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Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-03-26 · 153 added, 167 removed, 133 unchanged (71% of the section changed)

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Overview of Our Business

Our mission is to provide our JetShare owners and other customers more time for the rest of their lives by providing convenient and high-quality travel by using the right aircraft for the mission and by developing proprietary technology designed to make the travel experience more seamless.

Our revenue is generated through our aircraft ownership program, a focused commercial strategy which includes deposit products, charter flights and aircraft management services.

Our aircraft ownership program is an asset-lite model whereby we sell each fleet aircraft to a limited liability company (LLC) and sell LLC membership interests to third-party owners.

The LLC then leases the aircraft back to us for management and charter operation on behalf of the LLC under 14 C.F.R.

In turn, program participants (JetShare owners) invest in those special purpose entities to fund the aircraft purchase.

We operate the aircraft on behalf of the special purpose entity and enters into charter agreements with the individual JetShare owners to provide preferential access and charter pricing for our HondaJet fleet.

Additionally, our commercial services generate demand for our fleet through the operation of retail deposit programs and charter as well as wholesale charter through brokers.

We offer these programs on a fleet of 24 HondaJets and a managed fleet of 6 aircraft.

For additional details about these revenue streams, please see the section above titled “Aircraft Ownership Program Revenue Streams”.

Finally, we provide aircraft management services to existing owners of aircraft and help them monetize their aircraft through charter services.

Since inception, we have been focused on making the necessary investments in people, focused acquisitions, aircraft and technology to build an industry leading aviation company that uses capital efficiently.

Our revenue is generated through airplane sales and software-as-a-service subscriptions.

Our aircraft ownership program was an asset-lite model whereby we sell each fleet aircraft to a limited liability company (LLC) and sell LLC membership interests to third-party owners.

The LLC then leased the aircraft back to us for management and charter operation on behalf of the LLC under 14 C.F.R.

In turn, program participants (JetShare owners) invested in those special purpose entities to fund the aircraft purchase.

We operated the aircraft on behalf of the special purpose entity and entered into charter agreements with the individual JetShare owners to provide preferential access and charter pricing for our HondaJet fleet.

In September 2024, we entered into an agreement with flyExclusive, a leading provider of private jet charter services, to transition our aircraft ownership program fleet operations to flyExclusive.

This move is expected to bring substantial cost savings and provide Volato with the opportunity to focus on what it believes to be its high-growth areas, including aircraft sales and products and services utilizing our proprietary software.

Volato expects benefit from the margins on aircraft sales without the burden of operational costs, while also generating revenue from its proprietary software, including the Vaunt platform, Volato’s successful empty leg consumer app.

In the fourth quarter of 2024, we transferred the aircraft lease agreements to flyExclusive and have no further obligations under the aircraft lease agreements or control over such flight operations.

Items related to our aircraft ownership program fleet operations are now included in discontinued operations.

Financial highlights for the year ended December 31, 2024 include:

• We generated total revenue of $73.3 million a decrease of $23.4 million, or 24%, compared to the year ended December 31, 2022.

Revenue from aircraft usage increased by $23.4 million, or 162%, while revenue from plane sales decreased by $46.3 million, or 68%, during the year ended December 31, 2023, primarily related to lower plane sales;

• We had 11,273 total flight hours for the year ended December 31, 2023, representing 124% year-over-year growth;

• We incurred a net loss of $52.8 million for the year ended December 31, 2023, representing a $43.5 million increase in loss over the prior year primarily related to lower plane sales, as described above, and increased costs related to being a publicly traded company and a rapidly scaling business;

• Adjusted negative EBITDA 1 was $32.1 million for the year ended December 31, 2023 compared to adjusted negative EBITDA of $9.0 million for the prior year.

The change in adjusted EBITDA was the result of increased costs of being a publicly traded company and a rapidly scaling business, as well as lower plane sales.

• We generated total revenue of $46.3 million an increase of $10.7 million, or 30%, compared to the year ended December 31, 2023, primarily related to an increase in aircraft sales of $16.7 million as we took delivery of our first Gulfstream G280;

• Net loss from continuing operations was $21.9 million compared to $20.6 million in 2023.

