Jet.AI Inc.: Form 10-Q for the period ended Sep 30, 2023

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,
• 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.

Results of Operations

The following table sets forth our results of operations for the periods indicated:

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.

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.

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:

(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.

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.

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.

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.

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:

(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.

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.

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.

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.

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.

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.

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.

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.

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.

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:

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.

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.

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.

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).

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.

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.