| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Going
Concern and Management Plans The
Company has limited operating history and has incurred losses from operations since Inception. These matters raise concern about the
Company’s ability to continue as a going concern. The
Company began ramping up its revenue-generating activities during the second half of the year ended December 31, 2021 and continuing
into 2022 and 2023. During the next twelve months, the Company intends to fund its operations with capital from its operations, drawdowns
under its GEM share purchase agreement and proceeds from the exercise of warrants under the Ionic Securities Purchase Agreement described
in Note 6. The Company also has the ability to reduce cash burn to preserve capital. There are no assurances, however, that management
will be able to raise capital on terms acceptable to the Company. If the Company is unable to obtain sufficient amounts of additional
capital, the Company may be required to reduce the near-term scope of its planned development and operations, which could delay implementation
of the Company’s business plan and harm its business, financial condition and operating results. The consolidated balance sheets
do not include any adjustments that might result from these uncertainties. Basis
of Presentation The
consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative
GAAP as found in the Accounting Standards Codification (“ASC”) and an Accounting Standards Update (“ASU”) of
the Financial Accounting Standards Board (“FASB”). The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidated financial statements
herein. The
Business Combination was accounted for as a reverse recapitalization in accordance with GAAP, whereby Oxbridge is treated as the acquired
company and Jet Token is treated as the acquirer (the “Reverse Recapitalization”). Accordingly, for accounting purposes,
the Reverse Recapitalization was treated as the equivalent of Jet Token issuing stock for the net assets of Oxbridge, accompanied by
a recapitalization. The net assets of Oxbridge were stated at historical cost, with no goodwill or other intangible assets recorded. Jet
Token was determined to be the accounting acquirer in the Business Combination based on the following predominate factors:
● Jet
Token’s existing stockholders had the greatest voting interest in the combined entity;
● Jet
Token existing stockholders had the ability to nominate a majority of the initial members of the combined entity Board;
● Jet
Token’s senior management is the senior management of the combined entity;
● Jet
Token is the larger entity based on historical operating activity and has the larger employee base; and
● The
post-combination company has assumed a Jet Token branded name: “Jet.AI Inc.” Unaudited
Interim Financial Statements Certain
information and disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been
condensed or omitted. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these unaudited
consolidated interim financial statements have been included. Such adjustments consist of normal recurring adjustments. The results of
operations for the three months ended March 30, 2024 are not necessarily indicative of the results that may be expected for the full
year. Principles
of Consolidation The
accompanying consolidated financial statements include the accounts of Jet.AI Inc. and its wholly owned subsidiaries, Summerlin Aviation
LLC, Jet Token Software Inc., Jet Token Management Inc., Galilee LLC, and Galilee 1 SPV LLC and Cloudrise Ltd. All intercompany accounts
and transactions have been eliminated in consolidation. The
consolidated assets, liabilities, and results of operations prior to the Reverse Recapitalization are those of Jet Token. The shares
and corresponding capital amounts and losses per share, prior to the Reverse Recapitalization, have been retroactively restated based
on shares reflecting the exchange ratio established in the Business Combination. Use
of Estimates The
preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of expenses during the reporting period. Making estimates requires management to exercise significant
judgement. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that
existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term
due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. Fair
Value of Financial Instruments Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date.
Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs
are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from
sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that
market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value: Level
1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level
2 - Include other inputs that are directly or indirectly observable in the marketplace. Level
3 - Unobservable inputs which are supported by little or no market activity. The
fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. Risks
and Uncertainties The
Company has a limited operating history and has only recently begun generating revenue from intended operations. The Company’s
business and operations are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state,
and federal governmental policy decisions. A host of factors beyond the Company’s control could cause fluctuations in these conditions.
