Cover page
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TABLE OF CONTENTS
Letter to Shareholders ............................................................................................. 4
Management Discussion & Analysis........................................................................ 6
Non-GAAP Financial Measures
Forward-Looking Statements
Overview
Trends and Economic Factors
Contracts and Achievements of Fiscal 2017
Results of Operations Years Ended December 31, 2017 and 2016
o Selected Results
o Financial Position
o Comprehensive Income
o Other
Independent Auditors’ Report
Consolidated Financial Statements ......................................................................... 25
Notes to the Consolidated Financial Statements .................................................... 29
Corporate Information ............................................................................................. 51
Commonly used Financial Terms and Aviation Acronyms
Design Approval Organization
ACARS: Aircraft Communications Addressing and Reporting System
AFIRSTM: Automated Flight Information Reporting System
ANAC: National Civil Aviation Agency of Brazil
CAAC: Civil Aviation Administration of China
DAO:
DGAC: Direccion General de Aeronautica Civil (Mexico’s certification organization)
EASA: European Aviation Safety Agency
EBITDA: Earnings before interest, taxes, depreciation and amortization
ECAA: Egyptian Civil Aviation Authority
FAA:
Federal Aviation Administration
GAAP: Generally Accepted Accounting Principles
GAMA: General Aviation Manufacturers Association
GAMECO: Guangzhou Aircraft Maintenance Engineering Company Limited
HKCAD: Hong Kong Civil Aviation Department
International Air Transport Association
IATA:
International Civil Aviation Organization
ICAO:
International Financial Reporting Standards
IFRS:
MD&A: Management Discussion and Analysis
NCAA: Nigerian Civil Aviation Authority
NTSB: National Transportation Safety Board
OEM: Original Equipment Manufacturer
QTD:
R&D:
SADI: Strategic Aerospace and Defence Initiative
SAAU: State Aviation Authority of Ukraine
SFP:
STC:
TCCA: Transport Canada Civil Aviation
WINN: Western Innovation Initiative
YTD:
Statement of Financial Position
Supplemental Type Certificate
Quarter-to-date
Research and Development
Year-to-date
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FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
LETTER TO SHAREHOLDERS
In 2017, FLYHT took steps to prepare for future growth and establish strategic
partnerships with large industry players. FLYHT saw growth in the backlog of Automated
Flight Information Reporting System (AFIRSTM) kits and services and this resulted in a
25% increase of shipments in 2017. FLYHT reorganized both our facility and our team.
Looking toward 2018, we have continuing trials with Boeing and Inmarsat and actively
pursue partnerships with Original Equipment Manufacturers (OEMs), which we feel will
lead to revenue growth and improved financial performance.
Financially, FLYHT’s revenues for 2017 were within 2% of what the Company posted in
2016 despite being significantly lower in the Parts revenue category. This category
includes revenues from spare parts, but the largest component is the license fees that
FLYHT receives from the OEM shipment of AFIRS units to the A320/A330 production
line. Overall, Parts revenue was down 15% compared to last year, but this decline was largely offset by an increase
in AFIRS hardware revenue of 17% over 2016. In fact, quarterly AFIRS hardware revenue was up significantly, with
an increase of 76% more than in Q4 2016! We finished the year on a positive note with the shipment of 19 AFIRS
units in December and 90 units for the year, which represents an increase of 25% over the prior year.
FLYHT has been expecting the revenue for AFIRS hardware to increase due to the significant backlog that the
Company has been building these past three years. Since airlines normally install AFIRS during a regularly scheduled
“C Check”, a 20 to 24-month (or after a specified number of flight hours) maintenance check, it can take some time to
equip a fleet because the fleet operator must cycle their equipment through the check. FLYHT’s backlog of
undelivered AFIRS hardware and contracted, but undelivered recurring data services had grown to over $27M at the
end of 2017. FLYHT invested in the shipping/receiving/kitting area of the Calgary facility in October 2017 and tripled
its size because we anticipated an increase in AFIRS hardware shipments based upon this growing sales backlog.
The resulting facility will accommodate much higher volumes of AFIRS kit shipments than we were able to accomplish
within the previous area. This made shipping during the fourth quarter, our second highest AFIRS hardware revenue
quarter in history, much more efficient for the operations team.
FLYHT made important organizational changes in 2017. In the second half of the year, we reorganized the day-to-day
including procurement/manufacturing, account management, customer and aircraft certification
operations
engineering, and software development teams into an organization run by the COO, Matieu Plamondon. This allowed
FLYHT to create a Strategic Product Management team led by our CTO, Derek Graham. This was necessary to
address the strategic opportunities from Boeing and Inmarsat that were announced in the year. The Strategic Product
Management team also helps FLYHT plan and execute our next generation products, which we will begin investing in
this year, to enhance our unique position in the industry as the leading provider of real-time data streaming
technology. As part of this reorganization, we also converted several contractor positions to in-house staff and grew
the sales team modestly to be better prepared as a Company for future opportunities. FLYHT hired industry veteran
Steve Newell as VP Business Development to help mature new opportunities with OEMs, airframers and other
technology partners so that we could focus our VP Sales and Marketing, David Perez and his sales team on selling
AFIRS and UpTimeTM voice and data services to airlines and lessors.
While we fell short of our financial targets in 2017, we did have several accomplishments. We signed a contract with
Azur in the Middle East, Bahamasair in the Bahamas, an airline in South Korea, a military logistics company and an
aircraft lessor. In addition, FLYHT signed contracts with four new Chinese carriers, bringing the number of carriers we
serve in China to 23. We also accomplished AS9100C quality registration and revised processes and procedures for
the AS9100D transition audit in January. In 2017, the Company also received an important patent from the United
States Patent and Trademark Office for FLYHT’s emergency data streaming technology which has been initially
enabled in a commercial software product called FLYHTStreamTM. This patent has also been issued in China and is
pending in several other countries. This intellectual property can form the basis for industry to meet the “Timely
Access to Flight Data” requirements which are levied upon the industry by the International Civil Aviation Organization
(ICAO) for new aircraft in 2021. Several of our trials are designed to validate that FLYHT’s solution will satisfy this
mandate, which is intended to overcome the problems associated with no access to flight data, such as the tragic loss
of Malaysian Air MH370 or the two year wait to access it, as evidenced by Air France AF447. FLYHT added many
Supplemental Type Certificates during the year, increasing this valuable library to more than 90 entries.
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FLYHT is focused on multiple initiatives in 2018. These include the fantastic opportunity to participate as a partner on
the Boeing ecoDemonstator Program where we are demonstrating state-of-the-art aircraft tracking, locating and data
recovery technologies using our AFIRS and UpTimeTM Cloud. We are excited to be the only Company chosen to
demonstrate these capabilities for the program. Similarly, we have announced a trial partnership with Inmarsat, the
largest provider of aviation flight-deck Satcom bandwidth, to help them achieve their “Black Box in the Cloud” vision of
always-on streaming in the Swiftbroadband-Safety spectrum. We are pursuing other trials where we are working
closely with the airlines to tailor our system to solve specific problems and we are integrating our solution with
technology from other OEM equipment providers which we believe will bring increased value to our combined
solutions.
I feel very excited about the prospects for the Company as we move into 2018. We have an excellent team that is
focused on meaningful opportunities. Thank you for your continued support of FLYHT!
Thomas R. Schmutz
Chief Executive Officer
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FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
MANAGEMENT DISCUSSION & ANALYSIS
This management discussion and analysis (“MD&A”) is as of April 10, 2018 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, 2017 and 2016 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, 2017 consolidated financial statements and the notes
thereto 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 International Financial Reporting Standards (IFRS) or Generally
Accepted Accounting Principles (GAAP). It also occasionally uses certain non-GAAP financial measures, such as working capital,
modified working capital, earnings before interest, income tax, depreciation and amortization (EBITDA). 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, deposits and prepaid expenses, and the current portion of unearned revenue net of
installations in progress. 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. EBITDA is defined as income for the period, before
net finance costs, income tax, depreciation and amortization of assets. These non-GAAP financial measures are always clearly
indicated. 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, 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, United States (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. and other military activity, market prices, availability of satellite communication, foreign exchange rates, continued
availability of capital and financing, and general economic, market, or business conditions in the aviation industry, 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 forward-looking
statements. The forward-looking statements contained herein are current only as of the date of this document. The Company
disclaims any intentions or obligation to update or revise any forward-looking statements or comments as a result of any new
information, future event or otherwise, unless such disclosure is required by law.
FLYHT Overview
FLYHT’s mission is to improve aviation safety, efficiency and profitability. The Company is located in Calgary, Canada; publicly
traded as: FLY:TSX.V; FLYLF:OTCQX. Airlines, leasing companies, fractional owners and original equipment manufacturers have
installed the Automated Flight Information Reporting System (AFIRSTM), developed and produced by FLYHT, on their aircraft to
capture, process and stream aircraft data with real-time alerts. AFIRS sends this information through satellite networks to the
UpTimeTM Cloud data center, which provides aircraft operators with direct insight into the operational status and health of their
aircraft and enables them to take corrective action to maintain the highest standard of operational control.
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AFIRSTM and UpTimeTM
AFIRS is a device installed on aircraft that captures and monitors hundreds of essential functions from the aircraft including data
recorded by the black box. AFIRS sends this information through the Iridium satellite network to FLYHT’s UpTime server, which
routes the data to customer-specified end points and provides an interface for real-time aircraft interaction. In addition to its data
monitoring and flight tracking functions, AFIRS provides voice and text messaging capabilities that give pilots the ability to
communicate with ground support. Value-added applications such as those described below are unique to FLYHT. FLYHT’s global
satellite coverage is enabled by the Iridium satellite network, providing service to our customers when they need it anywhere on the
planet.
FLYHT received regulatory certification for installation of AFIRS in a large number of widely used commercial aircraft brands and
models (see systems approvals section). The AFIRS 228’s features cater to the evolving needs of airlines by providing a
customized and flexible product. In early 2016, FLYHT announced the Canadian Technical Standard Order (CAN-TSO) Design
Approval, CAN-TSO-C159b for the AFIRS 228S. The certification, granted by Transport Canada, represents an additional level of
airworthiness standards met by AFIRS to provide safety services voice and data.
FLYHTStreamTM
A revolutionary, industry-leading technology that performs real-time triggered alerting and black-box data streaming in the
event of an abnormal situation on an aircraft. FLYHTStream can be activated automatically by a set of pre-determined factors,
by the pilots or on the ground by airline operations. It uses AFIRS’ onboard logic and processing capabilities in combination
with UpTime’s ground-based servers to interpret and route alerts and messages to key groups on the ground, such as the
airline, operation centers and regulators. Animation software converts the raw FDR data into visual data that can be viewed
from any computer, providing ground personnel a view of the controls and awareness of what is happening onboard the
aircraft. FLYHT received a U.S. patent for the data streaming technology in 2017.
FLYHTASDTM
An aircraft situational display that shows the aircraft position reports from AFIRS via the Iridium satellite network. A unique
application that integrates real-time flight following, routine aircraft notifications, aircraft health exceedance alerts and the ability
to send text messages immediately to the aircraft. The program supports a number of aviation-specific tools including charts. It
also provides the aircraft operator with the ability to enable FLYHTStream on their airborne aircraft at any time.
FLYHTHealthTM
Consists of automated engine trend reporting and real-time engine and airframe exceedance monitoring and remote, real-time
diagnostics. Automated reports with configurable reporting intervals notify the airline when a maintenance event has occurred.
Leveraging the global coverage of the Iridium satellite network, FLYHTHealth allows the airline to request data directly from the
reporting system once a problem has been detected. The intent is then for the airline to use FLYHT’s real-time systems
diagnostics capabilities to interrogate systems information and identify the source of the problem and prepare the arrival station
for repair, long before the aircraft lands at its destination. By automating and enhancing the real-time and long-term monitoring
of airplane data, FLYHTHealth enables proactive management of maintenance and reduces “turn-time”, downtime and the
financial impact of unscheduled maintenance.
FLYHTLogTM
Allows operators to monitor the status of their aircraft and have detailed Out, Off, On and In (OOOI) time information. It allows
airlines to automatically route aircraft system and operational data to various partner systems. Additionally, FLYHTLog
increases situational awareness and accurate flight times, saving money on flight crew pay, operating costs and maintenance
operations.
FLYHTMailTM
Two-way text messaging to the flight deck is established through the multi-control display unit (MCDU) or an iPad application.
