UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended
Or
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission
file number:
(Exact Name of Registrant As Specified In Its Charter)
|
||
| (Address of Principal Executive Offices) | (ZIP Code) |
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities to be registered under Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The Stock Market LLC | ||||
| The Stock Market LLC | ||||
| The Stock Market LLC |
Securities to be registered under Section 12(g) of the Act: None
Indicate
by check mark whether the registrant has (1) filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company | ||
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the Company has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐
As of November 17, 2023, there were of the Company’s common stock, par value $0.0001, issued and outstanding.
TABLE OF CONTENTS
In this Form 10-Q, unless otherwise specified, the term “Jet.AI”, “we”, “us”, “our”, or “the Company” refers to Jet.AI Inc. (fka Oxbridge Acquisition Corp.) and our subsidiaries on a consolidated basis.
THIS FILING MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE OFFERING MATERIALS, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, WHICH CONSTITUTE FORWARD LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
| ii |
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
JET.AI, INC.
(FORMERLY JET TOKEN, INC.)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September
30, 2023 | December
31, 2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Other current assets | ||||||||
| Prepaid offering costs | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use lease asset | ||||||||
| Investment in joint venture | ||||||||
| Deposits and other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ (Deficit) Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Lease liability | ||||||||
| Note payable | ||||||||
| Notes payable - related party | ||||||||
| Total current liabilities | ||||||||
| Lease liability, net of current portion | ||||||||
| Redeemable preferred stock | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 2 and 5) | ||||||||
| Stockholders’ (Deficit) Equity | ||||||||
| Preferred
Stock, shares
authorized, par value $, and issued and outstanding, respectively | ||||||||
| Common stock, shares authorized, par value $, and issued and outstanding, respectively | ||||||||
| Subscription receivable | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ (deficit) equity | ( | ) | ||||||
| Total liabilities and stockholders’ (deficit) equity | $ | $ | ||||||
See accompanying notes to the consolidated financial statements
| 1 |
JET.AI, INC.
(FORMERLY JET TOKEN, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit (loss) | ( | ) | ||||||||||||||
| Operating Expenses: | ||||||||||||||||
| General
and administrative (including stock-based compensation of $, $, $ and $, respectively) | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (income) expense: | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Other income | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other (income) expense | ( | ) | ||||||||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding - basic and diluted | ||||||||||||||||
| Net loss per share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
See accompanying notes to the consolidated financial statements
| 2 |
JET.AI, INC.
(FORMERLY JET TOKEN, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(UNAUDITED)
| Additional | Total | |||||||||||||||||||||||
| Common Stock | Subscription | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Receivable | Capital | Deficit | (Deficit) / Equity | |||||||||||||||||||
| Balance at June 30, 2022 (unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | $ | | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Sale of Common Stock for cash | ||||||||||||||||||||||||
| Offering costs | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2022 (unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Balance at June 30, 2023 (unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Receipt of subscription receivable | - | |||||||||||||||||||||||
| Recapitalization | ( | ) | ( | ) | ||||||||||||||||||||
| Offering costs | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2023 (unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||
| 3 |
| Additional | Total | |||||||||||||||||||||||
| Common Stock | Subscription | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Receivable | Capital | Deficit | (Deficit) / Equity | |||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | ( | ) | $ | $ | ( | ) | $ | | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Sale of Common Stock for cash | ||||||||||||||||||||||||
| Offering costs | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2022 (unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Balance at December 31, 2022 | $ | $ | ( | ) | $ | $ | ( | ) | $ | | ||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Sale of Common Stock for cash | ( | ) | ||||||||||||||||||||||
| Receipt of subscription receivable | - | |||||||||||||||||||||||
| Offering costs | - | ( | ) | ( | ) | |||||||||||||||||||
| Recapitalization | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2023 (unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||
See accompanying notes to the consolidated financial statements
| 4 |
JET.AI, INC.
(FORMERLY JET TOKEN, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Amortization and depreciation | ||||||||
| Amortization of debt discount | ||||||||
| Stock-based compensation | ||||||||
| Non-cash operating lease costs | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Other current assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ( | ) | ||||||
| Deferred revenue | ||||||||
| Lease liability | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Purchase of intangible assets | ( | ) | ||||||
| Investment in joint venture | ( | ) | ||||||
| Return of aircraft deposit | ||||||||
| Deposits and other assets | ( | ) | ||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds - related party advances | ||||||||
| Repayments - related party advances | ( | ) | ||||||
| Proceeds - notes payable, net of discount | ||||||||
| Proceeds - related party notes payable, net of discount | ||||||||
| Payments on line of credit | ( | ) | ||||||
| Offering costs | ( | ) | ( | ) | ||||
| Proceeds from sale of Common Stock | ||||||||
| Proceeds from business combination | ||||||||
| Net cash provided by financing activities | ||||||||
| (Decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non cash investing and financing activities: | ||||||||
| Subscription receivable from sale of Non-Voting Common Stock | $ | $ | ||||||
| Operating lease, Right-of-use assets and liabilities | $ | $ | ||||||
| Increase in accounts payable due to Business Combination | $ | $ | ||||||
| Increase in prepaid offering costs and accounts payable | $ | |||||||
| Increase in redeemable preferred stock due to Business Combination | $ | $ | ||||||
See accompanying notes to the consolidated financial statements
| 5 |
JET.AI, INC.
(FORMERLY JET TOKEN, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Oxbridge Acquisition Corp. (“Oxbridge”) was incorporated as a Cayman Islands exempted company on April 12, 2021. Oxbridge was incorporated for the purpose of effecting a merger, capital stock or share exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Jet Token Inc. was formed on June 4, 2018 (“Inception”) in the State of Delaware and is headquartered in Las Vegas, Nevada.
On August 10, 2023 (the “Closing Date”), Oxbridge consummated the business combination transaction (“Business Combination”) pursuant to the Business Combination Agreement and Plan of Reorganization with OXAC Merger Sub I, Inc., a Delaware corporation and a direct wholly owned subsidiary of Oxbridge (“First Merger Sub”), Summerlin Aviation LLC (f/k/a OXAC Merger Sub II, LLC), a Delaware limited liability company and a direct wholly owned subsidiary of Oxbridge (“Second Merger Sub”), and Jet Token, Inc., a Delaware corporation (“Jet Token”). Pursuant to the terms of the Business Combination Agreement, a business combination between Oxbridge and Jet Token was effected through the merger of First Merger Sub and Jet Token, with Jet Token emerging as the surviving company, followed by a merger between Jet Token and Second Merger Sub, with Second Merger Sub emerging as the surviving company as a wholly owned subsidiary of Oxbridge. In connection with the finalization of the Business Combination on August 10, 2023, Oxbridge filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which the Company was domesticated and continues as a Delaware corporation (the “Domestication”) and immediately changed its name to Jet.AI, Inc. (“Jet.AI”). References to the “Company” for periods prior to the consummation of the Business Combination are to Jet Token Inc. and, for periods from and after the consummation of the Business Combination, are to Jet.AI.
Upon consummation of the Business Combination, the Company has one class of common stock, par value $ per share, which is listed on Nasdaq under the ticker symbol “JTAI”. The Company’s warrants are listed on Nasdaq under the ticker symbols “JTAIW” and “JTAIZ”, respectively.
Following the closing of the Business Combination, the Company owns, directly or indirectly, all of the issued and outstanding equity interests in the Second Merger Sub and its subsidiaries, and the stockholders of Jet Token as of immediately prior to the effective time of the First Merger (the “Jet Token Stockholders”) hold a portion of the Company’s common stock, par value $ per share (the “Jet.AI Common Stock”).
As a result of and upon the effective time of the Domestication: (a) each then issued and outstanding Class A Ordinary Share of Oxbridge was converted automatically, on a one-for-one basis, into a share of Jet.AI Common Stock; (b) each then issued and outstanding Class B Ordinary Share of Oxbridge was converted automatically, on a one-for-one basis, into a share of Jet.AI Common Stock; (c) each then issued and outstanding Oxbridge Warrant was converted automatically into a warrant to purchase one share of Jet.AI Common Stock pursuant to the Warrant Agreement (“Jet.AI Warrant”); and (d) each then issued and outstanding Oxbridge Unit was converted automatically into a Jet.AI Unit, each consisting of one share of Jet.AI Common Stock and one Jet.AI Warrant.
At
the effective time of the Business Combination (the “Effective Time”), (i) each outstanding share of Jet Token Common Stock,
including each share of Jet Token Preferred Stock that was converted into shares of Jet Token Common Stock immediately prior to the Effective
Time, was cancelled and automatically converted into the right to receive (x) the number of shares of Jet.AI Common Stock equal to the
Stock Exchange Ratio of
| 6 |
The Company, directly and indirectly through its subsidiaries, is principally involved in (i) the sale of fractional and whole interests in aircraft, (ii) the sale of jet cards, which enable holders to use certain of the Company’s and other’s aircraft at agreed-upon rates, (iii) the operation of a proprietary booking platform (the “App”), which functions as a prospecting and quoting platform to arrange private jet travel with third party carriers as well as via the Company’s leased and managed aircraft, (iv) direct chartering of its HondaJet aircraft by Cirrus, (v) aircraft brokerage and (vi) service revenue from the monthly management and hourly operation of customer aircraft.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern and Management Plans
The Company has limited operating history and has incurred losses from operations since Inception. These matters raise concern about the Company’s ability to continue as a going concern.
The Company began ramping up its revenue-generating activities during the second half of the year ended December 31, 2021 and continuing into 2022 and 2023. During the next twelve months, the Company intends to fund its operations with capital from its operations, and drawdowns under its GEM share purchase agreement. The Company also has the ability to reduce cash burn to preserve capital. There are no assurances, however, that management will be able to raise capital on terms acceptable to the Company. If the Company is unable to obtain sufficient amounts of additional capital, the Company may be required to reduce the near-term scope of its planned development and operations, which could delay implementation of the Company’s business plan and harm its business, financial condition and operating results. The consolidated balance sheets do not include any adjustments that might result from these uncertainties.
Basis of Presentation
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and an Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidated financial statements herein.
The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP, whereby Oxbridge is treated as the acquired company and Jet Token is treated as the acquirer (the “Reverse Recapitalization”). Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Jet Token issuing stock for the net assets of Oxbridge, accompanied by a recapitalization. The net assets of Oxbridge were stated at historical cost, with no goodwill or other intangible assets recorded.
Jet Token has been determined to be the accounting acquirer in the Business Combination based on the following predominant factors:
| ● | Jet Token’s existing stockholders have the greatest voting interest in the combined entity; |
| ● | Jet Token existing stockholders have the ability to nominate a majority of the initial members of the combined entity Board; |
| ● | Jet Token’s senior management is the senior management of the combined entity |
| ● | Jet Token is the larger entity based on historical operating activity and has the larger employee base; and |
| ● | The post-combination company has assumed a Jet Token branded name: “Jet.AI Inc.” |
| 7 |
Unaudited Interim Financial Statements
Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these unaudited consolidated interim financial statements have been included. Such adjustments consist of normal recurring adjustments. The results of operations for the nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the full year.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Jet.AI Inc. and its wholly owned subsidiaries, Summerlin Aviation LLC, Jet Token Software Inc., Jet Token Management Inc., Galilee LLC, and Galilee 1 SPV LLC and Cloudrise Ltd. All intercompany accounts and transactions have been eliminated in consolidation.
The consolidated assets, liabilities, and results of operations prior to the Reverse Recapitalization are those of Jet Token. The shares and corresponding capital amounts and losses per share, prior to the Reverse Recapitalization, have been retroactively restated based on shares reflecting the exchange ratio established in the Business Combination.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of expenses during the reporting period. Making estimates requires management to exercise significant judgement. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
The material estimate that is particularly susceptible to significant change in the near-term relate to the fair value of the derivative warrant liabilities. Although considerable variability is likely to be inherent in this estimate, management believes that the amounts provided are reasonable. This estimate is continually reviewed and adjusted if necessary. Such adjustment is reflected in current operations.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.
Level 3 - Unobservable inputs which are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
| 8 |
Risks and Uncertainties
The Company has a limited operating history and has only recently begun generating revenue from intended operations. The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state, and federal governmental policy decisions. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse conditions may include but are not limited to: changes in the airline industry, fuel and operating costs, changes to corporate governance best practices for executive flying, general demand for private jet travel, regulations on carbon emissions from aviation and market acceptance of the Company’s business model. These adverse conditions could affect the Company’s financial condition and the results of its operations.
Cash and Cash Equivalents
For
purpose of the consolidated statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. Included within cash and cash equivalents is restricted cash of $
Offering Costs
The Company complies with the requirements of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) 340 with regards to offering costs. Prior to the completion of an offering, offering costs will be capitalized as deferred offering costs on the consolidated balance sheet. The deferred offering costs will be charged to stockholders’ (deficit) equity upon the completion of an offering or to expense if the offering is not completed.
Other Current Assets
Other current assets include security deposits, which relate primarily to contractual prepayments to third-parties for future services, prepaid expenses and customer receivables for additional expenses incurred in their charter trips.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. As of September 30, 2023 and December 31, 2022, property and equipment consisted entirely of equipment which is being depreciated over a -year period.
Internal Use Software
The
Company incurs software development costs to develop software programs to be used solely to meet its internal needs and cloud-based applications
used to deliver its services. In accordance with ASC 350-40, Internal-Use Software, the Company capitalizes development costs related
to these software applications once a preliminary project stage is complete, funding has been committed, and it is probable that the
project will be completed, and the software will be used to perform the function intended. As of September 30, 2023 and December 31,
2022, the Company has capitalized approximately $
Investments in Joint Ventures
In
January 2023, the Company formed a 50/50 joint venture subsidiary with Great Western Air LLC dba Cirrus Aviation Services, 380 Software
LLC, a Nevada limited liability company. Costs and profits are to be shared equally. The Company accounts for these investments using
the equity method whereby the initial investment is recorded at cost and subsequently adjusted by the Company’s share of income
or loss from the joint venture. The Company has made investments in the joint venture totaling $
| 9 |
Leases
The Company determines if an arrangement is a lease at inception on an individual contract basis. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current and operating lease liabilities, non-current on the consolidated balance sheets. Operating lease right-of-use assets represent the right to use an underlying asset for the lease term. Operating lease right-of-use assets are recognized at lease commencement date based on the present value of the future minimum lease payments over the lease term. The interest rate implicit in each lease was readily determinable to discount lease payments.
The operating lease right-of-use assets include any lease payments made, including any variable amounts that are based on an index or rate, and exclude lease incentives. Lease terms may include options to extend or terminate the lease. Renewal option periods are included within the lease term and the associated payments are recognized in the measurement of the operating right-of-use asset when they are at the Company’s discretion and considered reasonably certain of being exercised. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company has elected the practical expedient not to recognize leases with an initial term of 12 months or less on the Company’s consolidated balance sheets and lease expense is recognized on a straight-line basis over the term of the short-term lease.
Impairment of Long-Lived Assets
The Company follows ASC 360, Accounting for Impairment or Disposal of Long-Lived Assets. ASC 360 requires that if events or changes in circumstances indicate that the carrying value of long-lived assets or asset groups may be impaired, an evaluation of recoverability would be performed by comparing the estimated future undiscounted cash flows associated with the asset to the asset’s carrying value to determine if a write-down to market value would be required. Long-lived assets or asset groups that meet the criteria in ASC 360 as being held for sale are reflected at the lower of their carrying amount or fair market value, less costs to sell.
Revenue Recognition
In applying the guidance of ASC 606, the Company determines revenue recognition through the following steps:
| ● | Identification of the contract, or contracts, with a customer; | |
| ● | Identification of the performance obligations in the contract; | |
| ● | Determination of the transaction price; | |
| ● | Allocation of the transaction price to the performance obligations in the contract; and | |
| ● | Recognition of revenue when, or as, a performance obligation is satisfied. |
Revenue is derived from a variety of sources including, but not limited to, (i) fractional/whole aircraft sales, (ii) fractional ownership and jet card programs, (iii) ad hoc charter through the Jet Token App and (iv) aircraft management.
Under the fractional ownership program, a customer purchases an ownership share in a jet which guarantees the customer access to the jet for a preset number of hours per year. The fractional ownership program consists of a down payment, one or more progress payments, a payment on delivery, a Monthly Management Fee (MMF) and an Occupied Hourly Fee (OHF). Revenues from the sale of fractional or whole interests in an aircraft are recognized at the time title to the aircraft is transferred to the purchasers, which generally occurs upon delivery or ownership transfer.
The jet card program provides the customer with a preset number of hours of guaranteed private jet access over the agreement term (generally a year) without the larger hourly or capital commitment of purchasing an ownership share. The jet card program consists of a fixed hourly rate for flight hours typically paid 100% up front.
Revenue is recognized upon transfer of control of the Company’s promised services, which generally occurs upon the flight hours being used. Any unused hours for the fractional jet and jet card programs are forfeited at the end of the contract term and are thus immediately recognized as revenue at that time.
| 10 |
Deferred
revenue is an obligation to transfer services to a customer for which the Company has already received consideration. Upon receipt of
a prepayment from a customer for all or a portion of the transaction price, the Company initially recognizes a contract liability. The
contract liability is settled, and revenue is recognized when the Company satisfies its performance obligation to the customer at a future
date. As of September 30, 2023 and December 31, 2022, the Company deferred $
The
Company also generates revenues from individual ad hoc charter bookings processed through the Company’s App, whereby the Company
will source, negotiate, and arrange travel on a charter basis for a customer based on pre-selected options and pricing provided by the
Company to the customer through the App. In addition, Cirrus markets charter on the Company’s aircraft for the Company’s
benefit, generating On Fleet Charter revenue for the Company. Deferred revenue with respect to the App was $
The Company utilizes certificated independent third-party air carriers in the performance of a portion of flights. The Company evaluates whether there is a promise to transfer services to the customer, as the principal, or to arrange for services to be provided by another party, as the agent, using a control model. The nature of the flight services the Company provides to members is similar regardless of which third-party air carrier is involved. The Company directs third-party air carriers to provide an aircraft to a member or customer. Based on evaluation of the control model, it was determined that the Company acts as the principal rather than the agent within all revenue arrangements. Owner charter revenue is recognized for flights where the owner of a managed aircraft sets the price for the trip. The Company records owner charter revenue at the time of flight on a net basis for the margin we receive to operate the aircraft. If the Company has primary responsibility to fulfill the obligation, then the revenue and the associated costs are reported on a gross basis in the consolidated statements of operations.
