TABLE OF CONTENTS
Letter to Shareholders .............................................................................................. 4
Management Discussion & Analysis ........................................................................ 5
Non-GAAP Financial Measures
Forward-Looking Statements
Overview
Trends and Economic Factors
Contracts and Achievements of Fiscal 2018
Results of Operations Years Ended December 31, 2018 and 2017
o Selected Results
o Financial Position
o Comprehensive Income
o Other
Independent Auditors’ Report
Consolidated Financial Statements ......................................................................... 30
Notes to the Consolidated Financial Statements .................................................... 34
Corporate Information ............................................................................................. 58
Commonly used Financial Terms and Aviation Acronyms
ACARS:
AFIRSTM:
ANAC:
CAAC:
DAO:
DGAC:
EASA:
EBITDA:
ECAA:
FAA:
Flightlink:
GAAP:
GAMECO:
IATA:
ICAO:
IFRS:
MD&A:
OEM:
PAC:
PWS:
QTD:
R&D:
SADI:
SAAU:
SFP:
STC:
TAMDAR:
TCCA:
WINN:
YTD:
Aircraft Communications Addressing and Reporting System
Automated Flight Information Reporting System
National Civil Aviation Agency of Brazil
Civil Aviation Administration of China
Design Approval Organization
Direccion General de Aeronautica Civil (Mexico’s certification organization)
European Aviation Safety Agency
Earnings before interest, taxes, depreciation and amortization
Egyptian Civil Aviation Authority
Federal Aviation Administration
An Iridium Satellite Data Unit
Generally Accepted Accounting Principles
Guangzhou Aircraft Maintenance Engineering Company Limited
International Air Transport Association
International Civil Aviation Organization
International Financial Reporting Standards
Management Discussion and Analysis
Original Equipment Manufacturer
Panasonic Avionics Corporation
Panasonic Weather Solutions
Quarter-to-date
Research and Development
Strategic Aerospace and Defence Initiative
State Aviation Authority of Ukraine
Statement of Financial Position
Supplemental Type Certificate
Tropospheric Airborne Meteorological Data Reporting
Transport Canada Civil Aviation
Western Innovation Initiative
Year-to-date
3-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
LETTER TO SHAREHOLDERS
FLYHT’s highlights for 2018 included the acquisition of the assets of Panasonic Weather Solutions
(PWS) in Littleton Colorado from Panasonic Avionics Corporation and the successful completion
of a live data streaming trial as part of the 2018 Boeing ecoDemonstrator Project. Financially,
FLYHT continued to see Hardware Sales and Software as a Service (SaaS) replace licensing as
the primary revenue sources. FLYHT’s sales order backlog finished the year at over $60 million
and the contracted sales for the year 2018 were over $33 million. Looking forward to 2019, we
will complete the integration of PWS assets, manage delivery of enhanced weather products to
AirAsia, and we expect to demonstrate continued success in China with the maturing Satcom
mandate there. We are expanding our Original Equipment Manufacturer (OEM) customer
opportunity pipeline by winning new positions and are extremely well positioned for changes in
the industry driven by regulatory change. We anticipate 2019 will be a very exciting year.
FLYHT acquired the assets of PWS in early October 2018. The details of this unique acquisition can be found in the FLYHT
Press Release dated October 10, 2018 and in the Marketing section of this report. The practical implications are that FLYHT
will be paid a baseline US$3.3 million to add a group of very talented USA employees, to receive valuable real-time weather
collecting intellectual property and enterprise systems, and to add $20 million of contracted backlog with 12 airline customers
and Synoptic Data PBC (Synoptic). The most immediate impact can be found in the Q4 2018 SaaS revenues which more
than doubled: +126% versus Q4 2017 and +97% versus Q3 2018.
Augmented hardware and corresponding SaaS revenues will begin in Q2 2019 as we start shipping PWS acquired backlog.
Also, FLYHT will continue to provide TAMDAR observations to the USA National Mesonet Program funded by the National
Atmospheric and Oceanographic Administration (NOAA). FLYHT will grow the TAMDAR installation footprint and increase
weather revenue opportunities with various international meteorological agencies through our sales partner, Synoptic.
Finally, we engaged PWS executive Jeffrey Rex to lead our Sales and Marketing team.
FLYHT conducted the Boeing ecoDemonstrator Program early in 2018 and jointly published the results with Boeing and
Embraer in August at the Airlines Electronic Engineering Committee (AEEC) Global Aircraft Tracking (GAT) Working Group
meeting in Kelowna, Canada. The three partners concluded that “existing, commercially available equipment and network
services (FLYHT’s AFIRS and Inmarsat SwiftBroadband) are suitable for providing distress flight data and audio streaming
capabilities that support ICAO objectives.”
This was the first time the entire feed for an aircraft’s Flight Data Recorder (FDR) has been streamed over a satellite network
for the duration of a flight, thereby validating the Black-Box-in-the-Cloud use case. Additional first-time milestones included
cockpit audio streaming, and the concurrent triggered transmission of historical FDR and cockpit audio data with real-time
data and audio. Management is confident that this positive trial result, the FLYHTStream Triggered Data Streaming Patent
issued in China, United States and Canada (pending elsewhere); and FLYHT’s selection as Inmarsat’s inaugural Aviation
Certified Application Provider (CAP) for Inmarsat’s new SwiftBroadband-Safety services, has FLYHT well positioned to
provide solutions to satisfy the upcoming January 2021 ICAO regulations regarding Timely Recovery of Flight Recorder
Data (Modifications to Annex 6, Amendment 40).
FLYHT is focused on multiple initiatives in 2019. We are focused on winning new OEM positions. We are expanding our
weather products portfolio as a result of interactions with AirAsia. We are developing next generation products with the aid
of our second Western Innovation Initiative (WINN) interest free loan of $2.76 million. FLYHT remains very engaged in
China where the CCAR 121 Rev.5 2019 deadline creates opportunities to capture more carriers for Satcom, and ultimately
SaaS services.
Thank you for your continued support of FLYHT!
Thomas R. Schmutz
Chief Executive Officer
4-
MANAGEMENT DISCUSSION & ANALYSIS
This management discussion and analysis (“MD&A”) is as of April 10, 2019 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, 2018 and 2017 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, 2018 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 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 performance and
profitability. Since non-GAAP financial measures do not have a standardized definition, they may differ from the non-GAAP financial
measures used by other companies. The Company strongly encourages investors to review its financial statements and other publicly
filed reports in their entirety and not rely on a single non-GAAP measure.
Forward-Looking Statements
This discussion and the letter to the shareholders accompanying this discussion includes certain statements that may be deemed
“forward-looking statements” or “forward-looking information” that are subject to risks and uncertainty. All statements, other than
statements of historical facts included in this discussion, including, without limitation, those regarding the Company’s financial position,
business strategy, projected costs, future plans, projected revenues, objectives of management for future operations, the Company’s
ability to meet any repayment obligations, the use of non-GAAP financial measures, trends in the airline industry, the global financial
outlook, expanding markets, 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.
Forward-looking information is based on the opinions and estimates of management at the date the statements are made and are founded
on the basis of expectations, assumptions and hypotheses made by the Company, including, but not limited to, the following: projected
costs, future plans, projected revenues, objectives of management for future operations, trends in the airline industry, the global financial
outlook, expanding markets, foreign exchange rate outlooks, sales projections, cost increases and/or decreases as related to marketing,
R&D, administration expenses. The forward-looking information included in this this discussion and the letter to the shareholders
accompanying this discussion has been prepared using assumptions (all of which are supportable and reflect the Company’s planned
courses of action for the next 12 months) as to the most probable set of economic conditions. Such assumptions are consistent with the
purpose of the information but are not necessarily the most probable in management’s judgement. Factors that could cause actual results
to differ materially from those in the forward-looking statements include but are not limited to production rates, timing for product deliveries
and installations, 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. The forward-looking information has been provided to the readers to assist in
assessing the impact of the information disclosed herein on the Company and such forward-looking information may not be appropriate
for other purposes. We undertake no duty to update any of the forward-looking information to conform such information to actual results
or to changes in our expectations except as otherwise required by applicable securities legislation. Readers are cautioned not to place
undue reliance on forward-looking information.
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FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
FLYHT Overview
FLYHT’s mission is to improve aviation safety, efficiency and profitability. Globally, and for more than 20 years, airlines, leasing
companies, fractional owners and original equipment manufacturers have installed FLYHT’s differentiated aircraft and enterprise-based
solutions to deliver real-time, flight-deck, satellite connectivity for tracking, health monitoring, and streaming of operational, maintenance
and weather data. FLYHT is publicly traded as FLY in Canada on the TSX.V; and as FLYLF in the USA on the OTCQX. FLYHT is
based in Calgary, Canada with an office in Littleton, Colorado and is an AS9100 Quality registered company. For more information
visit www.flyht.com.
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 flight data recorder (aka the “black box”). AFIRS sends this information through satellite networks 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.
UpTime is an enterprise server that communicates with AFIRS through satellite connectivity and serves our customers with real-time
applications. Uptime was originally implemented on a fixed server and some of FLYHT’s customers still receive services via redundant
servers located in different cities across Canada. In 2017, FLYHT launched UpTime Cloud and began rehosting and enhancing aspects
of the UpTime server onto the Amazon Web Services (AWS) Cloud. FLYHT hosts Cloud instances in different countries according to
customer needs and requirements. UpTime provides a user interface for our customers through a secure internet login and provides a
means to enable, configure, software upgrade and manage deployed AFIRS units around the globe.
FLYHT sells different service products through the interaction of AFIRS and Uptime. These applications save aircraft operators money,
streamline their operations and proactively enhance their safety; which can prevent accidents and save lives. FLYHT’s customers
purchase these software service products a la carte and typically pay a simple per aircraft, per month fee for the services. Service
contracts are typically five years in length with renewal options. As these service products are integrated into our customer’s operational
and maintenance day to day operations, they are very “sticky,” and the resulting customer service churn is low, upselling of additional
services is high and customers typically resign for existing services when contracts expire.
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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 has been awarded Canadian, U.S. and Chinese
patents for this data streaming technology, pending in other countries.
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. Over time, FLYHT intends to migrate
customers to AirMap, described in the FLYHTWeather section below.
FLYHTHealthTM
Consists of three different but related functions: automated engine trend reporting, real-time engine and airframe exceedance
monitoring and remote, real-time diagnostics. Engine trend reporting automates the delivery of required engine trend data to engine
manufacturers and third-party maintenance support companies to satisfy engine warranty requirements. Exceedance monitoring
keeps watch over thousands of aircraft data parameters and creates automated exceedance reports when an out of bounds condition
exists on the aircraft. 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 diagnostics 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 and phase of flight 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.
FLYHTFuelTM
FLYHTFuel is a powerful program that focuses attention on areas of greatest savings potential to provide information necessary in
making operational decisions. 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. This 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.
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FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
FLYHTWeatherTM
FLYHTWeather is the combination of Panasonic Weather Solutions’ FlightLink™, TAMDAR™, and AirMap™ products. With plans to
integrate PWS’ AirMap with its own UpTime server, FLYHT intends to create a best-of-breed situation and tracking service. This solution
will take advantage of the benefits of the Company’s patented and unique real-time aircraft exceedance monitoring, engine trending, flight
data recorder streaming, fuel training modules and “Virtual Cockpit” capabilities. More detail on the systems is below.
FlightLink
FlightLink is an Iridium enabled satellite communication terminal and provides Satcom to the flight deck and connects to the TAMDAR
device to collect and transmit real-time weather and aircraft tracking and aircraft fuel data.
TAMDAR
Tropospheric Airborne Meteorological Data Reporting (TAMDAR) is a unique sensor installed on aircraft that captures temperature,
pressure, winds aloft, icing, turbulence and relative humidity. It bundles the data with GPS (Global Positioning System) data and
transmits the information, in real-time, over satellite networks. Like the data traditionally gathered by worldwide weather balloons, this
information is used to update weather models. Unlike weather balloons, TAMDAR collects the data continuously and in real-time.
TAMDAR technology is protected by several U.S. and worldwide patents, and the relative humidity data, gathered throughout an
aircraft’s flight, makes these weather soundings particularly valuable to meteorologists.
AirMap
The AirMap technology enhances the FLYHTLog and FLYHTASD products, including flight tracking, Out-Off-On-In (OOOI) messages
and an Aircraft Situational Display (ASD). Additional capabilities include an ACARS communications function for pilots, plus the ability
to ingest flight plans and provide warnings when aircraft deviate from plan or exhibit low fuel relative to plan.
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 other items required
by the flight crew can be accessed any time throughout the flight without leaving the cockpit. The stowage unit is certified to be installed
in Bombardier CRJ series, Challenger and DHC-8s and can also be installed in other aircraft types.
Acquisition of Panasonic Weather Solutions Assets
In October 2018, FLYHT acquired the assets of Panasonic Weather Solutions (PWS) based in Littleton, Colorado. Panasonic Avionics
Corporation (PAC) had invested significant monies into this non-core business which augmented their dominant position in the In-Flight
Entertainment (IFE) avionics space. PWS consisted of two functional components, an aviation electronics solution provider based in
Littleton, CO and secondly a weather forecasting and modelling solution provider based in Raleigh, NC. Littleton was focused on building
Tropospheric Airborne Meteorological Data Reporting (TAMDAR) sensors and Iridium-based FlightLink communication units, selling
these to airline customers, creating the necessary STCs for installing the equipment, and delivering software solutions for real-time
tracking and flight plan deviation reporting for airlines in an enterprise product called AirMap. The weather data which was collected from
TAMDAR sensors was delivered to Raleigh where it was used to build improved atmospheric predictive models, sold to government and
commercial agencies.
