2017 CEO Letter to the Shareholders: Consolidation

2017 CEO Letter to the Shareholders: Consolidation

July 13, 2017

Subject: A Message from Tom Schmutz, CEO, FLYHT Aerospace Solutions

Dear Shareholders and Interested Parties;

As you are aware, FLYHT has just announced a 10 for 1 stock consolidation, which will be effective on July 17th.

I would like to use this opportunity to explain the reasoning for this decision and why it is important for moving FLYHT from a “penny stock” to a company that will be properly assessed on its fundamental performance and the accompanying attractiveness to institutional investors. In short, we are unlocking value, which I will address in much more detail below.

As a business, we see growing market acceptance for FLYHT’s solution through unannounced trials of our products and a rapidly growing sales contract backlog, which I recently revealed exceeds $25 million.  We are also pursuing opportunities to grow the software as a service (SAAS) component of our revenue by taking steps we think can more quickly capture Automated Flight Information Reporting System (AFIRSTM) systems that are installed on aircraft, but not currently providing recurring data services. These services are subscription based and save operators money, streamline their operations and proactively enhance safety.

A great deal of our attention during my time at FLYHT has been dedicated to helping take this Company, which had a great idea and make it an effective and viable business, while preparing it for future growth and expansion. During that time, we have eliminated the debenture debt overhang and cleaned up the balance sheet. We have captured new, government sponsored, no interest debt and commercial lines of credit from top tier banking institutions at good rates. We have retooled internally; added expertise and established processes, which produce key performance indicators that we use in our business decision making. Through this process, we have significantly increased our revenues, controlled costs and have built up a significant backlog of contracted sales for both hardware and recurring data services, which will help us with our goal of delivering growing future revenues.

Recently, I have had the pleasure of meeting with several current and prospective shareholders in major financial centres across Canada and the United States. During those meetings, I received very complimentary feedback on the improved financial performance of the Company, which includes our first ever EBITDA* positive year and four consecutive positive earning quarters.

I also received clear and consistent guidance that the Company should consolidate its stock. It is widely believed that with the shift from a research & development company to a growing and profitable company, we would benefit from a consolidation.  FLYHT is transforming into a fundamentally valued growth company as opposed to a speculatively valued company, and we wish to avoid negative perceptions as something that is “flipped for pennies” rather than being treated as a longer-term investment. The Board of Directors of FLYHT agreed with this sentiment and this was the catalyst to seek shareholder approval for the stock consolidation at the May 2017, Annual General Meeting.

As part of the investigation into the impact a share consolidation could have on FLYHT, management engaged a top tier Canadian bank to conduct research on the topic. This bank reviewed the last five years of consolidations on the TSX and TSX-V, excluding resource companies, between January 2012 and February 2017. There were 187 share consolidations during this period, which represented approximately 7% of all TSX and TSX-V listed companies. The average market cap of those companies that did consolidate was approximately $41 million at the time of consolidation, while their average market cap is now approximately $57 million. Furthermore, the average increase in market cap between the time of share consolidation and today is approximately 799%.

The reality is that a share consolidation does not affect the actual value of a company; however, there are positive structural considerations for both retail and institutional shareholders and investment dealers, especially in Canada.

Consolidation can improve the willingness of a dealer to underwrite an equity financing because the investment dealer margins are reduced. Also, attractiveness to retail investors can be improved due to improved retail margins and more accessible bank loans. Finally, attractiveness to institutional investors can be improved by overcoming minimum share price constraints. Our banking partner determined, based on the study above, that at the $2.00 price level, public companies begin to overcome structural constraints that exist in the Canadian market, and at the $5.00 price level virtually all structural constraints are eliminated. So, while share price appreciation could be a potential benefit of a share consolidation, the key benefits for FLYHT are financing flexibility and a potentially broader shareholder base. This is not to say that FLYHT is seeking financing now. However, financing would be considered in connection with any potential merger or acquisition of a complimentary business and we want to be prepared.

I know this is an emotional issue for many investors. I am personally very bullish on FLYHT and believe this is a necessary step to revive the FLYHT story, which might have lost some luster with the long runway that some investors have been travelling. We are implementing this consolidation following an operational turnaround, positive cash flow and profitability. We feel that this step can unlock value in FLYHT and lead to increased liquidity due to heightened positive attention it may generate among institutional investors.

I hope this letter helps to provide some of the thoughts that have gone into this decision by the Board of Directors. As a shareholder myself, I am excited with the prospect that this activity, followed by additional positive execution within FLYHT, will ultimately lead to increased shareholder value.

Best regards –

Thomas R. Schmutz
CEO, FLYHT
tschmutz@flyht.com

*  EBITDA: defined as earnings before interest, income tax, depreciation and amortization (a non-GAAP financial measure).

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Total Customer Flights

As of August 31, 2017

Flight hours with AFIRS onboard

As of August 31, 2017

FLY.V on TSX.V

 Updated: 2017-09-26 - 12:48:00 Symbol: FLY.V 
Open: $2.45
Volume: 2200
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FLYLF on OTC QX

 Updated: 2017-09-22 - 10:09:00 Symbol: FLYLF 
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Volume: 2400
Last: $2.05
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