
(3,121)
157,280
1,918,813
6,144,886
196,751
(82,400)
(19,963)
8,312,246
4,523,636
676,246
(15,079)
5,184,803
2012
$
(4,883,752)
104,215
24,131
138,594
402,275
(252,720)
78,546
70,508
(585,705)
61,116
335,881
(605,753)
(541,660)
99,612
(1,202,968)
(934)
820,041
(191)
12,300
(12,300)
3,809
(4,168)
(5,939,123)
(8,280)
3,894
(1,958)
1,958
(4,386)
(375,200)
4,349,940
-
1,500
879,854
(86,973)
(48,715)
4,720,406
(1,223,103)
1,928,065
(28,716)
676,246
FLYHT Aerospace Solutions Ltd. (the “Company” or “FLYHT”) was founded in 1998 under the name AeroMechanical Services Ltd. FLYHT is a public
company incorporated under the Canada Business Corporations Act, and is domiciled in Canada. The Company has been listed on the TSX Venture
Exchange since March 2003, first as TSX.V: AMA. On May 10, 2012, the Company announced that shareholders approved a name change from
AeroMechanical Services Ltd. to FLYHT Aerospace Solutions Ltd. On May 17, 2012 FLYHT received approval from the Toronto Stock Exchange to trade
under the new symbol FLY. The Company’s head office is 300E, 1144 – 29th Avenue NE, Calgary, Alberta T2E 7P1.
The consolidated financial statements of the Company as at and for the years ended December 31, 2013 and 2012 consist of the Company and its
subsidiaries.
FLYHT is a designer, developer, and service provider to the global aerospace industry. The Company supports aviation customers in different sectors
including commercial, business, leasing and military operators. FLYHT’s headquarters are located in Calgary, Canada with sales representation in
China, the Middle East, South America, the United States and Europe.
2. BASIS OF PREPARATION
(a) Statement of compliance
These consolidated annual financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). These
consolidated financial statements were approved by the Board of Directors on April 14, 2014.
(b) Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis except for financial instruments at fair value through profit or loss,
which are measured at fair value in the statement of financial position (“SFP”).
(c) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency.
(d) Use of estimates and judgments
The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected.
Critical judgments in applying accounting policies and key estimates having the most significant effect on the amounts recognized in the consolidated
financial statements include:
• Inventories: judgment is required in determining amounts to be classified as non-current, and in determining potential impairment. Regular
analysis is performed on inventory items, including a review of the age of outstanding inventory, historical movement patterns, contracted
sales requirements, physical obsolescence, and technological advances (notes 3c, 3j, 8)
• Trade and other receivables: estimates regarding collectability, and potential impairment are made taking into account the age of outstanding
receivables, customer payment history, and specific indicators (notes 3j, 7, 26)
• Revenue recognition: recognition of AFIRS UpTime revenue relies on a determination of the point when a system is fully functional, and when
customer acceptance has been received. Services revenue is recognized in proportion to the stage of completion of the transaction at the
reporting date, which requires an estimate of the services performed to date as a portion of the total services to be performed. (notes 3k, 12, 18)
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2. BASIS OF PREPARATION (CONTINUED)
(e) Going concern
These consolidated financial statements have been prepared on the basis that the Company will continue to realize its assets and meet its obligations
in the ordinary course of business. As at December 31, 2013, the Company had negative working capital of $894,887, a deficit of $59,337,473, a net
loss of $4,063,164 and negative cash flow used in operations of $3,776,921.
The Company has incurred significant operating losses and negative cash flows from operations over the past years. The Company’s ability to continue
as a going concern is dependent upon attaining profitable operations and/or obtaining additional financing to fund its ongoing operations. The
Company’s ability to attain profitable operations and positive cash flow in the future is dependent upon various factors including its ability to acquire
new customer contracts, the success of management’s continued cost containment strategy, the completion of research and development (“R&D”)
projects, and general economic conditions. In addition to capital required for regular business activities, the Company will be required to pay debenture
interest payable in the fourth quarter of 2014 totaling $3,664,920, unless the holders exercise the conversion option. It is the Company’s intention to
continue to fund operations by adding revenue and its resulting cash flow as well as continue to manage outgoing cash flows. If the need arises due
to market opportunities the Company may meet those needs via the capital markets. These material uncertainties may cast significant doubt upon the
Company’s ability to continue as a going concern.
There is no assurance that the Company will be successful in attaining and sustaining profitable operations and cash flow or raising additional capital to
meet its working 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 consolidated 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.
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated annual financial statements.
These accounting policies have been applied consistently by FLYHT’s subsidiaries.
(a) Basis of consolidation
(i) Business combinations
For acquisitions of businesses, the Company measures goodwill as the fair value of the consideration transferred including the recognized amount of
any non-controlling interest in the acquiree, less the net recognized amount (fair value) of the identifiable assets acquired and liabilities assumed, all
measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.
The Company will elect on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share
of the recognized amount of the identifiable net assets, at the acquisition date.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business
combination will be expensed as incurred.
(ii) Subsidiaries
Subsidiaries are entities controlled by FLYHT. The financial statements of subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align
them with the policies adopted by the Company.
These consolidated financial statements consolidate the accounts of FLYHT and its wholly owned subsidiaries, FLYHT Inc., AeroMechanical Services
USA Inc., FLYHT Corp., FLYHT India Corp and TFM Inc. The latter four subsidiaries are inactive..
(iii) Transactions eliminated on consolidation
Intra-group balances, transactions, and any unrealized income and expenses arising from intra-group transactions are eliminated in preparing the
consolidated financial statements.
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Financial instruments
(i) Non-derivative financial assets
The Company initially recognizes loans, receivables and deposits on the date they are originated. All other financial assets (including assets designated
at fair value through profit or loss) are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of
the instrument.
The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire or it transfers the rights to receive
the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset
are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has
a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized
initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized
cost using the effective interest method, less any impairment losses.
Loans and receivables comprise trade and other receivables, and cash and cash equivalents.
(ii) Non-derivative financial liabilities
The Company initially recognizes debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities
(including liabilities designated at fair value through profit or loss) are recognized initially on the trade date at which the Company becomes a party to
the contractual provisions of the instrument.
The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.
The Company has the following non-derivative financial liabilities: debentures, trade payables and accrued liabilities, loans and borrowings, and
finance lease obligations.
These financial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these
financial liabilities are measured at amortized cost using the effective interest rate method..
(iii) Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a
deduction from equity, net of any tax effects.
Warrants are classified as equity. Incremental costs directly attributable to the issue of warrants are recognized as a deduction from equity, net of
any tax effects.
The fair value of warrants is estimated using the Black-Scholes option pricing model.
(iv) Compound financial instruments
Compound financial instruments issued by the Company comprise convertible secured subordinate debentures that can be converted to common
shares at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.
The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity
conversion option. The equity component is recognized initially at the difference between the fair value of the compound financial instrument as a
whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in
proportion to their initial carrying amounts.
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3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Financial instruments (Continued)
Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest
method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition.
Interest relating to the financial liability is recognized in profit or loss. On conversion, the financial liability is reclassified to equity and no gain or loss
is recognized.
(c) Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories includes expenditures incurred in acquiring the
inventories, production or conversion costs, and other costs incurred in bringing them to their existing location and condition. The amount of inventory
that is expected to be recovered more than 12 months after the reporting date is presented as a non-current asset.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Any
writedown to net realizable value is recognized as an expense. Reversals of previous writedowns are recognized in profit or loss in the period when
the reversal occurs.
AFIRS raw material inventories include general parts, which are held pending installation and sales to customers. The weighted average cost method
is used.