Panasonic Corporation and PAC together paid US$280M in fines to resolve foreign corrupt practices act offences in April of 2018 for
violations (see U.S. Securities and Exchange Commission Press Release dated April 30, 2018). Prior to this, the leadership changes
were made, and strategies were re-evaluated. A decision was made to sell the PWS business. FLYHT was contacted during the initial
business offering and FLYHT made PAC aware that FLYHT was interested in the assets associated with the Littleton based operations.
Ultimately this was agreed to in an asset transfer which was closed in October 2018.
The assets FLYHT acquired include among other things, 27 employees; 10 service contracts with airlines in North America, Europe and
Southeast Asia, including AirAsia Berhad; an Iridium Value Added Reseller (VAR) license, and a Federal Aviation Administration Parts
Manufacturer Approval (PMA) capability; the technology and intellectual property for the FlightLink™ Iridium Satellite Data Unit and
Tropospheric Airborne Meteorological Data Reporting (TAMDAR™) sensor; and a weather observation contract through Synoptic Data
PBC, supplying weather data observations to NOAA (the National Oceanic and Atmospheric Administration).
Backlog business that transferred to FLYHT totaled $20M. FLYHT received contracts with 10 airlines, including a contract with Kuala
Lumpur based AirAsia to expand the FlightLink/AirMap/TAMDAR hardware installations and monthly services from 90 to 190 total A320
aircraft. (See Press Release dated December 10, 2018). Backlog also includes the contract with Synoptic that was novated to FLYHT,
which participates in the NOAA/National Weather Service National Mesonet Program and pays US$2M per year for existing TAMDAR
weather observations.
8-
Pursuant to a transition agreement between the parties which ends March 31, 2020 (the “Transition Period”), FLYHT and PAC will work
closely together to complete several ongoing FlightLink and TAMDAR deployment programs, while also providing Tier 1 and warranty
support via PAC’s Customer Performance Center and Panasonic Technical Services’ facilities. This Transition Period will give FLYHT
time to integrate business and operational functions between its Calgary, Alberta and PWS’ Littleton, CO locations. In addition, to keep
the asset acquisition cash-flow neutral to FLYHT during this period, PAC will pay FLYHT a subsidy of USD$3.3 million. FLYHT received
the first quarterly payment of US$742 thousand in late December 2018. Depending whether the acquired contracts meet established
income targets, the supplemental payment may increase to US$4.3 million (See Press Release dated October 10, 2018). Pursuant to the
terms of the acquisition of PWS assets and the transition agreement, FLYHT payed no monetary consideration to PAC for the PWS
assets.
FLYHT has been actively integrating the operations from the assets of PWS as a part of its “OneFLYHT” program, with a great deal of
success, including achieving Parts Manufacturing Approval from the FAA for the Littleton facility and PWS products. This provides FLYHT
the right to manufacture and ship the $20+ million in backlog FlightLink and TAMDAR hardware and monthly services which were acquired
with PWS. This PMA approval was received more than a month earlier than expected.
Also completed as part of the “OneFLYHT” integration is the FAA reissuing the six (6) PWS Supplemental Type Certificates (STCs) for
FlightLink and TAMDAR products to FLYHT. FLYHT also received FAA approval to issue minor changes to FLYHT FAA STCs.
FLYHT will continue to install the significant sales contract backlog included with this asset transfer according to customer provided
schedules. This transaction is expected to almost double (1.74x) FLYHT’s current overall revenue (adding approximately USD$8.4 million
at margins of 41%) and more than double (2.47x) FLYHT’s current SaaS revenues (adding approximately USD$5.2 million at 52%
margin), when calculated on an annualized basis at the end of the Transition Period (assuming the install schedules are completed as
currently anticipated). The asset acquisition plan anticipates new revenue of approximately USD$11.7 million contributing 45% gross
margin during the Transition Period. It is important to note that during the Transition Period, FLYHT will need to increase the number of
worldwide TAMDAR installations to preserve the total planned weather observation related revenues, which at approximately USD$3
million represents 46% of SaaS revenue increases during such period. Also, FLYHT will need to earn additional business and/or reduce
expenses related to these new assets and operations for them to add positively to FLYHT’s income.
Boeing ecoDemonstrator Program
FLYHT is extremely well positioned to provide solutions for mandates created as a result of the AF447 and MH370 aircraft disasters.
ICAO published updated Standards and Recommended Practices (SARPs) which have been introduced into ICAO Annex 6 Part 1
regarding Flight Recorder Data Recovery and Location of an Aircraft in Distress. These new SARPs specify capabilities for operators that
began to take effect in 2018. Of particular interest for FLYHT’s technology is the requirement for Timely Recovery of Flight Recorder
Data.
FLYHT holds a patent for the triggered streaming of flight data over satellite communication channels through autonomous trigger, or
manually by the pilot or ground crew. ICAO is providing additional guidance in the ICAO Doc 10054 “Manual on Location of Aircraft in
Distress and Flight Recorder Data Recovery,” where they indicate that two different solutions comply with the timely recovery of flight
recorder data: (i) Satellite Data Streaming and (ii) Automatic Deployable Flight Recorder.
FLYHT was uniquely selected by Boeing to conduct a Tracking, Locating, and Data Recovery (TLDR) trial as part of their 2018
ecoDemonstrator program to evaluate the ability to meet the Autonomous Distress Tracking and Timely Access to Flight Recorder Data
components of the new ICAO SARPs. FLYHT provided and Boeing installed the AFIRS 228S product in the ecoDemonstrator along with
a FLYHT provided digital cockpit audio microphone (CAM) which connected to the AFIRS equipment via an ARINC 429 bus. The FLYHT
equipment was configured to stream the ARINC 717 data and the cockpit audio over both SwiftBroadband and Iridium networks to
FLYHT’s Uptime Enterprise server.
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FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
FLYHT demonstrated state-of-the-art animations from the real-time data streams including an animation of the B777 from the real-time
attitude and terrain information from the aircraft data stream and location information. Flight deck instrumentation was updated real-time
via the AFIRS FLYHTStream while the cockpit audio was also streaming - creating a “Virtual Cockpit.” The flight data from the flight data
recorder was accessible via Uptime and each individual FDR parameter could be dragged into an analysis window for real-time analysis.
The trial was conducted with Boeing and Embraer and
the results were captured in a joint Whitepaper
entitled, “Analysis of Flight Data Streaming Trials on
the Boeing 2018 EcoDemonstrator,” which was
published at the AEEC meeting in August in Kelowna,
CA.
The joint conclusion reached was as follows:
that support
“The trial has shown that existing, commercially
available equipment and network services (FLYHT’s
AFIRS paired with an Inmarsat SwiftBroadband
system) are suitable for providing distress flight data
ICAO
streaming capabilities
Inmarsat
trial concludes
objectives. The
SwiftBroadband provided excellent capability for data
and voice streaming
ICAO
document 10054 recommendations. Additional study
and solution hardening are needed to demonstrate
robustness in commercial operation; however, it is the
recommendation of the trial team that this technology
is worthy of further development and trials in a
commercial setting.”
that supports
that
the
the
Core findings include:
Capability of current equipment (with suitable modifications) to provide distress flight data streaming capabilities that support the ICAO
objectives.
Excellent capability of broadband safety services to support data and voice streaming that supports the ICAO document 10054
recommendations.
That even limited bandwidth options such as the Iridium SBD services used in these tests can provide useful flight data streaming
capability. In this case it was to stream sufficient aircraft dynamics parameters to allow near real time display and analysis of the aircraft
trajectory and flight dynamics.
FLYHT believes that the solution set provided to Boeing and Embraer, based on the existing technological readiness, patent protections,
along with the vast STC provisioning will create enormous growth opportunities for FLYHT to satisfy future regulatory implementations of
these new ICAS SARPs.
10-
System Approvals
FLYHT holds FAA Parts Manufacturer Approval (PMA), is a TCCA Approved Manufacturer, a TCCA Approved Maintenance Organization
(AMO) and an EASA and 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 AS9100 certified with the registrar SAI Global. The Company also holds
multiple STCs to make appropriate modifications, such as installing FLYHT’s AFIRS, FlightLink and TAMDAR technologies, to an aircraft’s
approved design.
FLYHT has received STC approvals from TCCA (Canada), FAA (United States), EASA (European Union), CAAC (China), ANAC (Brazil),
DGAC (Mexico), SAAU (Ukraine) and ECAA (Egypt) for various aircraft models to address a variety of customer requirements. FLYHT is
currently pursuing STC validation from the Federal Air Transport Agency of Russia.
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 and
TSOs 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 two delegated engineers, allowing for the approval of changes
to the systems and electrical design aspects of an airworthiness certification. If an issue is encountered during the STC or TSO process,
the delegate has the authority to approve necessary changes and continue the process without the involvement of an external party.
Further, for FLYHT-held FAA STCs, FLYHT has a Minor Change Agreement with the FAA which allows a range of changes to be made
to the STC data package without direct involvement from the FAA.
The process to receive an STC takes some time, but in all cases, it starts with an STC application through the TCCA, FAA or EASA.
FLYHT typically starts the process by opening an application with the regulator before an STC package is created. The data package is
prepared, including engineering documents outlining how FLYHT equipment is substantiated and installed on the aircraft, and the package
is submitted to the regulator for 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 the regulator, confirming all regulatory
requirements have been met and the unit is fit for operation on that aircraft type as designed. From there, the regulator approves the
submission and an STC is issued.
To acquire an STC validation from a different national regulator, FLYHT submits an application through a regulator such as 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.
11-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
Timelines required for the approval process will vary depending on aircraft and workloads, but typically take about three to four months
through TCCA, with an additional three to eight months if an STC is required from an additional regulator like the FAA or EASA.
STC Chart AFIRS and UpTime
FAA
USA
TCCA
Canada
EASA
EU
CAAC
China
220
A
228
A
220
A
P
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
A
228
A
I
A
I
A
A
A
A
A
A
A
A*
I
A
A
A
A
A
A
ANAC
Brazil
220
228
A
A
A
A
220
A
228
A
220
A
228
A
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
A
A
A
A
Airbus A319, A320, A321
Airbus A300
Airbus A330
ATR42 -300
ATR42 -500
ATR-72 -100, -200
ATR42-500 "600 Version" *STC Twenty One
ATR72-212A "600 Version" *STC Twenty One
Boeing B737 -200
Boeing B737 -300, -400, -500
Boeing B737 -600
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
Hawker Beechcraft -750, 800XP, 850XP, 900XP
Viking Air DHC -7 (LSTC)
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 AFIRS 228 STCs for the Bombardier CRJ- 700, 900, Boeing 737-300, -400, -500 and 737-700, -800 from the DGAC (Mexico).
FLYHT has received AFIRS 228 STCs for the Boeing 737-300,-400, -500, -700, -800 and the 767-300 from the State Aviation Administration of the Ukraine
(SAAU). An AFIRS 228 application is also in progress with the Federal Air Transport Agency of Russia for the Boeing 767 aircraft.
STC Chart FLYHTWeather
DGCA
Indonesia
FL
TR
A*
A*
DCA
Malaysia
TR
A*
FL
A*
DGAC
Mexico
TR
FL
CAA
Philippines
FL
TR
A*
A*
CAA
Thailand
FL
TR
A*
A*
A*
A*
A*
A*
A
A
EASA
TR
A*
A*
FL
A*
A*
A*
A *
FAA
TR
FL
A*
A*
A
A
A
A
A
A
A*
A*
A
Airbus A318/A319/A320/A321
Boeing 757
Boeing 737-700/800/900
Boeing 737Max-8/9
DHC-8-100/200/300/400
EMB 135/145
EMB ERJ 190-100/200
EMB ERJ 190-100/200
Hawker Beechcraft 1900
Saab 340
Saab 2000
Chart Legend: TAMDAR (TR) or FLIGHTLINK (FL) model, A = Approved, P = Pending, I = In Progress * = Partnered with 3rd party, ‡ =
Approval in progress.
12-
Trends and Economic Factors
FLYHT examines the results of measurements made by leading aviation associations and corporations in order to gain insight on the
status of the industry.
The Aviation Industry in 2018
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 6.5% increase in 2018 compared to 2017.1 Global freight traffic (measured in
FTK) increased by 3.5% in 2018 compared to 20172. This shows broad market growth, though not as robust as was found in 2017.
Results from large commercial aircraft manufacturers were mixed for the first three quarters of 2018. Airbus delivered 800 commercial
aircraft in 2018, compared to 718 in the same period of 20173. Boeing delivered 806 airplanes, up from 763 in 2017.4 Embraer announced
the delivery of 90 commercial aircraft and 91 executive jets in 2018 which were in the outlook ranges the company had published.5
Bombardier delivered 35 commercial aircraft during 2018, down from 56 deliveries in 2017. Bombardier also delivered 137 business
aircraft in 2018, which was similar to its performance in 2017 when they delivered 138 business aircraft.6
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 and 2018. The Company
developed its technology to stream data over the Inmarsat Satellite network for trials with Boeing and Inmarsat.
FLYHT is now in the weather business with the acquisition of Panasonic Weather Solutions (PWS). The PWS product set includes
FlightLink, an Iridium Satellite Data Unit, and TAMDAR which is a real time weather sensor which collects weather soundings similar to
weather balloon, but is streamed in real time over the Iridium satellite network. Also, particularly valuable is the AirMap situational display
which was purpose built for AirAsia and serves as their primary flight display at their aircraft operations center in Kuala Lumpur.
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 Canadian dollar was slightly down relative to the U.S. dollar throughout Q4 20187 and the company experienced a positive impact
on the Company’s revenue and income compared to Q4 2017. As a result of these currency movements, the Company’s revenues, which
are substantially all denominated in U.S. dollars, were higher than they would have been had the foreign exchange rates not changed. It
is the standard of the aviation industry to conduct business in U.S. dollars. While the majority of the Company’s 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.
