ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Subsidiaries Name Place of incorporation Interest% Principal activity
The following discussion and analysis should be read in conjunction with the Financial Statements included in Item 8 of this report. This Item 7 contains forward-looking statements that involve risks and uncertainties. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date of this report. Actual results may differ materially from those expressed or implied in such forward-looking statements. Factors which could cause actual results to differ materially are discussed throughout this report and include, but are not limited to, those set forth at the end of this Item 7 under the heading "Cautionary Statement Regarding Forward Looking Statements." Additional factors are under the heading “Risk Factors”.
Background
Certain Terms - Glossary
The following represents terms and statistics specific to our business and industry. They are used by management to evaluate and measure operations, results, productivity, and efficiency.
Utilization The average number of Block Hours operated per day per aircraft.
Business Overview
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GlobalX operates a US Part 121 domestic flag and supplemental airline using the Airbus A320 family of aircraft. GlobalX’s business model is to (1) provide services on an ACMI using wet lease contracts to airlines and non-airlines, and (2) on a Charter basis whereby we provide passenger aircraft charter services to customers by charging an “all-in” fee that includes fuel, insurance, landing fees, navigation fees and most other operational fees and costs. GlobalX operates within the United States, Europe, Canada, Central and South America. GlobalX began operating the Airbus A321 freighter (“A321F”) during the first quarter of 2023 after completing all FAA certification requirements with the A321F.
Focused on becoming a market leader with differentiated, value-creating solutions
GlobalX intends to become the best-in-class U.S. narrow-body, ACMI charter airline, operating both passenger and cargo charter aircraft while recruiting and maintaining a dynamic team of customer-centric flight crews, ground and maintenance teams and management staff.
GlobalX operates its A320 family aircraft for airlines, tour operators, college and professional sports teams, incentive groups, resorts and casino groups and government agencies. It is our goal to deliver best in class on time performance and dispatch reliability, expand existing relationships and develop additional relationships with leading charter/tour operators to provide aircraft during their peak seasons; and provide ad-hoc and track charter programs for non-airline customers, including hotels, casinos, cruise ship companies, tour operators.
Business Developments
The twelve months period ended December 31, 2023 for GlobalX was characterized by the achievement of significant regulatory milestones in addition to considerable investment in crew, staff, maintenance, and systems to build out our platform, bolster our infrastructure to prepare GlobalX to continue its rapid expansion through the delivery of additional aircraft in 2024. GlobalX is comprised of three key assets which allows us to generate income – our certifications, our aircraft, and our crew.
From a regulatory perspective GlobalX in the twelve months period ended December 31, 2023 has achieved the following:
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Received our EASA TCO allowing us to operate in Europe
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Received our UK TCO allowing us to operate in the UK
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Received our Cargo Certification from the FAA allowing us to launch Cargo operations
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Successfully passed our DOD Audit – allowing us to register and start operating flights for the Department of Defense
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Successfully passed our IOSA Audit – allowing us to operate for other airlines without an extensive audit process
From an aircraft perspective GlobalX in the twelve months period ended December 31, 2023 has achieved the following:
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Taken delivery of three A321F to launch Cargo operations
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Taken delivery of two A320 passenger aircraft and one A319 passenger aircraft
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Completed five heavy maintenance events and one non-heavy maintenance event
From a crew perspective GlobalX in the twelve months period ended December 31, 2023 has achieved the following:
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Hired and trained the required number of people in dispatch, crew scheduling, operation control center and maintenance to allow for 24 hours, 7 day a week operation on a global basis
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Increased our pilot headcount from 70 to 138
In short, the twelve months period ended December 31, 2023 was a time when GlobalX invested in its people, prepared for its growth, and established a robust infrastructure for its future.
Launch cargo charter flights with A321P2F (Passenger to Freighter)
GlobalX added the A321F (passenger to freighter) aircraft to its operating certificate and into the fleet commencing Q1 2023 and expects cargo to be an integral part of the GlobalX business. GlobalX operates the majority of its A321Fs under ACMI charter operations with major package operators and major freight and logistics companies. Under these types of arrangements, customarily, these operators will take the commercial risk associated with the selling of the cargo and provide all ground handling and cargo-specific operations,
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with GlobalX assuming the operational risk of providing a functional aircraft, trained crew, in a safe and on time manner as the ACMI operator.
Reducing Operational Costs
To control costs and maintain a competitive cost per Block Hour flown, GlobalX:
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Flies only one aircraft family (A320).
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Maintains focus on continuous financial discipline and strict departmental budgeting.
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Has implemented and utilizes highly digital operating methods for both flight and maintenance operations, using best in class aviation software operating systems from leading suppliers including dispatch (Navblue), maintenance (Trax) and training software (Mint). By capitalizing on the latest software, GlobalX can effectively eliminate most manual processes and operate effectively with fewer people than a comparably-sized airline using older software systems.
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Promotes organizational culture of efficiency and high productivity.
Marketing Plan
GlobalX plans to achieve its revenue goals by flying charter operations for a variety of client groups:
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Scheduled airlines that have short-term or long-term capacity needs to supplement their existing routes or fleets.
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Major tour operators, resorts, cruise lines and casinos that require airlift above and beyond scheduled service to meet their occupancy needs.
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Professional and collegiate sports teams
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Charter brokers representing a variety of interests, including the entertainment industry, dignitary travel, political campaigns, and government programs.
GlobalX Aircraft Fleet
Critical to GlobalX’s business model is a fleet of modern and cost-effective aircraft. To achieve this objective, GlobalX has selected what it believes is the best overall single-aisle aircraft family to operate. This approach differs from traditional airlines, which purchase a variety of aircraft, often from different manufacturers, to achieve their operational flight sectors, resulting in increased training, operating and spare part costs. GlobalX conducted research to determine the best aircraft to fly in competition with other narrow-body charter airlines in the single-aisle seat market and GlobalX selected the A320 aircraft family.
The following factors support GlobalX’s choice to operate the Airbus A320 and A321 aircraft versus the Boeing family of aircraft:
Cost and Operating factors: lower fuel burn, and better aircraft and cockpit crew pool availability.
Operational Capability: the A320 has a range advantage over the 737-800 and can fly non-stop from Miami to selected airports in North America, South America, the Caribbean, and between most major destinations in Europe. The A320 has excellent maintenance dispatch reliability and strong availability of spare parts and components, making the A320, in management’s estimation, the most popular aircraft among low-cost airlines.
Passenger comfort: better seat width, cargo bin volume for carry-on baggage and cargo hold volume.
Aircraft Maintenance
Heavy maintenance checks are expected to be outsourced to FAA-approved service providers. The 6Y and 12Y checks will be primarily paid for using funds from the accrued maintenance reserves paid to lessors under operating leases.
Strategy to Address Competitive Response
We expect the existing charter operators based in the U.S. to respond to GlobalX’s entry into the market by lowering their pricing to customers. The expected competitive response typically includes lowered ACMI rates for key contracts. We believe GlobalX’s existing relationships with potential customers and the underserved demand in the U.S., coupled with our newer planes allowing for a more cost-efficient operation, will allow us to address any competitive pressure and grow as anticipated.
GlobalX Charter Service
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GlobalX is a charter provider that currently focuses exclusively on providing customized, non-scheduled passenger air transportservices with narrow-body Airbus A320 and A321 aircraft. We expect our primary line of business and focus to be commercial charter services throughout North and South America and the Caribbean, with established several key customer including the US Government, scheduled airlines, US colleges and indirect air carriers.
We provide our services through two contract structures: (1) ACMI and (2) Charter.
We believe operating charter flights will largely insulate our expected profitability from fluctuations in jet fuel prices, which are typically the largest and most volatile expense for an air carrier. Under the vast majority of our commercial passenger charter arrangements, our customers bear 100% of the cost of jet fuel. In addition, consistent with industry practice, we plan for those customers to pay us our contract price approximately two weeks in advance of their flights.
Because our ACMI customers are responsible for fuel costs, our expected commercial ACMI revenues would not be affected directly by fuel price changes. However, a significant increase in fuel prices would likely have an adverse effect on demand for the use of our aircraft, which could have a material adverse effect on our profitability and financial position.
Experienced management team
Our management team has extensive operating and leadership experience in the airfreight, airline, and aircraft leasing, maintenance, and management industries at companies such as Republic Airways, Eastern Airlines, JetBlue Airways, Virgin America, Hawaiian Airlines, American Airlines, US Airways, Atlas Air, Breeze Airways, Emirates, North American Airlines, Miami Air, Spirit Airlines, Continental Airlines, Pan Am, Atlantic Coast Airlines, and Flair Airlines, as well as the United States Army, and Air Force. In addition, our management team has a diversity of experience from other industries at companies such as KBR, Teladoc, Halliburton, Lehman Brothers, and the Burger King Corporation.
Business Strategy
GlobalX seeks to become the best-in-class U.S. narrow-body, ACMI and full services contract charter airline, operating both passenger and cargo charter aircraft while recruiting and maintaining a dynamic team of customer-centric flight crews, ground teams and management staff.
In launching a US 121 Domestic Flag and Supplemental charter airline in the United States, GlobalX has done the following:
Launch passenger charter flights with A320/A321 all passenger aircraft
GlobalX operates its A320 family aircraft under ACMI/Full Contract charter operations for major airlines, tour operators, college and professional sports teams, incentive groups, major resorts and casino groups.
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Deliver best in class on time performance and dispatch reliability;
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Expand existing relationships and develop additional relationships with leading European charter/ our operators to provide aircraft during their peak seasons; and
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Provide ad-hoc and track charter programs for non-airline customers, including hotels, casinos, cruise ship companies, tour operators.
Results of Operations
The following discussion should be read in conjunction with our Financial Statements and other financial information appearing and referred to elsewhere in this report.
Years ended December 31, 2023 and 2022
Operating Revenue & Statistics
The following discussion should be read in conjunction with our Financial Statements and other financial information appearing and referred to elsewhere in this report.
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The analysis of GlobalX results for the twelve months period ended on December 31, 2023 and 2022 requires an understanding of how the Company fundamentally evolved during that time period. 2022 was our first year of full operations and was a period where the company was focused on securing new customers, entering new markets and flying to new locations; primarily in the domestic and Caribbean markets. As a young company, we were learning how to operate effectively and efficiently.
