20 23

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Letter to Shareholders ....................................................................................................................................... 4 Management Discussion & Analysis ................................................................................................................................. 5 Non-GAAP Financial Measures ..................................................................................................................... 5 Forward-Looking Statements ......................................................................................................................... 5 FLYHT Overview ........................................................................................................................................... 6 Trends and Economic Factors ..................................................................................................................... 11 Environmental, Social and Corporate Governance ...................................................................................... 12 Results of Operations .................................................................................................................................. 14 Selected Results ...................................................................................................................... 14 Financial Position ..................................................................................................................... 15 Comprehensive Loss ................................................................................................................ 17 Other ........................................................................................................................................ 23 Corporate Information ........................................................................................................................................................ 26

COMMONLY USED FINANCIAL TERMS AND AVIATION ACRONYMS

ABOs: Aircraft Based Observations ACARS : Aircraft Communications Addressing and Reporting System ACMS: Aircraft Condition and Monitoring System ADS-C: Automatic Dependent Surveillance - Contract AID: Aircraft Interface Device AFIRS[TM] : Automated Flight Information Reporting System AHM : Aircraft Health Monitoring AMDAR: Aircraft Meteorological Data Relay AMOS[TM] : Aircraft Maintenance and Engineering Operating System ANAC: National Civil Aviation Agency of Brazil APU: Auxiliary Power Unit BDC: Business Development Bank of Canada CAAC: Civil Aviation Administration of China CARES: The Coronavirus Aid, Relief, and Economic Security Act CERS: Canada Emergency Rent Subsidy CEWS: Canada Emergency Wage Subsidy CPDLC Controller Pilot Data Link Communications DAO: Design Approval Organization DGAC: Direccion General de Aeronautica Civil (Mexico’s certification organization) EASA: European Aviation Safety Agency EBITDA: Earnings before interest, taxes, depreciation and amortization ECAA: Egyptian Civil Aviation Authority EFB: Electronic Flight Bag ERTC: Employee Retention Tax Credit ESG: Environmental, Social, Governance FAA : Federal Aviation Administration FANS: Future Air Navigation System FDR: Flight Data Recorder FlightLink[TM] : An Iridium Satellite Data Unit GAAP: Generally Accepted Accounting Principles GAMECO: Guangzhou Aircraft Maintenance Engineering Company Limited HASCAP: Highly Affected Sectors Credit Availability Program IATA : International Air Transport Association ICAO: International Civil Aviation Organization IFRS: International Financial Reporting Standards MD&A: Management Discussion and Analysis MRO: Maintenance, Repair, and Overhaul MTBF: Mean Time Between Failures OEM : Original Equipment Manufacturer PAC: Panasonic Avionics Corporation PPP: Paycheck Protection Program PWS : Panasonic Weather Solutions QAR: Quick Access Recorder QTD: Quarter-to-date R&D : Research and Development RPK: Revenue Passenger Kilometers SaaS: Software as a Service SADI : Strategic Aerospace and Defence Initiative SAAU: State Aviation Authority of Ukraine STC : Supplemental Type Certificate TAMDAR[TM] : Tropospheric Airborne Meteorological Data Reporting TCCA : Transport Canada Civil Aviation TCFD: Task Force on Climate Related Disclosures WINN: Western Innovation Initiative WVSS: Water Vapour Sensing System YTD: Year-to-date

FLYHT AEROSPACE SOLUTIONS LTD. Q1 2023 REPORT

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LETTER TO SHAREHOLDERS

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We start 2023 in a strong strategic and financial position. FLYHT’s transformation into a provider of Actionable Intelligence (“AI”) over the past three years is enabling us to offer the aviation industry the tools and solutions it is increasingly demanding as it undergoes its own transformation.

Our pipeline of potential business continues to increase and currently stands at the highest level in company history. In addition to a tailwind from the ongoing recovery of global passenger traffic, there is sustained demand for our legacy flagship products anchored by AFIRS 228™ and surging interest in our new and innovative solutions built around our AFIRS Edge technology and SaaS solutions.

FLYHT's AFIRS 228 solution is a leading Iridium satcom solution with a proven track record and an installed base of over 4,000 aircraft. Sales of the AFIRS 228 continue to be strong and account for a significant portion of our SaaS growth of 44% during the quarter. This quarter Transport Canada awarded FLYHT a Supplemental Type Certificate (“STC”) to install the AFIRS 228 on the Boeing 737 MAX-8, one of the world’s most popular aircraft types, creating additional growth potential for FLYHT. Airlines can now request that their aircraft come off the factory line with Iridium satcom provisions, and our new STC allows for updates to those provisions to accommodate FLYHT’s AFIRS 228.

Additionally, FLYHT continues to make progress toward the commercialization of the AFIRS Edge™, the Company's 5G-enabled Wireless Quick Access Recorder (“WQAR”). During the quarter we received DO-160 environmental testing certification, which means the AFIRS Edge is now ready for installation on commercial aircraft, and we are currently in the process of obtaining STCs for the product on multiple aircraft platforms. There will be a number of new products and services built off the AFIRS Edge infrastructure that will drive our SaaS model.

Weather is fast becoming another driver of growth for FLYHT as we leverage our solutions to address environmental imperatives for the aviation industry. FLYHT’s WVSS-II water vapour sensor system, in conjunction with either an AFIRS Edge or AFIRS 228, is a significant aspect of Aircraft Based Observations (“ABOs") for both meteorologists and airlines. These observations support weather forecasting models and aviation operations including playing a key role in detecting and avoiding contrails which may be responsible for up to 50% of aviation's climate impact. In March it was gratifying to see our own Meredith Bell testify before the Subcommittee on Environment of the United States House of Representatives to discuss a collaboration with NOAA and the airlines using FLYHT’s weather sensor technology.

Financially, we delivered expected results in Q1 2023, considering we had just completed two of the strongest quarters in years in the back half of 2022. Revenue decreased 5% year-over-year but would have increased when adjusting for last year’s large licensing orders. Our gross margins remain robust at 57.3% and I am particularly pleased that our cash balance increased by $564,000 to $3.2 million as we collected on the large OEM order that we fulfilled last year.

FLYHT was named to the 2023 TSX Venture 50, an annual ranking of the top 50 performers on the TSX Venture Exchange. We were thrilled to be recognized as a top 50 performer amongst 1,700 TSX listed companies for superior market capitalization growth, share price appreciation and shareholder returns.

I’m truly excited about the outlook for FLYHT in 2023. I look forward to working closely with our new Chairman, Captain Mary McMillan, and the rest of our Board of Directors, including our new members Pete Large and Nancy Young. Also, I want to thank former Board members Nina Jonsson and Jack Olcott for their guidance and unwavering commitment to FLYHT.