1 https://www.iata.org/pressroom/pr/Pages/2019-02-07-01.aspx
2 https://www.iata.org/pressroom/pr/Pages/2019-02-06-01.aspx
3 https://www.airbus.com/newsroom/press-releases/en/2019/01/airbus-achieves-new-commercial-aircraft-delivery-record-in-2018.html
4 https://www.investors.com/news/boeing-deliveries-boeing-orders-2018/
5 https://embraer.com/global/en/news?slug=1206500-embraer-delivers-181-total-jets-in-2018
6 https://www.flightglobal.com/news/articles/bombardier-swings-to-318m-profit-in-2018-455794/
7 https://tradingeconomics.com/canada/currency
13-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
Contracts and Achievements for 2018
Contracts*
FLYHT announced US$33.6 million in new sales contracts and contract renewals during 2018. All these contract figures assume that the
Company provides services over the full term of these contracts. The by-quarter breakdown of these sales announcements is collected
here.
Fourth Quarter
FLYHT announced US$21.1* million in new sales contracts, purchase orders and transition agreement during the fourth quarter of 2018
and gained two new customers and a new Original Equipment manufacturing position (OEM) independent from those new customers
and contracts acquired through the acquisition of assets from PWS. These new sales orders included:
A minimum US$15 million contract with Synoptic Data PBC assuming the Company delivers an annually increasing number of
weather-related soundings over the term of the five-year contract by increasing the quantity of TAMDAR installations (See Press
Release dated October 24, 2018).
a US$1.1 million contract with a Chinese airline for FLYHTHealth SaaS (See Press Release dated November 5, 2018).
A contract with Jambojet in Africa for US$650 thousand for AFIRS hardware and SaaS products FLYHTLog, FLYHTASD and
FLYHTHealth (See Press Release dated October 15, 2018).
An initial order for a new OEM aircraft position along with an order for non-recurring engineering
An AFIRS order from a previously established OEM
Additional AFIRS orders from two existing Chinese airline customers
New technical services orders
Third Quarter
FLYHT announced USD$5.1* million in new sales contracts and purchase orders and gained three new customers in the third quarter:
An original equipment manufacturer (OEM) selected FLYHT’s Automated Flight Information Reporting System (AFIRS™) 228S
with Technical Service Order (TSO) C159b for integration to achieve Future Air Navigation System (FANS) certification on an
Antonov aircraft for USD$404 thousand dollars.
One African airline obtained Canada Regional Jet (CRJ) aircraft with AFIRS installed from a previous FLYHT customer enabled
UpTime Software as a Service (SaaS) FLYHTLog and FLYHTHealth (Engine Trending, Engine and Airframe Exceedances)
services for these aircraft, and purchased FLYHTASD (Aircraft Situational Display) for a total contract value of USD$157
thousand dollars.
One African customer, who purchased AFIRS 228B units, will enable FLYHTLog and purchase FLYHTASD for a total contract
value of USD$312 thousand dollars.
FLYHT renewed a SaaS contract with an existing Australasian airline for USD$3.1 million. (See Press Release dates July 16,
2018).
FLYHT renewed a contract for UpTime SaaS and sold additional AFIRS 228B units to an existing Middle Eastern customer for
a total contract value of USD$848 thousand dollars.
FLYHT also sold AFIRS hardware kits, technical services, or data services for a total of USD$235 thousand dollars to the
following customers:
o
o
o
o
an existing Canadian lessor;
an existing United States lessor;
an existing Canadian airline; and
an existing Chinese cargo airline.
Second Quarter
FLYHT announced USD$4.45* million in new sales contracts and purchase orders and gained two new customers in the second quarter:
One European operator who signed an agreement to receive CAN-TSO-159b approved Automated Flight Information Reporting
System (AFIRSTM) 228S hardware units with a contract value of USD $360,000 to integrate into their aircraft to achieve Future
Air Navigation System (FANS) compliance.
14-
One Australian operator that enabled FLYHTLog, FLYHTHealth and FLYHTVoice on leased aircraft that they recently received
which had AFIRS products installed. This five-year agreement will yield USD $260,200 if services are provided during the
duration of the contract.
FLYHT renewed or expanded contracts for UpTime SaaS for five years for five airlines (based in Africa, Mexico, the Caribbean
and Canada) and one lessor with a total contract value of USD $564,360.
FLYHT renewed and expanded a SaaS contract with a North American airline for USD$1.43 million (See Press Release dated
June 7, 2018).
FLYHT renewed a SaaS contract with a North American airline for USD$1.03 million (See Press Release dated May 22, 2018).
Also included in the new sales contract amount is an additional order from an existing OEM partner (see release on July 15,
2014) of USD $315,621 for license fees.
FLYHT sold AFIRS hardware kits or technical services for USD $491,342 to the following existing customers:
o an existing operator in China,
o an existing operator in the Middle East, and
o an existing commercial OEM customer.
First Quarter
FLYHT announced USD$2.9* million in new sales contracts and purchase orders and gained one new OEM position and a new weather
customer:
Ten customers renewed their sales contracts for UpTime data services.
o The renewal was broad and included operators in Canada, the Middle East, Australia, the Caribbean and Mexico.
o One operator in the Middle East re-signed for a portion of their fleet through a third-party contract which FLYHT had
reported expired last summer.
o Two of the ten also expanded their fleets with Automated Flight Information Reporting System (AFIRSTM) orders.
FLYHT also sold AFIRS hardware kits to:
o
o
o
a new aerospace and defense Original Equipment Manufacturer (OEM) for integration into one of its airframes,
a new global leasing company, and
an existing commercial OEM customer.
Included in new sales contract amounts are additional orders from:
o
o
an existing OEM partner (see Press Release dated July 15, 2014) for parts with related license fees for delivery, and
a new agreement with a large global organization to monetize weather data from certain aircraft.
*Amounts are calculated assuming the Company provides services over the full term of the contracts
Achievements & Activities
FLYHT accomplished several achievements which were identified throughout the year. This section identifies these successes by quarter.
Fourth Quarter
FLYHT was issued a validation of the Embraer E- 190 AFIRS 228 STC by the FAA.
FLYHT received approval for a $2.76 million interest-free Western Innovation Initiative (WINN) loan by Western Economic
Diversification Canada (See Press Release dated November 27, 2018).
Third Quarter
Boeing, Embraer and FLYHT jointly released a whitepaper and corresponding presentation, describing the results of the
Autonomous Distress Tracking and Timely Recovery of Flight Recorder Data trial (see press release dated September 4, 2018).
The whitepaper and presentation are published on the FLYHT Website. (Whitepaper and Presentation Link).
15-
FLYHT announced the integration of its AFIRS 228 product with Spectralux’s ENVOY, FANS over Iridium Solution (see Press
Release dated September 13, 2018).
FLYHT received a Federal Aviation Administration (FAA) Supplemental Type Certificate (STC) for the Company’s AFIRS 228
system on the Airbus A319/320/321 family of aircraft from a contracted American certification supplier.
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
FLYHT closed a convertible debt financing of $2 million dollars (see Press Release dated July 24, 2018).
Second Quarter
FLYHT was issued two Supplemental Type Certificates (STC) for AFIRS 228 in the second quarter. FLYHT received the Mexican
Civil Aviation Authority (DGAC) STC for the Boeing 737–300/400/500/700/800 series, and the Brazilian Civil Aviation Authority
(ANAC) validation of the Transport Canada STC for the Embraer E190-100 series.
FLYHT announced the issuance of the FLYHTStream patent in Canada, previously issued in the United States and China (see
Press Release dated May 30, 2018).
FLYHT was recognized by Inmarsat PLC. as the first world wide recipient of the Certified Application Provider (CAP) Programme
for their Swift Broadband-Safety network (see Press Release dated May 24, 2018).
FLYHT shipped its 2000th AFIRS unit to Azur Aviation (See Press Release dated April 30, 2018).
First Quarter
FLYHT was issued five Supplemental Type Certificates (STC) for AFIRS 228 in the first quarter. FLYHT received the European
Aviation Safety Agency (EASA) STCs for the Boeing 737– 300/400/500/700/800, the Boeing 757-200 and the Boeing 767-
200/300 aircraft. FLYHT was also granted STCs from the Federal Aviation Administration (FAA) for the Boeing 737-900ER and
Bombardier CRJ 100, 200, 440, 700, 705 and 900 models.
The Boeing ecoDemonstrator Program started flying in March and continued into April. FLYHT streamed flight data from the
FedEx Express Boeing 777 Freighter to an UpTime Cloud animation which simulates the flight deck instrumentation, displays
position on a map and creates a flying aircraft visualization. By also streaming flight deck audio, FLYHT has virtualized the flight
deck environment on the ground, enhancing situational awareness and potentially satisfying future regulatory requirements.
16-
Results of Operations
Selected Results
2018
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
Subsidy + bargain purchase
EBITDA*
Income (loss)
Income (loss) per share (basic)
Income (loss) per share (fully diluted)
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)
*See Non-GAAP Financial Measures
Q4
$
9,097,270
4,420,714
4,033,826
1,775,657
2,258,169
56.0%
2,075,217
1,258,097
789,203
(1,864,348)
57,143
1,861,050
53,845
217,954
0.01
0.01
Q4
$
6,994,139
1,842,439
3,450,007
816,331
2,633,676
76.3%
1,169,069
747,607
1,099,869
(382,869)
18,687
(364,182)
(437,318)
(0.02)
(0.02)
Q3
$
6,401,513
4,385,051
3,092,113
1,344,643
1,747,470
56.5%
1,395,475
780,899
398,275
(827,179)
34,624
-
(792,555)
(953,034)
(0.03)
(0.03)
Q3
$
6,556,520
1,385,440
3,221,380
1,514,363
1,707,017
53.0%
1,166,972
684,651
458,327
(602,933)
26,980
(575,953)
(759,447)
(0.02)
(0.02)
Q2
$
5,105,186
2,246,731
3,146,266
1,075,402
2,070,864
65.8%
1,281,935
682,575
704,731
(598,377)
36,588
-
(561,789)
(649,293)
(0.03)
(0.03)
Q2
$
7,374,048
1,209,206
3,242,382
1,014,111
2,228,271
68.7%
1,420,236
1,088,709
399,920
(680,594)
25,093
(655,501)
(759,374)
(0.04)
(0.04)
Q1
$
5,711,684
2,117,334
3,318,311
1,328,994
1,989,317
59.9%
1,240,609
530,037
739,236
(520,565)
33,134
-
(487,431)
(582,375)
(0.03)
(0.03)
Q1
$
7,168,914
1,027,848
3,781,119
1,184,575
2,596,544
68.7%
1,195,194
638,120
561,158
202,072
22,148
224,220
119,404
0.01
0.01
Weighted Average Shares Outstanding
2018
$
21,058,855
21,132,875
2017
$
20,926,589
20,926,589
2016
$
19,507,065
19,541,957
Basic
Diluted
Financial Position
Liquidity and Capital Resource
The Company’s cash at December 31, 2018 increased to $2,406,769 from $2,014,135 at December 31, 2017. The Company has an
operating demand loan available through a Canadian chartered bank for up to a maximum of $1.5 million CAD or 90% of the Company’s
receivable balance, drawn either in CAD or USD. The operating demand loan bears interest at the Canadian chartered bank prime plus
1.5% (CAD) or US prime plus 4.5% (USD). 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 facility was
undrawn as at December 31, 2018.
17-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
At December 31, 2018, the Company had positive working capital of $2,878,024 compared to positive $2,014,662 (restated for IFRS 15)
as of December 31, 2017, an increase of $863,362. When non-refundable customer deposits, less deposits and prepaid expenses are
excluded from the working capital calculation, the resulting modified working capital at December 31, 2018 would be positive $3,312,792
compared to positive $3,311,442 (restated for IFRS 15) at December 31, 2017.
The Company funded 2018 operations primarily through cash received from sales, contributions from the Western Innovation Initiative
(WINN), issue of a convertible debenture, and subsidies paid by PAC from the October 2018 asset acquisition. The Company will continue
to receive subsidy from PAC while striving to self-fund operations through 2019.
Cash and cash equivalents
Trade and other receivables
Contract assets
Deposits and prepaid expenses
Inventory
Trade payables and accrued liabilities
Customer deposits
Contract liabilities
Loans and borrowings
Current tax liabilities
Working capital
Deposits and prepaid expenses
Customer deposits
Modified working capital*
2018
$
2,406,769
3,440,767
395,695
227,065
1,066,946
(2,342,754)
(661,833)
(1,524,894)
(129,465)
(272)
2,878,024
(227,065)
661,833
3,312,792
2017*
$
2,014,135
1,650,574
313,634
391,191
1,331,893
(1,874,005)
(1,687,971)
-
(112,578)
(12,211)
2,014,662
(391,191)
1,687,971
3,311,442
Variance
$
392,634
1,790,193
82,061
(164,126)
(264,947)
(468,749)
1,026,138
(1,524,894)
(16,887)
11,939
863,362
164,126
(1,026,138)
(1,350)
*See Non-GAAP Financial Measures, 2017 restated for IFRS 15
In 2018 warrant exercises resulted in the Company issuing a total of 10,000 shares for total proceeds of $16,000. No options were
exercised in the year.
As at April 10, 2019 FLYHT’s issued and outstanding share capital was 21,088,340.
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
hardware units and related services. Additionally, the acquisition of PWS provides the Company the opportunity to realize efficiencies of
scale through increasing both service and hardware revenues. SaaS revenues in Q4 2018 were double that in Q3 2018, as a result of
the additional customer contracts generating SaaS revenues effective from the date of acquisition forward.
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. The Company has an undrawn credit facility of $1.5 million, $2.97 million in contributions under WINN loans not yet
received and if the need arises due to market opportunities, the Company may meet cash-flow 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.