Adverse conditions may include but are not limited to: changes in the airline industry, fuel and operating costs, changes to corporate
governance best practices for executive flying, general demand for private jet travel, regulations on carbon emissions from aviation
and market acceptance of the Company’s business model. These adverse conditions could affect the Company’s financial condition
and the consolidated results of its operations. Cash
and Cash Equivalents For
purpose of the consolidated statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. Included within cash and cash equivalents is restricted cash of $ 500,000 Offering
Costs The
Company complies with the requirements of ASC 340 with regards to offering costs. Prior to the completion of an offering, offering costs will be capitalized as
deferred offering costs on the consolidated balance sheets. The deferred offering costs will be charged to stockholders’ deficit
upon the completion of an offering or to expense if the offering is not completed. Other
Current Assets Other
current assets include security deposits, which relate primarily to contractual prepayments to third-parties for future services, prepaid
expenses and customer receivables for additional expenses incurred in their charter trips. Property
and Equipment Property
and equipment are recorded at cost, less accumulated depreciation. Expenditures for major additions and improvements are capitalized
and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results
of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line
method for financial statement purposes. As of March 31, 2024 and December 31, 2023, property and equipment consisted entirely of equipment
which is being depreciated over a three Internal
Use Software The
Company incurs software development costs to develop software programs to be used solely to meet its internal needs and cloud-based applications
used to deliver its services. In accordance with ASC 350-40, Internal-Use Software, the Company capitalizes development costs related
to these software applications once a preliminary project stage is complete, funding has been committed, and it is probable that the
project will be completed, and the software will be used to perform the function intended. As of March 31, 2024 and December 31, 2023,
the Company has capitalized approximately $ 398,108 33,176 431,276 Investments
in Joint Ventures In
January 2023, the Company formed a 50/50 joint venture subsidiary with Great Western Air LLC dba Cirrus Aviation Services, 380 Software
LLC, a Nevada limited liability company. Costs and profits are to be shared equally. The Company accounts for these investments using
the equity method whereby the initial investment is recorded at cost and subsequently adjusted by the Company’s share of income
or loss from the joint venture. There is currently no financial activity or material assets to report for this joint venture beyond this
initial investment. Leases The
Company determines if an arrangement is a lease at inception on an individual contract basis. Operating leases are included in operating
lease right-of-use assets, operating lease liabilities, current and operating lease liabilities, non-current on the consolidated balance
sheets. Operating lease right-of-use assets represent the right to use an underlying asset for the lease term. Operating lease right-of-use
assets are recognized at lease commencement date based on the present value of the future minimum lease payments over the lease term.
The interest rate implicit in each lease was readily determinable to discount lease payments. The
operating lease right-of-use assets include any lease payments made, including any variable amounts that are based on an index or rate,
and exclude lease incentives. Lease terms may include options to extend or terminate the lease. Renewal option periods are included within
the lease term and the associated payments are recognized in the measurement of the operating right-of-use asset when they are at the
Company’s discretion and considered reasonably certain of being exercised. Lease expense for lease payments is recognized on a
straight-line basis over the lease term. The
Company has elected the practical expedient not to recognize leases with an initial term of 12 months or less on the Company’s
consolidated balance sheets and lease expense is recognized on a straight-line basis over the term of the short-term lease. Impairment
of Long-Lived Assets The
Company follows ASC 360, Accounting for Impairment or Disposal of Long-Lived Assets. ASC 360 requires that if events or changes in circumstances
indicate that the carrying value of long-lived assets or asset groups may be impaired, an evaluation of recoverability would be performed
by comparing the estimated future undiscounted cash flows associated with the asset to the asset’s carrying value to determine
if a write-down to market value would be required. Long-lived assets or asset groups that meet the criteria in ASC 360 as being held
for sale are reflected at the lower of their carrying amount or fair market value, less costs to sell. Revenue
Recognition In
applying the guidance of ASC 606, the Company determines revenue recognition through the following steps:
● Identification
of the contract, or contracts, with a customer;
● Identification
of the performance obligations in the contract;
● Determination
of the transaction price;
● Allocation
of the transaction price to the performance obligations in the contract; and
● Recognition
of revenue when, or as, a performance obligation is satisfied. Revenue
is derived from a variety of sources including, but not limited to, (i) fractional/whole aircraft sales, (ii) fractional ownership and
jet card programs, (iii) ad hoc charter through the Jet Token App and (iv) aircraft management. Under
the fractional ownership program, a customer purchases an ownership share in a jet which guarantees the customer access to the jet for
a preset number of hours per year. The fractional ownership program consists of a down payment, one or more progress payments, a payment
on delivery, a Monthly Management Fee (MMF) and an Occupied Hourly Fee (OHF). Revenues from the sale of fractional or whole interests
in an aircraft are recognized at the time title to the aircraft is transferred to the purchasers, which generally occurs upon delivery
or ownership transfer. The
jet card program provides the customer with a preset number of hours of guaranteed private jet access over the agreement term (generally
a year) without the larger hourly or capital commitment of purchasing an ownership share. The jet card program consists of a fixed hourly
rate for flight hours typically paid 100% up front. Revenue
is recognized upon transfer of control of the Company’s promised services, which generally occurs upon the flight hours being used.