The following is a breakout of revenue components by subcategory for the three and nine months ended September 30, 2023 and 2022.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Software App and On Fleet Charter | $ | $ | $ | $ | ||||||||||||
| Jet Card and Fractional Programs | ||||||||||||||||
| Management and Other Services | ||||||||||||||||
| Fractional/Whole Aircraft Sales | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Flights
Flights and flight-related services, along with the related costs of the flights, are earned and recognized as revenue at the point in time in which the service is provided. For round-trip flights, revenue is recognized upon arrival at the destination for each flight segment.
Fractional and jet card members pay a fixed quoted amount for flights based on a contractual capped hourly rate. Ad hoc charter customers primarily pay a fixed rate for flights. In addition, flight costs are paid by members through the purchase of dollar-denominated prepaid blocks of flight hours (“Prepaid Blocks”), and other incidental costs such as catering and ground transportation are billed monthly as incurred. Prepaid Blocks are deferred and recognized as revenue when the member completes a flight segment.
Aircraft Management
The Company manages aircraft for owners in exchange for a contractual fee. Revenue associated with the management of aircraft also includes the recovery of owner-incurred expenses including maintenance coordination, cabin crew and pilots, as well as recharging of certain incurred aircraft operating costs and expenses such as maintenance, fuel, landing fees, parking and other related operating costs. The Company passes the recovery and recharge costs back to owners at either cost or a predetermined margin.
| 11 |
Aircraft management-related revenue contains two types of performance obligations. One performance obligation is to provide management services over the contract period. Revenue earned from management services is recognized over the contractual term, on a monthly basis. The second performance obligation is the cost to operate and maintain the aircraft, which is recognized as revenue at the point in time such services are completed.
Aircraft Sales
The
Company acquires aircraft from vendors and various other third-party sellers in the private aviation industry. The Company’s classifies
the purchase as aircraft inventory on the consolidated balance sheets. Aircraft inventory is valued at the lower of cost or net realizable
value. Sales are recorded on a gross basis within revenues and cost of revenue in the consolidated statements of operations. The Company
recorded aircraft sales of $ and $
Pass-Through Costs
In applying the guidance of ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are distinct performance obligations. The Company then assesses whether it is acting as an agent or a principal for each identified performance obligation and includes revenue within the transaction price for third-party costs when the Company determines that it is acting as the principal.
Cost of Revenues
The cost of revenues includes costs incurred in providing air transportation services, such as chartering third-party aircraft, aircraft lease expenses, pilot training and wages, aircraft fuel, aircraft maintenance, and other aircraft operating expenses.
| 1. | Chartering Third-Party Aircraft: The cost of chartering third-party aircraft is recorded as a part of the cost of revenues. These expenses include the fees paid to third-party operators for providing aircraft services on behalf of the company. Expenses are recognized in the income statement in the period when the service is rendered and are reported on an accrual basis. | |
| 2. | Aircraft Lease Expenses: Aircraft lease expenses include the cost of leasing aircraft for the company’s operations. The lease expenses are recognized as an operating expense in the income statement over the lease term on a straight-line basis. | |
| 3. | Pilot Training and Wages: Pilot training costs are expensed as incurred and are included in the cost of revenues. This encompasses expenses related to initial pilot training, recurrent training, and any additional required training programs. Pilot wages, including salaries, bonuses, and benefits, are also recognized as a part of the cost of revenues and are reported on an accrual basis. | |
| 4. | Aircraft Fuel: The cost of aircraft fuel is recognized as an expense in the cost of revenues category based on the actual consumption during flight operations. Fuel costs are recorded in the income statement in the period when the fuel is consumed and are reported on an accrual basis. | |
| 5. | Aircraft Maintenance: Aircraft maintenance expenses include both routine and non-routine maintenance. Routine maintenance costs are expensed as incurred and are recorded as a part of the cost of revenues expense. Non-routine maintenance expenses, such as major repairs and overhauls, are capitalized and amortized over their expected useful life. The amortization expense is included in the cost of revenues and is recognized in the income statement on a straight-line basis over the asset’s useful life. | |
| 6. | Other Aircraft Operating Expenses: Other aircraft operating expenses include costs such as insurance, landing fees, navigation charges, and catering services. These expenses are recognized in the income statement as a part of the cost of revenues in the period when they are incurred and are reported on an accrual basis. |
| 12 |
Advertising Costs
The
Company expenses the cost of advertising and promoting the Company’s services as incurred. Such amounts are included in sales and
marketing expense in the consolidated statements of operations and totaled $
Research and Development
The Company incurs research and development costs during the process of researching and developing its technologies and future offerings. The Company’s research and development costs consist primarily of payments for third party software development that is not capitalizable. The Company expenses these costs as incurred until the resulting product has been completed, tested, and made ready for commercial use.
The Company accounts for stock awards under ASC 718, Compensation – Stock Compensation. Under ASC 718, stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite vesting period or over the nonemployee’s period of providing goods or services. The fair value of each stock option or warrant award is estimated on the date of grant using the Black-Scholes option valuation model.
Income Taxes
The Company applies ASC 740 Income Taxes (“ASC 740”). Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any and the change during the period in deferred tax assets and liabilities.
ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position is recognized only if it is “more likely than not” that the position is sustainable upon examination by the relevant taxing authority based on its technical merit.
The Company is subject to tax in the United States (“U.S.”) and files tax returns in the U.S. Federal jurisdiction and Nevada state jurisdiction. The Company is subject to U.S. Federal, state, and local income tax examinations by tax authorities for all periods since Inception. The Company currently is not under examination by any tax authority.
The Company presents basic loss per share (“EPS”) and diluted EPS on the face of the consolidated statements of operations. Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. For periods in which the Company incurs a net loss, the effects of potentially dilutive securities would be antidilutive and would be excluded from diluted EPS calculations. For the nine months ended September 30, 2023 and 2022, there were and options, and warrants, respectively, excluded.
Concentration of Credit Risk
The
Company maintains its cash with several major financial institutions located in the United States of America which it believes to be
creditworthy. Balances are insured by the Federal Deposit Insurance Corporation up to $
| 13 |
Segment Reporting
The Company identifies operating segments as components of the Company for which discrete financial information is available and is regularly reviewed by the chief operating decision maker, or decision-making group, in making decisions regarding resource allocation and performance assessment. The chief operating decision maker is the chief executive officer. The Company determined that the Company operates in a single operating and reportable segment, private aviation services, as the chief operating decision maker reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenue, for purposes of making operating decisions, allocating resources, and assessing performance. All of the Company’s long-lived assets are located in the U.S. and revenue from private aviation services is substantially earned from flights throughout the U.S.
NOTE 3 – OTHER ASSETS
Other assets consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Deposits | $ | $ | ||||||
| Lease Maintenance Reserve | ||||||||
| Total Other Assets | $ | $ | ||||||
NOTE 4 – NOTES PAYABLE
Bridge Agreement
On
September 11, 2023, the Company entered into a binding term sheet (“Bridge Agreement”) with eight investors whereby the investors
purchased from the Company senior secured promissory notes in the aggregate principal amount of $
The
Company received net proceeds of $
An
event of default under the notes includes failing to redeem the notes as provided above and other typical bankruptcy events of the Company.
| 14 |
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Operating Lease
In November 2021, the Company entered into a leasing arrangement with a third party for an aircraft to be used in the Company’s operations. The lease term is for 60 months, expiring November 2026, and requires monthly lease payments. At any time during the lease term, the Company has the option to purchase the aircraft from the lessor at the aircraft’s fair market value at that time.
The
lease agreement also requires the Company to hold a liquidity reserve of $
On
April 4, 2022, the Company entered into an additional leasing arrangement with a third party for an aircraft to be used in the Company’s
operations, substantially identical to the terms of the November 2021 agreement. The lease term was for 60 months, expiring April 4,
2027, and required monthly lease payments. At any time during the lease term, the Company had the option to purchase the aircraft from
the lessor at the aircraft’s fair market value at that time. The lease agreement also required the Company to maintain its existing
liquidity reserve of $
Total
lease expense for the nine months ended September 30, 2023 and 2022 was $
Right-of-use lease assets and lease liabilities for our operating lease was recorded in the consolidated balance sheet as follows:
| September 30, 2023 | ||||
| Operating lease right-of-use asset | $ | |||
| Accumulated amortization | ( | ) | ||
| Net balance | $ | |||
| Lease liability, current portion | $ | |||
| Lease liability, long-term | ||||
| Total operating lease liabilities | $ | |||
| 15 |
As
of September 30, 2023, the weighted average remaining lease term was
As of September 30, 2023, future minimum required lease payments due under the non-cancellable operating lease are as follows:
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Total future minimum lease payments | |||||
| Less imputed interest | ( | ) | |||
| Maturities of lease liabilities | $ |
Share Purchase Agreement
Jet Token executed a Share Purchase Agreement, dated as of August 4, 2022, with GEM Yield LLC SCS and GEM Yield Bahamas Limited (together with GEM Yield LLC SCS, “GEM”), which was automatically assumed by the Company in connection with the Business Combination. In connection with the Business Combination, the Company has the right to periodically issue and sell to GEM, and GEM has agreed to purchase, up to $ aggregate value of shares of the Company’s common stock during the 36-month period following the date of listing.
In consideration for these services, the Company has agreed to pay GEM a commitment fee equal to $ payable in cash or freely tradable shares of the Company’s common stock, payable on or prior to the first anniversary of the date of listing. Pursuant to the Share Purchase Agreement, the Company issued to GEM a warrant granting it the right to purchase up to shares of common stock of the Company on a fully diluted basis. The warrant has an exercise price of $ per share of common stock and term of . The commitment fee has been accounted for as prepaid offering costs and accounts payable in the accompanying consolidated balance sheet as of September 30, 2023.
The
Company has also entered into a Registration Rights Agreement with GEM, obligating the Company to file a registration statement with
respect to resales of the shares of common stock issuable to GEM under the Share Purchase Agreement and upon exercise of the warrant.
Because such registration statement was not declared effective by October 23, 2023 (the “Effectiveness Deadline”), the Company
must pay to GEM an amount equal to $
On
October 23, 2023, the Company entered into a warrant amendment agreement, retroactively effective as of August 10, 2023 (the “GEM
Warrant Amendment”). The GEM Warrant Amendment provides that GEM can elect to limit the exercisability of its warrant (the “GEM
Warrant”) to purchase shares of the Company’s common stock, par value $ per share (“Common Stock”), such
that it is not exercisable to the extent that, after giving effect to the exercise, GEM and its affiliates, to the Company’s actual
knowledge, would beneficially own in excess of
| 16 |
Forward Purchase Agreement
On August 6, 2023, Oxbridge entered into an agreement with (i) Meteora Capital Partners, LP (“MCP”), (ii) Meteora Select Trading Opportunities Master, LP (“MSTO”), and (iii) Meteora Strategic Capital, LLC (“MSC” and, collectively with MCP and MSTO, “Seller”) (the “Forward Purchase Agreement”) for OTC Equity Prepaid Forward Transactions. For purposes of the Forward Purchase Agreement, Oxbridge is referred to as the “Counterparty” prior to the consummation of the Business Combination, while Jet.AI is referred to as the “Counterparty” after the consummation of the Business Combination. Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to such terms in the Forward Purchase Agreement.
Pursuant to the terms of the Forward Purchase Agreement, the Seller intended, but was not obligated, to purchase up to (the “Purchased Amount”) Class A ordinary shares, par value $ per share, of Oxbridge (“Oxbridge Shares”) concurrently with the Closing pursuant to the Seller’s FPA Funding Amount PIPE Subscription Agreement (as defined below), less the number of Oxbridge Shares purchased by the Seller separately from third parties through a broker in the open market (“Recycled Shares”). No Seller was required to purchase an amount of Oxbridge Shares such that following such purchase, that Seller’s ownership would exceed % of the total Oxbridge Shares outstanding immediately after giving effect to such purchase, unless the Seller, at its sole discretion, waived such % ownership limitation. The number of shares subject to the Forward Purchase Agreement is subject to reduction following a termination of the Forward Purchase Agreement with respect to such shares as described under “Optional Early Termination” in the Forward Purchase Agreement.
The
Forward Purchase Agreement provided for a prepayment shortfall in an amount in U.S. dollars equal to $
The Forward Purchase Agreement provided that the Seller would be paid directly an aggregate cash amount (the “Prepayment Amount”) equal to (x) the product of (i) the number of shares as set forth in a Pricing Date Notice and (ii) the redemption price per share as defined in Article 49.5 of Oxbridge’s Amended and Restated Memorandum and Articles of Association, effective as of August 11, 2021, as amended from time to time (the “Initial Price”), less (y) the Prepayment Shortfall.
The Seller agreed to waive any redemption rights with respect to any Recycled Shares in connection with the Business Combination, as well as any redemption rights under Oxbridge’s Amended and Restated Memorandum and Articles of Association that would require redemption by Oxbridge. Such waiver reduced the number of Oxbridge Shares redeemed in connection with the Business Combination, which may have altered the perception of the potential strength of the Business Combination.
| 17 |
The
shares initially held by Seller consisted of shares it purchased from third parties through a broker in open market transactions
or by reversing previously submitted redemption requests and waived its redemption rights with respect to these shares. Furthermore,
Seller purchased
“Additional Shares” directly from the Company for a per share price of $ pursuant to a subscription agreement
entered into on August 6, 2023 (the “FPA Funding Amount PIPE Subscription Agreement”). Of the shares it purchased,
shares represented Share Consideration to Seller under the Forward Purchase Agreement and
are not subject to the terms of the Forward Purchase Agreement, meaning that Seller is free
to sell such shares and retain all proceeds therefrom. Netting out the Share Consideration, the total “Number of Shares”
initially subject to the terms of the Forward Purchase Agreement was , comprising “Recycled Shares” and Additional Shares. Following the Closing of the Business Combination, approximately $
On August 31, 2023 and October 2, 2023, the Company entered into an amendment and a second amendment, respectively (together, the “Amendments”) to its Forward Purchase Agreement.
The combined effect of the Amendments was to:
| ● | increase the total number of additional shares Seller purchased from the Company under an FPA Funding Amount PIPE Subscription Agreement to shares of the Company’s common stock, | |
| ● | provide
payment to the Company of “Future Shortfall” amounts totaling $ | |
| ● | increase the total share consideration to Seller to shares of the Company’s common stock, | |
| ● | reduce the remaining number of Recycled Shares to , | |
| ● | increase the number of shares subject to the Forward Purchase Agreement to , and | |
| ● | extend the “Valuation Date” to the two year anniversary of the Closing of the Business Combination, or earlier at the discretion of Seller and upon notice to the Company. |
The
Forward Purchase Agreement, as amended, provides for a cash settlement following the Valuation Date, at which time Seller is obligated
to pay the Company an amount equal to the “Number of Shares” subject to the Forward Purchase Agreement (provided such Shares
are registered for resale or freely transferrable pursuant to an exemption from registration) multiplied by a per share price reflecting
the Company’s volume weighted average trading price over a number of days following the Valuation Date, subject to alternate calculations
in certain circumstances. At settlement, the Company is obligated to pay Seller a settlement adjustment of $ per share for the total
Number of Shares, which is payable in cash, or in shares of the Company’s Common Stock if the settlement adjustment is greater
than the settlement amount payable by Seller and provided that Seller’s ownership would not exceed
The
Forward Purchase Agreement is recorded as a freestanding equity-linked financial instrument classified as equity under ASC
815-40 and $(
FPA Funding Amount PIPE Subscription Agreements
On August 6, 2023, Oxbridge entered into a subscription agreement (the “FPA Funding Amount PIPE Subscription Agreement”) with Seller.
Pursuant to the FPA Funding PIPE Subscription Agreement, Seller agreed to subscribe for and purchase, and Oxbridge agreed to issue and sell to Seller, on the Closing Date, an aggregate of up to Oxbridge Shares, less the Recycled Shares in connection with the Forward Purchase Agreement.
Maxim Settlement Agreement
On
August 10, 2023, the Company entered into a settlement agreement (“Maxim Settlement Agreement”) with Maxim Group LLC, the
underwriter for the Company’s initial public offering (“Maxim”). Pursuant to the Maxim Settlement Agreement, the Company
issued shares of Jet.AI Common Stock to settle the payment obligations of the Company under the underwriting agreement dated
on or about August 11, 2021, by and between the Company and Maxim, which shares of Jet.AI Common Stock are subject to a Registration
Rights Agreement. The Company also issued shares of 8% Series A Cumulative Convertible Preferred Stock in an amount equal in value
to $
| 18 |
Sponsor Settlement Agreement
On
August 10, 2023, the Company entered into a settlement agreement (“Sponsor Settlement Agreement”) with Sponsor. Pursuant
to the Sponsor Settlement Agreement, the Company issued shares of the Company’s 5% Series A-1 Cumulative Convertible Preferred
Stock (the “Series A-1 Preferred Shares”) to settle the payment obligations of the Company under a promissory note in the
principal amount of $
NOTE 6 – STOCKHOLDERS’ EQUITY
Common Stock and Preferred Stock
The Amended and Restated Certificate of Incorporation of the Company dated August 10, 2023 authorized the issuance of shares, consisting of two classes: shares of common stock, $ par value per share, and shares of preferred stock, $ par value per share. As of September 30, 2023, there are shares of preferred stock issued and outstanding.
Upon
the consummation of the Business Combination, shares of Jet.AI Common Stock and Merger Consideration Warrants were
issued to the Historical Rollover Shareholders in exchange for all outstanding shares of Jet Token Common Stock (including shares of
Jet Token Preferred Stock converted in the Conversion). The Company also reserved for issuance up to shares of Jet.AI Common
Stock in respect of Jet.AI Options issued in exchange for outstanding pre-merger Jet Token Options, and shares of Jet.AI Common
Stock and Merger Consideration Warrants in respect of Jet.AI RSU Awards issued in exchange for outstanding pre-merger Jet Token
RSU Awards. Each Merger Consideration Warrant entitles the registered holder to purchase one whole share of the Company’s common
stock at a price of $ per share and expire ten years after issuance. The Company also had
In addition, in connection with the Business Combination, the Jet.AI Board adopted the Omnibus Incentive Plan in order to facilitate the grant of equity awards to attract, retain and incentivize employees (including the named executive officers), independent contractors and directors of Jet.AI Inc. and its affiliates, which is essential to Jet.AI Inc.’s long term success. The Omnibus Incentive Plan is a continuation of the 2018 Plan and 2021 Plan, which were assumed from Jet Token and amended, restated and re-named into the form of the Omnibus Incentive Plan effective as of the consummation of the Business Combination.