18-
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 Hardware sales, the invoiced amount is frequently payable before the
product is shipped to the customer. The Company assesses the financial risk of a customer and based on that analysis may require
that a deposit payment be made before services are provided. To further minimize credit exposure, credit insurance is obtained on
select customers whose balances have not been prepaid. In the case of monthly recurring revenue, the Company 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, 2018
Accounts payable
Compensation and
statutory deductions
Accrued liabilities
Loans and borrowings
Total
< 2 months
$
1,737,710
2-12 months
$
-
1-2 years
$
-
2-5 years
$
-
> 5 years
$
-
3,112
343,343
-
1,942
-
1,742,764
240,130
297,234
880,707
11,658
629,820
641,478
-
4,858
-
-
4,194,230
1,003,399
6,124,683
4,199,088
1,003,399
8,467,436
Total
$
1,737,710
346,455
258,588
Under the Strategic Aerospace and Defence Initiative (SADI), the Company has, at December 31, 2018, an outstanding repayable
balance of $1,507,481, compared to $1,626,814 at December 31, 2017. 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. Amounts repaid in 2018 totaled
$119,333 (2017: $103,767).
In November 2016, the Company signed a contribution agreement with Western Economic Diversification Canada for a Western
Innovation initiative (WINN) loan, to support plans for technology development in the air and ground components of the Company’s
products. Under the terms of the agreement, a repayable unsecured WINN contribution 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, 2018, the Company had received contributions totaling $2,137,202 (2017: 1,080,658).
In November 2018, the Company signed a second contribution agreement with Western Economic Diversification Canada for a Western
Innovation initiative (WINN) loan, to support development of the next generation of AFIRS hardware and embedded software to address
parts obsolescence issues and add new market-driven features. Under the terms of the agreement, a repayable unsecured WINN
contribution to the value of the lesser of 44% of the eligible project costs to April 30, 2021 or $2,761,000 will be received. A March 31,
2019 amendment adjusted the end date for eligible project costs to September 30, 2021. The amount is repayable over five years
commencing October 1, 2021. At December 31, 2018, the Company had not received contributions under this loan.
A summary of the carrying value of the SADI and WINN loans as at December 31, 2018 and 2017 and changes during these years is
presented below.
Balance January 1
Received
Grant portion
Interest accretion
Repayment
Balance December 31
Less current portion
Non-current portion
SADI
1,162,679
-
-
209,397
(119,333)
1,252,743
129,465
1,123,278
2018
$
WINN
792,338
1,056,544
(391,697)
112,478
-
1,569,663
-
1,569,663
SADI
1,072,641
-
-
193,805
(103,767)
1,162,679
112,578
1,050,101
2017
$
WINN
-
1,080,658
(318,310)
29,990
-
792,338
-
792,338
19-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
Convertible Debenture
The Debentures were issued on July 24, 2018 and will mature on July 24, 2021 (if not otherwise converted) and will bear interest at a
rate of 8% per annum, which shall be accrued and paid annually in arrears. The Debentures shall be convertible at the option of the
debenture holder into common shares of FLYHT (Common Shares) at a conversion rate of $1.30 per share at any time prior to maturity,
subject to a forced conversion (at a conversion rate of $1.30 per share) into Common Shares should the closing price of the Company’s
Common Shares be equal to or exceed $1.80 for 20 consecutive trading days.
769,200 warrants (Warrants) were issued to the purchasers of the Debentures (for every $1.00 principal amount of Debentures acquired
pursuant to the offering, Debenture holders received approximately 0.3846 Warrants). Each whole Warrant is exercisable to acquire one
Common Share of FLYHT for a period of two (2) years from the date of issuance at an exercise price of $1.45 per share. The Warrants
are subject to an acceleration clause, whereby, if after four months and one day following the date the Warrants are issued, the closing
price of the Company’s Common Shares is equal to or exceeds $1.90 for 20 consecutive trading days (with the 20th such trading date
hereafter referred to as the “Eligible Acceleration Date”), the Warrant expiry date shall accelerate to the date which is 30 calendar days
following the date a press release is issued by the Company announcing the reduced warrant term, provided, no more than five business
days following the Eligible Acceleration Date: (i) the press release is issued; and (ii) notices are sent to all warrant holders.
The Debentures are secured against all personal property of the Company and are subordinated in right of payment to all existing and
future secured bank and/or governmental indebtedness of the Company and any existing security already registered against FLYHT’s
assets.
A summary of the carrying value of the debenture as at December 31, 2018 and changes during the year is presented below.
Proceeds on issue
Transaction costs allocated
Net proceeds
Amount classified as equity (net of transactions costs)
Accrued interest
Carrying amount of liability at December 31, 2018
Contract Liabilities - Customer Deposits
2018
$
1,950,000
(84,376)
1,865,624
(257,984)
120,133
1,727,773
Customers are frequently required to pay for Hardware prior to the planned shipment date, or for Technical Services in advance of
delivery. This non-refundable prepayment is recorded as a Customer Deposit liability upon receipt. When the associated items are
shipped, or services provided, the deposit is applied to clear the resulting trade receivable.
The chart below outlines the movement in the Company’s customer deposits throughout the periods ending December 31, 2018 and
2017. Payment was received for 8 installation kits in the fourth quarter of 2018 compared to 11 received in the fourth quarter of 2017,
bringing 2018 year-to-date (“YTD”) total payments for installation kits to 74, compared to a total of 64 in 2017.
Opening balance
Payments received
Recognized as revenue
Balance, December 31
*2017 restated for IFRS 15
Q4 2018
$
925,225
1,961,212
(2,224,604)
Q4 2017*
$
1,106,012
2,236,658
(1,654,699)
Variance
$
(180,787)
(275,446)
(569,905)
YTD 2018
$
1,687,971
4,820,111
(5,846,249)
YTD 2017*
$
317,899
5,543,241
(4,173,169)
Variance
$
1,370,072
(723,130)
(1,673,080)
661,833
1,687,971
(1,026,138)
661,833
1,687,971
(1,026,138)
20-
Comprehensive Income
Revenue
In tandem with adopting the requirements of IFRS 15, the Company re-assessed revenue categories to isolate licensing from other
parts purchases, to establish one category for all hardware sales, and to rename revenue from recurring voice and data services.
In the categories listed in the revenue sources chart, Software as a Service (SaaS) is the recurring revenue from the Company’s product
that allows customers to utilize and analyze data they receive from hardware, use of functions such as the satellite phone and the sale of
weather data from TAMDAR units. These usage fees are recognized as the service is provided based on actual customer usage each
month. Hardware includes the income from hardware sales and related parts required to install the unit, spare units, spare installation
parts, and Underfloor Stowage Units. Licensing includes sales of modems with a related manufacturing license fee. Technical Services
includes all services offered by the Company, including repairs and other expertise.
Revenue sources
SaaS
Hardware
Licensing
Technical Services
Total
*2017 restated for IFRS 15
Q4 2018
$
2,261,211
1,464,475
249,833
58,307
4,033,826
Q4 2017*
$
Variance
$
1,001,551
1,259,660
1,942,636
(478,161)
444,931
(195,098)
60,889
3,450,007
(2,582)
583,819
YTD 2018
$
5,528,822
5,536,687
2,265,262
259,745
13,590,516
YTD 2017*
$
Variance
$
4,312,702
1,216,120
5,444,844
91,843
3,752,301
(1,487,039)
185,041
13,694,888
74,704
(104,372)
Overall, total revenue decreased 0.8% from $13,694,888 in 2017 to $13,590,516 in 2018. Hardware sales increased by 1.7%, while SaaS
increased by 28.2%, Licensing decreased by 39.6%, and Technical Services revenue increased by 40.4%.
SaaS Recurring revenue accounted for 56.1% of revenue in Q4 2018 (Q4 2017: 29.0%), and 40.7% YTD 2018 (YTD 2017: 31.5%). The
acquisition of customer contracts from PAC contributed to an increase in Q4 2018 from Q4 2017 of 125.8%. Recurring revenue from
FLYHT’s existing client base is expected to continue to expand throughout 2019 and future years.
Hardware sales increased in 2018 as compared to 2017 due to an increased number of installation kits being shipped. YTD, 99 AFIRS
installation kits were shipped, compared to 81 in 2017.
Licensing decreased both in the quarter and YTD in 2018 from 2017 due to differences in the number of modems with related license
fees shipped.
Technical Services revenue decreased in the quarter while increasing YTD in 2018 compared to 2017. 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.
Revenue sources for the last eight quarters were:
Q4 2018
Q3 2018
Q2 2018
Q1 2018 Q4 2017*
Q3 2017*
Q2 2017*
Q1 2017*
SaaS
2,261,211
1,145,368
1,079,214
1,043,030
1,001,551
998,337 1,158,340 1,154,473
Hardware
Licensing
Technical Services
Total
1,464,475
249,833
58,307
4,033,826
1,651,592
265,492
29,661
3,092,113
854,350
1,122,974
89,728
3,146,266
1,566,270
626,962
82,049
3,318,311
1,942,636
444,931
60,889
3,450,007
1,689,030
743,115
465,422 1,318,497
22,430
68,591
3,242,382
3,221,380
1,070,064
1,523,451
33,131
3,781,119
*2017 restated for IFRS 15
North America
South/Central America
Africa
Middle East
Europe
Australasia
Asia
Total
*2017 restated for IFRS 15
21-
Q4 2018
Q4 2017*
$
$
1,651,318
246,361
255,776
197,492
83,418
159,429
1,440,032
4,033,826
1,948,062
91,754
213,102
452,265
98,570
157,686
488,568
3,450,007
YTD 2018
$
5,935,692
660,007
588,473
1,794,439
770,574
646,989
3,194,342
13,590,516
YTD 2017*
$
7,476,508
396,591
774,402
976,490
348,037
632,299
3,090,561
13,694,888
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
Gross Profit and Cost of Sales
FLYHT’s cost of sales includes the direct costs associated with specific revenue types, including the hardware unit, installation kits,
training 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 2018 was 44.5% compared to 23.7% in 2017’s fourth quarter. A review of the
annual results shows the cost of sales as a percentage of revenue also increased from 33.1% in 2017 to 39.6% in 2018. The decrease
in gross margin was due to differences in the mix of revenue sources in 2018 versus 2017. Gross margin will fluctuate quarter over quarter
depending on customer needs and revenue mix.
Gross margin for the last eight quarters was:
Q4 2018
Q3 2018
Q2 2018
Q1 2018
Q4 2017
Q3 2017
Q2 2017
Q1 2017
Gross Margin %
Cost of Sales
55.5
44.5
56.5
43.5
65.8
34.2
59.9
40.1
76.3
23.7
53.0
68.7
47.0
31.3
68.7
31.3
Distribution Expenses
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
Q4 2018
$
Q4 2017
$
Variance
$
YTD 2018
$
YTD 2017
$
Variance
$
1,435,259
420,315
1,014,944
3,592,664
2,361,046
1,231,618
6,093
3,154
2,939
40,068
152,272
(112,204)
Contract labour
Office
Travel
Equipment and
maintenance
Depreciation
Marketing
Other
Total
163,901
134,483
179,903
17,330
13,685
26,415
98,148
301,633
(137,732)
100,118
125,839
34,365
54,064
725,677
402,191
647,515
881,837
(156,160)
429,294
601,172
(27,103)
46,343
18,121
(791)
190,470
53,712
136,758
10,378
45,337
144,174
3,307
(18,922)
(46,026)
906,148
37,641
165,615
191,395
34,438
3,203
268,033
(102,418)
169,667
21,728
5,993,236
4,951,471
1,041,765
2,075,217
1,169,069
Distribution expenses increased by 21.0% from 2018 to 2017.
Salaries and benefits have increased in 2018 primarily due to the PWS acquisition of new employees and the replacement of contract
labour with permanent staff, as can be noted in the offsetting decreases in Contract labour.
Share based compensation has increased in 2018 as a result of an increased number of options granted to employees involved in
distribution activities.
Travel expense has increased in the quarter and YTD in support of integration and customer service efforts with the acquisition of PWS
and increased sales efforts, particularly in China.
Equipment and maintenance expense increases YTD resulted from purchases of cloud-based services to support UpTime Cloud and
AirMap.
Marketing expense has decreased in 2018 due to reduced attendance at industry tradeshows.
Other expense decreases in the fourth quarter compared to an increase YTD are the result of differences in reserves for bad debts
throughout 2018.
22-
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
Q4 2018
$
527,278
156,112
123,394
119,363
53,029
71,627
34,193
11,377
44,283
73,298
27,570
16,573
Q4 2017
$
306,721
11,828
130,294
81,981
20,015
51,022
37,143
4,923
23,261
38,394
27,038
13,021
Variance
$
220,557
144,284
(6,900)
37,382
33,014
20,605
(2,950)
YTD 2018
$
1,457,388
190,209
289,983
376,094
195,143
197,852
114,866
YTD 2017
$
1,326,548
281,675
431,423
306,034
76,446
192,452
158,931
Variance
$
130,840
(91,466)
(141,440)
70,060
118,697
5,400
(44,065)
6,454
34,205
40,350
(6,145)
21,022
34,904
532
3,552
120,297
166,179
80,381
29,011
102,348
131,340
59,334
52,206
17,949
34,839
21,047
(23,195)
92,521
Total
1,258,097
745,641
512,456
3,251,608
3,159,087
Administration expenses increased by 2.9% from 2017 to 2018.
Salaries and benefits have increased in 2018 primarily due to the acquisition of new employees and the replacement of contract labour
with permanent staff, as can be noted in the decreases in Contract labour.
Legal fees and Audit and accounting costs have increased YTD as a result of services required for the acquisition of PWS assets.
Equipment and maintenance expenses and Depreciation increased YTD mainly with the acquisition of computing software from PAC.