Updated crew assignments, crew repositioning and tail swaps can be sent to the aircraft directly and immediately. Text
messaging is highly useful to manage diversions due to weather, mechanical occurrences or other unforeseen situations.
FLYHTVoiceTM
The onboard satellite phone, using the Iridium satellite constellation with global coverage, is a rapid and reliable private
communication channel for the flight deck. When operating remote or oceanic flights, it allows dispatch to supply updated
information to the crew with no delay. The voice capability is particularly valuable during emergency situations or irregular
operations.
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FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
FLYHTFuelTM
A powerful program that focuses attention on areas of greatest savings potential to provide information necessary to make
decisions about the operation. Some airlines currently rely on a system of manually generated and analyzed reports 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. FLYHTFuel is both a report-generation tool and a dynamic, interactive application
that generates alerts and provides the user with the ability to quickly identify trends. The dashboard compares how pilots are
operating the aircraft to how they could be flying in order to maximize efficiency and fuel savings. The unique application
highlights exceptions to best practices, provides quick drill downs to spot the root cause of issues, and identifies trends. 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. It is an intuitive tool that enables fuel managers to
act on information instead of compiling and analyzing data.
Underfloor Stowage Unit
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 o ther
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
FLYHT is a TCCA Approved Manufacturer, an Approved Maintenance Organization and an EASA and a CAAC Part 145 Repair
Facility. FLYHT is part of a select group of Canadian companies who are approved by TCCA as a Design Approval Organization
(DAO). FLYHT is now AS9100 certified with the registrar SAI Global. The Company also holds multiple STCs to make appropriate
modifications, such as installing FLYHT’s AFIRS technology, to an aircraft’s approved design.
FLYHT has received STC approvals from TCCA, FAA, EASA, CAAC, ANAC and DGAC for various aircraft models depending on
customer requirements. FLYHT is currently pursuing STC validations from the SAAU and the HKCAD.
FLYHT’s expertise in airworthiness certification enabled it, in October 2008, to join a select group of Canadian companies who are
approved by TCCA as a 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 wait times, and reduces cost and reliance on
contractors.
As a component of its DAO status, the Company employs the services of a delegated engineer, allowing for the approval of
changes and the systems and electrical design aspects of an airworthiness certification. If an issue is encountered during the STC
process, the delegate has the authority to approve necessary changes and continue the process without the involvement of an
external party.
The process to receive an STC takes some time, but in all cases, it starts with an STC application through the TCCA, FAA or
EASA. FLYHT typically starts the process with TCCA by opening an application with the regulator before an STC package is
created. The data package is prepared, including engineering documents outlining how AFIRS equipment is substantiated and
installed on the aircraft, and the package is submitted to TCCA for approval.
Once approved, first-of-type ground and flight testing takes place to fulfill regulatory requirements. FLYHT requires access to the
proposed types and models of aircraft, which is done in cooperation with an existing or potential customer.
After all tests are complete, FLYHT submits an application for the activation and data package to TCCA confirming all regulatory
requirements have been met and the AFIRS unit is fit for operation on that aircraft type as designed. From there, TCCA approves
the submission and an STC is issued.
To acquire an STC from a different national regulator, FLYHT submits an application through TCCA to a regulator such as the FAA
or EASA with the STC data package previously approved by TCCA. The regulator then reviews the package and issues an STC
for that country based on their validation of the TCCA STC.
Timelines required for the TCCA approval process will vary depending on aircraft and workloads, but typically take about three to
four months, with an additional three to eight months if an STC is required from another regulator like the FAA or EASA.
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STC Chart
TCCA
FAA
EASA
CAAC
ANAC
220
228
220
228
220
228
220
228
220
228
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
I
A
I
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A*
A
A*
A
A
A
A
A
A
A
A
A
A
A
A
A
A
Airbus A319, A320, A321
A*
A*
A
A
A
A
A*
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
I
I
A
A
I
A
A
Airbus A300
Airbus A330
ATR42 -300
ATR42 -500
ATR-72 -100, -200
A
I
A
ATR42-500 "600 Version" *STC Twenty One
ATR72-212A "600 Version" *STC Twenty One
Boeing B737 -200
A
Boeing B737 -300, -400, -500
Boeing B737 -600
A
Boeing B737 -700, -800
Boeing B737 -900ER
Boeing 747-200
Boeing 757 -200
Boeing 767 -200, -300
Boeing B777
Bombardier DHC 8 -100, -200, -300
*Avmax
Bombardier DHC 8 -400
Bombardier CRJ 100, 200, 440
Bombardier CRJ -700, 900
McDonnell Douglas DC-10 (KC-10 military)
McDonnell Douglas MD-82
McDonnell Douglas MD-83
Fokker 100
A
A
A
A
A
Hawker Beechcraft -750, 800XP, 850XP, 900XP
A
I
A
Viking Air DHC -7 (LSTC)
A
Embraer EMB 190
Embraer Legacy 600 and EMB – 135/145
Chart Legend: AFIRS 220 or 228 model, A = Approved, P = Pending (Provisions STC has been received; in final stages before receiving a full
STC), I = In Progress.
FLYHT has also received an approved AFIRS 228 STC for the Bombardier CRJ- 700, 900 from the DGAC. FLYHT has AFIRS 228 applications in
progress with SAAU for B737-300, -400, -500 and B737-700, -800 aircraft. An AFIRS 228 application is also in progress with HKCAD for the Airbus
A319, A320 and A321.
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FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
Trends and Economic Factors
FLYHT examines the communications issued by leading aviation associations and corporations in order to gain insight on the
status of the industry.
The Aviation Industry in 2017
The International Air Transport Association’s (IATA) industry results, measured in Revenue Passenger Kilometres (RPK) and
Freight Tonne Kilometres (FTK) are the passenger and freight contributions to airline revenue and are significant markers to
determine the health of the industry. Passenger traffic (measured in RPK) saw a 7.6% increase in 2017 compared to the previous
year. 2017 results were also ahead of the ten-year average growth rate of 5.5%1. All regions, outside of the Middle East, saw
demand growth in International passenger traffic, and load factors that measure the capacity utilization of flights were at a record
annual high of 81.4%. Demand in domestic markets at 7.0% was slightly lower than international travel at 7.9%2. Global freight
traffic (measured in FTK) increased by 9.0% in 2017, which more than doubled the industry’s 3.6% annual growth in 2016 and is
the strongest growth since 20103. All regions experienced positive freight growth. African airlines topped the regions with growth of
25.2% in 2017, followed by Europe, with an increase of 11.9%4.
Results from large commercial aircraft manufacturers were mostly to the upside in 2017 and their order backlog numbers remain
high. Airbus continued its growth with a new record for aircraft deliveries of 718 aircraft for 85 customers, an increase from last
year’s record 688 aircraft to 82 customers5. At the end of 2017, Airbus' overall backlog stood at 7,265 aircraft valued at US $1.059
trillion at list prices. Airbus achieved milestone deliveries in the year and opened the new A330 Completion and Delivery Centre in
Tianjin, China6. Boeing’s deliveries increased to 763 aircraft in 2017 from 748 in 20167. Boeing published their backlog at the end
of 2017 at 5,800 commercial aircraft. This backlog represents orders of nearly US $421 billion8. Embraer saw a decline in
deliveries from 2016 and delivered a total of 101 commercial and 109 executive jets (72 light and 37 large) in 20179. The
manufacturer has a backlog of US $18.3 billion. Bombardier delivered less aircraft than the previous year, a total of 213 business
and commercial jets compared to 249 aircraft in 2016, though they were in line with the guidance they provided for the year.
Bombardier’s backlog at the end of 2017 is $14 billion in business jets and 433 commercial aircraft10.
The General Aviation Manufacturers Association (GAMA) reported that numbers in worldwide general aviation airplane shipments
in 2017 increased 2.5% to 2,324 compared to 2,268 in 201611.
Future Industry Projections
According to IATA’s 2018 outlook12, the global aviation industry is continuing to grow and is expected to retain USD $8.9 for every
passenger carried in 2018. IATA reports that the industry is expected to add 1,683 new aircraft in 2018, expanding the global
commercial fleet to 30,000 aircraft. Margins remain tight for airlines on their route to profitability depending on the regions they
operate in. African, Middle Eastern and Latin American carriers remain close to or below break-even (many airlines are at a loss)
while airline profits in North America are significantly ahead of other regions.
The world’s two largest airplane manufacturers, Boeing and Airbus, forecast robust demand to continue over the next twenty years.
Boeing increased their prediction about new aircraft from last year’s outlook to a total need of 41,030 new aircraft worth US $6.1
trillion13 and Airbus’ states the demand for 34,900 aircraft worth US $5.3 trillion14. The Asia-Pacific region, which includes India,
China and Oceania is expected to become the world’s leading travel market, growing 5.7% annually by 2036 and will constitute
nearly 40% of global passenger traffic, with China needing 5,420 new widebody aircraft and 940 single-aisle airplanes15. China is
expected to become the largest domestic air travel market, surpassing North America because of the increased growth of the
middle class.
1 http://www.iata.org/pressroom/pr/Pages/2018-02-01-01.aspx
2 http://www.iata.org/publications/economics/Reports/pax-monthly-analysis/passenger-analysis-dec-2017.pdf
3 http://www.iata.org/pressroom/pr/Pages/2018-01-31-01.aspx
4 http://www.iata.org/publications/economics/Reports/freight-monthly-analysis/freight-analysis-dec-2017.pdf
5 http://www.airbus.com/newsroom/press-releases/en/2018/01/airbus-commercial-aircraft-delivers-record-performance.html
6 http://www.airbus.com/newsroom/press-releases/en/2018/01/airbus-commercial-aircraft-delivers-record-performance.html
7 http://boeing.mediaroom.com/2018-01-31-Boeing-Reports-Record-2017-Results-and-Provides-2018-Guidance
8 http://boeing.mediaroom.com/2018-01-31-Boeing-Reports-Record-2017-Results-and-Provides-2018-Guidance
9 https://daflwcl3bnxyt.cloudfront.net/m/4155bb8e78b3e665/original/4Q17-Deliveries-Announcement-US.pdf
10 https://www.bombardier.com/en/media/newsList/details.binc-20180215-bombardier-reports-fourth-quarter-and-full-year-20.bombardiercom.html
11 https://gama.aero/news-and-events/press-releases/gama-presents-2017-year-end-aircraft-shipment-and-billings-numbers-at-annual-press-
conference/
12 http://www.iata.org/publications/economics/Reports/Industry-Econ-Performance/IATA-Economic-Performance-of-the-Industry-end-year-2017-
report.pdf
13 http://www.boeing.com/resources/boeingdotcom/commercial/market/current-market-outlook-2017/assets/downloads/cmo-2018-01-26.pdf
14 http://www.airbus.com/aircraft/market/global-market-forecast.html
15 http://www.boeing.com/resources/boeingdotcom/commercial/market/current-market-outlook-2017/assets/downloads/cmo-2018-01-26.pdf
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With the growth in the industry, the aviation market increases it reliance on satellites for safety and operations as well as cockpit
communications. According to Euroconsult, a global consulting and research firm, the biggest use of satellites is for
communications and is continuing to grow16. They increased their forecast from last year’s predictions of the launch of 1,450
satellites between 2016 and 2025, and a market of US $250 billion17 to 3,000 satellites with a market of US $304 billion.18
Regulatory Drivers
The International Civil Aviation Organization (ICAO) adopted new amendments to Annex 6 (Operation of Aircraft) that will take
effect by 2021. These are applicable to FLYHT because they encompass services that we currently offer. Amendment 39 for
Normal Aircraft Tracking makes an aircraft operator responsible for tracking its aircraft in its area of operations with a tracking time
interval of 15 minutes, applicable on November 1, 2018 to specific classes of aircraft. Amendment 40 for Autonomous Distress
Tracking (ADT) requires aircraft to carry an ADT device that can autonomously transmit location information at least once every
minute in distress circumstances. The ADT amendment will come into effect on newly manufactured aircraft starting January 1,
2021. Amendment 40 is the Timely Access to Flight Data Recorder Information and requires aircraft to be equipped with a means
to have flight recorder data recovered and available in a timely manner.
FLYHT’s Market
FLYHT’s technology is available to a number of sectors within the global aerospace industry. The Company’s AFIRS product can
be installed on commercial, business or military aircraft, although the latter category represents a small portion of current business.