In
February 2020, the Company undertook a Regulation A, Tier 2 offering for which it sought to sell up to shares of common stock
at $ per share for a maximum of $
In
June 2021, the Company undertook another Regulation A, Tier 2 offering for which it sought to sell up to shares of common stock
at $ per share for a maximum of $
| 19 |
Stock Options
In connection with the Business Combination, the Company adopted the 2023 Omnibus Incentive Plan. The 2023 Omnibus Incentive Plan provides for the grant of equity awards to employees, outside directors, and consultants, including the direct award or sale of shares, stock options, and restricted stock units to purchase shares. The 2023 Omnibus Incentive Plan is a continuation of Jet Token’s 2018 Plan and 2021 Plan, which were assumed from Jet Token and amended, restated and re-named into the form of the 2023 Omnibus Incentive Plan effective as of the consummation of the Business Combination. As of September 30, 2023, the Company had total options outstanding with a weighted average exercise price of $, of which options were issued in exchange for the outstanding Jet Token options in connection with the Business Combination. As of September 30, 2023, the total number of shares reserved for issuance under the 2023 Omnibus Incentive Plan was . The 2023 Omnibus Incentive Plan is administered by the Company’s Board of Directors, and expires ten years after adoption, unless terminated by the Board.
On June 4, 2018, the Company’s Board of Directors adopted the Jet.AI, Inc. 2018 Stock Option and Grant Plan (the “2018 Plan”). The 2018 Plan provides for the grant of equity awards to employees, non-employee directors and consultants, to purchase shares of the Company’s common stock. As of December 31, 2020, up to shares of its common stock were available to be issued pursuant to awards granted under the 2018 Plan. During the year ended December 31, 2021, the 2018 Plan was amended three times to increase the total number of shares reserved for issuance thereunder to .
In August 2021, the Company’s Board of Directors adopted the Jet Token Inc. 2021 Stock Plan (the “2021 Plan”). The 2021 plan provides for the grant of equity awards to employees, outside directors, and consultants, including the direct award or sale of shares, stock options, and restricted stock units to purchase shares. Up to shares of common stock could have been issued pursuant to awards granted under the 2021 Plan. During the year ended December 31, 2022, the 2021 Plan was amended to increase the number of shares of common stock authorized under the 2021 Plan to .
During the nine months ended September 30, 2022, the Company granted a total of stock options to purchase common stock to various advisors and consultants. The options have a -year life and are exercisable at $. of the options were immediately vested on the grant date while the . The options had a grant date fair value of approximately $, which will be recognized over the vesting period.
During the nine months ended September 30, 2023, the Company granted a total of stock options to purchase common stock to various employees, advisors and consultants. The options have a -year life and have exercise prices ranging from $to $. of the options were immediately vested on the grant date, of the options vest over a period of two months, while the remaining options vest in monthly tranches over a -year period. The options had a grant date fair value of approximately , which will be recognized over the vesting period.
| September 30, 2023 | December 31, 2022 | |||||||
| Expected life (years) | to | to | ||||||
| Risk-free interest rate | % - | % | % - | % | ||||
| Expected volatility | % | % | ||||||
| Annual dividend yield | % | % | ||||||
| Per share grant date fair value | $ | $ | ||||||
| 20 |
The Company recognizes stock option forfeitures as they occur as there is insufficient historical data to accurately determine future forfeitures rates.
The risk-free interest rate assumption for options granted is based upon observed interest rates on the United States government securities appropriate for the expected term of the Company’s stock options.
The expected term of stock options is calculated using the simplified method which takes into consideration the contractual life and vesting terms of the options.
The Company determined the expected volatility assumption for options granted using the historical volatility of comparable public company’s common stock. The Company will continue to monitor peer companies and other relevant factors used to measure expected volatility for future stock option grants, until such time that the Company’s common stock has enough market history to use historical volatility.
The dividend yield assumption for options granted is based on the Company’s history and expectation of dividend payouts. The Company has never declared or paid any cash dividends on its common stock, and the Company does not anticipate paying any cash dividends in the foreseeable future.
During the nine months ended September 30, 2023 and 2022, stock-based compensation expense of $ and $, respectively, was recognized for the vesting of these options. As of September 30, 2023, there was approximately $ in unrecognized stock-based compensation, which will be recognized through September 2026.
Restricted Stock Units
In August 2021, the Company granted Restricted Stock Units (RSUs) to a contractor. The grant allows the contractor to earn up to shares of non-voting common stock and contains both service-based vesting requirements and liquidity event requirements. Service-based requirements are such that the contractor needs to continue to provide service through August 2022. In addition to the service-based requirements, in order for the RSUs to vest, the Company will need to undertake an IPO or a sale as defined by the grant notice. The RSUs vested as a result of the Business Combination and the full amount of the expense $ was recorded during the nine months ended September 30, 2023.
NOTE 7 – RELATED PARTY TRANSACTIONS
From
time to time, related parties make payments on the Company’s behalf or advance cash to the Company for operating costs which
require repayment. Such transactions are considered short-term advances and non-interest bearing. During the nine months ended
September 30, 2023 and 2022, the Company’s Founder and Executive Chairman advanced a total of $
See Note 4 for discussion of the Bridge Agreement entered into with related parties.
NOTE 8 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company’s financial instruments, which consist of cash and cash equivalents, accounts receivable, accounts payable, and notes payable approximate fair value due to their short-term nature.
NOTE 9 – DEFERRED REVENUE
Changes in deferred revenue for the nine months ended September 30, 2023 were as follows:
| Deferred revenue as of December 31, 2022 | $ | |||
| Amounts deferred during the period | ||||
| Revenue recognized from amounts included in the deferred revenue beginning balance | ( | ) | ||
| Revenue from current period sales | ( | ) | ||
| Deferred revenue as of September 30, 2023 | $ |
NOTE 10 – SUBSEQUENT EVENTS
See Note 5 for discussion of subsequent amendments to the Share Purchase Agreement and Forward Purchase Agreement in October 2023.
The Company has evaluated subsequent events that occurred after September 30, 2023 through November 20, 2023, the date of these consolidated financial statements were available to be issued, and noted no additional events requiring recognition for disclosure.
| 22 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which Jet.AI’s management believes is relevant to an assessment and understanding of its consolidated results of operations and financial condition. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. You should read the following discussion and analysis of Jet.AI’s financial condition and results of operations together with the historical unaudited consolidated financial statements as of September 30, 2023 and December 31, 2022, and the three and nine months ended September 30, 2023 and 2022, and the related notes that are included elsewhere in this report.
Percentage amounts included in this report have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. Certain other amounts that appear in this report may not sum due to rounding.
Business Combination
As discussed under “– Business Combination” below, on August 10, 2023, Oxbridge Acquisition Corp. (“Oxbridge”), consummated a business combination pursuant to a Business Combination Agreement and Plan of Reorganization, as amended by Amendment No. 1 to the Business Combination Agreement, dated as of May 11, 2023 (the “Business Combination Agreement”) among Oxbridge, OXAC Merger Sub I, Inc., a Delaware corporation and a direct wholly owned subsidiary of Oxbridge (“First Merger Sub”), Summerlin Aviation LLC (f/k/a OXAC Merger Sub II, LLC), a Delaware limited liability company and a direct wholly owned subsidiary of Oxbridge (“Second Merger Sub”), and Jet Token, Inc., a Delaware corporation (“Jet Token”). Pursuant to the Business Combination Agreement, Oxbridge redomiciled as a Delaware corporation and was immediately renamed Jet.AI, Inc., and promptly thereafter, (a) First Merger Sub merged with and into Jet Token with Jet Token surviving the merger as a wholly owned subsidiary of Jet.AI Inc. and (b) Jet Token merged with and into Second Merger Sub (each merger and all other transactions contemplated by the Business Combination Agreement, the “Business Combination”).
As a result of the Business Combination:
| ● | the then issued and outstanding Class A ordinary shares of Oxbridge were converted, on a one-for-one basis, into shares of common stock, par value $0.0001 per share of Jet.AI, Inc. (“Common Stock”), |
| ● | the then issued and outstanding Class B ordinary share of Oxbridge were converted, on a one-for-one basis, into shares of Common Stock of Jet.AI. Inc., |
| ● | the then issued and outstanding Oxbridge warrants were converted into an equal number of warrants, each exercisable for one share of Common Stock (“Jet.AI Warrants”), |
| ● | the then issued and outstanding Oxbridge Units were converted into an equal number of Jet.AI Units, each consisting of one share of Common Stock and one Jet.AI Warrant, |
| ● | the outstanding shares of Jet Token common stock, including all shares of Jet Token preferred stock that converted into shares of Jet Token common stock, were cancelled and converted into the right to receive the number of shares of Common Stock and the number of warrants (“Merger Warrants”) based on the respective exchange rations set forth in the Business Combination Agreement, |
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| ● | all outstanding Jet Token options for Common Stock , whether or not exercisable and whether or not vested, were converted into options to purchase Common Stock based on the applicable exchange ratio determined in accordance with the Business Combination Agreement, |
| ● | all outstanding Jet Token warrants were converted into warrants to acquire the number of shares of Common Stock and Merger Warrants based on the applicable exchange ratio set forth in the Business Combination Agreement, and |
| ● | the outstanding Jet Token restricted stock unit awards were converted into Jet.AI restricted stock unit awards based on the applicable exchange ratio determined in accordance with the Business Combination Agreement. |
As a result of the Business Combination, Jet.AI Inc. has one class of Common Stock, listed on Nasdaq under the ticker symbol “JTAI”, and two classes of warrants the Jet.AI Warrants and the Merger Warrants, listed on Nasdaq under the ticker symbols “JTAIW” and “JTAIZ” respectively.
The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP, whereby Oxbridge is treated as the acquired company and Jet Token is treated as the acquirer (the “Reverse Recapitalization”). Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Jet Token issuing stock for the net assets of Oxbridge, accompanied by a recapitalization. The net assets of Oxbridge were stated at historical cost, with no goodwill or other intangible assets recorded.
The consolidated assets, liabilities, and results of operations prior to the Reverse Recapitalization are those of Jet Token. The shares and corresponding capital amounts and losses per share, prior to the Reverse Recapitalization, have been retroactively restated based on shares reflecting the exchange ratio established in the Business Combination.
Jet Token has been determined to be the accounting acquirer in the Business Combination based on the following predominate factors:
| ● | Jet Token’s existing stockholders have the greatest voting interest in the combined entity; | |
| ● | Jet Token existing stockholders have the ability to nominate a majority of the initial members of combined entity’s board; | |
| ● | Jet Token’s senior management is the senior management of the combined entity | |
| ● | Jet Token is the larger entity based on historical operating activity and has the larger employee base; and | |
| ● | The post-combination company has assumed a Jet Token branded name: “Jet.AI Inc.” |
References in this Part I to “Jet.AI” or “the Company” refer to Jet Token Inc. prior to the consummation of the Business Combination and to Jet.AI Inc. from and after the closing of the Business Combination.
Overview
Jet.AI, a Delaware corporation, was founded in 2018 by Michael Winston, its Executive Chairman. The Company, directly and indirectly through its subsidiaries, has been principally involved in (i) the sale of fractional and whole interests in aircraft, (ii) the sale of jet cards, which enable holders to use certain of the Company’s and other’s aircraft at agreed-upon rates, (iii) the operation of a proprietary booking platform (the “App”), which functions as a prospecting and quoting platform to arrange private jet travel with third party carriers as well as via the Company’s leased and managed aircraft, (iv) direct chartering of its HondaJet aircraft by Cirrus, (v) aircraft brokerage and (vi) service revenue from the monthly management and hourly operation of customer aircraft.
Under the Company’s fractional ownership program, a customer purchases an ownership share in a jet which guarantees the customer access to the jet for a preset number of hours per year. The fractional ownership program typically consists of a down payment, one or more progress payments, a payment on delivery, and in future periods will include a Monthly Management Fee (MMF) and an Occupied Hourly Fee (OHF) during the term of the fractional owner’s management agreement. The sale of a fractional interest or whole aircraft is recognized at the time of aircraft delivery, MMF revenue is generally fixed and would be recognized monthly over the life of the management agreement, while OHF revenue is typically variable and would be recognized monthly based on the number of hours flown by the customer in the period. The Company’s jet card program provides the customer with a preset number of hours of private jet access at a fixed hourly rate over the agreement term (generally a year), typically paid 100% upfront. The Company also receives commission-based revenue for sales of jet cards on behalf of Cirrus and engages in whole aircraft brokerage. The Company recognizes revenue from sales of its own jet cards and from third-party charters generated through the Company’s App, upon transfer of control of its promised services, which generally occurs upon completion of a flight, or, in the case of unused hours under the jet card program, at the end of the contract term. The Company recognizes its share of the revenue from the sales of Cirrus jet cards upon payment by the program member.
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Results of Operations
The following table sets forth our results of operations for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | 3,367,189 | $ | 11,909,588 | $ | 8,035,505 | $ | 19,650,567 | ||||||||
| Cost of revenues | 3,196,748 | 10,905,766 | 8,140,905 | 17,833,726 | ||||||||||||
| Gross profit (loss) | 170,441 | 1,003,822 | (105,400 | ) | 1,816,841 | |||||||||||
| Operating Expenses: | ||||||||||||||||
| General and administrative (including stock-based compensation of $2,669,071, $2,060,703, $5,424,158, and $4,431,950, respectively) | 4,231,142 | 2,835,745 | 8,834,864 | 6,255,723 | ||||||||||||
| Sales and marketing | 156,991 | 118,301 | 380,699 | 281,442 | ||||||||||||
| Research and development | 48,823 | 46,905 | 113,778 | 93,077 | ||||||||||||
| Total operating expenses | 4,436,956 | 3,000,951 | 9,329,341 | 6,630,242 | ||||||||||||
| Operating loss | (4,266,515 | ) | (1,997,129 | ) | (9,434,741 | ) | (4,813,401 | ) | ||||||||
| Other (income) expense: | ||||||||||||||||
| Interest expense | 24,095 | - | 24,095 | - | ||||||||||||
| Other income | (51 | ) | - | (51 | ) | (3 | ) | |||||||||
| Total other (income) expense | 24,044 | - | 24,044 | (3 | ) | |||||||||||
| Loss before provision for income taxes | (4,290,559 | ) | (1,997,129 | ) | (9,458,785 | ) | (4,813,398 | ) | ||||||||
| Provision for income taxes | - | - | - | 800 | ||||||||||||
| Net Loss | $ | (4,290,559 | ) | $ | (1,997,129 | ) | $ | (9,458,785 | ) | $ | (4,814,198 | ) | ||||
| Weighted average shares outstanding - basic and diluted | 7,018,212 | 4,424,267 | 5,354,931 | 4,398,303 | ||||||||||||
| Net loss per share - basic and diluted | $ | (0.61 | ) | $ | (0.45 | ) | $ | (1.77 | ) | $ | (1.09 | ) | ||||
Three Months Ended September 30, 2023 and 2022
Revenues
Revenues for the third quarter of 2023 totaled $3.4 million, a $8.5 million decrease from 2022’s third quarter revenues of $11.9 million and were comprised of $775,000 in services revenue from the management of customers’ aircraft, $797,000 in software-related revenue, $732,000 in Jet Card revenue for hours flown and other charges based on hours flown, and $1.1 million in On Fleet Charter revenue from the chartering of our HondaJets by our operating partner Cirrus.
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The primary reason for this decrease in revenue was due to the absence of aircraft available for fractional sale in the third quarter of 2023 compared with the successful fractionalization of the Company’s last two HondaJets during the third quarter of 2022. The decrease in revenue in the third quarter of 2023 was offset by additional service revenue of $775,000 arising from the Company’s entering into an agreement to manage a customer’s aircraft in the fourth quarter of 2022.
The following table sets forth a breakout of revenue components by subcategory for the three months ended September 30, 2023 and 2022.
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Software App and On Fleet Charter | $ | 1,860,795 | $ | 341,557 | ||||
| Jet Card and Fractional Programs | 731,716 | 568,031 | ||||||
| Management and Other Services | 774,678 | - | ||||||
| Fractional/Whole Aircraft Sales | - | 11,000,000 | ||||||
| $ | 3,367,189 | $ | 11,909,588 | |||||
The Company recognized $797,000 in revenue related to App-generated Services and software revenues related to charter bookings made through its App in the third quarter of 2023, an increase of $678,000 and reflected additional brokerage staff, increased marketing and greater awareness of the Company. This compares to revenues totaling $119,000 in the 2022 period.
During the third quarter of 2023, the Company sold 122 prepaid flight hours under its jet card and fractional programs, amounting to $713,000, and recognized $709,000 of revenue for 113 flight hours flown or forfeited, as well as additional charges. These additional charges represent primarily charges for cost reimbursements such as a fuel component adjustment to adjust for changes in fuel prices relative to the jet card and fractional contracts’ base fuel price and reimbursement of federal excise taxes. Prepaid flight hours are recognized as revenue as the flight hours are used or forfeited. At September 30, 2023, the Company had recorded deferred revenue of $1.2 million on its consolidated balance sheet representing prepaid flight hours for which the related travel had not yet occurred.
In the third quarter of 2022, the Company sold 50 prepaid flight hours, amounting to $273,000, and recognized $527,000 of revenue for 93 flight hours flown or forfeited, as well as additional charges. At September 30, 2022, the Company had recorded deferred revenue of approximately $1.2 million.
The increase in flight hours flown period over period is a direct result of the increased number of the Company’s aircraft.
The following table details the flight hours sold and flown or forfeited, as well as the associated deferred revenues and recognized revenues, respectively, and additional charges for the third quarter of 2023 and 2022:
| For the three months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Deferred revenue at the beginning of the period (1) | $ | 1,099,545 | $ | 1,383,213 | ||||
| Prepaid flight hours sold | ||||||||
| Amount | $ | 712,769 | $ | 272,875 | ||||
| Total Flight Hours | 122 | 50 | ||||||
| Prepaid flight hours flown | ||||||||
| Amount | $ | 649,077 | $ | 479,010 | ||||
| Total flight hours | 113 | 93 | ||||||
| Additional charges | $ | 59,760 | $ | 48,361 | ||||
| Total flight hour revenue | $ | 708,837 | $ | 527,371 | ||||
| Deferred revenue at the end of the period (2) | $ | 1,163,237 | $ | 1,177,078 | ||||
| (1) | Deferred revenue at June 30, 2023 and 2022 also includes $10,301 and $0, respectively, with respect to customer prepayments associated with software app transactions. |
| (2) | Deferred revenue at September 30, 2023 and 2022 also includes $268,889 and $25,534, respectively, with respect to customer prepayments associated with software app transactions. |
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In addition to its software App and jet card revenues, the Company also generates revenue through the direct chartering of its HondaJet aircraft by Cirrus. During the third quarter of 2023 this revenue amounted to approximately $1.1 million, an increase of $840,000, or 377.6% from the prior year. The increased revenue was a direct result of the greater number of HondaJets operated in the third quarter of 2023 and the addition of the managed Citation CJ4.