By contrast in 2023, GlobalX expanded existing relationships, entered the Cargo market, expandedoperations in the European ACMI market and increased focus on operating for existing airlines once we completed our IOSA certification. Our key metric is block hours flown and block hours flown per available aircraft, which is the measure by which we track commercial activity. While other airlines discuss available seat miles and revenue per available seat mile (“rasm”), cost per available seat mile (“casm”), these metrics are not germane to our business model as an ACMI and Charter operator. GlobalX charters the entire aircraft, does not take fuel risk, and does not take third party risk therefore all results are evaluated on a block hour basis.
The following table compares our Operating Fleet (average aircraft equivalents during the period) and total Block Hours operated:
Operating Fleet 2023 2022 Inc/(Dec) Inc/(Dec)
Total Operating Average Aircraft Equivalents 10.6 6.6 4.0 60.6 %
The following table describes the degree to which variations in revenues can be attributed to fluctuations in prices and nature of GlobalX services.
Operating Revenue 2023 2022 Inc/(Dec) % Change
Revenue per Block Hour 2023 2022 Inc/(Dec) % Change
Charter revenue for the period increased $40.8 million or 55.7%, from $73.3 million in 2022 to $114.1 million in 2023. $33.5 million of the increased revenue is attributable to flying more block hours as the number of block hours operated increased 41.6% from 6,253 in 2022 to 8,852 block hours in 2023, driven by the increased number of aircraft available to operate.In addition, the net rate for Charter flying increased 10.0% from $11,726 per block hour to $12,893 per block hour. There are two factors impacting the net Charter rate; first is the rate that we charged customers for the ACMI portion of the contract and second was the cost of fuel. Average fuel cost was lower in 2023 so that reduced the rate by $1,027 per block hour. This was offset by an increase of $2,194 per block hour in the average rate charged to customers. The net effect was an increase of $1,167 per block hour. This increase contributed $7.3 million of the total charter revenue improvement.
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ACMI revenue for the period increased by $27.1 million or 202.6% from $13.4 million in 2022 to $40.5 million in 2023. This variance can largely be explained by a 65% increase in the number of available aircraft which resulted in an increase from 2,328 block hours in 2022 to 9,157 block hours in 2023, an increase of 293.3% or 6,829 block hours. The average revenue per block hour dropped from $5,744 in 2022 to $4,420 in 2023 due to several factors. Generally, when a customer commits to a greater minimum number of block hours in a month, there is a reduction on the revenue per block hour charged. In 2023, not only was GlobalX flying more hours, GlobalX flew more hours per month per aircraft, primarily servicing key customers in Europe. There were also several contracts in 2022 that flew under the minimum guaranteed rate, which increased the revenue per block hour flown that did not occur in 2023.Those two factors combined to reduce the average revenue per block hour by 23.1% or $1,324 per block hour.
Other revenue for the period decreased by $4.9 million from $10.4 million in 2022 to $5.5 million in 2023, due a specific contract in 2022 that GlobalX was not able to operate due to the Company's lack of regulatory approval. This contract had a guaranteed minimum amount of block hours that were paid even though GlobalX was unable to operate the flights. The associated revenue earned under the contract was booked as other revenue with no operational block hours.
Operating Expenses
The following table compares our Operating Expenses (in dollars):
Operating Expenses 2023 2022 Inc/(Dec) % Change
Salaries, wages, and benefits increased to $54.1 million up from $30.6 million, a $23.4 million, or 76.5% increase, primarily due to the hiring and training of pilots and other airline personnel necessitated by the growing fleet and operations. The total employees grew 59.0% from 393 to 625 and pilots increased from 70 to 138, or 97.1%.
Aircraft fuel is directly correlated to the number of Charter block hours which increased 2,599 or 41.6%, the average spot price of jet fuel which decreased by 20.2% from $3.37 per gallon in 2022 to $2.69 per gallon in 2023 and the type of aircraft being flown with A321’s burning more fuel than an A320. The consequence of all three factors was that fuel increased 28.0% from $23.0 million to $29.5 million.
Maintenance, materials, and repairs increased by $4.2 million, from $4.4 million to $8.6 million, or 96.5%, primarily due to the increase in both the number of aircraft to 14 and the number of block hours flown which increased 108.5%. These volume drivers were partially offset by rate improvement from $505 per block hour to $476 per block hour, a 5.6% decrease. This decrease in rate per block hour was achieved through increased efficiencies and the benefits of a larger scaled operation.
Depreciation and amortization increased $1.7 million, or 276.2%, from $0.6 million to $2.3 million, driven by assets acquired to support our airport operations. These assets include, but are not limited to, fuel trucks, tractors, computers, software, and rotable inventory.
Contracted ground and aviation services increased by $4.9 million, or 31.4%, from $15.6 million to $20.5 million, These costs are directly correlated to the number of Charter hours operated in a specific period. Year-over-year Charter block hours increased 41.6%. This was offset by a reduction in station specific cost such as navigation expense, aircraft security expense, and ground handling due to favorable pricing and station mix.
Travel increased $3.3 million or 65.9%, from $5.0 million to $ 8.3 million, primarily due to the increase in Block Hours and a significant increase in the number of pilots in training who require hotel accommodations during the trips.
Insurance increased $1.4 million, or 39.9%, from $3.6 million to $5.0 million, primarily related to the increase in the number of aircraft.
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Aircraft rent increased $18.0 million, or 115.4%, from $15.6 million to $33.6 million, primarily due to the increase in the number of aircraft from eight to fourteen aircraft in the fleet.
Operating loss increased by $4.7 million, from an operating loss of $11.2 million to $15.9 million, however operating loss as a percentage improved from (11.5%) to (9.8%), a 15% improvement. This was a direct result of GlobalX’s ability to grow its revenue faster than its cost structure as the airline works towards achieving scale and profitability. Specifically, the Salaries, wages, and benefits rate improved by 15.4% dropping from $3,534 to $2,991 per block hour as planners and schedulers are able to achieve optimization. Maintenance, material, and repairs saw a 5.8% improvement as the rate dropped $505 per block hour to $476 per block hour. Travel rates improved 20.5% from $580 per block hour to $461 per block hour. Insurance improved from $413 per block hour to $277 per block hour or 33%. These improvements are a function achieving economies of scale through organic growth as the company is better able to negotiate favorable terms and deliver optimal operational performance.
Non-operating Expenses (Income)
The following table compares our Non-operating Expenses (Income) :
Non-Operating Expenses (Income) 2023 2022 Inc/(Dec) % Change
Unrealized Loss (Gain) on Financial Instruments $ - $ (96,415 ) $ 96,415 N/A
Other non-operating expenses decreased by $3.0 million due to the write-off of deferred costs in 2022 incurred in connection with GEM line of credit, as discussed in note 9 of the consolidated financial statements.
Interest expense, net increased $3.3 million driven mainly by the interest payable on the debentures issued in 2023.
Net Loss
Net Loss increased by $5.2 million to a net loss of $21.0 million from $15.8 million in 2022 however net loss as a percentage improved from (16.25%) to (12.9%), a 20% improvement. This was a direct result of GlobalX’s ability to grow its revenue faster than its cost structure as the airline works towards achieving scale and profitability. This is despite financing cost increasing 220% from $1.6 million to $5.2 million. It is important to consider that as GlobalX increases aircraft count and block hours flown the company is able to achieve operational efficiencies, evident in the expense rates per total block hours. The Salaries, wages, and benefits rate improved by 15.4% dropping from $3,534 to $2,991 per block hour as planners and schedulers are able to achieve optimization. Maintenance, material, and repairs saw a 5.8% improvement as the rate dropped $505 per block hour to $476 per block hour. Travel rates improved 20.5% from $580 per block hour to $461 per block hour. Insurance improved from $413 per block hour to $277 per block hour or 33%. These improvements are a function achieving economies of scale through organic growth as the company is better able to negotiate favorable terms and deliver optimal operational performance.
Liquidity and Capital Resources
The most significant liquidity events during 2023 were as follows:
Operating Activities. For 2023, Net Cash used in operating activities decreased from $3.6 million to $1.3 million consisting primarily of $19.5 million increase in accrued liabilities and other liabilities and accounts payables, $7.7 million of increase in accounts receivable, $7.9 million of increase in operating leases obligations and $11.4 million increase noncash adjustments for depreciation and amortization of fixed assets, operating lease right of use assets and debt issue costs, $2.5 million increase of share-based payments. These were partially offset by $5.0 million of increase in net loss. For 2022, net cash used in operating activities decreased from $10.8 million to $3.6 million, consisting primarily of $15.8 million of net loss, $1.9 million of increase in accounts receivable, $1.3 million of increase in Prepaid Expenses and other current assets, and $3.5 million of increase in operating lease obligations. These were partially offset by noncash adjustments of $0.6 million for depreciation and amortization of fixed assets, operating lease right of use assets and debt issue costs, $1.4 million for share-based payments, $9.3 million of accounts payable and accrued and other liabilities, and $0.2 million of bad debt expense.
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As of December 31, 2023, the Company had approximately $11.6 million in unrestricted cash and cash equivalents and approximately $6.1 million in restricted cash, an increase of approximately $9.7 million and $2.5 million from December 31, 2022, respectively primarily due to the Secured Notes entered on August 2, 2023 and increase in operations. Management is confident that the augmented cash and cash equivalents, coupled with the anticipated rise in sales linked to the Company’s strategies to attract more funds, will adequately address the Company’s liquidity requirements for the next twelve months. Management is actively assessing various options to procure additional funds, including exploring opportunities for additional equity or debt financing.
The Company has significant fixed and noncancelable lease commitments of aircraft, equipment and related maintenance checks. As of December 31, 2023, the Company had total of $14.2 million due in the next 12 months of future minimum lease payments under finance and operating leases. As of December 31, 2023, the Company had total of $65.8 million due after 12 months from the balance sheet date of future minimum lease payments under finance and operating leases, respectively, and approximately $29 million in notes payable included in the non-current liabilities presented in the Company’s consolidated balance sheet. The Company finished 2023 with eleven passenger aircraft and three cargo aircraft and expects the fleet to increase to 15 passenger aircraft and five cargo aircraft by the end of 2024. To achieve the number of aircraft deliveries in 2024, the Company currently has sevenaircrafts under lease with partial or total deposits paid and four aircraft under binding agreements that are subject to execution of definitive lease documentation and fulfillment of certain closing conditions.