The decrease in net loss from continuing operations was the result of higher plane sale revenue mentioned above, and;

• We incurred a net loss of $40.6 million for the year ended December 31, 2024, representing a $12.2 million decrease in loss over the prior year.

Key Factors Affecting Results of Operations

We believe that the following factors have affected our financial condition and results of operations and are expected to continue to have a significant effect:

Market Competition

We compete for market share in the highly fragmented private aviation industry.

The top 10 largest operators control approximately 25% of the total flight hours operated in the United States.

For example, there are over 400 light jet

1Adjusted EBITDA is a non-GAAP financial measure.

Please refer to the tables and related notes below for a reconciliation of Adjusted EBITDA to its most comparable GAAP measure.

operators (excludes air ambulance) offering Part 135 charter services in our primary network service area, flying approximately 293,000 flight hours.

The breadth of operators and the product options (fractional, deposit/card programs, charter) makes the industry highly competitive.

Airplane Sales

Historically, we have taken delivery of HondaJet aircraft, manufactured by Honda Aircraft Company (“Honda”) and Gulfstream G280 aircraft manufacture by Gulfstream Aerospace Corporation (“Gulfstream”) and sold these airplanes to third parties.

Airplane manufacturing is subject to interruptions or supply chain disruption.

The purchase agreement with Honda was terminated on September 10, 2024.

Our revenue is subject to timing of delivery and sale of airplanes.

Costs and Expense Management

In 2022 and 2023, we invested in the core business systems, processes and people required to safely operate a rapidly growing, publicly traded private aviation company.

We will continue to invest in the technology and systems required to increase our fleet availability and utilization.

The Company currently enrolls our fleet of HondaJet aircraft, and most of our managed aircraft, in OEM maintenance programs.

These programs provide known hourly maintenance rates for our airplanes based on utilization levels and enable our maintenance expenses to be predictable.

There is an opportunity to move to different tiers of these programs and increase the amount of maintenance we perform in-house to potentially increase aircraft availability.

Substantial increases to the scope of Volato-performed maintenance would likely require material investments in personnel, equipment, facilities, and training.

We will continue to evaluate these opportunities to improve our cost structure going forward.

We believe that pricing and data analytics are critical to our long-term ability to deliver high utilization rates on our aircraft.

We plan to continue to develop new and unique products designed to leverage our yield management expertise.

These new products have and will continue to require new technology systems and the resulting investment.

We believe these investments will lead to increased financial performance by increasing the total contribution margin from flight operations.

In 2022 and 2023, we invested in the core business systems, processes and people required to safely operate a growing, publicly traded private aviation company.

In September 2024, we entered into an agreement with flyExclusive to transition our fleet operations to flyExclusive.

This move has resulted in substantial cost savings and provides us with the opportunity to focus on what we believe to be our high-growth areas, including aircraft sales and proprietary software.

We will continue to take delivery of and sell new aircraft.

We expect to benefit from the margins on aircraft sales without the burden of operational costs, while also generating revenue from its proprietary software, including the Vaunt platform, our successful empty leg consumer app.

Economic Conditions

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Our financial performance is susceptible to economically driven changes in demand particularly for our discretionary charter and deposit products.

Our cost structure and private aviation demand levels can be greatly impacted by the price of jet fuel, pilot salaries and availability, changes in government regulations, consumer confidence, safety concerns, and other factors.

Our experience operating light jets leads us to believe that operating the most efficient fleet in each class of airplanes (i.e., light, mid, super mid, large cabin), will prove beneficial in an economic downturn.

Pilot Availability and Attrition

The competition for pilots has intensified in recent years.

We have relied on increasing pilot pay and benefits to continue to attract qualified applicants including equity compensation.

While we have been able to attract and retain the appropriate number of pilots to date, there is no guarantee that we will be able to continue to do so without further increasing our cost structure.

Our cost structure and private aviation demand levels had been greatly impacted by the price of jet fuel, pilot salaries and availability, changes in government regulations, consumer confidence, safety concerns, and other factors.