Cost of revenues
Our cost of revenue is comprised of payments to Cirrus for the maintenance and management of our fleet aircraft, commissions to Cirrus for their arranging for charters on our aircraft, aircraft lease expense, federal excise tax relating to jet card and third-party charters, and payments to third-party aircraft operators for both charter flights booked through our App, as well as the cost of subcharters for covering jet card flights when our HondaJets were unavailable. The management of our aircraft by Cirrus covers all our aircraft regardless of whether the aircraft are used for program flight hours or charter flights and includes expenses such as fuel, pilot wages and training costs, aircraft insurance, maintenance and other flight operational expenses.
In the third quarter of 2022, the Company operated 1 HondaJet as compared to the 3 HondaJets and 1 CJ4 that it operated in the 2023 period.
As a result of its increased fleet and the increase in jet card and On Fleet Charter flight activity, as well as the startup costs relating to the introduction of the CJ4 to its fleet, costs related to the operation of these aircraft and payments to Cirrus for their management increased $1.0 million from $0.4 million in the third quarter of 2022 to $1.4 million in 2023 and aircraft lease payments increased $154,000 from $167,000 in the third quarter of 2022 to $321,000 in 2023. The Company also incurred third-party charter costs of approximately $1.4 million in the third quarter of 2023, a $1.1 million increase over 2022, in order to fulfill a greater number of App-generated charter bookings, as well as subcharters used for covering jet card flights when our HondaJets were unavailable. Merchant fees and federal excise tax relating to charter flights of $41,000 in the third quarter of 2023 were a $6,000 reduction as compared to $47,000 in the third quarter of 2022.
In total, it cost $1.8 million to operate these 4 aircraft in the third quarter of 2023, compared to $0.7 million to operate 1 aircraft in the third quarter of 2022.
Gross profit (loss)
The resulting gross profit totaled approximately $170,000 for the third quarter of 2023, compared to $1.0 million for the third quarter of 2022. The gross profit in the third quarter of 2023 was largely driven by greater utilization of the Company’s aircraft, offset by increased subcharter costs relating to flights performed by third-party operators for certain of our jet card customers. The 2022 results were positively affected by the fractionalization of the last two of the Company’s HondaJets. Excluding the profit from these fractionalizations, gross profit for the third quarter of 2022 would have been a loss of $26,000.
Total Operating Expenses
In the third quarter of 2023, Jet Token’s operating expenses increased by approximately $1.4 million over the prior year comparable period due to an approximate $1.4 million increase in general and administrative expenses, $37,000 increase in sales and marketing expenses and slightly higher research and development costs. Excluding non-cash stock-based compensation of $2.7 million and $2.1 million in the third quarter of 2023 and 2022, respectively, general and administrative expenses rose by approximately $787,000 primarily due to an increase in professional service expenses of $623,000 related to our Business Combination, Directors and Officers Insurance costs of $98,000, $16,000 in higher rent and increased wages of $79,000, primarily due to increased commissions compensation payable on jet card sales.
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The Company’s sales and marketing expenses increased by about $39,000 to $157,000 in the third quarter of 2023 from $118,000 in the third quarter of 2022, as the Company continued the acceleration of its sales and marketing spending upon aircraft delivery and the associated increase in marketable jet card inventory. These expenses are mainly linked to promoting the Company and its programs.
Research and development expenses were essentially unchanged at $49,000 in the third quarter of 2023 from $47,000 in the third quarter of 2022, due to continuing refinement of the App, as well as continued development work on additional software offerings.
Operating Loss
As a result of all of the above, in the third quarter of 2023 the Company recognized an operating loss of approximately $4.3 million, which was an increase in loss of approximately $2.3 million. The increase in operating loss was primarily due to the decrease in gross profit of $833,000 and the increase in general and administrative expenses resulting from the increase in non-cash stock-based compensation expense that resulted from the non-cash vesting of employee stock options as well as the increase in professional and insurance costs following the Business Combination.
Other (Income) Expense
During the third quarter of 2023, the Company recognized approximately $24,000 in other expense due primarily to interest expense related to the Company’s Bridge Agreement as defined and discussed below. There were no such other income or expenses in the third quarter of 2022.
Nine Months Ended September 30, 2023 and 2022
Revenues
Revenues for the first nine months of 2023 totaled $8.0 million, a $11.7 million decrease from 2022’s revenues of $19.7 million, primarily related to fractional and whole aircraft sales revenue of $17.2 million in the 2022 period. Revenues in the 2023 period were comprised of $1.5 million in services revenue from the management of customers’ aircraft, $2.2 million in software-related revenue, $2.1 million in Jet Card revenue for hours flown and other charges based on hours flown and $2.2 million in On Fleet Charter revenue from the chartering of our HondaJets by our operating partner Cirrus.
The following table sets forth a breakout of revenue components by subcategory for the nine months ended September 30, 2023 and 2022.
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Software App and On Fleet Charter | $ | 4,413,745 | $ | 1,077,200 | ||||
| Jet Card and Fractional Programs | 2,090,401 | 1,373,367 | ||||||
| Management and Other Services | 1,531,359 | - | ||||||
| Fractional/Whole Aircraft Sales | - | 17,200,000 | ||||||
| $ | 8,035,505 | $ | 19,650,567 | |||||
The Company began recording revenue in September 2020 reflecting services and software revenues related to charter bookings made through its App and in the first nine months of 2022, the Company recognized $0.4 million in revenue related to App-generated charter bookings. During 2023 these revenues totaled $2.2 million, a $1.8 million or 439.2% increase from 2022 reflecting additional brokerage staff, increased marketing and greater awareness of the Company.
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The Company acquired its first HondaJet Elite in November 2021 and took delivery of a second HondaJet in April 2022 which was subsequently sold in June 2022 generating aircraft sale proceeds of $6.2 million in the first nine months of 2022. In addition, the Company fractionalized its last two HondaJets during the third quarter of 2022 which generated $11.0 million in revenue. There were no such fractionalization sales during 2023. As a result, the Company generated revenues of $17.2 million from the fractionalization and outright sale of aircraft in the first nine months of 2022, and no such revenues in 2023.
We recognized $1.5 million in service revenue in the first nine months of 2023 relating to an agreement entered into during the fourth quarter of 2022 to manage a customer’s aircraft. There were no such service revenues in the first nine months of 2022.
During the first nine months of 2023, the Company sold 383 prepaid flight hours under its jet card and fractional programs, amounting to $2.1 million, and recognized $2.1 of revenue for 323 flight hours flown or forfeited, as well as additional charges. These additional charges represent primarily charges for cost reimbursements such as a fuel component adjustment to adjust for changes in fuel prices relative to the jet card and fractional contracts’ base fuel price and reimbursement of federal excise taxes. Prepaid flight hours are recognized as revenue as the flight hours are used or forfeited. At September 30, 2023, the Company recorded deferred revenue of $1.2 million on its consolidated balance sheet, which represents prepaid flight hours for which the related travel had not yet occurred.
In the first nine months of 2022, we sold 354 prepaid flight hours amounting to approximately $1.8 million and recognized approximately $1.3 million of revenue for 229 flight hours flown or forfeited, as well as additional charges. At September 30, 2022, the Company recorded deferred revenue of $1.2 million on its consolidated balance sheet.
The increase in flight hours flown is a direct result of the increased number of aircraft.
The following table details the flight hours sold and flown or forfeited, as well as the associated deferred revenues and recognized revenues, respectively, and additional charges for the first nine months of 2023 and 2022:
| For the nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Deferred revenue at the beginning of the period (1) | $ | 933,361 | $ | 436,331 | ||||
| Prepaid flight hours sold | ||||||||
| Amount | $ | 2,133,019 | $ | 1,848,200 | ||||
| Total Flight Hours | 383 | 354 | ||||||
| Prepaid flight hours flown | ||||||||
| Amount | $ | 1,903,143 | $ | 1,107,453 | ||||
| Total flight hours | 323 | 229 | ||||||
| Additional charges | $ | 164,379 | $ | 225,254 | ||||
| Total flight hour revenue | $ | 2,067,522 | $ | 1,332,707 | ||||
| Deferred revenue at the end of the period (2) | $ | 1,163,237 | $ | 1,177,078 | ||||
| (1) | Deferred revenue at December 31, 2022 and 2021 also includes $11,800 and $0, respectively, with respect to customer prepayments associated with software app transactions. |
| (2) | Deferred revenue at September 30, 2023 and 2022 also includes $268,889 and $25,534, respectively, with respect to customer prepayments associated with software app transactions. |
During the first nine months of 2023 revenue generated through the direct chartering of the Company’s HondaJet aircraft by Cirrus amounted to approximately $2.2 million, an increase of $1.6 million, or 233.0% from the prior year. The increased revenue was a direct result of the greater number of HondaJets operated and the addition of the managed Citation CJ4.
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Cost of revenues
Our cost of revenue is comprised of payments to Cirrus for the maintenance and management of our fleet aircraft, commissions to Cirrus for their arranging for charters on our aircraft, aircraft lease expense, federal excise tax relating to jet card and third-party charters, and payments to third-party aircraft operators for both charter flights booked through our App, as well as the cost of subcharters for covering jet card flights when our HondaJets were unavailable. The management of our aircraft by Cirrus covers all our aircraft regardless of whether the aircraft are used for program flight hours or charters and includes expenses such as fuel, pilot wages and training costs, aircraft insurance, maintenance and other flight operational expenses.
As a result of the increased fleet and the increase in jet card and On Fleet Charter flight activity, as well as the startup expenses relating to the introduction of the managed aircraft to its fleet, operating expenses related to the operation of the Company’s aircraft and payments to Cirrus for their management increased $2.7 million from $1.1 million in the first nine months of 2022 to $3.8 million in 2023 and aircraft lease payments increased $0.3 million from $0.5 million in 2022 to $0.8 million in the first nine months of 2023. The Company also incurred third-party charter costs of approximately $3.1 million in the first nine months of 2023, a $2.4 million increase over 2022, in order to fulfill a greater number of App-generated charter bookings, as well as subcharters used for covering jet card flights when our HondaJets were unavailable. Federal excise tax and merchant fees relating to charter flights increased $70,000 in the first nine months of 2023 to $200,000 from $130,000 in 2022.
In total, excluding aircraft sales costs and as disclosed above, it cost $4.9 million to operate the Company’s 4 aircraft in the first nine months of 2023, compared to $1.8 million in 2022 for 1 aircraft.
Gross profit (loss)
The resulting gross profits totaled ($105,000) for the first nine months of 2023, compared to $1.8 million for 2022. The decrease of $1.9 million was largely driven by the lack of fractional aircraft sales during 2023. Excluding the profit from these aircraft sales, gross profit for the first nine months of 2022 would have been a loss of $178,000. The reduced gross loss in these operations was a result of higher utilization of our aircraft by our jet card customers and higher bookings on our behalf by Cirrus, together with service revenue from the management of an aircraft.
Total Operating Expenses
In the first nine months of 2023, the Company’s operating expenses increased $2.7 million due to a $2.6 million increase in general and administrative expenses, $99,000 in higher sales and marketing expenses, and $21,000 in higher research and development costs. Excluding non-cash stock-based compensation of $5.4 million and $4.4 million in the first nine months of 2023 and 2022, respectively, general and administrative expenses rose by approximately $1.6 million primarily due to due to an increase in professional service expenses of $896,000 related to our Business Combination, Directors and Officers Insurance costs of $135,000, $42,000 in higher rent due to the opening of a satellite office in San Francisco and increased wages of $324,000, primarily due to increased commissions compensation payable on jet card sales.
The Company’s sales and marketing expenses increased by about $99,000 to $381,000 in the first nine months of 2023 from $281,000 in 2022, as it reaccelerated its sales and marketing spending upon aircraft delivery and the associated increase in marketable jet card inventory. These expenses are mainly linked to promoting the Company and its programs.
Research and development expenses increased approximately $21,000 to $114,000 in the first nine months of 2023 from $93,000 in 2022, due to continuing refinement of the App, as well as some initial development work on additional software offerings.
Operating Loss
As a result of all of the above, in the first nine months of 2023 the Company recognized an operating loss of approximately $9.5 million, which was an increase in loss of nearly $4.6 million compared to 2022. The increase was primarily due to reduced gross profits of $1.9 million, as well as a $2.6 million increase in general and administrative expenses, of which approximately $1.1 million was non-cash stock-based compensation expense.
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Other (Income) Expense
During the first nine months of 2023, the Company recognized approximately $24,000 in other expense due primarily to to interest expense related to the Company’s Bridge Agreement, compared to $3 in interest income recorded for the first nine months of 2022.
Liquidity and Capital Resources
Overview
The Company incurred negative cash flows from operating activities and significant losses from operations in the past as reflected in its accumulated deficit of $36.1 million as of September 30, 2023. We expect to continue to incur operating losses for at least the next 12 months due to the investments that we intend to make in our business and, as a result, we may require additional capital resources to grow our business.
As of September 30, 2023, the Company’s cash and equivalents were approximately $904,000, including approximately $500,000 of restricted cash under its aircraft leasing arrangements described below. In the third quarter of 2023, the Company had approximately $3.4 million in revenue, putting the Company on an annualized run rate of revenue of approximately $13.5 million with an annualized run rate net use of cash of $0.8 million. In the absence of external financing the Company is prepared to cut its cash utilization by ceasing marketing and customer acquisition, suspending software development, streamlining operations, and servicing only existing customers. Such a reduction would allow the Company to continue to operate for a year or more by management’s estimate. During that time the Company would plan to arrange new financing and to then resume expansion.
The Company had disclosed the planned release of six new aviation software programs and has thus far released four of the six. The four software programs released to date are as follows: (1) CharterGPT (iOS), (2) CharterGPT (Android), the (3) DynoFlight carbon removal credit API and (4) a specific version of Flight Club implemented for the Las Vegas Golden Knights and Cirrus Aviation via 380 Software LLC. 380 Software LLC is a by-the-seat charter joint venture between Jet.AI Inc. and Cirrus Aviation. Once developed and launched the operating costs of these products are traditionally limited to server administration and limited maintenance of the code base. While CharterGPT actively contributes revenue, in the absence of any historical experience, management has excluded from its estimates of the Company’s liquidity and capital resources any benefit from DynoFlight, Reroute, Flight Club or JetCard GPT, respectively.
Based on numerous conversations between representatives of the Company and members of the private aviation trade at the annual NBAA trade show held in mid-October of this year, management believes that Part 135 operators may adopt Reroute, which reconstitutes otherwise empty flights into new discounted retail priced charter, ahead of other components of the operator platform. Therefore, the Company has determined to focus development resources into year-end on deepening the functionality of Reroute (and to improving certain features of DynoFlight). The planned release of Reroute is scheduled before year end and more generically applicable versions of FlightClub and JetCardGPT are expected to be released in the first quarter of 2024.
The reason for the difference between management’s forecast of 2023 revenues of approximately $33.9 million disclosed in connection with the Business Combination in its Registration Statement on Form S-4 and the current run rate of approximately $13.5 million stems from a generalized lack of fractional aircraft inventory available for sale, but more specifically from the limited market acceptance of the proposed sale of jet cards on the Cirrus Aviation fleet of 30 managed aircraft. While the Company continues to succeed in selling jet cards with a Western US service area restriction for the light and very light jet category, to date the Company has been unsuccessful in persuading customers to accept certain geographical limitations on the service area of the larger jets primarily operated by Cirrus Aviation. In particular, customers on the Cirrus Aviation jet card program are required to either begin or end all their trips within a four-state service area (consisting of Arizona, California, Nevada Utah), a logistical requirement given that Cirrus Aircraft return to base in the evening, rather than floating and remaining parked in the location of their last revenue leg until otherwise chartered or requested for use by a jet card member. When the aircraft itself has an obvious range restriction customers have been more accepting of a related limitation in the terms of the jet card program. However, when the aircraft has no meaningful range limitation for travel in the continental US, as is the case with the larger jets operated by Cirrus Aviation, customers have proven unwilling to compromise and prefer competing programs with fewer limitations relative to our offering.
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In response, the Company has executed a fleet purchase letter of intent with Bombardier and in person conversations were active with Bombardier in October 2023 and talks continue as of the date of this filing. The proposed super-mid size Bombardier aircraft would be sold as fractional aircraft not otherwise subject to the limited four state arrival/departure condition of the Cirrus Aviation jet card program.
Prior to the Business Combination, the Company funded its operations through a combination of cash from operations, the issuance of equity securities, and, to a lesser extent, loans and advances from its Executive Chairman. In connection with the Business Combination, Oxbridge entered into a number of financing arrangements and equity settlements of cash obligations as discussed below. Subsequent to the Business Combination, the Company entered into a Bridge Agreement providing for $500,000 of financing under terms of secured convertible notes with a principal amount of $625,000. It also amended its Forward Purchase Agreement (as defined and discussed under “– Meteora Transactions” below) to accelerate approximately $550,000 of payments thereunder. Finally the Company may raise additional funds from the issuance of equity under the Share Purchase Agreement discussed below, though its ability to access these funds may be limited contractually and negatively impact the Company’s stock price and ability to raise additional funds.
Share Purchase Agreement
The Company has access to $40 million from the Share Purchase Agreement, dated as of August 4, 2022, with GEM Yield LLC SCS and GEM Yield Bahamas Limited (together with GEM Yield LLC SCS, “GEM”), once the Company’s registration statement on Form S-1 is declared effective, which is expected to occur in the fourth quarter of 2023. Shares issued under the Share Purchase Agreement would be exempt from registration under Section 4(a)(2) of the Securities Act. As registration effectiveness is not entirely in the Company’s control, should the Company not be able to access the GEM facility, or should the facility by its terms not be available, the Company would be forced to rely on the Forward Purchase Agreement (as discussed below) or seek other forms of financing which may not be available in sufficient amounts to fund its operations.
GEM is not obligated to purchase shares under the Share Purchase Agreement if any purchase of shares would result in GEM and its affiliates beneficially owning, directly or indirectly, at the time of the proposed issuance, more than 9.99% of the number of issued and outstanding shares of Common Stock as of the date of such proposed issuance. GEM may waive the restriction under the Share Purchase Agreement by providing the Company with sixty-one (61) days’ notice that the Purchaser would like to waive the restriction with regard to any or all shares issuable pursuant to the Share Purchase Agreement.
On August 10, 2023, the Company issued the GEM Warrant, pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act, granting it the right to purchase up to 2,179,447 shares of Common Stock of the Company. The GEM Warrant has a term of three years. The exercise price of the GEM Warrant is $8.60 per share; provided, that, if the average closing price of Jet.AI’s Common Stock for the 10 trading days following the first anniversary of the date of listing is less than 90% of the then current exercise price of the GEM Warrant, then the exercise price of the GEM Warrant will be adjusted to 110% of its then current exercise price. The warrant may be exercised by payment of the per share amount in cash or through a cashless exercise.