In closing and as a telling indication of FLYHT's rising industry stature, on June 20-22, 2023, we will welcome hundreds of our industry peers from around the world to Calgary for the semi-annual AEEC/IATA Electronic Flight Bag (“EFB”) Users Forum. The EFB Users Forum is a joint activity with AEEC/IATA that provides a unified forum for airlines, system integrators, hardware and software providers, regulators, and other interested parties to present and discuss topics of interest to the EFB user community.

I am proud and grateful for the level of commitment and engagement shown by our incredible team at FLYHT. I would like to thank our customers for the opportunity to continue serving them, and to thank our shareholders for their loyal support.

Yours truly,

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Kent Jacobs

MANAGEMENT DISCUSSION & ANALYSIS

This management discussion and analysis (“MD&A”) is as of May 10, 2023 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, 2022 and 2021 and the accompanying notes. Additional information with respect to FLYHT can be found on SEDAR at www.sedar.com. The Company has prepared its March 31, 2023 condensed consolidated interim financial statements and the notes thereto in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

Non-GAAP Financial Measures

The Company reports its financial results in accordance with International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP). It also occasionally uses certain non-GAAP financial measures, such as working capital, non-current financial liabilities and earnings before interest, income tax, depreciation and amortization (EBITDA). 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, 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 Canadian, United States (U.S.), and global economic environments, local and foreign government policies/regulations and actions, and assumptions made based upon discussions to date with the Company’s customers and advisers, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements.

Forward-looking information is based on the opinions and estimates of management at the date the statements are made and are founded on the basis of expectations, assumptions and hypotheses made by the Company, including, but not limited to, the following: projected costs, future plans, projected revenues, objectives of management for future operations, trends in the airline industry, the global financial outlook, including, but not limited to, the effects of the COVID-19 pandemic being experienced worldwide, 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 forwardlooking statements include but are not limited to production rates, timing for product deliveries and installations, Canadian, U.S., German and foreign government activities, volatility of the aviation market for FLYHT’s products and services, factors that result in significant and prolonged disruption of air travel worldwide, 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 being experienced worldwide, 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

FLYHT AEROSPACE SOLUTIONS LTD. Q1 2023 REPORT

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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 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 and software solutions. These include AFIRS™, an aircraft satcom/interface device, which enables cockpit voice communications, real-time aircraft state analysis, and the transmission of aircraft data while inflight. The AFIRS Edge (Edge) is a state-of-the-art 5G Wireless Quick Access Recorder (WQAR), Aircraft Interface Device (AID), and Aircraft Condition and Monitoring System (ACMS). The Edge can be interfaced with FLYHT’s TAMDAR probe and/or the FLYHT-WVSS-II relative humidity sensor to deliver airborne weather and humidity data in real-time. FLYHT complements the AFIRS airborne systems with enterprise applications that help airlines improve operational efficiency and situational awareness including UpTime, FleetWatch, FuelSense and ClearPort services.

CrossConsense, FLYHT’s wholly owned subsidiary, offers highly skilled services to the commercial aviation industry and provides preventative maintenance solutions. These include Aircraft Fleet View, a native application that gives a real-time view of airline fleet status; AviationDW, a managed data warehouse for enhanced business intelligence; and ACSIS, a visualization and predictive maintenance alerting tool (see Business Combination section, page 21).

FLYHT is headquartered in Calgary, Canada, and is an AS9100 Quality registered company. CrossConsense, located in Frankfurt, Germany, is an ISO9001 certified operation. For more information visit www.flyht.com.

1. Actionable Intelligence Solutions

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

Cloud-based enterprise servers complement AFIRS data with external airline, airport and other industry data sources. These external sources have many components aiding in aircraft operations, maintenance, and ground operations as well as flight planning and scheduling. The combination of this wide set of data sources allows for the creation of a data lake to which machine learning can be applied, allowing FLYHT to provide customers with Actionable Intelligence solutions.

FLYHT continues to add to the suite of Actionable Intelligence solutions. The service offering provides FLYHT with a recurring, SaaS (Software as a Service) 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 WQAR (Wireless Quick Access Recorder) 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 SaaS and 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. QAR data forms one of the foundations for the Actionable Intelligence solutions that FLYHT provides.

SaaS opportunities to enhance airline operational control and decrease airline costs are derived from QAR recordings and wireless distribution functions, by expanding data harvesting that is fully under airline control.

Aircraft Interface Device

AFIRS Edge provides AID functions to supply an aircraft’s own data to the flight deck for Electronic Flight Bag (EFB) applications. By conforming to the ARINC 834 standard, own-ship information is transmitted from the AFIRS Edge to Actionable Intelligence applications running on the flight deck. Whether airlines run their own EFB applications or run third party programs, they will always have access to the rich set of aircraft data provided by the AFIRS Edge.

The AFIRS Edge AID functions are easily and remotely configurable. As airlines update or add new EFB applications the need for new aircraft data points will arise. By remotely updating the AID service of the Edge, new Actionable Intelligence solutions can be enabled on the flight deck without personnel having to individually update each aircraft in a fleet.

FleetWatch

Situational awareness remains a primary objective of any Operations Control Centre (OCC) and frontline staff. FLYHT’s FleetWatch provides a configurable fleet wide situational awareness platform in a form factor 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, 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 APU operation, FleetWatch is a primary conveyor of Actionable Intelligence to our airline customers.

FuelSense

Fuel and emissions are a significant concern for all airlines. The FuelSense application provides insight to 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.

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 AID functionality (ARINC 834 compliant), a multi-channel wireless Quick Access Recorder, bulk aircraft system data acquisition and recording, and AFIRS analytics through our enhanced, customized ACMS.

The WQAR function of the AFIRS Edge provides an industry-first move towards 5G transmission of aircraft recorded FDR data. By using the most efficient method of data transfer off an aircraft, data volumes can be increased while the cost of transmission decreases. The fully compliant 4G/3G features provide compatibility while existing ground cellular infrastructures are updated. 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 WQAR capabilities 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 FLYHT’s customers and the industry. There are two models within the AFIRS Edge product line: the AFIRS Edge, a flange mounted device, and the Edge+, a 4MCU (ARINC 600 connector) unit, giving flexibility depending upon the aircraft type and customer requirements.

AFIRS™

The Automated Flight Information Reporting System (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 FDR (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.

FLYHT AEROSPACE SOLUTIONS LTD. Q1 2023 REPORT

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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 weather observations that include relative humidity data. 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.

FLYHT’s AFIRS 228S conforms to the Canadian Technical Standard Order (CAN-TSO) Design Approval, CAN-TSO-C159b. The certification, granted by Transport Canada, represents an additional level of airworthiness standards met by AFIRS to provide safety services voice and data.

FLYHT’s CAN-TSO-C159b Iridium SATCOM solution provides the aircraft with reliable FANS 1/A, ADS-C, CPDLC and ACARS over Iridium messaging capabilities. Benefits offered by FANS include a more efficient route structure, reduced flight times, reduced fuel burns, and enhanced communications between Air Traffic Control (ATC) and the aircraft.

