UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2024
Or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ________ to ________
Commission
file number: 001-40725
Jet.AI
Inc.
(Exact
Name of Registrant As Specified In Its Charter)
(Address of Principal Executive Offices) (ZIP Code)
(702)747-4000
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, par value $0.0001 per share JTAI The Nasdaq Stock Market LLC
Securities
registered under Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐ No ☒
Indicate
by check mark whether the registrant has (1) filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes
☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Yes
☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
aggregate market value of the voting and non-voting common equity held by non-affiliates was $1,837,368 as of the last business day of
the registrant’s most recently completed second fiscal quarter.
As
of March 12, 2025, there were 2,187,001 shares of the Company’s common stock, par value $0.0001, issued and outstanding.
TABLE
OF CONTENTS
Page
Cautionary Note Regarding Forward-Looking Statements ii
Market and Industry Data ii
Summary of Risk Factors iii
PART I
Item 1 Business 1
Item 1A Risk Factors 11
Item 1B Unresolved Staff Comments 27
Item 1C Cybersecurity 27
Item 2 Properties 28
Item 3 Legal Proceedings 28
Item 4 Mine Safety Disclosures 28
PART II
Item 6 [Reserved] 29
Item 7A Quantitative and Qualitative Disclosures About Market Risk 42
Item 8 Financial Statements and Supplementary Data 42
Item 9A Controls and Procedures 43
Item 9B Other Information 43
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 43
PART III
Item 10 Directors, Executive Officers and Corporate Governance 44
Item 11 Executive Compensation 50
Item 14 Principal Accountant Fees and Services 68
PART IV
Item 15 Exhibits and Financial Statement Schedules 69
Signatures 72
Index to Consolidated Financial Statements 73
i
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K (this “Report”) contains forward-looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995, that involve risks and uncertainties. We have based these forward-looking statements on our current expectations
and projections about future events. All statements, other than statements of present or historical fact included in this Report, regarding
our future financial performance and our strategy, expansion plans, market opportunity, future operations, future operating results,
estimated revenues, losses, projected costs, prospects, plans and objectives of management are forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,”
“will,” “expect,” “plan,” “anticipate,” “intend,” “believe,”
“estimate,” “continue,” “project” or the negative of such terms or other similar expressions, but
the absence of these words does not mean that a statement is not forward-looking. These forward-looking statements are subject to known
and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking
statements. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which
are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Report. We caution
you that the forward-looking statements contained herein are subject to numerous risks and uncertainties, most of which are difficult
to predict and many of which are beyond our control.
Therefore,
actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements
due to numerous factors discussed from time to time in this Report, including the risks described under “Item 1A Risk Factors,”
and “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report
and in other documents which we file with the Securities and Exchange Commission (“SEC”). In addition, such statements could
be affected by risks and uncertainties related to:
● costs related to being a public company;
● limited liquidity and trading of our securities;
● the outcome of any legal proceedings;
● the risk of downturns in the aviation industry;
● a changing regulatory landscape in the highly competitive aviation industry;
● data security breaches, cyber attacks, or other network outages;
● our ability to adequately protect our intellectual property interests;
● our reliance on third parties;
Should
one or more of these risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results
may vary in material respects from those expressed or implied by these forward-looking statements. Forward-looking statements speak only
as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and we assume no obligation
and do not intend to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise,
except as required by applicable law.
MARKET
AND INDUSTRY DATA
Some
of the market and industry data contained in this Report are based on independent industry publications or other publicly available information.
We believe this information is reliable as of the applicable date of its publication, however, we have not independently verified and
cannot assure you as to the accuracy or completeness of this information. As a result, you should be aware that the market and industry
data contained herein, and our beliefs and estimates based on such data, may not be reliable.
ii
SUMMARY
OF RISK FACTORS
Our
business is subject to a number of risks of which you should be aware. These risks are discussed more fully in the “Risk Factors”
section of this Report. These risks include, but are not limited to, the following:
● The Company is an early-stage company with a limited operating history.
● The Company may not be able to successfully implement its growth strategies.
● Jet.AI is subject to risks related to taxation in the United States.
● The Company is exposed to operational disruptions due to maintenance.
iii
PART
I
Item
1 Business
Explanatory
Note
On
August 10, 2023, we consummated a “Business Combination” pursuant to the Business Combination Agreement and Plan of Reorganization,
dated February 24, 2023, as amended by Amendment No. 1 to the Business Combination Agreement, dated as of May 11, 2023. In connection
with the Business Combination, we changed our name from “Oxbridge Acquisition Corp.” to “Jet.AI Inc.”