The GEM Warrant provides that GEM can elect to limit the exercisability of the GEM Warrant such that it is not exercisable to the extent that, after giving effect to the exercise, GEM and its affiliates, to the Company’s actual knowledge, would beneficially own in excess of 4.99% of the Common Stock outstanding immediately after giving effect to such exercise. GEM has made this election, which may be revoked by providing written notice, which revocation will not be effective until the sixty-first (61st) day thereafter.
The Share Purchase Agreement is only available to the Company to the extent any issuance of Common Stock pursuant to the Share Purchase Agreement does not result in GEM and its affiliates acquiring more than 9.99% of the number of issued and outstanding shares of Common Stock as of the date of such proposed issuance. As a result of GEM’s beneficial ownership of 4.99% of the Company’s outstanding common stock related to the exercisable portion of the GEM Warrant, as a practical matter the Company will only be able to issue shares of Common Stock to GEM under the Share Purchase Agreement in an amount equal to 5% of its outstanding Common Stock.
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In connection with the Share Purchase Agreement, the Company and GEM entered into the GEM Registration Rights Agreement pursuant to which the Company is obligated to file the registration statement registering the resale of shares of Common Stock issuable upon exercise of the Warrant or issuable pursuant to the Share Purchase Agreement. Among the remedies available to GEM under the terms of the GEM Registration Rights Agreement if the registration statement is not declared effective by the date that is 45 days (the “Effectiveness Deadline”) after the filing of the registration statement, the Company must pay to GEM an amount equal to $10,000 for each day following the Effectiveness Deadline until the registration statement has been declared effective. The fee payable under the GEM Registration Rights Agreement will not exceed $300,000 if such delay in the declaration of effectiveness of the registration statement is caused by delays in SEC review of the registration statement or the SEC’s refusal to declare the registration statement effective. The Company began accruing this daily penalty beginning October 24, 2023 and will need to fund such amount.
Meteora Transactions
On August 6, 2023, we entered into a Forward Purchase Agreement with Meteora for OTC Equity Prepaid Forward Transactions. The purpose of our entering into this agreement and these transactions was to provide a mechanism whereby Meteora would purchase, and waive their redemption rights with respect to, a sufficient number of Oxbridge Class A ordinary shares to enable Oxbridge to have at least $5,000,000 of net tangible assets, a non-waivable condition to the Closing of the Business Combination, and to provide the Company with cash to meet a portion of the transaction costs associated with the Business Combination.
Pursuant to the terms of the Forward Purchase Agreement, Meteora intended, but was not obligated to, purchase up to 1,186,952 (the “Purchased Amount”) of Oxbridge’s Class A ordinary shares concurrently with the Closing. The shares initially purchased by Meteora consisted of 663,556 Recycled Shares it purchased from third parties through a broker in open market transactions and 247,000 Additional Shares it purchased directly from us in a private placement, pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act, for a per share price of $10.00 pursuant to an FPA Funding Amount PIPE Subscription Agreement. Of these Recycled Shares, 50,000 Recycled Shares represented Share Consideration to Meteora under the Forward Purchase Agreement and are not subject to the terms of the Forward Purchase Agreement, meaning that Meteora is free to sell such shares and retain all proceeds therefrom. Netting out the Share Consideration, the total “Number of Shares” initially subject to the terms of the Forward Purchase Agreement was 861,312. Following the Closing of the Business Combination, we paid to Meteora $9.6 million (based on the Number of Shares times $11.10 (the redemption price of Oxbridge’s Class A ordinary shares) less a “Prepayment Shortfall of $1,250,000); and Meteora paid us ½ of the Prepayment Shortfall, or $625,000.
The parties to the Forward Purchase Agreement subsequently entered into two amendments to the Forward Purchase Agreement, on August 31, 2023 and October 2, 2023, respectively, the combined effect of which was to:
| ● | increase the total number of Additional Shares Meteora purchased from us under the FPA Funding Amount PIPE Subscription Agreement to 548,127, | |
| ● | provide payment to the Company of “Future Shortfall” amounts totaling $550,000 and reducing the Prepayment Shortfall to $1,175,000, all of which has been paid to us, | |
| ● | increase the total Share Consideration to 275,000 shares out of existing Recycled Shares, | |
| ● | reduce the number of Recycled Shares to 296,518, | |
| ● | increase the Number of Shares subject to the Forward Purchase Agreement to 994,645, and | |
| ● | extend the “Valuation Date” to the two year anniversary of the Closing of the Business Combination, or earlier at the discretion of Meteora and upon notice to us. |
The Forward Purchase Agreement, as amended, provides for a cash settlement following the Valuation Date, at which time Meteora is obligated to pay us an amount equal to the “Number of Shares” subject to the Forward Purchase Agreement (provided such Shares are registered for resale or freely transferrable pursuant to an exemption from registration) multiplied by a per share price reflecting the Company’s volume weighted average trading price over a number of days following the Valuation Date, subject to alternate calculations in certain circumstances. At settlement, we are obligated to pay Meteora a settlement adjustment of $2.00 per share for the total Number of Shares, which is payable in cash, or in shares of our Common Stock if the settlement adjustment is greater than the settlement amount payable by Meteora and provided that Meteora’s ownership would not exceed 9.9% of our outstanding Common Stock.
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Additional Terms of the Forward Purchase Agreement, as amended
Meteora is not required to purchase an amount of Shares if following such purchase, Meteora’s ownership would exceed 9.9% of the total Shares outstanding immediately after giving effect to such purchase, unless Meteora, at its sole discretion, waives such 9.9% ownership limitation. The Number of Shares subject to the Forward Purchase Agreement is subject to reduction following a termination of the Forward Purchase Agreement with respect to such shares, at Meteora’s discretion, as described under “Optional Early Termination” in the Forward Purchase Agreement, as discussed below.
The Forward Purchase Agreement provides for a prepayment shortfall in an amount in U.S. dollars equal to $1,175,000 (the “Prepayment Shortfall”); provided that Meteora pay $625,000 of the Prepayment Shortfall to us on the Prepayment Date (which amount is netted from the Prepayment Amount) (the “Initial Shortfall”) and, at our request, $250,000 of the Prepayment Shortfall (the “Future Shortfall”) and $300,000 of the Prepayment Shortfall (the “Second Future Shortfall”). As of the date of this prospectus, the entire Prepayment Shortfall has been paid to us.
Meteora in its sole discretion can sell Recycled Shares at any time following the Trade Date and at any sales price, without payment by Meteora of any Early Termination Obligation until such time as the proceeds from such sales equals 100% of the Initial Shortfall and 100% of the Future Shortfall actually paid to the Company (as set forth under Shortfall Sales in the Forward Purchase Agreement) (such sales, “Shortfall Sales,” and such Shares, “Shortfall Sale Shares”). A sale of Shares is only (a) a “Shortfall Sale,” subject to the terms and conditions of the Forward Purchase Agreement applicable to Shortfall Sale Shares, when a Shortfall Sale Notice is delivered under the Forward Purchase Agreement, and (b) an Optional Early Termination, subject to the terms and conditions of the Forward Purchase Agreement applicable to Terminated Shares, when an OET Notice is delivered under the Forward Purchase Agreement, in each case the delivery of such notice in the sole discretion of Meteora (as further described in the “Optional Early Termination” and “Shortfall Sales” sections in the Forward Purchase Agreement).
The Forward Purchase Agreement provides that the Company will be paid directly an aggregate cash amount (the “Prepayment Amount”) equal to (x) the product of (i) the Number of Shares and (ii) the redemption price per share as defined in Article 49.5 of Oxbridge’s Amended and Restated Memorandum and Articles of Association, effective as of August 11, 2021, as amended from time to time (the “Initial Price”), less (y) the Prepayment Shortfall.
We paid to Meteora the Prepayment Amount required under the Forward Purchase Agreement directly from the Trust Account maintained by Continental Stock Transfer and Trust Company holding the net proceeds of the sale of the units in Oxbridge’s initial public offering and the sale of private placement warrants (the “Trust Account”); with the price paid by Meteora for purchase of the initial 247,000 Additional Shares netted against such Prepayment Amount proceeds. For the avoidance of doubt, any Additional Shares purchased by Meteora are included in the Number of Shares under the Forward Purchase Agreement for all purposes, including for determining the Prepayment Amount.
Following the Closing of the Business Combination, the reset price (the “Reset Price”) is initially the Initial Price. The Reset Price is subject to reset on a bi-weekly basis commencing the first week following the thirtieth day after the closing of the Business Combination to be the lowest of (a) the then current Reset Price, (b) the Initial Price and (c) the VWAP Price of the shares of the prior two weeks; provided that the Reset Price will also be reduced upon a Dilutive Offering Reset immediately upon the occurrence of such Dilutive Offering. The Maximum Number of Shares subject to the Forward Purchase Agreement shall be increased upon the occurrence of a Dilutive Offering to that number of Shares equal to the quotient of (i) the Purchased Amount divided by (ii) the quotient of (a) the price of such Dilutive Offering divided by (b) $10.00.
From time to time and on any date following the Trade Date (any such date, an “OET Date”) and subject to the terms and conditions in the Forward Purchase Agreement, Meteora may, in its absolute discretion, terminate the Transaction in whole or in part by providing written notice to the Company (the “OET Notice”), by the later of (a) the fifth Local Business Day following the OET Date and (b) no later than the next Payment Date following the OET Date, (which shall specify the quantity by which the Number of Shares shall be reduced (such quantity, the “Terminated Shares”)). The effect of an OET Notice shall be to reduce the Number of Shares by the number of Terminated Shares specified in such OET Notice with effect as of the related OET Date. As of each OET Date, the Company will be entitled to an amount from Meteora, and Meteora will pay to the Company an amount, equal to the product of (x) the number of Terminated Shares and (y) the Reset Price in respect of such OET Date. The payment date may be changed within a quarter at the mutual agreement of the parties.
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The valuation date will be the earlier to occur of (a) the date that is two (2) years after the Closing Date pursuant to the Business Combination Agreement, (b) the date specified by Meteora in a written notice to be delivered to the Company at Meteora’s discretion (which Valuation Date shall not be earlier than the day such notice is effective) after the occurrence of any of (v) a Shortfall Variance Registration Failure, (w) a VWAP Trigger Event, (x) a Delisting Event, (y) a Registration Failure or (z) unless otherwise specified therein, upon any Additional Termination Event, and (c) the date specified by Meteora in a written notice to be delivered to the Company at Meteora’s sole discretion (which Valuation Date shall not be earlier than the day such notice is effective). The Valuation Date notice will become effective immediately upon its delivery from Meteora to the Company in accordance with the Forward Purchase Agreement.
On the Cash Settlement Payment Date, which is the tenth Local Business Day immediately following the last day of the Valuation Period, Meteora will remit to the Company an amount equal to the Settlement Amount and will not otherwise be required to return to the Company any of the unpaid Prepayment Amount and the Company shall remit to Meteora the Settlement Amount Adjustment; provided, that if the Settlement Amount less the Settlement Amount Adjustment is a negative number and either clause (x) of Settlement Amount Adjustment applies or the Company has elected pursuant to clause (y) of Settlement Amount Adjustment to pay the Settlement Amount Adjustment in cash, then neither Meteora nor the Company shall be liable to the other party for any payment under the Cash Settlement Payment Date section of the Forward Purchase Agreement.
The Forward Purchase Agreement has been structured, and all activity in connection with such agreement has been undertaken, to comply with the requirements of all tender offer regulations applicable to the Business Combination, including Rule 14e-5 under the Securities Exchange Act of 1934.
Copies of the form of Forward Purchase Agreement and each amendment thereto are filed as exhibits to this report, and the foregoing description of the Forward Purchase Agreement, as amended, is qualified in its entirety by reference to the Forward Purchase Agreement and its amendments and they are incorporated herein by reference.
FPA Funding Amount PIPE Subscription Agreement
On August 6, 2023, Oxbridge entered into a FPA Funding Amount PIPE Subscription Agreement with Meteora providing for the terms and conditions under which Meteora would purchase the Additional Shares covered by the Forward Purchase Agreement, directly from the Company in a private placement, pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act.
Pursuant to the FPA Funding Amount PIPE Subscription Agreement, Meteora agreed to subscribe for and purchase, and Oxbridge agreed to issue and sell to Meteora, on the Closing Date, an aggregate of up to 1,186,952 Oxbridge Shares, less the Recycled Shares in connection with the Forward Purchase Agreement. On August 10, 2023, Meteora was issued 247,756 shares of Jet.AI Common Stock pursuant to the FPA Funding Amount PIPE Subscription Agreement. Pursuant to the Forward Purchase Agreement Confirmation Amendment, the number of shares of Jet.AI Common Stock issued to Meteora was increased to 548,127 pursuant to the FPA Funding Amount PIPE Subscription Agreement.
A copy of the FPA Funding Amount PIPE Subscription Agreement is filed as an exhibit to this report, and the foregoing description of the FPA Funding Amount PIPE Subscription Agreement is qualified in its entirety by reference thereto and is incorporated herein by reference.
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Bridge Agreement
On September 11, 2023, the Company entered into a binding term sheet (“Bridge Agreement”) with eight investors to provide the Company $500,000 of short-term bridge financing pending its receipt of funds from its other existing financing arrangements. During the month of September, the Company engaged in discussions with numerous third parties to secure short-term bridge funding but was not offered terms it found acceptable. Rather, certain related parties of the Company and other parties agreed to provide the Company with this financing on substantially better material terms than it had received from unaffiliated third parties.
The Bridge Agreement was entered into with, and funding was provided by, Michael Winston, the Executive Chairman of the Board and Interim Chief Executive Officer, Wrendon Timothy, a member of the Board and all three Committees of the Board, William Yankus, a member of the Board and two of its Committees, and Oxbridge RE Holdings Limited, a significant stockholder of the Company for which Mr. Timothy serves as a director and officer, as well as the four other investors named in the Bridge Agreement.
Given Mr. Winston’s dual role as a participant in the negotiations with third parties and his participation in the bridge financing itself, for avoidance of doubt, he has agreed to waive any right to receive accrued interest on the principal amount of his Note, as well as any redemption premium or any increase in the principal amount of his Note in connection with an event of default (the “Waiver”). The Company’s Audit Committee pursuant to its Certificate of Incorporation, and the full Board, including a majority of disinterested directors, unanimously approved the Agreement, in each case finding that the Agreement was in the best interests of the Company and its stockholders.
The Bridge Agreement provides for the issuance of Notes, pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act, in an aggregate principal amount of $625,000, reflecting a 20% original issue discount. The Notes bear interest at 5% per annum and mature on March 11, 2024. The Company is required to redeem the Notes with 100% of the proceeds of any equity or debt financing at a redemption premium of 110% of the principal amount of the Notes. The Company anticipates redeeming the Notes in full with proceeds expected to be received over the next several months from existing financing arrangements.
An event of default under the Notes includes failing to redeem the Notes as provided above and other typical bankruptcy events of the Company. In an event of default, the outstanding principal amount of the Notes will increase by 120%, and each investor may convert its Note into shares of Common Stock of the Company at the conversion price set forth in the Bridge Agreement, with registration rights associated with those shares.
A copy of the Bridge Agreement and the Waiver are filed as exhibits to this report and the foregoing descriptions thereof are qualified in their entirety by reference thereto and are incorporated herein by reference.
Other Equity Issuances and Settlement Arrangements
Maxim Payment and Settlement Agreement
On August 10, 2023, the Company entered into a settlement agreement (“Maxim Settlement Agreement”) with Maxim Group LLC, the underwriter for the Company’s initial public offering (“Maxim”). Pursuant to the Maxim Settlement Agreement, the Company issued to Maxim Partners in a private placement pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act, (a) 270,000 shares of Common Stock to Maxim Partners LLC (“Maxim Partners”) to settle the payment obligations of the Company under the underwriting agreement dated on or about August 11, 2021, by and between the Company and Maxim and (b) 1,127 shares of Series A Convertible Preferred Stock to Maxim Partners in an amount equal in value to $1,127,000 (the “Series A Preferred Shares”). The shares Series A Convertible Preferred Stock accrue interest at the rate of 8% per annum (which increases to 18% if the Company fails to meet certain obligations under the terms thereof), payable quarterly and, at the Company’s option, in shares of Common Stock. The Series A Preferred Shares are convertible into 112,700 shares of Common Stock. The Company also issued 115,000 shares of Common Stock to Maxim Partners LLC (“Maxim Partners”) on August 16, 2021, in a private placement exempt from registration under Section 4(a)(2) of the Securities Act, to meet a payment obligation under the underwriting agreement in connection with Oxbridge’s IPO, representing a value of $9.00 per share reflecting an allocation of the $10.00 per Unit IPO price. The above issued and issuable shares of Common Stock shares are subject to a registration rights agreement.
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The Company may, subject to certain conditions, redeem the outstanding Series A Preferred Shares in cash at the $1,000 original issue price, subject to adjustment, plus accrued and unpaid dividends. The Company is required to redeem all the outstanding Series A Preferred Shares on August 10, 2024, which will be automatically extended by an additional three (3) month period if the Company has not as of such date closed upon one or more equity financings that, in total, result in gross proceeds to the Company of $10.0 million or greater. If the Company raises equity capital, 15% of the net proceeds must be used to redeem the Series A Preferred Shares.
The foregoing description of the Series A Convertible Preferred Stock, the Maxim Settlement Agreement and registration rights agreement is qualified in its entirety by the full text of such agreements, copies of which are filed as exhibits to this report and incorporated herein by reference. The terms of the Series A Convertible Preferred Stock are set forth in the Designation of the Series A Convertible Preferred Stock filed as an exhibit to this report and incorporated herein by reference.
Sponsor Settlement Agreement
On August 10, 2023, the Company entered into a settlement agreement (“Sponsor Settlement Agreement”) with OAC Sponsor Ltd. (“Sponsor”). Pursuant to the Sponsor Settlement Agreement, the Company issued, in a private placement exempt from registration under Section 4(a)(2) of the Securities Act, 575 shares of the Company’s Series A-1 Convertible Preferred Stock (the “Series A-1 Preferred Shares”) to settle the payment obligations of the Company under a promissory note in the principal amount of $575,000 dated November 14, 2022 in favor of Sponsor. The Series A-1 Preferred Shares accrue interest at the rate of 5% per annum (which increases to 18% if the Company fails to meet certain obligations under the terms thereof), payable quarterly in cash. The Series A-1 Preferred Shares are convertible into 112,700 shares of Common Stock. The shares of Common Stock issuable upon conversion of the Series A-1 Preferred Shares are subject to a registration rights agreement between the Company and Sponsor.