Any unused hours for the fractional jet and jet card programs are forfeited at the end of the contract term and are thus immediately
recognized as revenue at that time. Deferred
revenue is an obligation to transfer services to a customer for which the Company has already received consideration. Upon receipt of
a prepayment from a customer for all or a portion of the transaction price, the Company initially recognizes a contract liability. The
contract liability is settled, and revenue is recognized when the Company satisfies its performance obligation to the customer at a future
date. As of March 31, 2024 and December 31, 2023, the Company deferred $ 1,207,474 1,510,976 The
Company also generates revenues from individual ad hoc charter bookings processed through the Company’s App, whereby the Company
will source, negotiate, and arrange travel on a charter basis for a customer based on pre-selected options and pricing provided by the
Company to the customer through the App. In addition, Cirrus markets charter on the Company’s aircraft for the Company’s
benefit. Deferred revenue with respect to the App was $ 187,811 268,818 The
Company utilizes certificated independent third-party air carriers in the performance of a portion of flights. The Company evaluates
whether there is a promise to transfer services to the customer, as the principal, or to arrange for services to be provided by another
party, as the agent, using a control model. The nature of the flight services the Company provides to members is similar regardless of
which third-party air carrier is involved. The Company directs third-party air carriers to provide an aircraft to a member or customer.
Based on evaluation of the control model, it was determined that the Company acts as the principal rather than the agent within all revenue
arrangements. Owner charter revenue is recognized for flights where the owner of a managed aircraft sets the price for the trip. The
Company records owner charter revenue at the time of flight on a net basis for the margin we receive to operate the aircraft. If the
Company has primary responsibility to fulfill the obligation, then the revenue and the associated costs are reported on a gross basis
in the consolidated statements of operations. The
following is a breakout of revenue components by subcategory for the three months ended March 31, 2024 and 2023. SCHEDULE
OF BREAKOUT OF REVENUE COMPONENTS BY SUBCATEGORY
2024 2023
For the Three Months Ended
March 31,
2024 2023
Software App and Cirrus Charter $ 2,371,091 $ 994,253
Jet Card and Fractional Programs 677,320 547,545
Management and Other Services 800,187 333,710
Total revenues $ 3,848,598 $ 1,875,508 Flights Flights
and flight-related services, along with the related costs of the flights, are earned and recognized as revenue at the point in time in
which the service is provided. For round-trip flights, revenue is recognized upon arrival at the destination for each flight segment. Fractional
and jet card members pay a fixed quoted amount for flights based on a contractual capped hourly rate. Ad hoc charter customers primarily
pay a fixed rate for flights. In addition, flight costs are paid by members through the purchase of dollar-denominated prepaid blocks
of flight hours (“Prepaid Blocks”), and other incidental costs such as catering and ground transportation are billed monthly
as incurred. Prepaid Blocks are deferred and recognized as revenue when the member completes a flight segment. Aircraft
Management The
Company manages aircraft for owners in exchange for a contractual fee. Revenue associated with the management of aircraft also includes
the recovery of owner-incurred expenses including maintenance coordination, cabin crew and pilots, as well as recharging of certain incurred
aircraft operating costs and expenses such as maintenance, fuel, landing fees, parking and other related operating costs. The Company
passes the recovery and recharge costs back to owners at either cost or a predetermined margin. Aircraft
management-related revenue contains two types of performance obligations. One performance obligation is to provide management services
over the contract period. Revenue earned from management services is recognized over the contractual term, on a monthly basis. The second
performance obligation is the cost to operate and maintain the aircraft, which is recognized as revenue at the point in time such services
are completed. Aircraft
Sales The
Company acquires aircraft from vendors and various other third-party sellers in the private aviation industry. The Company’s classifies
the purchase as aircraft inventory on the consolidated balance sheets. Aircraft inventory is valued at the lower of cost or net realizable
value. Sales are recorded on a gross basis within revenues and cost of revenue in the consolidated statements of operations. The Company
recorded aircraft sales of $ 0 Pass-Through
Costs In
applying the guidance of ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in
an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine
revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following
five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine
the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue
when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable
that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.
At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services
promised within each contract and determines those that are distinct performance obligations. The Company then assesses whether it is
acting as an agent or a principal for each identified performance obligation and includes revenue within the transaction price for third-party
costs when the Company determines that it is acting as the principal. Cost
of Sales The
cost of sales expenses includes costs incurred in providing air transportation services, such as chartering third-party aircraft, aircraft
lease expenses, pilot training and wages, aircraft fuel, aircraft maintenance, and other aircraft operating expenses.
1. Chartering
Third-Party Aircraft: The cost of chartering third-party aircraft is recorded as a part of the cost of sales expense. These expenses
include the fees paid to third-party operators for providing aircraft services on behalf of the company. Expenses are recognized
in the income statement in the period when the service is rendered and are reported on an accrual basis.
2. Aircraft
Lease Expenses: Aircraft lease expenses include the cost of leasing aircraft for the company’s operations. The lease expenses
are recognized as an operating expense in the income statement over the lease term on a straight-line basis.
