Jet.AI (JTAI) - 2024 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS This section presents Jet.AI Inc.'s unaudited consolidated financial statements for Q1 2024 and 2023, covering balance sheets, operations, equity, and cash flows, with notes on organization and accounting policies Consolidated Balance Sheets Consolidated Balance Sheet Highlights (March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 ($) | December 31, 2023 ($) | | :----------------------- | :------------- | :---------------- | | Cash and cash equivalents | $595,555 | $2,100,543 | | Total current assets | $3,163,199 | $3,187,153 | | Total assets | $5,564,738 | $5,739,188 | | Total current liabilities | $5,739,594 | $6,951,897 | | Total liabilities | $8,333,009 | $9,675,227 | | Total stockholders' deficit | $(2,768,271) | $(3,936,039) | Consolidated Statements of Operations Consolidated Statements of Operations Highlights (Three Months Ended March 31) | Metric | 2024 ($) | 2023 ($) | | :-------------------------- | :----------- | :----------- | | Revenues | $3,848,598 | $1,875,508 | | Cost of revenues | $3,972,954 | $1,950,526 | | Gross loss | $(124,356) | $(75,018) | | Total operating expenses | $3,025,440 | $2,644,504 | | Operating loss | $(3,149,796) | $(2,719,522) | | Net Loss | $(3,229,049) | $(2,719,522) | | Net Loss to common stockholders | $(3,258,777) | $(2,719,522) | | Net loss per share - basic and diluted | $(0.28) | $(0.70) | Consolidated Statements of Stockholders' (Deficit) Equity - Stock-based compensation recognized was $1,199,318 for the three months ended March 31, 2024, compared to $1,407,044 for the same period in 2023[13] - The Company sold 150 shares of Series B Convertible Preferred Units and 250,000 shares of common stock, generating $1,500,025 in additional paid-in capital during Q1 2024[13] - Issuance of Common Stock upon exercise of warrants contributed $742,474 to additional paid-in capital in Q1 2024[13] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31) | Cash Flow Activity | 2024 ($) | 2023 ($) | | :-------------------------------- | :------------- | :------------- | | Net cash used in operating activities | $(2,520,790) | $(1,192,047) | | Net cash used in investing activities | $(12,922) | $(93,633) | | Net cash provided by financing activities | $1,028,724 | $1,151,726 | | Decrease in cash and cash equivalents | $(1,504,988) | $(133,954) | | Cash and cash equivalents, end of period | $595,555 | $1,393,437 | Notes to Consolidated Financial Statements Note 1 – Organization and Nature of Operations Jet.AI Inc. was formed via a reverse recapitalization on August 10, 2023, and operates in fractional/whole aircraft sales, jet cards, a booking platform, direct chartering, brokerage, and aircraft management services - Business Combination was consummated on August 10, 2023, with Oxbridge Acquisition Corp. changing its name to Jet.AI, Inc. and Jet Token Inc. becoming a wholly-owned subsidiary[18] - The Company's principal activities include: (i) sale of fractional and whole interests in aircraft, (ii) sale of jet cards, (iii) operation of a proprietary booking platform (App), (iv) direct chartering of its HondaJet aircraft by Cirrus, (v) aircraft brokerage, and (vi) service revenue from monthly management and hourly operation of customer aircraft[22] Note 2 – Summary of Significant Accounting Policies This note details significant accounting policies, covering going concern status, reverse recapitalization, revenue recognition across diverse services, and policies for cash, assets, leases, and stock-based compensation - The Company has incurred losses from operations since inception, raising concern about its ability to continue as a going concern. Management plans to fund operations through capital from operations, drawdowns under the GEM share purchase agreement, and proceeds from warrant exercises[23][24] - The Business Combination was accounted for as a reverse recapitalization, with Jet Token treated as the accounting acquirer[26] Revenue Components by Subcategory (Three Months Ended March 31) | Revenue Subcategory | 2024 ($) | 2023 ($) | | :-------------------------- | :----------- | :----------- | | Software App and Cirrus Charter | $2,371,091 | $994,253 | | Jet Card and Fractional Programs | $677,320 | $547,545 | | Management and Other Services | $800,187 | $333,710 | | Total Revenues | $3,848,598 | $1,875,508 | - Cost of sales includes expenses for chartering third-party aircraft, aircraft lease expenses, pilot training and wages, aircraft fuel, aircraft maintenance, and other aircraft operating expenses[59][60] - Stock-based compensation expense recognized