Investing Activities. For 2023, net cash used for investing activities increased from $5.2 million to $13.2 million, consisting of an increase of $9.1 million of deposit, deferred costs and other assets and $4.0 million of purchases of property and equipment. For 2022, net cash used for investing activities increased from $652.7 thousand to $1.9 million, consisting of $1.9 million of purchases of property and equipment.
Financing Activities. For 2023, net cash provided by financing activities increased from $6.2 million to $26.7 million, consisting primarily of net proceeds of approximately $24.9 million from note payable, and $1.9 million from proceeds from issuance of shares. For 2022, net cash provided by financing activities decreased from $18.9 million to $6.2 million, consisting primarily of $5.9 million of note payable, and $0.8 million in proceeds from issuance of shares, partially offset by $0.5 million in principal payments of finance leases.
The Company continuously seeks to identify external sources of capital from time to time depending on our cash requirements, assessment of current and anticipated market conditions, and the after-tax cost of capital. Our access to capital markets can be adversely impacted by prevailing economic conditions and by financial, business and other factors, some of which are beyond our control. Additionally, the Company’s borrowing costs are affected by market conditions and may be adversely impacted by a tightening in credit markets.
The Company regularly assesses our anticipated working capital needs, debt and leverage levels, debt maturities, capital expenditure requirements and future investments or acquisitions to maximize shareholder return, efficiently finance our ongoing operations and maintain flexibility for future strategic transactions. The Company also regularly evaluates its liquidity and capital structure to ensure financial risks, adequate liquidity access and lower cost of capital are efficiently managed.
Off-Balance Sheet Arrangements
As of December 31, 2023, the Company had no off-balance sheet arrangements.
Critical Accounting Estimates
The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if:
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requires assumptions to be made that were uncertain at the time the estimate was made, and
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changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition
We base our estimates and judgments on our experience, our current knowledge, our beliefs of what could occur in the future, our observation of trends in the industry, information provided by our customers and information available from other resources. Actual results may differ from the estimates under different assumptions or conditions. We have identified the following policies and estimates as those that we believe are most critical to our financial condition and results of operations and that require management's most subjective and complex judgments in estimating the effect of inherent uncertainties: allowance for credit losses, fair value measurements
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for stock-based compensation and deferred tax valuation allowance. See footnote 2 of the Company's consolidated financial statements for significant accounting policies.
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The update requires the use of an “expected loss” model on certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. For trade receivables, loans and held-to-maturity debt securities, entities will be required to estimate lifetime expected credit losses. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. ASU 2016-13 was initially effective for non- public companies for fiscal years and interim periods beginning after December 15, 2021, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which delayed the effective date for certain entities, such as the Company, to apply ASU 2016-13 until fiscal years and interim periods beginning after December 15, 2022. The adoption of this pronouncement had no material impact on our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Global Crossing Airlines Group Inc. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB No. 89) 28
Consolidated Balance Sheets as of December 31, 2023 and 2022 30
Notes to Consolidated Financial Statements 34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Global Crossing Airlines Group Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Global Crossing Airlines Group, Inc. (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has limited operating history, has recurring net losses and negative cash flows from operations since inception, and has a working capital deficit as of December 31, 2023, these factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Rosenberg Rich Baker Berman P.A.
Somerset, New Jersey
March 7, 2024
We have served as the Company’s auditor since 2020.
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GLOBAL CROSSING AIRLINES GROUP INC.
CONSOLIDATED BALANCE SHEETS
Current Assets
Current liabilities
Current portion of notes payable - 1,810,468
Other liabilities
Commitments and Contingencies (Note 7)
Equity (Deficit)
Noncontrolling interest 224,680 -
See accompanying notes to consolidated financial statements.
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GLOBAL CROSSING AIRLINES GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Operating Expenses
Non-Operating Expenses
Foreign Exchange (gain) or loss - (96,415 )
Other non-operating expenses - 3,058,938
Income tax expense 2,450 -
Net Income attributable to Noncontrolling Interest 224,680 -
Loss per share:
-
See accompanying notes to consolidated financial statements.
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GLOBAL CROSSING AIRLINES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Twelve Months Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on sale of property 135,772 —
Foreign exchange loss (gain) — (96,415 )
Gain on disposal of flight equipment (455,700 ) —
Amortization of operating lease right of use assets 8,172,685 4,797,056
Changes in assets and liabilities:
CASH FLOWS FROM INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable (9,901,626 ) —
Non-cash transactions
Discount on proceeds from note payable due to professional fees $ 35,900 $ -
Acquisition of Intangible Asset $ 428,400 $ -
Airframe Parts acquired through financing $ - $ 1,065,180
Cash paid for
See accompanying notes to consolidated financial statements.
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GLOBAL CROSSING AIRLINES GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Global Stockholders' Equity (Deficit)
See accompanying notes to consolidated financial statements.
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GLOBAL CROSSING AIRLINES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED December 31, 2023 and 2022
1. NATURE OF OPERATIONS AND GOING CONCERN
Global Crossing Airlines Inc. (the “Company” or “GlobalX”) was incorporated under the laws of British Columbia and continued as a Federal corporation pursuant to the Canada Business Corporations Act effective February 28, 2017. During the year ended December 31, 2020, the Company completed a business acquisition pursuant to which it acquired all of the issued and outstanding shares of Global Crossing Airlines, Inc. (“Global USA”), a Delaware corporation. For financial reporting purposes, the Company is considered a continuation of Global USA, the legal subsidiary, except with regard to authorized and issued common stock which is that of the Company, the legal parent. On December 22, 2020, the Company changed its jurisdiction of incorporation from the province of British Columbia, Canada to the State of Delaware. The U.S. Domestication was required for the Company to complete its charter licensing process and will also reflect the Company’s U.S.-business and operations. The Company’s principal business activity is providing passenger aircraft to customers through aircraft operating service agreements including, crew, maintenance, insurance (“ACMI”) and charter services “Charter” serving the US, Caribbean and Latin American markets. The Company’s shares trade on the NEO Exchange (the “Exchange” or “NEO”) under the symbol “JET” and the OTCQB under the symbol “JETMF.”
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. As of December 31, 2023 and 2022, the Company had a working capital deficits of $22,435,074 and $16,141,322, respectively, and retained deficits of $59,093,845 and $38,083,304, respectively. The Company began flight operations in August 2021. Without ongoing income generation or additional financing, the Company will be unable to fund general and administrative expenses and working capital requirements for the next 12 months. These material uncertainties raise substantial doubt as to the Company’s ability to continue as a going concern. The Company is evaluating financing its future requirements through a combination of debt, equity and/or other facilities. There is no assurance that the Company will be able to obtain such financing or obtain them on favorable terms. The consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary were the going concern assumption deemed to be inappropriate. These adjustments could be material.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the accounts of the Company, and the following subsidiaries. All intercompany transactions and balances have been eliminated on consolidation. Certain reclassification and format changes have been made to prior year amounts to conform to the 2023 presentation.
Subsidiaries Name Place of incorporation Interest% Principal activity
Investment in Top Flight:
On September 18, 2023, the Company acquired 80% of Charter Air Solutions, LLC ("Top Flight"). Top Flight was established on February 8, 2023 and had no significant transactions from the date of formation to the acquisition date. The balance sheet and operating activity of Top Flight are included in the Company's consolidated financial statements and we adjust the net income in our consolidated statement of operations to exclude the noncontrolling interests' proportionate share of results. We present the proportionate share of
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equity attributable to noncontrolling interests as equity within our consolidated balance sheet. As of December 31, 2023, Top Flight figures did not materially impact the consolidated financial statements of the Company.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains cash balances at several financial institutions; at times, such balances may be in excess of insurance limits. The Company has not experienced any losses on these balances.
Restricted Cash
As of December 31, 2023 and 2022, restricted cash of $6,079,531 and $3,585,261, respectively, were being held by a financial institution as security for future flights. As of December 31, 2023, the Company also had $360,000 deposits held for an Airport Security Bond which is required by U.S. Customs and Border Protection and U.S. Department of Transportation.
Accounts Receivable
Accounts Receivable are recorded at the amount due from customers and do not bear interest. The Company determines its allowances for credit losses by considering a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. During the years ended December 31, 2023 and 2022, the Company recorded $5,915 and $219,759, respectively, of provision for allowance for credit losses. In addition, as of December 31, 2023 and 2022, the Company presented $94,755 and $104,406, respectively, as allowance for credit losses net in Accounts Receivable on the Consolidated Balance Sheets.
Assets held for sale
Assets held for sale consist of the purchased airframe parts from used Airbus 320 bearing manufacturer's serial number 2090 as completed on sales agreement entered on March 2, 2022. Assets held for sale are valued at the lower of the carrying amount or the net realizable value estimated at December 31, 2023. They were recorded at average cost and are expensed when sold, used or consumed. An allowance for obsolescence on aircraft airframe parts is recorded when impaired to reduce the carrying costs to lower of cost or net realizable value. The Company monitors resale values for its assets held for sale on a recurrent basis using various qualitative and quantitative matters including analysis of current sales, estimates obtained from outside vendors, physical counts, internal discussions, among others. As of December 31, 2023, the Company did not identify items that were obsolete and recorded a $0 allowance for obsolete items on the Consolidated Balance Sheet.
Intangible Assets
The Company entered in an agreement on September 21, 2023 to invest $453,600 in the purchase 54,000 carbon offsets from Karbon-X to be paid monthly over 36 months from October 1, 2023 to September 1, 2026. Carbon offsetting involves compensating for carbon emissions by investing in projects that reduce or remove an equivalent amount of greenhouse gases from the atmosphere. This initiative aligns with the Company's goal to balance its carbon footprint and contribute to environmental sustainability through supporting various projects such as renewable energy initiatives and afforestation programs.
As of December 31, 2023, the Company recorded $453,600 of intangible asset cost and accumulated amortization of $37,800, which is reflected in the “Deposits and Other Assets” of the Company’s consolidated balance sheet. The expected annual amortization for the carbon offsets intangibles is $151,200 for 2024 and 2025 and $113,400 in 2026.
