FLYHT Aerospace Solutions Annual Report 2023

FY2023 Annual Report · FLYHT Aerospace Solutions

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FLYHT AEROSPACE SOLUTIONS LTD.

LETTER TO SHAREHOLDERS

FLYHT has been a 25-year journey of progress, and no year has better exemplified this than
2023. While at times it feels like the aviation industry moves at a glacial speed, it is also remarkable
how, collectively – our company, airlines, the meteorological agencies – have advanced over the
past year. I know that my dear friend Bill Tempany and former FLYHT CEO would be proud of how
the entire FLYHT team has carried on the mission, and he would be thrilled that FLYHT’s 5G
aviation solutions are taking to the skies in 2024.

Thank you for supporting us throughout this journey. I’m excited to report that our progress is
accelerating, with increasingly rapid results.

• We are now in the process of installing the AFIRS EdgeTM with our first customer in the commercial airline industry.
Less than two months after being issued a Supplemental Type Certificate (“STC”) for the flange version on Airbus A320 aircraft,
the Edge is now being installed on our customer’s fleet, where we will operate WQAR functions through the 5G network. This is
a significant milestone achievement in our multi-year effort to bring to market the industry’s first 5G wireless data communication
device. Additionally, we are underway with efforts to familiarize this STC into other jurisdictions, including Europe and the US.

• AFIRS Edge+ (4MCU version) in the field. We received the first Edge+ units from our manufacturing partner last month, and
along with having the flange version Transport Canada A320 STC in hand, we have accelerated our Edge+ commercialization
efforts. Whereas in January/February our enthusiastic team could talk about the Edge+, we now are in the field, presenting
physical Edge+ units to prospective airlines and demonstrating installation in their aircraft with live data transmission capability.
This is making all the difference, as for the first time in the history of WQARs, there is credible competition for the long-time
incumbent 2G/3G/LTE WQAR market.

• Continued interest in AFIRS 228. The request by our long-term OEM partner to undertake engineering and design work on
the technology that it licenses from us as part of its Airbus line fit satcom program is the surest indicator that this program remains
strong, and that this high margin licensing revenue will continue well into the future. To date this program has resulted in shipment
of more than 3,200 units over a 12-year span.

• More budget received for U.S. weather. We remain on track to deploy the FLYHT-WVSS-II sensor, Edge, and Certus-100
satcom solution with a North American airline by the end of this year. As expected, NOAA was also allocated FY2024 budget to
purchase additional FLYHT-WVSS-II, Edge and satcom systems. We are now focused on securing and increasing funding for
FY2025-2028 through the U.S. National Weather Service Aircraft Based Observation Program.

• Exciting pipeline and innovation in Europe. I continue to be very enthusiastic about growth and innovation at CrossConsense,
our wholly owned European division. Their work and reputation have expanded the pipeline to include significant data migration
projects and new development opportunities. Meanwhile, we have begun to roll out several exciting new extensions to their
popular Aircraft Fleet View app, which is already in use by more than 3,000 users. The latest enhancement is to replace the
need for unofficial communication channels like WhatsApp. The team already has multiple new customers lined up, who are
participating in feature development.

Financially, we finished 2023 with performance in-line with our expectations. We reported over $20 million in revenue for the
full year driven by record SaaS revenue of nearly $10.7 million, or a 31% increase as compared to 2022. This included an all-time
quarterly high of over $2.8 million in SaaS revenue for the fourth quarter of 2023. As expected, we did not report positive EBITDA in
2023 due to the absence of the large, high margin OEM licensing order that did not repeat this year, but also because we are
reinvesting the positive cashflow from our self-sustaining businesses, built on previous generations of hardware with long useful
lives, to fund the R&D and commercialization of our emerging businesses. From a balance sheet perspective, we enter 2024 with a
higher cash plus GIC balance on December 31, 2023 as compared to our ending cash balance at Q3 2023, and we are poised to
capitalize on our 2023 investments in the year ahead.

We’re now headed into springtime with multiple opportunities for growth across our 5G aviation solutions and weather businesses,
including opportunities to provide services in the emerging field of contrail detection and avoidance. I look forward to updating you
on our continued progress throughout the year, and as always, I would like to thank all our loyal shareholders for their continued
support.

Yours truly,

Kent Jacobs
President and Interim CEO

Table of Contents

Letter to Shareholders ..................................................................................................................................................Forward

Management Discussion & Analysis ................................................................................................................................... 4

Non-GAAP Financial Measures ........................................................................................................................... 4
Forward-Looking Statements .............................................................................................................................. 4
FLYHT Overview .................................................................................................................................................. 5
Trends and Economic Factors ........................................................................................................................... 10
Environmental, Social and Corporate Governance ........................................................................................... 12
Results of Operations ........................................................................................................................................ 14
Selected Results ............................................................................................................................ 14
Financial Position ........................................................................................................................... 15
Comprehensive Loss ..................................................................................................................... 17
Other .............................................................................................................................................. 23
Auditors’ Involvement ........................................................................................................................................ 27
Consolidated Statements of Financial Position .............................................................................................................. 32

Consolidated Statements of Comprehensive Loss ........................................................................................................ 33

Consolidated Statements of Changes in Equity ............................................................................................................. 34

Consolidated Statements of Cash Flows ........................................................................................................................ 35

Notes to the Consolidated Financial Statements ........................................................................................................... 36

Corporate Information......................................................................................................................................................... 59

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

Management Discussion & Analysis

This management discussion and analysis (“MD&A”) is as of April 24, 2024 and should be read in conjunction with the audited annual
consolidated financial statements of FLYHT Aerospace Solutions Ltd. (“FLYHT” or the “Company”) as at and for the years ended
December 31, 2023 and 2022 and the accompanying notes. Additional information with respect to FLYHT can be found on SEDAR at
www.sedar.com. The Company has prepared its December 31, 2023 consolidated financial statements and the notes thereto in
accordance with IFRS Accounting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The
Company’s material accounting policies are provided in note 3 to the consolidated financial statements.

Non-GAAP Financial Measures
The Company reports its financial results in accordance with IFRS or Generally Accepted Accounting Principles (“GAAP”). It also
occasionally uses certain non-GAAP financial measures, such as working capital, non-current financial liabilities and earnings before
interest, income tax, depreciation and amortization (“EBITDA”). FLYHT defines working capital as current assets less current liabilities.
Non-current financial liabilities include the non-current portion of loans and borrowings and lease liabilities. EBITDA is defined as income
for the period, before net finance costs, income tax, depreciation and amortization of assets. These non-GAAP financial measures are
always clearly indicated. Working capital can be used to assess a company’s liquidity, operational efficiency, and short-term financial
health. Non-current financial liabilities can be used to assess the solvency and leverage of a company. EBITDA can be used to analyze
and compare profitability among companies and industries, as it eliminates the effects of financing and capital expenditures. 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, research and development (“R&D”) of next generation products and any government assistance in financing
such developments, foreign exchange rate outlooks, new revenue streams and sales projections, cost increases as related to marketing,
R&D, administration expenses, litigation matters, and sales order backlog may be or include forward-looking statements. Although the
Company believes the expectations expressed in such forward-looking statements are based on a number of reasonable assumptions
regarding the global economic environments, local and foreign government policies/regulations and actions, and assumptions made
based upon discussions to date with the Company’s customers and advisers, such statements are not guarantees of future performance
and actual results or developments may differ materially from those in the forward-looking statements.

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

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

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

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

1. Actionable Intelligence Solutions

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

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

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

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

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

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

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

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

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

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

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

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

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

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

2. Airborne Hardware

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

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

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

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

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

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

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

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

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

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

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

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

TAMDAR™
FLYHT’s Tropospheric Airborne Meteorological Data Reporting (“TAMDAR”) system is a unique sensor device installed on aircraft that
captures temperature, atmospheric pressure, winds aloft, icing, turbulence, and relative humidity. It bundles this information with Global
Positioning System (“GPS”) data and transmits the payload in real-time over satellite networks. TAMDAR provides real-time, high-quality
atmospheric data collected from 100+ aircraft in North America, Asia, and Europe through continuous observations including all the
metrics of radiosonde observations plus icing and turbulence.

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

3. Communications

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

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

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

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

4. MRO Services

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

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

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

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

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

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

SYSTEM APPROVALS

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

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

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

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

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

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

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

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

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

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

STC Chart: AFIRS 220 and 228
FAA
USA

TCCA
Canada

EASA
EU

CAAC
China

228
A

220
A

228
A

220
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228
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220
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220
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ANAC
Brazil

220

228

Aircraft Type

Airbus A319, A320, A321
Airbus A330
ATR42-300
ATR42-500 and ATR72-212A "500 Version"
ATR72-100, -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 MAX 8
Boeing B737-900ER
Boeing 747-200
Boeing 757-200
Boeing 767-200, -300
Boeing B777-200, -300
Bombardier DHC-8-100, -200, -300 *Avmax
Bombardier DHC-8-400
Bombardier CRJ-100, -200, -440
Bombardier CRJ-700, -900
Comac ARJ21 *China Express Airlines Co. Ltd.
Embraer ERJ 190-100
Embraer Legacy 600 and ERJ–135, -145
Fokker 100
Hawker Beechcraft 750, 800XP, 850XP, 900XP
McDonnell Douglas DC-10 (KC-10 military)
McDonnell Douglas MD-82
McDonnell Douglas MD-83
Viking Air DHC-7 (LSTC)

FLYHT has also received AFIRS 228 STCs for the Bombardier CRJ-700, -900, Boeing 737-300, -400, -500 and 737-700, -800 from the
DGAC (Mexico). FLYHT has received AFIRS 228 STCs for the Boeing 737-300, -400, -500, -700, -800 and the 767-300 from the State
Aviation Administration of the Ukraine (SAAU). FLYHT has also received an AFIRS 228 STC validation from CAAM (Civil Aviation
Authority of Malaysia) for the Boeing 767-200, -300.

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

STC Chart: AFIRS Edge
UK
CAA

Aircraft Type

TCCA
Canada
A
P
P

Airbus A319, A320, A321, NEO
Boeing B737-600, -700, -800
Boeing B737-MAX 8
Embraer ERJ-145

STC Chart: FLYHT-WVSS-II
UK
CAA

Aircraft Type

TCCA
Canada
I

Boeing B737-600, -700, -800
Embraer ERJ-145

STC Chart: TAMDAR

EASA

TR
A*
A*

FL
A*

A *

FAA

A*
A*
A
A
A

A
A
A

A*
A*

DGCA
Indonesia
FL
TR
A*
A*

DCA
Malaysia
FL
TR
A*
A*

DGAC
Mexico

CAA
Philippines
FL
TR
A*
A*

CAA
Thailand
FL
A*

TR
A*

A
A

Aircraft Type

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: A = Approved, P = Pending (Provisions STC has been received; in final stages before receiving a full STC), I = In Progress.

Trends and Economic Factors

FLYHT examines the results of measurements made by leading aviation associations and corporations in order to gain insight into the
status of the industry. A few key points are as follows1.

•

Industry-wide revenue passenger-kilometers (“RPKs”) increased 25.3% year-on-year (YoY) in December. In 2023, industry
RPKs reached 94.1% of 2019 levels.
Available seat-kilometers (“ASKs”) grew by 24.1% YoY and recovered to 94.4% of pre-pandemic capacity over the whole year.
Global passenger load factor stood at 82.3%, slightly under the 2019 threshold.
Domestic markets have seen diverse developments as the year closed, total domestic traffic in 2023 nevertheless surpassed
2019 numbers by 3.9%.
International traffic achieved great recovery this year while attaining 88.6% in 2023

The Aviation Industry in 2023

International Air Transport Association’s (“IATA”) industry results, measured in RPK and Cargo Tonne Kilometers (“CTKs”), are the
passenger and freight contributions to airline revenue and are significant markers to determine the health of the industry.

Strong demand for air travel continued to propel the recovery of passenger markets in 2023. The total industry achieved a remarkable
36.9% year-on-year (“YoY”) growth, as traffic, measured in RPKs, reached 94.1% of 2019 levels, a significant increase from 2022 when
it stood at 68.7%. The supply of seats slightly exceeded the demand for travel compared to 2019 (pre-pandemic), resulting in an industry-
wide load factor of 82.3%, which was only 0.3 ppt lower than the load factor in 2019.

Domestic traffic set new highs in 2023, most of the monitored markets surpassed the pre-pandemic levels by mid-2023. The definitive
reopening of China in January 2023 shaped the industry’s recovery profile as total domestic RPKs remained largely above pre-pandemic
levels for most of the year reflecting the buoyant activity this major market has observed. In 2023, total domestic RPKs grew 30.4% YoY
and stood 3.9% over 2019 levels.