In addition, FLYHT’s UpTime Cloud services are available to these market segments. The technology relies on the use of satellites
for real-time communication with aircraft.
FLYHT remains an industry leader in real-time data streaming technology that enhances the efficiency and safety of aircraft. The
Company focused on the development and launch of a cloud-based UpTime software over the past two years. UpTime Cloud
marks an improvement over our previous technology, with configurability pushed to the customer and the ability to scale-up and
increase the number of customers using the platform. FLYHT will continue to add functions and features to improve UpTime Cloud
capabilities. Such features detect and notify the airline of problems while the aircraft is in flight and allow the operator to prepare for
repairs before the aircraft lands, thereby reducing the financial impact of unscheduled maintenance. FLYHT also focused on
industry trials in 2017. The Company developed its technology to stream data over the Inmarsat Satellite network for trials with
Boeing and Inmarsat.
FLYHT has participated in industry events and working groups to demonstrate AFIRS’ capabilities and the real-time data streaming
enabled by FLYHTStream. FLYHT will continue to participate in industry working groups to advance engineering and technical
requirements and prepare for future development of the AFIRS product line to meet industry needs.
FLYHT’s primary sales target has been commercial passenger and air freight transport customers, while its secondary targets are
business jet aircraft (used for business and personal travel) and military air transport aircraft that require AFIRS functionality.
FLYHT’s business relies primarily on retrofitting existing aircraft to provide recurring, real-time aircraft data services. It is FLYHT’s
objective to win additional positions on new aircraft through OEM partnerships, with a goal to fit AFIRS equipment on the aircraft
during production so that UpTime Cloud services can be turned on immediately after delivery to the customer.
The strengthening of the Canadian dollar relative to the U.S. dollar throughout 2017 had a negative impact on the Company’s
revenue and income compared to 2016. As a result of these currency movements, the Company’s revenues, which are
substantially all denominated in U.S. dollars, were lower 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 operating and
overhead costs are denominated in Canadian dollars, a significant portion of the cost of sales, marketing and distribution costs are
U.S. dollar denominated, and therefore a partial natural hedge exists against fluctuations of the Canadian dollar.
Contracts and Achievements of Fiscal 2017
Contracts
In January, FLYHT announced a contract with an existing customer in the People’s Republic of China (China) for AFIRS 228
valued at USD $1.3 million.
In March, FLYHT announced a new commercial airline customer in China for AFIRS 228 hardware, valued at USD $1.68 million.
16 http://www.euroconsult-ec.com/research/satellite-value-chain-2016-extract.pdf
17 http://www.euroconsult-ec.com/13_September_2016
18 http://www.euroconsult-ec.com/11_October_2017
11-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
In March, FLYHT announced customer and parts sales activity in the first quarter of 2017 including USD $1.5 million of parts to an
existing OEM partner. One new and seven current customers signed AFIRS 228 units and/or voice and data services for a total of
USD $1.5 million.
In April, FLYHT announced the sale of AFIRS hardware to a new commercial airline customer in China, valued at USD $1.9
million.
In June, FLYHT announced updates to customer and parts sales activity for the second quarter of 2017. FLYHT received parts
orders of USD $2.2 million from an existing OEM partner. Seven current customers signed contracts for additional AFIRS 228
hardware and/or voice and data services for a total of USD $833,000.
In September, FLYHT announced the sale of AFIRS to two new commercial cargo customers in China, valued at USD $1.4 million.
In October, FLYHT announced updates to customer and parts sales activity in the third quarter of 2017 with an addition of USD
$1.7 million in contracts and purchase orders.
In October, FLYHT announced a sale of AFIRS and FLYHTLog services to Azur Havacilik (Azur Aviation), based in Antalya,
Turkey for USD $2.1 million.
At the end of the year, FLYHT announced an addition of USD $555,000 in new sales contracts and purchase orders during the
fourth quarter of 2017.
Achievements
In March, FLYHT announced the official launch of its UpTime Cloud software. The UpTime Cloud web portal improves the
Company’s software usability, while providing enhancements to security and infrastructure.
In the first quarter, FLYHT was awarded STCs for the AFIRS 228 by the FAA for MD82/83 aircraft and from the CAAC for the
Boeing 757.
In June, FLYHT announced the receipt of a patent from the United States Patent and Trademark Office for FLYHTStream.
In the second quarter, FLYHT was awarded an AFIRS 228 STC by CAAC for Boeing 737-300/400/500 aircraft.
In July, FLYHT announced it had amended its operating demand loan (“Line of Credit”) with a Canadian chartered bank to
increase borrowing availability to CAD $1.5 million.
In July, FLYHT announced the TSX Venture Exchange approved a consolidation of its common shares on a 10 to 1 basis. The
Consolidation took effect July 17, 2017.
In August, FLYHT announced its participation in the Boeing ecoDemonstrator Program. The Program is designed to collect data
and produce test reports that are necessary to demonstrate Autonomous Distress Tracking and the Timely Recovery of Flight
Data. FLYHT’s portion of the project is expected to be complete in 2018.
In September, FLYHT announced a flight trial with Inmarsat to demonstrate the use of AFIRS to send data to the UpTime Cloud
management platform via Inmarsat’s secure IP broadband platform, SwiftBroadband-Safety (SB-S).
In the third quarter, FLYHT was issued a TCCA STC for AFIRS 228 for the Bombardier Q-400 and revised a TCCA STC in August
to allow for modifications on A320 aircraft to introduce AFIRS 228S real-time data services. FLYHT also received the final approval
for activation of the TCCA STC for the E-190 Embraer Jet family.
In November, FLYHT appointed Matieu Plamondon as Chief Operating Officer.
In the fourth quarter, FLYHT was issued the CAAC STC for the E-190 Embraer Jet family.
12-
Results of Operations – Years Ended December 31, 2017, 2016 and 2015
Selected Results
2017
Assets
Non-current financial liabilities
Revenue
Cost of sales
Gross margin
Gross margin %
Distribution expenses
Administration expenses
Research, development and
certification engineering
expenses
Results from operating activities
Depreciation
EBITDA*
Income (loss)
Income (loss) per share (basic)
Income (loss) per share (fully
diluted)
2016
Assets
Non-current financial liabilities
Revenue
Cost of sales
Gross margin
Gross margin %
Distribution expenses
Administration expenses
Research, development and
certification engineering
expenses
Income (loss) from operating
activities
Depreciation
EBITDA*
Income (loss)
Income (loss) per share (basic)
Income (loss) per share (fully
diluted)
2015
Assets
Non-current financial liabilities
Revenue
Cost of sales
Gross margin
Gross margin %
Distribution expenses
Administration expenses
Research, development and
certification engineering
expenses
Loss from operating activities
Depreciation
EBITDA*
Loss
(Loss) per share (basic
(Loss) per share (fully diluted)
*See Non-GAAP Financial Measures
13-
Q4
$
7,148,847
1,842,439
3,579,296
1,029,288
2,550,008
71.0%
1,170,695
745,423
Q3
$
6,955,314
1,385,440
3,322,342
1,480,303
1,842,039
55.4%
1,166,972
684,651
Q2
$
7,710,302
1,209,206
3,388,030
1,124,487
2,263,543
66.8%
1,418,610
1,090,335
Q1
$
7,615,545
1,072,848
3,729,082
1,138,602
2,590,480
69.5%
1,195,194
638,120
Total
$
7,148,847
1,842,439
14,018,750
4,772,680
9,246,070
66.0%
4,951,471
3,158,529
1,099,869
458,327
399,920
561,158
2,519,274
(465,979)
69,272
(396,707)
(520,428)
(0.02)
(467,911)
26,980
(440,931)
(624,425)
(0.03)
(645,322)
25,093
(620,229)
(724,102)
(0.03)
196,008
22,148
218,156
113,340
0.01
(1,383,204)
143,493
(1,239,711)
(1,755,615)
(0.08)
(0.02)
(0.03)
(0.03)
0.01
(0.08)
Q4
$
6,516,206
974,749
4,127,827
1,034,450
3,093,377
74.9%
1,424,211
719,097
Q3
$
9,189,104
996,121
4,054,368
1,346,341
2,708,027
66.8%
1,101,318
626,733
Q2
$
9,655,504
1,002,872
3,537,665
1,278,746
2,258,919
63.9%
1,248,783
1,103,399
Q1
$
5,803,079
602,011
2,611,331
861,965
1,749,366
67.0%
1,132,727
638,427
Total
$
6,516,206
974,749
14,331,191
4,521,502
9,809,689
68.4%
4,907,039
3,087,656
725,739
550,443
336,871
988,176
2,601,229
224,330
18,687
243,017
79,709
0.00
0.00
Q4
$
5,478,867
390,110
3,769,267
1,340,513
2,428,754
64.4%
1,084,443
1,573,796
429,533
16,302
445,835
303,890
0.01
0.01
Q3
$
6,140,675
3,267,030
2,519,347
672,341
1,847,006
73.3%
1,142,086
607,755
2,793,032
(1,009,964)
2,436,931
15,562
2,808,594
2,572,061
0.13
16,128
(993,836)
(1,242,942)
(0.07)
66,679
2,503,610
1,712,718
0.09
0.13
(0.07)
0.09
Q2
$
6,344,752
3,053,577
1,598,603
562,535
1,036,068
64.8%
987,330
943,931
Q1
$
7,752,509
5,407,303
2,569,908
637,901
1,932,007
75.2%
763,774
551,471
Total
$
5,478,867
390,110
10,457,125
3,213,290
7,243,835
69.3%
3,977,633
3,676,953
689,195
638,104
737,968
737,285
2,802,552
(918,680)
15,896
(902,784)
(1,203,998)
(0.07)
(0.07)
(540,939)
13,652
(527,287)
(683,224)
(0.04)
(0.04)
(1,633,161)
13,707
(1,619,454)
(1,943,924)
(0.11)
(0.11)
(120,523)
13,618
(106,905)
(60,414)
(0.00)
(0.00)
(3,213,303)
56,873
(3,156,430)
(3,891,560)
(0.23)
(0.23)
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
Weighted Average Shares Outstanding
2017
$
20,926,589
20,926,589
2016
$
19,507,065
19,541,957
2015
$
17,242,349
17,242,349
Basic
Diluted
Financial Position
Liquidity and Capital Resource
The Company’s cash at December 31, 2017 increased to $2,014,135 from $709,958 at December 31, 2016. On July 7, 2017, the
Company amended its operating demand loan with a Canadian chartered bank to increase its borrowing availability to CAD $1.5
million from $250,000. This facility was undrawn as at December 31, 2017. The operating demand loan bears interest at the
Canadian chartered bank prime plus 1.5%. Security includes specific accounts receivable, a guarantee under the Export
Development Canada’s Export Guarantee Fund and a general security agreement including a security interest in all personal
property. This amendment released the GIC of $250,000 previously pledged as security.
At December 31, 2017, the Company had positive working capital of $1,761,003 compared to positive $1,724,190 as of December
31, 2016, an increase of $36,813. When non-refundable items (customer deposits, deposits and prepaid expenses, and the current
portion of unearned revenue net of installations in progress) are excluded from the working capital calculation, the resulting
modified working capital at December 31, 2017 would be positive $3,239,928 compared to positive $2,185,016 at December 31,
2016.
The Company funded 2017 operations primarily through cash received from sales, contributions from the Western Innovation
Initiative (WINN), and proceeds from exercised share options and warrants. The Company will continue to strive to self-fund
operations through 2018.
Cash and cash equivalents
Restricted cash
Trade and other receivables
Deposits and prepaid expenses
Inventory
Trade payables and accrued liabilities
Customer deposits
Unearned revenue
Loans and borrowings
Finance lease obligations
Current tax liabilities
Working capital
Unearned revenue
Installations in progress
Deposits and prepaid expenses
Customer deposits
Modified working capital*
*See Non-GAAP Financial Measures
2017
$
2,014,135
-
1,887,251
391,191
1,563,558
(1,868,563)
(1,687,971)
(413,809)
(112,578)
2016
$
709,958
250,000
2,105,385
216,819
1,556,794
(1,845,408)
(317,899)
(827,235)
(97,895)
(15,553)
(10,776)
1,724,190
827,235
(231,664) (467,489)
(216,819)
317,899
2,185,016
(12,211)
1,761,003
413,809
(391,191)
1,687,971
3,239,928
-
Variance
$
1,304,177
(250,000)
(218,134)
174,372
6,764
(23,155)
(1,370,072)
413,426
(14,683)
15,553
(1,435)
36,813
(413,426)
235,825
(174,372)
1,370,072
1,054,912
14-
In 2017 option and warrant exercises resulted in the Company issuing a total of 314,451 shares for total proceeds of $538,423
including:
Share options
Share options
Share options
Share options
Share options
Warrants
Total
Quantity
Price $
Proceeds $
22,500
20,000
30,930
20,000
30,000
191,021
314,451
1.65
1.85
1.90
2.20
2.50
1.50
37,125
37,000
58,767
44,000
75,000
286,531
538,423
As at April 10, 2018 FLYHT’s issued and outstanding share capital was 21,058,617.