Other expenses also decreased in 2018 from the same period in 2017 due to employee relocation costs required in 2017, while this type
of expense was not required in 2018.
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
Other
Total
Q4 2018
$
715,446
3,003
54,978
30,618
21,242
10,632
23,273
-
15,838
(85,851)
24
Q4 2017
$
Variance
$
YTD 2018
$
YTD 2017
$
Variance
$
699,428
-
87,648
48,557
19,163
32,297
57,518
-
31,856
123,402
-
16,018
3,003
(32,670)
(17,939)
2,079
(21,665)
(34,245)
-
(16,018)
(209,253)
24
(310,666)
2,443,060
8,008
225,529
79,263
75,196
69,733
77,399
-
43,437
(391,697)
1,517
2,093,261
25,448
276,669
127,221
90,911
125,357
165,510
(116,514)
49,721
(318,310)
-
2,631,445
2,519,274
349,799
(17,440)
(51,140)
(47,958)
(15,715)
(55,624)
(88,111)
116,514
(6,284)
(73,387)
1,517
112,171
789,203
1,099,869
Research and Development expense was 4.5% higher in 2018 compared to the prior year due to no SR&ED credits received in 2018
partially offset by additional funding received from WINN in 2018. Research and development costs vary according to specific project
requirements.
23-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
Salaries and benefits have increased mainly due to replacement of contracts with staff as can be noted in the decreases in Contract
labour.
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 lower in 2018 than in 2017 as a lower number of expensed parts were used in development and testing
activities.
The decreased SR&ED credit in 2018 was due to a difference in eligible expenses, as expenses formerly SR&ED eligible were funded
instead by the WINN program.
Net Finance Costs
Major Category
Interest (income)
Q4 2018
Q4 2017
Variance
YTD 2018
YTD 2017
Variance
$
$
$
$
$
(7,712)
(6,051)
(1,661)
Net foreign exchange loss (gain)
(139,411)
(5,034)
(134,377)
Bank service charges
Interest expense
Government loan accretion
Debenture interest and accretion
Net finance costs
6,973
174
89,731
79,854
29,609
6,107
64
57,323
-
52,409
866
110
32,408
79,854
(22,800)
(16,628)
(15,756)
(189,971)
115,979
26,849
2,719
38,807
681
321,875
223,795
120,132
264,976
-
363,506
$
(872)
(305,950)
(11,958)
2,038
98,080
120,132
(98,530)
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 weakening of the Canadian dollar has given rise to increased foreign exchange gains 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 is the recognition of the effective interest on the liability portion of the debenture and the amortization
of the issuance cost.
Net Loss
Major Category
Net income (loss)
*2017 restated for IFRS 15
Foreign Exchange
Q4 2018
$
217,954
Q4 2017*
$
(437,318)
Variance
$
655,272
YTD 2018
$
(1,966,748)
YTD 2017*
$
(1,836,735)
Variance
$
(130,013)
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 2018, 99% of the Company’s gross sales were made in U.S. dollars,
compared to 99% in 2017. 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.
24-
Other
Recent Accounting Pronouncements
In January 2016, the International Accounting Standards Board issued the final version of IFRS 16, Leases. IFRS 16 will replace the
existing leases Standard, IAS 17 Leases, and related Interpretations. The Standard sets out the principles for the recognition,
measurement, presentation and disclosure of leases for both parties to a contract (i.e., the lessee and the lessor). IFRS 16 introduces a
single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12
months, unless the underlying asset is of low value. Currently, operating lease expenses are charged to the statement of
comprehensive income (loss). The Standard also contains enhanced disclosure requirements for lessees. IFRS 16 substantially carries
forward the lessor accounting requirements in IAS 17.
The effective date for adoption of IFRS 16 is annual periods beginning on or after January 1, 2019, and the Company will adopt IFRS
16 for the annual period beginning on January 1, 2019. The transition to IFRS 16 consists of three key phases: identifying and
analyzing all contracts that could contain a lease, analyzing impact of transition, and implementing any required changes to policies and
internal controls. The Company has completed its identification of all outstanding leases as at December 31, 2018 and is currently in
the process of completing its calculations and analysis to finalize transition results for Q1 2019.
In the context of transition to IFRS 16, as of January 1, 2019 the Company will recognize right-of-use assets and lease liabilities in the
statements of financial position. The Company will transition to IFRS 16 in accordance with the modified retrospective approach.
Impacts of IFRS 16 prior to January 1, 2019 are not adjusted. As part of the initial application of IFRS 16, the Company chose to apply
the following transition options and exemptions:
Critical judgements and estimates will be applied in the transition to IFRS 16, such as assessing whether an arrangement contained a
lease, determining the lease term, and calculating discount rates on a lease-by-lease basis. These aforementioned estimates have a
significant risk of material adjustment within the next financial year.
Effective January 1, 2018 the Company adopted the amendments of IFRS 15, which implemented a single model that applies to contracts
with customers with two approaches to recognizing revenue: at a point in time and over time. The model features a contract-based five
step analysis of transactions to determine whether, how much and when revenue is recognized. The retrospective method was used to
ensure comparability, which required quarterly restatement of comparative periods. No restatement was made for contracts completed
by January 1, 2017. Opening 2017 retained earnings was adjusted for the cumulative effect prior to that date.
Effective January 1, 2018 the Company also adopted the amendments of IFRS 9 which replaced the 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. The Company evaluates impairment of receivables using an expected credit loss model, which involves assessing potential
credit impairment at each reporting date. Adopting this standard has not had a material impact on the Company’s 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 228, FlightLink and TAMDAR, can take approximately 150-200 person-hours to install on an aircraft,
depending on the product, aircraft type and installation crew. Since the installation period is non-trivial, the installation is usually scheduled
when the aircraft is undergoing its routine c-check or scheduled maintenance. The timing of c-checks depends on how many segments
the aircraft has flown and is based on the manufacturer’s guidelines; it can take as long as two or three years before an aircraft is out of
service for an extended period, though most aircraft are available annually. The timing of a c-check for hardware installation is an
uncertainty to the Company because it results in a delay in initial revenue from the sale of the box and the Company does not receive
recurring revenue connected with the monthly service offerings until the hardware components are installed and running.
The Company takes steps to mitigate this uncertainty by encouraging customers to install hardware at their aircraft’s earliest availability
and works with them to provide the product at the right time for installation, preferably while the aircraft is down for normal service. The
goal is to reduce aircraft downtime and save the customer as much money as possible. The Company also offers special discounts for
upfront payment for all units as another mitigation tool. 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.
25-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
Enterprise Network Risks
The Company currently operates at least three different types of networks to provide its SaaS products to our customer base. Uptime
Classic services many of FLYHT’s early adopters and is implemented on redundant fixed server platforms in Canada. Uptime Cloud
services many of FLYHT’s newer AFIRS customers and is implemented in Amazon Web Services (AWS) equipment in the United States
and China. The AirMap suite is operated on fixed equipment in a hosting center in the United States. Part of FLYHT’s agreement with
Panasonic Avionics Corporation will result in the AirMap suit being ported to AWS at no cost to FLYHT. This is a non-trivial technology
transfer and it is possible that disruption in the task could impact exiting customers and negatively impact FLYHT’s relationship with these
clients. It is FLYHT’s longer term goal to migrate all customers and services onto a common AWS platform and reduce the number of
systems, increasing efficiencies and reducing costs.
All the enterprise services exist with the possibility that their security could be compromised. FLYHT uses best practices to ensure that
the services are as secure as practical and periodically test the penetrability of the systems according to best practices within the
enterprise community. A security breach could expose our customer data to external, unauthorized third parties and create a breach in
our contracts with our customers. To date, no such breach has knowingly occurred on any of these systems. FLYHT will continue to
monitor and improve our solutions. In particular, the hosting of our solutions on AWS brings with it the benefits of taking advantage of
state of the art security provisions which are introduced on that platform with great velocity
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 the Company offers.
To address this risk, the sales team has developed several 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, we may find success 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 enables the Company to complete STCs in a timely and cost-efficient manner. Similarly, the Company must interact
with the FAA for its USA based STCs and PMA certifications. The Company has worked over the past few years to distribute the specified
knowledge among several 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, FlightLink and TAMDAR product lines and continues to build out its
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 within the AirMap suite of applications of and UpTime Cloud. FLYHT is confident these products fill a
gap in the industry, as evidenced by increasing sales of the AFIRS 228these products throughout from 2013 to 2018. The Company’s
success will ultimately depend on the success of its products, and future enhancements made to them.
Revenues associated with TAMDAR
TAMDAR is currently installed and collecting weather data on approximately 200 aircraft. FLYHT supplies this weather data to Synoptic
Data DBC as part of their participation in the National Mesonet program. FLYHT is receiving revenues from Synoptic based upon this
participation with a targeted number of observations. If these observations fall below an established number or if they are not perceived
to have the original perceived value, then the existing payments for the TAMDAR data could be diminished or stop, depending upon a
variety of factors including procurement changes from the United States Government. FLYHT attempts to mitigate these potential
problems and potentially grow the revenues derived from TAMDAR by expanding the number of installed TAMDAR sensors and by
investing in quality control programs to ensure that the sensors are properly calibrated and producing valid and valuable data.
26-
Availability of key supplies
FLYHT services its products differently, depending on the product.
The AFIRS 220 is no longer in production and all units are repaired in-house at FLYHT-Calgary. Certain parts can be delayed
in shipping or availability, which can cause a delay in servicing the AFIRS 220. FLYHT aims to avoid the risk of not having the
necessary supplies by managing inventories and storing extra key parts. 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.
The 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 receiving 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. The AFIRS 228 is serviced in different ways; by the contract
manufacturer, at FLYHT-Calgary or by our contract maintenance facility GAMECO in Guangzhou, China. Where a unit is
repaired or serviced depends on a multitude of factors and is managed by FLYHT’s customer support team.
FlightLink and TAMDAR are assembled at FLYHT-Littleton using subassemblies that the company relies on from partners,
suppliers and using special parts to complete unit builds. Certain parts can be delayed in shipping or availability, which can
cause a delay in receiving assemblies for final units. FLYHT aims to avoid the risk of not having the necessary supplies by
managing inventories and storing extra key parts. 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. FlightLink and TAMDAR are
currently serviced by Panasonic owned maintenance and repair facilities in Washington State, USA and Singapore at no charge
to FLYHT. This relationship can exist until March 31, 2020 at which time FLYHT may also create a Part 145 repair facility at
FLYHT-Littleton. Whether FLYHT continues to use Panasonic repair facilities after March 31, 2020 is being evaluated at this
time.
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. This company also provided certain financial services in Q2 2018. All transactions with the related party were at exchange
amounts that approximated fair value.
Amounts included in:
Contract labour
Contractual Arrangement
For the three months ended
December 31
2018
$
-
2017
$
19,200
For the year ended
December 31
2018
$
12,900
2017
$
83,200
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.
.
27-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
Independent Auditors’ Report
To the Shareholders of FLYHT Aerospace Solutions Ltd.
Opinion
We have audited the consolidated financial statements of FLYHT Aerospace Solutions Ltd. (the "Company"), which
comprise:
• the consolidated statements of financial position as at December 31, 2018 and December 31, 2017;
• the consolidated statements of comprehensive income (loss) for the years then ended;
• the consolidated statements of changes in equity (deficiency) for the years then ended;
• the consolidated statements of cash flows for the years then ended;
• and notes to the consolidated financial statements, including a summary of significant accounting policies.
Hereinafter referred to as the “financial statements”.
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial
position of the Company as at December 31, 2018 and December 31, 2017, and its consolidated financial performance
and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards
(“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under
those standards are further described in the “Auditors’ Responsibilities for the Audit of the Financial Statements” section
of our auditors’ report.
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these
requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 2 in the financial statements, which indicates that the Company’s operating results and cash
flows from operations are negative in both 2018 and 2017.
As stated in Note 2 in the financial statements, these events or conditions, along with other matters as set forth in Note 2
in the financial statements, indicate that a material uncertainty exists that may cast significant doubt on the Company’s
ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. Other information comprises the information included in
Management’s Discussion and Analysis to be filed with the relevant Canadian Securities Commissions.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form
of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above
and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated.
We obtained the information included in the Management’s Discussion and Analysis to be filed with the relevant Canadian
Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other
information, we conclude that there is a material misstatement of this other information, we are required to report that fact
in the auditors’ report.
We have nothing to report in this regard.
28-
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS,
and for such internal control as management determines is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to
do so.
Those charged with governance are responsible for overseeing the Company‘s financial reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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
Company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Company's ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause
the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and
whether the financial statements represents the underlying transactions and events in a manner that achieves fair
presentation.
• Communicate with those charged with governance regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
• Provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this auditors’ report is Reinier Deurwaarder.
“KPMG LLP”
Chartered Professional Accountants
April 10, 2019
Calgary, Canada
29-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December 31,
2018
$
December 31,
2017
$
Assets
Current Assets
Cash and cash equivalents (note 6)
Trade and other receivables (note 7)
Contract assets
Deposits and prepaid expenses
Inventory (note 8)
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)
Contract liabilities (note 13)
Loans and borrowings (note 14)
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)
Convertible debenture – Equity feature
Warrants (note 17)
Contributed surplus
Cumulative Translation Adjustment
Deficit
Total equity (deficiency)
Total liabilities and equity
2,406,769
3,440,767
395,695
227,065
1,066,946
7,537,242
480,270
34,992
1,044,766
1,560,028
9,097,270
2,342,754
661,833
1,524,894
129,465
272
4,659,218
4,420,714
43,701
4,464,415
9,123,633
58,430,455
207,273
50,712
10,494,208
35,638
(69,244,650)
(26,364)
9,097,270
2,014,135
1,650,574
313,634
391,191
1,331,893
5,701,427
398,272
34,992
859,448
1,292,712
6,994,139
1,874,005
1,687,971
-
112,578
12,211
3,686,765
1,842,439
91,713
1,934,152
5,620,917
58,409,225
-
911,282
9,349,871
(19,254)
(67,277,902)
1,373,222
6,994,139
See accompanying notes to condensed consolidated interim financial statements, including the going concern note (note 2d).