The Company may, subject to certain conditions, redeem the outstanding Series A-1 Preferred Shares in cash at the $1,000 original issue price, subject to adjustment, plus accrued and unpaid dividends. The Company is required to redeem all the outstanding Series A-1 Preferred Shares on August 10, 2024, automatically extended by an additional three (3) month period if the Company has not as of such date closed upon one or more equity financings that, in total, result in gross proceeds to the Company of $10.0 million or greater. If the Company raises equity capital, 15% of the net proceeds must be used to redeem the Series A-1 Preferred Shares.
The foregoing description of the Sponsor Settlement Agreement and registration rights agreement is qualified in its entirety by the full text of such agreements, copies of which are filed as exhibits to this report and incorporated herein by reference. The terms of the Series A-1 Convertible Preferred Stock are set forth in the Designation of the Series A-1 Convertible Preferred Stock filed as an exhibit to this report and incorporated herein by reference.
Warrants
As of September 30, 2023, in addition to the GEM Warrant discussed above, we had 11,489,334 Jet.AI public warrants (“Jet.AI Warrants”) outstanding, 7,196,375 public merger consideration warrants (the “Merger Warrants”) outstanding and 5,760,000 outstanding private placement warrants (“Private Placement Warrants” and together with the GEM Warrant, Jet.AI Warrants and Merger Warrants, the “Warrants”). The Jet.AI Warrants are exercisable, for cash, for an equal number of shares of our Common Stock at an exercise price of $11.50 per share. The Merger Warrants are exercisable, for cash, for an equal number of shares of our Common Stock at an exercise price of $15.00 per share. The Private Placement Warrants are exercisable, either for cash or on a cashless exercise basis, for an equal number of shares of our Common Stock at an exercise price of $11.50 per share. . The GEM Warrant is exercisable, either for cash or on a cashless exercise basis, for an equal number of shares of Common Stock at an exercise price of $8.60 per share.
We believe the likelihood that any warrant holders will exercise their warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our Common Stock. If the trading price for our Common Stock is less than $11.50 per share, in the case of the Private Placement Warrants and the Jet.AI Warrants, $15.00 in the case of the Merger Warrants or $8.60 per share in the case of the GEM Warrant, we believe holders of the Warrants will be unlikely to exercise them. On November 17, 2023, the last reported sales price of our Common Stock was $1.49 per share.
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Additional sales and resales of our Common Stock may hinder our ability to raise capital
We have filed a registration statement on Form S-1, to register up to 43.8 million shares of our Common Stock, including up to approximately 19.5 million shares issuable upon exercise of the GEM Warrant, Jet.AI Warrants and Private Placement Warrants, up to 20.0 million shares issuable to GEM pursuant to the Share Purchase Agreement and shares of Common Stock issued or issuable to Maxim Partners, the Sponsor and Meteora that are subject to registration rights. In addition, the shares of Common Stock issuable upon exercise of the Merger Warrants were registered for resale on the Registration Statement on Form S-4 filed in connection with the Business Combination. The sale of shares of our Common Stock in the public market or otherwise, including sales pursuant to an effective S-1 registration statement, or the perception that such sales could occur, could harm the prevailing market price of shares of our Common Stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. Resales of our Common Stock may cause the market price of our securities to drop significantly, even if our business is doing well.
Our ability to raise additional capital through the sale of equity or convertible debt securities could be significantly impacted by the resale of shares of Common Stock pursuant to the S-1 registration statement and pursuant to the exercise of the Merger Warrants which could result in a significant decline in the trading price of our Common Stock and potentially hinder our ability to raise capital at terms that are acceptable to us or at all. In addition, debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce our operations. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in “Part II. Item 1A. Risk Factors” below.
Cash Flows for the Nine Months Ended September 30, 2023 and 2022
As of September 30, 2023, the Company’s cash and equivalents were approximately $904,000, including approximately $500,000 of restricted cash under its aircraft leasing arrangements described below.
The following table summarizes our cash flows for the nine months ended September 30, 2023 and 2022:
| For the nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash (used in) provided by operating activities | $ | (2,744,630 | ) | $ | 419,210 | |||
| Net cash (used in) provided by investing activities | (169,530 | ) | 310,582 | |||||
| Net cash provided by financing activities | 2,290,678 | 786,292 | ||||||
| Increase (decrease) in cash and cash equivalents | $ | (623,482 | ) | $ | 1,519,084 | |||
Cash Flow from Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2023 was $2.7 million compared to $419,000 for the nine months ended September 30, 2022. The cash outflow from operating activities in 2023 primarily consisted of our net loss, net of non-cash charges of $5.9 million and a $0.4 million reduction in lease liability, which were offset by a $1.8 million increase in operating liabilities. The increase in operating liabilities was primarily driven by a $1.3 million increase in the Company’s accounts payable and accrued liabilities relating to the operation of the Company’s aircraft and a $0.4 million increase in deferred jet card revenue relating to the sale of jet card hours not yet flown. The increase in net cash used in operating activities for 2023 was primarily driven by a $3.4 million increase in our net loss, net of non-cash charges resulting from the Company’s higher level of operations during 2023 as a result of operating a greater number of operational aircraft and startup expenses incurred during 2023 partially offset by the $1.4 million changes in operating assets and liabilities.
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Cash Flow from Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2023 was $185,000, primarily relating to the Company’s investment in 380 Software LLC, a 50/50 joint venture subsidiary with Great Western Air LLC dba Cirrus Aviation Services.
Cash Flow from Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2023 was $2.0 million. Cash provided by financing activities was primarily driven by net offering proceeds from the Company’s Regulation A offering of Non-Voting Common Stock occurring prior to the consummation of the Business Combination. From June 2021 to January 2023, the Company conducted an offering under Regulation A and issued 8,767,126 shares, or approximately 271,000 shares of Common Stock and 432,000 Merger Consideration Warrants following the Business Combination, and representing approximately $6.6 million in gross proceeds . The Company’s Regulation A offering of Non-Voting Common Stock ended in January 2023. In addition, the Company raised $500,000 under its Bridge Agreement.
Aircraft Financing Arrangements
In November 2021 and April 2022, Jet Token entered into two separate five-year leasing arrangements for the acquisition of two of its HondaJet Elite aircraft. At any time during their term, the Company has the option to purchase either aircraft from the lessor at the aircraft’s fair market value at that time. The leasing arrangements also require the Company to hold a combined liquidity reserve of $500,000 in a separate bank account pledged as security to the lessor, which the Company records as restricted cash on its balance sheet, as well as a maintenance reserve of approximately $690,000 for one leased aircraft, which is held by the lessor in the event the lessor determines that the relevant aircraft is not being maintained in accordance with the lease requirements or to prevent deterioration of the aircraft. Events of default under the leasing arrangements include, among other things, failure to make the monthly payments (with a 10-day cure period), default on other indebtedness, breaches of covenants related to insurance and maintenance requirements, change of control or merger, insolvency and a material adverse change in our business, operations or financial condition. Please see Note 5 to the Company’s unaudited financial statements for the nine months ended September 30, 2023 for a further description of these leasing arrangements.
In June 2022, the Company received an unsolicited offer for the outright purchase of one of its HondaJet Elite aircraft, which netted the Company approximately $1.2 million of proceeds over the leased cost. After internal financial and legal review, the Company determined that the sale of the aircraft would offer a net benefit to its stakeholders. The Company considered a number of factors in making this decision, including but not limited to: (1) the availability of replacement aircraft, (2) pilot availability, (3) the time to register the aircraft for commercial use, and (4) the risk-adjusted lifetime return on capital associated with operating the aircraft relative to the purchase price offered.
Critical Accounting Estimates
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of expenses during the reporting period. Making estimates requires management to exercise significant judgement. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
The material estimate that is particularly susceptible to significant change in the near-term relate to the fair value of the derivative warrant liabilities. Although considerable variability is likely to be inherent in this estimate, management believes that the amounts provided are reasonable. This estimate is continually reviewed and adjusted if necessary. Such adjustment is reflected in current operations.
Going Concern and Management Plans
The Company has limited operating history and has incurred losses from operations since Inception. These matters raise concern about the Company’s ability to continue as a going concern.
The Company began ramping up its revenue-generating activities during the second half of the year ended December 31, 2021 and continuing into 2022 and 2023. During the next twelve months, the Company intends to fund its operations with capital from its operations, and drawdowns under its GEM share purchase agreement. The Company also has the ability to reduce cash burn to preserve capital. There are no assurances, however, that management will be able to raise capital on terms acceptable to the Company. If the Company is unable to obtain sufficient amounts of additional capital, the Company may be required to reduce the near-term scope of its planned development and operations, which could delay implementation of the Company’s business plan and harm its business, financial condition and operating results. The consolidated balance sheets do not include any adjustments that might result from these uncertainties.
Trend Information
The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state, federal and foreign governmental policy decisions. A host of factors beyond Jet.AI’s control could cause fluctuations in these conditions. Adverse conditions may include but are not limited to: changes in the airline industry, AI regulations by authorities, fuel and operating costs, changes to corporate governance best practices for executive flying, general demand for private jet travel, regulations on carbon emissions from aviation, market acceptance of our business model and any re-emergence of COVID-19 or similar issues more fully described below. These adverse conditions could affect the Company’s financial condition and the results of operations.
Actions taken around the world since January 2020, when the World Health Organization declared the COVID-19 coronavirus outbreak a “Public Health Emergency of International Concern” to help mitigate the spread of the COVID-19 coronavirus, included restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it had an adverse impact on the economies and financial markets of many countries, and that included the geographical area in which the Company operates. While it is unknown whether these conditions will recur or what the complete financial effect to the Company would be, it is known that the travel industry in which the Company operates was severely impacted by the pandemic.
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While Covid-19 negatively impacted aviation as a whole, the Company’s light business jet sector was less affected as people who previously had not used business jets utilized light jets like the Company’s HondaJet Elites to avoid infection and people who previously had used larger, more expensive, business jets downsized to smaller jets for economic reasons. According to the Federal Aviation Administration’s Business Jet Reports (https://aspm.faa.gov/apmd/sys/bj-intro.asp), private jet domestic hours flown, a key measure for our sub-segment of air travel, grew 0.3% in 2019, (21)% in 2020, 46% in 2021 and 3.5% in 2022. During the pandemic, private jet domestic hours flown bottomed out in the month of April 2020, down 74% as compared to April of 2019. Domestic private jet hours flown then rebounded 106% month over month in May, though May numbers were still down 47% compared with results in (pre-pandemic) May of 2019. By April and May of 2021, private jet domestic hours flown were up 307% and 110% year over year, respectively, versus the bottom in 2020 and up 6% and 11% versus pre-pandemic April and May of 2019. When compared to the pre-pandemic year of 2019, private jet domestic hours flown in 2022 were 19% higher overall. In addition, when compared to the pre-pandemic ten-month period ending in October of 2019, private jet domestic hours flown in the same ten month period in 2023 were 13.4% higher overall, the apparent cause of the growth has been the tendency of travelers to persist flying privately even after the pandemic.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 229.10(f)(1).
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Interim Chief Executive Officer and Interim Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Interim Chief Executive Officer and Interim Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2023. Based on that evaluation, our Interim Chief Executive Officer and our Interim Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the periods covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended on September 30, 2023 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
As of the date of this Quarterly Report, there have been no material changes from the risk factors previously disclosed in our (i) Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 22, 2023 (available here: https://www.sec.gov/ix?doc=/Archives/edgar/data/1861622/000149315223005793/form10-k.htm), (ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 filed with the SEC on May 11, 2023 (available here: https://www.sec.gov/ix?doc=/Archives/edgar/data/1861622/000149315223016694/form10-q.htm), (iii) Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 filed with the SEC on August 21, 2023 (available here: https://www.sec.gov/ix?doc=/Archives/edgar/data/1861622/000149315223029620/form10-q.htm), (iv) Amendment No.6 to Registration Statement on Form S-4 that was filed with the SEC on July 26, 2023 (available here: https://www.sec.gov/ix?doc=/Archives/edgar/data/1861622/000149315223025611/forms-4a.htm) and (v) Amendment No.1 to Registration Statement on Form S-1 that was filed with the SEC on October 27, 2023 (available here: https://www.sec.gov/ix?doc=/Archives/edgar/data/1861622/000149315223038446/forms-1a.htm). Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Unregistered Sales of Equity Securities
On September 22, 2023, pursuant the exemption from registration provided under Rule 701 of the Securities Act, the Company issued options to employees, exercisable for an aggregate of 390,000 shares of the Company’s Common Stock at a per share exercise price of $2.50 per share. These options had originally been offered to these employees by Jet Token Inc. prior to the consummation of the Business Combination.
All other unregistered sales of equity securities are disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” and incorporated herein by reference.
Use of Proceeds
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None
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ITEM 6. EXHIBITS.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.
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| † | Management contracts. |
| * | As permitted by Regulation S-K, Item 601(b)(10)(iv) of the Securities Exchange Act of 1934, as amended, certain confidential portions of this exhibit have been redacted from the publicly filed document. The Company agrees to furnish supplementally an unredacted copy of the exhibit to the Securities and Exchange Commission upon its request. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| JET.AI INC. | ||
| By: | /s/ George Murnane | |
| Name: | George Murnane | |
| Title: | Interim Chief Financial Officer | |
| (Principal Financial Officer and Accounting Officer) | ||
| Date: November 20, 2023 | ||
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Exhibit 4.3
NEITHER THE SECURITIES REPRESENTED HEREBY NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) IN COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT, IF AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, (C) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, AND THE HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO THE COMPANY AN OPINION OF COUNSEL OR OTHER EVIDENCE OF EXEMPTION, IN EITHER CASE REASONABLY SATISFACTORY TO THE COMPANY. HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
JET.AI INC.
Public Listing Date/Date of Issuance: August 10, 2023
| Expires: August 10, 20261 | No. of Shares: 2,179,447 |
FOR VALUE RECEIVED, the undersigned, JET.AI INC., a corporation incorporated under the laws of the State of Delaware whose registered office is at 10845 Griffith Peak Drive, Suite 200, Las Vegas, NV 89135 (together with its successors and assigns, the “Issuer” and the “Company”), hereby certifies that GEM Yield Bahamas Limited (“GEM”) or its assigns is entitled to subscribe for and purchase, during the Term (as hereinafter defined), in accordance with the terms of this Warrant, up to 2,179,447 shares of common stock, at an exercise price of $8.60 per Share; provided that, on the first anniversary following the Public Listing Date (the “Adjustment Date”), if all or any portion of this Warrant remains unexercised and the average closing price of the Common Shares for the 10 Trading Days following the Adjustment Date is less than 90% of the then current exercise price of this Warrant (the “Baseline Price”), then the exercise price of the unexercised Warrant Shares that remain exercisable pursuant to this Warrant shall be adjusted to 110% of the Baseline Price. Capitalized terms used in this Warrant shall have the respective meanings specified in Section 8 hereof, and capitalized terms used but not defined in this Warrant have the meanings given them in the Purchase Agreement. This Warrant is issued in accordance with, and subject to, the terms and conditions of the Purchase Agreement.
1 3rd anniversary of the Public Listing Date
1. Term. The Holder may exercise this Warrant for a period which shall commence on the Public Listing Date, and shall expire at 6:00 p.m., Eastern Time, on the date that is the third anniversary of the Public Listing Date (such period being the “Term”).
2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant may be exercised in whole or in part during the Term.
(b) Method of Exercise. The Holder hereof may exercise this Warrant, in whole or in part, by the surrender of this Warrant (with the exercise form attached hereto), duly executed at the principal office of the Issuer, and by the payment to the Issuer of an amount of consideration therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number of Warrant Shares with respect to which this Warrant is then being exercised, payable at such Holder’s election (i) by certified or official bank check or by wire transfer to an account designated by the Issuer, (ii) by “cashless exercise” in accordance with the provisions Section 2(c) below, or (iii) by a combination of the foregoing methods of payment selected by the Holder of this Warrant.
(c) Cashless Exercise.
(i) Notwithstanding any provisions herein to the contrary, if the Per Share Market Value of one Common Share is greater than the Warrant Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant by a cashless exercise and shall receive the number of Common Shares equal to an amount (as determined below) by surrender of this Warrant at the principal office of the Issuer together with the properly endorsed notice of exercise, in which event the Issuer shall issue to the Holder a number of Common Shares computed using the following formula:
X = Y - (A)(Y)
B
| Where | X = | the number of Common Shares to be issued to the Holder. |
| Y = | the number of Common Shares purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised. | |
| A = | the Warrant Price. | |
| B = | the Per Share Market Value of one Common Share. |
For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for such shares shall be deemed to have commenced, on the date this Warrant was originally issued.
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(d) Issuance of Shares. In the event of any exercise of this Warrant in accordance with and subject to the terms and conditions hereof, certificates for the Warrant Shares so purchased shall be dated the date of such exercise and delivered to the Holder hereof within a reasonable time, not exceeding five Trading Days after such exercise (the “Delivery Date”), unless the Common Shares are then uncertificated, in which case the Warrant Shares shall be registered in book-entry form in the name of the Holder, or, at the request of the Holder (provided that a registration statement under the Securities Act providing for the resale of the Warrant Shares is then in effect or that the Warrant Shares are otherwise exempt from registration), issued and delivered to the Depository Trust Company (“DTC”) account on the Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) within a reasonable time, not exceeding three (3) Trading Days after such exercise, and the Holder hereof shall be deemed for all purposes to be the holder of the Warrant Shares so purchased as of the date of such exercise. Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall be obligated to issue and deliver the shares to the DTC on a holder’s behalf via DWAC only if such exercise is in connection with a sale or other exemption from registration by which the shares may be issued without a restrictive legend and the Issuer and its transfer agent are participating in DTC through the DWAC system. The Holder shall deliver this original Warrant, or an indemnification reasonably acceptable to the Issuer undertaking with respect to such Warrant in the case of its loss, theft or destruction, at such time that this Warrant is fully exercised. This Warrant shall be exercisable, either in its entirety or, from time to time, for part only of the number of Warrant Shares referenced by this Warrant. If this Warrant is submitted in connection with any partial exercise and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the actual number of Warrant Shares being acquired upon such exercise, then the Company shall, as soon as practicable, and in no event later than five Business Days after any exercise, and at its own expense, issue a new Warrant of like tenor representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. With respect to partial exercises of this Warrant, the Issuer shall keep written records for the Holder of the number of Warrant Shares exercised as of each date of exercise.
(e) Compensation for Buy-In on Failure to Timely Deliver Shares upon Exercise. In addition to any other rights available to the Holder, if the Issuer fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares or register such Warrant Shares in book-entry form in the name of the holder, as applicable, pursuant to an exercise on or before the Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) Common Shares to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Issuer shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the Common Shares so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Issuer was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of Common Shares that would have been issued had the Issuer timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Shares having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of Common Shares with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Issuer shall be required to pay the Holder $1,000. The Holder shall provide the Issuer written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Issuer. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Issuer’s failure to timely deliver certificates representing Common Shares or register such Warrant Shares in book-entry form in the name of the holder, as applicable, upon exercise of this Warrant as required pursuant to the terms hereof.