3. Pilot
Training and Wages: Pilot training costs are expensed as incurred and are included in the cost of sales expenses. This encompasses
expenses related to initial pilot training, recurrent training, and any additional required training programs. Pilot wages, including
salaries, bonuses, and benefits, are also recognized as a part of the cost of sales expenses and are reported on an accrual basis.
4. Aircraft
Fuel: The cost of aircraft fuel is recognized as an expense in the cost of sales category based on the actual consumption during
flight operations. Fuel costs are recorded in the income statement in the period when the fuel is consumed and are reported on an
accrual basis.
5. Aircraft
Maintenance: Aircraft maintenance expenses include both routine and non-routine maintenance. Routine maintenance costs are expensed
as incurred and are recorded as a part of the cost of sales expense. Non-routine maintenance expenses, such as major repairs and
overhauls, are capitalized and amortized over their expected useful life. The amortization expense is included in the cost of sales
expense and is recognized in the income statement on a straight-line basis over the asset’s useful life.
6. Other
Aircraft Operating Expenses: Other aircraft operating expenses include costs such as insurance, landing fees, navigation charges,
and catering services. These expenses are recognized in the income statement as a part of the cost of sales expenses in the period
when they are incurred and are reported on an accrual basis. Advertising
Costs The
Company expenses the cost of advertising and promoting the Company’s services as incurred. Such amounts are included in sales and
marketing expense in the consolidated statements of operations and totaled $ 446,600 120,167 Research
and Development The
Company incurs research and development costs during the process of researching and developing its technologies and future offerings.
The Company’s research and development costs consist primarily of payments for third party software development that is not capitalizable.
The Company expenses these costs as incurred until the resulting product has been completed, tested, and made ready for commercial use. Stock-Based
Compensation The
Company accounts for stock awards under ASC 718, Compensation – Stock Compensation. Under ASC 718, stock-based compensation cost
is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s
requisite vesting period or over the nonemployee’s period of providing goods or services. The fair value of each stock option or
warrant award is estimated on the date of grant using the Black-Scholes option valuation model. Income
Taxes The
Company applies ASC 740 Income Taxes (“ASC 740”). Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end,
based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision
for income taxes represents the tax expense for the period, if any and the change during the period in deferred tax assets and liabilities. ASC
740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from
an uncertain position is recognized only if it is “more likely than not” that the position is sustainable upon examination
by the relevant taxing authority based on its technical merit. The
Company is subject to tax in the United States (“U.S.”) and files tax returns in the U.S. Federal jurisdiction and Nevada
state jurisdiction. The Company is subject to U.S. Federal, state, and local income tax examinations by tax authorities for all periods
since Inception. The Company currently is not under examination by any tax authority. Loss
per Common Share The
Company presents basic loss per share (“EPS”) and diluted EPS on the face of the consolidated statements of operations. Basic
loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. For periods
in which the Company incurs a net loss, the effects of potentially dilutive securities would be antidilutive and would be excluded from
diluted EPS calculations. For the three months ended March 31, 2024 and 2023, there were 3,659,015 3,284,488 25,221,406 0 1,807,229 0 1,500 0 Concentration
of Credit Risk The
Company maintains its cash with several major financial institutions located in the United States of America which it believes to be
creditworthy. Balances are insured by the Federal Deposit Insurance Corporation up to $ 250,000 Segment
Reporting The
Company identifies operating segments as components of the Company for which discrete financial information is available and is regularly
reviewed by the chief operating decision maker, or decision-making group, in making decisions regarding resource allocation and performance
assessment. The chief operating decision maker is the chief executive officer. The Company determined that the Company operates in a
single operating and reportable segment, private aviation services, as the chief operating decision maker reviews financial information
presented on a consolidated basis, accompanied by disaggregated information about revenue, for purposes of making operating decisions,
allocating resources, and assessing performance. All of the Company’s long-lived assets are located in the U.S. and revenue from
private aviation services is substantially earned from flights throughout the U.S. | NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Going
Concern and Management Plans The
Company has limited operating history and has incurred losses from operations since Inception. These matters raise concern about the
Company’s ability to continue as a going concern. The
Company began ramping up its revenue-generating activities during the second half of the year ended December 31, 2021 and continuing
into 2022 and 2023. During the next twelve months, the Company intends to fund its operations with funds from its operations, drawdowns
under its GEM share purchase agreement, as well as proceeds from other financing arrangements. The Company also has the ability to reduce
cash burn to preserve capital. There are no assurances, however, that management will be able to raise capital on terms acceptable to
the Company. If the Company is unable to obtain sufficient amounts of additional capital, the Company may be required to reduce the near-term
scope of its planned development and operations, which could delay implementation of the Company’s business plan and harm its business,
financial condition and operating results. The consolidated balance sheets do not include any adjustments that might result from these
uncertainties. Basis
of Presentation The
consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative
GAAP as found in the Accounting Standards Codification (“ASC”) and an Accounting Standards Update (“ASU”) of
the Financial Accounting Standards Board (“FASB”). The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidated financial statements
herein. The