The carbon offsets intangibles was initially measured at cost and will be carried at cost less any accumulated amortization. In the events or changes suggesting unrecoverable carrying values, the Company will assess Carbon-Offsets carrying amount value using the impairment model in accordance with ASC 360. The impairment test involves a comparison of the carrying amount of the asset to its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. If the carrying amount of the asset exceeds its recoverable amount, the asset is considered impaired, and an impairment loss needs to be recognized. In
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addition, Carbon offsets will be derecognized upon sale, transfer, or retirement. In the instance where carbon offsets are utilized to offset the company's emissions, they will be retired accordingly.
Lessor Maintenance Deposits
GlobalX’s aircraft lease agreements provide that GlobalX pay maintenance reserves monthly to aircraft lessors to be held as collateral in advance of major maintenance activities required to be performed by Global. Maintenance reserve payments are either fixed, or variable based on actual flight hours or cycles. These lease agreements provide that maintenance reserves are reimbursable to GlobalX upon completion of the maintenance event in an amount equal to the lesser of (1) the amount of the maintenance reserve held by the lessor associated with the specific maintenance event or (2) the qualifying costs related to the specific maintenance event.
Maintenance reserve payments that are expected to be recoverable via reimbursable expenses will be reflected as Lessor Maintenance Deposits on the accompanying Consolidated Balance Sheets. As of December 31, 2023 and 2022, Lessor Maintenance Deposits totaled $908,358 and $889,919, respectively, and are included in Prepaid expenses and other current assets and Deferred Costs and other assets in the Consolidated Balance Sheets.
Heavy Maintenance
The Company accounts for heavy maintenance costs for airframes and engines using the deferral method. Under this method, expense recognition of scheduled heavy maintenance events is deferred and amortized over the estimated period until the next scheduled heavy maintenance event is required. During the year ended December 31, 2023, the Company incurred amortization expense of $789,494 with respect to heavy maintenance costs and had $1,740,537 in deferred maintenance costs as of December 31, 2023. During the year ended December 31, 2022, the Company incurred amortization expense of $218,688 with respect to heavy maintenance costs and had $1,022,492 in deferred maintenance costs as of December 31, 2022.
Property & Equipment
Property and equipment are recorded at cost at the Acquisition Date and depreciated on a straight-line basis to an estimated residual value over their estimated useful lives or lease term, whichever is shorter, as follows:
Office and Ground Equipment 5 years
Computer Hardware and Software 3-5 years
Modifications that enhance the operating performance or extend the useful lives of leased airframes are considered leasehold improvements and are capitalized and depreciated over the economic life of the asset or the term of the lease, whichever is shorter.
The components of property and equipment, net are as follows:
December 31,
During the years ended December 31, 2023 and 2022, depreciation of property and equipment was $935,970 and $283,325, respectively.
Equity Investments
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Investments in partnerships and less-than-majority owned subsidiaries in which the Company does not have control but has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method of accounting. The equity method investments are included in the accompanying Balance Sheets with Deferred Costs and Other Assets. The Company’s share of earnings or losses from these investments is shown in the accompanying Consolidated Statements of Operations in Other Expense. Equity method investments are initially recognized at cost. The carrying amount of the equity investment is adjusted at each reporting period by the percentage of any change in its equity corresponding to the Company’s percentage interest in these equity affiliates. The carrying costs of these investments are also increased or decreased to reflect additional contributions or withdrawals of capital. Any difference in the book equity and the Company’s pro-rata share of the net assets of the investment will be reported as gain or loss at the time of the liquidation of the investment. It is the Company’s policy to record losses in excess of the investment if the Company is committed to provide financial support to the investee.
Evaluation of Long-Lived Assets
Long-lived assets are evaluated whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed. Such indicators include significant technological changes, adverse changes in market conditions and/or poor operating results. The carrying value of a long-lived asset group is considered impaired when the projected undiscounted future cash flows are less than its carrying value. The amount of impairment loss recognized is the difference between the estimated fair value and the carrying value of the asset or asset group. Fair value is determined using various valuation techniques including discounted cash flow models, quoted market values and third- party independent appraisals, as considered necessary. No impairment losses were recognized during the years ended December 31, 2023 and 2022.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”) which establishes financial accounting and reporting standards for stock-based employee compensation. It defines a fair value-based method of accounting for an employee stock option or similar equity instrument.
The Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest.
Estimating fair value for granted stock options and compensatory warrants requires determining the most appropriate valuation model which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the option or warrant, volatility, dividend yield, and rate of forfeitures and making assumptions about them.
Estimating fair value for granted restricted share units requires estimating the number of awards likely to vest on grant and at each reporting date up to the vesting date. The estimated forfeiture rate is adjusted for actual forfeitures in the period.
Grants of share-based payment awards issued to non-employees for services rendered have been recorded at the fair value of the share-based payment. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed in the period related to the termination of service. Stock-based compensation expenses are included in the consolidated statement of operations.
Income taxes
The estimation of income taxes includes evaluating the recoverability of deferred tax assets and liabilities based on an assessment of the Company’s ability to utilize the underlying future tax deductions against future taxable income prior to expiry of those deductions. Management assesses whether it is probable that some or all of the deferred income tax assets and liabilities will not be realized. The ultimate realization of deferred tax assets and liabilities is dependent upon the generation of future taxable income. To the extent that management’s assessment of the Company’s ability to utilize future tax deductions changes, the Company would be required to recognize more or fewer deferred tax assets or liabilities, and deferred income tax provisions or recoveries could be affected.
Leases
Lease classification is evaluated by the Company at lease commencement and when significant amendments are executed. The Company's leases generally do not provide a readily determinable implicit rate; therefore, the Company estimates the incremental borrowing rate to discount lease payments based on information available at lease commencement. The lease term consists of the
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noncancellable period of the lease and periods covered by options to extend the lease if the Company is reasonably certain to exercise the option. For leases of 12 months or less, the Company expenses lease payments on a straight-line basis over the lease term.
Operating Lease Right-of-Use Asset and Liabilities
For all operating leases with a term greater than 12 months, the Company recognizes a right-of-use asset and a lease liability at the lease commencement date based on the estimated present value of future minimum lease payments, which includes certain lease and non-lease components, over the lease term. Operating Lease Right-of-use Assets and Operating Lease Obligations have their own lines on the Consolidated Balance Sheets.
Finance Leases
Finance leases are initially recorded at the net present value of future minimum lease payments, which includes certain lease and non-lease components. Finance leases generally have one of these five attributes: 1) ownership of the underlying asset transfers to the Company at the end of the lease term, 2) the lease agreement contains a purchase option that the Company is reasonably certain to exercise, 3) the lease term represents the major part of the asset’s economic life, 4) the present value of lease payments over the lease term equals or exceeds substantially all of the fair value of the asset, and 5) the underlying asset is so specialized in nature that it provides no alternative use to the lessor after the lease term. Finance Lease Assets are presented separately on the Consolidated Balance Sheets. The Company depreciates Finance Lease Assets consistent with its useful life policy presented in the table above.
Leased Aircraft Return Costs
The Company's aircraft lease agreements often contain provisions that require the Company to return aircraft airframes, engines, and other aircraft components to the lessor in a certain condition or pay an amount to the lessor based on the airframe and engine's actual return condition. Lease return costs are recognized beginning when it is probable that such costs will be incurred, and they can be estimated. The Company assesses the need to accrue lease return costs periodically throughout the year or whenever facts and circumstances warrant an assessment. When costs become both probable and estimable, lease return costs are expensed as a component of Aircraft Rent expense on the Consolidated Statements of Operations.
In addition, the Company leases office space under a month-to-month agreement. For leases with terms greater than 12 months, including renewal options when appropriate, we record the related right-of-use asset and lease liability as the present value of fixed lease payments over the lease term.
Customer Deposits
Customer Deposits represent money we receive from our customers as a security deposit for their contract. The money will either be returned to the customer at the end of the contract or used for payment of any unpaid invoices/debts the customer has during the contract term.
Deferred Revenue
Deferred Revenue represents revenue prepayments. Customers pay in advance of their flights and the funds are held as Deferred Revenue until the flight takes place. Charter customers typically pay a 10% deposit upon signing a contract and the remainder 30 days before the flight. If the contract is signed less than 30 days from the date of the flight, the entire amount is collected upon signing. ACMI customers typically pay 2 weeks in advance.
Revenue Recognition
The Company generates operating revenues by providing passenger aircraft outsourcing services to customers on a Charter and ACMI basis, in exchange for guaranteed minimum revenues at predetermined levels of operation for defined periods of time. The Company also generates other operating revenue from chargebacks related to charter costs including but not limited to fuel, airport fees, navigation fees, and ground handling. Furthermore, the Company also earns other operating revenue from cancellation of flights from customers.
Our performance obligations under Charter contracts involve the provision of passenger aircraft charter services to customers, including various US Government agencies, brokers, freight forwarders, direct shippers, airlines, college sports teams and fans, and private charter customers. Our obligations are for one or more flights based on a specific origin and destination. The Company typically bears all direct operating costs for charters, which include fuel, insurance, landing and navigation fees, and most other operational fees and costs. The time interval between when an aircraft departs the terminal until it arrives at the destination terminal is measured in hours and called “Block Hours.” Revenue from Charter contracts is typically recognized over time as the services are performed based on Block Hours
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operated on behalf of a customer. Payment terms and conditions vary by charter contract, although the vast majority of contracts require payment in advance of the services being provided. Since advance payments are typically made shortly before the services are performed, such payments are not considered significant financing components.
Our performance obligations under ACMI contracts involve outsourced passenger aircraft operating services, including the provision of an aircraft, crew, maintenance and insurance. ACMI contracts generally provide for the transfer of the benefits from these performance obligations on a combined basis through the operation of the aircraft over time. Customers assume fuel, demand and price risk. Generally, customers are also responsible for landing, navigation and most other operational fees and costs. When we act as an agent for costs reimbursed by customers, such reimbursed amounts are recorded as Operating Revenue, net of the related costs, when the costs are incurred. When we are responsible for any of these costs, such reimbursed amounts are recorded as Operating Revenue and the costs are recorded as Operating Expenses as incurred.
Revenue from ACMI contracts is typically recognized over time as the services are performed based on Block Hours operated on behalf of a customer during a given month.
Other operating revenue is typically recognized over time as the services aforementioned are provided to customers. Related to the cancellation fees, these are earned from customers and recognized in the period for which the operations were scheduled.