10-

On the other hand, international traffic remained lower than its levels of 2019 while maintaining a stable yet robust growth pace. Industry-
wide international RPKs increased 41.6% YoY and totaled 88.6% of pre-COVID levels. Although airlines across the globe saw various
outcomes, all regions contributed to those developments by achieving resilient growth in international passenger traffic. Asia Pacific
airlines more than doubled their RPKs, growing 126.1% compared to 2022, overcoming a large part of the setback caused by past strict
travel restrictions, however, they remained 27.3% under pre-pandemic levels. On the other hand, North American carriers have surpassed
their 2019 record by 1.4%, leading the regions in terms of international recovery.1

Global air cargo demand reached 22.8 billion CTKs in December, the highest traffic in two years, representing a 10.8% increase YoY –
the most significant annual growth since October 2021. While this performance is partly due to a base effect (the decline in CTKs for most
of 2022), it also reflects strong, continuous YoY demand growth over the past four months and robust month-on-month growth since April.
This narrows the gap between 2023 and the previous year to 1.9% yet remains 3.6% below the total air cargo traffic achieved in 2019.

Seasonally Adjusted (“SA”) CTKs maintained their upward trajectory, increasing by 10.7% YoY this month. The continued annual growth
in SA CTKs, evident since August, markedly strong reverting from the declining trend observed throughout 2022. This underscores the
progressive recovery of the global air cargo market, concluding 2023 on a robust note with strong momentum moving forward. 2

Boeing and Airbus reported strong orders and deliveries figures in December 2023 and finished the year on a high note. Airbus just set
three new industry records last month: Backlog record (8,598 jets), highest gross orders in a year (2,319 jets), and highest net new orders
in a year (2,094 jets). Also, Boeing set a new company all-time backlog record (6,216 jets). These records are signs of things to come. In
a few years, Airbus will be the first commercial jet maker to report 1,000 deliveries in a single year, and, at the same time, the rivalry
between the two major commercial jet makers will intensify, as Boeing will do its utmost to close the gap to its European rival.

In December, Boeing delivered 67 commercial jets compared to Airbus with 112 units. This compares to 69 deliveries for Boeing and 98
for Airbus in December of last year. In 2023, in total, Boeing and Airbus delivered 528 and 735 aircraft compared to 480 and 663,
respectively, in 2022. In 2023, Airbus won the deliveries crown for the fifth consecutive year.3

1 https://www.iata.org/en/iata-repository/publications/economic-reports/air-passenger-market-analysis-december-2023/
2 https://www.iata.org/en/iata-repository/publications/economic-reports/air-cargo-market-analysis-december-2023/
3 Airbus and Boeing Report December and Full Year 2023 Commercial Aircraft Orders and Deliveries – Flight Plan (forecastinternational.com)

FLYHT’s Market

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

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

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

Foreign Currency

The Canadian dollar strengthened relative to the U.S. dollar but weakened relative to the euro throughout Q4 2023 and year to date
(“YTD”), and overall the Company experienced a positive impact to net income compared to Q4 2022. As a result of these currency
movements, the Company’s revenues, of which a majority are denominated in U.S. dollars, with the proportion contributed by
CrossConsense denominated in euros, were higher than they would have been had the foreign exchange rates not changed throughout
Q4 2023 and YTD. It is generally the standard of the aviation industry to conduct business in U.S. dollars. While a majority of the
Company’s operating and overhead costs are denominated in Canadian dollars, a significant portion of costs are U.S. dollar and euro
denominated, and therefore a partial natural hedge exists against fluctuations of the Canadian dollar.

11-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

Environmental, Social and Governance

FLYHT considers Environmental, Social and Governance (“ESG”) factors in decisions made throughout all aspects of its operations. ESG
factors are important to business operations and can impact company value and investor decision making. The Company has set reporting
metrics and is continually updating a roadmap and implementation timelines. The focus of this program throughout the fourth quarter of
2023 was on understanding reporting requirements and developing systems to address those requirements. This includes not only
assessing potential risks, but also the opportunities for the Company to provide additional services to other companies working to achieve
their ESG and broader sustainability goals. FLYHT has selected the financial reports as the communication method for our ESG programs
to ensure visibility for investors into FLYHT’s ESG commitments and opportunities, with the Forced Labour reporting component more
fully communicated via the annual report that will accompany our annual financial statements.

Environment
Sustainability has been integral to FLYHT’s operations for many years. Early initiatives had FLYHT playing a key role in the effort to
achieve a paperless cockpit, reducing waste, and improving operational efficiency. FLYHT’s data capabilities can also support airlines in
meeting their environmental regulatory filing requirements, such as Carbon Offsetting and Reduction Scheme for International Aviation
(“CORSIA”) and European Union Emissions Trading System (“EU ETS”). The Company’s products support the industry’s commitment to
attain and measure net-zero 2050 in the key areas of increased operational efficiency and reduction of emissions.

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

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

Measurable environmental impacts internal to FLYHT over the past 5 years include a significant reduction in our operation’s reliance on
paper and the diversion of technology equipment from landfills to be repurposed for those in need in the local community. We have
upgraded our on-premises server from previous generation hardware to a more energy efficient hyper-converged model, allowing for
greater virtualization with less hardware. FLYHT has also moved most users to smaller, more efficient laptop computers, replacing
inefficient desktop computers. In addition, FLYHT has shifted to increased virtualization, relying on AWS data centers, which operate with
65% renewable energy as well as utilizing more efficient services and facilities to reduce consumption of non-renewable energy.

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

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

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

12-

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

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

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

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

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

In June 2023, the International Sustainability Standards Board ("ISSB") issued IFRS S1 General Requirements for Disclosure of
Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures, which are effective for annual reporting periods
beginning on or after January 1, 2024, subject to local jurisdictional adoption. These standards provide for transition relief in IFRS S1,
allowing reporting entities to report on only climate-related risks and opportunities in the first year of reporting under the sustainability
standards.

The Canadian Securities Administrators ("CSA") are responsible for determining the reporting requirements for public companies in
Canada and are responsible for decisions related to the adoption of the sustainability disclosure standard, including the effective annual
reporting dates. The CSA issued proposed National Instrument NI-51-107 - Disclosure of Climate-related Matters in October 2021. The
CSA intends to consider the ISSB standards in addition to developments in United States reporting requirements in its decision relating
to development of climate-related disclosure requirements for Canadian reporting issuers. The CSA will involve the Canadian
Sustainability Standards Board ("CSSB") for a combined review of the suitability of adopting the ISSB standards in Canada. There is no
requirement for public companies in Canada to adopt the ISSB standards until the CSA and CSSB have issued a decision on reporting
requirements in Canada. While FLYHT is reviewing the ISSB standards as well as the recently released CSSB proposals, we have not
yet determined the impact on future financial statements nor has the Company quantified the costs to comply with such standards.

13-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

Security Management

FLYHT participated in ICAO’s annual conference on aviation and cyber security, which was attended by senior government officials,
regulators, and industry leaders from around the world. This included a presentation by FLYHT that advocated for integrated risk
management in the airline industry, whereby the common key elements of risk management systems applicable to safety, aviation
security, and cybersecurity are integrated by airlines, airports, equipment manufacturers, and suppliers to ensure the highest degree of
resilience of both individual organizations and the industry as a whole.

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

2023 Key Achievements and Activities

In March 2023, FLYHT received STC Certification for the AFIRS 228 on Boeing 737 MAX-8 aircraft.

•
• FLYHT was named to the TSX Venture Exchange ‘Venture 50’
• Testimony was provided by FLYHT to U.S. congress regarding reauthorization of the Weather Act
• Commercial agreements were signed with Sichuan Airlines and Bahamasair
• FLYHT welcomed two new directors to its board, Peter Large and Nancy Young
• Flair Airlines signed an agreement to purchase AFIRS Edge hardware and Actionable Intelligence services
• FLYHT received a USD $1.4 million purchase order from a long-time Original Equipment Manufacturer (“OEM”) partner
• A five-year renewal was signed with a long-term customer for AFIRS services on its fleet of 14 Boeing aircraft, together with a

trial for CrossConsense’s ACSIS product

• FLYHT partnered with the UK Met Office and Loganair to improve forecasts of high impact weather, providing weather

observations via the FLYHT-WVSS-II and AFIRS Edge products

• A purchase order was received with NOAA for FLYHT to provide the FLYHT-WVSS-II product together with the AFIRS Edge
• A European flag carrier contracted with CrossConsense for a two-year aircraft data migration project
• Canada Jetlines signed an agreement with FLYHT for both the AFIRS Edge and AFIRS 228 hardware on their fleet, affirmed

their support as FLYHT’s A320 STC partner, and added the full suite of FLYHT’s software services

• FLYHT obtained STC certification from the FAA for a specialized version of the AFIRS 228 on A319, A320 and A321 aircraft
•
• FLYHT signed a multi-year contract renewal with Jordan Aviation to provide its fleet of Boeing 767, 737’s and Airbus A320’s

Air North ordered both hardware and software services, including AFIRS Edge & AFIRS 228, on its fleet of B737NG aircraft

with FLYHT’s software solutions

14-

Results of Operations
Selected Results

Assets
Non-current financial liabilities*
Revenue
Cost of sales
Gross profit
Gross profit %
Distribution expenses
Administration expenses
Research, development and certification
engineering expenses
Results from operating activities
Depreciation and amortization
EBITDA*
Loss
Loss per share (basic)
Loss per share (diluted)

Assets
Non-current financial liabilities*
Revenue
Cost of sales
Gross profit
Gross profit %
Distribution expenses
Administration expenses
Research, development and certification
engineering expenses
Results from operating activities
Depreciation and amortization
EBITDA*
Income (loss)
Income (loss) per share (basic)
Income (loss) per share (diluted)

*See Non-GAAP Financial Measures

Q4 2023
$
13,182,648
5,197,714
4,244,787
1,736,607
2,508,180
59.1%
1,532,646
1,028,202

Q3 2023
$
13,469,943
5,439,092
5,099,019
2,108,313
2,990,706
58.7%
1,543,074
897,031

1,339,924

1,146,019

(1,392,592)
165,809
(1,226,783)
(1,494,795)
(0.04)
(0.04)

Q4 2022
$
16,540,154
6,322,769
7,241,758
2,384,329
4,857,429
67.1%
1,661,256
1,209,188

1,079,052

907,933
262,250
1,170,183
718,689
0.01
0.01

(595,418)
164,553
(430,865)
(728,655)
(0.02)
(0.02)

Q3 2022
$
14,873,106
6,307,401
6,725,373
1,853,079
4,872,294
72.4%
1,531,091
1,199,337

1,329,944

811,922
112,758
924,680
703,765
0.02
0.02

Q2 2023
$
14,293,601
5,677,518
6,043,543
2,442,082
3,601,461
59.6%
1,587,397
1,060,111

950,995

2,958
165,087
168,045
(168,807)
(0.01)
(0.01)

Q2 2022
$
14,674,263
6,392,197
4,881,372
2,156,364
2,725,008
55.8%
1,339,537
1,361,728

1,046,294

(1,022,551)
116,771
(905,780)
(1,141,140)
(0.03)
(0.03)

Q1 2023
$
14,988,847
5,912,886
4,757,230
2,030,311
2,726,919
57.3%
1,759,353
1,062,840

1,411,873

(1,507,147)
163,233
(1,343,914)
(1,657,114)
(0.04)
(0.04)

Q1 2022
$
16,482,757
6,231,765
5,030,657
2,279,528
2,751,129
54.7%
1,379,783
1,312,039

1,165,197

(1,105,890)
168,260
(937,630)
(1,284,347)
(0.03)
(0.03)

Weighted Average Shares Outstanding

Basic
Diluted

2023
$
38,904,152
39,149,318

2022
$
38,151,602
38,383,777

2021
$
31,415,175
31,691,451

15-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

Financial Position

Liquidity and Capital Resource

The Company’s cash and cash equivalents at December 31, 2023 decreased to $1,542,203 from $1,997,650 at December 31, 2022. The
Company has an operating demand loan available through a Canadian chartered bank for up to a maximum of $2.0 million. The operating
demand loan bears interest at the Canadian chartered bank prime plus 1.5%. Security includes accounts receivable, cash collateral of
$500,000 in the form of a Guaranteed Investment Certificate, 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 at December 31,
2023.

The Company funded Q4 2023 operations primarily through cash proceeds received from sales.

Cash and cash equivalents
Other financial assets
Trade and other receivables
Contract assets
Deposits and prepaid expenses
Inventory
Tax receivable
Trade payables and accrued liabilities
Customer deposits
Contract liabilities
Loans and borrowings
Lease liability
Current tax liabilities
Working capital*

*See Non-GAAP Financial Measures

December 31, 2023
$

December 31, 2022
$

Variance
$

1,542,203
500,000
2,896,200
282,136
263,798
1,180,757
24,643
(3,097,494)
(1,022,829)
(1,052,969)
(1,234,335)
(466,670)
-
(184,560)

1,997,650
650,000
5,127,338
121,046
349,132
1,385,048
-
(2,736,269)
(376,668)
(922,952)
(828,345)
(436,581)
(10,541)
4,318,858

(455,447)
(150,000)
(2,231,138)
161,090
(85,334)
(204,291)
24,643
(361,225)
(646,161)
(130,017)
(405,990)
(30,089)
10,541
(4,503,418)

As at April 24, 2024 FLYHT’s issued and outstanding share capital was 38,997,650.