FLYHT’s systems and solutions provide enhanced global flight tracking capabilities that meet and exceed ICAO’s 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 externally mounted 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.

ABOs are grouped together during the ascent and descent phases of a flight to generate soundings. By adding relative humidity to the standard AMDAR payload, FLYHT significantly increases the value of our 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.

As with AMDAR and TAMDAR soundings, FLYHT-WVSS-II enhanced ABOs are provided to government and private weather modeling systems around the world. Industry standardized and accepted formats for data transmission of weather data to these models is maintained.

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 the data with Global Positioning System (GPS) data and transmits the information in real-time over satellite networks. TAMDAR provides real-time, highquality atmospheric data collected from 100+ aircraft in North America, Asia, and Europe through frequent soundings and 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 Electronic Flight Bags (EFBs).

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 communication solutions include long range satcom, as well as Air Traffic Safety (ATS) Services voice, providing a higher performance alternative to that of legacy High Frequency (HF) communications. AFIRS 228S TSO complies with the FAA Advisory

Circular AC 20-150B as one of the two required Long Range Communication Systems (LRCS). The AFIRS 228S TSO is a TSO-C159b certified Iridium satcom solution providing the aircraft with reliable FANS 1/A, ADS-C, CPDLC and ACARS over Iridium messaging capabilities.

The AFIRS Edge includes 5G/4G/3G cellular capabilities, a modular Iridium Certus satcom, and the ability to integrate with existing onboard broadband solutions.

4. MRO Services

CrossConsense assists the aviation industry in using and applying SWISS Aviation’s comprehensive AMOS software solution for maintenance, engineering and logistics needs, including required hardware, database and 1st and 2nd level application support.

In addition to maintenance system software solutions, CrossConsense provides data migration services for customers transitioning from other MRO platforms to AMOS, business intelligence and customization services, and consulting services. Through expert understanding of MRO products, and an understanding of airline maintenance operations, CrossConsense develops Actionable Intelligence solutions in the MRO market.

SYSTEM APPROVALS

FLYHT is a TCCA Approved Manufacturer, a TCCA Approved Maintenance Organization (AMO) and an EASA and CAAC Part 145 Repair Facility. FLYHT is part of a select group of Canadian companies who are approved by TCCA as a Design Approval Organization (DAO). FLYHT’s quality system is AS9100D certified with the registrar Intertek. The Company also holds multiple STCs to make appropriate modifications, such as installing FLYHT’s AFIRS, FlightLink and TAMDAR technologies to an aircraft’s approved design.

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

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

To acquire an STC validation from a 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 and issues an STC for that country based on their validation of the TCCA 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.

FLYHT AEROSPACE SOLUTIONS LTD. Q1 2023 REPORT

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STC Chart: AFIRS 220 and 228

TCCA Canada	TCCA Canada	FAA USA	FAA USA	EASA EU	EASA EU	CAAC China	CAAC China	ANAC Brazil	ANAC Brazil
220	228	220	228	220	228	220	228	220	228
A	A	A	A	A	A	A	A			Airbus A319, A320, A321
P										Airbus A330
	A		A						A	ATR42-300
	A									ATR42-500 and ATR72-212A"500 Version"
	A		A						A	ATR72-100,-200
					A*					ATR42-500"600 Version" *STC Twenty One
					A*					ATR72-212A"600 Version" *STC Twenty One
A		A		A		A				Boeing B737-200
A	A	A	A	A	A	A	A		A	Boeing B737-300,-400,-500
A	A	A		A		A				Boeing B737-600
A	A	A	A	A	A	A	A		A	Boeing B737-700,-800
	A									Boeing B737 MAX 8
			A							Boeing B737-900ER
	A									Boeing 747-200
A	A	A	A	A	A	A	A			Boeing 757-200
A	A	A	A	A	A	A	A			Boeing 767-200,-300
	A		A							Boeing B777-200,-300
A	A*	A	A*	A	A*					Bombardier DHC-8-100,-200,-300*Avmax
A	A		A							Bombardier DHC-8-400
A	A	A	A	A	A		A			Bombardier CRJ-100,-200,-440
	A		A		A		A			Bombardier CRJ-700,-900
							A			Comac ARJ21*China Express Airlines Co. Ltd.
	A		A				P		A	Embraer ERJ 190-100
		A								Embraer Legacy 600 and ERJ–135,-145
A										Fokker 100
A	A	A	A	A	A					Hawker Beechcraft 750, 800XP, 850XP, 900XP
A		A			A					McDonnell Douglas DC-10 (KC-10 military)
			A							McDonnell Douglas MD-82
	A		A							McDonnell Douglas MD-83
A										Viking Air DHC-7 (LSTC)

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.

STC Chart: AFIRS Edge

TCCA Canada	FAA USA	EASA EU	CAAC China
P				Airbus A319, A320, A321, NEO
I				Boeing B737-600,-700,-800
I				BoeingB737-MAX8

STC Chart: TAMDAR

FAA	FAA	EASA	EASA	DGCA Indonesia	DGCA Indonesia	DCA Malaysia	DCA Malaysia	DGAC Mexico	DGAC Mexico	CAA Philippines	CAA Philippines	CAA Thailand	CAA Thailand
TR	FL	TR	FL	TR	FL	TR	FL	TR	FL	TR	FL	TR	FL
		A*	A*	A*	A*	A*	A*			A*	A*	A*	A*	Airbus A318, A319, A320, A321
		A*												Boeing 757
A*	A*			A*	A*	A*	A*							Boeing 737-700,-800,-900
A*	A*	A*	A*											Boeing 737Max 8, 9
A														DHC-8-100,-200,-300,-400
A								A						EMB 135/145
A								A						EMB ERJ 190-100,-200
		A*												EMB ERJ 190-100,-200
A														Hawker Beechcraft 1900
A														Saab 340
A	A													Saab 2000

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

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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. Many commercial airlines and aircraft leasing organizations continue to face extreme stress stemming from the COVID-19 pandemic and Ukraine/Russia conflict. A few key points are as follows[1] .

Global passenger demand continued to grow in February. Industry-wide revenue passenger-kilometers (RPKs) increased 55.5% year-on-year (YoY) and were 15.1% below their pre-pandemic level. The global traffic recovery has been helped by recent developments in the Asia Pacific region’s air travel markets.
International RPKs grew 89.7% annually, as passenger flows between the Asia Pacific region and the rest of the world continued to catch up with other major international markets. Asia Pacific airlines grew their international RPKs by
• 378.7% YoY.
Domestic passenger traffic continued to trend near pre-pandemic levels, growing 25.2% annually and achieving 91.2% of February 2019 RPKs. A few monitored markets have exceeded their pre-pandemic capacity and passenger traffic levels.

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.