3. EQUITY INVESTMENTS
Investment in Canada Jetlines Operations Ltd.:
On June 28, 2021, the Company completed the spin-out pursuant to the Arrangement under which the Company transferred 75% of shares of Jetlines to GlobalX shareholders. At that time, GlobalX retained 25% of the shares issued and outstanding of Jetlines and accounts for the investment in accordance with the equity method. As of December 31, 2023 and 2022, the Company holds approximately 10% and 13% ownership in Jetlines, respectively.
4. DEFERRED FINANCING FEES AND DEBT ISSUANCE COSTS
In relation to the Company’s Subscription Agreement pursuant to which the Company sold $6.0 million of its note (Note 12) the Company capitalized $2,205,113 of debt issuance costs. These costs are initially capitalized on the consolidated balance sheet as debt issuance costs and amortized to interest expense using the effective interest method. In addition, the Company paid the $6.0 million of Note Payable plus accrued interest due for Subscription Agreement. As a result, the Company expensed the full outstanding amount capitalized as debt issuance costs of $945,217 during the year ended December 31, 2023.
On the new $35.0 million Subscription Agreement, the Company also capitalized $6,755,770 of debt issuance costs. These costs are also initially capitalized on the consolidated balance sheet as debt issuance costs and amortized to interest expense using the effective interest method. The Company amortized $246,563 of the related debt issuance costs during the year ended December 31, 2023.
In connection with the GEM Global Yield LLC agreement (Note 8) the Company issued a note for $2,000,000 CAD ($1,418,880 USD) and issued 2,106,290 warrants exercisable at a price of CAD $0.50 per share until May 4, 2023. The initial fair value of the warrants was recorded as a prepaid financing fee in the amount of $1,390,151. These costs are initially capitalized on the consolidated balance sheet as deferred finance costs and will be subsequently reclassified to common stock and additional paid-in capital upon on a pro-rata basis as the Company draws down on the facility. On June 28, 2021, adjustments were made to the warrants issued resulting in a change in warrants issued and their exercise price. During 2022, the Company expensed the full outstanding amount capitalized as deferred financing costs of $2,809,031.
5. ASSET ACQUISITION
On March 22, 2021, the Company executed an agreement to purchase certain assets from Kizoto, LLC. Under the agreement, Global’s newly formed subsidiary, GlobalX Travel Technologies, Inc. (“GlobalX Travel”) would purchase all of the assets used in or relating to the business operation described as “Flugy” and GlobalX committed to finance Travel to facilitate the transaction. The assets acquired include all of Kizoto's right, title and interest in Flugy including, but not limited to, all software source code for the Flugy platform, website and mobile applications and related intellectual and intangible property. In assessing the assets transferred under the agreement, the Company determined that the Flugy assets do not constitute a business as defined in Subtopic 805-10. Accordingly, the transaction was accounted for as an asset purchase.
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Consideration for the Flugy asset purchase included $50,000 paid to Kizoto, LLC and 20% of the shares issued and outstanding of GlobalX Travel. The Company recorded the Flugy platform and the related intangible assets acquired as other noncurrent assets at the total acquisition cost of $50,000. After the closing date, each party shall be entitled to receive a distribution of the net profits according to their respective percentage of ownership.
In connection with the agreement, GlobalX Travel shall pay Kizoto an initial monthly fee of $5,000 to cover ongoing management and development services. This rate increased to $10,000 once the first flight was flown. The monthly management fees will be expensed as incurred as these payments are composed of mostly management and administrative fees. Services provided by Kizoto which further develop and improve the software will be capitalized and amortized over the estimated useful life. Once the Flugy platform is placed in service, GlobalX Travel shall pay Kizoto a fee for each passenger seat sold by GlobalX Travel or sold by a third party which uses the Flugy platform or technology. The per-seat fees are considered transaction costs incurred in the generation of revenue from passenger seat reservations. The costs will be recorded as a reduction of the related revenues generated.
6. LEASES
As of December 31, 2023, and 2022, the Company operated 14 and 8 leased aircraft, respectively, which are accounted for under operating lease agreements with ranging terms of 10 months to 10 years.Leases with an initial term of 12 months or less will be recognized in the Consolidated Statements of Operations on a straight-line basis over the lease term. These leases primarily relate to the Company’s lease agreements for the month-to-month agreement for office space and leases for office equipment.
For operating leases with terms greater than 12 months, including renewal options when appropriate, we record the related right-of-use asset and lease liability as the present value of fixed lease payments over the lease term.
In addition, the aircraft lease requires the Company to make maintenance reserve payments to cover the cost of major scheduled maintenance for the aircraft. These payments are generally variable as they are based on utilization of the aircraft, including the number of flight hours flown and/or flight departures, and are not included as minimal rental obligations.
On October 14, 2021, the Company signed a lease for one Airbus A321 converted freighter. The term of the lease is 10 years commenced upon aircraft delivery in January 2023 and runs through December 2032. In addition to basic rent due, the Company will pay the lessors supplemental rent for maintenance of the aircraft and equipment.
On June 21, 2022, the Company entered into a lease agreement for one A321F cargo aircraft. The eight-year lease term commenced on June 1, 2023. Under the agreement, the Company will pay the lessor a fixed monthly rent for 96 months, plus supplemental rent for maintenance of the aircraft.
On July 29, 2022, the Company signed a lease agreement for one A321F cargo aircraft and paid commitment fees to the lessor. The lease will commence upon aircraft delivery which is expected to be in 2024 and will run through 72 months from delivery date. In addition to basic rent due, the Company will pay the lessor supplemental rent for maintenance of the aircraft.
On December 14, 2022, the Company entered into a lease agreement for one A319 passenger aircraft. The two-year lease term commenced on August 18, 2023. Under the agreement, the Company will pay the lessor a fixed monthly rent for 24 months, plus supplemental rent for maintenance of the aircraft.
On January 27, 2023, the Company entered into a lease agreement for one A320 passenger aircraft. The six-year lease term commenced on April 21, 2023. Under the agreement, the Company will pay the lessor a fixed monthly rent for 72 months, plus supplemental rent for maintenance of the aircraft.
On May 22, 2023, the Company entered into a lease agreement for a commercial property warehouse. The five-year lease term commenced on June 1, 2023. Under the agreement, the Company will pay the lessor variable monthly rents increasing once every year for 62 months, plus estimated expenses for insurance, utilities, taxes, management fees and other operating expenses.
On June 16, 2023, the Company entered into a lease agreement for one A320 passenger aircraft. The four-year lease term commenced on November 13, 2023. Under the agreement, the Company will pay the lessor a fixed monthly rent for 48 months, plus supplemental rent for maintenance of the aircraft.
On September 8, 2023, the Company entered into a lease agreement for one A321F cargo aircraft. The eight-year lease term commenced on October 6, 2023. Under the agreement, the Company will pay the lessor a fixed monthly rent for 72 months, plus supplemental rent for maintenance of the aircraft.
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On November 17, 2023, the Company signed a lease agreement for one A321 passenger aircraft and paid commitment fees to the lessor. The lease will commence upon aircraft delivery which is expected to be in 2025 and will run through 24 months from delivery date. In addition to basic rent due, the Company will pay the lessor supplemental rent for maintenance of the aircraft.
On November 20, 2023, the Company signed a lease agreement for one A320 passenger aircraft and paid commitment fees to the lessor. The lease will commence upon aircraft delivery which is expected to be in 2024 and will run through 88 months from delivery date. In addition to basic rent due, the Company will pay the lessor supplemental rent for maintenance of the aircraft.
On December 22, 2023, the Company signed a lease agreement for one A321F cargo aircraft and paid commitment fees to the lessor. The lease will commence upon aircraft delivery which is expected to be in 2024 and will run through 120 months from delivery date. In addition to basic rent due, the Company will pay the lessor supplemental rent for maintenance of the aircraft.
The Company reviewed the operating leases for extension options that may be reasonably certain to be exercised and then would become part of the right-of-use assets and lease liabilities. On December 21, 2022, and October 10, 2023, the Company signed extensions for two aircraft extending their lease terms for an additional 60 and 15 months from original ending date of June 1, 2023, and October 1, 2023, to May 31, 2028, and December 31, 2024, respectively. Terms of extensions were agreed solely to grant the Company the right to use the asset for the related additional time including no changes in payment rent. As such, extension was accounted as a modification of lease in accordance with ASC 842 rather than as a new contract and the Company remeasured at modification date the following: Right-of-use asset, lease liability, discount rate, lease term and classification. In addition, as of December 31, 2023, the Company signed a lease agreement to convert one of its lease passenger aircraft with lease term ending on November 1, 2024, into an Aircraft Freighter at lessor's expense. The new lease is contingent on a successful conversion from induction date of November 1, 2024, and can take up to a year. Among terms agreed includes commitment fees paid to lessor and also no basic and supplemental rent shall be payable while the Aircraft undergoes conversion during the period commencing on the conversion induction date and ending on the conversion redelivery date. The Company expects to record a new lease on the acceptance of redelivery date, which is the date the lessee will have access to the leased asset.
For the year ended December 31, 2023, we had 37 aircraft support equipment capitalized within our Consolidated Balance Sheet with useful lives between 5 and 30 years. All aircraft support equipment were financed through finance leases with terms between 5 and 7 years. Related right-of-use assets and lease liabilities are recorded at the present value of fixed lease payments over the lease term. Amortization of the equipment under finance leases is on a straight-line basis over the lease term and is included in Depreciation and amortization in our Consolidated Statement of Operations. Residual values for equipment are estimated to be from 0% to 77%.
Some of our finance leases include optional renewal periods. Generally, we do not consider any additional renewal periods to be reasonably certain of being exercised, as the initial lease term of the related lease is for all or most of the useful life of the equipment and thus renewal periods are not included in the lease term, nor any related payments are reflected in the finance lease assets and finance lease liabilities.
The following table presents lease costs related to the Company’s finance and operating leases:
For The Year Ended December 31,
Finance lease cost
Operating lease cost
(1) Expenses are classified within Aircraft Rent on the Company's consolidated statements of operations.