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

It is the Company’s intention to continue to fund operations by adding revenue and its resulting cash flow, as well as continuing to manage
outgoing cash flows. The Company’s results showed annual losses from operating activities in both 2023 and 2022, with operating
activities contributing positive cash in 2023 compared to negative cash in 2022 due to lower non cash working capital year over year, with
the change in accounts receivable between periods as a large contributor. At December 31, 2023, the Company had negative working
capital of $185 thousand compared to positive $4.3 million as of December 31, 2022, a decrease of $4.5 million. The Company ended
Q4 2023 with balances of $1.5 million in cash and cash equivalents, $0.5 million in Guaranteed Investment Certificates (“GIC”) and an
undrawn credit facility of $2.0 million.

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

General economic conditions in the industry and the financial condition of major customers may affect the Company’s ability to achieve
positive earnings and cash flows. The negative impact on the commercial air industry resulting from the COVID-19 pandemic was
unprecedented. Starting in early 2020 FLYHT saw impact of the pandemic in revenue and trade receivable payments due to the impact
of the pandemic on our customers. There has largely been recovery in our customer base, although 100% recovery has not been attained.
There is continued risk until such a time as the global aviation industry recovers fully.

16-

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

Financial Instruments

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

The Company may be exposed to changes in interest rates as a result of the operating loan bearing interest based on the Company’s
lenders’ prime rate. This facility was undrawn at December 31, 2023.

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 may disable data transmissions where
the customer has not fulfilled its financial obligations, or halt provision of service and support. The recoverability of the Company’s
receivables has been impacted by the consequences of the pandemic on the global airline industry, which has been reflected in the bad
debt reserve. As of April 24, 2024 $2,311,083 of the balances outstanding at December 31, 2023 had been collected.

Contractual Obligations

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

December 31, 2023

Accounts payable

Compensation and
statutory deductions

Accrued liabilities

Lease payments

Loans and borrowings

< 1 year
$
2,582,657

1-2 years
$
-

2-5 years
$
-

> 5 years
$
-

382,140

132,697

466,670

733,104

441,150

1,083,668

1,064,945

3,438,687

755,541

553,261

Total
$
2,582,657

382,140

132,697

2,747,029

5,789,997

Total

4,297,268

1,506,095

4,522,355

1,308,802

11,634,520

Government Loans

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

Under the Strategic Aerospace and Defence Initiative (“SADI”), at December 31, 2023 the Company has an outstanding repayable
balance of $822,219. The amount is repayable over 15 years on a stepped basis that commenced on April 30, 2014. The initial payment
on April 30, 2014 was 3.5% of the total contribution received and the payment increases yearly by 15% until January 31, 2029 (adjusted
from April 30, 2028 in response to the COVID-19 pandemic) when the final payment will be 24.5% of the total contribution received.
Repayment of $208,715 was made in 2023 (2022: $181,493). The carrying value of the amount owing under this program at December
31, 2023 is $1,329,622 (December 31, 2022: $1,331,720).

In November 2016, the Company signed a contribution agreement with Western Economic Diversification Canada for a Western
Innovation Initiative (“WINN”) loan, to support plans for technology development in the air and ground components of the Company’s
products. Under the terms of the agreement, a repayable unsecured WINN contribution of $2,350,000 was received. The amount is
repayable over five years commencing January 1, 2020. Contract amendments in 2020 adjusted the payment dates, with the final payment
date pushed back to September 2025; while an amendment in March 2024 reduced payments required from April 2024 – March 2025,
with the resulting difference added to the amount of each payment due from April 2025 – September 2025. Repayments in 2023 totaled
$468,000 (2022: $468,000). The carrying value of the amount owing under this program at December 31, 2023 is $757,953 (December
31, 2022: $1,132,345).

17-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

In November 2018, the Company signed a second contribution agreement with Western Economic Diversification Canada for a WINN
loan, to support development of the next generation of AFIRS hardware and embedded software to address parts obsolescence issues
and add new market-driven features. Under the terms of this agreement, a repayable unsecured WINN contribution of $2,761,000 was
received, repayable over five years commencing October 1, 2021. Contract amendments in 2021 adjusted the repayment start date to
October 1, 2023 and a March 2024 amendment reduced payments required from April 2024 – March 2025, with the difference added to
the amount of each payment due from April 2025 – October 1, 2028. Repayments in 2023 totaled $138,051 (2022: $nil). The carrying
value of the amount owing under this program at December 31, 2023 is $2,221,217 (December 31, 2022: $2,202,931).

In May 2021, the Company received funding of $250,000 through the Business Development Bank of Canada’s (“BDC”) Highly Affected
Sectors Credit Availability Program (“HASCAP”) loan program, designed to support small and medium sized businesses affected by
COVID-19. This loan carries interest of 4% per annum over a 10-year term commencing May 10, 2021. Payments in the first year following
funding were comprised of interest only, with the principal and accrued interest payable over the remaining 9 years. Repayments in 2023
totaled $36,621 (2022: $26,042). The carrying value of the amount owing under this program at December 31, 2023 is $187,742
(December 31, 2022: $210,777).

A summary of the carrying value of the government loans as at December 31, 2023 and 2022 and changes during these three and
twelve months is presented below.

For the three months ended December 31

For the year ended December 31

2023
$

4,642,830
-
-
117,800
(264,096)

2022
$

4,741,988
278,209
(142,676)
126,576
(126,324)

Variance
$

(99,158)
(278,209)
142,676
(8,776)
(137,772)

2023
$

4,877,773
-
-
470,148
(851,387)

2022
$

Variance
$

4,456,286
947,368
(324,926)
474,580
(675,535)

421,487
(947,368)
324,926
(4,432)
(175,852)

4,496,534

4,877,773

(381,239)

4,496,534

4,877,773

(381,239)

1,234,335
3,262,199

828,345
4,049,428

405,990
(787,229)

1,234,335
3,262,199

828,345
4,049,428

405,990
(787,229)

Opening Balance
Received
Grant Portion
Interest accretion
Repayment
Carrying amount at
December 31
Less current portion
Non-current portion

Customer Deposits

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

The chart below outlines the movement in the Company’s customer deposits throughout the periods ending December 31, 2023 and
2022. Payments were received for 9 installation kits in the fourth quarter of 2023 compared to 8 received in the fourth quarter of 2022,
with variations in aircraft configuration and installation kit requirements resulting in pricing differences per kit. For the year ended
December 31, 2023 payment was received for 77 kits, compared to the 64 kits in the same timeframe of 2022.

For the three months ended December 31
Variance

For the year ended December 31
Variance

2023
$
869,836
633,835
(480,842)

2022
$
713,369
557,270
(893,971)

2023
$
376,668
2,665,320
(2,019,159)

2022
$
609,555
2,376,293
(2,609,180)

156,467
76,565
413,129

646,161

(232,887)
289,027
590,021

646,161

1,022,829

376,668

1,022,829

376,668

Opening balance
Payments received
Recognized as revenue
Balance, December 31

Comprehensive Loss

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

18-

Revenue sources

SaaS

Hardware

Licensing

For the three months ended December 31

For the year ended December 31

2023
$
2,801,661

2022
$
2,253,618

Variance

548,043

2023
$
10,693,098

2022
$
8,157,886

Variance

2,535,212

327,941

1,217,860

(889,919)

4,273,464

4,720,204

(446,740)

25,649

3,030,368

(3,004,719)

1,962,223

9,101,130

(7,138,907)

Technical Services

1,089,536

739,912

349,624

3,215,794

1,899,940

1,315,854

Total

4,244,787

7,241,758

(2,996,971)

20,144,579

23,879,160

(3,734,581)

For the year ended December 31, 2023, total revenue decreased 15.6% from $23,879,160 in 2022 to $20,144,579 in 2023.

SaaS revenue increased 24.3% in Q4 2023 over Q4 2022, and 31.1% year over year. The post-pandemic recovery of the Company’s
customer base and an increase in weather data being provided to meteorological organizations were the main contributors to the
increases, with the addition of CrossConsense revenues also a factor in increases year to date (“YTD”).

Hardware revenue in Q4 2023 decreased 73.1% as compared to Q4 2022, with a total of 4 installation kits shipped in Q4 2023 compared
to 16 kits shipped in Q4 2022. YTD decreases of 9.5% resulted from a total of 69 installation kits shipped in 2023 matching the 69
installation kits shipped in 2022; with variations in aircraft configuration and installation kit requirements resulting in pricing differences
per kit.

Licensing revenue decreased 99.2% from Q4 2022 and decreased 78.4% YTD due to differences in the number of modems and
associated license fees ordered for delivery in comparative periods. Licensing revenues in 2022 were much higher than average in the
history of that program.

Technical Services revenue increased 47.3% for Q4 2023 compared to Q4 2022 as a result of data migration project work completed
as well as an increase in customer requests for certification services. The increase in CrossConsense data migration revenues in 2023
were a significant factor in the YTD increase of 69.3%.

Revenue sources for the last eight quarters were:

SaaS

Hardware

Licensing

Q4 2023
2,801,661

Q3 2023
2,787,664

Q2 2023
2,690,573

Q1 2023
2,413,200

Q4 2022
2,253,618

Q3 2022
2,073,284

Q2 2022
2,155,912

Q1 2022
1,675,072

327,941

1,001,817

1,172,261

1,771,445

1,217,860

480,064

912,682

2,109,598

25,649

494,573

1,433,264

8,737

3,030,368

3,536,153

1,399,903

1,134,706

Technical Services

1,089,536

814,965

747,445

563,848

739,912

635,872

412,875

111,281

Total

4,244,787

5,099,019

6,043,543

4,757,230

7,241,758

6,725,373

4,881,372

5,030,657

Geographical distribution of revenue sources was:

United States & Mexico
Asia
China
Middle East
Canada
Australia
Africa
Europe
South/Central America
Total

Q4 2023

Q4 2022

YTD 2023

YTD 2022

$
984,533
430,897
144,615
83,006
257,939
197,070
137,687
1,988,900
20,140
4,244,787

%
23.2
10.2
3.4
2.0
6.0
4.6
3.2
46.9
0.5
100.0

$
3,782,947
239,138
593,659
134,681
638,758
200,242
126,699
1,510,949
14,685
7,241,758

%
52.2
3.3
8.2
1.9
8.8
2.8
1.7
20.9
0.2
100.0

$
5,795,172
1,671,890
1,109,486
587,969
3,121,656
723,939
546,791
6,511,146
76,529
20,144,579

%
28.8
8.3
5.5
2.9
15.5
3.6
2.7
32.3
0.4
100.0

$
12,224,340
975,081
1,963,049
607,445
2,900,423
472,278
495,874
4,069,501
171,169
23,879,160

%
51.2
4.1
8.2
2.5
12.1
2.0
2.1
17.1
0.7
100.0

19-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

Gross Profit and Cost of Sales

FLYHT’s cost of sales includes the direct costs associated with specific revenue types, including the hardware unit, installation kits,
training, installation support, project management and software implementation, as well as associated shipping expenses and travel
expenses for the Company’s engineering personnel while performing on-site installation support. Installations on aircraft are performed
by third parties at the customer’s expense. Cost of sales as a percentage of revenue in Q4 2023 was 40.9% compared to 32.9% in Q4
2022. Gross profit decreased due to differences in the mix of revenue sources, mainly due to differences in the licensing revenue
category. Gross profit will fluctuate quarter over quarter depending on the mix of revenue categories.

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

Q4 2023

Q3 2023

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

Q1 2022

Gross Profit %

Cost of Sales %

59.1

40.9

58.7

41.3

59.6

40.4

57.3

42.7

67.1

32.9

72.4

27.6

55.8

44.2

54.7

45.3

Distribution Expenses (Recovery)

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

Major Category

Q4 2023

Q4 2022

Variance

YTD 2023

YTD 2022

Variance

Salaries and benefits

1,017,946

1,046,312

Share based compensation

Contract labour

Office

Travel

Equipment and maintenance

Depreciation and amortization

Marketing

Government grants
Bad debt reserve decrease
(increase)
Total

14,046

241,955

67,815

72,373

75,747

54,334

37,976

27,640

270,044

70,483

109,759

57,054

43,774

81,378

(28,366)

(13,594)

(28,089)

(2,668)

(37,386)

18,693

10,560

(43,402)

4,166,651

4,136,208

52,690

962,400

274,554

324,468

254,624

215,444

135,845

57,674

880,600

219,720

266,070

177,730

204,962

158,281

(222,108)

30,443

(4,984)

81,800

54,834

58,398

76,894

10,482

(22,436)

222,108

(49,546)

(45,188)

(4,358)

35,794

32,530

3,264

1,532,646

1,661,256

(128,610)

6,422,470

5,911,667

510,803

Distribution expenses decreased 7.7% from Q4 2022 to Q4 2023, and increased 8.6% YTD 2023 compared to YTD 2022. The COVID-
19 related government grants received in 2022 that were not available in 2023 as well as the acquisition of the CrossConsense business
in late Q1 2022 were both factors in YTD increases.