Business Combination was accounted for as a reverse recapitalization in accordance with GAAP, whereby Oxbridge is treated as the acquired
company and Jet Token is treated as the acquirer (the “Reverse Recapitalization”). Accordingly, for accounting purposes,
the Reverse Recapitalization was treated as the equivalent of Jet Token issuing stock for the net assets of Oxbridge, accompanied by
a recapitalization. The net assets of Oxbridge were stated at historical cost, with no goodwill or other intangible assets recorded. Jet
Token has been determined to be the accounting acquirer in the Business Combination based on the following predominate factors:
● Jet
Token’s existing stockholders have the greatest voting interest in the combined entity;
● Jet
Token existing stockholders have the ability to nominate a majority of the initial members of the combined entity Board;
● Jet
Token’s senior management is the senior management of the combined entity
● Jet
Token is the larger entity based on historical operating activity and has the larger employee base; and
● The
post-combination company has assumed a Jet Token branded name: “Jet.AI Inc.” Principles
of Consolidation The
accompanying consolidated financial statements include the accounts of Jet.AI Inc. and its wholly owned subsidiaries, Summerlin Aviation
LLC, Jet Token Software Inc., Jet Token Management Inc., Galilee LLC, and Galilee 1 SPV LLC and Cloudrise Ltd. All intercompany accounts
and transactions have been eliminated in consolidation. The
consolidated assets, liabilities, and results of operations prior to the Reverse Recapitalization are those of Jet Token. The shares
and corresponding capital amounts and losses per share, prior to the Reverse Recapitalization, have been retroactively restated based
on shares reflecting the exchange ratio established in the Business Combination. JET.AI,
INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Use
of Estimates The
preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of expenses during the reporting period. Making estimates requires management to exercise significant
judgement. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that
existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term
due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. Fair
Value of Financial Instruments Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date.
Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs
are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from
sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that
market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value: Level
1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level
2 - Include other inputs that are directly or indirectly observable in the marketplace. Level
3 - Unobservable inputs which are supported by little or no market activity. The
fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. Risks
and Uncertainties The
Company has a limited operating history and has only recently begun generating revenue from intended operations. The Company’s
business and operations are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state,
and federal governmental policy decisions. A host of factors beyond the Company’s control could cause fluctuations in these conditions.
Adverse conditions may include but are not limited to: changes in the airline industry, fuel and operating costs, changes to corporate
governance best practices for executive flying, general demand for private jet travel, regulations on carbon emissions from aviation
and market acceptance of the Company’s business model. These adverse conditions could affect the Company’s financial condition
and the results of its operations. Cash
and Cash Equivalents For
the purpose of the consolidated statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. Included within cash and cash equivalents is restricted cash of $ 500,000 Offering
Costs The
Company complies with the requirements of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification
(“ASC”) 340 with regards to offering costs. Prior to the completion of an offering, offering costs will be capitalized as
deferred offering costs on the consolidated balance sheet. The deferred offering costs will be charged to stockholders’ (deficit)
equity upon the completion of an offering or to expense if the offering is not completed. JET.AI,
INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Other
Current Assets Other
current assets include security deposits, which relate primarily to contractual prepayments to third-parties for future services, prepaid
expenses and customer receivables for additional expenses incurred in their charter trips. Property
and Equipment Property
and equipment are recorded at cost, less accumulated depreciation. Expenditures for major additions and improvements are capitalized
and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results
of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line
method for financial statement purposes. As of December 31, 2023 and 2022, property and equipment consisted entirely of equipment which
is being depreciated over a three Internal
Use Software The
Company incurs software development costs to develop software programs to be used solely to meet its internal needs and cloud-based applications
used to deliver its services. In accordance with ASC 350-40, Internal-Use Software, the Company capitalizes development costs related
to these software applications once a preliminary project stage is complete, funding has been committed, and it is probable that the
project will be completed, and the software will be used to perform the function intended. As of December 31, 2023 and 2022, the Company
has capitalized approximately $ 398,000 132,702 398,101 Investments
in Joint Ventures In
January 2023, the Company formed a 50/50 joint venture subsidiary with Great Western Air LLC dba Cirrus Aviation Services, 380 Software
LLC, a Nevada limited liability company. Costs and profits are to be shared equally. The Company accounts for these investments using
the equity method whereby the initial investment is recorded at cost and subsequently adjusted by the Company’s share of income
or loss from the joint venture. The Company has made investments in the joint venture totaling $ 100,000 Leases The
Company determines if an arrangement is a lease at inception on an individual contract basis. Operating leases are included in operating
lease right-of-use assets, operating lease liabilities, current and operating lease liabilities, non-current on the consolidated balance
sheets. Operating lease right-of-use assets represent the right to use an underlying asset for the lease term. Operating lease right-of-use
assets are recognized at lease commencement date based on the present value of the future minimum lease payments over the lease term.