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(f) Transferability of Warrant. This Warrant may be transferred by a Holder, in whole or in part, without the prior written consent of the Issuer (other than specified in clause (h)(ii) below), (i) at any time, to an Affiliate of the Holder, or (ii) at any time following the Public Listing Date, to any Person. If transferred pursuant to this paragraph, this Warrant may be transferred on the books of the Issuer by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant at the principal office of the Issuer, properly endorsed (by the Holder executing an assignment in the form attached hereto) and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. This Warrant is exchangeable at the principal office of the Issuer for Warrants to purchase the same aggregate number of Warrant Shares, each new Warrant to represent the right to purchase such number of Warrant Shares as the Holder hereof shall designate at the time of such exchange. All Warrants issued on transfers or exchanges shall be dated the date hereof and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
(g) Continuing Rights of Holder. The Issuer will, at the time of, or at any time after, each exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing the extent, if any, of its continuing obligation to afford to such Holder all rights to which such Holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided that if any such Holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Issuer to afford such rights to such Holder.
(h) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the Warrant Shares to be issued upon exercise hereof are being acquired solely for the Holder’s own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any Warrant Shares to be issued upon exercise hereof except pursuant to an effective registration statement, or an exemption from registration, under the Securities Act and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant and all certificates representing Warrant Shares issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form:
NEITHER THE SECURITIES REPRESENTED HEREBY NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) IN COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT, IF AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, (C) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, AND THE HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO THE COMPANY AN OPINION OF COUNSEL OR OTHER EVIDENCE OF EXEMPTION, IN EITHER CASE REASONABLY SATISFACTORY TO THE COMPANY.
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(iii) The Issuer agrees to reissue this Warrant or certificates representing any of the Warrant Shares, without the legend set forth above if at such time, prior to making any transfer of any such securities, the Holder shall give written notice to the Issuer describing the manner and terms of such transfer. Such proposed transfer will not be effected until: (a) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that the registration or qualification of such securities under the Securities Act is not required in connection with such proposed transfer, (ii) a registration statement under the Securities Act or state securities laws covering such proposed disposition has been filed by the Issuer with the Securities and Exchange Commission and has become effective under the Securities Act and the securities have been qualified under state securities laws, (iii) the Issuer has received other evidence reasonably satisfactory to the Issuer that such registration and qualification under the Securities Act and state securities laws are not required, or (iv) the Holder provides the Issuer with reasonable assurances that such security can be sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that registration or qualification under the securities or “blue sky” laws of any state is not required in connection with such proposed disposition, or (ii) compliance with applicable state securities or “blue sky” laws has been effected or a valid exemption exists with respect thereto. The Issuer will respond to any such notice from a holder within five Trading Days. In the case of any proposed transfer under this Section 2(h), the Issuer will use reasonable efforts to comply with any such applicable state securities or “blue sky” laws, but shall in no event be required, (x) to qualify to do business in any state where it is not then qualified, (y) to take any action that would subject it to tax or to the general service of process in any state where it is not then subject, or(z) to comply with state securities or “blue sky” laws of any state for which registration by coordination is unavailable to the Issuer. The restrictions on transfer contained in this Section 2(h) shall be in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other Section of this Warrant. Whenever a certificate representing the Warrant Shares is required to be issued to the Holder without a legend, in lieu of delivering physical certificates representing the Warrant Shares, the Issuer shall cause its transfer agent to electronically transmit the Warrant Shares to the Holder by crediting the account of the Holder or Holder’s prime broker with DTC through its DWAC system (to the extent not inconsistent with any provisions of this Warrant or the Purchase Agreement).
(i) Accredited Investor Status. In no event may the Holder exercise this Warrant in whole or in part unless the Holder is an “accredited investor” as defined in Regulation D under the Securities Act.
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3. Shares Fully Paid; Reservation and Listing of Shares; Covenants.
(a) Shares Fully Paid; Reservation. The Issuer represents, warrants, covenants and agrees that all Warrant Shares which may be issued upon the exercise of this Warrant or otherwise hereunder will, when issued in accordance with the terms of this Warrant, be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges created by or through the Issuer. The Issuer further covenants and agrees that during the period within which this Warrant may be exercised, the Issuer will at all times have authorized and reserved for the purpose of the issuance upon exercise of this Warrant a number of authorized but unissued Common Shares equal to at least one hundred fifty (150%) of the number of Common Shares issuable upon exercise of this Warrant without regard to any limitations on exercise.
(b) Registration; Listing. If any Common Shares required to be reserved for issuance upon exercise of this Warrant or as otherwise provided hereunder require registration or qualification with any Governmental Authority under any federal or state law before such shares may be so issued, the Issuer will in good faith use its best efforts as expeditiously as possible at its expense to cause such shares to be duly registered or qualified. If the Issuer shall list any Common Shares on any securities exchange or market it will, at its expense, list thereon, and maintain and increase when necessary such listing, of, all Warrant Shares from time to time issued upon exercise of this Warrant or as otherwise provided hereunder (provided that such Warrant Shares have been registered pursuant to a registration statement under the Securities Act then in effect), and, to the extent permissible under the applicable securities exchange rules, all unissued Warrant Shares which are at any time issuable hereunder, so long as any Common Shares shall be so listed. The Issuer will also so list on each securities exchange or market, and will maintain such listing of, any other securities which the Holder of this Warrant shall be entitled to receive upon the exercise of this Warrant if at the time any securities of the same class shall be listed on such securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without limitation, amending the Certificate of Incorporation or the by-laws of the Issuer, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder hereof. Without limiting the generality of the foregoing, the Issuer will (i) not permit the par value, if any, of its Common Shares to exceed the then effective Warrant Price, (ii) not amend or modify any provision of the Certificate of Incorporation or by-laws of the Issuer in any manner that would adversely affect the rights of the Holder disproportionate to any other holder of Common Shares, (iii) take all such action as may be reasonably necessary in order that the Issuer may validly and legally issue fully paid and nonassessable Common Shares, free and clear of any liens, claims, encumbrances and restrictions (other than as provided herein) upon the exercise of this Warrant, and (iv) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be reasonably necessary to enable the Issuer to perform its obligations under this Warrant.
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(d) Loss, Theft, Destruction of Warrant. Upon receipt of evidence satisfactory to the Issuer of the ownership of and the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the number of Common Shares remaining available upon exercise of the Warrant which has been lost, stolen, destroyed or mutilated.
(e) Payment of Taxes. The Issuer will pay all transfer and issuance taxes attributable to the preparation, issuance and delivery of this Warrant (and any replacement Warrants) including, without limitation, all documentary and stamp taxes attributable to the initial issuance of the Warrant Shares issuable upon exercise of this Warrant; provided, however, that the Issuer shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates representing Warrant Shares or registration of such Warrant Shares in book-entry form, as applicable, in a name other than that of the Holder in respect to which such shares are issued.
4. Adjustment of Warrant Price. The price at which such Warrant Shares may be purchased upon exercise of this Warrant and/or the number of Warrant Shares issuable shall be subject to adjustment from time to time as set forth in this Section 4. The Issuer shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 in accordance with the notice provisions set forth in Section 5.
(a) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale. In the event that the Holder has elected not to exercise this Warrant prior to the consummation of a Change of Control, so long as the Surviving Corporation pursuant to any Change of Control is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common shares are listed or quoted on a U.S. national securities exchange, the Surviving Corporation and/or each Person (other than the Issuer) which may be required to deliver any Securities, cash or property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer under this Warrant, including, without limitation, those under the Registration Rights Agreement (as defined below) (and if the Issuer shall survive the consummation of such Change of Control, such assumption shall be in addition to, and shall not release the Issuer from, any continuing obligations of the Issuer under this Warrant), and (B) the obligation to deliver to such Holder such Securities, cash or property as, in accordance with the foregoing provisions of this Section 4(a), such Holder shall be entitled to receive, and the Surviving Corporation and/or each such Person shall have similarly delivered to such Holder an opinion of counsel for the Surviving Corporation and/or each such Person, which counsel shall be reasonably satisfactory to such Holder, or in the alternative, a written acknowledgement executed by the President or Chief Financial Officer of the Issuer, stating that this Warrant shall thereafter continue in full force and effect and the terms hereof(including, without limitation, all of the provisions of this Section 4(a)) shall be applicable to the Securities, cash or property which the Surviving Corporation and/or each such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto. If following such a Change of Control, the Surviving Corporation does not have a registered class of equity securities and common shares listed on a U.S. national securities exchange as described in the first sentence of this Section 4(a), then the Holder shall be entitled to receive compensation in accordance with the terms of Section 4.13 of the Purchase Agreement.
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(b) Share Dividends, Subdivisions and Combinations. If at any time the Issuer shall:
(i) make or issue or set a record date for the holders of the Common Shares for the purpose of entitling them to receive a dividend payable in, or other distribution of, Common Shares,
(ii) subdivide its outstanding Common Shares into a larger number of Common Shares, or
(iii) combine its outstanding Common Shares into a smaller number of Common Shares, then (1) the number of Common Shares for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of Common Shares which a record holder of the same number of Common Shares for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of Common Shares for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of Common Shares for which this Warrant is exercisable immediately after such adjustment.
(c) Certain Other Distributions. If at any time the Issuer shall make or issue or set a record date for the holders of the Common Shares for the purpose of entitling them to receive any dividend or other distribution of:
(i) cash,
(ii) any evidences of its indebtedness, any shares of stock of any class or any other securities or property of any nature whatsoever (other than cash, Common Share Equivalents or Additional Common Shares), or
(iii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property of any nature whatsoever (other than cash, Common Share Equivalents or Additional Common Shares), then (1) the number of Common Shares for which this Warrant is exercisable shall be adjusted to equal the product of the number of Common Shares for which this Warrant is exercisable immediately prior to such adjustment multiplied by a fraction (A) the numerator of which shall be the Per Share Market Value of Common Shares at the date of taking such record and (B) the denominator of which shall be such Per Share Market Value minus the amount allocable to one share of Common Shares of any such cash so distributable and of the fair value (as determined in good faith by the Board of Directors of the Issuer and supported by an opinion from an investment banking firm mutually agreed upon by the Issuer and the Holder) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of Common Shares for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of Common Shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Shares (other than a change in par value, or from par value to no par value or from no par value to par value) into Common Shares and shares of any other class of stock shall be deemed a distribution by the Issuer to the holders of its Common Shares of such shares of such other class of stock within the meaning of this Section 4(c) and, if the outstanding Common Shares shall be changed into a larger or smaller number of Common Shares as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding Common Shares within the meaning of Section 4(b).
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(d) Issuance of Additional Common Shares. In the event the Issuer shall at any time following the Public Listing Date issue any Additional Common Shares (otherwise than as provided in the foregoing subsections (b) through (c) of this Section 4), at a price per share less than the Warrant Price then in effect or without consideration, then the Warrant Price upon each such issuance shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
| WP2 | = | WP1 | x | (A | + | B) | ÷ | (A | + | C). |
For purposes of the foregoing formula, the following definitions shall apply:
(A) “WP2” shall mean the Warrant Price in effect immediately after such issue of Additional Common Shares
(B) “WP1” shall mean the Warrant Price in effect immediately prior to such issue of Additional Common Shares;
(C) “A” shall mean the number of shares of Common Shares outstanding immediately prior to such issue of Additional Common Shares (treating for this purpose as outstanding all Common Shares issuable upon exercise or conversion of all Common Share Equivalents outstanding immediately prior to such issue;
(D) “B” shall mean the number of shares of Common Stock that would have been issued if such Additional Common Shares had been issued at a price per share equal to WP1 (determined by dividing the aggregate consideration received by the Company in respect of such issue by WP1); and
(E) “C” shall mean the number of such Additional Common Shares issued in such transaction.
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(e) Issuance of Common Share Equivalents. In the event the Issuer shall at any time following the Public Listing Date take a record of the holders of its Common Shares for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Issuer is the surviving corporation) issue or sell, any Common Share Equivalents, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Shares are issuable upon such conversion or exchange shall be less than the Warrant Price in effect immediately prior to the time of such issue or sale, or if, after any such issuance of Common Share Equivalents, the price per share for which Additional Common Shares may be issuable thereafter is amended or adjusted, and such price as so amended shall be less than the Warrant Price in effect at the time of such amendment or adjustment, then the Warrant Price then in effect shall be adjusted as provided in Section 4(d). No further adjustments of the number of Common Shares for which this Warrant is exercisable and the Warrant Price then in effect shall be made upon the actual issue of such Common Shares upon conversion or exchange of such Common Share Equivalents.
(f) Other Provisions applicable to Adjustments under this Section. The following provisions shall be applicable to the making of adjustments of the number of Common Shares for which this Warrant is exercisable and the Warrant Price then in effect provided for in this Section 4:
(i) Computation of Consideration. To the extent that any Additional Common Shares or any Common Share Equivalents (or any warrants or other rights therefor) shall be issued for cash consideration, the consideration received by the Issuer therefor shall be the amount of the cash received by the Issuer therefor, or, if such Additional Common Shares or Common Share Equivalents are offered by the Issuer for subscription, the subscription price, or, if such Additional Common Shares or Common Share Equivalents are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Issuer for and in the underwriting of, or otherwise in connection with, the issuance thereof). In connection with any merger or consolidation in which the Issuer is the Surviving Corporation (other than any consolidation or merger in which the previously outstanding Common Shares of the Issuer shall be changed to or exchanged for the stock, ordinary or common shares, or other securities of another corporation), the amount of consideration therefor shall be deemed to be the fair value, as determined reasonably and in good faith by the Board, of such portion of the assets and business of the non-surviving corporation as the Board may determine to be attributable to such Common Shares or Common Share Equivalents, as the case may be. The consideration for any Additional Common Shares issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Issuer for issuing such warrants or other rights plus the additional consideration payable to the Issuer upon exercise of such warrants or other rights. The consideration for any Additional Common Shares issuable pursuant to the terms of any Common Share Equivalents shall be the consideration received by the Issuer for issuing warrants or other rights to subscribe for or purchase such Common Share Equivalents, plus the consideration paid or payable to the Issuer in respect of the subscription for or purchase of such Common Share Equivalents, plus the additional consideration, if any, payable to the Issuer upon the exercise of the right of conversion or exchange in such Common Share Equivalents. In the event of any consolidation or merger of the Issuer in which the Issuer is not the Surviving Corporation or in which the previously outstanding Common Shares of the Issuer shall be changed into or exchanged for the stock, ordinary or common shares, or other securities of another corporation, or in the event of any sale of all or substantially all of the assets of the Issuer for stock, ordinary or common shares, or other securities of any corporation, the Issuer shall be deemed to have issued a number of Common Shares for stock, ordinary or common shares, or securities or other property of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated, and for a consideration equal to the fair market value on the date of such transaction of all such stock, ordinary or common shares, or securities or other property of the other corporation. In the event any consideration received by the Issuer for any securities consists of property other than cash, the fair market value thereof at the time of issuance or as otherwise applicable shall be as determined in good faith by the Board. In the event Common Shares are issued with other shares or securities or other assets of the Issuer for consideration which covers both, the consideration computed as provided in this Section 4(f)(i) shall be allocated among such securities and assets as determined in good faith by the Board.
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(ii) When Adjustments to Be Made. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of Common Shares for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of Common Shares, as provided for in Section 4(b)) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than one percent of the Common Shares for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.
(iii) Fractional Interests. In computing adjustments under this Section 4, fractional interests in Common Shares shall be taken into account to the nearest one hundredth (1/100th) of a share.
(iv) When Adjustment Not Required. If the Issuer shall take a record of the holders of its Common Shares for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to shareholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled.
(g) Form of Warrant after Adjustments. The form of this Warrant need not be changed because of any adjustments in the Warrant Price or the number and kind of Securities purchasable upon the exercise of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share Number shall be adjusted pursuant to Section 4 hereof (for purposes of this Section 5, each an “adjustment”), the Issuer shall cause its Chief Financial Officer to prepare and execute a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board made any determination hereunder), and the Warrant Price and Warrant Share Number after giving effect to such adjustment, and shall cause copies of such certificate to be delivered to the Holder of this Warrant promptly after each adjustment. Any dispute between the Issuer and the Holder of this Warrant with respect to the matters set forth in such certificate may at the option of the Holder of this Warrant be submitted to a national or regional accounting firm reasonably acceptable to the Issuer and the Holder, provided that the Issuer shall have ten (10) days after receipt of notice from such Holder of its selection of such firm to object thereto, in which case such Holder shall select another such firm and the Issuer shall have no such right of objection. The firm selected by the Holder of this Warrant as provided in the preceding sentence shall be instructed to deliver a written opinion as to such matters to the Issuer and such Holder within thirty (30) days after submission to it of such dispute. Such opinion shall be final and binding on the parties hereto. The costs and expenses of the initial accounting firm shall be paid equally by the Issuer and the Holder and, in the case of an objection by the Issuer, the costs and expenses of the subsequent accounting firm shall be paid in full by the Issuer.
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6. Fractional Shares. No fractional Warrant Shares will be issued in connection with any exercise hereof, but in lieu of such fractional shares, the Issuer shall round the number of shares to be issued upon exercise up to the nearest whole number of shares.
7. Ownership Cap and Exercise Restriction. Notwithstanding anything to the contrary set forth in this Warrant, at no time may a Holder of this Warrant exercise this Warrant if the number of Common Shares to be issued pursuant to such exercise would exceed, when aggregated with all Other Common Shares owned by such Holder and its Affiliates at such time, the number of Common Shares which would result in such Holder and its Affiliates beneficially owning (as determined in accordance with Section 12(d) of the Exchange Act and the rules thereunder) in excess of 9.99% of the then issued and outstanding Common Shares; provided, however, that upon a Holder of this Warrant providing the Issuer with sixty-one (61) days’ notice (pursuant to Section 12 hereof) (the “Waiver Notice”) that such Holder would like to waive this Section 7 with regard to any or all Common Shares issuable upon exercise of this Warrant, this Section 7 will be of no force or effect with regard to all or a portion of the Warrant referenced in the Waiver Notice until the date that the Holder notifies the Issuer (pursuant to Section 12 hereof) that the Holder revokes the Waiver Notice; provided, further, that during the sixty-one (61) day period prior to the expiration of the Term, the Holder may waive this Section 7 by providing a Waiver Notice at any time during such sixty-one (61) day period.