Salaries and benefits showed an increase for the 2023 year due to staff additions from the acquisition of CrossConsense in March
2022; with a decrease in Q4 2023 compared to Q4 2022 as a result of changes in staffing levels in this area. Contract labour
decreases Q4 2023 from Q4 2022 show a restructuring in our contractors supporting our sales, while increases YTD occurred with
the addition of resources dedicated to business development for our newest products.

Office expenses show a YTD increase mainly due to the Q1 2022 additon of the CrossConsense office location in Frankfurt and
associated expenses.

Travel decreased in Q4 2023 compared to Q4 2022 with a difference in number of personnel travelling; but increased YTD, reflecting
an overall increase in face to face meetings and conferences supporting marketing and sales activities.

Equipment and maintenance Q4 and YTD increases reflect the addition of costs related to CrossConsense’s third-party server
hosting facility in late Q1 2022 as well as increases in costs for web hosting activities.

Government grants related to COVID-19 did not occur in 2023, with the conclusion of these grants in 2022.

20-

Administration Expenses (Recovery)

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

Major Category

Q4 2023

Q4 2022

Variance

YTD 2023

YTD 2022

Variance

Salaries and benefits

Share based compensation

Contract labour

Office

Legal fees

Audit and accounting

Investor relations

Travel

Equipment and maintenance

Depreciation and amortization

Government grants

Other
Total

388,695

14,690

146,509

158,917

16,779

123,599

20,647

1,606

75,968

72,874

7,918

1,179,042

(798,932)

250,159

43,935

238,522

172,733

17,990

142,187

22,002

35,425

96,855

138,536

(29,245)

(92,013)

(13,816)

(1,211)

(18,588)

(1,355)

(33,819)

(20,887)

178,107

(105,233)

1,666,945

1,712,234

68,076

380,110

683,577

57,761

376,993

158,965

34,568

321,660

291,155

101,355

672,276

173,751

350,840

145,091

153,295

348,842

273,445

(45,289)

(33,279)

11,301

(115,990)

26,153

13,874

(118,727)

(27,182)

17,710

48,258

(48,258)

11,273

(3,355)

8,374

20,379

(12,005)

1,028,202

1,209,188

(180,986)

4,048,184

5,082,292

(1,034,108)

Administration expenses decreased by 15.0% from Q4 2022 to Q4 2023 and 20.3% YTD, mainly due to a year over year reduction in
salaries and benefits and contract labour.

Salaries and benefits increased in Q4 2023 compared to Q4 2022 due to a reallocation of acquisition costs to the intangible assets
in Q4 2022. Costs in this category were reduced YTD due to reductions in resources engaged in administrative activities, with the
addition of CrossConsense staff in March 2022 offsetting a portion of the YTD difference.

Contract labour decreased both for Q4 as well as YTD 2023 due to reductions in contract resources engaged in administrative
activities.

Legal expenses have decreased YTD as the CrossConsense acquisition costs incurred in early 2022 did not re-occur in 2023, while
the expense in the fourth quarter remained consistent with the comparative quarter.

Travel decreased in Q4 2023 compared to Q4 2022, as well as YTD, with differences in travel requirements for investor relations
purposes and the non-recurring nature of the travel required in 2022 in support of the CrossConsense acquisition.

Depreciation and amortization decreased for the quarter, but with an increase YTD, reflecting differences in amortization of
intangible assets acquired in the Q1 2022 CrossConsense business combination.

Government grants related to COVID-19 did not occur in 2023, with the conclusion of these grants in 2022.

21-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

Research, Development and Certification Engineering Expenses (Recovery)

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

Major Category

Q4 2023

Q4 2022

Variance

YTD 2023

YTD 2022

Variance

Salaries and benefits

880,744

1,056,219

(175,475)

3,925,436

4,359,273

(433,837)

Share based compensation

6,078

6,586

Contract labour

509,273

115,497

Office

Travel

Equipment and maintenance

Components

Depreciation and amortization

SR&ED credit

Government grants

Other

Total

34,734

16,217

34,379

28,217

38,601

10,950

38,209

12,682

56,103

8,562

40,369

(219,269)

(255,175)

(508)

393,776

(3,475)

3,535

(21,724)

19,655

(1,768)

10,950

35,906

24,071

958,234

137,957

41,793

115,926

87,392

152,083

(331,689)

(262,392)

19,870

441,551

138,624

54,035

118,477

45,186

181,632

(148,637)

(589,663)

139

4,201

516,683

(667)

(12,242)

(2,551)

42,206

(29,549)

(183,052)

327,271

(139)

1,339,924

1,079,052

260,872

4,848,811

4,620,487

228,324

Research and Development expenses were 24.2% higher in Q4 2023 compared to the prior year’s fourth quarter, with a 4.9% increase
YTD. Research and development costs vary according to specific project requirements.

Salaries and benefits expenses decreased both in Q4 2023 and YTD while being offset with increases in Contract labour as a
result of resource requirements varying based on the specific needs of various R&D initiatives. Associated Components required for
those R&D initiatives also increased for this reason.

The SR&ED credit Q4 2023 was a government recalculation resulting in a reduction in credit. YTD variance reflects an increase in
expenses eligible for refundable tax credits under this Canadian governmental program.

Government grants received in 2023 consisted of Alberta Innovates government funding related to R&D programs. Grants related
to COVID-19 did not occur in 2023 with the conclusion of these grants in 2022.

Net Finance Costs

Major Category

Q4 2023

Q4 2022

Variance

YTD 2023

YTD 2022

Variance

Interest income

(7,754)

(13,336)

5,582

(37,514)

(26,576)

(10,938)

Net foreign exchange loss (gain)

(37,911)

Bank service charges

Interest expense

16,072

26,063

61,648

12,009

25,650

Government loan accretion

117,800

126,573

(99,559)

(76,050)

(13,741)

(62,309)

4,063

413

(8,773)

78,177

110,539

470,148

39,217

110,426

474,580

38,960

113

(4,432)

Net finance costs

114,270

212,544

(98,274)

545,300

583,906

(38,606)

Net foreign exchange loss (gain) will vary between periods due mainly to fluctuations in the value of the Canadian dollar in relation to
the U.S. dollar and the euro. A strengthening of the Canadian dollar in relation to the U.S. dollar and the euro in Q4 2023 gave rise to
foreign exchange gains in Q4 2023 compared to Q4 2022 on foreign currency denominated sales and purchases, in combination with
fluctuations in U.S. denominated assets and liabilities.

22-

Net Income (Loss) & EBITDA

Major Category

Net income (loss)

Net finance costs

Tax expense

Q4 2023
$

Q4 2022
$

Variance
$

YTD 2023
$

YTD 2022
$

Variance
$

(1,494,795)

718,689

(2,213,484)

(4,049,371)

(1,003,033)

(3,046,338)

114,270

212,544

(98,274)

545,300

583,906

(38,606)

(12,067)

(23,300)

11,233

11,872

10,541

1,331

(1,357)

Depreciation and amortization

165,809

262,250

(96,441)

658,682

660,039

EBITDA

(1,226,783)

1,170,183

(2,396,966)

(2,833,517)

251,453

(3,084,970)

Business Combination

On March 17, 2022 the Company acquired 100% of the shares of CrossConsense GmbH & Co. KG (“CrossConsense”). Founded in
2002, Frankfurt Germany-based CrossConsense develops and markets software to support commercial aviation maintenance
management. Products include a predictive maintenance troubleshooting and engineering tool; software to support aircraft maintenance,
repair and data migration; and live data dashboards to assist aircraft maintenance teams. CrossConsense has also constructed a
progressive web application plus native apps that offer up-to-date data on an airline’s fleet status. Additionally, CrossConsense offers
consulting and support services as well as hosting, database operation and performance monitoring of commercial aircraft maintenance
applications. This acquisition is expected to accelerate FLYHT’s strategic roadmap to build out a maintenance software capability and
fulfil the Company’s goal to increase its presence in the European and Middle East markets.

Under terms of the agreement, FLYHT (through its wholly owned German subsidiary formed as part of this transaction) acquired all of
the outstanding securities of CrossConsense for $1.25 million in cash and 1.9 million common shares of the Company, valued at $1.235
million based on the fair value of each common share of the Company on the closing date of $0.65 per share. The shares were held in
escrow, to be released equally in 1/3 increments at 4-, 16- and 28-months following issuance on the transaction’s closing date. Also
included in the purchase price was other consideration valued at $192,000.

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

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

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

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

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

23-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

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

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

The Company takes steps to mitigate this uncertainty by encouraging customers to install hardware at their aircraft’s earliest availability
and works with them to provide the product at the right time for installation, preferably while the aircraft is down for normal service. The
goal is to reduce aircraft downtime and save the customer as much expense as possible, while installing as early as possible within the
contract term. The Company’s standard agreement requires payment a minimum of 45 days prior to the shipment of kits.

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

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

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

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

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

24-

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

Availability of Key Supplies
FLYHT services its products differently, depending on the product.

•

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

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

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

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

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

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

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

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

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

25-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

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

Contractual Arrangement

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

Transactions with Related Parties

Since 2020, a company related to an officer of FLYHT has provided marketing services to FLYHT. A company related to a director of
FLYHT provided financial consulting services from Q3 2021 to Q2 2022. All of the transactions with both related parties are considered
in the normal course of business and have been measured at their exchange amount.

For the three months ended December 31

For the year ended December 31

Amounts
included in:
Contract labour
Accounts payable

2023
$
37,500
37,500

2022
$
30,000
26,885

2023
$
107,500
37,500

2022
$
153,271
26,885

26-

KPMG LLP
205 5th Avenue SW
Suite 3100
Calgary AB T2P 4B9
Tel 403-691-8000
Fax 403-691-8008
www.kpmg.ca

INDEPENDENT AUDITOR’S 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, 2023 and December 31, 2022
the consolidated statements of comprehensive income (loss) for the years then ended
the consolidated statements of changes in equity 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 material accounting policy
information

(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, 2023 and December 31, 2022, and its
consolidated financial performance and its consolidated cash flows for the years then ended in accordance with
IFRS Accounting Standards as issued by the International Financial Accounting Standards Board.

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 “Auditor’s Responsibilities for the Audit
of the Financial Statements” section of our auditor’s 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.

KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global
organization of independent member firms affiliated with KPMG International Limited, a private
English company limited by guarantee. KPMG Canada provides services to KPMG LLP.

Material Uncertainty Related to Going Concern

We draw attention to Note 2(e) in the financial statements, which indicates that the Company incurred losses of
$4.0 million and $1.0 million for the years ended 2023 and 2022 respectively. As at December 31, 2023, the
Company has a deficit of $84.2 million.

As stated in Note 2(e) in the financial statements, these events or conditions, along with other matters as set
forth in Note 2(e) 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.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of
the financial statements for the year ended December 31, 2023. These matters were addressed in the context
of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.

In addition to the matter described in the “Material Uncertainty related to Going Concern” section of the
auditor’s report, we have determined the matters described below to be the key audit matters to be
communicated in our auditor’s report.

Evaluation of the goodwill impairment assessment of CrossConsense cash-generating
unit

Description of the matter

We draw attention to Notes 2(f), 3(g), 3(k)(ii) and 9 to the financial statements. As at December 31, 2023, the
Company has recorded goodwill of $875,827 attributed to its CrossConsense cash-generating unit
(“CrossConsense CGU”). CGUs to which goodwill has been allocated are tested for impairment annually, or
more frequently if there are indicators of impairment. If any such indication exists, then the asset or CGU’s
recoverable amount is estimated. The recoverable amount of a CGU is the greater of value in use and fair value
less costs to sell. The determination of the recoverable amount of the CrossConsense CGU involves estimates
including forecasted cash flows, terminal growth multiple and discount rate. The recoverable amount of the
CrossConsense CGU exceeded its carrying value.

Why the matter is a key audit matter

We identified the evaluation of the goodwill impairment assessment of the CrossConsense CGU as a key audit
matter. This matter represented an area of significant risk of material misstatement given the magnitude of the
goodwill and the high degree of estimation uncertainty in determining the recoverable amount. Estimating the
recoverable amount requires the use of professionals with specialized skills and knowledge in valuation.

How the matter was addressed in the audit

The primary procedures we performed to address this key audit matter included the following:

• We compared the 2023 actual cash flows to those forecasted cash flows used in the prior year to assess the

Company's ability to accurately forecast

• We compared the forecasted cash flows to historical results and certain customer contracts. We took into
account changes in conditions and events affecting the Company to assess the adjustments or lack of
adjustments made by the Company in arriving at the forecasted cash flows.

We involved valuation professionals with specialized skills and knowledge, who assisted in:

• Assessing the reasonableness of the Company’s estimate of the recoverable amount of the CrossConsense
CGU by comparing the Company’s estimate to a fair value range that was independently developed using
the Company’s forecasted cash flows, market metrics and other external data

• Comparing the Company’s derivation of market capitalization attributable to the CrossConsense CGU to the

recoverable amount of the CrossConsense CGU.

Other Information

Management is responsible for the other information. Other information comprises:

•

the information included in Management’s Discussion and Analysis filed with the relevant Canadian
Securities Commissions.

the information, other than the financial statements and the auditor’s report thereon, included in the document
entitled “2023 Annual Report”.