Unless
otherwise noted in this Report, “Jet.AI,” “the Company,” “we,” “us,” “our”
and similar terms refer to (a) Oxbridge Acquisition Corp. prior to the closing of the Business Combination and (b) Jet.AI Inc. after
giving effect to the closing of the Business Combination. See “Item 7 Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Business Combination.”
Overview
Our
business strategy combines concepts from fractional jet and charter jet programs with innovations in artificial intelligence, also referred
to herein as “AI.”
We
formed our company on June 4, 2018. We developed and, in September 2019, launched our booking platform represented by our iOS app JetToken
(the “App”), which originally functioned as a prospecting and quoting platform to arrange private jet travel with third party
carriers. Following our acquisition of HondaJet HA-420 aircraft (the “HondaJet Elites”), we began selling jet cards and fractional
ownership interests in our aircraft. In 2023 and 2024, we launched two AI-enhanced booking apps called CharterGPT and Ava, respectively,
as more fully discussed under “Our Software Platforms” and “Strategy – Artificial Intelligence”
below.
Beginning
in 2023, we launched our Jet.AI Operator Platform to provide a B2B software platform for SaaS products. Currently we offer the following
SaaS software to aircraft owners and operators generally:
We
have also established a specific version of a private jet by-the-seat booking tool for the Las Vegas Golden Knights and Great Western
Air, LLC (DBA Cirrus Aviation Services, LLC) (“Cirrus”) via 380 Software LLC. 380 Software LLC is a by-the-seat charter joint
venture between us and Cirrus.
Our
strategy historically has involved expanding our fleet of aircraft with larger aircraft capable of traveling longer distances, developing
a national jet card program based on third party aircraft, further enhancing the AI functionality of CharterGPT, and expanding upon our
B2B software offerings. Our strategy currently involves further enhancing the AI functionality of Ava and CharterGPT, and expanding upon
Reroute AI and DynoFlight.
Recent
Events
Nasdaq
Compliance
Our
common stock is currently listed on The Nasdaq Capital Market under the symbol “JTAI”. On December 1, 2023, the Company received
a notification letter (the “Initial Notice Letter”) from the Listing Qualifications Staff of Nasdaq notifying the Company
that its amount of stockholders’ equity had fallen below the $10 million required minimum for continued listing on The Nasdaq Global
Market set forth in Nasdaq Listing Rule 5450(b)(1)(A) (the “Minimum Stockholders’ Equity Requirement”). The Company’s
stockholders’ deficit as of December 31, 2023 was $(3,963,039). The Initial Notice Letter also noted that as of September 30, 2023,
the Company did not meet The Nasdaq Global Market alternative listing criteria for the “Market Value” standard or the “Total
Assets / Total Revenues” standard.
On
April 14, 2024, the Company received an additional notification letter from Nasdaq (the “Second Notice Letter”) stating that
the Company was not in compliance with Nasdaq Listing Rule 5450(a)(1), as the minimum bid price of the Company’s common stock had
been below $1.00 per share for 30 consecutive business days (the “Minimum Bid Price Requirement”). The Company had 180 calendar
days, or until October 14, 2024, to regain compliance with the Minimum Bid Price Requirement. Although the Company did not regain compliance
with the Minimum Bid Price Requirement by October 14, 2024, it was eligible for an additional 180-calendar day compliance period because
it elected to transfer to The Nasdaq Capital Market.
On
May 30, 2024, the Company received an additional notification letter from Nasdaq (the “Third Notice Letter”) stating that
the Company had not regained compliance with the Minimum Stockholders’ Equity Requirement for continued listing discussed in the
Initial Notice Letter, which it was required to meet by May 29, 2024 pursuant to its compliance plan. As directed in the Third Notice
Letter, the Company timely requested a hearing before the Nasdaq Hearings Panel to appeal the delisting notice. The Company’s hearing
request stayed the suspension of trading on the Company’s securities, and the Company’s securities continued to trade on
Nasdaq. On August 14, 2024, in connection with the implementation of the Company’s compliance plan, the Nasdaq Hearings Panel granted
the Company’s request to transfer the Company’s securities from The Nasdaq Global Market to The Nasdaq Capital Market effective
as of August 16, 2024. Further the Nasdaq Hearings Panel granted the Company’s request to have until November 26, 2024 to demonstrate
compliance with its previously submitted plan.