Industry-wide revenue-passenger kilometers (RPKs) grew by 55.5% YoY in February and reached 84.9% of their pre-pandemic traffic levels. In seasonally adjusted (SA) terms, total RPKs grew 5.6% month-on-month (MoM). Passenger traffic increased across all regions compared to the previous month, with the Asia Pacific region’s carriers recording the fastest growth in RPKs at 15% MoM. In the US, domestic RPKs increased 10.6% YoY in February and remained above pre-pandemic levels for the second consecutive month, growing 0.7% over February 2019 RPKs. In the Americas region, domestic RPKs for Latin American and North American airlines exceeded precrisis traffic again in February, with 1.2% and 0.2% growth, respectively, above 2019 levels.

Total international RPKs grew 89.7% YoY in February and recovered to 77.5% of pre-pandemic levels, a modest improvement from the month prior. The annual growth of international seat capacity was more moderate at 53.5%, raising passenger load factors (PLF) to 77.7%. Passenger load factors for international markets increased by 14.8 percentage points (ppts) from the previous year while remaining 1.9 ppts lower than pre-pandemic load factors. Passenger load factors are higher than they were in 2019 for most regions except Europe and North America, where the ASKs recovery has outpaced the growth in RPKs. Across all regions, the international passenger load factor was down 1.9% compared to the February 2019 load factor.[1]

Industry-wide cargo tonne-kilometers (CTKs) continued to slow their annual decline in March. The year-on-year (YoY) contraction of CTKs narrowed further from -9.4% in February to -7.7% in March, which is a substantial improvement from the -16.8%fall in January (Chart 1). Compared with the prepandemic period, industry CTKs decreased by 8.1% over March 2019 levels. Although monthly CTKs were higher in March compared to the previous month, seasonally adjusted (SA) CTKs declined by 1.1% month-over-month (MoM) from the February level.[ 2]

Boeing and Airbus delivered 64 and 61 commercial jets in March 2023, compared to 41 and 63 deliveries, respectively, in the same month last year. Year-to-date, Boeing and Airbus have delivered 130 and 127 aircraft, compared to 95 and 142, respectively, in the first quarter of 2022. After the first three months of the year, Boeing is 35 deliveries ahead of, and Airbus is 15 deliveries behind, last year’s totals to date. In 2022, Airbus won the deliveries crown for the fourth year in a row by delivering 663 aircraft, compared to Boeing’s 480 shipments. In 2021, Boeing and Airbus delivered 340 and 611 aircraft.[3 ]

1 https://www.iata.org/en/iata-repository/publications/economic-reports/air-passenger-market-analysis2/

2 https://www.iata.org/en/iata-repository/publications/economic-reports/air-cargo-market-analysis-march-2023/ 3 https://dsm.forecastinternational.com/wordpress/2023/04/17/airbus-and-boeing-report-march-2023-commercial-aircraft-orders-and-deliveries/

FLYHT’s Market

FLYHT has been providing real-time communications leveraging satellite networks to commercial, business and military aircraft since 1998 with its AFIRS solution. In the past year, FLYHT has expanded its AFIRS portfolio with its AFIRS Edge product line, providing 5G cellular data communications, Iridium Certus real-time IP communications, global voice and data flight deck communications, while still supporting and interfacing with other data channels on the aircraft including the legacy technologies still in use. This means FLYHT customers can move larger amounts of data off the aircraft while in the air, in real-time or on the ground post flight, and value can be more quickly realized from the data on board. This data value is achieved via the AFIRS Edge on-wing computing platform, or on the ground in the cloud via the JetBridge platform, feeding Actionable Intelligence applications, as well as making it easy for data to be

FLYHT AEROSPACE SOLUTIONS LTD. Q1 2023 REPORT

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consumed by other value generating applications and services used by the airline in the air (e.g., Electronic Flight Bags via the Aircraft Interface Device (AID) functionality of the Edge) and on the ground.

On the ground, FLYHT’s Actionable Intelligence provides airlines with a sophisticated toolset allowing the Company an opportunity to further expand into artificial intelligence opportunities. Actionable Intelligence provides insight into customers’ total operations to identify areas for improvement. That insight triggers actions based upon rules or previous observations to direct corrective action in near real time. These steps allow the airline to control the profitability of their operations, improving customer satisfaction with better on time performance and allows for empowered employees who are able to solve problems on the spot. FLYHT assists airlines in aligning the passenger experience, airline operations and positive working environment for enhanced profit opportunity, supported by a seamless technology partnership.

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 its 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.

Foreign Currency

The Canadian dollar strengthened relative to the U.S. dollar and weakened relative to the euro throughout Q1 2023, and overall the Company experienced a resulting positive impact to net income compared to Q1 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 Q1 2023. It is generally the standard of the aviation industry to conduct business in U.S. dollars. While a majority of the Company’s operating and overhead costs are denominated in Canadian dollars, a significant portion of costs are U.S. dollar and euro denominated, and therefore a partial natural hedge exists against fluctuations of the Canadian dollar.

Environmental, Social and Governance

FLYHT is committed to implementing the highest standards of Environmental, Social and Governance (ESG) throughout its operations. ESG factors are important to business operations and can impact company value and investor decision making. In 2022 FLYHT started to review its ESG practices and set priorities for measurement and goals for implementation. Each department was tasked with exploring their own opportunities and contributions to FLYHT’s ESG strategy. The Company has set reporting metrics and is continually updating a roadmap and implementation timelines. The Board of Directors and Management at FLYHT selected the Annual Report as the communication method regarding FLYHT’s ESG programs because they believe it is important for investors to see FLYHT’s ESG commitments. Subsequent financial reports will be used to share updates as progress continues.

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 CORSIA and EU ETS. The Company’s products support the industry’s commitment to attain and measure net-zero 2050 in a couple of key areas: 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 March 2022, FLYHT showcased its partnership with Swoop Airlines to reduce emissions by eliminating non-essential Auxilary Power Unit (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 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.

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Measurable impacts internal to FLYHT since 2017 include an 86% reduction in our operation’s reliance on paper and the diversion of over 60 computers, four servers, and 100 monitors 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 Amazon Web Services (AWS) data centers, which operate with 65% renewable energy as well as utilizing more efficient services and facilities to reduce consumption of nonrenewable energy.

Social

FLYHT has established corporate policies dedicated to improving efficiency in the use of resources and staying abreast of the UN’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 prioritizes a healthy work life balance by having flexible hours, encouraging a flexible hybrid workplace, providing paid time off for sickness and family responsibilities, providing opportunities and support to pursue training and professional development, and ensuring comprehensive health benefits. Policies that promote these areas include a career development and training policy, and a flexible workplace policy. In addition, FLYHT conducts a staff survey regularly to allow all employees to provide anonymous feedback on aspects related to company culture, workplace satisfaction, workload and recognition among others. FLYHT also tracks employee health and safety statistics to monitor that proper procedures are being followed to protect staff.