The consistent achievement of positive earnings is necessary before the Company can consistently improve liquidity. The
Company has continued to expand its cash flow potential through its continued marketing drive to clients around the world and
contracts for delivery of AFIRS units and related services. 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.
For the Company to continue as a going concern longer-term, it will need to achieve profitability and may require additional
financing to fund ongoing operations. If general economic conditions in the industry or the financial condition of a major customer
deteriorates, or revenue streams and/or markets do not improve, 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. 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.
Financial Instruments
The Company is exposed to fluctuations in the exchange rates between the Canadian dollar and other currencies, primarily the US
dollar, with respect to assets, liabilities, sales, expenses and purchases. The Company monitors fluctuations and may take action if
deemed necessary to mitigate its risk.
The Company may be exposed to changes in interest rates as a result of the operating loan bearing interest based on the
Company’s lenders’ prime rate.
There is a credit risk associated with accounts receivable where the customer fails to pay invoices. The Company extends credit to
credit-worthy or well-established customers. In the case of AFIRS sales, the invoiced amount is frequently payable before the
product is shipped to the customer. The Company assesses the financial risk of a customer and based on that analysis may
require that a deposit payment be made before services are provided. To further minimize credit exposure, credit insurance is
obtained on select customers whose balances have not been prepaid. In the case of monthly recurring revenue, the Company has
the ability to disable the AFIRS unit transmissions where the customer has not fulfilled its financial obligations.
Contractual Obligations
The following table details the contractual maturities of financial liabilities, including estimated interest payments.
December 31, 2017
Accounts payable
Compensation and
statutory deductions
Accrued liabilities
Loans and borrowings
Total
15-
< 2 months
$
1,340,510
2-12 months
$
-
1-2 years
$
-
2-5 years
$
-
> 5 years
$
-
46,763
274,647
27,000
-
37,990
-
1,425,263
113,479
119,333
507,459
11,658
137,234
175,892
16,516
1,628,685
1,645,201
-
-
822,220
822,220
Total
$
1,340,510
348,410
179,643
2,707,472
4,576,035
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
Operating lease rentals are payable as follows:
2018
2019
2020
2021
Total
Premises
$
462,678
462,678
462,678
77,113
1,465,147
Under the Strategic Aerospace and Defence Initiative (SADI), the Company has, at December 31, 2017, an outstanding repayable
balance of $1,626,814, compared to $1,730,582 at December 31, 2016. The amount is repayable over 15 years on a stepped
basis commencing April 30, 2014. The initial payment on April 30, 2014 was 3.5% of the total contribution received and the
payment increases yearly by 15% until April 30, 2028 when the final payment will be 24.5% of the total contribution received. The
repayment in 2017 was $103,767 (2016: $90,234).
On November 9, 2016, the Company signed a contribution agreement with Western Economic Diversification Canada for a
Western Innovation initiative (WINN) loan to support plans for technology development in the air and ground components of the
products. Under the terms of the agreement, a repayable unsecured WINN contribution to the value of the lesser of 50% of the
eligible project costs to March 31, 2019 or $2,350,000 will be received. The amount is repayable over five years commencing
January 1, 2020. At December 31, 2017, the Company had received contributions of $1,080,658.
A summary of the carrying value of the SADI and WINN loans as at December 31, 2017 and 2016 and changes during these years
is presented below.
SADI
1,072,641
-
-
193,805
(103,767)
1,162,679
112,578
1,050,101
2017
$
WINN
-
1,080,658
(318,310)
29,989
-
792,338
-
792,338
SADI
984,507
-
-
178,368
(90,234)
1,072,641
97,895
974,746
2016
$
WINN
-
-
-
-
-
-
-
Balance January 1
Received
Grant portion
Interest accretion
Repayment
Balance December 31
Less current portion
Non-current portion
Customer Deposits
FLYHT’s revenue recognition for AFIRS sales and Parts sales 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 Solution. These deposits are
nonrefundable.
Customers are frequently required to pay for AFIRS units and installation kits prior to the planned shipment date. This prepayment
is recorded as a customer deposit. When the AFIRS unit and installation kit are shipped, the customer deposit is reclassified to
unearned revenue, where it will remain until the revenue recognition criteria for the contract has been met, at which point the
unearned revenue is recognized as AFIRS sales revenue.
When customers order spare parts or Underfloor Stowage Units and a prepayment is required, it is also recorded as a customer
deposit. The Parts sales revenue is recognized when the ordered part or unit is shipped.
The chart below outlines the movement in the Company’s customer deposits throughout the periods ending December 31, 2017
and 2016 including prepayments for AFIRS sales and Parts. Payment was received for 11 installation kits in the fourth quarter of
2017 compared to 14 received in the fourth quarter of 2016, bringing 2017 year-to-date (“YTD”) total payments for installation kits
to 64, compared to a total of 58 in 2016.
Opening balance
Payments received
Moved to unearned revenue
Q4 2017
$
1,106,012
1,801,603
(1,219,644)
Q4 2016
$
508,224
512,257
(702,582)
Variance
$
597,788
1,289,346
(517,062)
YTD 2017
$
317,899
5,453,511
(4,083,439)
YTD 2016
$
1,020,675
2,681,987
(3,384,763)
Variance
$
(702,776)
2,771,524
(698,676)
Balance, December 31
1,687,971
317,899
1,370,072
1,687,971
317,899
1,370,072
16-
Unearned Revenue
The chart below outlines the movement in the Company’s unearned revenue throughout the periods ending December 31, 2017
and 2016. Revenue was recognized for 27 installation kits in 2017’s fourth quarter compared to 12 in the fourth quarter of 2016.
YTD, revenue has been recognized for 81 installation kits in 2017, as compared to 73 in 2016. In 2017, 100.0% of the unearned
revenue balance at December 31, 2016 was recognized as earned revenue (2016: 100.0%).
Q4 2017
$
579,673
1,219,644
Q4 2016
$
747,511
702,582
-
19,866
(1,380,282)
(637,965)
Variance
$
(167,838)
517,062
(19,866)
(742,317)
YTD 2017
$
827,235
4,083,439
YTD 2016
$
1,145,341
3,384,763
-
19,866
(4,476,999)
(3,703,703)
Variance
$
(318,106)
698,676
(19,866)
(773,296)
(5,226)
(4,759)
(467)
(19,866)
(19,032)
(834)
413,809
827,235
(413,426)
413,809
827,235
(413,426)
Opening balance
AFIRS sales shipped
Voice and data services
prepaid
AFIRS sales recognized
Voice and data services
recognized
Balance, December 31
Comprehensive Income
Revenue
In the categories listed in the revenue sources chart, Voice and data services is the recurring revenue from customers’ usage of
data they receive from AFIRS and use of functions such as the satellite phone. Usage fees are recognized as the service is
provided based on actual customer usage each month. AFIRS sales includes the income from AFIRS hardware sales and related
parts required to install the unit along with Dragon hardware sales. Upon shipment, these amounts 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 recognized as AFIRS sales revenue and the work in progress as cost of sales. Parts
sales include the sale of spare AFIRS units, spare installation parts, modems with related manufacturing license fee, and
Underfloor Stowage Units. Services revenue includes technical services, repairs and expertise the Company offers including the
installation of operations control centres.
Revenue sources
Q4 2017
$
Q4 2016
$
Variance
$
YTD 2017
$
YTD 2016
$
Variance
$
Voice and data services
1,001,551
1,169,741
(168,190)
4,312,701
4,375,138
(62,437)
AFIRS sales
Parts sales
Services
Total
1,502,910
854,406
648,504
4,600,520
3,931,607
668,913
1,045,075
2,091,720
(1,046,645)
4,951,616
5,808,491
(856,875)
29,760
3,579,296
11,960
4,127,827
17,800
(548,531)
153,913
14,018,750
215,955
14,331,191
(62,042)
(312,441)
Overall, total revenue decreased 2.2% from $14,331,191 in 2016 to $14,018,750 in 2017. AFIRS sales increased by 17.0%, while
Voice and data services decreased by 1.4%, Parts sales decreased by 14.8%, and Services revenue decreased by 28.7%.
Voice and data services decreased compared to last year, as although a higher number of aircraft were producing recurring
revenue, the average revenue per aircraft decreased, largely due to changes in the value of the USD from 2016 to 2017. Recurring
revenue accounted for 28.0% of revenue in Q4 2017 (Q4 2016: 28.3%), and 30.8% YTD 2017 (YTD 2016: 30.5%). Recurring
revenue from FLYHT’s existing client base is expected to continue to expand throughout 2017 and future years.
AFIRS sales increased in 2017 as compared to 2016 due to an increased number of installation kits meeting the requirements for
revenue recognition. YTD, revenue has been recognized for 81 installation kits, compared to 73 in 2016. Revenue was recognized
for 27 installation kits in Q4 2017 compared to 12 in Q4 2016.
Parts sales decreased both in the quarter and YTD in 2017 from 2016 due to differences in the number of modems with related
license fees shipped.
Services revenue increased in the quarter while decreasing YTD in 2017 compared to 2016. This revenue category can be
expected to vary significantly between periods and years, depending on the level of technical services provided to customers in the
period.
17-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
Revenue sources for the last eight quarters were:
Voice and data
services
AFIRS sales
Parts sales
Services
Total
Q4 2017
Q3 2017
Q2 2017
Q1 2017
Q4 2016
Q3 2016
Q2 2016
Q1 2016
1,001,551
998,337 1,158,340 1,154,473
1,169,741
1,122,965 1,014,725
1,067,707
1,502,910
1,045,075
29,760
3,579,296
727,858
977,560
1,392,193
863,221 1,479,402 1,563,918
68,591
33,131
3,729,082
3,322,342
22,430
3,388,030
854,406
1,353,021
2,091,720 1,561,816
16,566
1,286,641
1,126,542
109,757
4,127,827 4,054,368 3,537,665
11,960
437,540
1,028,412
77,672
2,611,331
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 2017
$
2,075,584
137,732
296,843
349,433
159,818
158,097
401,789
3,579,296
Q4 2017
%
58.0
3.8
8.3
9.8
4.5
4.4
11.2
100.0
Q4 2016
$
2,919,694
231,270
126,980
262,401
68,184
192,925
326,373
4,127,827
Q4 2016
%
70.7
5.6
3.1
6.4
1.7
4.7
7.9
100.0
YTD 2017
$
7,683,296
442,603
774,407
873,546
333,152
819,153
3,092,593
14,018,750
YTD 2016
$
9,007,719
658,319
610,886
987,750
286,489
719,763
2,060,265
14,331,191
YTD 2017
%
54.8
3.2
5.5
6.2
2.4
5.8
22.1
100.0
YTD 2016
%
62.9
4.6
4.3
6.9
2.0
5.0
14.4
100.0
Gross Profit and Cost of Sales
FLYHT’s cost of sales includes 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 while performing on-site installation support. Installations on aircraft are performed by third parties at the customer’s
expense. Cost of sales as a percentage of revenue in the fourth quarter of 2017 was 28.8% compared to 25.1% in 2016’s fourth
quarter. A review of the annual results shows the cost of sales as a percentage of revenue also increased from 31.6% in 2016 to
34.0% in 2017. The decrease in gross margin was due to differences in the mix of revenue sources in 2017 versus 2016 and a
decrease in average AFIRS sales margin from 44.5% in 2016 to 43.4% in 2017. Gross margin will fluctuate quarter over quarter
depending on customer needs and revenue mix.
Gross margin for the last eight quarters was:
Q4 2017
Q3 2017
Q2 2017
Q1 2017
Q4 2016
Q3 2016
Q2 2016
Q1 2016
Gross Margin %
Cost of Sales
56.8
43.2
55.4
44.6
66.8
33.2
69.5
30.5
74.9
66.8
63.9
66.9
25.1
33.2
36.1
33.1
18-
Distribution Expenses (Recovery)
Consist of overhead expenses associated with the sale and delivery of products and services to customers, and marketing.