The
Company effected a reverse stock split of its issued and outstanding shares of common stock at a ratio of 225-for-1 on November 12, 2024
to, in part, cause the Company to regain compliance with the Minimum Bid Price Requirement. As a result of that reverse stock split and
other transactions that occurred during 2024, on November 26, 2024, the Company received a letter from Nasdaq stating that the Company
regained compliance with both the Minimum Stockholders’ Equity Requirement and the Minimum Bid Price Requirement. However, pursuant
to Nasdaq Listing Rule 5815(d)(4)(B), the Company is subject to a Mandatory Panel Monitor for a period of one year from November 26,
2024. If, within that one-year monitoring period, Nasdaq finds the Company again out of compliance with the Minimum Stockholders’
Equity Requirement, which was the subject of the exception, notwithstanding Nasdaq Listing Rule 5810(c)(2), the Company would not be
permitted to provide Nasdaq with a plan of compliance with respect to that deficiency and Nasdaq would not be permitted to grant additional
time for the Company to regain compliance with respect to that deficiency, nor would the Company be afforded an applicable cure or compliance
period pursuant to Nasdaq Listing Rule 5810(c)(3). Instead, Nasdaq would issue a Delist Determination Letter and the Company would have
an opportunity to request a new hearing with the initial Nasdaq Hearings Panel or a newly convened panel if the initial panel were unavailable.
The Company would have the opportunity to respond/present to the Nasdaq Hearings Panel as provided by Nasdaq Listing Rule 5815(d)(4)(C).
The Company’s securities could at that time be delisted from Nasdaq.
Although
the Company believes it will be able to maintain compliance with Nasdaq’s continued listing requirements, there can be no assurance
that the Company will be able to maintain compliance with all such requirements.
Reverse
Stock Split
On
November 12, 2024, the Company effected a reverse stock split of the Company’s issued and outstanding shares of common stock at
a ratio of 225-for-1. On the effective date, every 225 shares of common stock issued and outstanding were combined into one issued share
of common stock. In addition, the aggregate number of equity-based awards that remain available to be granted under the Company’s
equity compensation plans was decreased proportionately and proportionate adjustments were made to the per share exercise price and the
number of shares issuable upon the exercise of outstanding stock options, as applicable, as well as to the number of shares that would
be owned upon vesting and settlement of restricted stock units and other equity-based awards, as applicable. Similar proportionate adjustments
were also made to the outstanding GEM Warrant. No fractional shares were issued as a result of the reverse stock split and any fractional
shares resulting from the reverse stock split were rounded down to the nearest number of whole shares so that we issued cash in lieu
of any fractional shares that such stockholder would have received as a result of the reverse stock split. In accordance with ASC 260-10-55-12,
the Company has adjusted the number of shares, per-share computations and the computations of basic and diluted EPS retroactively for
all periods presented in the consolidated financial statements and related notes.
Potential
Sale of Aviation Business Assets
On
February 13, 2025, the Company, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”)
with flyExclusive, Inc. (“flyExclusive”), FlyX Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of flyExclusive
(“Merger Sub”), and Jet.AI SpinCo, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“SpinCo”).
Pursuant to the Merger Agreement, (i) as a condition to closing on the Merger Agreement, the Company will distribute all of the shares
of SpinCo, on a pro rata basis, to the Company’s stockholders (the “Distribution”), (ii) Merger Sub will merge with
and into SpinCo (the “Merger” and, together with the Distribution and all other transactions contemplated under the Merger
Agreement, the “Transactions”) with SpinCo surviving the Merger as a wholly owned subsidiary of flyExclusive and (iii) as
consideration for the Merger, the Company’s existing stockholders will have the right to receive shares of Class A common stock
of flyExclusive. Additionally, the Company’s stockholders will continue to own and hold their existing shares of the Company’s
common stock as of closing of the Merger.
In
connection with executing the Merger Agreement, the Company, SpinCo, and flyExclusive entered into a Separation and Distribution Agreement
(the “Separation and Distribution Agreement”) pursuant to which the Company will transfer the business, operations, services
and activities of the Company’s fractional and jet card business to SpinCo and will no longer operate a fractional and jet card
business (the “Separation”). Upon the terms and subject to the conditions set forth in the Separation and Distribution Agreement,
the Company will consummate the Distribution. As such, the Company will no longer operate a fractional or jet card business as of consummation
of the Distribution. There will be no change expected to the Company’s board of directors or executive officers as a result of
the Merger, Separation, Distribution, or other Transactions.
After
the Transactions Jet.AI will continue to operate and retain its software and intellectual property assets, but will cease to hold its
aircraft fractional, jet card and management assets and expects to pursue additional business opportunities in the artificial intelligence
(AI) sector utilizing its remaining assets to enhance those business operations and model. The Transactions are subject to shareholder
approval and are expected to close during the second quarter of 2025.