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 and remain alert for indications that the other
information appears to be materially misstated.

We obtained the information included in Management’s Discussion and Analysis and 2023 Annual Report filed
with the relevant Canadian Securities Commissions as at the date of this auditor’s 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 auditor’s report.

We have nothing to report in this regard.

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 Accounting Standards as issued by the International Accounting Standards Board, 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.

Auditor’s 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 auditor’s 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 auditor’s 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 auditor’s 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 represent 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.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the group Company to express an opinion on the financial statements. We are responsible
for the direction, supervision and performance of the group audit. We remain solely responsible for our audit
opinion.

• Determine, from the matters communicated with those charged with governance, those matters that were of
most significance in the audit of the financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our auditor’s report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this auditor’s report is Stephanie Regier Pankratz.

Chartered Professional Accountants

Calgary, Canada
April 24, 2024

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

December 31, 2023

December 31, 2022

Assets
Current assets

Cash and cash equivalents
Other financial assets
Trade and other receivables (note 6)
Contract assets
Deposits and prepaid expenses
Inventory (note 7)
Tax receivable
Total current assets

Non-current assets

Property and equipment (note 8)
Goodwill (note 9)
Intangible assets (note 10)
Inventory (note 7)

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)
Lease liability (note 15)

Tax liability

Total current liabilities

Non-current liabilities

Loans and borrowings (note 14)
Lease liability (note 15)
Provisions (note 16)

Total non-current liabilities

Total liabilities

Equity

Share capital (note 17)
Contributed surplus
Cumulative translation adjustment
Deficit

Total equity

Total liabilities and equity

1,542,203
500,000
2,896,200
282,136
263,798
1,180,757
24,643
6,689,737

2,421,957
875,827
1,708,870
1,508,230

6,514,884
13,204,621

3,097,494
1,022,829
1,052,969
1,234,335
466,670

6,874,297

3,262,199
1,935,515
43,149

5,240,863

12,115,160

72,607,412
12,525,970
148,084
(84,192,005)

1,089,461

13,204,621

1,997,650
650,000
5,127,338
121,046
349,132
1,385,048
-
9,630,214

2,839,104
867,726
1,886,029
1,317,081

6,909,940
16,540,154

2,736,269
376,668
922,952
828,345
436,581

10,541

5,311,356

4,049,428
2,273,341
11,087

6,333,856

11,645,212

72,427,102
12,462,645
147,829
(80,142,634)

4,894,942

16,540,154

See accompanying notes to consolidated financial statements, including the going concern note (note 2e) and subsequent event note (note 14).
On behalf of the board

Director – Doug Marlin

Director – Paul Takalo

32-

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the year ended December 31

Revenue (note 19)

Cost of sales

Gross profit

Distribution expenses (note 20)

Administration expenses (note 21)
Research, development and certification
engineering expenses (note 22)

Income (loss) from operating activities

Finance income (note 23)

Finance costs (note 23)

Net finance costs

Income (loss) before income tax

Income tax expense (note 24)

Income (loss) for the period

Foreign currency translation adjustment

Comprehensive income (loss) for the period

Income (loss) per share

2023
$

20,144,579

8,317,313

11,827,266

6,422,470

4,048,184

4,848,811

(3,492,199)

(113,564)

658,864

545,300

(4,037,499)

(11,872)

(4,049,371)

255

(4,049,116)

2022
$

23,879,160

8,673,300

15,205,860

5,911,667

5,082,292

4,620,487

(408,586)

(40,317)

624,223

583,906

(992,492)

(10,541)

(1,003,033)

199,576

(803,457)

Basic and diluted loss per share (note 18)

(0.10)

(0.03)

33-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the years ended December 31, 2023 and 2022

Share Capital

Warrants

Balance at January 1, 2023

Income (loss) for the period
Total comprehensive
income (loss)

Contributions by and
distributions to owners
Issue of common shares
Share-based payment
transactions
Share options exercised

Total contributions by and
distributions to owners
Balance at December 31,
2023

72,427,102

180,310

72,607,412

Contributed
Surplus
$

12,462,645

Cumulative
Translation
Adjustment

Deficit

Total Equity
(Deficit)
$

147,829

(80,142,634)

4,894,942

144,837

(81,512)

63,325

255

(4,049,371)

(4,049,116)

(4, 049,371)

(4,049,116)

144,837

98,798

243,635

12,525,970

148,084

(84,192,005)

1,089,461

Balance at January 1, 2022

Loss for the period

Total comprehensive loss

Contributions by and
distributions to owners
Issue of common shares
Share-based payment
transactions
Share options exercised

Warrants expired

Total contributions by and
distributions to owners
Balance at December 31,
2022

70,779,594

954,535

11,421,730

(51,747)

(79,139,601)

1,235,000

412,508

(954,535)

178,899

(92,519)

954,535

1,647,508

(954,535)

1,040,915

199,576

(1,003,033)

3,964,511

(803,457)

1,235,000

178,899

319,989

1,733,888

72,427,102

12,462,645

147,829

(80,142,634)

4,894,942

34-

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the year ended December 31

Cash flows from (used in) operating activities

Loss for the period
Depreciation, amortization and impairment of
non-financial assets (note 8, 10)
Disposal of non-financial assets (note 8)
Lease liability accretion (note 15)
Grant portion of contributions from WINN (note 14)
Government loan accretion (note 14)
Equity-settled share-based payment expenses
Change in financial assets
Change in inventories (note 7)
Change in trade and other receivables
Change in contract assets
Change in prepayments
Change in trade and other payables
Change in customer deposits (note 12)
Change in contract liabilities (note 13)
Change in provisions
Provision used (note 16)
Unrealized foreign exchange loss (gain)
Interest paid
Interest income (note 23)
Interest received
Income tax expense (note 24)
Income tax paid

Net cash from (used in) operating activities

Cash flows used in investing activities

Acquisitions of property and equipment (note 8)
Proceeds from sale of property and equipment (note 8)
Acquisition of CrossConsense
Net cash used in investing activities

Cash flows from (used in) financing activities
Proceeds from exercise of share options
Payment of lease liabilities (note 15)
Contributions from WINN (note 14)
Repayment of borrowings

Net cash flows from (used in) financing activities

Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning
Effect of exchange rate fluctuations on cash held

Cash and cash equivalents, ending

2023
$
(4,049,371)

658,682

13,520
110,539
-
470,148
144,837
150,000
13,142
2,267,380
(157,175)
85,334
396,247
646,161
130,017
35,843
(12,463)
(72,832)
(119,382)
(37,514)
33,598
11,872
(38,374)
680,209

(33,292)
100
-
(33,192)

98,798
(336,619)
-
(842,544)
(1,080,365)

(433,348)
1,997,650
(22,099)
1,542,203

2022
$
(1,003,033)

660,039

54,145
110,426
(324,926)
474,580
178,899
-
830,865
(3,402,747)
33,002
28,556
1,092,624
(232,887)
922,952
14,482
(6,839)
(14,166)
(116,424)
(26,576)
24,144
10,541
(10,406)
(702,749)

(81,356)
100
(1,442,000)
(1,523,256)

319,989
(285,299)
947,368
(665,697)
316,361

(1,909,644)
3,870,591
36,703
1,997,650

35-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022

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 based in Calgary, Canada with offices in Denver CO, USA
and Frankfurt, Germany. FLYHT Aerospace Solutions Ltd is an AS9100 Quality registered company. For more information visit
www.flyht.com.

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

2. Basis of preparation

(a) Basis of accounting

These consolidated financial statements have been prepared in accordance with IFRS Accounting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”). These consolidated financial statements were approved by the Board of Directors on
April 24, 2024.

(b) Basis of measurement

The consolidated financial statements have been prepared on a historical cost basis.

Certain immaterial amounts have been adjusted in the prior period to align with current period presentation.

These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. The functional
currency of the Company’s United States subsidiary is U.S. dollars, and of the Company’s German subsidiary is the euro.

(d) COVID-19

Starting in early 2020 FLYHT saw impact of the pandemic in revenue and trade receivable payments due to the impact of the pandemic
on our customers. There has largely been recovery in FLYHT’s customer base, although 100% recovery has not been attained. There is
continued risk until such a time as the global aviation industry recovers fully. A possibility remains that an extended industry recovery
could cause FLYHT to scale back operations to create positive cash from existing revenue and/or raise the necessary financing in the
capital markets through debt and/or equity.

To preserve the Company’s liquidity through this period of commercial aviation uncertainty, the Company accessed governmental support,
enacted cost containment and cash conservation measures, worked closely with existing partner airlines to aid in their recovery, and
focused investment on developing the AFIRS Edge and Actionable Intelligence Software as a Service (“SaaS”) products. The Company
continues to monitor industry conditions and implement these and other measures as the situation dictates.

In 2022 the Company recognized a total of $423 thousand in government financial relief related to COVID-19 which was applied to offset
associated expenses in all three expense categories (Distribution, Administration and Research & Development). This funding did not
continue into 2023. All grant funds received to date have been recognized in the Statement of Comprehensive Income.

36-

(e) 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. 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 incurred losses in both 2023 and 2022 of $4.0
million and $1.0 million respectively and as at December 31, 2023 has a deficit of $84.2 million. In 2023, the Company had positive $680
thousand of cash from operations, compared to negative $702 thousand in 2022. At December 31, 2023, the Company had negative
working capital of $185 thousand compared to positive $4.3 million as of December 31, 2022. The Company ended 2023 with balances
of $1.5 million in cash and cash equivalents, $500 thousand in other financial assets, and an undrawn credit facility of $2.0 million.

For the Company to continue as a going concern, it will need to consistently achieve profitability and positive operating cash flows. The
Company continues efforts to expand its earnings and cash flow potential; however, until achieving consistent positive earnings and cash
flows, the Company will be required to continue to fund operations through revenue and its resulting cash flow, as well as managing
outgoing cash flows. The Company may be required to scale back operations to maximize positive cash from existing revenue and/or
raise the necessary financing in the capital markets through debt and/or equity.

There is no assurance that the Company will be successful in attaining and sustaining profitable operations and positive cash flow and/or
raising additional capital to meet its liquidity 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.
As a result of these factors, there is a material uncertainty that may cast significant doubt on the Company’s ability to continue as a going
concern. The 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.

(f) Use of judgements and estimates

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. The Company also assesses the value of inventory to be
classified as current versus non-current, based on past experience and certain assumptions regarding future anticipated needs.

5. The fair value of Western Innovation Initiative (“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 is determined based on debt
market conditions as well as factors specific to the Company’s operations and financial position.

6. Revenue recognition: accounting for revenue from customers requires management to make judgements when identifying
performance obligations in each contract. Estimates are required to be made when determining the transaction price and when
allocating the transaction price to the performance obligations identified, and, for certain contracts, when measuring progress of
the transfer of the performance obligation.

7. Determination of cash-generating units (“CGUs”): the Company’s assets are aggregated into the smallest identifiable group of
assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The
aggregation of assets in CGUs requires management judgment and is based on geographical locations and how management
monitors operations.

37-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

8. Valuation of CrossConsense business combination: judgement was required in identifying the assets acquired and liabilities
assumed and in the estimation of their fair values. The company engaged an independent valuation consultant to estimate the
acquisition-date fair value of intangibles assets. The process employed widely accepted valuation techniques, with key
assumptions being discount rates and anticipated future revenues and expenses, with growth rates specific to the acquired
assets and assumed liabilities. Changes to assumptions could significantly impact the fair value of certain assets, such as
intangible assets like customer relationships. The acquisition-date fair value of customer relationship intangible assets was
determined using an estimated discounted future cash flow methodology which requires the Company to make significant
assumptions. The significant assumptions used in determining the estimated acquisition-date fair value of intangible assets
related to customer relationships included estimated customer attrition rates, forecasted revenue, forecasted cost of sales and
discount rate.

Impairment test of goodwill – Goodwill is attributable to the CrossConsense CGU. Goodwill is tested annually for impairment or
when there are indicators of impairment. Judgment is required in determining whether there are internal or external indicators of
impairment. When tested for impairment, either annually or when there are indicators of impairment, the determination of the
recoverable amount of the CrossConsense CGU involves estimates including forecasted cash flows, terminal growth multiple
and discount rate.

3. Material accounting policies

The 2024 amendment to IAS 1 Presentation of Financial Statements has been issued. The Company will adopt this standard effective
January 1, 2024, and this amendment may have an impact on the Company. The Company has not completed its evaluation of the effect
of adopting these standards on its audited consolidated financial statements.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements
including by FLYHT’s subsidiaries.

(a) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by FLYHT. The financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control ceases.

These consolidated financial statements consolidate the accounts of FLYHT and its wholly owned subsidiaries, FLYHT Inc., FLYHT
Germany GmbH, CrossConsense GmbH and Co. KG, CrossConsense Services GmbH, FLYHT Corp., FLYHT India Corp., and
AeroMechanical Services USA Inc. The latter three subsidiaries are inactive.

(ii) Transactions eliminated on consolidation

Intra-group balances, transactions, and any unrealized income and expenses arising from intra-group transactions are eliminated in
preparing the consolidated financial statements.