The carrying cost of AFIRS finished goods includes AFIRS raw material component costs plus a standard labour allocation. AFIRS finished goods
consists of AFIRS units that have been assembled and are held pending sale to customers. The weighted average cost method is used for components,
while the labour component allocated to each unit is valued using a standard cost.
Installations-in-progress includes product costs, and other direct project costs. When the system is fully functional, the installations-in-progress
balance is recognized as cost of sales to correspond with the full unearned revenue amount then recognized as revenue.
The production of Underfloor Stowage Units is outsourced and the weighted average cost method is used.
(d) Property and equipment
(i) Recognition and measurement
Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset including those that are directly attributable to bringing the
asset to the location and working condition for its intended use.
Software that is integral to the functionality of the related equipment is recognized as property and equipment, otherwise it is considered an intangible
asset.
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) Property and equipment (Continued)
The depreciation rates are as follows:
Computers
Software
Equipment
Leasehold improvements
30% declining balance
12 months straight line
20% declining balance
Term of lease (5 years)
Estimates of depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Any changes in
these estimates are accounted for prospectively.
(iv) Research and development (“R&D”)
Expenditure on research activities is expensed as incurred.
R&D costs consist primarily of consulting expenses and parts related to the design, testing, and manufacture of Automated Flight Information
Reporting System (“AFIRSTM”) and the design and testing of UpTime, the Dragon, FIRST, FLYHTStream, and FLYHT Fuel Management System. Other
R&D costs include testing and certification.
Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure
is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic
benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure
capitalized includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use,
and borrowing costs on qualifying assets for which the commencement date for capitalization is on or after January 1, 2010. Other development
expenditure is recognized in profit or loss as incurred.
Capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment losses..
(v) Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other
expenditures are recognized in profit or loss as incurred.
(vi) Amortization
Amortization is calculated based on the asset’s cost less its residual value.
Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount
of property and equipment. Net gains (losses) are recognized in profit or loss.
Estimates of amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Any changes in
these estimates are accounted for prospectively.
(ii) Subsequent costs
(e) Leased assets
The cost of replacing a part of an item of property and equipment is recognized in the carrying amount of the item if it is probable that the future
economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part
is derecognized. The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred.
(iii) Depreciation
Depreciation is calculated using the depreciable amount, which is the cost of an asset less its residual value. Depreciation is recognized in profit or
loss at rates calculated to write-off assets over their estimated useful lives since this most closely reflects the expected pattern of consumption of the
future economic benefits embodied in the assets.
Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain
ownership by the end of the lease term.
Leases where the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition,
the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to
initial recognition, the asset is accounted for according to the accounting policy applicable to that asset. Other leases are operating leases and the
Company does not recognize the leased assets in its statement of financial position. Initial direct costs for operating leases are expensed immediately.
As a lessee, FLYHT has several finance leases for computer hardware and leasehold improvements.
As a lessee, FLYHT has an operating lease for its premises.
As a lessor, rental assets are recorded at cost in FLYHT’s statement of financial position and consist of AFIRS units that are leased and in use in
customer aircraft under lease type agreements. Depreciation is provided for active leased units on a straight-line basis over nine years. Spare units at
customer sites are not depreciated until swapped into service.
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3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) Intangible assets
(i) Warranties
Intangible assets that are acquired by the Company and have finite useful lives are measured at cost less accumulated amortization and accumulated
impairment losses.
Customer contracts and relationships are amortized over the remaining life of the contracts that were assumed on acquisition of Wingspeed
Corporation’s assets (residual value is zero). This method most closely reflects the expected pattern of consumption of the future economic benefits
embodied in the assets. The useful initial lives range from two to four years as per the terms of the contracts.
Acquired intangible assets with indefinite useful lives are stated at cost and are not amortized.
The license with Bombardier that allows FLYHT access to technical documents has an indefinite life and is not amortized. The Company presently has
dealings with Bombardier and sees no end to that relationship.
An intangible asset is derecognized on disposal or when no future economic benefits are expected from its use or disposal.
(g) Government assistance
(i) Government grants
Government grants related to qualifying research expenditures are recognized in profit or loss to match the costs that they are intended to compensate
when there is reasonable assurance that they will be received and the Company will comply with the conditions associated with the grant.
(ii) Government loans
Low-interest or interest-free government loans are measured initially at their fair value and interest is imputed on the loan in subsequent periods.
The benefit of the below-market interest rate is measured as the difference between the fair value of the loan on initial recognition and the amount
received. This benefit is accounted for according to the type of grant.
(h) Lease payments
(i) Operating lease payments
Payments made under operating leases are recognized in profit or loss on an accrual basis over the term of the lease. Initial direct costs for operating
leases are immediately expensed.
(ii) Finance lease payments
Minimum lease payments made under finance leases are apportioned between finance costs and a reduction of the outstanding liability. The finance
cost is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
(i) Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it
is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding
of the discount is recognized as finance cost.
The Company warrants that the AFIRS products shall be free of defects during the term of each agreement and any renewals. Also, FLYHT warrants
that it will deliver all data services required by the customer accurately and on-time. A provision for warranties is recognized when the underlying
products or services are sold. The provision is based on historical warranty data.
(j) Impairment
(i) Financial assets (including receivables)
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence
that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset,
and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Company
on terms that the Company would not consider otherwise, or indications that a debtor will enter bankruptcy.
The Company assesses impairment of each customer’s receivable balance by analyzing historical trends of the probability of default, timing of
recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that
the actual losses are likely to be greater or less than suggested by historical trends.
An impairment loss regarding a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present
value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected
in an allowance account against receivables. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When
a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
(ii) Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than inventories, are reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For intangible assets that have
indefinite useful lives, the recoverable amount is estimated at year end. The Company’s non-financial assets that are subject to impairment include:
property and equipment, rental assets, and intangible assets.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and
the risks specific to the asset. Fair value less costs to sell is assessed on an asset by asset basis at the point in time when a sale may be probable.
For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates
cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”, or
“CGU”). The Company’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then
the recoverable amount is determined for the CGU to which the corporate asset belongs.
An impairment loss is recognized in profit or loss if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment
losses are allocated to reduce the carrying amounts of the assets in the CGU on a pro rata basis.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists.
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortization, had no impairment loss been recognized.
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3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Revenue
(i) AFIRS UpTime sales
(a) Sales type agreements
AFIRS fees from sales type service agreements are deferred as unearned revenue and corresponding expenses are recorded as an asset
(installations in progress). Once the system (including the AFIRS unit and installation kit) is fully functional and accepted by the customer, the
full deferred amount is recognized in revenue along with the installations in progress as cost of sales.
(b) Lease type agreements
The Company rents AFIRS units to some customers under operating leases. Under the terms of the lease agreements, the AFIRS units remain
the property of FLYHT and title does not transfer to the customer nor is there an option for the customer to purchase the AFIRS unit at the end
of the lease.
The upfront fee from leased AFIRS contracts is initially recorded as unearned revenue and recognized as revenue on a straight line basis over
the first term of the lease agreement upon shipment of the AFIRS unit.
(ii) AFIRS UpTime usage
Revenue from UpTime usage fees is recognized at the end of each month and is based on actual usage during that month.
(iii) Parts sales
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable. Revenue is recognized when persuasive
evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the
buyer, recovery of the consideration is probable, there is no continuing management involvement with the goods, and the amount of revenue can be
measured reliably.
Revenue from the sale of Underfloor Stowage Units is recognized when the unit is shipped, title is transferred, and collection is reasonably assured.