Our
Aircraft Operations
In
July 2021, we leased a HondaJet aircraft under a short-term lease arrangement, which terminated in February 2022, to accelerate our aircraft
operations and sales of jet card memberships. We previously acquired four HondaJet Elite aircraft under our 2020 purchase agreement with
Honda Aircraft Company, LLC (“Honda Aircraft Company”), discussed under “Our Aircraft” below, all four
of which have been sold, but three of which remain part of our fleet, as discussed below, with three of the four aircraft having been
delivered in 2022. Cirrus is managing, operating, and maintaining our aircraft and has a growing team of pilots that have been specially
trained on the HondaJet at the Flight Safety facility on the Honda Aircraft Company campus in Greensboro, NC. Cirrus has additionally
developed a safety co-pilot training program in coordination with the FAA and a local flight training academy for licensed pilots already
skilled with the Garmin 1000 avionics suite.
We
offer the following programs for our HondaJet Elite aircraft:
In
addition to servicing members, fractional owners and third-party charter clients, our HondaJet Elites are available to address unexpected
cancellations or delays on brokered charters. Unlike most of our brokerage competitors, as well as many business jet management companies
which require owner approval before their aircraft can be used for third party charter, we believe maintaining a fleet of readily available
aircraft to back fill third party charter services provides more reliability and is an attractive selling point for potential clients.
In
2022, we entered into agreements with Cirrus under which we will sell jet cards for Cirrus’s aircraft, for a commission for sales
and client management services, and we make Cirrus’s aircraft available to our customers for charter bookings at preferred rates
and with certain service guarantees. As a result, our jet card members and charter customers have access to twenty of Cirrus’s
aircraft in the light, mid, super-mid, heavy, and ultra-long-range categories, comprising the following aircraft: CJ3+, CJ4, Lear 45XR,
Citation XLS+, Lear 60, Hawker 900XP, Challenger 300, Challenger 604, Falcon 900EX, Challenger 850, Gulfstream V and Gulfstream G550.
In
the fourth quarter of 2022, we launched the Onboard Program to allow aircraft owners to contribute their aircraft to the Company’s
charter and jet card inventory. The Onboard Program requires one month FAA conformity of aircraft onto the Cirrus Part 135 certificate,
a one-week pilot recertification course for charter operation and execution of a limited management agreement. We currently have one
Cessna Citation Jet CJ4 aircraft (“Citation CJ4 Gen 2”) and one Beechcraft Super King Air B300 (350I) aircraft (“King
Air 350i”) managed pursuant to our OnBoard Program.
The
above description of our aircraft operations assumes that the Company’s current operations will remain the same. However, if the
Company consummates the proposed Transactions pursuant to the Merger Agreement with flyExclusive, the Company will transfer the business,
operations, services and activities of the Company’s fractional and jet card business to SpinCo and will no longer operate a fractional
and jet card business.
Our
Software Platforms
Our
Booking Platform – CharterGPT
Our
booking platform displays a variety of options across private aircraft types in addition to the pricing of our own aircraft, with a range
of prices drawn from a list of thousands of aircraft for hire. We offer users the ability to request a jet and to simultaneously task
us with seeking a lower-cost otherwise superior alternative. Our App (or CharterGPT) is directly connected via our application programming
interface (API) to Avinode, the major centralized database in private aviation. Through Avinode we can electronically and automatically
correspond with operators of private jets who have posted their aircraft for hire. We envision a time when CharterGPT draws upon resources
other than Avinode for private aircraft inventory, in particular we contemplate a connection between the inventory found in Reroute AI
and CharterGPT.
The
CharterGPT app, which we released in the iOS and Android stores in 2023 to replace the charter booking function of our Jet Token App,
automates certain of these manual steps involved in charter bookings, and we believe this automation will enable us to scale charter
activity with fewer persons than would be normally required. In particular, CharterGPT is designed to do the following: (1) intake travel
requirements in natural language and then interact with customers to provide substantive replies and actionable suggestions with quality
indistinguishable from an experienced charter professional; (2) power the content behind outbound calls to smaller charter operators
to confirm electronic indications of interest communicated via the Avinode centralized booking database of private aircraft; (3) reconcile
the natural language terms in a third party jet operator contract with the terms and conditions in the contract the customer signs with
us (4) verify that payment for the charter has cleared.
Our
Booking Platform –Ava
In
late 2024 we announced the launch of our cutting-edge agentic AI model, “Ava,” that books private jets. Through Ava, customers
can now conveniently book private jets by calling or texting a toll-free number where the AI provides real-time aircraft availability,
transparent pricing, and expert guidance to help users select the perfect jet for their intended journey. For those who prefer texting,
Ava enables full conversational experience via SMS, responding to inquiries, sharing details, and providing a direct link to the CharterGPT
app for seamless trip management. The AI is intended to ensure every customer receives a personalized and efficient experience, whether
they’re seasoned flyers or first-time travelers.