(b) Financial instruments

(i) Cash and cash equivalents

Cash and cash equivalents consist of cash balances, bank guarantees, and bank deposits with an original maturity of three months or
less.

(ii) 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.

Trade receivables are financial assets with fixed or determinable payments that are solely payments of principal and interest. Such assets
are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, trade receivables are
measured at amortized cost using the effective interest method, less any impairment losses.

Loans and borrowings 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.

38-

(iii) 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.

(iv) Equity

Instruments 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.

Inventories are measured at the lower of cost and net realizable value. The weighted average cost method is used to measure cost of all
inventories. 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 the
Statement of Comprehensive Income in the period when the reversal occurs.

Raw material inventories include general parts, which are held pending installation or assembly.

Finished goods consists of units that have been assembled or purchased and are held pending sale to customers.

(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 and 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.

39-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

(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. Depreciation rates are as follows:

Computers
Software
Enterprise Reporting Software
Equipment
Leasehold improvements
Leased assets

30% declining balance
12 months straight line
60 months straight line
20% declining balance
Straight line over the expected period of use, which is normally the lease term
Straight line over the expected period of use, which is normally the 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.

(e) Research and development (“R&D”)

(i) Recognition and measurement

R&D costs consist primarily of consulting expenses and parts related to the design, testing, and manufacture of AFIRS, the AFIRS Edge,
FLYHT WVSS-II systems and the design and testing of all software systems and products (including AirMap, UpTime, FLYHTASD,
FleetWatch, FuelSense, ClearPort, and Actionable Intelligence). Other R&D costs include testing, patent application and certification.

Expenditure on research activities is expensed as incurred.

Development activities involve a plan or design for the production of new or substantially improved systems or solutions. Development
expenditure is capitalized when development costs can be measured reliably, the product or process can be designed, constructed,
operated, or carried out to accomplish its goals and objectives, using accepted engineering and other technical principles and concepts,
where the development benefits are expressed as far as possible in monetary terms so that they can be compared on an equal level. A
development activity is assessed as economically viable if the project benefits exceed the project costs 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. To date, all development costs have
been expensed as incurred.

(f) Leases

(i) Recognition and measurement

The Company leases properties and office equipment. The Company recognizes right-of-use assets (“ROA”) and lease liabilities at the
commencement date of the lease (i.e., the date the underlying asset is available for use).

The ROA is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made on or
before the commencement date, initial direct costs and any lease incentives received.

At the commencement date of the lease, the Company also recognizes the associated lease liability, measured at the present value of
lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives received. In
calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if
the interest rate implicit in the lease is not readily determinable.

After the commencement date, the amount of lease liability is increased to reflect the accretion of interest and reduced for the lease
payments made. The lease liability is remeasured when there is change in future lease payments arising from a change in an index or
rate.

The Company expenses the lease payments associated with short-term leases with durations of less than 12 months, and leases of low-
value assets.

40-

(ii) Amortization

The ROA is depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the ROA
and the end of the lease term. In addition, the ROA is reduced for any impairment losses.

(g) Intangible assets and goodwill

Intangible assets that are acquired by the Company and have finite useful lives are measured at cost less accumulated amortization and
accumulated impairment losses. Intangible assets with finite lives are amortized using a straight-line basis over their estimated useful
lives, which are reviewed each reporting period. Useful lives are as follows:

Customer relationships
Tradenames

5-10 years
10 years

Intangible assets acquired by the Company with indefinite useful lives and goodwill are measured at cost less accumulated impairment
losses.

Goodwill is assessed as the excess of fair value over consideration paid with respect to a business combination. CGUs to which goodwill
has been allocated are tested for impairment annually, or more frequently if there are indicators of impairment. Intangible assets with
indefinite lives are tested annually for impairment or when there are indicators of impairment. An intangible asset is derecognized on
disposal or impaired when no future economic benefits are expected from its use or disposal.

(h) Government assistance

(i) Government grants

Government grants, including forgiveness of government loans, 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.

(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) Business combinations

The Company accounts for business combinations using the acquisition method when control is obtained. 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 expensed 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.

(j) Warranties

The Company typically warrants that product shall be free of defects at minimum during the first term of each agreement, which is usually
3-5 years. Provision required for warranties is recognized at the later of the date the underlying products or services are shipped, or the
effective date of the agreement granting the warranty. The provision is based on historical failure rates and repair costs.

(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.

41-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

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

For impairment testing, assets are grouped together into CGUs, which are the smallest group of assets that generate cash inflows from
continuing use that are largely independent of the cash inflows of other assets.

At each reporting date, the Company reviews the carrying amounts of its non-financial assets (other than goodwill, inventories and
deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset or CGU’s
recoverable amount is estimated. The cash-generating units that goodwill has been allocated to are tested for impairment annually or
when there are indicators.

The recoverable amount of an asset, or CGU, 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.

An impairment loss is recognized if the carrying amount of an asset exceeds its recoverable amount. When the recoverable amount of
the CGU is less than its carrying amount, an impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to
the CGU, and then to the other assets of the CGU prorated on the basis of the carrying amount of each asset in the CGU. Impairment
losses are recognized in the Statement of Comprehensive Income.

(l) Revenue

Revenue is assessed based on a model 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 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 (“SaaS”) is recognized over time as these services are provided. Invoices are generated
monthly and typically are payable within 30 days. The Company uses the practical expedient to recognize revenue at the amount to
which it has a right to invoice, which corresponds directly to the value to the customer of the entity’s performance completed to date.

(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.

(iii) Licensing
Control over modems and associated IP licenses is transferred upon shipment, at which point the revenue is recognized. Payment is
typically due 30 days after shipment although may vary per purchase order. This category also includes arrangements for exclusive
access to weather data sets which is recognized over the relevant licensing period.

(iv) Technical Services
Revenue from Technical Services is recognized over time, as the services are provided. Payment terms for these services typically follow
terms established for Hardware. The Company uses the practical expedient to recognize revenue at the amount to which it has a right to
invoice, which corresponds directly to the value to the customer of the entity’s performance completed to date.

(m) Employee benefits

(i) 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.

42-

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.

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.

(o) Foreign currency

(i) 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.

(p) Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent
that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

(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.

4. 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. When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible.
Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

-
-

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as
prices) or indirectly (i.e., derived from prices).

43-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value
measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the
entire measurement.

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 (Level 2).

(a) Cash and cash equivalents, trade and other receivables, trade payables and accrued liabilities: carrying value approximates fair

value, due to the short-term nature of the instruments.

(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 end of the reporting period.

5. Business Combination

On March 17, 2022, the Company acquired 100% of the shares of CrossConsense GmbH & Co. KG (“CrossConsense”). Founded in
2002, Frankfurt Germany-based CrossConsense develops and markets software to support commercial aviation maintenance
management. Products include a predictive maintenance troubleshooting and engineering tool; software to support aircraft maintenance,
repair and data migration; and live data dashboards to assist aircraft maintenance teams. CrossConsense has also constructed a
progressive web application plus native apps that offer up-to-date data on an airline’s fleet status. Additionally, CrossConsense offers
consulting and support services as well as hosting, database operation and performance monitoring of commercial aircraft maintenance
applications. This acquisition is expected to accelerate FLYHT’s strategic roadmap to build out a maintenance software capability and
fulfills the Company’s goal to increase its presence in the European and Middle East markets.

The Company incurred acquisition-related costs of $254,903 in due diligence and legal fees in 2021 and a further $150,121 in 2022.
Additionally, in Q1 2022 finders’ fees of $100,000 were paid to a third party in connection with the closing of the transaction. These costs
have been included in Administrative Expenses.

The value allocated to the purchase price on the closing date was as follows:

Cash paid
Common shares issued
Other consideration
Total consideration

$
1,250,000
1,235,000
192,000
2,677,000

The value of acquired assets and assumed liabilities were as follows:

Cash and cash equivalents
Trade and other receivables
Deposits and prepaid expenses
Property and equipment
Leased assets
Intangible asset: customer relationships
Intangible asset: trade name
Goodwill

Trade payables and accrued liabilities
Contract liabilities
Lease liability

Total consideration

1,195,226
590,512
18,002
9,322
278,467
1,527,150
217,281
837,258
(910,669)
(807,082)
(278,467)
2,677,000

Goodwill is attributable to the workforce of the acquired business as well as the expected opportunities for growth and synergies across
products, staff, customers and geographies. Goodwill is allocated to the Company’s CrossConsense CGU and is fully deductible for tax
purposes.

44-

The fair value of the cash, accounts receivable, accounts payable and tangible assets acquired approximated the book value and
included trade receivables of $409,985. The acquired business contributed revenues of $4,015,700 and earnings of $26,558 to FLYHT
for the period from March 17, 2022 to December 31, 2022. If the acquisition had occurred on January 1, 2022, consolidated proforma
revenue and loss for the year ended December 31, 2022 would have been $24,765,919 and $1,030,715 respectively.

6. Trade and other receivables

Trade receivables (note 25)
Non-trade receivables and accrued receivables
Total

December 31,
2023
$
2,891,745
4,455
2,896,200

December 31,
2022
$
5,030,473
96,865
5,127,338

Non-trade receivables consist of input tax credits. The Company’s exposure to credit and currency risks is disclosed in note 25.

Inventory

Raw materials
Work in progress
Finished goods
Balance
Less current portion
Non-current portion

December 31,
2023
$
1,577,061
-
1,111,926
2,688,987
(1,180,757)
1,508,230

December 31,
2022
$
1,601,058
-
1,101,071
2,702,129
(1,385,048)
1,317,081

In 2023 Raw materials and Finished goods recognized as cost of sales amounted to $2,770,305 (2022: $3,261,573). Included in this
amount was a write down of inventories amounting to $215,279 (2022: $598,002) resulting from the review of slow-moving inventory
parts. All inventories are pledged as security for the bank loan (note 14).

8. Property and equipment

2023

Cost
Balance at January 1
Additions
Disposals
Cumulative translation
adjustment
Balance at December 31

Accumulated Depreciation
Balance at January 1
Depreciation for the year
Disposals
Cumulative translation
adjustment
Balance at December 31

Carrying Amounts
At January 1
At December 31

Computers and
Software
$

874,103
19,134
(13,571)

(470)
879,196

671,952
65,010
(11,662)

2
725,302

Equipment

792,963
14,158
(33,107)

6
774,020

351,430
49,505
(21,396)

-
379,539

202,151
153,894

441,533
394,481

Leasehold
Improvements
$

5,322
-
-

19
5,341

283
1,064
-

-
1,347

5,039
3,994

Leased
Assets
$

2,850,975
26,710
-

2,695
2,880,380

660,594
350,189
-

9
1,010,792

Total

4,523,363
60,002
(46,678)

2,250
4,538,937

1,684,259
465,768
(33,058)

11
2,116,980

2,190,381
1,869,588

2,839,104
2,421,957

45-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

2022

Cost
Balance at January 1
Additions
Disposals
Cumulative translation
adjustment
Balance at December 31

Accumulated Depreciation
Balance at January 1
Depreciation for the year
Disposals
Cumulative translation
adjustment
Balance at December 31

Carrying Amounts
At January 1
At December 31

Computers and
Software
$

829,347
67,461
(26,415)

3,710
874,103

607,336
73,719
(19,336)

10,233
671,952

Equipment

784,915
11,924
(5,880)

2,004
792,963

293,008
53,927
(2,991)

7,486
351,430

Leasehold
Improvements
$

17,687
5,322
(18,830)

1,143
5,322

16,370
2,408
(18,830)

335
283

Leased
Assets
$

3,374,835
482,209
(1,069,182)

63,113
2,850,975

1,277,464
388,191
(1,058,948)

53,887
660,594

Total

5,006,784
566,916
(1,120,307)

69,970
4,523,363

2,194,178
518,245
(1,100,105)

71,941
1,684,259

222,011
202,151

491,907
441,533

1,317
5,039

2,097,371
2,190,381

2,812,606
2,839,104

As of December 31, 2023, all property and equipment are pledged as security for the bank loan (note 14).

9. Goodwill

Gross carrying amount
Balance at January 1
Acquired through business combination (note 5)
Cumulative translation adjustment
Balance at December 31

Carrying Amounts
At January 1
At December 31

December 31,
2023
$

December 31,
2022
$

867,726
-
8,101
875,827

867,726
875,827

-
837,258
30,468
867,726

-
867,726

Goodwill of $875,827 is attributable to the CrossConsense CGU. The Company did not identify indicators of impairment in 2023. During
the Q4 2023 annual testing of goodwill, the recoverable amount of the CrossConsense CGU was determined based on value in use. The
recoverable amount was determined based on discounted cash flows using a discount rate of 14.9% (27.9% pre-tax), and a terminal
growth multiple of 5.1x was used to extrapolate cash flow projections beyond the four-year period covered by the most recent forecasts.
During the 2023 testing of goodwill, it was determined that the recoverable amount was above the carrying amount and as such no
impairment was recognized. The recoverable amount exceeded carrying value by $203,815.