The development of a robust ESG policy is important to our employees. As the Company becomes more conscious of our contributions, a focus on ESG impacts 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 was critical in forming the Company’s ESG direction and identifying key areas to focus on in each area of the business.

FLYHT has implemented a Security Management System (SecMS) to ensure that cyber, corporate, and product security protocols consistently fulfill all requirements mandated by government regulation and industry standards; are based on accurate assessment and effective mitigation of security risks; support the Company’s vision and mission, values, and core business objectives; and are conducted in the most efficient and cost-effective manner, considering the operational and business environment.

The SecMS applies to the protection of FLYHT’s people, data, assets, technology systems, Intellectual Property, and products and services. It consists of eight core elements that provide the overall governance, risk, business resilience, and continuous improvement protocols that can be scaled to include various operational security functions.

FLYHT 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 two years and can be measured from entry level to the executive 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, spokespersons and employees as it relates to communications with the public. Multiple Company policies form a code of conduct for its directors, officers, employees and consultants. 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, have been sufficient to ensure that the Board of Directors operates independently of management and in the best interests of the Company.

FLYHT AEROSPACE SOLUTIONS LTD. Q1 2023 REPORT

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Next steps

Along with the ESG focus, FLYHT will focus on climate-related disclosures. This involves following international guidelines for reporting by the Task Force on Climate Related Disclosures (TCFD). It is anticipated that TCFD, or similar frameworks, will be required by stock exchanges shortly. Although as a TSX Venture Issuer FLYHT’s implementation effort at this point will be largely voluntary, the Board of Directors believes it is important to assess material implications for the business around 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 TCFD. FLYHT anticipates next steps to include a review of climate change risks and opportunities, and an assessment of finance and investment policy alignment with environmental goals. In the coming years FLYHT plan to be able to report on our material climate risks and monitor further mandates and requirements for disclosure.

Q1 2023 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

Results of Operations

Selected Results

	Q1 2023	Q4 2022	Q3 2022	Q2 2022
	$	$	$	$
Assets Non-current financial liabilities*	14,988,847 5,912,886	16,540,154 6,322,769	14,873,106 6,307,401	14,674,263 6,392,197
Revenue Cost of sales Gross profit Gross profit % Distribution expenses Administration expenses Research, development and certification engineering expenses	4,757,230 2,030,311 2,726,919 57.3% 1,759,353 1,062,840 1,411,873	7,241,758 2,384,329 4,857,429 67.1% 1,661,256 1,209,188 1,079,052	6,725,373 1,853,079 4,872,294 72.4% 1,531,091 1,199,337 1,329,944	4,881,372 2,156,364 2,725,008 55.8% 1,339,537 1,361,728 1,046,294
Results from operating activities Depreciation and amortization EBITDA* Income (loss) Income (loss) per share (basic) Income (loss) per share (diluted)	(1,507,147) 163,233 (1,343,914) (1,657,114) (0.04) (0.04)	907,933 262,250 1,170,183 718,689 0.01 0.01	811,922 112,758 924,680 703,765 0.02 0.02	(1,022,551) 116,771 (905,780) (1,141,140) (0.03) (0.03)
	Q1 2022	Q4 2021	Q3 2021	Q2 2021
	$	$	$	$
Assets Non-current financial liabilities*	16,482,757 6,231,765	13,250,186 5,920,735	14,675,428 4,948,252	11,181,967 5,018,668
Revenue Cost of sales Gross profit Gross profit % Distribution expenses Administration expenses Research, development and certification engineering expenses	5,030,657 2,279,528 2,751,129 54.7% 1,379,783 1,312,039 1,165,197	2,527,961 1,276,348 1,251,613 49.5% 969,992 1,086,536 1,119,319	3,173,331 1,010,084 2,163,247 68.2% 1,000,059 786,699 1,359,405	2,926,122 1,393,065 1,533,057 52.4% 896,024 741,109 1,048,841
Results from operating activities Depreciation and amortization EBITDA* Income (loss) Income (loss) per share (basic) Income (loss) per share (diluted)	(1,105,890) 168,260 (937,630) (1,284,347) (0.03) (0.03)	(1,924,234) 179,234 (1,745,000) (2,444,054) (0.08) (0.08)	(982,916) 170,950 (811,966) (1,107,195) (0.03) (0.03)	(1,152,917) 172,306 (980,611) (1,395,889) (0.05) (0.05)

*See Non-GAAP Financial Measures

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Financial Position

Liquidity and Capital Resource

The Company’s cash and cash equivalents at March 31, 2023 increased to $3,211,944 from $2,647,650 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, drawn either in CAD or USD. The operating demand loan bears interest at the Canadian chartered bank prime plus 1.5% (CAD) or US prime plus 4.5% (USD). Security includes accounts receivable, cash collateral 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 March 31, 2023.

The Company funded Q1 2023 operations primarily through cash proceeds received from sales and funding obtained through the Alberta Innovates governmental program. The Company will strive to self-fund operations throughout 2023.

	March 31, 2023	December 31, 2022	Variance
	$	$	$
Cash and cash equivalents Trade and other receivables Contract assets Deposits and prepaid expenses Inventory Trade payables and accrued liabilities Customer deposits Contract liabilities Loans and borrowings Lease liability Current tax liabilities	3,211,944 3,258,347 146,309 543,799 934,904 (2,487,551) (843,753) (978,068) (952,340) (453,042) (18,260)	2,647,650 5,127,338 121,046 349,132 1,385,048 (2,736,269) (376,668) (922,952) (828,345) (436,581) (10,541)	564,294
			(1,868,991)
			25,263
			194,667
			(450,144)
			248,718
			(467,085)
			(55,116)
			(123,995)
			(16,461)
			(7,719)
Working capital*	2,362,289	4,318,858	(1,956,569)

*See Non-GAAP Financial Measures

As at May 10, 2023 FLYHT’s issued and outstanding share capital was 38,806,774.

The consistent achievement of positive earnings is necessary before the Company can consistently improve liquidity. Positive earnings in the second half of 2022 and positive operating cash flow in the first quarter of 2023 reflect recent progress in this area. 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 recent development of hardware and software solutions designed to access opportunities presented by changing industry technology.

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 losses from operating activities in both Q1 2023 and Q1 2022. At March 31, 2023, the Company had positive working capital of $2.4 million compared to positive $4.3 million as of December 31, 2022, a decrease of $1.9 million. The Company ended Q1 2023 with balances of $3.2 million in cash and cash equivalents 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 continue to expand its earnings and cash flow potential through its focused marketing efforts, particularly the presentation of Actionable Intelligence tools to our customer and prospects, which are expected to result in additional contracts for delivery of hardware units and related services. The intention is to provide profit enhancement opportunities to customers and prospects without requisite capital expenditures by them and thereby return to the Company’s core benefit to shareholders of high value SaaS revenue growth.