(iv) Services
Technical services are provided based on orders and contracts with customers that include fixed or determinable prices that are based on daily, hourly,
or contracted rates. Revenue is recognized in proportion to the stage of completion of the transaction at the reporting date.
(v) Other income
License fees and royalties paid for the use of FLYHT’s assets (i.e., trademarks, patents, and software) are recognized on an accrual basis.
(l) Employee benefits
(i) Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
The Company follows accrual accounting for wages, salaries, commissions and variable compensation payments. The commission policy outlines how
commissions are calculated and when payment is made to employees.
(l) Employee benefits (Continued)
(ii) Share-based payment transactions
The grant date fair value of share-based payment awards granted to employees is recognized as an expense, with a corresponding increase in equity,
over the period that the employees unconditionally become entitled to the awards.
Share-based payment transactions are equity-settled. Share options granted to directors and employees are measured using the fair value of the
equity instruments granted at the grant date, which is determined using the Black-Scholes option pricing model.
If options are promised to an employee before the grant date, the Company recognizes the expense at the service commencement date based on fair
value. Once the grant date is established, the earlier estimate is revised so that the expense is recognized based on the actual grant date fair value.
FLYHT estimates the expected forfeiture rate at the option grant date and updates the estimate over time as new information becomes available.
Forfeitures may occur if employees terminate their employment before the options vest.
(m) Share-based payment transactions to non-employees
(i) Stock options granted to consultants
The Company grants stock options to consultants. These share-based payment transactions are equity-settled. Transactions with non-employees are
measured based on the fair value of the goods or services received, at the receipt date. Fair value is measured at the date the Company obtains the
goods or the counterparty renders service.
FLYHT estimates the expected forfeiture rate at the option grant date and updates the estimate over time as new information becomes available.
Forfeitures may occur if consultants do not fulfill their obligations before the options vest.
(ii) Agent warrants
When the Company issues common shares, warrants, and debentures through brokered private placements, agent warrants are issued to the agents
as consideration for their services.
Warrants are classified as equity. Incremental costs directly attributable to the issue of warrants are recognized as a deduction from equity, net of
any tax effects.
The fair value of warrants is estimated using the Black-Scholes option pricing model.
(n) Finance income and finance costs
Finance income comprises interest income which is recognized as it accrues in profit or loss, using the effective interest method. The Company earns
income on its cash and cash equivalents (bank deposits) and its restricted cash (Guaranteed Investment Certificates). Interest is recognized as it
accrues in profit or loss, using the effective interest method.
Finance costs comprise interest expense and accretion on borrowings, and unwinding of the discount on provisions and are recognized in profit or loss
using the effective interest method.
Foreign currency gains and losses are reported on a net basis, as either finance income or finance costs.
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3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) Foreign currency
(i) Foreign currency transactions
Foreign currency transactions are translated to Canadian dollars at the exchange rate in effect on the transaction date. Foreign currency denominated
monetary assets and liabilities at each reporting date are retranslated to the functional currency at the exchange rate in effect on that date. The
foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period,
adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end
of the reporting period.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate in effect on the date
of the transaction.
Foreign currency differences arising on retranslation are recognized in profit or loss.
(ii) Foreign operations
The assets and liabilities of foreign operations are translated to Canadian dollars at exchange rates in effect at the reporting date. The income and
expenses of foreign operations are translated to Canadian dollars at exchange rates in effect on the transaction dates.
Foreign currency differences are recognized in other comprehensive income in the cumulative translation account.
(q) Earnings per share
The Company presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is calculated by dividing the profit or loss
attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted EPS
is determined each period by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares
outstanding, for the effects of all dilutive potential common shares, which comprise debentures, convertible debentures, share options, and warrants.
4. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
The following standards, interpretations, amendments and improvements to existing standards issued by the IASB or International Financial Reporting
Interpretations Committee (“IFRIC”) were adopted as of January 1, 2013 without any material impact to FLYHT’s Financial Statements: IFRS 7 Financial
Instruments: Disclosures, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of interests in Other Entities,
IFRS 13 Fair Value Measurement, and IAS 9 Employee Future Benefit, IAS 36 Fair Value Measurement (IAS 36 was early adopted by FLYHT)
The following new accounting pronouncements have been issued but are not effective and may have an impact on the Company. All of the following
new or revised standards and amendments to existing standards permit early adoption with transitional arrangements depending upon the date of
initial application::
IFRS 7 / IAS 32 – Offsetting Financial Assets and Liabilities clarifies that an entity currently has a legally enforceable right to set-off if it is not
contingent on a future event, situations under which it is enforceable, and defines related disclosure requirements (January 1, 2014).
Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither
planned nor likely to occur in the foreseeable future and which, in substance, is considered to form part of the net investment in the foreign operation,
are recognized in other comprehensive income in the cumulative amount of foreign currency translation differences.
IFRS 9 – Financial Instruments replaces the current multiple classification and measurement models for financial assets and liabilities with a single
model that has only two classification categories: amortized cost and fair value. (transitional date still to be determined by the International Accounting
Standards Board (“IASB”)).
(p) Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates
to a business combination, or items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at
the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets
or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating
to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have
been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to
offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different
tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future
taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realized.
When a taxable temporary difference arises from the initial recognition of the equity component separately from the liability component of a compound
financial instrument, the resulting deferred tax liability is charged directly to the carrying amount of the equity component.
IAS 1 – Presentation of Financial Statements requires that an entity present separately the items of OCI that may be reclassified to profit and loss in
the future from those that would never be reclassified (annual periods beginning on or after July 1, 2013).
IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting provides some relief from the discontinuation of hedge accounting when
a novation is made as a consequence of laws or regulations or the introduction of laws or regulations, subject to certain criteria (January 1, 2014).
IAS 36 Fair Value Measurement reverses the requirement to disclose the recoverable amount of every cash-generating unit to which significant
goodwill or indefinite-lived intangible assets have been allocated, updating the requirement to only apply when an impairment loss has been
recognized or reversed (January 1, 2014).
IFRIC 21 Levies requires a liability for a levy be recognized only when the triggering event specified in the legislature occurs, even if an entity has no
realistic opportunity to avoid the triggering event (January 1, 2014).
The Company has not completed its evaluation of the effect of adopting these standards on its consolidated annual financial statements.
55
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
56
5. DETERMINATION OF FAIR VALUES
9. PROPERTY AND EQUIPMENT
A number of the Company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets
and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods.
(a) Share based payment transactions: measured using the Black-Scholes option pricing model;
(b) Loans and borrowings: for measurement purposes, fair value is calculated based on the present value of future principal and interest cash
flows, discounted at the market rate of interest at the inception of the loan. In respect of the liability component of convertible debenture,
the market rate of interest is determined by reference to similar liabilities that do not have a conversion feature. In respect of the convertible
debentures and the debentures, as there has been no material change in the Company’s market rate subsequent to the issuance dates,
carrying value approximates fair value; and
(c) Trade and other receivables, trade payables and accrued liabilities: carrying value approximates fair value, due to the short-term nature of the
instruments.
6. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash balances and bank deposits with an original maturity of three months or less.
7. TRADE AND OTHER RECEIVABLES
Trade receivables
Non-trade receivables and accrued receivables
Total
December 31, 2013
December 31, 2012
$
771,244
13,182
784,426
$
882,990
326,507
1,209,497
Non-trade receivables consist of earned interest income receivable, input tax credits, and government grants receivable. The Company’s exposure
to credit and currency risks is disclosed in note 26.