Results of Operations

Comparison of year ended December 31, 2024 and 2023

The following table sets forth our results of operations for the year ended December 31, 2023 and 2022 (in thousands, except percentages):

The following table sets forth our results of operations for the years ended December 31, 2024 and 2023 (in thousands, except percentages):

For the Years Ended

December 31, Change In

2024 2023 $ %

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Total costs and expenses 55,653 40,014 15,639 39 %

Loss from operation (37,509) (9,185) (28,324) 308 %

Other income (expense):

Gain from deconsolidation of investments — 581 (581) (100) %

Gain from sale of consolidated entity 387 — 387 N/M

Gain from sale of equity-method investment 883 — 883 N/M

Other income 180 15 165 N/M

Loss from change in value of forward purchase agreement (13,403) — (13,403) N/M

Operating Loss (9,365) (4,440) (4,925) 111 %

Other income (expenses):

Gain from sale of consolidated entity — 387 (387) (100) %

Other income 212 180 32 18 %

Loss from change in fair value forward purchase agreement (2,983) (13,403) 10,420 (78) %

Loss on extinguishment of debt (2,804) — (2,804) 100 %

Interest expense, net (7,493) (3,358) (4,135) 123 %

Total other income (expense) (15,311) (270) (15,041) N/M

Net loss before income taxes (52,820) (9,455) (43,365) 459 %

Provision for income tax expense (benefit) 2 (55) 57 (104) %

Net loss before non-controlling interest (52,822) (9,400) (43,422) 462 %

Net income attributable to non-controlling interest — (33) 33 (100) %

Other income (expenses) (13,068) (16,194) 3,126 (19) %

Loss before provision for income taxes and discontinued operations (22,433) (20,634) (1,799) 9 %

Provision for incomes taxes (benefit) (507) 2 (509) (25449) %

Net loss from continuing operations (21,926) (20,636) (1,290) 6 %

Net loss from discontinued operations (18,719) (32,186) 13,467 (42) %

Net loss $ (40,645) $ (52,822) $ 12,177 (23) %

Revenue decreased by $23.4 million, or 24%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The decrease in revenue was primarily attributable to the following changes in charter flight revenue, aircraft management revenue and aircraft sales revenue (in thousands, except percentages):

Revenue consists of the following (in thousands, except percentages):

2024 2023 $ %

Aircraft sales $ 38,150 $ 21,443 $ 16,707 78 %

Aircraft usage 37,787 14,417 23,370 162 %

Managed Aircraft 7,224 14,107 (6,883) (49) %

Subscription 914 23 891 3874 %

Total $ 46,288 $ 35,573 $ 10,715 30 %

The decrease in revenue was the result of a decline in revenue from aircraft sales of $46.3 million, or 68%, partially offset by an increase in revenue from plane usage of $23.4 million, or 162% during the year ended December 31, 2023

compared to the year ended December 31, 2022.

The decrease in aircraft sales primarily the result of lower aircraft delivery in 2023 compared to 2022.

Honda released the new HondaJet Elite II model in the fourth quarter of 2022 with Volato taking delivery of its first two Elite II model aircraft in fourth quarter 2022.

We have orders for 22 additional HondaJet Elite IIs and expect delivery of eight to ten throughout 2024 and the remaining in 2025.

In addition, we have orders for four Gulfstream G280 jets and expect delivery of one to two in 2024 and the remaining in 2025.

We believe the expected aircraft deliveries will result in higher aircraft sales revenue.

The increase in aircraft usage revenue is the result of an increase in our floating fleet to 24 as of December 31, 2023.

Our aircraft usage revenue is dependent on the (i) number of jets in our floating fleet driving total flight hours, (ii) mix of demand between owner, program and ad hoc impacting blended yield, and (iii) empty percentage.

As our floating fleet grows, we expect both flight hours and blended yield to increase resulting in higher aircraft usage revenue.

Revenue increased by $10.7 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.

The increase in revenue was primarily the result of an increase in aircraft sales of $16.7 million during the year ended December 31, 2024 compared to the prior year.

The increase in revenue from aircraft sales was the result of the delivery and sale of our first Gulfstream G280 in 2024.