The Company uses the rate stated in the lease to discount lease payments to present value. In the event the leases do not provide a readily determinable implicit or stated rate, the Company estimates the incremental borrowing rate to discount lease payments based on information available initially at adoption and at lease commencement going forward, taking into consideration recent debt issuance as well as publicly available data for instruments with similar characteristics. The table below presents lease terms and discount rates related to the Company's finance and operating leases:
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Weighted-average remaining lease term
Operating leases 6.14 years 4.52 years
Finance leases 5.22 years 5.72 years
Weighted-average discount rate
The table below presents cash and non-cash activities associated with our leases:
For The Year Ended December 31,
Cash paid for amounts included in the measurement of lease liabilities:
Future minimum lease payments under finance and operating lease liabilities with initial terms in excess of one year are as follows:
Finance Leases Operating Leases
We also lease office space and office equipment for our headquarters, airport facilities, and certain airport gate facilities and maintenance facilities on a month-to-month basis. Amounts for leases that are on a month-to-month basis are not included as an obligation in the table above.
7. COMMITMENTS AND CONTINGENCIES
The Company has contractual obligations and commitments primarily with regard to management and development services, lease arrangements, and financing arrangements.
On January 13, 2023, the Company entered into a premium finance agreement with a financial institution to finance a 12-month hull insurance policy for its aircraft. The Company financed $3,636,783 of the total premium amount of $4,064,691 at a rate of 5.45% interest. The down payment of $430,358 was paid at time of signing.
On January 6, 2022, the Company entered into a premium finance agreement with a financial institution to finance a 12-month hull insurance policy for its aircraft. The Company financed $2,465,110 of the total premium amount of $3,103,325 at a rate of 2.38% interest. The down payment of $640,665 and the first monthly installment was paid at time of signing.
On August 11, 2023 Global Crossing Airlines in combination with Top Flight Charters and its minority interest member filed a lawsuit in the United States District Court Southern District of Florida against Shorts Travel Management, Inc (Shorts) and STM Charters, Inc seeking to have an old non-solicit agreement signed by Top Flight' minority interest member to be declared invalid, that Shorts alleged trade secrets do not exist and sought damages arising from the Shorts defamation per se based on numerous false statements made by Shorts in the marketplace. On October 4, 2023, Shorts responded in court by denying the claims made and countersued all parties for breach of contract and theft of trade secrets. This case is currently in the discovery phase
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The Company is subject to various legal proceedings in the normal course of business and records legal costs as incurred. Management believes these proceedings will not have a materially adverse effect on the Company.
8. CAPITAL COMMITMENTS
GEM Global Yield LLC SCS
The Company entered into an agreement with GEM Global Yield LLC SCS ("GEM"), the private alternative investment group to provide the Company with up to CND $100 million over a 36-month term following the closing of the Transaction (the “Facility”). The initial CAD $100 Million is in the form of a capital commitment that allows the Company to draw down funds during the 36-month term by issuing shares to GEM (or such persons as it may direct) and subject to share lending arrangement(s) being in place. The purchase price of the shares to be sold is set at (i) 90% of the recent average daily closing price of the Company’s common stock on the TSX Venture Exchange or (ii) the floor price set by the company for each drawn down. The Company is not permitted to make a draw-down request in an amount that exceeds (i)1000% of the average daily trading volume of the Company’s stock for the 15 trading days preceding the draw-down date or (ii) 90% of the closing price on the trading day immediately prior to the issue or the relevant draw down notice and then added to the aggregate purchase price of all the common shares subscribed for pursuant to all prior closings would not exceed the total facility. GEM may accept or reject such drawn down notice based on various conditions described in the agreement. On July 8, 2020 the TSX Venture Exchange provided approval for the Facility.
The Company entered into a promissory note to pay GEM Yield Bahamas Limited a fee equal to two percent (2%) of the aggregate purchase price, being $2,000,000 CAD ($1,418,880 USD). The fee is payable, whether or not any draw down notices have been delivered, as follows: the first 25% of the fee shall be paid within 12 months from the date of the agreement; an additional 25% of the fee shall be paid within 18 months from the date of the agreement and the rest of 50% of the fee shall be paid within 24 months from the date of this agreement. The note bears interest at 5 percent above the base rate of Barclays Bank PLC as per the promissory note. The note was recorded as a deferred finance cost on the consolidated balance sheet.
In addition, on July 10, 2020, pursuant to the terms of the Facility, the Company issued 2,106,290 warrants to GEM exercisable at a price of CAD $0.50 per share until May 4, 2023. The initial fair value of the warrants was recorded as prepaid financing fee in the amount of $1,390,151. The warrants’ fair value was calculated using the Monte Carlo pricing model, assuming an expected life of 2.82 years, a risk-free interest rate of 0.18%, an expected dividend rate of 0.00%, stock price of $0.94 and an expected annual volatility coefficient of 70%.
On June 28, 2021, GEM and the Company agreed to adjust the terms of the warrants. Under the adjustment agreement, the exercise price of the warrants was changed from CAD $0.50 per share to USD $0.39 per share. In addition, the number warrants granted was adjusted due to the Arrangement Agreement (Note 1) under which the Company transferred 75% of the shares of Jetlines to shareholders of the Company. Accordingly, the number of warrants was adjusted from 2,106,290 to 2,182,553. The warrants were remeasured at the adjustment date using the Monte Carlo pricing model, assuming an expected life of 1.85 years, a risk-free interest rate of 0.22%, an expected dividend rate of 0.00%, stock price of $2.03 and an expected annual volatility coefficient of 74.7%. The revaluation of the warrants resulted in a fair value at June 28, 2021 of $3,475,379, producing a gain of $2,650,772. The warrants were initially classified as derivative liabilities due to denomination of the exercise price in a foreign currency (CAD). As described in Note 12, the change in currency denomination to USD resulted in reclassification of the warrants to equity. The warrants fair value of the warrant liability was eliminated on the adjustment date and included in additional paid in capital on the consolidated statement of changes in shareholders’ equity.
On October 1, 2021, GEM has filed initial pleadings in the Supreme Court of the State of New York, County of New York, claiming the Company breached the share subscription agreement between the parties by failing to pay a $500,000 fee due on May 4, 2021 GEM is requesting repayment in full of the CAD $2,000,000 promissory note issued by the Company to GEM plus accrued interest and costs and expenses related to collection. As of December 31, 2022, the note payable to GEM is recorded in current liabilities on the consolidated balance sheet and the Company expensed the full outstanding amount capitalized as deferred financing costs of $2,809,031.
On January 18, 2023 the Court granted summary judgment in favor of GEM. GEM subsequently filed a motion seeking $2,000,000 CAD, plus interest totaling $218,493.87, with an additional $506.02 accruing each day after January 30, 2023 until entry of Judgment. GEM also seeks $112,584.50 in attorney's fees and $4,884.86 in costs. In 2022, interest and attorney's fees were recorded in current liabilities on the consolidated balance sheet and other expenses non-operating on the consolidated statement of operation.
On March 29, 2023 Global Crossing Airlines and GEM entered into a final settlement which included a payment plan for the $2,000,000 CAD over nine months plus the extension of the agreement for 12 months. Consequently, GlobalX has adjusted the current liabilities to reverse the previously accrued interest and attorney’s fees no longer due. Upon final payment GEM agrees to file a satisfaction of
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judgment in County of New York, effectively settling this issue. GlobalX made payments due per final settlement and the Company had no outstanding balance as of December 31, 2023.
On March 4, 2024, Global Crossing Airlines and GEM decided to extend the length of the Facility by 12 months and the new expiration date is March 4, 2025.
9. INCOME TAXES
The Company’s effective tax rate for the years ended December 31, 2023 and 2022 was 0%. The effective tax rate represents a blend of federal and state taxes and includes the impact of certain nondeductible items.
The following table summarizes the significant components of the provision for income taxes from continuing operations:
For the Year Ended December 31, 2023 For the Year Ended December 31, 2022
Federal:
Current $ — $ —
State:
Total income tax provision $ 2,450 $ —
The income tax provision differs from that computed at the federal statutory corporate tax rate as follows:
For the Year EndedDecember 31,2023 For the Year EndedDecember 31,2022
Expected provision at Federal statutory tax rate 21.00 % 21.00 %
State tax expense, net of Federal benefit 3.17 % —
Change in valuation allowance (23.35 )% (20.98 )%
Permanent difference (0.73 )% (0.02 )%
Other (0.24 )% —
The following table summarizes the significant components of the Company’s deferred taxes:
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For the Year EndedDecember 31, 2023 For the Year EndedDecember 31, 2022
Deferred tax assets (liabilities):
Net deferred tax assets (liabilities) $ — $ —
As of December 31, 2023 and 2022, the Company has net operating losses available for deduction against future taxable income of $49 million and $32 million, respectively. The net operating losses do not expire and may be carried forward indefinitely. The amount of state NOLs available equals the amount of federal NOLs.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during periods in which the temporary differences become deductible. Management considers the scheduled reversal of the liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. It was concluded on a more-likely-than-not basis that the Company’s deferred tax assets were not realizable as of December 31, 2023. Accordingly, a valuation allowance of $13.5 million has been recorded to offset these deferred tax assets. The change in valuation allowance for the year ended December 31, 2023 from 2022 was an increase of $4.9 million.
The Company recognizes the consolidated financial statement effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. If applicable, the Company reports both accrued interest and penalties related to unrecognized tax benefits as a component of Income Tax Expense in the Consolidated Statements of Operations.
The Company files income tax returns in the United States the State of Florida, California, Georgia, Indiana, Kentucky, New Jersey, New York, Texas, Virginia, North Carolina, Pennsylvania, and Tennessee. In the normal course of business, the Company is subject to potential income tax examination by the federal and state tax authorities in these jurisdictions for tax years that are open under local statute. For U.S. federal and state income tax purposes, the Company’s 2020, 2021 and 2022 tax returns remain open to examination.
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10. FAIR VALUE MEASUREMENTS
Accounting standards define fair value 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 on the measurement date. The standards also establish a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Under GAAP, there are three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
As of December 31, 2023 and 2022, the Company's assets and liabilities carrying values approximate to their fair values.
11. WARRANT
On August 2, 2023, the Company issued 10,000,000 warrants with $1.00 exercise price in connection with the financing arrangement entered into with Secured Notes. The warrants allow the holder to purchase common stock at an exercise price equal to $1.00 per share at any time on or after their issuance date and on or prior to June 30, 2030. At time of issuance, the Company determined that the warrants had a fair value of $4,300,000 and required classification as equity. On December 21, 2023, the total warrants increased by 142,874 warrants with an exercise price of US$1.00 per warrant in connection with Secured Notes amendment as described on footnote 12. The additional warrants had an estimated fair value of approximately $8,047 and they were classified as equity in the consolidated balance sheets as of December 31, 2023.