Under the transition method chosen for application of IFRS15, comparative information has been restated (note 3).
On behalf of the board
________
Director – Bill Tempany
Director – Paul Takalo
30-
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the year ended December 31
Revenue (note 19)
Cost of sales
Gross profit
Distribution expenses (note 22)
Administration expenses (note 23)
Research, development and certification engineering expenses (note 24)
Income (loss) from operating activities
Other Income (note 21)
Finance income (note 25)
Finance costs (note 25)
Net finance costs
Income (loss) before income tax
Income tax expense (recovery) (note 26)
Income (loss) for the period
Foreign currency translation adjustment
Comprehensive income (loss) for the period
2018
$
13,590,516
5,524,696
8,065,820
5,993,236
3,251,608
2,631,445
(3,810,469)
1,861,050
206,599
471,575
264,976
(2,214,395)
(247,647)
(1,966,748)
54,892
(1,911,856)
2017
$
13,694,888
4,529,380
9,165,508
4,951,471
3,159,087
2,519,274
(1,464,324)
-
15,756
379,262
363,506
(1,827,830)
8,905
(1,836,735)
(5,102)
(1,841,837)
Income (loss) per share
Basic and diluted income (loss) per share (note 18)
(0.09)
(0.09)
31-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIENCY)
For the years ended December 31, 2018 and 2017
Convertible
Debenture
$
Warrants
$
Contributed
Surplus
$
Cumulative
Translation
Adjustment
Deficit
$
Total Equity
(Deficit)
$
911,282
9,349,871
(19,254)
(67,277,902)
1,373,222
-
-
-
-
54,892
(1,966,748)
(1,911,856)
54,892
(1,966,748)
(1,911,856)
Share
Capital
$
58,409,225
-
-
-
-
-
21,230
-
-
Balance at December 31,
2017
Income for the period
Total comprehensive loss for
the period
Contributions by and
distributions to owners
Share-based payment
transactions
Warrants issued
Warrants re-priced
Warrants exercised
Warrants expired
Conversion feature on
debenture
Total contributions by and
distributions to owners
Balance at December 31,
2018
-
-
-
-
-
-
-
-
-
105,018
50,712
133,267
(5,230)
-
-
-
(1.039,319)
1,039,319
207,273
-
-
21,230
207,273
(860,570)
1,144,337
-
-
-
-
-
-
-
-
-
-
-
-
-
-
105,018
50,712
133,267
16,000
-
207,273
512,270
58,430,455
207,273
50,712
10,494,208
35,638
(69,244,650)
(26,364)
Balance at January 1, 2017
57,514,646
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
Total contributions by and
distributions to owners
Balance at December 31,
2017
-
379,396
515,183
894,579
58,409,225
-
-
-
-
-
-
-
-
-
-
-
-
459,396
(127,504)
(228,652)
-
(228,652)
331,892
1,139,934
9,017,979
(14,152)
(65,441,167)
2,217,240
-
-
(5,102)
(1,836,735)
(1,841,837)
(5,102)
(1,836,735)
(1,841,837)
-
-
-
-
459,396
251,892
286,531
997,819
911,282
9,349,871
(19,254)
(67,277,902)
1,373,222
32-
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31
2018
$
Cash flows from (used in) operating activities
Income (loss) for the period
Depreciation – property and equipment
Convertible debenture accretion
Grant portion of contributions from WINN
Government loan accretion
Equity-settled share-based payment transactions
Warrant re-price
Bargain purchase
Change in inventories
Change in trade and other receivables
Change in contract assets
Change in prepayments
Change in trade and other payables
Change in customer deposits
Change in provisions
Provision realized
Unearned revenue
Unrealized foreign exchange loss
Other interest expense
Interest paid
Interest income
Interest received
Income tax expense (recovery)
Income tax paid
Net cash from (used in) operating activities
Cash flows used in investing activities
Acquisitions of property and equipment (PPE)
Disposal of PPE
Net cash used in investing activities
Cash flows from (used in) financing activities
Redemption of GIC
Subsidy payment received
Less subsidy recognized (note 13)
Proceeds from debenture
Proceeds from exercise of share options and warrants
Contributions from WINN
Repayment of borrowings
Payment of finance lease liabilities
Net cash from (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents, ending
(1,966,748)
161,489
120,132
(391,697)
321,875
105,018
133,267
(658,920)
835,266
(1,690,798)
(82,061)
164,126
469,051
(1,026,138)
(32,205)
(15,807)
-
(110,142)
2,719
(2,719)
(16,628)
16,628
(247,647)
(8,272)
(3,920,211)
(96,224)
-
(96,224)
-
2,727,024
(1,202,130)
1,865,624
16,000
1,056,543
(119,333)
-
4,343,728
327,293
2,014,135
65,341
2,406,769
2017
$
(1,836,735)
143,493
-
(318,310)
223,795
459,396
-
-
204,387
219,885
(199,909)
(174,419)
78,207
1,370,072
(436,832)
(20,790)
(19,866)
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
33-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
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. FLYHT is publicly traded as FLY in Canada on the TSX.V; and as
FLYLF in the USA on the OTCQX. FLYHT is based in Calgary, Canada with an office in Littleton, Colorado and is an AS9100 Quality
registered company. For more information visit www.flyht.com.
The consolidated financial statements of the Company as at and for the years ended December 31, 2018 and 2017 consist of the
Company and its subsidiaries.
FLYHT’s mission is to improve aviation safety, efficiency and profitability. Globally, and for more than 20 years, airlines, leasing
companies, fractional owners and original equipment manufacturers have installed FLYHT’s differentiated aircraft and enterprise-based
solutions to deliver real-time, flight-deck, satellite connectivity for tracking, health monitoring, and streaming of operational, maintenance
and weather data.
2. Basis of preparation
(a) Basis of accounting
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, 2019.
(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. At December 31, 2018, the Company had positive working capital of $2,878,024 compared
to positive $2,014,662 (restated for IFRS 15) as of December 31, 2017, an increase of $863,362. The Company’s operating results and
cash flows from operations are negative in both 2018 and 2017.
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
hardware units and related services. Additionally, the acquisition of PWS provides the Company the opportunity to realize efficiencies of
scale through increasing both service and hardware revenues.
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. The Company has an undrawn credit facility of $1.5 million, $2.97 million in contributions under WINN loans not yet
received and if the need arises due to market opportunities, the Company may meet cash-flow 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.
34-
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.
(e) Use of judgements and 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 estimation uncertainties, and assumptions used in preparing our financial statements:
1. Recognition of deferred tax assets: the availability of future taxable profit against which deductible temporary differences and
tax losses carried forward can be utilized.
2. Recognition and measurement of provisions and contingences: key assumptions about the likelihood and magnitude of an
outflow of resources.
3. Measurement of expected credit loss allowance for trade receivables: the expected credit loss is determined by assessing
potential credit impairment at each reporting date.
4. The Company assesses raw materials and finished goods inventory for potential obsolescence or impairment. This provision is
determined based on regular reviews of slow-moving inventory.
5. The fair value of WINN contributions: a discount rate is used to determine the portion of the contribution to be categorized as 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.
6. Asset acquisition for which no consideration was paid: measured at the fair value of the consideration transferred and fair value
of assets acquired and liabilities assumed.
7. Valuation of convertible debt instruments: a discount rate is used to determine the fair value of the loan, and is a method of
allocating the equity portion between the different equity classes.
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) Business combinations
The Company accounts for business combinations using the acquisition method when control is transferred. The consideration transferred
in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually
for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transactions costs are expenses as incurred,
except if related to the issue of debt or equity securities.
Any contingent consideration is measured at fair value at the date of acquisition. Obligations to pay a contingent consideration are
remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized
in profit or loss.
(ii) Subsidiaries
Subsidiaries are entities controlled by FLYHT. The financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control ceases.
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.
35-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
(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
Effective January 1, 2018 the Company adopted IFRS 9 – Financial Instruments which replaced 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.
(i) Recognition and measurement
The Company initially recognizes trade receivables and trade payables, loans and borrowings and finance lease liabilities on the date
they are originated. All other financial instruments are recognized initially on the trade date at which the Company becomes a party to the
contractual provisions of the instrument.
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.
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.
(ii) Derecognition
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.
The Company derecognizes a financial liability when its contractual obligations are discharged, canceled or expires. On derecognition of
a financial liability, the difference between the carrying amount extinguished and the consideration paid is recognized in profit or loss.
(iii) Offsetting
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.
(iv) Share capital
Common shares are classified as equity if settlement results in the company delivering a fixed number of its own shares in exchange for
a fixed number of other cash or financial assets. If settlement results in the Company delivering a fixed number of its own shares in
exchange for a fixed number of other cash or financial assets. 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.
(v) 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.
36-
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 at maturity, 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 write-down to net realizable value is recognized as an expense. Reversals of previous write-downs are recognized in
profit or loss in the period when the reversal occurs.
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 raw material inventories.
Finished goods consists of 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 units.
(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 over lease term
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.
37-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
(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 AFIRS, FlightLink and
TAMDAR systems and the design and testing of all software systems and products (including AirMap, 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.
(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.
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. An intangible asset is derecognized on disposal or when no future economic benefits are expected from
its use or disposal.
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.
(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 the grant will be received and the Company will comply with the conditions
associated with the grant.
38-
(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.
(j) Provisions
A provision is recognized if, as the 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 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 and failure
rates.
(k) Impairment
(i) Non-derivative financial assets
The Company recognizes allowances for expected credit loss on financial assets measured at amortized cost. Loss allowances for trade
receivables and contract assets are measured at an amount equal to lifetime expected credit loss. Lifetime expected credit losses are
the losses that result from all possible default events over the expected life of a financial instrument.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating
expected credit losses, the Company considers reasonable and supportable information that is relevant and available without undue cost
of effort. This includes both quantitative and qualitative information and analysis based on historical experience and informed credit
assessment including forward-looking information.
The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 90 days past due.
Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash
shortfalls being the difference between the cash flows due to the Company in accordance with the contract and the cash flows that the
Company expects to receive.
(ii) Non-financial assets
At each reporting date, the Company reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax
assets) to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is
estimated.
For impairment testing, assets 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.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. Value in use is based on the
estimated future cash flows, discounted to their present values using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset.
39-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
An impairment loss is recognized if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognized
in profit and loss.
(l) Revenue
Effective January 1, 2018 the Company adopted IFRS 15, which implemented a single model that applies to contracts with customers
with two approaches to recognizing revenue: at a point in time and over time. The model features a contract-based five step analysis of
transactions to determine whether, how much and when revenue is recognized. The retrospective method was used to ensure
comparability, which required restatement of comparative periods. No restatement was made for contracts completed by January 1, 2017.
Opening 2017 retained earnings was adjusted for the cumulative effect of adjustments prior to that date.
The following describes the accounting policies for each revenue stream, including the timing of each performance obligation and any
significant payment terms.
(i) SaaS
Revenue from sales of Software as a Service is recognized over time as these services are provided. Invoices based on usage are
generated monthly and typically are payable within 30 days.
(ii) Hardware
Control of Hardware is transferred upon shipment. Invoices are generated, and revenue is recognized at that point in time. Payment terms
are based on the creditworthiness of each customer, which results in either a grant of net terms or a requirement to transact on a
prepayment basis only. Transaction price is determined by contract or purchase order. Under IAS 18, revenue was deferred until the risks
and rewards had been transferred to the buyer. For contracts under which customer acceptance was determined based on installation of
the system, revenue and associated cost of goods sold is recognized sooner under IFRS 15 than IAS 18.
(iii) Licensing
Control over modems and associated IP licenses is transferred upon shipment, at which point the revenue is recognized. Payment is
typically due net 30 post shipment.
(iv) Technical Services
Revenue from Technical Services is recognized over time, as the services are provided or as the associated asset is developed. Payment
terms for these services typically follow terms established for Hardware.
The effect of initially applying this standard is mainly earlier recognition of revenue from Hardware sales. IFRS 15 did not have a significant
impact on revenue from SaaS, Licensing, nor Technical Services. Under IFRS 15, revenue is recognized when a customer obtains control
of the goods or services. Determination of the timing of this transfer often requires judgement. Management assesses each contract for
appropriate allocation of transaction price among performance obligations, including an expected margin analysis and evaluation of
consistently applied pricing methods.
The following tables summarize the impact of the Company’s transition to IFRS 15.
Comprehensive statement of income, affected categories:
For the year ended
December 31, 2017
$
Previously
reported
14,018,750
IFRS 15
adjustments
(323,862)
Amounts
adjusted for
IFRS 15
13,694,888
4,772,680
(243,300)
4,529,380
9,246,070
(80,562)
9,165,508
Revenue
Cost of sales
Gross profit
40-
Comprehensive statement of financial position, affected categories:
December 31, 2017
$
January 1, 2017
$
Previously
reported
IFRS 15
adjustments
Amounts
adjusted for
IFRS 15
Previously
reported
IFRS 15
adjustments
Amounts
adjusted for
IFRS 15
Trade and other
receivables
Contract assets
Current inventory
Unearned revenue
Deficit
1,887,251
-
1,563,558
(413,809)
(67,550,815)
(236,677)
313,634
(231,665)
413,809
259,101
1,650,574
313,634
1,331,893
-
(67,291,714)
2,105,385
-
1,556,794
(827,235)
(65,795,200)
(113,725)
113,725
(467,488)
807,369
339,881
1,991,660
113,725
1,089,306
(19,866)
(65,455,319)
(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 equity-settled 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.