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 the 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 impact the Company’s ability to achieve positive earnings and cash flows. The negative impact to 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 been recovery in our customer base, with aircraft re-commencing operations as well as receivable payments being made, although geographic differences in rates and timing of recovery continue to be seen. There is continued risk until such a time as the global aviation industry recovers fully.

FLYHT AEROSPACE SOLUTIONS LTD. Q1 2023 REPORT

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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. The condensed consolidated interim financial statements do not reflect adjustments that would otherwise be necessary if the going concern assumption was not valid, such as revaluation to liquidation values and reclassification of statement of financial position items.

Financial Instruments

The Company is exposed to fluctuations in the exchange rates between the Canadian dollar and other currencies, primarily the US dollar 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 March 31, 2023.

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

Contractual Obligations

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

March 31, 2023	< 1 year	1-2 years	2-5 years	> 5 years	Total
	$	$	$	$	$
Accounts payable Compensation and statutory deductions Accrued liabilities Lease payments Loans and borrowings	1,859,347 473,233 154,971 453,042 1,020,492	- - - 467,436 1,331,464	- - - 1,147,404 3,101,934	- - - 1,016,671 852,548	1,859,347
					473,233
					154,971
					3,084,553
					6,306,438
Total	3,961,085	1,798,900	4,249,338	1,869,219	11,878,542

Government Loans

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

Under the Strategic Aerospace and Defence Initiative (SADI), at March 31, 2023 the Company has an outstanding repayable balance of $1,030,934. The amount is repayable over 15 years on a stepped basis commencing April 30, 2014. The initial payment on April 30, 2014 was 3.5% of the total contribution received and the payment increases yearly by 15% until 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 Q1 2023 (Q1 2022: $181,493). The carrying value of the amount owing under this program at March 31, 2023 is $1,173,060 (December 31, 2022: $1,331,720).

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, with the final payment date pushed back to September 2025. Repayments in Q1 2023 totaled $117,000 (Q1 2022: $117,000). The carrying value of the amount owing under this program at March 31, 2023 is $1,041,770 (December 31, 2022: $1,132,345).

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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. The carrying value of the amount owing under this program at March 31, 2023 is $2,240,671 (December 31, 2022: $2,202,931).

In May 2021, the Company received funding of $250,000 through the BDC’s 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 Q1 2023 totaled $6,944 (2022: nil). The carrying value of the amount owing under this program at March 31, 2023 is $205,044 (December 31, 2022: $210,777).

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

	March 31, 2023 $	Dec 31, 2022 $	Variance $
Opening Balance	4,877,773	4,456,286	421,487
Received	-	947,368	(947,368)
Grant Portion	-	(324,926)	324,926
Interest accretion	117,716	474,580	(356,864)
Repayment	(334,944)	(675,535)	340,591
Carrying amount at March 31	4,660,545	4,877,773	(217,228)
Less currentportion	952,340	828,345	123,995
Non-currentportion	3,708,205	4,049,428	(341,223)

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 quarter ending March 31, 2023. Payments were received for 22 installation kits in the first quarter of 2023 compared to 26 received in the first quarter of 2022.

	March 31, 2023	Dec 31, 2022	Variance
	$	$	$
Opening balance Payments received Recognized as revenue	376,668 856,154 (389,069)	609,555 2,376,293 (2,609,180)	(232,887)
			(1,520,139)
			2,220,111
Balance, March 31	843,753	376,668	467,085

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, the sale of 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.

FLYHT AEROSPACE SOLUTIONS LTD. Q1 2023 REPORT

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Revenue sources

	Q1 2023	Q1 2022	Variance
	$	$	$
SaaS Hardware Licensing Technical Services	2,413,200 1,771,445 8,737 563,848	1,675,072 2,109,598 1,134,706 111,281	738,128
			(338,153)
			(1,125,969)
			452,567
Total	4,757,230	5,030,657	(273,427)

For the quarter ended March 31, 2023, total revenue decreased 5.4% from $5,030,657 in Q1 2022 to $4,757,230 in Q1 2023.

SaaS revenue increased 44.1% in Q1 2023 over Q1 2022. The addition of CrossConsense SaaS revenues and post-pandemic recovery of the Company’s customer base contributed to this increase.

Hardware revenue in Q1 2023 saw a decrease of 16.0% as compared to Q1 2022, as a total of 32 installation kits were shipped in Q1 2023 compared to 34 in Q1 2022.

Licensing revenue decreased $1.1 million from Q1 2022 due to decreases in the number of modems and associated license fees ordered for delivery in comparative periods.

Technical Services revenue increased 406.7% for Q1 2023 compared to Q1 2022 as a result of the addition of CrossConsense services to this revenue category. Revenues in this category can be expected to vary between periods and years, depending on the level of additional technical services provided to customers in each relevant period.

Revenue sources for the last eight quarters were:

	Q1 2023	Q4 2022	Q3 2022	Q2 2022	Q1 2022	Q4 2021	Q3 2021	Q2 2021
SaaS Hardware Licensing Technical Services	2,413,200 1,771,445 8,737 563,848	2,253,618 1,217,860 3,030,368 739,912	2,073,284 480,064 3,536,153 635,872	2,155,912 912,682 1,399,903 412,875	1,675,072 2,109,598 1,134,706 111,281	1,500,110 590,975 356,197 80,679	1,507,366 567,356 1,004,698 93,911	1,446,221 1,404,193 7,924 67,784
Total	4,757,230	7,241,758	6,725,373	4,881,372	5,030,657	2,527,961	3,173,331	2,926,122

Geographical distribution of revenue sources were:

	Q1 2023	Q1 2023	Q1 2022	Q1 2022
	$	%	$	%
United States & Mexico Asia China Middle East Canada Australia Africa Europe South/Central America	650,412 349,557 345,967 160,190 1,626,153 281,490 124,771 1,203,904 14,786	13.7 7.3 7.3 3.4 34.2 5.9 2.6 25.3 0.3	2,186,338 103,208 430,421 170,382 1,629,107 60,490 124,047 198,362 128,302	43.5 2.0 8.6 3.4 32.4 1.2 2.5 3.9 2.5
Total	4,757,230	100.0	5,030,657	100.0

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Gross Profit and Cost of Sales

FLYHT’s cost of sales includes the direct costs associated with specific revenue types, including the hardware unit, installation kits, training, installation support, project management and software implementation, as well as associated shipping expenses and travel expenses for the Company’s engineering personnel while performing on-site installation support. Installations on aircraft are performed by third parties at the customer’s expense. Cost of sales as a percentage of revenue in Q1 2023 was 42.7% compared to 45.3% in Q1 2022. Gross profit increased from 54.7% in Q1 2022 to 57.3% in Q1 2023 due to differences in the mix of revenue sources. Gross profit will fluctuate quarter over quarter depending on the mix of revenue categories.