for the three months ended March 31, 2024, and 2023 was $1,199,318 and $1,407,044, respectively[63][111] Note 3 – Other Assets This note provides a breakdown of other assets, primarily consisting of deposits and a lease maintenance reserve Other Assets Breakdown (March 31, 2024 vs. December 31, 2023) | Asset Type | March 31, 2024 ($) | December 31, 2023 ($) | | :-------------------- | :------------- | :---------------- | | Deposits | $108,361 | $108,361 | | Lease Maintenance Reserve | $689,750 | $689,750 | | Total Other Assets | $798,111 | $798,111 | Note 4 – Notes Payable The company entered into a Bridge Agreement in September 2023 for $625,000 in senior secured promissory notes, including related party participation, which matured on March 11, 2024, and were fully repaid during Q1 2024 - On September 11, 2023, the Company entered into a Bridge Agreement for $625,000 in senior secured promissory notes, with $281,250 from related parties[72] - The notes bore interest at 5% per annum and matured on March 11, 2024. Interest expense for Q1 2024 was $79,314[73] - These notes and accrued interest were fully repaid during the three months ended March 31, 2024[74] Note 5 – Commitments and Contingencies This note details the company's operating lease for an aircraft, including liquidity and maintenance reserve requirements, and outlines significant agreements such as the GEM Share Purchase Agreement, Forward Purchase Agreement, and settlement agreements with Maxim Group LLC and the Sponsor - The Company has an operating lease for an aircraft expiring November 2026, requiring a $500,000 liquidity reserve (restricted cash) and a $690,000 maintenance reserve[75][76] Operating Lease Liabilities (March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 ($) | December 31, 2023 ($) | | :-------------------------- | :------------- | :---------------- | | Operating lease right-of-use asset (net) | $1,442,884 | $1,572,489 | | Lease liability, current portion | $513,869 | $510,034 | | Lease liability, long-term | $891,415 | $1,021,330 | | Total operating lease liabilities | $1,405,284 | $1,531,364 | - Under the GEM Share Purchase Agreement, the Company can issue and sell up to $40,000,000 of common stock to GEM over 36 months. A commitment fee of $800,000 is payable to GEM[80][82] - The Forward Purchase Agreement with Meteora Capital was amended to increase additional shares purchased, provide $550,000 in 'Future Shortfall' payments, and extend the 'Valuation Date' to the two-year anniversary of the Business Combination closing[91] - The Company issued 270,000 shares of Common Stock and 1,127 Series A Preferred Shares (valued at $1,127,000) to Maxim Group LLC to settle payment obligations[94] - The Company issued 575 Series A-1 Preferred Shares to the Sponsor to settle a $575,000 promissory note[95] Note 6 – Stockholders' Equity This note details the company's authorized and outstanding common and preferred stock, the impact of the Business Combination on equity, and the various equity incentive plans, highlighting the recent Series B Convertible Preferred Stock Securities Purchase Agreement with Ionic Ventures, LLC for $1.5 million - As of March 31, 2024, the Company had 55,000,000 shares of common stock and 4,000,000 shares of preferred stock authorized. There were 1,702 Series A/A-1 and 1,500 Series B convertible preferred shares outstanding[97] - The Business Combination resulted in the issuance of 4,523,167 shares of Common Stock and 7,196,375 Merger Consideration Warrants to historical Jet Token stockholders[98] - On March 28, 2024, the Company sold 150 shares of Series B convertible preferred stock, a warrant to purchase up to 1,500 shares of Series B preferred stock, and 250,000 shares of common stock to Ionic Ventures, LLC for gross proceeds of $1,500,025[100] - Series B Preferred Stock is convertible into common stock, subject to beneficial ownership limitations (4.99% or 9.99% upon notice) and Nasdaq Stock Market Rules approval[101] - As of March 31, 2024, total outstanding warrants exercisable for common stock amounted to 25,221,406, with exercise prices ranging from $5.81 to $15.00[113] Note 7 – Related Party Transactions This note cross-references discussions of related party transactions detailed in other notes, specifically regarding the Bridge Agreement and agreements with Maxim Group LLC - Related party transactions are discussed in Note 4 (Bridge Agreement) and Note 5 (Maxim Settlement Agreement and Placement Agent Agreement)[114][115][116] Note 8 – Fair Value of Financial Instruments The carrying amounts of the company's financial instruments, including