Jet.AI
Operator Platform
Jet.AI
provides and continues to develop a B2B software platform for a suite of SaaS products termed “Jet.AI Operator Platform”
which currently consists of:
Reroute
AI
In
2024 we launched Reroute AI. Reroute AI software is web based and enables FAA Part 135 operators to earn revenue on otherwise empty flight
legs. When prompted with basic travel itinerary information such as city pair and date of travel, Reroute AI searches its database of
empty flight legs and proposes novel combinations of those legs that meet these constraints it has been given. Its database of empty
flight legs comes from API integrations with certain other databases and a ChatGPT enhanced scrape of publicly available empty leg lists
published by Part 135 operators. An operator may upload its own aircraft tail numbers and empty leg list if for any reason one or both
have not already been uploaded into the system. Jet.AI generates revenue from Reroute AI when an operator wishes to book an itinerary
proposed by the software that involves the use of aircraft outside that operator’s fleet. In that instance, Jet.AI acts as broker
to the operator using Reroute AI’s proposed itinerary and a human in the loop to negotiate the new pricing and new routing of the
third party operator’s aircraft.
DynoFlight
DynoFlight
is a software API that we launched at the end of 2023. It enables aircraft operators to track and estimate emissions and then purchase
carbon offset credits. DynoFlight offers small to medium sized operators a way to begin tracking and offsetting their carbon credits
with advances estimation techniques, compliant practices, and quality credits at prices usually only accessible to operators working
at a much larger scale that are buying in bulk. In February, 2024, the Company announced a collaboration with FL3XX, a web and app-based
aviation management platform, to introduce the DynoFlight carbon offset platform to FL3XX customers. We believe the DynoFlight API may
offer an advantage even to large organizations that wish to manage working capital more efficiently (i.e. pay as they fly instead of
buying in bulk). We are currently in the process of integrating the DynoFlight API with the FL3XX systems. We believe that, once the
DynoFlight API has been integrated with FL3XX and future customers, it will generate monthly and usage-based revenues with modest operating
costs limited to server administration and maintenance of the code base.
FlightClub
– Cirrus Specific
The
Flight Club API is designed to enable FAA Part 135 operators to function simultaneously under FAA Part 380 which permits sale of private
jet service by the seat instead of by whole aircraft. The Flight Club software integrates front end ticketing and payment collection
with the flight management systems of an FAA Part 135 operator. It automates the process of filing forms for each flight with DOT and
conforms with DOT escrow requirements around ticketing and movement of customer funds. Our initial use case of the Flight Club is through
380 Software LLC, a 50% owned subsidiary founded in co-operation with our operating partner and 50% owner of 380 Software LLC, Cirrus.
The Company retains all rights to the technology powering 380 Software LLC and has granted 380 Software LLC a perpetual non-transferrable
license. This initial implementation of the Flight Club permits the owners of Cirrus-managed aircraft to fly on one another’s planes
at a significantly reduced cost when those planes are otherwise flying empty. The operating costs of these flights are typically borne
by the previous charter customer who is typically obliged to pay not only the cost of an outbound leg but also the cost of the return
leg. The charter customer is typically obliged to pay the cost of the return because the sale of the empty return is an inherently low
probability event based on historical industry experience.
We
are currently focused on our partnership with the Las Vegas Golden Knights and on integrating with their systems to generate seat sales.
Once we learn more from the Cirrus and Las Vegas Golden Knight partnerships we will decide whether to expand the availability of Flight
Club.
AI
Data Centers
With
our announcement of the potential sale of aviation business assets, we also announced our entry into the AI infrastructure space and
have signed a letter of intent for our first 50-megawatt project as part of a new one-hundred-and-twenty-acre campus that will allow
room for the phased construction of a full gigawatt of capacity in the years ahead. In addition, for the first project we’ve retained
a dynamic company founded by professional data center builders, with experience in our market, to assist with planning and execution
while we deepen our own internal capabilities.
Strategy
Aircraft
Operations
Having
successfully executed the HondaJet Elite four aircraft fleet deal and further having sold through all four aircraft, three of which remain
part of our fleet, as discussed below, we plan to gradually expand our fleet with larger light jet and super-mid-size aircraft and the
help of our operating partner, Cirrus. Cirrus manages a fleet of 30 jets in Las Vegas, where we are headquartered. In October 2024, the
Company entered into an aircraft purchase agreement with Textron Aviation Inc. (“Textron”), for the purchase of three Citation
CJ4 Gen 2 aircraft. The aircraft are expected to be delivered in the second, third and fourth quarters of 2026, respectively. Upon delivery,
the jets would, in turn, be managed by Cirrus and listed on their Part 135 certificate. Customers would be expected to make a down payment
and progress payments, consistent with fractional industry norms.