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.
41-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
(o) Finance income and finance costs
Finance income comprises interest income and the foreign currency gain on financial assets and financial liabilities which is recognized
in profit or loss as it accrues using the effective interest method.
Finance costs comprise interest expense and accretion on borrowings, unwinding of the discount on provisions, and the foreign currency
loss on financial assets and financial liabilities, and are recognized in profit or loss using the effective interest method whereby the amount
of the discount is amortized to interest expense over the expected life of the instrument.
(p) Foreign currency
(i) Foreign currency transactions
Foreign currency transactions are translated to Canadian dollars at the exchange rate in effect on the transaction date. Foreign currency
denominated monetary assets and liabilities at each reporting date are retranslated to the functional currency at the exchange rate in
effect on that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency
at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency
translated at the exchange rate at the end of the reporting period.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate in effect
on the date of the transaction.
Foreign currency differences arising on retranslation are recognized in profit or loss.
(ii) Foreign operations
The assets and liabilities of foreign operations are translated to Canadian dollars at exchange rates in effect at the reporting date. The
income and expenses of foreign operations are translated to Canadian dollars at exchange rates in effect on the transaction dates.
Foreign currency differences are recognized in other comprehensive income in the cumulative translation account.
(q) 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.
(i) Current tax
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.
(i) Deferred tax
Deferred tax is recognized in respect to temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial
recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit
or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable
future.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws
that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same
taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and
liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable
that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and
are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
When a taxable temporary difference arises from the initial recognition of the equity component separately from the liability component
of a compound financial instrument, the resulting deferred tax liability is charged directly to the carrying amount of the equity component.
42-
(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
In January 2016, the International Accounting Standards Board issued the final version of IFRS 16, Leases. IFRS 16 will replace the
existing leases Standard, IAS 17 Leases, and related Interpretations. The Standard sets out the principles for the recognition,
measurement, presentation and disclosure of leases for both parties to a contract (i.e., the lessee and the lessor). IFRS 16 introduces a
single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12
months, unless the underlying asset is of low value. Currently, operating lease expenses are charged to the statement of
comprehensive income (loss). The Standard also contains enhanced disclosure requirements for lessees. IFRS 16 substantially carries
forward the lessor accounting requirements in IAS 17.
The effective date for adoption of IFRS 16 is annual periods beginning on or after January 1, 2019, and the Company will adopt IFRS
16 for the annual period beginning on January 1, 2019. The transition to IFRS 16 consists of three key phases: identifying and
analyzing all contracts that could contain a lease, analyzing impact of transition, and implementing any required changes to policies and
internal controls. The Company has completed its identification of all outstanding leases as at December 31, 2018 and is currently in
the process of completing its calculations and analysis to finalize transition results for Q1 2019. As of January 1, 2019 the Company will
recognize right-of-use assets and lease liabilities in the statements of financial position. The Company will transition to IFRS 16 in
accordance with the modified retrospective approach. Impacts of IFRS 16 prior to January 1, 2019 are not adjusted. As part of the initial
application of IFRS 16, the Company chose to apply the following transition options and exemptions:
Critical judgements and estimates will be applied in the transition to IFRS 16, such as assessing whether an arrangement contained a
lease, determining the lease term, and calculating discount rates on a lease-by-lease basis. These aforementioned estimates have a
significant risk of material adjustment within the next financial year.
5. Measurement of fair values
A number of the Company’s accounting policies and disclosures require the measurement 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.
(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,
2018
$
3,274,135
166,632
3,440,767
December 31,
2017
$
1,463,187
187,387
1,650,574
Non-trade receivables consist of interest income receivable, and input tax credits. The Company’s exposure to credit and currency risks
is disclosed in note 27.
43-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
8. Inventory
Raw materials
Finished goods
Balance
Less current portion
Non-current portion
December 31,
2018
$
1,416,670
695,042
2,111,712
(1,066,946)
1,044,766
December 31,
2017
$
1,336,892
854,449
2,191,341
(1,331,893)
859,448
In 2018 Raw materials and Finished goods recognized as cost of sales amounted to $5,524,696 (2017: $4,529,380 restated for IFRS
15). Included in this amount was a write down of inventories amounting to $157,852 (2017: $93,498) resulting from a review of slow
moving inventory parts. All inventories are pledged as security for the bank loan and the convertible debenture (note 14).
9. Property and equipment
2018
Cost
Balance at January 1
Additions
Acquisition through business
combinations
Balance at December 31
Accumulated Depreciation
Balance at January 1
Depreciation for the year
Balance at December 31
Carrying Amounts
At January 1
At December 31
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
Computers and
Software
$
Equipment
$
Leasehold
Improvements
$
825,224
94,916
96,770
1,016,910
579,613
123,206
702,819
245,611
314,091
345,159
1,308
35,569
382,036
216,633
30,446
247,079
128,526
134,957
49,110
-
14,924
64,034
24,975
7,837
32,812
24,135
31,222
Computers and
Software
$
Equipment
$
Leasehold
Improvements
$
705,263
119,961
-
825,224
464,125
115,488
-
579,613
241,138
245,611
266,426
87,798
9,065
345,159
201,509
21,702
6,578
216,633
64,917
128,526
48,453
657
-
49,110
18,672
6,303
-
24,975
29,781
24,135
Total
$
1,219,493
96,224
147,263
1,462,980
821,221
161,489
982,710
398,272
480,270
Total
$
1,020,142
208,416
9,065
1,219,493
684,306
143,493
6,578
821,221
335,836
398,272
As of December 31, 2018, all property and equipment are pledged as security for the bank loan and the convertible debenture (note 14).
44-
10. Intangible assets
The IP Licenses are 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.
Intangible assets are pledged as security for the bank loan and the convertible debenture (note 14).
11. Trade payables and accrued liabilities
Trade payables
Compensation and statutory deductions
Accrued liabilities
Balance, December 31
December 31,
2018
$
1,737,710
346,456
258,588
2,342,754
December 31,
2017
$
1,345,952
348,410
179,643
1,874,005
Compensation and statutory deductions include accrued vacation pay, variable compensation, and statutory payroll deductions.
12. Customer deposits
Opening balance
Payments received
Recognized as revenue
Balance, December 31
13. Contract liabilities
Opening balance
Payments received
Recognized in Other Income
Less subsidy receivable
Balance, December 31
December 31,
2018
$
1,687,971
4,820,111
(5,846,249)
661,833
December 31,
2018
$
-
2,621,106
(1,202,130)
106,008
1,524,984
December 31,
2017
$
317,899
5,543,241
(4,173,169)
1,687,971
December 31,
2017
$
-
-
-
-
-
In October 2018 FLYHT acquired the assets of PWS. Pursuant to a transition agreement between the parties, to keep the asset acquisition
cash-flow neutral to FLYHT during an 18-month transition period, FLYHT is expected to receive a subsidy of $3.3 million USD. This
subsidy can be increased or reduced if FLYHT’s income relating to the acquired assets falls short or exceeds certain agreed upon
thresholds. The subsidy is being paid over the term of the transition period, and the portion of the amounts received that relate to future
periods are held in Contract Liabilities until they are recognized in Other Income on the Statement of Comprehensive Income.
14. Loans and borrowings
2018
Face value $
2018
Carrying value $
2017
Face value $
2017
Carrying value $
Secured bank loan
SADI loan
WINN loan
Convertible debenture
Balance, December 31
Less current portion
Non-current portion
-
1,507,481
2,137,202
2,480,000
6,124,683
137,233
5,987,450
-
1,252,743
1,569,663
1,727,773
4,550,179
129,465
4,420,714
-
1,626,814
1,080,658
-
2,707,472
119,333
2,588,139
-
1,162,679
792,338
-
1,955,017
112,578
1,842,439
45-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
Bank loan
On July 7, 2017, the Company amended its operating demand loan with a Canadian chartered bank to increase its borrowing availability
up to a maximum of CAD $1.5 million or 90% of the Company’s receivable balances, from $250,000 and also resulted in the release of
the GIC of $250,000 previously pledged as security. Any amount drawn on the Line of Credit bears 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.
On February 26, 2019, the Company amended its operating demand loan to allow the Company to draw funds either in CAD or USD.
USD funds drawn will bear interest at Canadian chartered bank US prime plus 4.5%. The aggregate of these two facilities is not to exceed
CAD $1.5 million. The other terms of the agreement remain the same.
Government loans
In November 2016, the Company signed a contribution agreement with Western Economic Diversification Canada for a Western
Innovation initiative (WINN) loan, to support plans for technology development in the air and ground components of the Company’s
products. Under the terms of the agreement, a repayable unsecured WINN contribution 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, 2018, the Company had received contributions totaling $2,137,202 (2017: 1,080,658).
In November 2018, the Company signed a second contribution agreement with Western Economic Diversification Canada for a Western
Innovation initiative (WINN) loan, to support development of the next generation of AFIRS hardware and embedded software to address
parts obsolescence issues and add new market-driven features. Under the terms of the agreement, a repayable unsecured WINN
contribution to the value of the lesser of 44% of the eligible project costs to April 30, 2021 or $2,761,000 will be received. A March 31,
2019 amendment adjusted the end date for eligible project costs to September 30, 2021. The amount is repayable over five years
commencing October 1, 2021. At December 31, 2018, the Company had not received contributions under this loan.
Under SADI, the Company has, at December 31, 2018, an outstanding repayable balance of $1,507,481 (2017: $1,626,814). 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, 2018 and 2017 and changes during these years is
presented below.
2018
SADI
$
1,162,679
-
-
209,397
(119,333)
1,252,743
129,465
1,123,278
2018
WINN
$
792,338
1,056,544
(391,697)
112,478
-
1,569,663
-
1,569,663
2018
Total
1,955,017
1,056,544
(391,697)
321,875
(119,333)
2,822,406
129,465
2,692,941
2017
SADI
$
1,072,641
-
-
193,805
(103,767)
1,162,679
112,578
1,050,101
2017
WINN
$
-
1,080,658
(318,310)
29,990
-
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
Balance January 1
Contributions received
Grant portion
Interest accretion
Repayment
Balance December 31
Less current portion
Non-current portion
Convertible Debenture
The Company issued the Debentures on July 24, 2018. They will mature on July 24, 2021 (if not otherwise converted) and bear interest
at a rate of 8% per annum, which shall be accrued and paid annually in arrears. The Debentures shall be convertible at the option of the
debenture holder into common shares of FLYHT (Common Shares) at a conversion rate of $1.30 per share at any time prior to maturity,
subject to a forced conversion (at a conversion rate of $1.30 per share) into Common Shares should the closing price of the Company’s
Common Shares be equal to or exceed $1.80 for 20 consecutive trading days.
769,200 warrants (Warrants) were issued to the purchasers of the Debentures. Each whole Warrant is exercisable to acquire one
Common Share of FLYHT for a period of two (2) years from the date of issuance at an exercise price of $1.45 per share. The Warrants
are subject to an acceleration clause, whereby, if after four months and one day following the date the Warrants are issued, the closing
price of the Company’s Common Shares is equal to or exceeds $1.90 for 20 consecutive trading days, the Warrant expiry date shall
accelerate to the date which is 30 calendar days following the date a press release is issued by the Company announcing the reduced
warrant term.
46-
The Debentures are secured against all personal property of the Company and are subordinated in right of payment to all existing and
future secured bank and/or governmental indebtedness of the Company and any existing security already registered against FLYHT’s
assets.
2018
$
1,950,000
(84,376)
1,865,624
(257,984)
120,133
1,727,773
Proceeds on issue
Transaction costs allocated
Net Proceeds
Amount classified as equity (net of transactions costs)
Accrued interest
Carrying amount of liability at December 31, 2018
15. Operating leases
Operating lease rentals are payable as follows:
2019
2020
2021
2022
Total
Premises
$
738,749
836,908
459,523
96,114
2,131,294
Operating lease payments made in 2018 totaled $529,245 (2017: $458,145).
16. Provisions
Product warranty
Balance January 1
Provision made during the period
Provision extinguished
Provision re-evaluation
Provision used during the period
Balance December 31
2018
$
91,713
12,050
(39,736)
2,314
(22,640)
43,701
2017
$
549,335
15,496
-
(452,328)
(20,790)
91,713
A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty
data. The provision extinguished was for a warranty claim from a partner that was withdrawn in 2018.
47-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
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, 2017
Consolidation rounding
Exercise of employee options
Exercise of warrants
Balance December 31, 2017
Exercise of warrants
Balance December 31, 2018
Number of
Shares
20,744,177
(11)
123,430
191,021
21,058,617
10,000
21,068,617
Value
$
57,514,646
-
379,396
515,183
58,409,225
21,230
58,430,455
In 2018 warrant exercises resulted in the Company issuing a total of 10,000 shares for total proceeds of $16,000. No options were
exercised in the year.
Stock option plan
The Company grants stock options to its directors, officers, employees and consultants. The following stock options were granted in 2018:
7,500 stock options with an exercise price of $1.17 to an employee. The options will vest in equal tranches on August 8, 2019,
2020 and 2021 and will expire on August 8, 2022.
421,015 stock options to employees, officers and directors under the stock option plan with an exercise price of $1.55. The
options will vest in equal tranches on May 4, 2019, 2020 and 2021 and will expire on May 4, 2022.
30,000 stock options to a consultant with an exercise price of $1.33. The options will vest in equal tranches on September 30,
2018, December 31, 2018, March 31, 2019 and June 30, 2019. These options are set to expire on May 15, 2021.
10,000 stock options with an exercise price of $1.33 to an employee. The options will vest 1/3 each on November 7, 2019, 2020
and 2021 and will expire on December 31, 2022.
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, 2018, there were 2,106,862 (2017: 2,105,862) common shares reserved for this purpose.