8. INVENTORY
AFIRS raw materials
AFIRS finished goods
Installations in progress
Balance
Less current portion
Non-current portion
December 31, 2013
December 31, 2012
$
806,872
406,475
631,145
1,844,492
(1,308,243)
536,249
$
1,157,382
249,703
984,606
2,391,691
(1,663,918)
727,773
2013
Cost
Balance at January 1
Additions
Disposals
Balance at December 31
Accumulated Depreciation
Balance at January 1
Depreciation for the year
Disposals
Balance at December 31
Carrying Amounts
At January 1
At December 31
2012
Cost
Balance at January 1
Additions
Disposals
Balance at December 31
Accumulated Depreciation
Balance at January 1
Depreciation for the year
Disposals
Balance at December 31
Carrying Amounts
At January 1
At December 31
Computers
and Software
$
894,360
4,559
-
898,919
760,111
43,694
-
803,805
134,249
95,114
Equipment
$
230,297
-
-
230,297
157,452
14,569
-
172,021
72,845
58,276
Leasehold
improvements
$
132,851
34,121
-
166,972
99,220
29,447
-
128,667
33,631
38,305
Computers
and Software
$
Equipment
$
Leasehold
improvements
$
Total
$
1,257,508
38,680
-
1,296,188
1,016,783
87,710
-
1,104,493
240,725
191,695
Total
$
886,080
8,280
-
894,360
703,554
56,557
-
760,111
182,526
134,249
230,297
132,851
1,249,228
-
-
-
-
8,280
-
230,297
132,851
1,257,508
139,241
18,211
-
157,452
91,056
72,845
69,773
29,447
-
99,220
63,078
33,631
912,568
104,215
-
1,016,783
336,660
240,725
In 2013, AFIRS materials and changes in AFIRS units and installations in progress recognized as cost of sales amounted to $1,941,847 (2012: $1,389,017).
Included in this amount was a write down of inventories amounting to $251,635 in 2013 (2012: recovery of $13,899) resulting from a complete review
of slow moving inventory parts. All inventories are pledged as security for the bank loan and debentures.
The Company leases equipment under several finance lease agreements. Certain leases provide FLYHT with the option to purchase the equipment at
the end of the lease term. At December 31, 2013, the net carrying amount of leased property and equipment was $41,619 (2012: $59,456).
As of December 31, 2013, all property and equipment are pledged as security for the bank loan and debentures (note 13).
In the fourth quarter of 2013 FLYHT entered into an agreement to purchase equipment for a security system valued at $27,657 to be installed in the
new premises effective March 1, 2014.
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
58
10. INTANGIBLE ASSETS
11. TRADE PAYABLES AND ACCRUED LIABILITIES
2013
Cost
Balance at January 1
Balance at December 31
Amortization
Balance at January 1
Amortization for the year
Balance at December 31
Carrying amounts
At January 1
At December 31
2012
Cost
Balance at January 1
Balance at December 31
Amortization
Balance at January 1
Amortization for the year
Balance at December 31
Carrying amounts
At January 1
At December 31
License
Customer contracts
$
34,992
34,992
-
-
-
34,992
34,992
$
466,510
466,510
438,879
27,631
466,510
27,631
-
License
Customer contracts
$
34,992
34,992
-
-
-
34,992
34,992
$
466,510
466,510
300,285
138,594
438,879
166,225
27,631
Total
$
501,502
501,502
438,879
27,6314
466,510
62,623
34,992
Total
$
501,502
501,502
300,285
138,594
438,879
201,217
62,623
The license with Bombardier allows FLYHT access to technical documents. It has an indefinite life, is not amortized, and is tested for impairment
annually. The Company presently has dealings with Bombardier and forsees no end to that relationship.
FLYHT provides the contracted customers with UpTime data services. The fair value of the contracts acquired was amortized over the contract period,
ending in March 2013.
Amortization of intangibles is included in the statement of comprehensive income as cost of sales. All intangible assets are pledged as security for
the bank loan and debentures.
Trade payables
Non-refundable customer deposits
Compensation and statutory deductions
Accrued liabilities
Total
December 31, 2013
December 31, 2012
$
2,454,242
620,840
512,806
116,608
3,704,496
$
2,334,164
797,070
316,058
210,962
3,658,254
Compensation and statutory deductions include accrued vacation pay, variable compensation, and statutory payroll deductions.
12. UNEARNED REVENUE
Unearned revenue classified as current consists of sales type agreements revenue that will be recognized when the AFIRS system is fully functional,
and rental type agreements revenue and license fees expected to be recognized as income in the next year.
The license and manufacturing agreement with SNC gives SNC the right to manufacture the Company’s AFIRS product and market the AFIRS UpTime
technology and products to the global military market. This license fee is deferred as unearned revenue and revenue was recognized on a straight-line
basis over the five year term of the agreement and has been fully recognized as of December 31, 2013 (See note 19).
All amounts recorded in unearned revenue are non-refundable.
Balance January 1
AFIRS UpTime sales: shipped, not accepted
AFIRS UpTime usage: prepaid
AFIRS UpTime sales: revenue recognized
AFIRS UpTime usage: revenue recognized
License fees: revenue recognized
Balance December 31
2013
$
2,717,245
1,450,520
414,228
(2,694,292)
(526,346)
(257,520)
1,103,834
2012
$
1,897,204
3,445,930
376,981
(2,464,784)
(280,566)
(257,520)
2,717,245
59
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
60
13. LOANS AND BORROWINGS
Bank loan
The Company currently has no bank debt and has available to it an operating demand loan up to a maximum of $250,000 (2012: $250,000). The
operating loan bears interest at Canadian chartered bank prime plus 1.5%. The operating demand loan is secured by an assignment of cash collateral
in the amount of $250,000 and a general security agreement including a first ranking security interest in all personal property. The amount of the cash
collateral has been disclosed as restricted cash. As at December 31, 2013 and 2012, the facility had not been drawn.
Government loans
The IRAP loan was repaid in full in the third quarter of 2013. The loan was non-interest bearing and was repaid annually, based on 1.11% of gross
revenues, commencing October 2005 and was unsecured. The current portion was calculated based on the actual gross revenues in the previous
quarter plus the Company’s revenue projections for the next nine months.
The TPC loan is non-interest bearing and unsecured. The loan is repayable annually, based on 15% of the initial contribution when the Company has
achieved more than 10% growth in gross revenues above the previous year’s gross revenue and the gross revenue for the year is greater than the base
amount. The base amount is defined as the Company’s gross revenue in fiscal 2004, which was at $556,127.
On February 23, 2011, the Company signed a contribution agreement with Industry Canada under the SADI program for the development of the next
generation product, AFIRS 228. Under the terms of the agreement, SADI has made repayable unsecured contributions to the Company of 30% of the
eligible project costs to December 30, 2012 totaling $1,967,507. The amount is repayable over 15 years commencing April 30, 2014. The payments are
on a stepped basis starting April 30, 2014. Payments comprise 3.5% of the contribution and increase 15% yearly until April 30, 2028, when the final
payment is 24.5% of the contribution. The amount to be repaid is 165% of the original contribution. At December 31, 2013, the Company had received
a cumulative total of $1,967,507 (December 31, 2012: $1,770,756).
Convertible debentures
The debenture issued December 23, 2010 has a face value of $3,159,000. The debenture matures on December 23, 2014 and bears interest at a
rate of 8% per annum, accrued and paid annually in arrears commencing December 31, 2011. The debentures are convertible into common shares
at a conversion rate of $0.40 per share at any time prior to maturity. The debentures are secured against all personal property of the Company, with
the exception of the Company’s intellectual property, and are subordinated in right of payment to all existing and future bank and/or governmental
indebtedness of the Company. The fair value of the conversion feature was determined at the time of issue as the difference between the principal
value of the debentures and the discounted cash flows assuming an 18% rate. The conversion feature is classified as equity and amounts to $231,318
as at December 31, 2013 (December 31, 2012: $231,318). If the debentures are converted to shares, a portion of the value of the conversion feature
recognized in shareholders’ equity will be classified to share capital along with the conversion price paid.
Debentures
In two tranches on April 18 and May 28, 2013, the Company issued an aggregate $2,110,000 of debentures in a debt offering. The debentures mature
on June 30, 2016 and bear interest at a rate of 12% per annum on the contributed amounts, which shall be accrued and paid annually in arrears
commencing December 1, 2013. Purchasers of debentures received a capital discount premium of 10% on the financing, meaning that for every $1.00
debenture acquired, FLYHT shall owe, on the maturity date, principal equal to $1.10 to the debenture holder. The purchasers of the debentures were
also issued one common share of the Corporation for every $1.00 principal amount of debentures acquired pursuant to the offering. A total of 2,110,000
common shares were issued under these tranches. All of the securities issued thereunder were subject to a 4-month hold period. The debentures
are not listed on any stock exchange and are not convertible into common shares. The debentures are secured against all personal property of
FLYHT, including FLYHT’s intellectual property and are subordinated in right of payment to all existing and future secured bank and/or governmental
indebtedness of FLYHT and any existing security already registered against FLYHT’s assets. The fair value of the debenture was determined at the time
of issue as the difference between the principal value of the debentures and the discounted cash flows assuming an 18% rate.
13. LOANS AND BORROWINGS (CONTINUED)
IRAP
TPC
SADI
Debenture payable
Convertible debenture payable
Balance December 31
Less current portion
Non-current portion
14. OPERATING LEASES
2013
$
-
12,364
818,828
2,006,397
2,899,952
5,737,541
(3,745,513)
1,992,028
2012
$
66,690
28,074
629,419
-
2,652,616
3,376,799
(271,832)
3,104,967
The Company’s lease for its operating premises (a) ends effective February 28, 2014. A lease has been entered into for a new operating premises
(b), effective March 1, 2014. Operating lease rentals are payable as follows:
Premises (b)
$
Total Premises
$
2014
2015
2016
2017
2018
2019
2020
2021
Total
Premises (a)
$
81,637
-
-
-
-
-
-
-
342,292
410,750
410,750
433,419
437,952
437,952
437,952
72,992
81,637
2,984,059
Operating lease payments made in 2013 totaled $488,060 (2012: $472,142).
15. PROVISIONS
Product warranty - non-current provision
Balance January 1
Provision made during the period
Provision used during the period
Balance December 31
2013
$
46,452
263,979
(162,003)
148,428
A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data.
423,929
410,750
410,750
433,419
437,952
437,952
437,952
72,992
3,065,696
2012
$
47,027
39,801
(40,376)
46,452
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
62
16. CAPITAL AND OTHER COMPONENTS OF EQUITY
16. CAPITAL AND OTHER COMPONENTS OF EQUITY (CONTINUED)
Share capital
Authorized:
Unlimited numbers of common shares, and classes A, B and C preferred shares, issuable in series, having no par value.
The preferred shares may be issued in one or more series. The directors are authorized to fix the number of shares in each series and to determine
the designation, rights, privileges, restrictions and conditions attached to the shares in each series.
Issued and outstanding:
Common shares:
Balance January 1, 2012
Issued for cash
Share issue costs
Share issue costs – agent warrants
Bifurcation of warrants
Exercise of employee options
Contributed surplus from exercise of employee options
Balance December 31, 2012
Issued for cash
Share issue costs
Exercise of employee options
Contributed surplus from exercise of employee options
Exercise of warrants
Contributed surplus from exercise of warrants
Balance December 31, 2013
Number of shares
118,630,466
21,749,700
-
-
-
6,000
-
140,386,166
2,110,000
-
314,000
-
16,007,102
-
158,817,268
Value
$
36,741,492
4,349,940
(375,200)
(117,027)
(723,417)
1,500
678
39,877,966
157,280
(3,121)
92,900
55,107
6,051,986
2,085,885
48,318,003
In four tranches in June and July 2012 the Company issued 20,749,700 share units pursuant to a combination of brokered and non-brokered private
placements at $0.20 per share unit resulting in gross proceeds of $4,149,940. Each share unit consists of one common share and one-half share
purchase warrant. Each full share unit warrant entitles the holder to acquire one common share at a price of $0.30 until 24 months after the issue
date of the share purchase warrant. As at December 31, 2012 share purchase warrants outstanding totaled 10,374,850 from the four tranches:
4,595,750 will expire June 22, 2014; 1,437,500, June 27, 2014; 1,889,100, June 29, 2014 and 2,452,000 July 4, 2014. The net cash proceeds after
issuance costs of the brokered and non-brokered private placements totaled $3,784,367. A further 1,223,509 agent warrants were issued which
entitle the holder to acquire one common share at a price of $0.20 until 24 months after the issue date of the agent warrant. The expiry details are:
606,935, June 22, 2014; 8,750, June 27, 2014; 264,474, June 29, 2014; and 343,350 July 4, 2014.
On September 27, 2012 the Company issued 1,000,000 common shares at $0.20 per share in connection with a non-brokered private placement
resulting in gross proceeds of $200,000 The net cash proceeds after issuance costs was $198,115.
In 2012 an additional 6,000 common shares were issued to directors, officers, employees and consultants on the exercise of options. The weighted
average exercise price of these common shares was $0.25, resulting in cash proceeds of $1,500.
In two tranches on April 18 and May 28, 2013, the Company issued debentures in a debt offering (note 13). The purchasers of the debentures
were issued one common share of the Corporation for every $1.00 principal amount of debentures acquired pursuant to the offering. A total of
2,110,000 common shares were issued under these tranches. All of the securities issued thereunder were subject to a four-month hold period.
In 2013 a total of 16,007,102 warrants were exercised, each exercisable into one common share for total proceeds of $6,051,986:
(a) 1,071,522 warrants were exercised with an exercise price of $0.20 per share for proceeds of $214,304,
(b) 1,365,500 warrants were exercised with an exercise price of $0.30 per share for proceeds of $409,650, and
(c) 13,570,080 warrants were exercised with an exercise price of $0.40 per share for proceeds of $5,428,032
Also in 2013, a total of 314,000 stock options were exercised for total proceeds of $92,900, with each stock option exercised into one common
share:
(d) 224,000 stock options were exercised with an exercise price of $0.25 for proceeds of $56,000, and
(e) 90,000 stock options were exercised with an exercise price of $0.41 per share for proceeds of $36,900
Stock option plan
The Company grants stock options to its directors, officers, employees and consultants. In the first quarter of 2013 the Company granted 487,500
stock options to two consultants under the stock option plan. The stock options expire December 31, 2016, and have an exercise price of $0.25
per share. Of the options granted, 87,500 were issued to a consultant and vested immediately and 400,000 were issued to an investor relations
consultant and vested 25% per quarter March 31, June 30, September 30, and December 31, 2013. The fair value of the 87,500 options granted was
determined using the Black-Scholes option pricing model. The fair value of the 400,000 options granted was determined based on the estimated
fair value of services to be received.
In the second quarter of 2013 the Company granted 2,211,500 stock options to employees and directors under the stock option plan. The stock
options vest immediately, expire December 31, 2016, and have an exercise price of $0.25 per share. The options were granted at an exercise price
not less than fair market value of the stock on the date of issuance.