Gross profit for the last eight quarters was:

	Q1 2023	Q4 2022	Q3 2022	Q2 2022	Q1 2022	Q4 2021	Q3 2021	Q2 2021
Gross Profit %	57.3	67.1	72.4	55.8	54.7	49.5	68.2	52.4
Cost of Sales	42.7	32.9	27.6	44.2	45.3	50.5	31.8	47.6

Distribution Expenses

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

Major Category	Q1 2023	Q1 2022	Variance
	$	$	$
Salaries and benefits Share based compensation Contract labour Office Travel Equipment and maintenance Depreciation and amortization Marketing Bad debt reserve	1,197,234 12,653 234,174 51,290 90,834 56,381 53,383 42,413 20,991	915,261 5,167 184,602 49,673 18,469 5,474 88,751 4,111 108,275	281,973
			7,486
			49,572
			1,617
			72,365
			50,907
			(35,368)
			38,302
			(87,284)
Total	1,759,353	1,379,783	379,570

Distribution expenses have increased 27.5% from Q1 2022 to Q1 2023, due mainly to the addition of CrossConsense personnel and associated expenses as of March 17, 2022.

Both Salaries and benefits and Contract labour increased in the quarter due to additional staff with the addition of the CrossConsense workforce, and increased resourcing in FLYHT’s sales team.

Travel increased in Q1 2023 compared to Q1 2022, with an increase in in-person meetings and conferences.

Equipment and maintenance expenses have increased in Q1 2023 compared to Q1 2022 with the addition of costs related to CrossConsense’s third-party server hosting facility.

Depreciation and amortization was lower in Q1 2023 than Q1 2022, as leased premises in Colorado were downsized at the end of the leased premises agreement term to align with a reduction in space requirements for FLYHT’s US operations. This decrease was offset by the amortization on the CrossConsense lease as well as the intangible asset amortization.

Marketing expenses have increased in Q1 2023 as a result of increased participation in tradeshows as compared to Q1 2022.

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

FLYHT AEROSPACE SOLUTIONS LTD. Q1 2023 REPORT

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Administration Expenses

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

Major Category	Q1 2023	Q1 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 Other	466,899 21,699 97,485 168,265 2,733 96,928 34,429 6,089 95,772 72,271 270	399,224 21,172 367,220 151,836 121,239 61,288 35,993 36,124 88,904 20,952 8,087	67,675
			527
			(269,735)
			16,429
			(118,506)
			35,640
			(1,564)
			(30,035)
			6,868
			51,319
			(7,817)
Total	1,062,840	1,312,039	(249,199)

Administration expenses decreased by 19.0% from Q1 2022 to Q1 2023, mainly due to the non-recurring nature of due diligence and legal fees related to the acquisition of CrossConsense in Q1 2022.

Salaries and benefits and Contract labour have decreased in Q1 2023 due to reductions in resources engaged in administrative activities, and expenses relating to the CrossConsense acquisition in Q1 2022 not re-occurring in 2023.

Legal expenses have decreased for the quarter as the costs incurred in Q1 2022 for the acquisition of CrossConsense did not reoccur in Q1 2023.

Depreciation and amortization increased during the quarter due to the amortization of intangible assets acquired in the Q1 2022 CrossConsense business combination.

Research, Development and Certification Engineering Expenses (Recovery)

Consists of expenses related to the improvement of existing and development of new technology and products.

Major Category	Q1 2023	Q1 2022	Variance
	$	$	$
Salaries and benefits Share based compensation Contract labour Office Travel Equipment and maintenance Components Depreciation and amortization Governmentgrants	1,079,421 4,572 209,401 33,915 4,662 27,990 14,333 37,579 -	1,028,187 86 83,145 26,494 3,665 19,839 18,151 58,557 (72,927)	51,234
			4,486
			126,256
			7,421
			997
			8,151
			(3,818)
			(20,978)
			72,927
Total	1,411,873	1,165,197	246,676

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Research and Development expenses were 21.2% higher in Q1 2023 compared to the prior year’s first quarter. Research and development costs vary according to specific project requirements.

Salaries and benefits and Contract labour expenses increased in Q1 2023 as compared to Q1 2022 to meet the requirements of R&D initiatives, as the Company continues to invest in the Actionable Intelligence suite of products and in the AFIRS Edge.

Government grants received in Q1 2022 consisted of government funding from the WINN program. Recoveries relating to WINN funding are the portion of the amounts received from WINN that have been accounted for as a grant.

Net Finance Costs

Major Category	Q1 2023	Q1 2022	Variance
	$	$	$
Interest income Net foreign exchange loss (gain) Bank service charges Interest expense Government loan accretion	(13,909) (6,120) 15,885 28,664 117,716	(2,322) 33,929 8,407 25,955 112,488	(11,587)
			(40,049)
			7,478
			2,709
			5,228
Net finance costs	142,236	178,457	(36,221)

Net foreign exchange loss (gain) will vary between periods due mainly to fluctuations in the value of the Canadian dollar in relation to the U.S. dollar and the euro. A weakening of the Canadian dollar in relation to the euro in Q1 2023 gave rise to foreign exchange gains in Q1 2023 compared to foreign exchange losses in Q1 2022 on U.S. dollar denominated sales and purchases, in combination with fluctuations in U.S. denominated assets and liabilities.

Net Loss & EBITDA

M Ct	Q1 2023	Q1 2022	Variance
ajor aegory	$	$	$
Net income (loss) Finance costs Tax expense Depreciation and amortization	(1,657,114) 142,236 7,731 163,233	(1,284,347) 178,457 - 168,260	(372,767)
			(36,221)
			7,731
			(5,027)
EBITDA	(1,343,914)	(937,630)	(406,284)

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.

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 are being held in escrow and will 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.

FLYHT AEROSPACE SOLUTIONS LTD. Q1 2023 REPORT

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Other

Risks and Uncertainties

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

Impact of COVID-19 pandemic on Commercial Air Industry

General economic conditions in the industry and the financial condition of major customers may significantly impact the Company’s ability to achieve consistent positive earnings and cash flows. The negative impact to 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. The COVID-19 pandemic has also had an impact on the supply chain in the form of longer lead-times and pricing increases. These longer lead-times and pricing increases are expected to subside over time but have resulted in pressure to increase inventory holdings to mitigate potential schedule delays. There has been recovery in FLYHT’s customer base, with aircraft re-commencing operations as well as receivable payments being made , although geographic differences in rates and timing of recovery continue to be seen . There is continued risk until such a time as the industry recovers fully.

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

Airlines are 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 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 is 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 emerge, FLYHT will respond accordingly.

Employee Travel Risk

FLYHT staff are resuming 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 box and the Company does not receive recurring revenue connected with the monthly service offerings until the hardware components are installed and operating.