Major Category
Salaries and benefits
Share based
compensation
Contract labour
Office
Travel
Equipment and
maintenance
Depreciation
Marketing
Other
Total
Q4 2017
$
Q4 2016
$
Variance
$
YTD 2017
$
YTD 2016
$
Variance
$
420,315
978,347
(558,032)
2,361,046
3,255,326
(894,280)
3,154
4,625
(1,471)
152,272
97,067
55,205
301,633
101,744
125,839
155,528
95,901
139,930
146,105
5,843
(14,091)
881,837
429,294
601,172
498,106
416,733
562,645
383,731
12,561
38,527
18,121
12,614
5,507
53,712
25,006
28,706
10,378
45,337
144,174
1,170,695
10,064
27,202
-
1,424,211
314
18,135
144,174
(253,516)
34,438
268,033
169,667
41,580
113,879
(103,303)
4,951,471
4,907,039
(7,142)
154,154
272,970
44,432
Distribution expenses increased by 0.9% from 2016 to 2017.
Salaries and benefits have decreased in 2017 primarily due to the replacement of one sales staff with a contractor, as can be
noted in the increases in Contract labour, together with an increased allocation of staffing costs based on research and
development activity requirements.
Share based compensation has increased in 2017 as a result of an increased number of options granted to employees involved
in distribution activities.
Travel expense has decreased in the quarter while increasing YTD in support of increased sales efforts, particularly in China.
Equipment and maintenance expense increases in the quarter and YTD resulted from purchases of cloud-based services to
support UpTime Cloud.
Marketing expense has increased in 2017 due to an increased attendance at industry tradeshows, the recording in May 2017 of a
program filmed on Worldwide Business with kathy ireland ®, and the costs involved with performing a trial with a potential new
customer.
Other expense increases are the result of differences in bad debt reserve accrued between 2017 and bad debt recovery in Q2
2016.
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
Salaries and benefits
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
19-
Q4 2017
$
306,721
11,828
130,294
81,981
20,015
51,022
37,143
4,923
23,261
38,394
27,038
12,803
Q4 2016
$
427,797
Variance
$
YTD 2017
$
(121,076) 1,326,548
281,675
431,423
305,694
76,446
192,452
158,931
- 11,828
82,198
1,710
1,314
9,047
5,375
48,096
80,271
18,701
41,975
31,768
YTD 2016
$
1,589,395
228,058
172,014
289,311
166,461
141,650
153,580
Variance
$
(262,847)
53,617
259,409
16,383
(90,015)
50,802
5,351
6,154
(1,231)
40,350
61,665
(21,315)
29,584
16,062
3,268
15,421
22,332
23,770
(6,323) 102,348
131,340
59,334
(2,618) 51,988
3,158,529
119,143
79,187
9,704
77,488
3,087,656
(16,795)
52,153
49,630
(25,500)
70,873
745,423
719,097
26,326
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
Administration expenses increased 2.3% from 2016 to 2017.
Contract labour expenses were higher both in the quarter and YTD due to fees related to professional services, deploying internal
guiding principles, and the appointment of an interim CFO, partially offset by lower Salaries and benefits expenses.
Legal fees decreased YTD as several 2016 employee related services were not required in 2017. These included international
employment law and treasury matters.
Audit and accounting increased in YTD resulting from service adjustments, including evaluation and development of an
implementation plan to meet the requirements of IFRS 15.
Brokerage, stock exchange, and transfer agent fees have lessened in 2017, as the expenses involved in May 2016’s private
placement were not required in 2017.
Equipment and maintenance expenses and Depreciation increased YTD mainly due to the implementation and license costs
associated with the enterprise resource planning software.
Other expenses also decreased in 2017 from the same period in 2016, as the employee relocation in Q2 2016 did not recur in
2017.
Research, Development and Certification Engineering Expenses (Recovery)
Consist of expenses related to the improvement of existing and development of new technology and products.
Major Category
Salaries and benefits
Share based compensation
Contract labour
Office
Travel
Equipment and maintenance
Components
SR&ED credit
Depreciation
Government grants
Warranty Settlement
Total
Q4 2017
$
Q4 2016
$
Variance
$
YTD 2017
$
YTD 2016
$
Variance
$
699,428
467,494
231,934
2,093,261
1,562,383
530,878
-
87,648
48,557
19,163
32,297
57,518
-
31,856
123,402
-
1,099,869
-
-
25,448
37,220
128,310
40,566
12,520
35,335
28,371
8,424
4,719
-
-
(40,662)
7,991
6,643
(3,038)
29,147
(8,424)
27,137
123,402
-
276,669
127,221
90,911
125,357
165,510
(116,514)
49,721
(318,310)
725,739
-
374,130 2,519,274
315,198
119,530
54,595
111,077
57,171
(211,790)
15,395
-
540,450
2,601,229
(11,772)
(38,529)
7,691
36,316
14,280
108,339
95,276
34,326
(318,310)
(540,450)
(81,955)
Research and Development expense was 3.2% lower in 2017 compared to the prior year due mainly to a 2016 settlement of a
warranty claim that did not recur in the current year, funding received from WINN in 2017, partially offset by an increase in
research and development staffing costs. Research and development costs vary according to specific project requirements.
Salaries and benefits have increased mainly due to differences in allocations from other cost centres to R&D and the replacement
of a contractor with staff as can be noted in the decreases in Contract labour, together with an increased allocation of staffing
costs based on research and development activity requirements.
Travel expenses increased YTD due to an increased requirement for certification test flights. Cost of travel varies significantly
depending on the location of customers and regions served.
Components requirements were higher in 2017 than in 2016 as a higher number of expensed parts were used in development
and testing activities.
The decreased SR&ED credit in 2017 was due to a difference in costs associated with eligible activities for this program.
Depreciation increases concentrated in the fourth quarter were associated with capitalized development-specific software
purchased in 2017.
Government grants changed due to funding received from WINN in 2017. The $318,310 shown is the portion of funds received
that has been accounted for as a grant.
20-
Net Finance Costs
Major Category
Interest (income)
Net foreign exchange loss (gain)
Bank service charges
Interest expense
Government loan accretion
Debenture interest and accretion
Debenture cost amortization
-
-
Q4 2017
Q4 2016
Variance
YTD 2017
YTD 2016
Variance
$
(6,051)
(5,034)
6,107
64
57,323
$
(2,801)
2,814
17,890
1,089
46,475
75,234
-
$
$
$
$
(3,250)
(15,756)
(30,368)
14,612
(7,848)
(11,783)
(1,025)
10,848
115,979
11,023
38,807
681
37,331
2,736
223,795
178,369
(75,234)
-
(88,292)
-
-
509,113
5,295
363,506
713,499
104,956
1,476
(2,055)
45,426
(509,113)
(5,295)
(349,993)
Net finance costs
52,409
140,701
Net foreign exchange loss (gain) will vary between periods due to fluctuations in the value of the Canadian dollar in relation to
the U.S. dollar. A YTD strengthening of the Canadian dollar has given rise to increased foreign exchange losses on U.S. dollar
denominated sales and purchases, in combination with fluctuations in U.S. denominated assets and liabilities.
Government grant accretion is the recognition of the effective interest component of the SADI and WINN grants.
Debenture interest and accretion decreases were attributable to the debenture redemption in June 2016, which had no effect on
2017.
Net Loss
Major Category
Net income (loss)
Foreign Exchange
Q4 2017
$
(520,428)
Q4 2016
$
79,709
Variance
$
(600,137)
YTD 2017
$
(1,755,615)
YTD 2016
$
1,712,718
Variance
$
(3,468,333)
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 2017, 99.0% of the Company’s gross sales were
made in U.S. dollars, compared to 99.0% in 2016. The Company expects this to continue as 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.
Other
Recent Accounting Pronouncements
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 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).
IFRS 16 – Leases replaces IAS 17, leases. Under the new standard, more leases may come on-balance sheet for lessees,
with the exception of leases with a term not greater than 12 months and leases considered to be of small value (January 1,
2019).
The Company has not completed its evaluation of the effect of adopting these standards on its audited annual consolidated
financial statements.
21-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
IFRS 15 – Revenue from Contracts with Customers replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13
Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from
Customers, and SIC 31 Revenue – Barter Transactions Involving Advertising Services. The standard contains a single model
that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model
features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized.
New estimates and judgmental thresholds have been introduced, which the Company expects will have an impact on the timing
of revenue recognized. The new standard applies to contracts with customers. It does not apply to insurance contracts,
financial instruments or lease contracts, which fall in the scope of other IFRSs. (January 1, 2018).
The Company will adopt this standard effective January 1, 2018. Evaluation of the impact of adoption continues, with identification
of performance obligations and the required allocation of the total transaction price key areas of focus. The Company is not able at
this time to estimate reasonably the impact that the adoption of this standard will have on the financial statements.
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 products, AFIRS 220 and 228, can take approximately 175 person-hours or more to install on an aircraft,
depending on the aircraft type and crew. As 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; it can take as long as two or three years before an
aircraft is out of service for an extended period. The timing of a c-check for AFIRS installation is an uncertainty 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 uncertainty by encouraging customers to install AFIRS at their aircraft’s earliest
availability and works with them to provide the product at the right time for installation, preferably while the aircraft is down for
normal service. The goal is to reduce aircraft downtime and save the customer as much money as possible. Another 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 when revenue is recognized, but allows the Company to receive 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 realizes a majority of its sales in U.S. dollars so there is a risk of currency fluctuation. The major portion of the
operating and overhead costs are denominated in Canadian dollars, though certain payroll costs and a significant portion of costs
of goods sold, marketing and distribution costs are U.S. dollar denominated, and therefore create a partial natural hedge against
fluctuations of the Canadian dollar.
General economic and financial market conditions
In an industry, such as the aviation industry, finances are tied to global trends and patterns. As an airline’s spending is tied to their
income, they may be unwilling or unable to spend 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 is a global sales presence. FLYHT has
established sales agents responsible for every continent. While some economies of the world may be in a slump or downturn,
there is a place for FLYHT in growing markets. FLYHT also demonstrates to potential customers the impressive return on
investment model, how quickly potential customers can improve operational efficiency, and ultimately how much AFIRS will save
them in operating cost.
Dependence on key personnel and consultants
FLYHT’s ability to maintain its competency in the industry is dependent on maintaining a specialty skilled workforce. The
Company’s DAO status, delegated by TCCA, enables a smooth implementation of STCs, required to install AFIRS on aircraft. Key
staff with TCCA delegation status enable the Company to complete STCs in a timely and cost efficient manner. The Company has
worked 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
The Company has completed the development of the AFIRS 228 product line and continues to build out its AFIRS 228
Supplemental Type Certificate portfolio. Continued success is dependent on the maintenance of these certifications and the
sustaining engineering activities to maintain the manufacturability of the hardware. The bulk of the Company’s development
resources are engaged in the creation of new capabilities of UpTime Cloud. FLYHT is confident the product fills a gap in the
industry, as evidenced by sales of the AFIRS 228 throughout 2013 to 2017. The Company’s success will ultimately depend on the
success of its products, and future enhancements made to same.
22-
Availability of key supplies
FLYHT services 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 servicing 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,
Chinese, Turkish and European patent offices. These patents are generally respected in other international jurisdictions as well.
The risks involved with proprietary protection lie in other companies infringing on FLYHT patents or claiming patent infringement by
FLYHT, 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.
Transactions with Related Parties
FLYHT appointed an interim CFO from June 5 to November 5, 2017. The services were provided by a company controlled by a
director of FLYHT. No similar services were contracted during 2016. All of the transactions with the related party were at exchange
amounts that approximated fair value and were supported by a third party receipt.
Amounts included in:
Contract labour
Accounts payable and accrued liabilities
Contractual Arrangement
For the three months ended
December 31, 2017
For the year ended
December 31
2017
$
19,200
-
2016
$
-
-
2017
$
83,200
-
2016
$
-
-
Certain of the Company’s sales contracts require that, in the event the Chinese government restricts use of the Iridium satellite
constellation, the Company may be required to repurchase, at discounted rates, certain AFIRS units. The Iridium license was
renewed by the Chinese authorities during 2015 for a further five-year term and the likelihood of a liability under these contracts is
considered to be remote.
Subsequent Events
In Q1 2018, the Company received contributions totaling $317,195 under the WINN agreement, bringing the total received to date
to $1,397,853.
In April 2018, the Company applied to the TSX for an amendment of the exercise price of the share purchase warrants that were
originally issued on May 12, 2016 from $2.50 to $1.60 per share purchase warrant. The warrants are set to expire on May 12,
2018.
23-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
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 statement of financial position as at December 31, 2017 and December 31, 2016, the consolidated statements of
comprehensive income (loss), changes in equity 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 consolidated 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, 2017 and December 31, 2016, 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 in the consolidated financial statements, which indicates that FLYHT
Aerospace Solutions Ltd. is dependent upon maintaining profitable operations and/or additional financing to fund its ongoing
operations. These conditions, along with other matters as set forth in Note 2 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 Professional Accountants
April 10, 2018
Calgary, Canada
24-
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December 31,
2017
$
December 31,
2016
$
Assets
Current Assets
Cash and cash equivalents (note 6)
Restricted cash
Trade and other receivables (note 7)
Deposits and prepaid expenses
Inventory (note 8)
Total current assets
Non-current assets
Property and equipment (note 9)
Intangible assets (note 10)
Inventory (note 8)
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade payables and accrued liabilities (note 11)
Customer deposits (note 12)
Unearned revenue (note 13)
Loans and borrowings (note 14)
Finance lease obligations
Current tax liabilities (note 26)
Total current liabilities
Non-current liabilities
Loans and borrowings (note 14)
Provisions (note 16)
Total non-current liabilities
Total liabilities
Equity (deficiency)
Share capital (note 17)
Warrants (note 17)
Contributed surplus
Deficit
Total equity (deficiency)
Total liabilities and equity
See accompanying notes to the consolidated financial statements.
Going concern (note 2d)
On behalf of the board
2,014,135
-
1,887,251
391,191
1,563,558
5,856,136
398,272
34,992
859,448
1,292,712
7,148,847
1,868,563
1,687,971
413,809
112,578
-
12,211
4,095,132
1,842,439
91,713
1,934,152
6,029,284
58,409,225
911,282
9,349,871
(67,550,815)
1,119,563
7,148,847
709,958
250,000
2,105,385
216,819
1,556,794
4,838,956
335,836
34,992
1,306,422
1,677,250
6,516,206
1,845,408
317,899
827,235
97,895
15,553
10,776
3,114,766
974,746
549,335
1,524,081
4,638,847
57,514,646
1,139,934
9,017,979
(65,795,200)
1,877,359
6,516,206
________
Director – Bill Tempany
Director – Paul Takalo
25-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(LOSS)
Revenue (note 19)
Cost of sales
Gross profit
Other income (note 21)
Distribution expenses (note 22)
Administration expenses (note 23)
Research, development and certification engineering expenses
(note 24)
Income (loss) from operating activities
Finance income (note 25)
Finance costs (note 25)
Net finance costs
Income (loss) before income tax
Income tax expense (note 26)
Income (loss) and comprehensive income (loss) for the period
For the year ended December 31
2017
$
14,018,750
4,772,680
9,246,070
2016
$
14,331,191
4,521,502
9,809,689
-
(3,223,166)
4,951,471
3,158,529
2,519,274
4,907,039
3,087,656
2,601,229
(1,383,204)
2,436,931
15,756
379,262
363,506
(1,746,710)
8,905
(1,755,615)
30,368
743,867
713,499
1,723,432
10,714
1,712,718
Income (loss) per share
Basic and diluted income (loss) per share (note 18)
(0.08)
0.09
See accompanying notes to the consolidated financial statements.
26-
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(DEFICIENCY)
For the years ended December 31, 2017 and 2016
Share Capital
$
Convertible
Debenture
$
Warrants
$
Contributed
Surplus
$
Deficit
$
Total Equity
(Deficit)
$
Balance at
December 31, 2016
Loss for the period
Total comprehensive
loss for the period
Contributions by and
distributions to
owners
Share-based payment
transactions
Share options
exercised
Warrants exercised
Total contributions by
and distributions to
owners
Balance at
December 31, 2017
Balance at
December 31, 2015
Loss for the period
Total comprehensive
loss for the period
Contributions by and
distributions to
owners
Issue of common
shares
Share issue costs
Share-based payment
transactions
Share options
exercised
Warrants issued
Reclassified to
Contributed Surplus
Total contributions by
and distributions to
owners
Balance at
December 31, 2016
57,514,646
-
-
-
379,396
515,183
894,579
58,409,225
-
-
-
-
-
-
-
-
1,139,934
-
9,017,979
-
(65,795,200)
(1,755,615)
1,877,359
(1,755,615)
-
-
(1,755,615)
(1,755,615)
-
459,396
-
(228,652)
(127,504)
-
(228,652)
331,892
-
-
-
-
459,396
251,892
286,531
997,819
911,282
9,349,871
(67,550,815)
1,119,563
53,895,046
-
222,531
-
-
5,086,512
(345,081)
-
18,103
(1,139,934)
-
-
-
-
-
-
-
-
-
-
-
-
-
1,139,934
8,439,136
-
(67,507,918)
1,712,718
(4,951,205)
1,712,718
-
1,712,718
1,712,718
-
-
362,345
(6,033)
-
-
-
-
-
-
-
-
5,086,512
(345,081)
362,345
12,070
-
-
5,115,846
-
(222,531)
-
222,531
3,619,600
(222,531)
1,139,934
578,843
57,514,646
See accompanying notes to the consolidated financial statements.
-
1,139,934
9,017,979
(65,795,200)
1,877,359
27-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31
2017
$
2016
$
Cash flows from (used in) operating activities
Income (loss) for the period
Depreciation – property plant and equipment
Convertible debenture accretion
Payment of debenture interest
Amortization of debenture issue costs
Grant portion of contributions from WINN
Government grant accretion
Equity-settled share-based payment transactions
Change in inventories
Change in trade and other receivables
Change in prepayments
Change in trade and other payables
Change in customer deposits
Change in provisions
Change in unearned revenue
Unrealized foreign exchange loss
Interest expense
Interest paid
Interest income
Interest received
Income tax expense
Income tax paid
Net cash from (used in) operating activities
Cash flows used in investing activities
Acquisitions of property and equipment
Disposal of property and equipment
Net cash used in investing activities
Cash flows from (used in) financing activities
Share issue costs
Redemption of GIC
Proceeds from issue of shares and warrants
Proceeds from exercise of share options and warrants
Contributions from WINN
Repayment of debenture
Repayment of borrowings
Payment of finance lease liabilities
Net cash from (used in) financing activities
Net (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents, ending
See accompanying notes to the consolidated financial statements.
(1,755,615)
143,493
-
-
-
(318,310)
223,795
459,396
440,210
96,546
(174,372)
78,207
1,370,072
(457,622)
(413,426)
146,300
681
(681)
(15,756)
15,756
8,905
(7,470)
(159,891)
(208,416)
2,487
(205,929)
-
250,000
-
538,423
1,080,658
-
(103,767)
(15,553)
1,749,761
1,383,941
709,958
(79,764)
2,014,135
1,712,718
66,679
509,113
(384,873)
5,295
-
178,369
362,345
(210,098)
(1,149,742)
(78,958)
134,311
(702,776)
285,738
(318,106)
29,368
2,736
(2,736)
(30,368)
30,368
10,714
(4,916)
445,181
(199,740)
-
(199,740)
(345,081)
-
5,086,512
12,070
-
(5,360,000)
(90,234)
(27,923)
(724,656)
(479,215)
1,301,955
(112,782)
709,958
28-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Reporting entity
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 and as TSX.V: FLY since 2012
and has been listed on the OTCQX marketplace since June 2014 as OTCQX: FLYLF. The Company’s head office is located at
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, 2017 and 2016 consist of the
Company and its subsidiaries.
FLYHT’s mission is to improve aviation safety, efficiency and profitability. Airlines, leasing companies, fractional owners and
original equipment manufacturers have installed the Automated Flight Information Reporting System (AFIRSTM) on their aircraft to
capture, process and stream aircraft data with real-time alerts. AFIRS sends this information through satellite networks to the
UpTimeTM cloud-based data center, which provides aircraft operators with direct insight into the operational status and health of
their aircraft and enables them to take corrective action to maintain the highest standard of operational control.
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 10, 2018.
(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) Going concern
The 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, 2017 the Company had positive working capital of
$1,761,003, a deficit of $67,550,815, a net loss in 2017 of $1,755,615 and negative cash flow from operating activities of $159,891
for the year.
The consistent achievement of positive earnings is necessary before the Company can consistently improve liquidity. The
Company has continued to expand its cash flow potential through its continued marketing drive to clients around the world and
contracts for delivery of AFIRS units and related services. 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.
For the Company to continue as a going concern longer-term, it will need to achieve profitability and may require additional
financing to fund ongoing operations. If general economic conditions in the industry or the financial condition of a major customer
deteriorates, or revenue streams and/or markets do not improve, 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. 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.
29-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
(e) 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 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, 2017, no
deferred tax assets were recognized.
3. The Company records amounts for warranty based on historical warranty data including expense incurred in relation to
warranty and failure rates. A provision is recognized upon shipment of the underlying products.
4. The Company assesses raw materials and AFIRS finished goods inventory for potential obsolescence or impairment. This
provision is determined based on regular reviews of slow moving inventory.
5. The Company used a discount rate to determine the fair value of the WINN contribution, as the contribution is a repayable
loan at below market interest rates. The discount rate was determined based on debt market conditions as well as factors
specific to the Company’s operations and financial position.
3. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated annual
financial statements including by FLYHT’s subsidiaries.
(a) Basis of consolidation
(i) 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.
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.
(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.
30-
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 trade payables, loans and borrowings and finance lease 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: 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.
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 to measure cost of the AFIRS raw material inventories.
31-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
AFIRS finished goods consists of AFIRS units that have been assembled or purchased and are held pending sale to customers.
The weighted average cost method is used to determine the carrying cost of purchased AFIRS units. The carrying cost of AFIRS
units assembled by the Company includes AFIRS raw material costs plus a standard labour allocation.
Installations-in-progress includes product costs and other direct project costs.
(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.
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.
(ii) Subsequent costs
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 that 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. Depreciation rates are as follows:
Computers
Software
Enterprise Reporting Software
Equipment
Leasehold improvements
30% declining balance
12 months straight line
60 months straight line
20% declining balance
Straight line: term of lease (7 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.
(e) Research and development (“R&D”)
(i) Recognition and measurement
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 all software systems and products (including UpTime,
FLYHTASD, FLYHTMail, FLYHTStream, and FLYHTFuel). Other R&D costs include testing, patent application 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.
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.
32-
(ii) 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.
(iii) Amortization
Amortization is calculated based on the asset’s cost less its residual value.
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.
(f) Leased assets
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 and some office equipment.
(g) Intangible assets
Intangible assets that are acquired by the Company and have finite useful lives are measured at cost less accumulated
amortization and accumulated impairment losses.
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.
(h) 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.
(i) 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.
33-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
(j) 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.
(i) Warranties
The Company warrants that the AFIRS products shall be free of defects at minimum during the first term of each agreement.
Provision required for warranties is recognized when the underlying products or services are sold. The provision is based on
historical warranty data.
(k) 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 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.
34-
(l) Revenue
(i) AFIRS sales
Revenue from the sale of units is recognized when the risks and rewards are transferred to the buyer. Depending on the contract
that occurs upon shipment or upon installation of the system.
(ii) Voice and data services
Revenue from Voice and data services is recognized when the services are provided.
(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 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 parts and Underfloor Stowage Units is recognized when the unit is shipped 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 received for the use of FLYHT’s assets (i.e., trademarks, patents, and software) are recognized on an
accrual basis when terms of an executed sales agreement have been met, recovery of the consideration is probable, and the
amount of revenue can be measured reliably.
(m) Employee benefits
(i) Short-term employee benefits
Short-term employee benefit obligations, including wages, salaries, commissions and variable compensation payments, are
measured based on the amount payable and are expensed as the related service is provided.
(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 the employee’s relationship with the Company is terminated prior to vesting or expiry.
(n) 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.
35-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
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, or if the consultant’s
relationship with the Company is terminated prior to expiry.
(ii) Agent warrants
When the Company issues common shares, warrants, and debentures through brokered private placements, agent warrants may
be issued to the agents as consideration for their services.