In the third quarter of 2013 the Company granted 100,000 stock options to an employee under the stock option plan. The stock options vest
immediately, expire December 31, 2016, and have an exercise price of $0.25 per share. The options were granted at an exercise price not less than
fair market value of the stock on the date of issuance.
In the fourth quarter the Company granted 800,000 options effective January 1, 2014, comprised of 400,000 options to each of two IR consultants
(subject to the approval of the TSX Venture Exchange, received on Jan 2, and Feb 25, 2014). These options were recorded as outstanding as of
December 31, 2013. An aggregate 200,000 options (100,000 per IR consultant) will vest on March 31, June 30, September 30 and December 31,
2014. The options have an exercise price of $0.45 and expire December 31, 2016.
The Company has a policy of reserving up to 10% of the outstanding common shares for issuance to eligible participants. As at December 31, 2013,
there were 15,881,726 (2012: 14,038,617) common shares reserved for this purpose.
All outstanding options issued to date vested immediately at the grant date with the exception of:
(a) 400,000 options granted to an investor relations (“IR”) consultant effective September 20, 2012 and 400,000 granted to an investor relations
consultant effective January 1, 2013 which had vested by December 31, 2013, and
(b) 1,200,000 options granted effective January 1, 2014, comprised of 400,000 options to each of three IR consultants. Vesting provisions
provide that 25% of the total stock options issued under these three agreements vest to each of the IR consultants per quarter over the first
one-year period.
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
64
16. CAPITAL AND OTHER COMPONENTS OF EQUITY (CONTINUED)
16. CAPITAL AND OTHER COMPONENTS OF EQUITY (CONTINUED)
There remain 800,000 unvested options as at December 31, 2013 (2012: 1,375,000). A summary of the Company’s outstanding and exercisable
stock options as at December 31, 2013 and 2012 and changes during these years is presented below.
The weighted average fair value of the agent warrants granted in 2012 was $0.07. The fair value of the warrants granted was estimated using the
Black-Scholes option pricing model with the following weighted average assumptions:
2013
Number of options
Outstanding, January 1
Options granted
Options exercised
Options expired
Outstanding, December 31
Exercisable, December 31
6,270,500
3,599,000
(314,000)
(2,083,000)
7,472,500
6,672,500
Weighted average
exercise price
$
0.26
0.29
0.30
0.28
0.27
0.25
2012
Number of options
4,485,991
2,607,500
(6,000)
(816,991)
6,270,500
4,895,500
Weighted average
exercise price
$
0.28
0.25
0.25
0.31
0.26
0.28
Weighted average life remaining for the options outstanding and exercisable is 2.2 years. The exercise prices for options outstanding at December
31, 2013 were as follows:
Exercise price:
$0.25
$0.25
$0.25
$0.45
Total
All options
Exercisable options
Number
1,752,500
2,593,000
2,327,000
800,000
7,472,500
Weighted average remaining
contractual life (years)
1.0
2.0
3.0
3.0
2.2
Number
1,752,500
2,593,000
2,327,000
-
6,672,500
Weighted average remaining
contractual life (years)
1.0
2.0
3.0
-
2.1
The weighted average fair value of the options granted during the year that were valued using the Black-Scholes option pricing model was $0.12
(2012: $0.14), estimated based on the following assumptions. The fair value of the options granted and valued using the Black-Scholes option
pricing model were valued with the following weighted average assumptions:
Risk-free interest rate
Expected life (years)
Volatility in the price of the Company’s common shares
Dividend yield rate
2013
1.24%
3.65
99%
0.00%
Warrants
Outstanding January 1, 2012
Issued on private placement
Agent warrants granted
Outstanding December 31, 2012
Warrants exercised
Warrants expired
Outstanding December 31, 2013
65
Number of warrants
Weighted average exercise price
20,535,610
10,374,850
1,223,509
32,133,969
(16,007,102)
(1,415,000)
14,711,867
$
0.47
0.30
0.20
0.40
0.38
0.40
0.23
2012
1.38%
3.60
99%
0.00%
Value
$
2,499,778
723,417
117,027
3,340,222
(2,085,885)
(196,685)
1,057,652
Risk-free interest rate
Expected life (years)
Volatility in the price of the Company’s common shares
Dividend yield rate
17. EARNINGS PER SHARE
Basic earnings per share
2013
-
-
-
-
2012
1.05%
2.00
76%
0.00%
The calculation of basic and diluted earnings per share for the year ended December 31, 2013 was based on a weighted average number of common
shares outstanding of 142,691,525 (2012: 129,567,629). The calculation of diluted earnings per share did not include stock options of 7,872,500
(2012: 6,270,500), warrants of 14,711,867 (2012: 32,133,969) and convertible debentures of 7,897,500 because they would be anti-dilutive.
18. REVENUE
AFIRS Uptime sales
AFIRS Uptime usage
Parts sales
Services
Total
2013
$
2,707,838
3,624,719
655,561
1,012,245
8,000,364
2012
$
2,464,784
3,091,626
202,420
710,976
6,469,806
AFIRS Uptime sales includes revenue for both lease and sales type contracts. AFIRS Uptime usage includes UpTime monthly voice and data usage fees.
Parts sales includes spare AFIRS units, spare installation kit parts and Underfloor Stowage Units. Services include technical, repair, and installation
support services.
19. OTHER INCOME
Other income consists of the recognition of the SNC license fee that was deferred as unearned revenue when received and was recognized over the
initial five year term of the agreement (note 12).
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
66
20. OPERATING SEGMENTS
The Company has one operating segment.
Geographical Information
The following revenue is based on the geographical location of customers.
North America
South / Central America
Africa / Middle East
Europe
Australasia
Asia
Total
22. ADMINISTRATION EXPENSES
For the year ended December 31
For the year ended December 31
2013
$
3,853,788
460,184
1,391,446
549,718
697,249
1,047,979
8,000,364
2012
$
3,522,317
472,850
1,729,862
150,247
520,843
73,687
6,469,806
Salaries and benefits
Stock based compensation
Contract labour
Office
Legal fees
Audit and accounting
Investor relations
Brokerage, stock exchange, and transfer agent fees
Travel
Equipment and maintenance
Depreciation
Other
Total
2013
$
1,498,854
260,091
141,271
305,104
36,405
122,625
243,975
27,377
96,585
55,462
23,920
47,453
2,859,122
2012
$
1,253,401
227,808
112,366
324,465
142,378
104,855
93,709
26,961
106,586
57,844
28,874
17,522
2,496,769
All non-current assets (property and equipment and intangible assets) reside in Canada.
Major customers
23. RESEARCH AND DEVELOPMENT EXPENSES
To date, all development costs have been expensed as incurred.
Revenues from the three largest customers represent approximately 31.1% of the Company’s total revenues for the year ended December 31, 2013
(2012: 23.7%).
21. DISTRIBUTION EXPENSES
For the year ended December 31
In 2013, FLYHT received payment for one claim totaling $196,751 (2012: $879,854) from SADI which is a repayable contribution. It was determined
that the repayable contribution is at below market interest rates and therefore the payments were accounted for as a loan payable of $65,950
and a grant of $130,801. The grant portion was determined at the time of installment receipt as the difference between the principal value of
the installment and the discounted cash flows assuming an 18% rate. The grant portion reimbursed a portion of FLYHT’s costs related to the
development of the AFIRS 228. This grant was classified as related to income. FLYHT used the net presentation approach by reducing R&D
expenses.