The fair value of the warrant was measured using the Monte Carlo pricing model. Significant inputs into the model as of August 2, 2023 are as follows:
Monte Carlo Assumptions August 2, 2023
Exercise price $ 1.00
Warrant expiration date June 30, 2030
Stock price $ 0.85
Interest rate (annual) (1) 4.21 %
Volatility (annual) (2) 50.0 %
Remaining term (years) 6.91
Annualized dividend yield (3) 0 %
12. NOTE PAYABLE
On March 17, 2022, the Company entered into agreements (each a “Subscription Agreement”) pursuant to which the Company sold US$6.0 million of its securities (the “Financing”). The securities sold in the Financing consisted of (1) non-convertible debentures (each, a “Debenture”) and (2) one common stock purchase warrant (each, a “Warrant”) for every US$1.24 of principal of the Debentures purchased for gross proceeds of up to US $6.0 million. Each Warrant is exercisable into one share of common stock (each, a “Warrant Share”) at an exercise price of US$1.24 per Warrant Share with an exercise period of 24 months from the date of closing.
The terms of the Debentures include:
•
a maturity date of 24 months from the date of issuance (the “Maturity Date”) and the principal amount of the Debentures, together with any accrued and unpaid interest, will be payable on the Maturity Date;
•
the Debentures bear interest (the “Interest”) at the rate of 15% per annum, which Interest will be payable in cash quarterly in arrears;
•
the Company has the option to prepay the principal amount of the Debentures on 30 business days’ notice, provided that if repaid in the first year, the Company must provide a payment such that the holders of the Debentures receive at least 10% premium on the principal amount, after deducting any prior Interest payments from such premium; and
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•
it is intended that repayment by the Company of amounts owing under the Debentures will be secured by a secured lien on the tangible fixed assets of the Company.
The Company determined that the terms of the Warrants issued in the financing require the Warrants to be classified as equity. Accordingly, upon issuance, the Company recorded debt issuance costs of $2.2 million related to the Warrants along with a corresponding credit to additional paid in capital. As the Warrants are classified as equity warrants the Company will not remeasure the Warrants each accounting period.
Since the Warrants may purchase a fixed number of shares for a fixed price, the Company chose to use the Black-Scholes option pricing model to value the warrants at issuance. The inputs selected are: underlying stock price at date of issuance of $1.04 per share, exercise price of $1.24 per share, expected term of 2 years, dividends of $0, a risk free rate of -0.6%, and volatility of 143%.
The debt issuance costs resulting from the warrants along with other direct costs of the Financing will be amortized to interest expense using the effective interest method.
On January 27, 2023, the Company announced an up to $5.0 million loan (the "Loan") with a key investor to provide working capital and additional liquidity to support GlobalX’s rapidly growing operations. The net proceeds of the Loan will be used to further the business objectives of the Company and to secure additional aircraft for charter operations. As of December 31, 2023, the Company received $2.5 million from the loan and this balance was paid off in connection with the new $35.0 million secured notes closed on August 2, 2023.
This loan was paid off in connection with the new $35.0 million secured notes closed on August 2, 2023 and the outstanding balance related to debt costs and discounts of approximately $945 thousand was written off.
The terms of the promissory note (the "Note") issued in connection with Loan include:
•
a maturity date of 6 months from the date of issuance (the “Maturity Date”) and the principal amount of the Note, together with any
•
accrued and unpaid interest, will be payable on the Maturity Date;
•
the Note bears interest at the rate of 20% per annum, accruing monthly and payable on the Maturity Date;
•
the principal amount of the Note will be advanced in two tranches of $2.5 million each. The first tranche was advanced within one business day and the second tranche will be advanced after the Company delivers a draw down notice, but subject to the lender receiving internal approval for the second tranche; and
•
the Note is unsecured, is not convertible and provides for no warrants.
On August 2, 2023, the Company closed the placement of $35 million senior secure notes due 2029. The proceeds from these notes were used to pay-off the pre-existing Loan and Subscription Agreement.
The terms of the senior secure notes include:
•
a term of 6 years and maturity date of June 30, 2029; with no principal payments due until maturity date;
•
the notes bear interest at a fixed rate of 15% per annum and include an upfront fee of 2% of the principal payment;
•
the Company is permitted to prepay all (but not less than all) of the notes beginning on July 1, 2025 subject to a redemption premium of: (i) 7.5% of the principal to be redeemed on or prior to August 2, 2026, (ii) 5.0% of the principal to be redeemed after August 2, 2026, or on or prior to August 2, 2027, (iii) 2.5% of the principal to be redeemed after August 2, 2027, or on or prior to August 2, 2028, (iv) 0% of the principal to be redeemed after August 2, 2028;
•
the investors will be issued 10 million warrants, each exercisable into one share of Class A common stock at an exercise price of $1.00 per share, with such warrants expiring on June 30, 2030;
•
each of the Company's material subsidiaries will guarantee the notes;
•
the notes and the related guarantees will be secured by a lien on substantially all of the property and assets of the Company and the guarantors of the notes.
•
financial covenants requirements as follows: minimum adjusted EBITDA of (i) $5,000,000 for the fiscal year ended December 31, 2023, (ii) $15,000,000 for the fiscal year ended December 31, 2024 and (iii) $25,000,000 for the fiscal year ended December 31, 2025;
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•
minimum liquidity of $5,000,000 measured at each quarter end;
•
collateral substantially of all the Company's assets.
The Company determined that the terms of the Warrants issued in the financing require the Warrants to be classified as equity. Accordingly, upon issuance, the Company recorded debt issuance costs of $3.8 million related to the Warrants along with a corresponding credit to additional paid in capital. As the Warrants are classified as equity warrants the Company will not remeasure the Warrants each accounting period.
Since the Warrants may purchase a fixed number of shares for a fixed price, the Company chose to use the Monte Carlo option pricing model to value the warrants at issuance. The inputs selected are: underlying stock price at date of issuance of $0.85 per share, exercise price of $1.0 per share, expected term of 6.91 years, dividends of $0, a risk free rate of 4.21%, and volatility of 50%.
The debt issuance costs resulting from the warrants along with other direct costs of the financing will be amortized to interest expense using the effective interest method.
On December 21, 2023, the Company, and the senior secure notes due 2029 purchasers amended the original placement of $35 million senior secure notes due 2029 for the sale of an additional $5M senior secure notes due 2029 to original purchasers and the total warrants increased by 142,874 warrants with an exercise price of US$1.00 per warrant. The net proceeds from the sale of the additional notes will be used to repurchase $4.3M principal amount of senior secure notes due 2029 from an original purchaser plus payment of accrued interest due of $251 thousand, with the balance expected to be used for general corporate purposes, including the transaction expenses and deposits to expand its current fleet of aircraft. No other substantial modification to the terms of the original $35 million senior secure notes due 2029 was made in the issuance of the additional notes.
Notes Payable is comprised of the following:
For the Year EndedDecember 31, 2023 For the Year EndedDecember 31, 2022
13. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL AUTHORIZED
The Company has authorized share capital of 200,000,000 shares of common stock, par value $0.001 per share.
On July 12, 2021 the Company completed a share capital reorganization creating a new class of shares, Class B non-voting shares. As of December 31, 2022, the Company had 32,668,320 common shares, 5,537,313 Class A common shares, and 15,234,849 Class B non-voting shares outstanding. As of December 31, 2023, the Company had 40,420,350 common shares, 5,537,313 Class A common shares, and 12,968,208 Class B non-voting shares outstanding.
Share issuance
During the year ended December 31, 2023:
•
The Company issued 2,727,083 common stock shares for net proceeds of $1,358,113 pursuant to the exercise of 2,727,083 common stock purchase warrants.
•
The Company issued 1,803,992 common stock shares pursuant to 1,723,650 RSUs.
•
The Company issued 150,000 common stock shares for net proceeds of $68,182 pursuant to the exercise of stock options.
•
The Company issued 804,314 common stock shares for net proceeds of $446,564 pursuant to the Employees Stock Purchase
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plan.
During the year ended December 31, 2022:
•
The Company issued 1,110,510 common shares units for net proceeds of $534,632 pursuant to the exercise of 1,110,510 share purchase warrants.
•
The Company issued 537,954 common shares units pursuant to 537,954 RSUs.
•
The Company issued 83,333 common shares for net proceeds of $20,833 pursuant to the exercise of stock options.
•
The Company issued 460,809 shares for net proceeds of $246,945 pursuant to the Employees Stock Purchase plan.
Share purchase warrants
The following is a summary of share purchase warrants activities during the years ended December 31, 2023 and 2022:
Number of Share Purchase Warrants Weighted Average Exercise Price
As of December 31, 2023, the following share purchase warrants were outstanding and exercisable:
Outstanding Exercise Price Remaining life(years) Expiry Date
As of December 31, 2022, the following share purchase warrants were outstanding and exercisable:
Outstanding Exercise Price Remaining life(years) Expiry Date
Share-based payments
The maximum number of Voting Shares issuable pursuant to share-based payment arrangements, including stock options, restricted share units and performance share units, is 9,400,000.
Stock options
The Company grants stock options to directors, officers, employees and consultants as compensation for services, pursuant to its Amended Stock Option Plan (the “Stock Option Plan”). The maximum price shall not be less than the closing price of the Company’s shares on the last trading day preceding the date on which the grant of options is approved by the Board of Directors. Options have a
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maximum expiry period of ten years from the grant date. Vesting conditions are determined by the Board of Directors in its discretion with certain restrictions in accordance with the Stock Option Plan.
The following is a summary of stock option activities for the years ended December 31, 2023 and 2022:
Granted — — —
Granted
As of December 31, 2023, the following stock options were outstanding and exercisable:
Outstanding Exercisable Exercise Price Remaining life (years) Expiry Date
As of December 31, 2022, the following stock options were outstanding and exercisable:
Outstanding Exercisable Exercise Price Remaining life (years) Expiry Date
The Company recognizes share-based payments expense for all stock options granted using the fair value based method of accounting. The fair value of stock options is determined by the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Company’s shares, forfeiture rate, and expected life of the options.
There were no stock options granted during the years ended December 31, 2023 and 2022.