Warrants are classified as equity and recognized at fair value. 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.
(o) Finance income and finance costs
Finance income comprises interest income which is recognized in profit or loss as it accrues, 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.
(p) Foreign currency
(ii) 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.
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.
(q) 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.
36-
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.
(r) 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 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 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).
IFRS 16 – Leases replaces IAS 17, leases. Under the new standard, more leases may come on-balance sheet for lessees,
with the exception of leases with a term not greater than 12 months and leases considered to be of small value (January 1,
2019).
The Company has not completed its evaluation of the effect of adopting these standards on its audited annual consolidated
financial statements.
IFRS 15 – Revenue from Contracts with Customers replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13
Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from
Customers, and SIC 31 Revenue – Barter Transactions Involving Advertising Services. The standard contains a single model
that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model
features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized.
New estimates and judgmental thresholds have been introduced, which the Company expects will have an impact on the timing
of revenue recognized. The new standard applies to contracts with customers. It does not apply to insurance contracts,
financial instruments or lease contracts, which fall in the scope of other IFRSs. (January 1, 2018).
The Company will adopt this standard effective January 1, 2018. Evaluation of the impact of adoption continues, with identification
of performance obligations and the required allocation of the total transaction price a key area of focus. The Company is not able
at this time to estimate reasonably the impact that the adoption of this standard will have on the financial statements.
5. Determination of fair values
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, all of which are determined using a number of observable inputs other than quoted prices in active markets.
(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 debentures, the market rate of interest is determined by reference to similar liabilities that do not have a conversion
feature.
37-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
(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,
2017
$
1,586,908
300,343
1,887,251
December 31,
2016
$
2,086,572
18,813
2,105,385
Non-trade receivables consist of earned interest income receivable, input tax credits, and customer receivables pending billable
events. The Company’s exposure to credit and currency risks is disclosed in note 27.
8. Inventory
AFIRS raw materials
AFIRS finished goods
Installations in progress
Balance
Less current portion
Non-current portion
December 31,
2017
$
1,742,147
449,195
231,664
2,423,006
(1,563,558)
859,448
December 31,
2016
$
1,190,659
1,205,068
467,489
2,863,216
(1,556,794)
1,306,422
In 2017 AFIRS raw materials and changes in AFIRS finished goods and installations in progress recognized as cost of sales
amounted to $3,586,699 (2016: $3,075,401). Included in this amount was write down of inventories amounting to $93,498 (2016:
$112,449) resulting from a review of slow moving inventory parts. All inventories are pledged as security for the bank loan.
38-
Computers and
Software
$
Equipment
$
Leasehold
Improvements
$
9. Property and equipment
2017
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
2016
Cost
Balance at January 1
Additions
Balance at December 31
705,263
119,961
-
825,224
464,125
115,488
-
579,613
241,138
245,611
Computers and
Software
$
510,911
194,352
705,263
Accumulated Depreciation
Balance at January 1
Depreciation for the year
Balance at December 31
420,379
43,746
464,125
266,426
87,798
9,065
345,159
201,509
21,702
6,578
216,633
64,917
128,526
Equipment
$
265,370
1,056
266,426
184,879
16,630
201,509
48,453
657
-
49,110
18,672
6,303
-
24,975
29,781
24,135
Leasehold
Improvements
$
44,121
4,332
48,453
12,369
6,303
18,672
Total
$
1,020,142
208,416
9,065
1,219,493
684,306
143,493
6,578
821,221
335,836
398,272
Total
$
820,402
199,740
1,020,142
617,627
66,679
684,306
Carrying Amounts
At January 1
At December 31
90,532
241,138
80,491
64,917
31,752
29,781
202,775
335,836
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, 2017, the net carrying amount of leased property and
equipment was nil (2016: $47,367).
As of December 31, 2017, all property and equipment is pledged as security for the bank loan (note 14).
10. Intangible assets
The intangible asset balance of $34,992 at December 31, 2017 (December 31, 2016: $34,992) is the value of the license with
Bombardier that 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.
All intangible assets are pledged as security for the bank loan.
11. Trade payables and accrued liabilities
Trade payables
Compensation and statutory deductions
Accrued liabilities
Total
December 31,
2017
$
1,340,510
348,410
179,643
1,868,563
December 31,
2016
$
769,261
873,526
202,621
1,845,408
Compensation and statutory deductions include accrued vacation pay, variable compensation, and statutory payroll deductions.
39-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
12. Customer deposits
Opening balance
Payments received
Moved to unearned revenue
Balance, December 31
13. Unearned revenue
Balance January 1
AFIRS sales: shipped
AFIRS sales: revenue recognized
Voice and data services: prepaid
Voice and data services: revenue recognized
Balance December 31
Less current portion
Non-current portion
December 31,
2017
$
317,899
5,453,511
(4,083,439)
1,687,971
December 31,
2016
$
1,020,675
2,681,987
(3,384,763)
317,899
2017
$
827,235
4,083,439
(4,476,999)
-
(19,866)
413,809
413,809
-
2016
$
1,145,341
3,384,763
(3,703,703)
19,866
(19,032)
827,235
827,235
-
All amounts recorded in unearned revenue are non-refundable.
14. Loans and borrowings
Bank loan
The Company currently has no bank debt. On July 7, 2017, the Company amended its operating demand loan with a Canadian
chartered bank to increase its borrowing availability to CAD $1.5 million from $250,000. The Line of Credit continues to bear
interest at Canadian chartered bank prime plus 1.5%. Security includes specific accounts receivable, a guarantee under the Export
Development Canada’s Export Guarantee Fund and a general security agreement including a security interest in all personal
property. This amendment released the GIC of $250,000 previously pledged as security.
Government loans
On November 9, 2016, the Company signed a contribution agreement with Western Economic Diversification Canada for a
Western Innovation initiative (WINN) loan, to support plans for technology development in the air and ground components of the
Company’s products. Under the terms of the agreement, a repayable unsecured WINN contribution to the value of the lesser of
50% of the eligible project costs to March 31, 2019 or $2,350,000 will be received. The amount is repayable over five years
commencing January 1, 2020. At December 31, 2017, the Company had received contributions totaling $1,080,658 (2016: nil).
Under SADI, the Company has, at December 31, 2017, an outstanding repayable balance of $1,626,814, compared to $1,730,582
at December 31, 2016. The amount is repayable over 15 years on a stepped basis commencing April 30, 2014. The initial payment
on April 30, 2014 was 3.5% of the total contribution received and the payment increases yearly by 15% until April 30, 2028 when
the final payment is 24.5% of the total contribution received.
A summary of the carrying value of the SADI and WINN loans as at December 31, 2017 and 2016 and changes during these years
is presented below.
Balance January 1
Contributions received
Grant portion
Interest accretion
Repayment
Balance December 31
Less current portion
Non-current portion
2017
SADI
$
1,072,641
-
-
193,805
(103,767)
1,162,679
112,578
1,050,101
2017
WINN
$
-
1,080,658
(318,310)
29,910
-
792,338
-
792,338
2017
Total
1,072,641
1,080,658
(318,310)
223,795
(103,767)
1,955,017
112,578
1,842,439
2016
SADI
$
984,507
-
-
178,368
(90,234)
1,072,641
97,895
974,746
2016
WINN
$
-
-
-
-
-
-
-
-
2016
Total
984,507
-
-
178,368
(90,234)
1,072,641
97,895
974,746
40-
Debentures
The face value of the convertible debentures issued December 23, 2010 ($3,039,000) was redeemed in full plus accrued interest
on December 23, 2016. Redeemable debentures were redeemed on June 30, 2016 for $2,321,000 which included a 10%
premium, plus accrued interest. There were no debentures issued, redeemed or outstanding in 2017.
15. Operating leases
Operating lease rentals are payable as follows:
2018
2019
2020
2021
Total
Premises
$
462,678
462,678
462,678
77,113
1,465,147
Operating lease payments made in 2017 totaled $458,145 (2016: $453,900).
16. Provisions
Product warranty
Balance January 1
Provision made during the period
Provision re-evaluation
Provision used during the period
Balance December 31
2017
$
549,335
15,496
(452,328)
(20,790)
91,713
2016
$
263,596
302,654
-
(16,915)
549,335
A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical
warranty data.
17. Capital and other components of equity
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, 2016
Exercise of employee options
Warrants issued
Common shares issued (net)
Balance December 31, 2016
Consolidation rounding
Exercise of employee options
Exercise of warrants
Balance December 31, 2017
Number of
Shares
17,347,764
5,405
-
3,391,008
20,744,177
(11)
123,430
191,021
21,058,617
Value
$
53,895,046
18,103
(1,139,934)
4,741,431
57,514,646
-
379,396
515,183
58,409,225
41-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
On May 12, 2016, the Company closed a private placement, issuing 33,910,081 units at a price of $0.15 per unit, for total proceeds
of $5,086,512. Each unit consisted of one common share and one-half of one share purchase warrant. Each warrant entitles the
holder to purchase one additional common share of the Company for a period of 24 months from the issuance of the units at a
price of $0.25. Agent’s fees totaled $317,275. A total of 2,115,167 agent’s warrants were also issued, exercisable into one unit at
$0.15 per unit within 24 months from the closing date. All of the common shares and warrants issued pursuant to the private
placement were subject to a 4-month hold period.
In 2017 option and warrant exercises resulted in the Company issuing a total of 314,451 shares for total proceeds of $538,423
including:
Share options
Share options
Share options
Share options
Share options
Warrants
Total
Stock option plan
Quantity
22,500
20,000
30,930
20,000
30,000
191,021
314,451
Price
1.65
1.85
1.90
2.20
2.50
1.50
Proceeds
37,125
37,000
58,767
44,000
75,000
286,531
538,423
The Company grants stock options to its directors, officers, employees and consultants. The following stock options were granted
in 2017:
•
5,000 stock options to a consultant. The options will expire December 31, 2020 and have an exercise price of $2.55 per
share and vested immediately upon grant.
3,660,211 stock options to employees, officers and directors under the stock option plan. The stock options will expire
December 31, 2020, and have an exercise price of $2.20 per share and vested immediately upon grant.
In the fourth quarter of 2017 the Company granted a total of 95,000 stock options to two employees under the stock
option plan. The stock options will expire December 31, 2021 and have an exercise price of $2.10 per share. The options
will vest on November 3, 2018.
•
•
All outstanding options to employees were granted at an exercise price not less than fair market value of the stock on the date of
issuance.
The Company has a policy of reserving up to 10% of the outstanding common shares for issuance to eligible participants. As at
December 31, 2017, there were 2,105,862 (2016: 2,074,417) common shares reserved for this purpose.
A summary of the Company’s outstanding stock options as at December 31, 2017 and 2016 and changes during these years is
presented below.
Outstanding, January 1
Options granted
Options exercised
Options expired
Outstanding and exercisable,
December 31
Unvested options
Outstanding, December 31
2017
2016
Number of
options
863,337
391,021
(123,430)
(242,430)
888,498
95,000
983,498
Weighted average
exercise price
$
2.60
2.21
2.04
3.90
2.17
2.10
2.16
Number of
options
873,630
370,482
(5,405)
(375,370)
863,337
-
863,337
Weighted average
exercise price
$
3.19
1.90
2.23
3.27
2.60
-
2.60
42-
Weighted average life remaining for the options outstanding and exercisable is 2.13 years. The exercise prices for options
outstanding at December 31, 2017 were as follows:
Exercise
price:
Number
All options
Weighted average
remaining contractual life
(years)
Number
Exercisable options
Weighted average
remaining contractual life
(years)
$1.65
$1.85
$1.90
$2.10
$2.20
$2.50
$2.55
$2.75
Total
25,000
5,000
296,432
95,000
335,791
201,275
5,000
20,000
983,498
1.0
2.0
2.0
4.0
3.0
1.0
3.0
2.0
2.1
25,000
5,000
296,432
-
335,791
201,275
5,000
20,000
888,498
1.0
2.0
2.0
-
3.0
1.0
3.0
2.0
2.3
The weighted average fair value of the options granted during the year that were valued using the Black-Scholes option pricing
model was $1.10 (2016: $1.00). 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
Warrants
Outstanding January 1, 2016
Warrants issued
Agent warrants issued
Outstanding December 31, 2016
Warrants exercised
Outstanding December 31, 2017
Number of warrants
-
1,695,504
211,517
1,907,021
(191,021)
1,716,000
2017
1.05%
3.52
70%
0.00%
Weighted average
exercise price
$
-
2.50
1.50
2.39
1.50
0.23
2016
0.61%
3.57
73%
0.00%
Value
$
-
886,748
253,186
1,139,934
(228,652)
911,282
On May 12, 2016, the Company closed a private placement, issuing 33,910,081 units consisting of one common share and one-
half of one share purchase warrant. 16,955,041 warrants were issued with each whole warrant entitling the holder to purchase one
additional common share of the Company for a period of 24 months from the issuance at a price of $0.25 per share. 2,115,167
agent’s warrants were also issued, exercisable into one unit at $0.15 per unit within 24 months from the closing date. All of the
common shares and warrants issued pursuant to the private placement were subject to a 4-month hold period.