8. Definitions. For the purposes of this Warrant, the following terms have the following meanings:
“Additional Common Shares” means all Common Shares issued by the Issuer after the Public Listing Date, and all Other Common Shares, if any, issued by the Issuer after the Public Listing Date, except: (i) securities issued (other than for cash) in connection with a merger, acquisition, or consolidation, (ii) securities issued pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date of the Purchase Agreement or issued pursuant to the Purchase Agreement (so long as the conversion or exercise price in such securities are not amended to lower such price and/or adversely affect the Holder unless the issuance of shares pursuant to the Purchase Agreement results in a lower adjusted price), (iii) the Warrant Shares, (iv) securities issued in connection with bona fide strategic license agreements, consulting agreements, or other partnering or technology development arrangements so long as such issuances are not for the purpose of raising capital, (v) Common Shares issued or the issuance or grants of options or restricted stock units to purchase Common Shares pursuant to the Issuer’s option plans and employee equity purchase plans outstanding as they exist on the date of the Purchase Agreement, (vi) Common Shares issued or the issuance or grants of options to purchase Common Shares pursuant to the Issuer’s option plans and employee equity purchase plans approved by the Board, and (v) any warrants or similar rights issued to the finders, placement agents or their respective designees for the transactions contemplated by the Purchase Agreement or in subsequent offerings or placements. The exclusions set forth in this definition shall also apply to the issuance or sale of Common Share Equivalents.
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“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. For purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise.
“Board” shall mean the Board of Directors of the Issuer.
“Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the City of New York, New York, are authorized or required by law or executive order to close.
“Certificate of Incorporation” means the Certificate of Incorporation of the Issuer as in effect on the date hereof, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law.
“Change of Control” shall mean (i) the acquisition by any Person of direct or indirect beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the combined voting power of the then-issued and outstanding equity of the Company; (ii) the occurrence of a merger, consolidation, reorganization, share exchange or similar corporate transaction, whether or not the Company is the Surviving Corporation, other than a transaction which would result in the voting equity outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the Surviving Corporation) at least 50% of the voting shares of the Company or such Surviving Corporation immediately after such transaction; or (iii) the sale, transfer or disposition of all or substantially all of the business and assets of the Company to any Person.
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“Common Share Equivalent” means any Convertible Security or warrant, option or other right to subscribe for or purchase any Additional Common Shares or any Convertible Security.
“Convertible Securities” means evidences of indebtedness, shares of Equity Capital or other Securities which are or may be at any time convertible into or exchangeable for Additional Common Shares. The term “Convertible Security” means one of the Convertible Securities.
“Equity Capital” means and includes (i) any and all ordinary shares, stock or other common or ordinary equity shares, interests, participations or other equivalents of or interests therein (however designated), including, without limitation, shares of preferred or preference shares,
(ii) all partnership interests (whether general or limited) in any Person which is a partnership,
(iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type.
“Governmental Authority” means any governmental, regulatory or self-regulatory entity, department, body, official, authority, commission, board, agency or instrumentality, whether federal, state or local, and whether domestic or foreign.
“Holders” mean the Persons who shall from time to time own this Warrant or any one or more Warrants issued in replacement hereof in accordance with the terms hereof. The term “Holder” means one of the Holders.
“Independent Appraiser” means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Issuer) that is regularly engaged in the business of appraising the Equity Capital or assets of corporations or other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant.
“Other Common Shares” means any other Equity Capital of the Issuer of any class which shall be authorized at any time after the date of this Warrant (other than Common Shares) and which shall have the right to participate in the distribution of earnings and assets of the Issuer without limitation as to amount.
“Per Share Market Value” means on any particular date (a) the last closing bid price per Common Share on such date on a registered national stock exchange on which the Common Shares are then listed, or if there is no such price on such date, then the closing price on such exchange or quotation system on the date nearest preceding such date, or (b) if the Common Shares are not listed or traded then on any registered national stock exchange, the last closing bid price for a Common Share in the over-the-counter market, as reported by the U.S. national securities exchange on which the Common Shares are traded at the close of business on such date, or (c) if the Common Shares are not then publicly traded the fair market value of a Common Share as determined by an Independent Appraiser selected in good faith by the Holder; provided, however, that the Issuer, after receipt of the determination by such Independent Appraiser, shall have the right to select an additional Independent Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Independent Appraiser; and provided, further that all determinations of the Per Share Market Value shall be appropriately adjusted for any dividends, splits or other similar transactions during such period. The determination of fair market value by an Independent Appraiser shall be based upon the fair market value of the Issuer determined on a going concern basis as between a willing buyer and a willing seller and taking into account all relevant factors determinative of value, and shall be final and binding on all parties. In determining the fair market value of any Common Shares, no consideration shall be given to any restrictions on transfer of the Common Shares imposed by agreement or by federal or state securities laws, or to the existence or absence of, or any limitations on, voting rights.
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“Person” means an individual, corporation, limited liability company, partnership, joint stock company, trust, unincorporated organization, joint venture, Governmental Authority or other entity of whatever nature.
“Principal Market” means any U.S. securities exchange on which the Common Shares are traded or any other exchange platform in the world on which the Common Shares are traded, including, but not limited to, the London Stock Exchange, the Berlin Stock Exchange, the Frankfurt Stock Exchange, the Shanghai Stock Exchange, the SIX Swiss Exchange or the Stock Exchange of Hong Kong.
“Purchase Agreement” means the Share Purchase Agreement, dated August 4, 2022, by and among the Issuer, GEM Yield Bahamas Limited and GEM Global Yield LLC SCS.
“Securities” means any debt or equity securities of the Issuer, whether now or hereafter authorized, any instrument convertible into or exchangeable for Securities or a Security, and any option, warrant or other right to purchase or acquire any Security. “Security” means one of the Securities.
“Securities Act” means the Securities Act of 1933, as amended, or any similar federal statute then in effect.
“Subsidiary” means any corporation at least 50% of whose outstanding Voting Shares shall at the time be owned directly or indirectly by the Issuer or by one or more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.
“Surviving Corporation” means (a) the corporation surviving or resulting from any merger, consolidation, reorganization, share exchange or similar corporate transaction involving the Company; (b) the direct or indirect parent company of such surviving corporation; or (c) an entity that acquires all or substantially all of the business and assets of the Company.
“Term” has the meaning specified in Section 1 hereof.
“Trading Day” means a day on which the Common Shares are traded on a the Principal Market; provided, however, that in the event that the Common Shares are not listed or quoted as set forth in the foregoing clause, then Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.
“Voting Shares” means, as applied to the Equity Capital of any corporation, Equity Capital of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors (or other governing body) of such corporation, other than Equity Capital having such power only by reason of the happening of a contingency.
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“Warrant Price” means the exercise price set forth in the first paragraph of this Warrant, as such price may be adjusted from time to time as shall result from the adjustments specified in this Warrant, including Section 4 hereto.
“Warrant Share Number” means at any time the aggregate number of Warrant Shares which may at such time be purchased upon exercise of this Warrant, after giving effect to all prior adjustments and increases to such number made or required to be made under the terms hereof.
“Warrant Shares” means Common Shares issuable upon exercise of this Warrant.
9. Other Notices. In case at any time:
| (a) | the Issuer shall make any distributions to the holders of Common Shares; or |
| (b) | the Issuer shall authorize the granting to all holders of its Common Shares of rights to subscribe for or purchase any shares of Equity Capital of any class or other rights; or |
| (c) | there shall be any reclassification of the Equity Capital of the Issuer; or |
| (d) | there shall be any capital reorganization by the Issuer; or |
| (e) | there shall be any (i) consolidation or merger involving the Issuer or (ii) sale, transfer or other disposition of all or substantially all of the Issuer’s property, assets or business (except a merger or other reorganization in which the Issuer shall be the surviving corporation and its shares of Equity Capital shall continue to be outstanding and unchanged and except a consolidation, merger, sale, transfer or other disposition involving a wholly- owned Subsidiary); or |
| (f) | there shall be a voluntary or involuntary dissolution, liquidation or winding- up of the Issuer or any partial liquidation of the Issuer or distribution to holders of Common Shares; |
then, in each such case, the Issuer shall, to the extent permitted by law, give written notice to the Holder of the date on which (i) the books of the Issuer shall close or a record shall be taken for such dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall take place. Such notice also shall specify the date as of which the holders of Common Shares of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Shares for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be. To the extent permitted by law, such notice shall be given at least twenty (20) days prior to the action in question and not less than five (5) days prior to the record date or the date on which the Issuer’s transfer books are closed in respect thereto. This Warrant entitles the Holder to receive copies of all financial and other information distributed or required to be distributed to the holders of the Common Shares.
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10. Amendment and Waiver. Any term, covenant, agreement or condition in this Warrant may be amended, or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by a written instrument or written instruments executed by the Issuer and the Holder.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Warrant shall not be interpreted or construed with any presumption against the party causing this Warrant to be drafted. The Issuer and the Holder agree that venue for any dispute arising under this Warrant will lie exclusively in the state or federal courts located in New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue. The Issuer and the Holder irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York. The Issuer and the Holder consent to process being served in any such suit, action or proceeding by sending by electronic mail a copy thereof to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 11 shall affect or limit any right to serve process in any other manner permitted by law. THE ISSUER AND THE HOLDER HEREBY AGREE THAT THE PREVAILING PARTY IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT OR THE PURCHASE AGREEMENT, SHALL BE ENTITLED TO REIMBURSEMENT FOR REASONABLE LEGAL FEES FROM THE NON-PREVAILING PARTY. THE PARTIES HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.
12. Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be delivered in writing by electronic mail, return receipt requested, properly addressed to the party to receive the same. The email addresses for such communications shall be:
| If to the Company: | Jet.AI Inc. Attn: Mike Winston Email: mike@jet.ai | ||
| If to GEM: | GEM Yield Bahamas Ltd. Attn: Christopher F. Brown, Manager Email: cbrown@gemny.com | ||
| With a copy (which shall not constitute notice) to: | Gibson, Dunn & Crutcher LLP Attn: Boris Dolgonos Email: bdolgonos@gibsondunn.com |
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Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto.
13. Warrant Agent. The Issuer may, by written notice to each Holder of this Warrant, appoint an agent having an office in New York, New York for the purpose of issuing Warrant Shares on the exercise of this Warrant pursuant to Section 2(b) above, exchanging this Warrant pursuant to Section 2(c) above or replacing this Warrant pursuant to Section 3(d) above, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.
14. Remedies. The Issuer stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Issuer in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.
15. Successors and Assigns. This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Issuer (including any Successor Company as set forth in the Purchase Agreement), the Holder hereof and (to the extent provided herein) the Holders of Warrant Shares issued pursuant hereto, and shall be enforceable by any such Holder or Holder of Warrant Shares.
16. Modification and Severability. If, in any action before any court or agency legally empowered to enforce any provision contained herein, any provision hereof is found to be unenforceable, then such provision shall be deemed modified to the extent necessary to make it enforceable by such court or agency. If any such provision is not enforceable as set forth in the preceding sentence, the unenforceability of such provision shall not affect the other provisions of this Warrant, but this Warrant shall be construed as if such unenforceable provision had never been contained herein.
17. Headings. The headings of the Sections of this Warrant are for convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
18. Registration Rights. The Holder of this Warrant is entitled to the benefit of certain registration rights with respect to the Warrant Shares issuable upon the exercise of this Warrant pursuant to that certain Registration Rights Agreement, dated August 4, 2022, by and among the Issuer and the Holder (the “Registration Rights Agreement”) and the registration rights with respect to the Warrant Shares issuable upon the exercise of this Warrant by any subsequent Holder may only be assigned in accordance with the terms and provisions of the Registration Rights Agreement.
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IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and year first above written.
| JET.AI INC. | ||
| By: | /s/ Michael Winston | |
| Name: | Michael Winston | |
| Title: | Executive Chairman & Interim CEO | |
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EXERCISE FORM
WARRANT
JET.AI INC.
The undersigned ____________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____Common Shares covered by the within Warrant.
| Dated: | ____________________ | Signature | ____________________________ | |
| Address | ____________________________ | |||
| ____________________________ |
Number of Common Shares beneficially owned or deemed beneficially owned by the Holder on the date of exercise: _______
The undersigned is an “accredited investor” as defined in Regulation D under the Securities Act of 1933, as amended.
The undersigned intends that payment of the Warrant Price shall be made as (check one):
Cash Exercise_______________
Cashless Exercise_____________
If the Holder has elected a cash exercise, the Holder shall pay the sum of $_______ by certified or official bank check (or via wire transfer) to the Issuer in accordance with the terms of the Warrant.
If the Holder has elected a cashless exercise, a certificate shall be issued to the Holder for the number of shares (or such number of shares shall be registered in book-entry form in the name of the Holder, as applicable) equal to the whole number portion of the product of the calculation set forth below, which is____________ . The Company shall pay a cash adjustment in respect of the fractional portion of the product of the calculation set forth below in an amount equal to the product of the fractional portion of such product and the Per Share Market Value on the date of exercise, which product is____________ .
| Where: | X = Y - | (A)(Y) | |
| B |
The number of Common Shares to be issued to the Holder _________ (“X”).
The number of Common Shares purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised ________________ (“Y”).
The Warrant Price ________________ (“A”).
The Per Share Market Value of one Common Share ________________(“B”).
ASSIGNMENT
FOR VALUE RECEIVED, ________________ hereby sells, assigns and transfers unto ________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint ________________, attorney, to transfer the said Warrant on the books of the within named corporation.
| Dated: | ____________________ | Signature | ______________________ | |
| Address | ______________________ | |||
| _______________________ |
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, ______________hereby sells, assigns and transfers unto ____________the right to purchase ____________Warrant Shares evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint _____________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.
| Dated: | _____________________ | Signature | ___________________ | |
| Address | ___________________ | |||
| ___________________ |
FOR USE BY THE ISSUER ONLY:
This Warrant No. W- ___________canceled (or transferred or exchanged) this __________day of____________, _______, Common Shares issued therefor in the name of , Warrant No. W- __________ issued for_______ Common Shares in the name of _____________.
Exhibit 4.4
WARRANT AMENDMENT AGREEMENT
This Warrant Amendment Agreement (the “Agreement”) is made as of October 23, 2023 by and between Jet.AI, Inc., a Delaware corporation (the “Company” or the “Issuer”), and GEM Yield Bahamas Limited (“GYBL”) of that certain Warrant to Purchase Shares of Common Stock, par value $0.0001 per share (the “Common Stock”), of the Company (the “Warrant”), originally issued by the Company on August 10, 2023.
RECITALS
WHEREAS, the Company, GYBL and certain of its affiliates are parties to that certain Share Purchase Agreement, dated as of August 4, 2022, pursuant to which, among other things, the Company issued to GYBL the Warrant, exercisable by the Holder for up to 2,179,447 shares of Common Stock;
WHEREAS, GYBL is as of the date hereof the sole Holder of the Warrant;
WHEREAS, Section 10 of the Warrant provides that any term, covenant, agreement or condition in the Warrant may be amended, or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by a written instrument or written instruments executed by the Issuer and the Holder;
WHEREAS, the Company and GYBL, as Holder, wish to enter into this Agreement to amend certain provisions of the Warrant as and to the extent set forth below and to have such amendment be retroactively effective as of August 10, 2023.
AGREEMENT
NOW, THEREFORE, IT IS RESOLVED, in consideration of mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the undersigned hereby agree as follows:
| 1. | Definitions. Capitalized terms used in herein and not otherwise defined shall have the respective meanings given them in the Warrant. |
| 2. | Amendment of Section 1. The parties hereto agree to amend the Warrant to replace Section 1 in its entirety with the following: |
“1. Term. Subject to any outstanding and unrevoked notice provided pursuant to Section 2(a)(ii), the Holder may exercise this Warrant for a period which shall commence on the Public Listing Date, and shall expire at 6:00 p.m., Eastern Time, on the date that is the third anniversary of the Public Listing Date (such period being the “Term”).”
| 3. | Amendment of Section 2(a). The parties hereto agree to amend the Warrant to replace Section 2(a) in its entirety with the following: |
“(a) Time of Exercise.
| (i) | The purchase rights represented by this Warrant may be exercised in whole or in part during the Term, subject to the provisions of Section 2(a)(ii). |
| (ii) | Any Holder may provide written notice (the “Limit Notice”) to the Company electing to be subject to the provisions contained in this Section 2(a)(ii); provided, that no Holder shall be subject to this Section 2(a)(ii) unless such Holder makes such election and such election has not been revoked. If the election is made by a Holder by providing a Limit Notice to the Company, the Company shall not effect the exercise of the Holder’s Warrant, and such Holder shall not have the right to exercise such Warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the Company’s actual knowledge, would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the Common Shares outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of Common Shares beneficially owned by such person and its affiliates shall include the number of Common Shares issuable upon exercise of the Warrant with respect to which the determination of such sentence is being made, but shall exclude Common Shares that would be issuable upon exercise of the remaining, unexercised portion of the Warrant beneficially owned by such person and its affiliates; and shall otherwise be calculated in accordance with Section 13(d) of the Exchange Act. The Holder of a Warrant may revoke its Limit Notice then in effect by providing written notice (“Revocation Notice”) to the Company of such revocation; provided, however, that any such revocation shall not be effective until the sixty-first (61st) day after such Revocation Notice notice is delivered to the Company.” |
| 4. | Other Provisions. |
| (a) | Pursuant to Section 10 of the Warrant, this Agreement and the amendment of the Warrant is deemed to be effective as of August 10, 2023. |
| (b) | This Agreement evidences a written agreement, executed by both parties, to effect the amendment of the Warrant. All other provisions of the Warrant remain in full force and effect. |
| (c) | This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and shall become effective when counterparts have been signed by each party and delivered to the other Parties hereto, it being understood that all Parties need not sign the same counterpart. |
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their respective authorized officer as of the date first above written.
JET.AI, INC.
| By: | /s/ Michael Winston | |
| Name: | Michael Winston CFA | |
| Title: | Executive Chairman and Interim Chief Executive Officer |
GEM YIELD BAHAMAS LTD.
| By: | /s/ Christopher F. Brown | |
| Name: | Christopher F. Brown | |
| Title: | Director |
Exhibit 10.4
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Winston, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Jet.AI Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 20, 2023 | |
| /s/ Michael Winston | |
| Michael Winston | |
| Executive Chairman and Interim Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, George Murnane, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Jet.AI Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 20, 2023 | |
| /s/ George Murnane | |
| George Murnane Interim Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Jet.AI Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2023, as filed with the Securities and Exchange Commission (the “Report”), I, Michael Winston, Executive Chairman and Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
| Date: November 20, 2023 | |
| /s/ Michael Winston | |
| Michael Winston | |
| Executive Chairman and Interim Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Jet.AI Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2023, as filed with the Securities and Exchange Commission (the “Report”), I, George Murnane, Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
| Date: November 20, 2023 | |
| /s/ Michael Winston | |
| George Murnane | |
| Interim Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |