1. Financial results for Q2 2023:

1. Financial situation

Total revenue for Q2 in 2023 was 10 million yuan (about 1.4 million US dollars), and sales of 5 EH216-S units were sold. Gross margin was 60.2%, a slight decrease of 3.7 percentage points from 63.9% year on year. The net loss was RMB 75.7 million (US$10.4 million), which continued to narrow from RMB 87 million in Q1 2023. Strategic private equity financing of 23 million US dollars was completed in July, and cash and cash equivalents and restricted short-term deposits as of July 31 were approximately RMB 320.6 million (approximately US$44.9 million). Adequate account capital not only enhances resilience to risks, but also has sufficient reserves to face the subsequent blowout of orders.

2. TC certification progress The final stage of the EH216-S model compliance test test flight has been completed 100% according to the plan. After completing the remaining procedural work, it is expected that the model certificate issued by the Civil Aviation Administration of China will be obtained soon.

3. Orders and Cooperation

(1) The company and Xiyu Travel (SZ.300859) established a joint venture “Xinjiang Xiyu Qingniao General Aviation Co., Ltd.” Q2 has delivered 5 EH216-S for low-altitude sightseeing at Tianshan Tianchi and other scenic spots in northwest China. It is planned to operate no less than 120 EH216-S or similar manned autonomous vehicles in the next 5 years. The announcement related to Western Travel shows that the company is working as a technical advisor to the operating company in the “Western Asia Navigation” joint venture and is expected to receive revenue related to operation support services and technical consulting, and to replicate and promote this model to other domestic attractions.

(2) In July of this year, the company and the Bao'an District Government of Shenzhen signed a memorandum of strategic cooperation on UAM operation after the EH216-S certification. The company will build a UAM operation demonstration center at Happy Harbor in Shenzhen and launch air travel and sightseeing experience services for the EH216-S autonomous aircraft to help make Shenzhen a national model city for low-altitude economic development.

(3) Under the guidance of the Civil Aviation Administration of China and the impetus of the company's “100 Air Traffic Routes Plan”, as of the end of July 2023, in the past two years, the company and its customers and partners have developed 20 pilot operations in 18 cities in China, and completed more than 9,300 safe operation test flights of the EH216-S around low-altitude tourism and aerial tours, paving the way for future commercial operations after certification.

(4) Internationally, in April of this year, the company joined the Japan Advanced Air Transport Government-Enterprise Cooperation Committee. In June, the company carried out an EH216-S island-hopping flight in Okinawa, Japan. Test flights etc. were also carried out in Israel and Belgium in June and July, respectively.

At present, the company's domestic orders for the EH216 model have exceeded 100 units and continue to grow.

II. Comments:

1. The final compliance test flight of Q2's flagship product, the EH216-S model, has been completed 100% as planned. This is an important milestone in the eVTOL industry. In terms of policy, the “Interim Regulations on the Administration of Unmanned Aerial Vehicle Flights” have been promulgated. It is expected that the company will obtain model certification and start commercial operations in the future.

2. Scenario application demand in the tourism industry is expected to take the lead: Western Tourism (SZ.300859), represented by scenic spots, and the company set up a joint venture to carry out low-altitude tourism projects. Shenzhen included the “construction of a low-altitude economic center” in the municipal government work report for the first time, cooperated with the company to build a UAM operation demonstration center in Happy Harbor, launched air travel and tourism experience services, and jointly explore application scenarios, build systems, and develop routes.

3. Demand and orders for the EH216 series are also expected to continue to increase in application scenarios such as smart city air traffic (establishing strategic cooperation with Bao'an District of Shenzhen to jointly focus on the field of urban air traffic) and emergency rescue (completing the first medical transport test flight of blood bag transportation in Belgium).

4. The $23 million strategic private equity financing completed by the company in July came at the right time, reserving sufficient capital for the company. The leading strategic investor is South Korean music giant Lee Soo-man. The two sides complement each other's strengths and cooperate to explore commercial opportunities for urban air transportation in the Asia-Pacific market.

3. Demand in the risk market has exceeded expectations, leading to insufficient production capacity and extended delivery cycles, and increased competition in the industry.