The interest rate implicit in each lease was readily determinable to discount lease payments. The
operating lease right-of-use assets include any lease payments made, including any variable amounts that are based on an index or rate,
and exclude lease incentives. Lease terms may include options to extend or terminate the lease. Renewal option periods are included within
the lease term and the associated payments are recognized in the measurement of the operating right-of-use asset when they are at the
Company’s discretion and considered reasonably certain of being exercised. Lease expense for lease payments is recognized on a
straight-line basis over the lease term. The
Company has elected the practical expedient not to recognize leases with an initial term of 12 months or less on the Company’s
consolidated balance sheets and lease expense is recognized on a straight-line basis over the term of the short-term lease. JET.AI,
INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Impairment
of Long-Lived Assets The
Company follows ASC 360, Accounting for Impairment or Disposal of Long-Lived Assets. ASC 360 requires that if events or changes in circumstances
indicate that the carrying value of long-lived assets or asset groups may be impaired, an evaluation of recoverability would be performed
by comparing the estimated future undiscounted cash flows associated with the asset to the asset’s carrying value to determine
if a write-down to market value would be required. Long-lived assets or asset groups that meet the criteria in ASC 360 as being held
for sale are reflected at the lower of their carrying amount or fair market value, less costs to sell. Revenue
Recognition In
applying the guidance of ASC 606, the Company determines revenue recognition through the following steps:
● Identification
of the contract, or contracts, with a customer;
● Identification
of the performance obligations in the contract;
● Determination
of the transaction price;
● Allocation
of the transaction price to the performance obligations in the contract; and
● Recognition
of revenue when, or as, a performance obligation is satisfied. Revenue
is derived from a variety of sources including, but not limited to, (i) fractional/whole aircraft sales, (ii) fractional ownership and
jet card programs, (iii) ad hoc charter through the Jet Token App and (iv) aircraft management. Under
the fractional ownership program, a customer purchases an ownership share in a jet which guarantees the customer access to the jet for
a preset number of hours per year. The fractional ownership program consists of a down payment,
one or more progress payments, a payment on delivery, a Monthly Management Fee (MMF) and an Occupied Hourly Fee (OHF). The
jet card program provides the customer with a preset number of hours of guaranteed private jet access over the agreement term (generally
a year) without the larger hourly or capital commitment of purchasing an ownership share. The jet card program consists of a fixed hourly
rate for flight hours typically paid 100% up front. Revenue
is recognized upon transfer of control of the Company’s promised services, which generally occurs upon the flight hours being used.
Any unused hours for the fractional jet and jet card programs are forfeited at the end of the contract term and are thus immediately
recognized as revenue at that time. Deferred
revenue is an obligation to transfer services to a customer for which the Company has already received consideration. Upon receipt of
a prepayment from a customer for all or a portion of the transaction price, the Company initially recognizes a contract liability. The
contract liability is settled, and revenue is recognized when the Company satisfies its performance obligation to the customer at a future
date. As of December 31, 2023 and 2022, the Company deferred $ 1,510,976 933,361 The
Company also generates revenues from individual ad hoc charter bookings processed through the Company’s App, whereby the Company
will source, negotiate, and arrange travel on a charter basis for a customer based on pre-selected options and pricing provided by the
Company to the customer through the App. In addition, Cirrus markets charter on the Company’s aircraft for the Company’s
benefit. Deferred revenue with respect to the App was $ 268,818 The
Company utilizes certificated independent third-party air carriers in the performance of a portion of flights. The Company evaluates
whether there is a promise to transfer services to the customer, as the principal, or to arrange for services to be provided by another
party, as the agent, using a control model. The nature of the flight services the Company provides to members is similar regardless of
which third-party air carrier is involved. The Company directs third-party air carriers to provide an aircraft to a member or customer.