Given
the timeframe prior to delivery the company may consider independent development of Part 135 operations, subject to management’s
internal return on capital targets and, depending on the level of scale, the prospective benefits of enhanced operational control on
customer service.
Because
all major manufacturers of larger cabin aircraft such as Gulfstream, Falcon, Bombardier, Embraer, and Textron each have one to three
year waiting lists, many of our fractional competitors can only pre-sell, and remain otherwise unable to offer the related service. Our
strategy is to allow customers, in advance of delivery, to fly on Cirrus’s managed aircraft. In return the customer would pay a
monthly management fee (MMF) and an occupied hourly fee (OHF) at rates substantially similar to those for their Citation CJ4 Gen 2. We
believe this “buy and fly” approach may resonate with market participants who may appreciate the convenience of a fractional
program without the extraordinarily long wait.
Conventional
wisdom in private aviation has been that a very light jet FAA Part 135 operation presents financial challenges because the lower hourly
rate of a very light jet leaves little margin to pay a second pilot and remain profitable. Thanks to our partnership with Cirrus, we
have sought to address this concern by having a type rated pilot in command with at least 1,500 hours in jets, 1,000 of which must have
been in the HondaJet specifically, fly alongside a co-pilot who has been through an FAA approved ground school developed by Cirrus and
Chennault Flying Service. This “safety co-pilot” is permitted to operate the aircraft in the unlikely event the pilot in
command is incapacitated or otherwise unable to act. The HondaJet, which has been designated by the FAA for single pilot operation, integrates
the Garmin 3000 flight system and by law does not require a second pilot to fly. This safety co-pilot program brings trained pilots who
are already schooled in either the Garmin 1000 or Garmin 3000 flight system, gives them additional training on the HondaJet and Garmin
300 system, and then allows them to develop their skills alongside a mentor. Importantly, the presence of this safety co-pilot is regarded
by our insurer as sufficient to maintain our present level of premium. The safety pilot does not require a full wage because of their
status as a trainee and the professional value they gain from accruing jet flight hours. This lower cost of labor helps the company overcome
the traditional costs of paying a second pilot and helps bring a stream of prospective pilot in command candidates. Some safety pilots
are newer to aviation while others have had many years of flight training and thousands of hours of flight time on civilian (or military)
jet or turboprop aircraft. We believe that the comparatively low cost of entry of the HondaJet and the proven capabilities of the Challenger
3500 are attractive to new and seasoned traveler alike, particularly given our ability to offer interchange between the two aircraft
and onto any one of twenty of the thirty aircraft managed by Cirrus. In addition, while some customers have shorter mission profiles
and lower passenger loads better suited to the HondaJet others have longer mission profiles with higher passenger loads – and so
the HondaJet and the Citation CJ4 Gen 2 (plus Cirrus’s fleet) again make an excellent combination in our view. We have taken a
gradual approach to fleet expansion given the capital-intensive nature of aviation and our view that customers should bear the risk (and
related tax reward) of owning and maintaining airplanes.
The
above description of our aircraft operations strategy assumes that the Company’s current operations will remain the same. However,
if the Company consummates the proposed Transactions pursuant to the Merger Agreement with flyExclusive, the Company will transfer the
business, operations, services and activities of the Company’s fractional and jet card business to SpinCo and will no longer operate
a fractional and jet card business.
Artificial
Intelligence
We
operate an app in the iOS and Android stores. The app functions as a prospecting and quoting tool for those interested in chartering
a private jet. In 2023, we released an enhanced booking app called CharterGPT to automate much of the manual labor in charter bookings
for all of the steps between a customer’s firm indication of interest and their arrival at ultimate destination. In late 2024 we
followed up with our agentic AI model, Ava. We believe this automation will enable us to scale charter activity with fewer persons than
would be normally required. In particular, CharterGPT is designed to do the following: (1) intake travel requirements in natural language
and then interact with customers to provide substantive replies and actionable suggestions with quality indistinguishable from an experienced
charter professional; (2) power the content behind outbound calls to smaller charter operators to confirm electronic indications of interest
communicated via the Avinode centralized booking database of private aircraft; (3) reconcile the natural language terms in a third party
jet operator contract with the terms and conditions in the contract the customer signs with us; and (4) verify that payment for the charter
has cleared.