18. Earnings per share
Basic earnings per share
The calculation of basic and diluted earnings per share for the year ended December 31, 2017 was based on a weighted average
number of common shares outstanding of 20,926,589 (basic and diluted) (2016: 19,507,065 (basic) and 19,541,958 (diluted). The
calculation of diluted earnings per share did not include stock options of 983,498 (2016: 828,295) and 1,716,000 warrants (2016:
1,850,769) because they would be anti-dilutive.
43-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
19. Revenue
Voice and data services
AFIRS sales
Parts sales
Services
Total
2017
$
4,312,701
4,600,520
4,951,616
153,913
14,018,750
2016
$
4,375,138
3,931,607
5,808,491
215,955
14,331,191
Voice and data services include fees for communications usage. AFIRS sales includes revenue from AFIRS and Dragon hardware
sales along with the parts required to install the unit. Parts sales includes spare AFIRS units, spare installation kit parts, modems
with related license fees and Underfloor Stowage Units. Services include technical, repair and installation support services.
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
For the year ended December 31
2017
$
7,683,296
442,603
774,407
873,546
333,152
819,153
3,092,593
14,018,750
2016
$
9,007,719
658,319
610,886
987,750
286,489
719,763
2,060,265
14,331,191
All non-current assets (property and equipment and intangible assets) reside in Canada.
Major customers
Revenues from the three largest customers represent approximately 37.5% of the Company’s total revenues for the year ended
December 31, 2017 (2016: 47.6%).
21. Other Income
The Company granted a non-exclusive license to use certain of its intellectual property to a technology company for a license fee
of $3,223,166 in 2016.
22. Distribution expenses
Salaries and benefits
Stock based compensation
Contract labour
Office
Travel
Equipment & maintenance
Depreciation
Marketing
Other
Total
For the year ended December 31
2017
$
2,361,046
152,272
881,837
429,294
601,172
53,712
34,438
268,033
169,667
4,951,471
2016
$
3,255,326
97,067
498,106
416,733
562,645
25,006
41,580
113,879
(103,303)
4,907,039
44-
23. Administration expenses
Salaries and benefits
Stock based compensation
Contract labour
Office
Legal fees
Audit and accounting
Investor relations
Brokerage, stock exchange, transfer agent fees
Travel
Equipment and maintenance
Depreciation
Other
Total
For the year ended December 31
2017
$
1,326,548
281,675
431,423
305,694
76,446
192,452
158,931
40,350
102,348
131,340
59,334
51,988
3,158,529
24. Research, development and certification engineering expenses
To date, all development costs have been expensed as incurred.
For the year ended December 31
Salaries and benefits
Stock based compensation
Contract labour
Office
Travel
Equipment and maintenance
Components
SRED tax credit
Depreciation
Government grants
Warranty settlement
Total
2017
$
2,093,261
25,448
276,669
127,221
90,911
125,357
165,510
(116,514)
49,721
(318,310)
-
2,519,274
25. Finance income and finance costs
For the year ended December 31
Interest income on bank deposits
Finance income
Bank service charges
Net foreign exchange loss
Interest expense
Government grant interest accretion
Debenture interest expense and accretion
Debenture issuance cost amortization
Finance costs
2017
$
15,756
15,756
38,807
115,979
681
223,795
-
-
379,262
2016
$
1,589,395
228,058
172,014
289,311
166,461
141,650
153,580
61,665
119,143
79,187
9,704
77,488
3,087,656
2016
$
1,562,383
37,220
315,198
119,530
54,595
111,077
57,171
(211,790)
15,395
-
540,450
2,601,229
2016
$
30,368
30,368
37,331
11,023
2,736
178,369
509,113
5,295
743,867
45-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
26. Income tax expense
Current Tax Expense
Current income tax expense
Deferred income tax expense
Deferred Tax Expense
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
2017
$
8,905
-
8,905
2017
$
202,845
71,257
2,157
9,609,044
55,903
8,345,900
2016
$
10,714
-
10,714
2016
$
163,565
71,257
4,880
9,445,413
74,706
8,150,696
The Company has non-capital losses for income tax purposes of approximately $35,520,188 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:
18,287,196
17,910,517
Year
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2037
Total
Amount
$
195,896
5,596,948
6,997,140
2,791,748
6,596,636
4,351,802
2,313,225
1,464,723
1,890,509
1,697,631
1,623,930
35,520,188
Reconciliation of effective tax rate
Income (loss) before tax
Tax Rate
Expected income tax recovery
True up from prior year
Non-deductible expenses
Stock based compensation
Change in unrecognized temporary differences
2017
$
(1,746,710)
27%
(471,612)
(42,456)
13,361
124,036
385,582
8,905
2016
$
1,723,432
27.0%
465,327
(225,317)
13,431
94,209
(336,936)
10,714
46-
27. 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.
Credit risk
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 27.2% (2016: 38.2%) of the Company’s 2017 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 be required to transact with
FLYHT only on a prepayment basis. To further minimize credit exposure, the sale of many AFIRS Solutions requires payment in
advance of any product shipment. Additionally, credit insurance has been obtained on select customers whose balances have not
been prepaid. 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,
2017
Accounts
receivable
Impairment
Net receivable
December 31, 2016
Accounts receivable
Impairment
Net receivable
0-30 days
31-60 days
61-90 days
91+ days
$
$
1,297,204
(2,012)
1,295,192
0-30 days
$
1,872,962
-
1,872,962
195,228
-
195,228
31-60 days
$
81,199
-
81,199
$
40,177
(3,522)
36,655
61-90 days
$
23,010
-
23,010
$
510,891
(150,715)
360,176
91+ days
$
710,926
(582,712)
128,214
Total
$
2,043,500
(156,249)
1,887,251
Total
$
2,688,097
(582,712)
2,105,385
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, 2017
and 2016 was:
2017
$
582,712
160,484
(586,947)
156,249
2016
$
537,469
45,243
-
582,712
Balance, January 1
Provision
Amounts written off
Balance, December 31
Liquidity risk
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, maintaining a conservative capital structure, prudently managing its credit risks, and by maintaining
its relationship with the capital markets to meet any near-term liquidity requirements.
47-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
The following table details the contractual maturities of financial liabilities, including estimated interest payments.
December 31, 2017
Accounts payable
Compensation and
statutory deductions
Accrued liabilities
Loans and borrowings
Total
December 31, 2016
Accounts payable
Compensation and
statutory deductions
< 2
months
$
1,340,510
46,763
37,990
-
1,425,263
< 2
months
$
769,261
371,303
2-12
months
$
-
274,647
113,479
119,333
507,459
2-12
months
$
-
349,223
1-2
years
$
-
27,000
11,658
137,234
175,892
1-2
years
$
-
2-5
years
$
-
-
16,516
1,628,685
1,645,201
2-5
years
$
-
108,000
45,000
Finance lease liabilities
4,970
10,826
-
-
Accrued liabilities
Loans and borrowings
Total
83,497
-
1,229,031
82,206
103,768
546,023
11,658
119,333
238,991
25,259
476,546
546,805
> 5 years
Total
$
-
-
-
822,220
822,220
$
1,340,510
348,410
179,643
2,707,472
4,576,035
> 5 years
Total
$
-
-
-
-
1,030,935
1,030,935
$
769,261
873,526
15,796
202,620
1,730,582
3,591,785
Currency risk
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
$138,744 (2016: $141,823) and a strengthening of the Canadian dollar would decrease net earnings by approximately $138,744
(2016: $141,823).
The Company mitigates its currency 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, 2017,
working capital denominated in U.S. dollars was approximately positive $878,991 (2016: positive $1,410,075). As a result, a 1%
weakening of the Canadian dollar would increase net earnings by approximately $8,790 (2016: $14,101) and a strengthening of
the Canadian dollar would decrease net earnings by approximately $8,790 (2016: $14,101).
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.
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, 2017 and 2016 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.
48-
Fair values versus carrying amounts
As the WINN and SADI contributions are repayable loans at below market rates, the carrying amounts have been determined by
employing a discount rate based on debt market conditions as well as factors specific to the Company’s operations and financial
position. The fair values of financial assets and all other liabilities approximate carrying values due to the short-term nature of the
instruments.
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.
28. Related parties
FLYHT appointed an interim CFO from June 5 to November 5, 2017. The services were provided by a company controlled by a
director of FLYHT. No similar services were contracted during 2016. All of the transactions with the related party were at exchange
amounts that approximated fair value and were supported by a third party receipt.
Amounts included in:
Contract labour
Accounts payable and accrued liabilities
For the three months ended
December 31, 2017
For the year ended
December 31
2017
$
19,200
-
2016
$
-
-
2017
$
83,200
-
2016
$
-
-
Transactions with key management personnel
Key management personnel include 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 executive team.
In addition to salary and variable compensation, the Company also provides non-cash benefits to key management personnel.
Compensation for this group comprised:
Salary
Director fees
Variable compensation
Retiring allowance
Share-based payments
Short-term employee benefits
Total
2017
$
1,018,521
203,551
132,500
112,500
350,095
59,956
1,877,123
2016
$
1,071,619
215,869
161,000
-
226,813
190,737
1,866,038
Directors of the Company control 3.9% (2016: 3.8%) of the voting shares of the Company.
Subsidiaries
FLYHT Inc.
AeroMechanical Services USA Inc.
FLYHT Corp.
FLYHT India Corp.
TFM Inc.
Country of Incorporation
United States
United States
Canada
Canada
Canada
Ownership interest
100%
100%
100%
100%
100%
49-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017
29. Contractual Arrangement
Certain of the Company’s sales contracts require that, in the event the Chinese government restricts use of the Iridium satellite
constellation, the Company may be required to repurchase, at discounted rates, certain AFIRS units. The Iridium license was
renewed by the Chinese authorities during 2015 for a further five-year term and the likelihood of a liability under these contracts is
considered to be remote.
30. Subsequent events
In Q1 2018, the Company received contributions totaling $317,195 under the WINN agreement, bringing the total received to date
to $1,397,853.
In April 2018, the Company applied to the TSX for an amendment of the exercise price of the share purchase warrants that were
originally issued on May 12, 2016 from $2.50 to $1.60 per share purchase warrant. The warrants are set to expire on May 12,
2018.
50-
CORPORATE INFORMATION
Registrar and Transfer Agent
Computershare Trust Company of Canada
Telephone: 1-403-267-6800
Online: Investor Centre – contact us section
www.computershare.com
Share Listing
Shares are traded on the TSX Venture Exchange and the OTCQX Marketplace
Ticker Symbols: TSX: FLY and OTCQX: FLYLF
Investor Relations
Email: investors@flyht.com
Telephone: 1-403-250-9956
Toll free: 1-866-250-9956
www.flyht.com
Directors
Bill Tempany
John Belcher
Mike Brown
Barry Eccleston
Jacques Kavafian
Doug Marlin
Jack Olcott
Mark Rosenker
Paul Takalo
Officers
Thomas R. Schmutz
Alana Forbes
Derek Graham
David Perez
Matieu Plamondon
Auditor
KPMG LLP
Legal Counsel
Chris Croteau
Head Office
Chairman, FLYHT Aerospace Solutions Ltd.
Former Chairman and Chief Executive Officer, ARINC Inc.
Partner, Geselbracht Brown
President, Airbus Americas, Inc.
Director
President, Marlin Ventures Ltd.
President, General Aero Company
United States Air Force (retired)
Director
Chief Executive Officer
Chief Financial Officer
Chief Technical Officer
Vice President Sales and Marketing
Chief Operating Officer
Calgary, Alberta
Tingle Merrett LLP, Calgary, Alberta
300E, 1144 - 29 Avenue NE
Calgary, Alberta T2E 7P1
51-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2017