cash, receivables, and payables, are considered to approximate their fair value due to their short-term nature - The carrying amount of financial instruments (cash, accounts receivable, accounts payable, notes payable) approximates fair value due to their short-term nature[117] Note 9 – Deferred Revenue This note outlines the changes in deferred revenue for the three months ended March 31, 2024, showing the balance at the beginning and end of the period, new deferrals, and recognized revenue Changes in Deferred Revenue (Three Months Ended March 31, 2024) | Metric | Amount ($) | | :---------------------------------------------------- | :----------- | | Deferred revenue as of December 31, 2023 | $1,779,794 | | Amounts deferred during the period | $2,324,663 | | Revenue recognized from deferred revenue beginning balance | $(841,375) | | Revenue from current period sales | $(1,867,797) | | Deferred revenue as of March 31, 2024 | $1,395,285 | Note 10 – Subsequent Events The company received gross proceeds of $1,500,025 from Ionic on April 2, 2024, as part of the Securities Purchase Agreement, with no other events requiring recognition or disclosure through May 15, 2024 - On April 2, 2024, the Company received gross proceeds of $1,500,025 from Ionic pursuant to the Securities Purchase Agreement[119] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of Jet.AI's Q1 2024 financial condition and operational results, including business overview, business combination impact, revenue/expense analysis, liquidity, capital resources, accounting estimates, and market trends Overview Jet.AI, founded in 2018, operates in private aviation services, including aircraft sales, jet cards, a booking platform, and aircraft management, launching new B2B SaaS products Reroute AI and DynoFlight after its August 2023 business combination - Jet.AI's core business involves fractional/whole aircraft sales, jet cards, a proprietary booking platform, direct chartering, aircraft brokerage, and aircraft management[123] - The Business Combination on August 10, 2023, resulted in Oxbridge Acquisition Corp. being renamed Jet.AI, Inc., with Jet Token Inc. becoming a wholly-owned subsidiary[124] - Beginning December 2023, the Company launched new B2B SaaS products: Reroute AI (for recycling aircraft into new charter bookings) and DynoFlight (for estimating emissions and purchasing carbon removal credits)[124][125] Results of Operations For Q1 2024, revenues significantly increased to $3.8 million from $1.9 million in Q1 2023, primarily driven by growth in Software App and Management and Other Services, but rising costs led to an increased gross loss of $124,356 and an operating loss of $3.1 million Revenue Performance (Three Months Ended March 31) | Metric | 2024 ($) | 2023 ($) | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :----------- | :--------- | | Revenues | $3,848,598 | $1,875,508 | $1,973,090 | 105.2% | | Cost of revenues | $3,972,954 | $1,950,526 | $2,022,428 | 103.7% | | Gross loss | $(124,356) | $(75,018) | $(49,338) | 65.8% | | Total operating expenses | $3,025,440 | $2,644,504 | $380,936 | 14.4% | | Operating loss | $(3,149,796) | $(2,719,522) | $(430,274) | 15.8% | | Net Loss | $(3,229,049) | $(2,719,522) | $(509,527) | 18.7% | Revenue Components by Subcategory (Three Months Ended March 31) | Revenue Subcategory | 2024 ($) | 2023 ($) | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :----------- | :--------- | | Software App and Cirrus Charter | $2,371,091 | $994,253 | $1,376,838 | 138.5% | | Jet Card and Fractional Programs | $677,320 | $547,545 | $129,775 | 23.7% | | Management and Other Services | $800,187 | $333,710 | $466,477 | 139.8% | - The increase in Software App and Cirrus Charter revenue was primarily due to increased utilization of the Company's Citation CJ4 aircraft and increased bookings through the CharterGPT app[137] - Cost of revenues increased by $2.0 million, largely due to increased subcharter costs ($1.6 million increase), higher aircraft operating costs, and increased aircraft lease payments[142][143] - Sales and marketing expenses increased by $326,433 to $446,600 in Q1 2024, driven by increased software marketing for CharterGPT and DynoFlight[147] Liquidity and Capital Resources As of March 31, 2024, Jet.AI had $595,555 in cash and equivalents, with current liabilities exceeding current assets by $4.0 million, and plans to rely on the GEM Share Purchase Agreement and Ionic Warrant exercises for funding while preparing to reduce cash burn if external financing is insufficient - As of March 31, 2024, cash and equivalents were $595,555, including $500,000 of restricted