In
addition, in 2024, we incorporated the following AI-powered features to offer a continually improving unique and personalized experience
to customers:
Aircraft
Recommendation Engine: This feature provides customers greater transparency and understanding of the characteristics of charter relevant
to their trips, making it easier for them to make an informed decision. The recommendation engine analyzes a list of available jets based
on the travelers request, and considers factors such as budget, preferred aircraft size, age of aircraft, distance of the trip compared
with non-stop/range capability, number of passengers, ages and weights of passengers and their respective bags compared with cargo capacity,
basic take-off weight limitations, operator safety audit (Argus/Wyvern), cabin amenities such as a fully enclosed lavatory, WiFi availability
and years since last interior refurbishment.
Customer
service: This feature provides intelligent customer service by using natural language processing and machine learning algorithms
to understand and respond to initial booking requests. Untrained call center staff and brittle chat bots characterize much of the customer
facing experience today in the US. With the advent of AI, we believe that even for high ticket items, consumers will come to expect a
natural language interface trained on terabytes of data that relate specifically to their respective purchases.
Charter
brokerage is labor intensive, and most customers are highly price sensitive. We believe these two factors explain why no charter broker
has acquired more than 3-5% of the 500,000 brokered flights that land each year in North America. The back end of the App is expected
to provide three features that may address the labor intensity (and hence scalability) of our charter brokerage business. First, each
charter operator has its own form of legal contract for carriage and that contract must be reconciled with the terms found in the charter
brokers’ agreement with the passenger. Our AI is expected to perform this reconciliation automatically, improving the speed to
close with the client and reducing labor costs. Second, many charter operators do not initially respond to electronic requests delivered
through the Avinode charter database that powers our app. Our generative chat AI is expected to perform outbound voice calls to prompt
aircraft operators to respond to quotes we have requested via the web interface to their Avinode account. Third, we expect to develop
our AI to integrate with Schedero (an Avinode based scheduling application) to generate a trip sheet for a given charter and then to
further integrate with Stripe to invoice and confirm payment via credit card, wire, or ACH.
In
addition, we are developing the following AI-powered features to incorporate into the AI functionality of CharterGPT:
Predictive
Destination Optimization: CharterGPT uses historical traffic patterns and traveler preferences, and is expected to make use of information
such as airport closures, fuel prices, and landing fees to then recommend which private airport to select when a traveler’s destination
address is serviced by multiple airstrips. For example, Los Angeles is serviced by Los Angeles International Airport (LAX), Van Nuys
Airport (KVNY), Burbank Bob Hope Airport (KBUR), and John Wayne Airport (KSNA). Landing at an airport farther from one’s ultimate
destination may save time if doing so enables faster ground transportation.
Predictive
Departure Date: CharterGPT analyzes historical pricing data and forward-looking event data related to a given itinerary to predict
the best date to book a flight to obtain the lowest price for their desired charter itinerary. Although approximately thirty-five blackout
days a year are widely understood to absorb most domestic private aviation capacity, a variety of lesser appreciated grey-out days centered
around key sporting events or entirely new happenings can affect both regional and national pricing.
Predictive
Departure Time: CharterGPT recommends optimal departure times based on both historical and live weather conditions, air traffic,
and other factors, to help customers more reliably arrive at their destination on time.
Predictive
Ground Transportation: CharterGPT recommends ground transportation. For example, some airports run out of rental cars at certain
times each year because of an annual conference or other recurring special event. Some of our competitors have taken steps to remedy
the shortage at some airports by positioning in their own vehicles for customer use.
Sales
and Marketing
Our
marketing and advertising efforts are focused on high-net-worth individuals. We have observed that many first-time private flyers came
to market beginning in 2020 in an effort to avoid commercial travel and thereby curtail their prospective exposure to COVID-19. We intend
to continue to expand our marketing and advertising through the following channels: online marketing, television advertising and event
marketing. Paid social media and search engine advertising drive our online marketing. In the past we have launched 15 and 30 second
advertising spots that are targeted at high-net-worth individuals and corporate executives through several channels, including CNBC,
Fox Business, and The Golf Channel, as well as online through Facebook and Linked-In. We intend to expand social media and event marketing
in particular, provided those meet our internal return targets. With respect to event marketing, we intend to have a presence at sporting
events, business jet industry gatherings and company hosted aircraft static displays.
Market
Opportunity
Over
the past 30 years, the market for private jet travel has transformed significantly. First the model of full aircraft ownership transformed
into fractional ownership with companies such as NetJets and FlexJet. This was followed by operators offering jet cards and on-demand
service through their fleet of aircraft. The latest iteration of private jet travel provides even more flexibility by providing an on-demand
service to travelers while leveraging the flight availability of one or more third party carriers. The result of this transformation
is a highly segmented industry with numerous market participants offering varying levels of ownership.
We
believe that by combining the private jet on-demand model with commercial airline flight availability and prospectively the underutilized
flight hours of private jet operators, our company will be positioned to provide optimum flexibility and cost efficiency for our clients.