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The Company takes steps to mitigate this uncertainty by encouraging customers to install hardware at their aircraft’s earliest availability and works with them to provide the product at the right time for installation, preferably while the aircraft is down for normal service. The goal is to reduce aircraft downtime and save the customer as much money as possible. The Company also offers special discounts for upfront payment for all units as another mitigation tool. This discount decreases FLYHT’s gross profit slightly when revenue is recognized but allows the Company to receive cash immediately after signing an agreement. Additionally, the terms of the Company’s standard agreement states that payment is due 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 Amazon Web Services (AWS) cloud in various AWS regions. All the enterprise services exist with the possibility that their security could be compromised. FLYHT uses best practices to ensure that the services are as secure as practical and periodically 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 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 a majority 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. One is a global sales presence. FLYHT has established sales agents responsible for every continent. While some economies of the world may be in a slump or downturn, we may find success for FLYHT in growing markets. The Company also demonstrates to potential customers the impressive return on investment model, how quickly potential customers can improve operational efficiency, and ultimately how much AFIRS will save them in operating cost.

Dependence on Key Personnel and Consultants

FLYHT’s ability to maintain its competency in the industry is dependent on maintaining a specialty skilled workforce. The Company’s DAO status, delegated by TCCA, enables a smooth implementation of STCs, required to install AFIRS on aircraft. Key staff with TCCA delegation status enables the Company to complete STCs in a timely and cost-efficient manner. Similarly, the Company must interact with the FAA for its USA based STCs and PMA certifications. The Company 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 AMDAR weather data. FLYHT supplies this 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 stop. 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 and potentially grow the revenues derived from TAMDAR data has been to invest in quality control programs to ensure that the sensors are properly calibrated and producing valid and valuable data, and to supplement this data whenever possible with AMDAR weather data. Worldwide, the number of flights has decreased as compared to pre-pandemic, decreasing the amount of weather data being collected from those aircraft with TAMDAR sensors installed, which has been reflected in the Company’s revenues.

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 recruiting. FLYHT mitigates this risk by encouraging a healthy work environment, work-life balance and competitive compensation.

FLYHT AEROSPACE SOLUTIONS LTD. Q1 2023 REPORT

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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 can cause a delay in servicing the AFIRS 220. FLYHT aims to avoid the risk of not having the necessary supplies by managing existing inventories and storing extra key parts. Additionally, the Company maintains close communication with its partners and suppliers to manage key components for the AFIRS 220 units.
The AFIRS 228 units are built by a contract manufacturer. The Company relies on partners, suppliers and special parts to complete unit builds. Certain parts can be delayed in shipping or availability, which can cause a delay in receiving newly built AFIRS 228 units. FLYHT aims to avoid the risk of not having the necessary supplies by managing inventories and storing extra key parts. The contract manufacturer is a global supplier with the ability to meet FLYHT’s requirements. Additionally, the Company maintains close communication with its partners and suppliers to ensure all key components for the AFIRS units will be available in the future. The AFIRS 228 is serviced in different ways; by the contract manufacturer, at FLYHT’s facility or 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, we do not know whether any of 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 has also become an IATA Aviation Cyber Security Strategic Partner, which provides FLYHT a key opportunity to contribute to the development of industry standards, influence the cyber security regulatory environment for aviation, and to collaborate with key aviation cyber security leaders, including major international airlines, equipment manufactures, and international regulatory bodies.

FLYHT has responded to the increase in cyber threats within our recently implemented Security Management System (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.

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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, the likelihood of a liability under these contracts is considered to be 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 the transactions with both related parties were at terms equivalent to those that prevail in arm’s length transactions.

	For the three months ended March 31	For the three months ended March 31
Amounts included in:	2023 $ 2022 $
Contract labour Accountspayable	27,500 19,647	55,571 29,626

FLYHT AEROSPACE SOLUTIONS LTD. Q1 2023 REPORT

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CORPORATE INFORMATION

Registrar and Transfer Agent

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

Share Listing

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

Investor Relations

[email protected] 1.403.250.9956 www.flyht.com

FNK IR LLC [email protected] 1.646.809.2183

Satichi Consulting Inc. [email protected] 1.416.728.5630

Directors

Mary McMillan Brent Rosenthal Doug Marlin Mike Brown Paul Takalo Nina Jonsson

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

Officers

Kent Jacobs Alana Forbes Darrel Deane Scott Chambers Gurjot Bhullar

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

Auditor KPMG LLP

Calgary, Alberta

Legal Counsel Chris Croteau

Tingle Merrett LLP, Calgary, Alberta

Head Office

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

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AI assistant

FLYHT Aerospace Solutions Ltd. — Interim / Quarterly Report 2023

45152_rns_2023-05-10_2a588ce8-be51-4a44-8046-0393c17d2d2b.pdf

20 23

Table of Contents

COMMONLY USED FINANCIAL TERMS AND AVIATION ACRONYMS

LETTER TO SHAREHOLDERS

MANAGEMENT DISCUSSION & ANALYSIS

Non-GAAP Financial Measures

Forward-Looking Statements

FLYHT Overview

1. Actionable Intelligence Solutions

WQAR

Aircraft Interface Device

FleetWatch

FuelSense

ClearPort

2. Airborne Hardware

AFIRS Edge™

AFIRS™

FLYHT-WVSS-II (Water Vapour Sensing System)

TAMDAR

3. Communications

4. MRO Services

SYSTEM APPROVALS

STC Chart: AFIRS 220 and 228

STC Chart: AFIRS Edge

STC Chart: TAMDAR

Trends and Economic Factors

The Aviation Industry in 2023

FLYHT’s Market

Foreign Currency

Environmental, Social and Governance

Environment

Social

Governance

Next steps

Q1 2023 Achievements and Activities

Results of Operations

Selected Results

Financial Position

Liquidity and Capital Resource

Financial Instruments

Contractual Obligations

Government Loans

Customer Deposits

Comprehensive Loss

Revenue

Revenue sources

Gross Profit and Cost of Sales

Distribution Expenses

Administration Expenses

Research, Development and Certification Engineering Expenses (Recovery)

Net Finance Costs

Net Loss & EBITDA

Business Combination

Other

Risks and Uncertainties

Impact of COVID-19 pandemic on Commercial Air Industry

Production and Physical Workspace Risk

Climate Change Risk

Policy and Regulation Risk

Geo-political Risk

Employee Travel Risk

Installations at C-checks

Enterprise Network Risks

Foreign Currency Fluctuations

General Economic and Financial Market Conditions

Dependence on Key Personnel and Consultants

Revenues Associated with TAMDAR

Employee Retention

Availability of Key Supplies

Proprietary Protection

Cyber Security Risk

Contractual Arrangement

Transactions with Related Parties

CORPORATE INFORMATION

Registrar and Transfer Agent

Share Listing

Investor Relations

FLYHT Aerospace Solutions Ltd. Interim / Quarterly Report 2023