Based on evaluation of the control model, it was determined that the Company acts as the principal rather than the agent within all revenue
arrangements. Owner charter revenue is recognized for flights where the owner of a managed aircraft sets the price for the trip. The
Company records owner charter revenue at the time of flight on a net basis for the margin we receive to operate the aircraft. If the
Company has primary responsibility to fulfill the obligation, then the revenue and the associated costs are reported on a gross basis
in the consolidated statements of operations. JET.AI,
INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS The
following is a breakout of revenue components by subcategory for the years ended December 31, 2023 and 2022. SCHEDULE
OF BREAKOUT OF REVENUE COMPONENTS BY SUBCATEGORY
2023 2022
For the Year Ended
December 31,
2023 2022
Software App and Cirrus Charter $ 7,125,230 $ 2,004,807
Jet Card and Fractional Programs 2,847,533 2,257,736
Management and Other Services 2,241,793 400,185
Fractional/Whole Aircraft Sales - 17,200,000
Total revenues $ 12,214,556 $ 21,862,728 Flights Flights
and flight-related services, along with the related costs of the flights, are earned and recognized as revenue at the point in time in
which the service is provided. For round-trip flights, revenue is recognized upon arrival at the destination for each flight segment. Fractional
and jet card members pay a fixed quoted amount for flights based on a contractual capped hourly rate. Ad hoc charter customers primarily
pay a fixed rate for flights. In addition, flight costs are paid by members through the purchase of dollar-denominated prepaid blocks
of flight hours (“Prepaid Blocks”), and other incidental costs such as catering and ground transportation are billed monthly
as incurred. Prepaid Blocks are deferred and recognized as revenue when the member completes a flight segment. Aircraft
Management The
Company manages aircraft for owners in exchange for a contractual fee. Revenue associated with the management of aircraft also includes
the recovery of owner-incurred expenses including maintenance coordination, cabin crew and pilots, as well as recharging of certain incurred
aircraft operating costs and expenses such as maintenance, fuel, landing fees, parking and other related operating costs. The Company
passes the recovery and recharge costs back to owners at either cost or a predetermined margin. Aircraft
management-related revenue contains two types of performance obligations. One performance obligation is to provide management services
over the contract period. Revenue earned from management services is recognized over the contractual term, on a monthly basis. The second
performance obligation is the cost to operate and maintain the aircraft, which is recognized as revenue at the point in time such services
are completed. Aircraft
Sales The
Company acquires aircraft from vendors and various other third-party sellers in the private aviation industry. The Company’s classifies
the purchase as aircraft inventory on the consolidated balance sheets. Aircraft inventory is valued at the lower of cost or net realizable
value. Sales are recorded on a gross basis within revenues and cost of revenue in the consolidated statements of operations. The Company
recorded aircraft sales of $ 0 17,200,000 JET.AI,
INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Pass-Through
Costs In
applying the guidance of ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in
an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine
revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following
five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine
the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue
when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable
that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.
At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services
promised within each contract and determines those that are distinct performance obligations. The Company then assesses whether it is
acting as an agent or a principal for each identified performance obligation and includes revenue within the transaction price for third-party
costs when the Company determines that it is acting as the principal. Cost
of Sales The
cost of sales expenses includes costs incurred in providing air transportation services, such as chartering third-party aircraft, aircraft
lease expenses, pilot training and wages, aircraft fuel, aircraft maintenance, and other aircraft operating expenses.
1. Chartering
Third-Party Aircraft: The cost of chartering third-party aircraft is recorded as a part of the cost of sales expense. These expenses
include the fees paid to third-party operators for providing aircraft services on behalf of the company. Expenses are recognized
in the income statement in the period when the service is rendered and are reported on an accrual basis.
2. Aircraft
Lease Expenses: Aircraft lease expenses include the cost of leasing aircraft for the company’s operations. The lease expenses
are recognized as an operating expense in the income statement over the lease term on a straight-line basis.
3. Pilot
Training and Wages: Pilot training costs are expensed as incurred and are included in the cost of sales expenses. This encompasses
expenses related to initial pilot training, recurrent training, and any additional required training programs. Pilot wages, including
salaries, bonuses, and benefits, are also recognized as a part of the cost of sales expenses and are reported on an accrual basis.
4. Aircraft
Fuel: The cost of aircraft fuel is recognized as an expense in the cost of sales category based on the actual consumption during
flight operations. Fuel costs are recorded in the income statement in the period when the fuel is consumed and are reported on an
accrual basis.
5. Aircraft
Maintenance: Aircraft maintenance expenses include both routine and non-routine maintenance. Routine maintenance costs are expensed
as incurred and are recorded as a part of the cost of sales expense. Non-routine maintenance expenses, such as major repairs and
overhauls, are capitalized and amortized over their expected useful life. The amortization expense is included in the cost of sales
expense and is recognized in the income statement on a straight-line basis over the asset’s useful life.