Salaries and benefits
Stock based compensation
Contract labour
Office
Travel
Equipment & maintenance
Depreciation
Marketing
Other
Total
2013
$
1,506,626
85,071
275,059
366,439
403,319
25,413
46,129
41,441
206,949
2,956,446
2012
$
1,829,053
95,458
559,096
345,648
315,797
31,820
52,956
61,773
69,604
3,361,205
Salaries and benefits
Stock based compensation
Contract labour
Office
Travel
Equipment and maintenance
Components
Government grants
SRED tax credit
Depreciation
Other
Total
For the year ended December 31
2013
$
1,536,904
13,542
533,107
188,579
48,734
33,154
264,587
(130,801)
(326,195)
17,661
955
2,180,227
2012
$
1,544,718
12,615
1,265,032
303,740
60,419
48,704
63,267
(585,705)
(327,438)
22,385
-
2,407,737
67
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
68
24. FINANCE INCOME AND FINANCE COSTS
Recognized in profit or loss:
For the year ended December 31
25. INCOME TAX EXPENSE (CONTINUED)
The Company has non-capital losses for income tax purposes of approximately $36,067,569 which are available to be applied against future year’s
taxable income. The benefit of these non-capital losses has not been recognized in the consolidated financial statements because it is not probable
that future taxable profit will be available against which FLYHT can use the benefits. These losses will expire as follows:
Interest income on bank deposits
Net foreign exchange gain
Finance income
Bank service charges
Interest expense
Government grant interest expense
Debenture interest expense and accretion
Debenture issuance cost amortization
Net foreign exchange loss
Finance costs
25. INCOME TAX EXPENSE
Current income tax expense
Deferred income tax expense
2013
$
465
-
465
2012
$
3,809
-
3,809
Unrecognized deferred tax assets
Deferred tax assets have not been recognized in respect to the following items:
Capital assets
Intangibles
Inventory
Non-capital loss carry-forwards
Share issue costs
Scientific research and experimental development expenditures
2013
$
2,221
-
2,221
21,388
10,187
123,460
657,620
84,136
165,432
1,062,223
2013
156,933
113,870
405
9,599,862
90,225
6,203,715
16,165,101
2012
$
1,958
10,830
12,788
20,721
12,300
70,508
402,275
78,546
-
584,350
2012
191,859
113,958
4,327
9,122,110
179,014
6,286,853
15,898,121
Amount
$
2,570,288
2,461,959
3,390,309
5,596,948
6,997,140
2,791,748
6,596,636
4,351,802
2,313,255
997,514
38,067,569
Year
2014
2015
2026
2027
2028
2029
2030
2031
2032
2033
Total
Reconciliation of effective tax rate
Loss for the period
Total income tax expense
Loss excluding income tax
Tax Rate
Expected income tax recovery
Change in tax rate and other
Non-deductible expenses
Stock based compensation
Change in unrecognized temporary differences
2013
$
(4,063,164)
465
(4,062,699)
25.0%
(1,015,675)
486,748
171,827
89,676
267,889
465
2012
$
(4,883,752)
3,809
(4,879,943)
25.0%
(1,219,986)
(374,542)
7,484
83,970
1,506,883
3,809
26. FINANCIAL RISK MANAGEMENT
The Company’s operating activities expose it to a variety of financial risks, including credit, liquidity and market risks associated with the Company’s
financial assets and liabilities. FLYHT has established procedures and policies to minimize its exposure to these risks, and continually monitors its
exposure to all significant risks to assess the impact on its operating activities. The following details the Company’s exposure to credit, liquidity,
currency, and other market risks.
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
70
26. FINANCIAL RISK MANAGEMENT (CONTINUED)
26. FINANCIAL RISK MANAGEMENT (CONTINUED)
Credit risk
The following table details the contractual maturities of financial liabilities, including estimated interest payments.
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Management considers the
demographics of the Company’s customer base, including the default risk of the industry and country in which customers operate. Approximately
11.7% (2012: 9.0%) of the Company’s 2013 revenue is attributable to transactions with a single customer; however, geographically there is no
concentration of credit risk.
Each new customer is analyzed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are
offered. Customers that fail to meet the Company’s benchmark creditworthiness may transact with FLYHT only on a prepayment basis. The AFIRS
solution is subject to a retention of title clause, so that in the event of non-payment the Company will have a secured claim. To further minimize credit
exposure, the sale of most AFIRS solutions requires payment in advance of any product shipment. At each reporting date, the Company establishes
an allowance for impairment that represents its estimate of incurred losses.
The aging of receivables at the reporting date was:
December 31, 2013
Accounts receivable
Impairment
Net receivable
December 31, 2012
Accounts receivable
Impairment
Net receivable
0-30 days
$
404,658
(4,705)
399,953
0-30 days
$
757,953
(5,073)
752,880
31-60 days
$
129,737
(7,058)
122,679
31-60 days
$
385,839
(7,572)
378,267
61-90 days
$
175,233
(30,216)
145,017
61-90 days
$
48,448
-
48,448
91+ days
$
272,805
(156,028)
116,777
91+ days
$
30,251
(349)
29,902
Total
$
982,433
(198,007)
784,426
Total
$
1,222,491
(12,994)
1,209,497
The Company believes that the unimpaired amounts that are past due by more than 30 days are still collectible, based on historic payment behavior.
The movement in the allowance for impairment in respect of trade and other receivables for the years ended December 31, 2013 and 2012 was:
Balance, January 1
Provision
Amounts written off
Impairments recovered
Balance, December 31
Liquidity risk
2013
$
12,994
198,007
(12,645)
(349)
198,007
2012
$
102,079
4,763
(69,268)
(24,580)
12,994
The Company’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, without
incurring unacceptable losses or risking damage to the Company’s reputation. The Company manages its liquidity risks by having cash available,
by maintaining a conservative capital structure, by prudently managing its credit risks, and by maintaining its relationship with the capital markets
to meet any near-term liquidity requirements. The Company had a working capital deficiency at December 31, 2013, explained further in note 2(e).
December 31, 2013
Accounts payable
Accounts payable – SNC
(note 27a)
Compensation and statutory deductions
Finance lease liabilities
Accrued liabilities
Loans and borrowings
Total
December 31, 2012
Accounts payable
Accounts payable – SNC
(note 27a)
Compensation and statutory deductions
Finance lease liabilities
Accrued liabilities
Loans and borrowings
Total
Currency risk
< 2 months
$
581,557
2-12 months
$
18,726
1,921,384
296,223
4,059
40,678
-
2,843,901
-
216,583
9,970
75,930
3,751,695
4,072,904
< 2 months
$
531,548
2-12 months
$
12,045
1,790,571
136,007
4,058
20,046
24,785
2,507,015
-
180,051
20,291
190,916
313,736
717,039
1-2 years
$
2-5 years
$
> 5 years
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
344,026
344,026
2,781,399
2,781,399
1,507,480
1,507,480
1-2 years
$
2-5 years
$
> 5 years
$
-
-
-
14,029
-
3,482,088
3,496,117
-
-
-
-
-
-
-
-
-
-
245,218
245,218
1,464,132
1,464,132
Total
$
600,283
1,921,384
512,806
14,029
116,608
8,384,600
11,549,710
Total
$
543,593
1,790,571
316,058
38,378
210,962
5,529,959
8,429,521
A significant portion of the Company’s revenues and a portion of its expenses are denominated in U.S. dollars. Management estimates that a
1% weakening of the Canadian dollar relative to the U.S. dollar would increase net earnings by approximately $76,314 (2012: $62,317) and a
strengthening of the Canadian dollar would decrease net earnings by approximately $76,314 (2012: $62,317).
The Company mitigates its cash flow exposures by the international nature of the business where a portion of its cost of goods sold are in currencies
that naturally hedge a portion of U.S. dollar revenue. The Company has not engaged in activities to manage its cash flow foreign currency exposure
through the use of financial instruments.