Our
Aircraft
The
Company’s aircraft fleet consists of five aircraft – three HondaJet Elites, one Citation CJ4 Gen 2 aircraft and one King
Air 350i aircraft. The Company acquired the three HondaJet Elites pursuant to a purchase agreement with Honda Aircraft Company for a
multi-aircraft deal for four HondaJet Elites. One of the HondaJet Elites in our current fleet was sold and is now leased by the Company
from Western Finance Company. The other two HondaJet Elites in our current fleet were purchased and subsequently financed through the
sale of all fractional interests in each of these aircraft. Both of those HondaJet Elites are now operated by the Company. We also acquired
a fourth HondaJet Elite pursuant to the purchase agreement with Honda Aircraft Company, but we sold this aircraft in June 2022, after
we determined, based on our internal financial and legal review, that the sale of the aircraft would offer a net benefit to our stakeholders.
That fourth HondaJet Elite is not operated by the Company. The fourth and fifth aircraft in our current fleet - the Citation CJ4 Gen
2 aircraft and King Air 350i aircraft - are wholly owned by one of our customers who committed his aircraft to us via our Onboard Program
for management and charter pursuant to our limited management agreement. Under the terms of our management agreement, which has a term
of one year that automatically renews unless otherwise terminated by either party upon 30 days prior notice, the customer pays us a monthly
management fee for services, including aircraft management services, flight crew services, such as pilot hiring, flight operations services,
aircraft maintenance management and other administrative services.
Many
believe that the HondaJet Elite aircraft are ideally suited for trips under 3 hours carrying 2-4 passengers plus two pilots. We believe
the HondaJet Elite aircraft is one of the most spacious and cost-efficient light jets on the market with ample baggage and interior room
(including an enclosed lavatory). The wing mounted engines allow for a tranquil, spacious interior. Engines on the wings mean less weight
on the tail and more room in the cabin.
As
discussed in “Business – Strategy – Aircraft Operations” above we have executed a fleet purchase agreement
to acquire three Citation CJ4 Gen 2 aircraft from Textron Aviation, consisting of three firm orders. We are now actively pre-selling
fractional interests in these aircraft. Upon delivery, the jets would in turn be managed by Cirrus and listed on their Part 135 certificate.
Customers would be expected to make a down payment and progress payments, consistent with fractional industry norms.
We
currently base our fleet at Harry Reid International airport in Las Vegas, NV, a top ten private jet destination and may relocate the
fleet based on seasonal travel patterns and the travel patterns of our membership.
Based
on our experience, and in light of many of our competitors restricting charters on certain “blackout dates,” we estimate
that thirty calendar days per year (due to holidays, major sporting events, etc.) it is extremely difficult to fly private without the
guaranteed access provided by a jet membership program such as ours. The ability to safely offer guaranteed capacity, on demand, is one
of the most important features one can deliver in private aviation. Also, our aircraft give us the ability to attract online visitors
with dynamically priced offers.
We
have entered into several Executive Aircraft Management and Charter Services Agreements with Cirrus. Under these agreements, Cirrus provides
management services to us with respect to the marketing, operation, maintenance and administration of our aircraft. Specifically, following
the initial set-up services, Cirrus provides Flight Crew Services, including selection, training, employment and management of the pilots
necessary for operating the Company’s Aircraft; Flight Operation Services, including flight scheduling, following and support services;
Aircraft Maintenance Services, including maintenance of the Aircraft and/or management of maintenance of the Aircraft performed by third
parties, related maintenance support functions and the administration of the Aircraft’s log books, manuals, data, records, reports
and subscriptions; Administrative Services, including budgeting, accounting and reporting services; Facility Services, including providing
and/or arranging for aircraft hangar and support facilities at the Aircraft’s Operating Base and other locations at which the Aircraft
may be situated from time to time; and Insurance Services, including providing insurance policies for the Aircraft.
Cirrus
is the largest private jet charter company based in Las Vegas. The Cirrus team has been managing and operating aircraft – commercially
and privately – for more than 40 years. In addition, Cirrus is:
● FAA Eligible On-Demand Approved
● ARG/US Platinum Rated
● Wyvern Recommended
Cirrus
maintains, services and operates our aircraft on our behalf and in compliance with all applicable FAA regulations and certification requirements.
Cirrus has the capability to provide substitute aircraft at competitive rates in periods of excess demand for our aircraft.
The
above description of our aircraft assumes that the Company’s current operations will remain the same. However, if the Company consummates
the proposed Transactions pursuant to the Merger Agreement with flyExclusive, the Company will transfer the business, operations, services
and activities of the Company’s fractional and jet card business to SpinCo and will no longer operate a fractional and jet card