6. Other
Aircraft Operating Expenses: Other aircraft operating expenses include costs such as insurance, landing fees, navigation charges,
and catering services. These expenses are recognized in the income statement as a part of the cost of sales expenses in the period
when they are incurred and are reported on an accrual basis. Advertising
Costs The
Company expenses the cost of advertising and promoting the Company’s services as incurred. Such amounts are included in sales and
marketing expense in the consolidated statements of operations and totaled $ 573,881 426,728 Research
and Development The
Company incurs research and development costs during the process of researching and developing its technologies and future offerings.
The Company’s research and development costs consist primarily of payments for third party software development that is not capitalizable.
The Company expenses these costs as incurred until the resulting product has been completed, tested, and made ready for commercial use. JET.AI,
INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Stock-Based
Compensation The
Company accounts for stock awards under ASC 718, Compensation – Stock Compensation. Under ASC 718, stock-based compensation cost
is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s
requisite vesting period or over the nonemployee’s period of providing goods or services. The fair value of each stock option or
warrant award is estimated on the date of grant using the Black-Scholes option valuation model. Income
Taxes The
Company applies ASC 740 Income Taxes (“ASC 740”). Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end,
based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision
for income taxes represents the tax expense for the period, if any and the change during the period in deferred tax assets and liabilities. ASC
740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from
an uncertain position is recognized only if it is “more likely than not” that the position is sustainable upon examination
by the relevant taxing authority based on its technical merit. At December 31, 2023, management is not aware of any uncertain tax positions
that would have a material impact on the Company’s consolidated financial statements. Loss
per Common Share The
Company presents basic loss per share (“EPS”) and diluted EPS on the face of the consolidated statements of operations. Basic
loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. For periods
in which the Company incurs a net loss, the effects of potentially dilutive securities would be antidilutive and would be excluded from
diluted EPS calculations. For the years ended December 31, 2023 and 2022, there were 3,659,015 3,216,408 25,975,001 0 Concentration
of Credit Risk The
Company maintains its cash with several major financial institutions located in the United States of America which it believes to be
creditworthy. Balances are insured by the Federal Deposit Insurance Corporation up to $ 250,000 Allowance
for Credit Losses The
Company recognizes an expected allowance for credit losses with respect to its accounts receivable. In addition, also at each reporting
date, this estimate is updated to reflect any changes in credit risk since the receivable was initially recorded. This estimate is calculated
on a pooled basis where similar risk characteristics exist. Accounts receivable are evaluated individually when they do not share similar
risk characteristics which could exist in circumstances where amounts are considered at risk or uncollectible This estimate is adjusted
for management’s assessment of current conditions, reasonable and supportable forecasts regarding future events, and any other
factors deemed relevant by the Company. The Company believes historical loss information is a reasonable starting point in which to calculate
the expected allowance for credit losses as the Company’s customers have remained constant since the Company’s inception.
The Company writes off receivables when there is information that indicates the debtor is facing significant financial difficulty and
there is no possibility of recovery. If any recoveries are made from any accounts previously written off, they will be recognized in
income or an offset to credit loss expense in the year of recovery, in accordance with the entity’s accounting policy election.
The total amount of write-offs was immaterial to the consolidated financial statements as a whole for the year ending December 31, 2023.
No JET.AI,
INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Segment
Reporting The
Company identifies operating segments as components of the Company for which discrete financial information is available and is regularly
reviewed by the chief operating decision maker, or decision-making group, in making decisions regarding resource allocation and performance
assessment. The chief operating decision maker is the chief executive officer. The Company determined that the Company operates in a
single operating and reportable segment, private aviation services, as the chief operating decision maker reviews financial information
presented on a consolidated basis, accompanied by disaggregated information about revenue, for purposes of making operating decisions,
allocating resources, and assessing performance. All of the Company’s long-lived assets are located in the U.S. and revenue from
private aviation services is substantially earned from flights throughout the U.S. Recently
Adopted Accounting Guidance In
June 2016, the FASB issued guidance (FASB ASC 326) which significantly changed how entities will measure credit losses for most financial
assets and certain other instruments that aren’t measured at fair value through net income. The most significant change in this
standard is a shift from the incurred loss model to the expected loss model. Under the standard, disclosures are required to provide
users of the financial statements with useful information in analyzing an entity’s exposure to credit risk and the measurement
of credit losses. Financial assets held by the Company that are subject to the guidance in FASB ASC 326 were accounts receivable. The
Company adopted the standard effective January 1, 2023. The impact of the adoption was not considered material to the consolidated financial
statements and primarily resulted in new/enhanced disclosures only. |