A decrease in discount rate of 1% would result in a decrease in the recoverable amount of $68,317. A decrease in terminal growth
multiple of 1.0x would result in a decrease in the recoverable amount of $135,862.

46-

10. Intangible assets

2023

Licenses

Cost
Balance at January 1
Disposals
Cumulative translation
adjustment
Balance at December 31

Accumulated Amortization
Balance at January 1
Amortization for the year
Impairment loss
Cumulative translation
adjustment
Balance at December 31

Carrying Amounts
At January 1
At December 31

2022

Cost
Balance at January 1
Acquired through business
combination (note 5)
Disposals
Cumulative translation
adjustment
Balance at December 31

Accumulated Amortization
Balance at January 1
Amortization for the year
Impairment loss
Disposals
Cumulative translation
adjustment
Balance at December 31

Carrying Amounts
At January 1
At December 31

Customer
Relationships
$

1,582,723
-

14,777
1,597,500

133,278
170,151
-

2,886
306,315

Tradenames

225,188
-

2,103
227,291

17,830
22,763
-

(1,762)
38,831

Intellectual
Property
$

229,226
-

-
229,226

-
-
-

-
-

Total

2,037,137
-

16,879
2,054,016

151,108
192,914
-

1,124
345,146

1,449,445
1,291,185

207,358
188,459

229,226
229,226

1,886,029
1,708,870

-
-

-
-
-

-
-

Licenses

34,992

-
(34,992)

-
-

-
-
-
-

-
-

Customer
Relationships
$

1,527,150
-

55,573
1,582,723

-
125,064
-
-

8,214
133,278

Tradenames

217,281
-

7,907
225,188

-
16,730
-
-

1,100
17,830

Intellectual
Property
$

Total

229,226

264,218

-
-

-
229,226

-
-
-
-

-
-

1,744,431
(34,992)

63,480
2,037,137

-
141,794
-
-

9,314
151,108

34,992
-

-
1,449,445

-
207,358

229,226
229,226

264,218
1,886,029

The license purchased from Bombardier allowing FLYHT access to technical documents for their CRJ aircraft was derecognized in
2022, with consideration given to the usefulness of the data in future FLYHT applications and changes in Bombardier’s business.

Customer relationships and tradenames were acquired in 2022 as part of CrossConsense business combination (note 5). The
remaining amortization period for customer relationships and tradenames is 8 years.

Intellectual property includes the value of the FLYHT-WVSS-II intellectual property obtained in 2021.

Intangible assets are pledged as security for the bank loan (note 14).

47-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

11. Trade payables and accrued liabilities

Trade payables
Compensation and statutory deductions
Accrued liabilities
Balance, December 31

December 31,
2023
$
2,582,657
382,140
132,697
3,097,494

December 31,
2022
$
2,161,822
323,685
250,762
2,736,269

Compensation and statutory deductions include accrued vacation pay, variable compensation, accrued compensation, and statutory
payroll deductions.

12. Customer deposits

Opening balance
Payments received
Recognized as revenue
Balance, December 31

December 31,
2023
$
376,668
2,665,320
(2,019,159)
1,022,829

December 31,
2022
$
609,555
2,376,293
(2,609,180)
376,668

Customer deposits are recognized for non-refundable deposits received prior to hardware and technical services being delivered to a
customer. Customer deposits are recognized into revenue when hardware is shipped, or technical services are provided to the
customer.

13. Contract liabilities

Opening balance
Acquired (CrossConsense business combination)
Payments received
Recognized as revenue
Cumulative translation adjustment
Balance, December 31

December 31,
2023
$
922,952
-
1,055,839
(972,872)
47,050
1,052,969

December 31,
2022
$
-
807,082
1,027,392
(940,892)
29,370
922,952

Contract liabilities are recognized for consideration received prior to SaaS services being provided to a customer. This balance relates to
CrossConsense customer contracts that require upfront payment for services delivered over the subsequent twelve-month period.
Contract liabilities are recognized into revenue when services have been provided to the customer.

14. Loans and Borrowings

Bank loans

The Company has an operating demand loan available through a Canadian chartered bank for up to a maximum of $2.0 million CAD.
The operating demand loan bears interest at the Canadian chartered bank prime plus 1.5%. Security includes accounts receivable,
cash collateral in the form of a $500,000 Guaranteed Investment Certificate, 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 loan includes a
general covenant allowing the bank to demand payment of, or cancel or restrict availability of, any unutilized portion of the loan. This
facility was undrawn at both December 31, 2022 and 2023.

FLYHT has a performance guarantee valued at £500,000 as required by a customer contract. The guarantee was issued through a
standing letter of credit under an available banking facility and is insured by Export Development Canada. The Company has assessed
the expected loss arising from the guarantee to not be material; therefore, no provision has been recognized against the guarantee.

48-

Government loans

In November 2016, the Company signed a contribution agreement with Western Economic Diversification Canada for a 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 was received. The amount is repayable over five years commencing January 1, 2020. Amendments in 2020 adjusted the
payment dates due to COVID-19, so that there were no payments scheduled from April through December 2020 and the final payment
date was pushed back to September 2025 while an amendment in March 2024 reduced payments required from April 2024 – March
2025, with the resulting difference added to the amount of each payment due from April 2025 – September 2025. Repayments in 2023
totaled $468,000 (2022: $468,000). The carrying value of the amount owing under this program at December 31, 2023 is $757,953
(December 31, 2022: $1,132,345).

In November 2018, the Company signed a second contribution agreement with Western Economic Diversification Canada for a WINN
loan, to support development of the next generation of AFIRS hardware and embedded software to address parts obsolescence issues
and add new market-driven features. Under the terms of this agreement, a repayable unsecured WINN contribution to the value of the
lesser of 44% of the eligible project costs to April 30, 2021 or $2,761,000 was received, repayable over five years commencing October
1, 2021. Amendments in 2021 extended the timeframe for eligible project cost submission to September 30, 2023 and adjusted the
repayment start date to October 1, 2023 with a final payment date of September 1, 2028. While an amendment in March 2024 reduced
payments required from April 2024 – March 2025, with the resulting difference added to the amount of each payment due from April 2025
– October 2028. Repayments in 2023 totaled $138,051 (2022: $nil). The carrying value of the amount owing under this program at
December 31, 2023 is $2,221,217 (December 31, 2022: $2,202,931).

Both WINN loans are interest free.

Under the Strategic Aerospace and Defence Initiative (“SADI”), the Company received a loan of $1,967,507 which 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 January 31, 2029 (adjusted from April 30, 2028 in response to the COVID-19 pandemic)
when the final payment will be 24.5% of the total contribution received. Repayment of $208,715 was made in 2023 (2022: $181,493).
The carrying value of the amount owing under this program at December 31, 2023 is $1,329,622 (December 31, 2022: $1,331,720).

In May 2021, the Company received funding of $250,000 through the Business Development Bank of Canada’s (“BDC”) Highly Affected
Sectors Credit Availability Program (“HASCAP”) loan program, designed to support small and medium sized businesses affected by
COVID-19. This loan carries interest of 4% per annum over a 10-year term commencing May 10, 2021. Payments in the first year following
funding are comprised of interest only, with the principal and accrued interest payable over the remaining 9 years. Principal repayments
in 2023 totaled $27,778 (2022: $16,204). The carrying value of the amount owing under this program at December 31, 2023 is $187,742
(December 31, 2022: $210,777).

A summary of the carrying value of the government loans as at December 31, 2023 and changes during the year and comparative year
are presented below.

Balance January 1
Contributions received
Grant portion
Interest accretion
Gain on loan modification
Repayment
Balance December 31
Less current portion
Non-current portion

15. Lease liability

2023
Total
4,877,773
-
-
470,148
-
(851,387)
4,496,534
(1,234,335)
3,262,199

2022
Total
4,456,286
947,368
(324,926)
474,580
-
(675,535)
4,877,773
(828,345)
4,049,428

In conjunction with the CrossConsense business combination that occurred on March 17, 2022 FLYHT inherited the leasing
arrangement for CrossConsense’s head office. The remaining term of the lease upon acquisition is 3.5 years, with an annual payment
amount of €102,915 EUR ($150,588 CAD) in 2023 and consecutive annual amounts to be adjusted based on Germany’s annual
consumer price index (“CPI”). At acquisition, the Company recognized a right of use asset of €199,077 EUR ($278,466 CAD) and a
lease liability for the same amount. The value was determined using a discount rate based on the incremental borrowing rate of the
Company, over the remaining lease term of 42 months.

49-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

On April 16, 2022, a lease agreement was entered into for server equipment at the FLYHT corporate head office. The terms of the lease
include a 5-year contract term with monthly payments. At inception, the Company recognized a right of use asset of $147,407 and a lease
liability for the same amount. The value was determined using the discount rate implicit in the lease, over the lease term of 60 months.
Amortization of the asset and accretion of the associated lease liability commenced on September 1, 2022.

Opening balance
Additions
Finance costs (note 23)
Lease payments
Disposals
Cumulative translation adjustment
Balance, December 31
Less current portion
Non-current portion

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

2023
$

2,709,922
26,710
110,539
(447,158)
-
2,172
2,402,185
(466,670)
1,935,515

2023
$
11,087
6,749
(1,241)
39,017
(12,463)
43,149

2022
$

2,502,675
482,209
110,426
(395,725)
(10,234)
20,571
2,709,922
(436,581)
2,273,341

2022
$
13,850
5,744
(3,162)
1,494
(6,839)
11,087

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 the value of the provision for warranties expiring throughout each respective year.

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, 2022
Exercise of employee options
Common shares issued
Balance December 31, 2022
Exercise of employee options
Balance December 31, 2023

Number of
Shares

36,416,876
487,598
1,900,000
38,804,474
193,176
38,997,650

Value
$

70,779,594
412,508
1,235,000
72,427,102
180,310
72,607,412

Option exercises during 2023 have resulted in the Company issuing a total of 193,176 shares for total proceeds of $98,798.

50-

Stock option plan

•

The Company grants stock options to its directors, officers, employees and consultants. The following stock options were granted in 2023:
449,400 stock options to employees, officers and directors under the stock option plan with an exercise price of $0.94. The
options will vest in equal tranches on May 11, 2024, 2025 and 2026 and will expire on May 11, 2027.
26,500 stock options to investor relations consultants with an exercise price of $0.94. The options will vest in equal tranches on
August 11, 2023, November 11, 2023, February 11, 2024, and May 11, 2024. These options are set to expire on May 11, 2027.

•

All outstanding options 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, 2023, there were 3,899,765 (2022: 3,880,447) common shares reserved for this purpose.

A summary of the Company’s outstanding stock options as at December 31, 2023 and 2022 and changes during these years is presented
below.

2023

2022

Outstanding, January 1
Options granted
Options exercised
Options expired
Outstanding December 31
Unvested options
Outstanding and exercisable,
December 31

Number of
options

1,735,210
475,900
(193,176)
(510,346)
1,507,588
870,168

637,420

Weighted average
exercise price
$
0.75
0.94
0.51
1.01
0.75
0.81

0.64

Number of
options

1,803,481
993,715
(487,598)
(574,388)
1,735,210
1,034,263

700,947

Weighted average
exercise price
$
0.83
0.72
0.66
1.03
0.75
0.67

0.81

The exercise prices for options outstanding at December 31, 2023 were as follows:

Exercise
price:

$0.52
$0.57
$0.59
$0.69
$0.74
$0.82
$0.93
$0.94

Total

Number

1,666
245,478
276,574
30,000
414,070
40,000
40,760
459,040
1,507,588

All options

Weighted average
remaining contractual life
(years)

Number

Exercisable options

Weighted average
remaining contractual life
(years)

0.8
1.3
0.5
0.8
2.3
2.6
1.6
3.4
2.1

-
153,057
276,574
30,000
132,907
13,333
27,173
4,375
637,420

0.8
1.3
0.5
0.8
2.3
2.6
1.6
3.4
1.2

The weighted average fair value of the options granted during the year that were valued using the Black-Scholes option pricing model
was $0.32 (2022: $0.26). 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

Number of warrants

Outstanding January 1, 2022
Warrants expired
Outstanding December 31, 2022
Outstanding December 31, 2023

2,667,610
(2,667,610)
-
-

2023
3.50%
2.08
58%
0.00%

Weighted average
exercise price
$
1.25
1.25
-
-

2022
2.93%
1.76
64%
0.00%

Value

$
954,535
(954,535)
-
-

51-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

18. Earnings per share

The calculation of basic and diluted earnings per share for the year ended December 31, 2023 was based on a weighted average
number of common shares outstanding of 38,904,152 (basic and diluted) (December 31, 2022: 38,151,602 basic and diluted). Both
calculations of diluted earnings per share did not include outstanding stock options because they would be anti-dilutive.

19. Disaggregation of revenue and non-current assets

The Company has one operating segment. The following revenue is based on the geographical location of customers. All non-current
assets reside in Canada, except for:

•
•

Property and equipment valued at $4,374 (Denver CO, USA) and $6,915 (Frankfurt, Germany)
Leased premises valued at $158,321 (Frankfurt, Germany)

United States & Mexico
Asia
China
Middle East
Canada
Australia
Africa
Europe
South/Central America
Total

For the year ended December 31
2022

2023

$
5,795,173
1,671,890
1,109,486
587,969
3,121,656
723,939
546,791
6,511,146
76,529
20,144,579

$
12,224,340
975,081
1,963,049
607,445
2,900,423
472,278
495,874
4,069,501
171,169
23,879,160

The following shows revenue per major product and service categories.