Restricted share units
The Company grants restricted share units (“RSUs”) to directors, officers, employees and consultants as compensation for services, pursuant to its Amended RSU Plan (the “RSU Plan”). One restricted share unit has the same value as a Voting Share. The number of RSUs awarded and underlying vesting conditions are determined by the Board of Directors in its discretion.
At the election of the Board of Directors, upon each vesting date, participants receive (a) the issuance of Voting Shares from treasury equal to the number of RSUs vesting, or (b) a cash payment equal to the number of vested RSUs multiplied by the fair market value of a Voting Share, calculated as the closing price of the Voting Shares on the NEO for the trading day immediately preceding such payment date; or (c) a combination of (a) and (b).
On the grant date of RSUs, the Company determines whether it has a present obligation to settle in cash. If the Company has a present obligation to settle in cash, the RSUs are accounted for as liabilities, with the fair value remeasured at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the period. The Company has a present obligation to settle in cash if the choice of settlement in shares has no commercial substance, or the Company has a past practice or a stated policy of settling in cash, or generally settles in cash whenever the counterpart asks for cash settlement.
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If no such obligation exists, RSUs are accounted for as equity settled share-based payments and are valued using the share price on grant date. Upon settlement:
a.
If the Company elects to settle in cash, the cash payment is accounted for as the repurchase of an equity interest (i.e. as a deduction from equity), except as noted in (c) below.
b.
If the Company elects to settle by issuing shares, the value of RSUs initially recognized in reserves is reclassified to capital, except as noted in (c) below.
c.
If the Company elects the settlement alternative with the higher fair value, As of the date of settlement, the Company recognizes an additional expense for the excess value given (i.e. the difference between the cash paid and the fair value of shares that would otherwise have been issued, or the difference between the fair value of the shares and the amount of cash that would otherwise have been paid, whichever is applicable).
The following is a summary of RSU activities for the years ended December 31, 2023 and 2022:
Number of RSUs Weighted average grant date fair value per RSU
During the years ended December 31, 2023 and 2022, the Company recognized total share-based payments expense with respect to stock options, RSUs and employees' stock purchase plan of $2,465,039 and $1,386,533, respectively.
The remaining compensation that has not been recognized as of December 31, 2023 and 2022 with regards to RSUs and the weighted average period they will be recognized are $3,188,418 and 2.02 years and $2,308,928 and 1.90 years, respectively. As of December 31, 2022, all compensation expense with respect to stock options has been recognized.
Employee Stock Purchase Plan
In September 2021, the Board adopted the GlobalX 2021 Employee Stock Purchase Plan (“ESPP”). There are 2 offering periods that the employees make contributions to the plan. The first offering period starts from June 16th to November 15 th and the second offering period starts from November 16 th to May 15 th of each year. Eligible employees may purchase maximum of $10,000 of the Company's common stock per offering through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee's payroll deductions under the ESPP are limited to 15% of the employee's compensation and an employee may not purchase more than $25,000 of stock during any calendar year in which the employee’s option to purchase stock under the ESPP is outstanding at any time.
During 2023 and 2022, the Company issued 804,314 and 460,809common shares issued under the ESPP, respectively.
As of December 31, 2023 and 2022, total recognized equity-based compensation costs related to ESPP were approximately $80,141 and $43,579, respectively.
ESPP payroll contributions accrued at December 31, 2023 and December 31, 2022 totaled $56,846 and $38,940, respectively, and are included within accrued expenses in the consolidated balance sheets. Employee payroll contributions used to purchase shares under the ESPP will be reclassified to stockholders' equity at the end of the offering period.
14. LOSS PER SHARE
Basic earnings per share, which excludes dilution, is computed by dividing Net Income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The number of
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incremental shares from the assumed issuance of shares relating to share based awards is calculated by applying the treasury stock method.
The following table shows the computation of basic and diluted earnings per share:
Numerator:
Denominator:
Dilutive effect of stock options, RSUs and warrants — —
Basic loss per share $ (0.37 ) $ (0.30 )
Diluted loss per share (1) $ (0.37 ) $ (0.30 )
(1) There were 22,518,894 warrants, 470,668 options, and 5,056,270 RSUs outstanding at December 31, 2023 and there were 19,633,911 warrants, 820,668 options, and 3,293,337 RSUs outstanding at December 31, 2022. The Company excluded the warrants, options and RSUs from the calculation of diluted EPS for the years ended December 31, 2023 and 2022 as inclusion would have an anti-dilutive effect.
15. RELATED PARTY TRANSACTIONS
On May 19, 2021, the Company entered into an arrangement agreement to complete a spin-out of the shares of its wholly owned subsidiary, Canada Jetlines Operations Ltd. (“Jetlines”). On June 28, 2021, the Company completed the spin-out pursuant to the Arrangement under which the Company transferred 75% of shares of Jetlines to GlobalX shareholders. GlobalX retained 25% of the shares issued and outstanding of Jetlines and accounts for the investment in accordance with the equity method. As of December 31, 2023, Global Crossing Airlines holds approximately 10% of Jetlines outstanding shares. Currently, GlobalX continues to provide back-office support including sharing the costs of the Company’s aircraft fleet management software (TRAX).
Related parties and related party transactions impacting the consolidated financial statements not disclosed elsewhere in these consolidated financial statements are summarized below and include transactions with the following individuals or entities:
As of December 31, 2023 and 2022, amounts due to related parties include the following:
a.
GlobalX earned $180,838 and $30,625 in 2023 in relation to flights flown and shared TRAX services with Jetlines, respectively. GlobalX earned $0 and $33,246 in 2022 in relation to flights flown and shared TRAX services with Jetlines, respectively.
b.
Jetlines earned $862,552 in 2023 and was owed $113,012 and $0, respectively, in relation to flights flown by Jetlines for GlobalX
c.
GlobalX paid $78,450 and $0, respectively, in relation to marketing services to S Revista, S Communications and LM & Associates Consulting whose Principal is a former employee while employed by the Company.
As described on footnote 12, on March 17, 2022 and August 2, 2023, the Company entered into Subscription Agreement of $6 million and Secure Notes of $35.5 million, respectively, with entities of which its former executive or executives were elected Board of Directors' members of the Company during the last annual shareholders meeting in December 2023.
On July 3, 2023, the Company voluntarily dissolved GlobalX Ground Team LLC. The Company had a 50% interest in GlobalX Ground Team LLC and the dissolution had no impact in the Company's financial statements.
On August 14, 2023, the Company voluntarily dissolved GlobalX 321 Aircraft Acquisition Corp., The Company had a 100% interest in GlobalX 321 Aircraft Acquisition Corp and the dissolution had no impact in the Company's financial statements.
On August 17, 2023, the Company voluntarily dissolved GlobalX 320 Aircraft Acquisition Corp., The Company had a 100% interest in GlobalX 320 Aircraft Acquisition Corp. and the dissolution had no impact in the Company's financial statements.
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Smartlynx Airlines Malta Limited is an entity whose Chief Executive Officer was a Board Member of GlobalX until his term expired in December 2022. During the year ending December 31, 2020, GlobalX made advanced payments totaling $250,000 for one passenger aircraft security deposit to deliver 200 hours of ACMI services per month. Total deposits and prepaid expense related to Smartlynx totaled $250,000 as of December 31, 2023 and 2022 and it is included in other assets on the consolidated balance sheets.
The amounts due to related parties are unsecured, non-interest bearing and have no stated terms of repayment.
16. ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of December 31:
17. REVENUE CONTRACT LIABILITY
Deferred revenue for customer contracts represents amounts collected from, or invoiced to, customers in advance of revenue recognition. The balance of Deferred revenue will increase or decrease based on the timing of invoices and recognition of revenue.
Significant changes in our Deferred Revenue liability balances during the year ended December 31, 2023 and 2022 were as follows:
For the Year EndedDecember 31, 2023 For the Year EndedDecember 31, 2022
18. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
The Company’s financial instruments are exposed to certain financial risks as detailed below.
Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations.
The Company is subject to credit risk on its cash and cash equivalents. The Company limits its exposure to credit loss by placing its cash and cash equivalents with major financial institutions. As a result, the Company does not believe it is exposed to significant credit risk.
19. SUBSEQUENT EVENTS
On February 5, 2024, GlobalX announced that as agreed by the Board of Directors and Edward J. Wegel, the Company’s Chief Executive Officer, Mr. Wegel has resigned his duties, rights, and obligations as an officer and Chairman and CEO of the Company, effective February 5, 2024. The terms of a severance arrangement between the Company, if any, have not been determined. The Company will file an amendment to Form 8-K if any such severance agreement is entered into. Mr. Wegel will remain a director of the Company.
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Ryan Goepel has been appointed President of the Company, effective as of February 5, 2024 and Chris Jamroz has been appointed as Executive Chairman of the Board, effective as of February 5, 2024.
On February 19, 2024, GlobalX Technologies share capital increased from 1,000 to 1,110 shares. The 110 additional shares issued resulted in a decrease of GlobalX ownership of GlobalX Technologies, Inc. from 80% to 72%.
On March 4, 2024, Global Crossing Airlines and GEM decided to extend the length of the GEM Facility described on footnote 8 by 12 months with a new expiration date of March 4, 2025.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls
Our Executive Chairman and President & Chief Financial Officer, referred to collectively herein as the Certifying Officers, are responsible for establishing and maintaining our disclosure controls and procedures that are designed to ensure that information relating to the Company required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to the Company’s management, including the Executive Chairman and the President & Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
The Certifying Officers have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of December 31, 2023. Our Executive Chairman and President & Chief Financial Officer concluded that, as of December 31, 2023, the Company’s disclosure controls and procedures were not effective, due to the material weaknesses in internal control over financial reporting described below.
Material Weakness in Internal Control over Financial Reporting
1.
Insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.
Remediation Plans
In order to mitigate the foregoing material weakness, the Company plans to take steps to develop and enhance its internal controls over financial reporting in 2024, including:
1.
Developing formal policies and procedures over accounting and reporting disclosure requirements.
2.
Provide additional training on application of US GAAP and SEC disclosure requirements.
3.
Obtain checklists to ensure all application disclosures required under US GAAP and SEC requirements are included in each filing.
As we continue to evaluate and work to improve our internal control over financial reporting, Certifying officers and management may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary. Therefore, we cannot assure you when the Company will remediate the material weakness identified above, nor can we be certain that additional actions will not be required and what the costs of any such additional actions may be. Moreover, we cannot assure you that additional material weaknesses will not arise in the future.