cash[150] - Current liabilities exceeded current assets by approximately $4.0 million as of March 31, 2024[150] - During Q1 2024, the Company raised $1,110,000 from common stock issuance under the Share Purchase Agreement and $742,000 from warrant exercises, totaling $1,852,000[151] - The Company fully repaid approximately $683,000 under the Bridge Agreement in March 2024[151] - The Company expects to continue incurring operating losses for at least the next 12 months and intends to rely on funds from the GEM Share Purchase Agreement and Ionic Warrant exercises for funding[152] - In the absence of external financing, the Company is prepared to cut cash utilization by ceasing marketing, suspending software development, streamlining operations, and servicing only existing customers[152] Cash Flow Summary (Three Months Ended March 31) | Cash Flow Activity | 2024 ($) | 2023 ($) | | :-------------------------------- | :------------- | :------------- | | Net cash used in operating activities | $(2,520,790) | $(1,192,047) | | Net cash used in investing activities | $(12,922) | $(93,633) | | Net cash provided by financing activities | $1,028,724 | $1,151,726 | | Decrease in cash and cash equivalents | $(1,504,988) | $(133,954) | Critical Accounting Estimates This section highlights critical accounting estimates, including the company's going concern assessment due to historical losses, the accounting for the Business Combination as a reverse recapitalization, and the five-step model used for revenue recognition across its diverse service offerings - The Company's limited operating history and incurred losses raise concerns about its ability to continue as a going concern[185] - The Business Combination was accounted for as a reverse recapitalization, with Jet Token identified as the accounting acquirer[187][188] - Revenue recognition follows ASC 606's five-step model, applied to fractional/whole aircraft sales, jet card programs, ad hoc charter through the app, and aircraft management[190][192] Trend Information The company's business and operations are sensitive to general business and economic conditions, including factors like changes in the airline industry, fuel costs, demand for private jet travel, and regulatory changes related to carbon emissions - The Company's business is sensitive to general business and economic conditions, including changes in the airline industry, fuel and operating costs, demand for private jet travel, and regulations on carbon emissions[209] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a 'smaller reporting company,' Jet.AI Inc. is not required to provide the quantitative and qualitative disclosures about market risk - The Company is a 'smaller reporting company' and is not required to provide quantitative and qualitative disclosures about market risk[210] Item 4. Controls and Procedures The Interim Chief Executive Officer and Interim Chief Financial Officer evaluated the effectiveness of the company's disclosure controls and procedures as of March 31, 2024, concluding they were effective, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated as effective as of March 31, 2024[212] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2024[213] PART II OTHER INFORMATION Item 1. Legal Proceedings There are no legal proceedings to report for the company - No legal proceedings were reported[215] Item 1A. Risk Factors As of the date of this report, there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[216] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2024, the company sold 1,500,000 shares of common stock to GEM under the Share Purchase Agreement, relying on the Section 4(a)(2) exemption from registration requirements, with all other unregistered sales previously reported - In Q1 2024, the Company sold 1,500,000 shares of common stock to GEM under the Share Purchase Agreement, utilizing the Section 4(a)(2) exemption[217] Item 6. Exhibits This section lists all exhibits filed as part of, or incorporated by reference into, this Quarterly Report, including corporate governance documents, warrant agreements, and various financing and settlement agreements - Key exhibits include Certificate of Incorporation, Certificates of Designation for Preferred Stock, Bylaws, Warrant Agreements (JTAIW, JTAIZ, GEM, Ionic), and various agreements such as the Securities Purchase Agreement with Ionic Ventures and the Placement Agency Agreement[224] Signature The report was duly signed on May 15, 2024, by George Murnane, Interim Chief Financial Officer of Jet.AI Inc. - The report was signed by George Murnane, Interim Chief Financial Officer, on May 15, 2024[227]