SaaS
Hardware
Licensing
Technical Services
Total

For the year ended December 31

2023

$
10,693,098
4,273,464
1,962,223
3,215,794
20,144,579

2022

$
8,157,886
4,720,204
9,101,130
1,899,940
23,879,160

SaaS is the recurring revenue from the Company’s products that allow 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 fees are recognized as the service is
provided each month.

Hardware includes the income from hardware sales and related parts required to install the unit, spare units, spare installation parts, and
Underfloor Stowage Units.

Licensing includes sales of modems with a related manufacturing license fee.

Technical Services includes services offered by the Company, including repairs and other expertise. The Company has not disclosed
the transaction price allocated to remaining performance obligations for SaaS and Technical Services, as revenue for these performance
obligations is recognized using the practical expedient to recognize revenue at the amount to which the Company has a right to invoice.

The undelivered amount of revenue related to contracted yet undelivered hardware and licenses for which a purchase order has been
received was $1,493,080 CAD as of December 31, 2023.

Major customers

Revenues from the largest customer represents approximately 10.5% of the Company’s total revenues for the year ended December 31,
2023 (2022: 38.9%).

52-

20. Distribution expenses

Salaries and benefits
Stock based compensation
Contract labour
Office
Travel
Equipment and maintenance
Depreciation and amortization
Marketing
Other government grants
Bad debt reserve
Total

21. Administration expenses

Salaries and benefits
Stock based compensation
Contract labour
Office
Legal fees
Audit and accounting
Investor relations
Travel
Equipment and maintenance
Depreciation and amortization
Other government grants
Other
Total

For the year ended December 31

2023
$
4,166,651
52,690
962,400
274,554
324,468
254,624
215,444
135,845
-
35,794
6,422,470

2022
$
4,136,208
57,674
880,600
219,720
266,070
177,730
204,962
158,281
(222,108)
32,530
5,911,667

For the year ended December 31

2023
$
1,666,945
68,076
380,110
683,577
57,761
376,993
158,965
34,568
321,660
291,155
-
8,374
4,048,184

2022
$
1,712,234
101,355
1,179,042
672,276
173,751
350,840
145,091
153,295
348,842
273,445
(48,258)
20,379
5,082,292

22. Research, development and certification engineering expenses

Salaries and benefits
Stock based compensation
Contract labour
Office
Travel
Equipment and maintenance
Components
Depreciation and amortization
Grant WINN loan (note 14)
Other government grants
Other
Total

For the year ended December 31

2023
$
3,925,437
24,071
958,234
137,957
41,793
115,926
87,392
152,083
-
(594,081)
-
4,848,811

2022
$
4,359,273
19,870
441,551
138,624
54,035
118,477
45,186
181,632
(324,926)
(413,374)
139
4,620,487

Other government grants relate to amounts received from the United States government under the Employee Retention Tax Credit
program (“ERTC”), the Canadian government under the Scientific Research and Experimental Development (“SRED”) tax refund
program and the Alberta government under the Alberta Innovates programs.

53-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

23. Net Finance Costs

Interest income on bank deposits
Net foreign exchange gain
Finance income

Bank service charges
Interest on lease liability
Interest on BDC loan
Government grant interest accretion
Finance costs

Net finance costs

24. Income tax expense

Current Tax Expense

Current income tax expense
Deferred income tax expense

Deferred Tax Expense
Deferred tax liabilities

Recognized deferred tax assets (liabilities) are attributable to the following:

PP&E
Intangibles
Lease liabilities
Unrealized foreign exchange gains
Non-capital loss carry-forward
Total

Unrecognized deferred tax assets

Deferred tax assets have not been recognized in respect of the following
deductible temporary differences:
Intangible assets
Lease liabilities
Reserves and FX
Non-capital loss carry-forwards
Share issue costs
Scientific research and experimental development expenditures
Total

For the year ended December 31

2023
$
37,514
76,050
113,564

78,177
110,539
13,586
456,562
658,864

545,300

2023
$
11,872
-
11,872

2023
$
(29,399)
(10,611)
26,992
(16,636)
29,654
-

2023
$
298,907
2,234,532
1,504,577
48,706,767
22,286
26,059,933
78,827,003

2022
$
26,576
13,741
40,317

39,217
110,426
14,938
459,642
624,223

583,906

2022
$
10,541
-
10,541

)

2022
$
(25,929)
-
-
-
25,929
-

2022
$
60,550
2,477,337
929,784
45,488,281
193,705
24,649,934
73,799,591

The Company has non-capital losses for income tax purposes of approximately $48,848,793 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. Of these losses,
$478,491 were incurred in the US which can be carried forward indefinitely and $879,269 were incurred in Germany and expire in five
years. The remaining losses of $47,491,033 were incurred in Canada and will begin to expire in 2027.
2023
$

Reconciliation of effective tax rate

2022
$

Income (loss) before tax
Tax Rate
Expected income tax recovery
Non-deductible (taxable) amounts
Stock based compensation
Change in unrecognized temporary differences

(4,037,499)
23%
(928,624)
14,028
33,313
893,155
11,872

(992,492)
23%
(228,273)
46,245
41,147
151,422
10,541

54-

25. Financial risk management

The Company’s operating activities expose it to a variety of financial risks, including credit, liquidity and market risks associated with the
Company’s financial assets and liabilities. FLYHT has established procedures and policies to minimize its exposure to these risks, and
continually monitors its exposure to all significant risks to assess the impact on its operating activities. The following details the Company’s
exposure to credit, liquidity, currency, and other market risks.

Credit risk

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Management considers
the demographics of the Company’s customer base, including the default risk of the industry and country in which customers operate.
Approximately 10.5% (2022: 39%) of the Company’s 2023 revenue is attributable to transactions with a single customer. There is no
significant geographic concentration of outstanding balances, which has a minimizing impact on the Company’s 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 reduce 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 expected losses.

The aging of receivables at the reporting date was:

December 31, 2023

Accounts receivable
Impairment
Net receivable

December 31, 2022

Accounts receivable
Impairment
Net receivable

0-30 days
$
2,806,780
(8,541)
2,798,239

0-30 days
$
5,006,405
(9,450)
4,996,955

31-60 days
$
86,361
(1,762)
84,599

31-60 days
$
106,223
-
106,223

61-90 days
$
7,541
(1,762)
5,779

61-90 days
$
24,026
-
24,026

91+ days
$
176,114
(168,531)
7,583

91+ days
$
183,179
(183,045)
134

Total
$
3,076,796
(180,596)
2,896,200

Total
$
5,319,833
(192,495)
5,127,338

The Company believes that the unimpaired amounts that are past due by more than 30 days are still collectible, based on historic
payment behavior.

The movement in the allowance for impairment in respect of trade and other receivables for the years ended December 31, 2023 and
2022 was:

Balance, January 1
Provision
Recovered
Amounts written off
Balance, December 31

Liquidity risk

2023
$

192,495
3,139
-
(15,038)
180,596

2022
$
260,945
177,977
(146,244)
(100,183)
192,495

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.

55-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

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

December 31, 2023

Accounts payable
Compensation and
statutory deductions
Accrued liabilities
Lease payments
Loans and borrowings
Total

Less than
1 year
$
2,582,657

382,140

132,697
466,670
733,104
4,297,268

1-2
years
$
-

2-5
years
$
-

-
441,150
1,064,945
1,506,095

-
1,083,668
3,438,687
4,522,355

-
755,541
553,261
1,308,802

> 5 years

Total

$
-

$
2,582,657

382,140

132,697
2,747,029
5,789,997
11,634,520

Refer to note 2(d) & 2(e) for additional details relating to the effects of COVID-19.

Currency risk

A significant portion of the Company’s revenues and a portion of its expenses are denominated in U.S. dollars. Management estimates
that a 1% weakening of the Canadian dollar relative to the U.S. dollar would increase net earnings by approximately $114,528 (2022:
$165,821) and a strengthening of the Canadian dollar would decrease net earnings by approximately $114,528 (2022: $165,821).

With the 2022 acquisition of CrossConsense, a portion of the Company’s 2023 revenues and expenses were denominated in euros.
Management estimates that a 1% weakening of the Canadian dollar relative to the euro would increase net earnings by approximately
$24,792 (2022: $15,650) and a strengthening of the Canadian dollar would decrease net earnings by approximately $24,792 (2022:
$15,650).

The Company mitigates its currency exposures by the international nature of the business where a portion of its costs 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, 2023,
working capital denominated in U.S. dollars was approximately positive $344,744 (2022: positive $3,092,158). As a result, a 1%
weakening of the Canadian dollar would increase net earnings by approximately $3,447 (2022: $30,922) and a strengthening of the
Canadian dollar would decrease net earnings by approximately $3,447 (2022: $30,922).

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.

The Company has exposure to foreign exchange risk for working capital items denominated in euros. At December 31, 2023, working
capital denominated in euros was approximately positive $843,856. As a result, a 1% weakening of the Canadian dollar would increase
net earnings by approximately $8,439 (2022: $5,550) and a strengthening of the Canadian dollar would decrease net earnings by
approximately $8,439 (2022: $5,550).

In respect of other monetary assets and liabilities denominated in foreign currencies, the Company ensures that its net exposure is kept
to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

Interest rate risk

Borrowings issued at variable rates result in exposure to interest rate risk, which would affect future cash flows if interest rates were to
rise. Fluctuations in the prime interest rate could result in exposure for the Company with regards to the bank credit facility, which bears
interest at Canadian chartered bank prime plus 1.5%. The Company’s exposure to interest rate risk as at December 31, 2023 and 2022
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 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.

56-

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 past two reporting years.

26. Government grants

No contributions were received from WINN for the year ended December 31, 2023 (2022: $947,368).

The Company did not recognize any amount in government financial relief related to COVID-19 in 2023 (2022: $422,603).

27. Contractual Arrangement

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

In Q3 2023 FLYHT issued a performance guarantee valued at £500,000 as required by a customer contract. The guarantee was issued
through an available banking facility that allows for a maximum of $900,000 and is insured by Export Development Canada. The
associated costs have been recognized in the Statement of Comprehensive Income, Distribution expenses category. The Company has
assessed the expected loss arising from the guarantee to not be material; therefore, no provision has been recognized.

28. Related parties

Since 2020, a company related to an officer of FLYHT has provided marketing services to the Company. A company related to a director
of FLYHT provided financial consulting services from Q3 2021 to Q2 2022. All of the transactions with both related parties are considered
in the normal course of business and have been measured at their exchange amount.

Amounts included in:
Contract labour

Accounts payable

For the year ended December 31

2023
$
107,500

37,500

2022
$
153,271

26,885

Transactions with key management personnel

Key management personnel include all persons with direct or indirect authority and responsibility for planning, directing and controlling
the activities of the Company, and includes directors and the FLYHT executive team.

In addition to salary and variable compensation, the Company also provides non-cash benefits to key management personnel.

57-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023

Compensation for this group comprised:

Salary
Director fees
Variable compensation
Share-based payments
Short-term employee benefits
Total

Subsidiaries

FLYHT Inc.
AeroMechanical Services USA Inc.
FLYHT Corp.
FLYHT India Corp.
FLYHT Germany GmbH
CrossConsense GmbH & Co. KG
CrossConsense Services GmbH

2023
$
1,319,678
175,448
-
77,714
121,450
1,694,290

2022
$
1,669,448
173,085
57,578
93,935
156,439
2,150,485

Country of Incorporation
United States
United States
Canada
Canada
Germany
Germany
Germany

Ownership interest
100%
100%
100%
100%
100%
100%
100%

58-

CORPORATE INFORMATION

Registrar and Transfer Agent
Odyssey Trust Company
1.587.885.0960
https://odysseytrust.com/

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

Investor Relations
investors@flyht.com
1.403.250.9956
www.flyht.com

FNK IR LLC
flyht@fnkir.com
1.646.809.2183

Directors
Mary McMillan
Brent Rosenthal
Doug Marlin
Mike Brown
Paul Takalo
Peter Large
Nancy Young

Officers
Kent Jacobs
Alana Forbes
Darrel Deane
Scott Chambers
Gurjot Bhullar

Auditor
KPMG LLP

Legal Counsel
Chris Croteau

Head Office

Executive Chairman, FLYHT Aerospace Solutions Ltd.
Mountain Hawk Capital Partners, LLC
President, Marlin Ventures Ltd.
Partner, Nanaimo Law
Director
Director
Director

President and Interim Chief Executive Officer
Chief Financial Officer
Vice President Solutions
Vice President Sales and Marketing
Vice President Operations

Calgary, Alberta

Tingle Merrett LLP, Calgary, Alberta

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

59-

FLYHT AEROSPACE SOLUTIONS LTD. ANNUAL REPORT 2023