The Company has exposure to foreign exchange risk for working capital items denominated in U.S. dollars. At December 31, 2013, negative working
capital denominated in U.S. dollars was approximately $1,180,745 (2012: negative $1,367,243). As a result a 1% weakening of the Canadian dollar
would decrease net earnings by approximately $11,807 (2012: $13,672) and a strengthening of the Canadian dollar would increase net earnings by
approximately $11,807 (2012: $13,672).
The Company mitigates its working capital exposure by managing its U.S. dollar denominated working capital items to limit the requirement to
convert either to or from U.S. dollars to fulfill working capital payment requirements.
Although there are limited expenses under contracts denominated in EUR and GBP, fluctuations in these currencies would result in insignificant
foreign exchange variances. In respect of other monetary assets and liabilities denominated in foreign currencies, the Company ensures that its
net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.
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FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
72
26. FINANCIAL RISK MANAGEMENT (CONTINUED)
28. RELATED PARTIES (CONTINUED)
Interest rate risk
Borrowings issued at variable rates result in exposure to interest rate risk, which would affect future cash flows if interest rates were to rise.
Fluctuations in the prime interest rate could result in exposure for the Company with regards to the bank credit facility, which bears interest at
Canadian chartered bank prime plus 1.5%. The Company’s exposure to interest rate risk as at December 31, 2013 and 2012 was minimal as the credit
facility had not been drawn.
Market risk
Market risk is the risk that changes in market conditions, such as foreign exchange rates, interest rates and equity prices will affect the Company’s
income or the value of its financial instruments. The Company’s objective in managing market risk is to manage and control exposure, while
optimizing return.
Fair values versus carrying amounts
The fair values of financial assets and liabilities approximate carrying values.
Capital management
FLYHT’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern. In order to maintain or adjust
the capital structure, the Company may issue new debt, sell assets to reduce debt, or issue new shares. There were no changes in the Company’s
approach to capital management during the year.
27. CONTINGENCY
The Company took action against SNC and is defending itself against an action by SNC related to the development of the AFIRS 228. The Company
has accrued a liability of $1,921,384, which represents the total amount of invoices received from SNC. The Company maintains that the claims are
without merit and that the services invoiced were not provided. Management intends to vigorously defend the matter and believes the outcome
will be in its favour.
In November 2011, the Company formally notified SNC that they were in material breach of the License and Manufacturing Agreement that was
entered into between the two parties on December 28, 2008. The Company demanded payment of $1,329,976 USD and $2,650,000 CDN and
terminated the agreement. As well, the Company applied to the Alberta courts for arbitration under the provisions of the agreement. The courts
granted the request for arbitration on November 29, 2011. Subsequent to the grant, SNC refused to recognize the jurisdiction of the court and has
contested the cancellation of the agreement and the arbitration.
In November 2011, SNC filed an action in Utah alleging that FLYHT failed to pay $2,042,000 USD.
As all invoices presented to the Company by SNC have been accrued (note 11), management does not expect the outcome to have a material effect
on the Company’s financial position.
28. RELATED PARTIES
(a) Throughout 2012 the Company engaged in transactions with a company owned by a director to supply consulting services. The related party
provided business development services such as trade show attendance and corporate introductions related to the business jet initiatives of
the Company.
(b) Throughout 2012 the Company engaged in transactions with a company owned by a director to supply consulting services. The related party
provided business development services such as market analysis and corporate introductions related to the commercial aviation initiatives of
the Company.
Included in contract labour:
Included in accounts payable and accrued liabilities:
For the year ended
December 31
2013
$
-
-
-
2012
$
89,875
17,984
107,859
December 31
2013
$
-
-
-
2012
$
14,915
-
14,915
(a)
(b)
Total
All of the transactions with these related parties were amounts that were agreed upon by the parties and approximated fair value. All other
transactions with related parties were normal business transactions related to their positions within the Company. These transactions included
expense reimbursements for business travel and other expenses paid by the related party and were measured at exchange amounts that the related
party paid to a third party and were substantiated with a third party receipt.
Transactions with key management personnel
Key management personnel includes all persons with direct or indirect authority and responsibility for planning, directing and controlling the activities
of the Company, and includes directors and the FLYHT’s executive team.
In addition to salary and variable compensation, the Company also provides non-cash benefits to key management personnel. Certain executive
officers are entitled to a mutual term of notice of six months.
Compensation for this group comprised:
Salary
Director fees
Variable compensation
Share-based payments
Short-term employee benefits
Total
Directors of the Company control 4.1% (2012: 4.7%) of the voting shares of the Company
2013
$
736,500
109,359
192,264
94,550
57,254
1,189,927
2012
$
815,596
84,023
169,218
195,393
89,935
1,354,165
Subsidiaries
FLYHT Inc.
AeroMechanical Services USA Inc.
FLYHT Corp.
FLYHT India Corp.
TFM Inc.
29. SUBSEQUENT EVENT
Country of Incorporation
Ownership interest
United States
United States
Canada
Canada
Canada
100%
100%
100%
100%
100%
As of April 14, 2014, the Company issued a total of 4,228,280 shares due to warrant and option exercises for total proceeds of $1,333,387, including:
a) 1,971,500 warrants exercised at $0.30 for proceeds of $591,450
b) 1,405,780 warrants exercised at $0.40 for proceeds of $562,312
c) 718,500 options exercised at $0.25 for proceeds of $179,625
73
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
74
CORPORATE INFORMATION
REGISTRAR AND TRANSFER AGENT
Valiant Trust Company
Telephone: 1-866-313-1872
Email: inquires@valianttrust.com
www.valianttrust.com
SHARE LISTING
Shares are traded on the TSX Venture Exchange
Ticker Symbol: FLY
INVESTOR RELATIONS
Email: investors@flyht.com
Telephone: 1-403-250-9956
Toll free: 1-866-250-9956
www.flyht.com
The Howard Group Inc.
Dave Burwell
Email: dave@howardgroupinc.com
Telephone: 1-403-410-7907
www.howardgroupinc.com
Kin Communications Inc.
Fred Leigh
Email: FLY@kincommunications.com
Telephone: (866) or (604) 684-6730
Bristol Capital Ltd.
Glen Akselrod
Email: glen@bristolir.com
Telephone: 1-905-326-1888
www.bristolir.com
DIRECTORS
Doug Marlin
Bill Tempany
Mike Brown
Paul Takalo, CA
Jacques Kavafian
Jack Olcott
Richard Hayden
OFFICERS
Bill Tempany
Matt Bradley
Chairman, FLYHT Aerospace Solutions Ltd.
& President, Marlin Ventures Ltd.
Chief Executive Officer, FLYHT Aerospace Solutions Ltd.
Partner, Geselbracht Brown
Vice-President, Standen’s Limited
Director
President, General Aviation Company
Director
Chief Executive Officer
President
Thomas French, CGA Chief Financial Officer
Derek Graham
Chief Technical Officer
Jeff Brunner
VP Certification Engineering and China Operations
AUDITOR
KPMG LLP
Calgary, Alberta
LEGAL COUNSEL
Chris Croteau
Tingle Merrett LLP
HEAD OFFICE
300E, 1144 - 29 Avenue NE
Calgary, Alberta T2E 7P1
75
FLYHT AEROSPACE SOLUTIONS LTD. | ANNUAL REPORT | 2013
300 E, 1144 – 29 Ave NE
Calgary, AB, T2E 7P1
Canada
Phone: 1.866.250.9956
Fax: 1.403.291.9717
www.flyht.com