A summary of the Company’s outstanding stock options as at December 31, 2018 and 2017 and changes during these years is presented
below.
Outstanding, January 1
Options granted
Options exercised
Options expired
Outstanding December 31
Unvested options
Outstanding and exercisable,
December 31
2018
2017
Number of
options
983,498
468,515
-
(386,168)
1,065,845
404,435
661,410
Weighted average
exercise price
$
2.16
1.39
-
2.01
1.86
1.53
2.07
Number of
options
863,337
486,021
(123,430)
(242,430)
983,498
95,000
888,498
Weighted average
exercise price
$
2.60
2.21
2.04
3.90
2.17
2.10
2.16
48-
The exercise prices for options outstanding at December 31, 2018 were as follows:
Exercise
price:
Number
All options
Weighted average
remaining contractual life
(years)
Number
Exercisable options
Weighted average
remaining contractual life
(years)
$1.17
$1.33
$1.33
$1.55
$1.90
$2.10
$2.20
$2.55
$2.75
Total
7,500
30,000
10,000
371,935
285,365
20,000
316,045
5,000
20,000
1,065,845
3.6
2.4
4.0
3.3
1.0
3.0
2.0
2.0
1.0
2.2
-
15,000
-
-
285,365
20,000
316,045
5,000
20,000
661,410
-
2.4
-
-
1.0
3.0
2.0
2.0
1.0
1.6
The weighted average fair value of the options granted during the year that were valued using the Black-Scholes option pricing model
was $0.45 (2017: $1.10). 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
2018
1.91%
2.02
52%
0.00%
2017
1.05%
3.52
70%
0.00%
Number of warrants
1,907,021
(191,021)
1,716,000
769,200
(10,000)
(1,706,000)
769,200
Weighted average
exercise price
$
2.39
1.50
2.30
1.45
1.60
1.60
1.45
Value
$
1,139,934
(228,652)
911,282
50,712
(5,230)
(906,052)
50,712
Outstanding January 1, 2017
Warrants exercised
Outstanding December 31, 2017
Warrants issued (note 14)
Warrants exercised
Warrants expired
Outstanding December 31, 2018
18. Earnings per share
Basic earnings per share
The calculation of basic and diluted earnings per share for the year ended December 31, 2018 was based on a weighted average number
of common shares outstanding of 21,058,736 (basic and diluted) (2017: 20,926,589 basic and diluted).
49-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
19. Disaggregation of revenue
The Company has one operating segment. The following revenue is based on the geographical location of customers. All non-current
assets (property and equipment and intangible assets) reside in Canada, with the exception of property and equipment valued at
$145,725, located at FLYHT’s offices in Littleton, CO.
North America
South/Central America
Africa
Middle East
Europe
Australasia
Asia
Total
For the year ended December 31
2018
$
2017*
$
5,935,692
7,476,508
660,007
588,473
1,794,439
770,574
646,989
396,591
774,402
976,490
348,037
632,299
3,194,342
3,090,561
13,590,516
13,694,888
* Under the transition method chosen for application of IFRS15, comparative information has been restated (note 3).
The following shows revenue per major product and service categories.
SaaS
Hardware
Licensing
Technical Services
Total
For the year ended December 31
2018
$
5,528,822
5,536,687
2,265,262
259,745
13,590,516
2017*
$
4,312,702
5,444,844
3,752,301
185,041
13,694,888
* Under the transition method chosen for application of IFRS15, comparative information has been restated (note 3).
In the categories listed in the revenue sources chart, Software as a Service (SaaS) is the recurring revenue from the Company’s product
that allows customers to utilize and analyze data they receive from units, use of functions such as the satellite phone and the sale of
weather data collected by units. These usage fees are recognized as the service is provided based on actual customer usage each
month. Hardware includes the income from hardware sales and related parts required to install the unit, spare units, spare installation
parts, and Underfloor Stowage Units. Licensing includes sales of modems with a related manufacturing license fee. Technical Services
includes all services offered by the Company, including repairs and other expertise.
Major customers
Revenues from the three largest customers represent approximately 32% of the Company’s total revenues for the year ended
December 31, 2018 (2017: 38%).
21. Other Income
Bargain Purchase (note 30)
Subsidy recovery (note 13)
Total
For the year ended
December 31
2018
$
658,920
1,202,130
$1,861,050
50-
22. Distribution expenses
Salaries and benefits
Stock based compensation
Contract labour
Office
Travel
Equipment & maintenance
Depreciation
Marketing
Other
Total
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
2018
$
3,592,664
40,068
725,677
402,191
647,515
190,470
37,641
165,615
191,395
5,993,236
2017
$
2,361,046
152,272
881,837
429,294
601,172
53,712
34,438
268,033
169,667
4,951,471
For the year ended December 31
2018
$
1,457,388
190,209
289,983
376,094
195,143
197,852
114,866
34,205
120,297
166,179
80,381
29,011
3,251,608
2017
$
1,326,548
281,675
431,423
306,034
76,446
192,452
158,931
40,350
102,348
131,340
59,334
52,206
3,159,087
24. Research, development and certification engineering expenses
To date, all development costs have been expensed as incurred.
Salaries and benefits
Stock based compensation
Contract labour
Office
Travel
Equipment and maintenance
Components
SRED tax credit
Depreciation
Government grants
Other
Total
For the year ended December 31
2018
$
2,443,060
8,008
225,529
79,263
75,196
69,733
77,399
-
43,437
(391,697)
1,517
2,631,445
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
51-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
25. Finance income and finance costs
For the year ended December 31
Interest income on bank deposits
Net foreign exchange gain
Finance income
Bank service charges
Net foreign exchange loss
Other interest expense
Government grant interest accretion
Debenture interest expense and accretion
Finance costs
26. Income tax expense
Current Tax Expense
Current income tax (recovery) expense
Deferred income tax (recovery) 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
2018
$
16,628
189,971
206,599
26,849
-
2,719
321,875
120,132
471,575
2018
$
(3,667)
(243,980)
(247,647)
2018
$
244,717
71,257
-
9,948,952
37,269
8,464,230
2017
$
15,756
-
15,756
38,807
115,979
681
223,795
-
379,262
2017
$
8,905
-
8,905
2017
$
202,845
71,257
2,157
9,609,044
55,903
8,345,900
The Company has non-capital losses for income tax purposes of approximately $37,239,348 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:
18,766,425
18,287,106
Year
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2037
2038
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
1,725,517
1,617,573
37,239,348
52-
Reconciliation of effective tax rate
Income (loss) before tax
Tax Rate
Expected income tax recovery
Bargain purchase tax impact
True up from prior year
Non-deductible expenses
Stock based compensation
Change in unrecognized temporary differences
* Comparative tax information has not been restated under IFRS 15 (note 3).
27. Financial risk management
2018
$
2017*
$
(2,214,395)
27%
(597,887)
(177,908)
(145,669)
16,077
64,337
593,403
(247,647)
(1,746,710)
27%
(471,612)
-
(42,456)
13,361
124,036
385,582
8,905
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 16% (2017: 27%) of the Company’s 2018 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 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, 2018
Accounts receivable
Impairment
Net receivable
December 31, 2017
Accounts receivable
Impairment
Net receivable
0-30 days
$
2,776,145
(4,802)
2,771,343
0-30 days
$
1,060,527
(2,012)
1,058,515
31-60 days
$
565,523
(5,799)
559,724
31-60 days
$
195,228
-
195,228
61-90 days
$
103,264
(2,199)
101,065
61-90 days
$
40,177
(3,522)
36,655
91+ days
$
291,978
(283,343)
8,635
91+ days
$
510,891
(150,715)
360,176
Total
$
3,736,910
(296,143)
3,440,767
Total
$
1,806,823
(156,249)
1,650,574
The Company believes that the unimpaired amounts that are past due by more than 30 days are still collectible, based on historic payment
behavior.
53-
FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
The movement in the allowance for impairment in respect of trade and other receivables for the years ended December 31, 2018 and
2017 was:
Balance, January 1
Provision
Amounts written off
Balance, December 31
Liquidity risk
2018
$
156,249
139,894
-
296,143
2017
$
582,712
160,484
(586,947)
156,249
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.
The following table details the contractual maturities of financial liabilities, including estimated interest payments.
December 31, 2018
Accounts payable
Compensation and
statutory deductions
Accrued liabilities
Loans and borrowings
Total
December 31, 2017
Accounts payable
Compensation and
statutory deductions
Accrued liabilities
Loans and borrowings
Total
Currency risk
< 2
months
$
1,737,710
3,112
1,942
-
1,742,764
< 2
months
$
1,340,510
46,763
37,990
-
1,425,263
2-12
months
$
-
343,343
240,130
297,234
880,707
2-12
months
$
-
274,647
113,479
119,333
507,459
1-2
years
$
-
-
11,658
629,820
641,478
1-2
years
$
-
27,000
11,658
137,234
175,892
2-5
years
$
-
-
2-5
years
$
-
-
4,858
4,194,230
4,199,088
-
1,003,399
1,003,399
> 5 years
Total
> 5 years
Total
$
-
-
$
-
-
$
1,737,710
346,455
258,588
6,124,683
8,467,436
$
1,340,510
348,410
179,643
2,707,472
4,576,035
16,516
1,628,685
1,645,201
-
822,220
822,220
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 $147,252 (2017:
$138,744) and a strengthening of the Canadian dollar would decrease net earnings by approximately $147,252 (2017: $138,744).
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, 2018,
working capital denominated in U.S. dollars was approximately positive $2,474,528 (2017: positive $878,991). As a result, a 1%
weakening of the Canadian dollar would increase net earnings by approximately $24,745 (2017: $8,790) and a strengthening of the
Canadian dollar would decrease net earnings by approximately $24,745 (2017: $8,790).
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.
54-
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, 2018 and 2017
was minimal as the credit facility had not been drawn.
Market risk
Market risk is the risk that changes in market conditions, such as foreign exchange rates, interest rates and equity prices will affect the
Company’s income or the value of its financial instruments. The Company’s objective in managing market risk is to manage and control
exposure, while optimizing return.
Fair values versus carrying amounts
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
(note 14). 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. This company also provided certain financial services in Q2 2018. 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
Transactions with key management personnel
For the year ended
December 31
2018
$
12,900
2017
$
83,200
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
2018
$
1,158,088
207,505
295,000
-
54,385
58,866
1,773,844
2017
$
1,018,521
203,551
132,500
112,500
350,095
59,956
1,877,123
Directors of the Company control 3.9% (2017: 3.9%) of the voting shares of the Company.
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FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018
Subsidiaries
FLYHT Inc.
AeroMechanical Services USA Inc.
FLYHT Corp.
FLYHT India Corp.
TFM Inc.
29. Contractual Arrangement
Country of Incorporation
United States
United States
Canada
Canada
Canada
Ownership interest
100%
100%
100%
100%
100%
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. Business combination – asset acquisition
On October 9, 2018, the Company acquired the assets of Panasonic Weather Solutions, a division of Panasonic Avionics Corporation.
The assets acquired included 10 airline service contracts, a weather observation contract; the technology and intellectual property for the
FlightLink Iridium Satellite Data Unit and TAMDAR sensor; AirMap operating software, and several STC’s for these technologies. There
were no liabilities assumed.
Pursuant to a transition agreement between the parties which ends March 31, 2020, the Company and PAC will work closely together to
complete several ongoing deployment programs, while PAC will also provide warranty services and a level of customer support. This
transition period will give FLYHT time to integrate business and operational functions. In addition, to keep the asset acquisition cash-flow
neutral to FLYHT during this period, the Company will receive a subsidy of US$3.3 million. The total subsidy can be increased or reduced
if the income relating to the acquired contracts falls short of or exceeds certain agreed upon thresholds. Pursuant to the terms of the
acquisition of PWS assets and the transition agreement, FLYHT payed no monetary consideration to PAC for the PWS assets, accordingly
no fair value was assessed for the intangible assets, per IFRS 3 (Business Combinations). The Company incurred acquisition-related
costs of $170,403 in due diligence and legal fees. These costs have been included in Administrative Expenses (note 23).
The fair values of the identifiable assets as at the date of acquisition were:
Property and equipment
Inventory
Deferred tax liability
Bargain purchase arising on acquisition
Purchase consideration
Fair value
recognized on
acquisition
147,263
755,637
(243,980)
(658,920)
-
The valuation techniques used for measuring the fair value of assets acquired were as follows:
Assets acquired
Valuation technique
Property and equipment
Inventory
Fair value assessment considered market prices for similar items when they
were available, and depreciated replacement cost when appropriate.
Inventory acquired was assessed for impairment, and valued at cost or at a
reduced value when appropriate.
It is impracticable to report net income on a segregated basis. Integration of the assets started immediately after acquisition, and as a
result costs can no longer be separated.
56-
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
Adelaide Capital Markets Inc.
Deborah Honig
Telephone: 1-647-203-8793
Email: deborah@adelaidecapital.ca
www.adelaidecapitalmarkets.com
Liolios Group Inc.
Telephone: 1-949-574-3860
Email: fly@liolios.com
https://liolios.com/
Directors
Bill Tempany
John Belcher
Mike Brown
Barry Eccleston
Jacques Kavafian
Doug Marlin
Jack Olcott
Mark Rosenker
Paul Takalo
Nina Jonsson
Officers
Thomas R. Schmutz
Alana Forbes
Matieu Plamondon
Derek Graham
Jeffrey Rex
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. (retired)
Director
President, Marlin Ventures Ltd.
President, General Aero Company
United States Air Force (retired)
Director
Director
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Chief Technical Officer
Vice President Sales and Marketing
Calgary, Alberta
Tingle Merrett LLP, Calgary, Alberta
300E, 1144 - 29 Avenue NE
Calgary, Alberta T2E 7P1
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FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2018