We have orders for three additional Gulfstream G280s and expect delivery in 2025.

Our subscription based revenues are attributable to our Vaunt platform which began to generate revenue during the 2024 fiscal year.

The increase in aircraft sales and our subscription revenues year over year was partially offset by the approximately 49% decrease in our revenues from our managed aircraft operations.

Cost of Revenue

Cost of revenue comprises expenses tied to the associated revenue streams:

aircraft sales, aircraft usage, and managed aircraft.

aircraft sales, managed aircraft and subscription based revenue.

Aircraft sales cost of revenue is our purchase price of the aircraft.

Aircraft usage cost of revenue includes all of the costs related to operations of our HondaJet floating fleet including flight crew salary and benefits, fuel, maintenance, owner revenue share, lease costs, and landing and other airport fees.

The managed aircraft cost of revenue includes all costs incurred in our managed aircraft including the cost of flight crews, fuel, maintenance, and landing and other airport fees.

Cost of revenue decreased by $12.3 million, or 13%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The decrease in cost of revenue was primarily attributable to the following changes in charter flight revenue, aircraft management revenue and aircraft sales revenue (in thousands, except percentages):

Managed aircraft cost of revenue includes all costs incurred in our managed aircraft including the cost of flight crews, fuel, maintenance, and landing and other airport fees.

Subscription costs includes costs we incur related to our proprietary software, the Vaunt platform.

Costs of revenue consists of the following (in thousands, except percentages):

2024 2023 $ %

Aircraft sales $ 32,037 $ 17,765 $ 14,272 80 %

Aircraft usage 51,803 21,986 29,817 136 %

Managed aircraft 6,610 12,900 (6,290) (49) %

Subscription 145 114 31 27 %

Total $ 38,792 $ 30,779 $ 8,013 26 %

Cost of revenue increased by $8.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.

The increase in cost of revenue was a result of an increase in aircraft sales as we took delivery of our first Gulfstream G280 aircraft in the year ended December 31, 2024.

However, offsetting our increased costs attributable to our aircraft sales was the decrease in costs attributable to our managed aircraft which decreased approximately 49% year over year.

Selling, general and administrative

Selling, general and administrative expenses increased by $17.2 million, or 148%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The increase in selling, general and administrative is primarily related to higher salaries of $8.6 million to support the growth in the company, higher marketing spend of $2 million and professional fees and other costs associated with the growth of the Company and becoming a public company.

Selling, general and administrative expenses increased by $7.6 million for the year ended December 31, 2024 to $16.9 million, compared to the year ended December 31, 2023.

The increase in selling, general and administrative is primarily related to higher professional fees and other costs associated with the being a public company.

Approximately $2.3 million of our general and administrative costs are attributable to costs to support and administer our public reporting and compliance obligations, such as legal fees, audit fees, fees owed to maintain our NYSE American listing, printing and SEC filing fees, and higher advertising and marketing fees of $1.3 million for our Vaunt platform.

As a result of the transition of our flight operations to flyExclusive, we substantially reduced our projected costs and expect selling, general and administration costs to be approximately $1.9 million per quarter in 2025.

Gain from sale of consolidated entity

Gain on sale of consolidated entity consists of the gain on the sale of Fly Dreams LLC during 2023.

Gain from sale of equity method investment

Gain on sale of equity method investment consists of the sale of the remaining interest in Volato 239, LLC and re-sold fractions in Volato 149, LLC and Volato 234, LLC.

Loss on change in value of forward purchase agreement

As part of the Business Combination, we entered into an agreement for an OTC Equity Prepaid Forward Transaction (the “Forward Purchase Agreement”).

We recorded a fair value adjustment on the Forward Purchase Agreement resulting in a $13.4 million loss on the change in fair value.

We recorded a fair value adjustment on the Forward Purchase Agreement resulting in a $13.4 million loss on the change in fair value as of December 31, 2023.

In July 2024, the Forward Purchase Agreement was terminated.

As of December 31, 2024, we recorded a fair value adjustment on the Forward Purchase Agreement resulting a non-cash loss of $3.0 million for the year ended December 31, 2024.

Loss on extinguishment of debt

The loss on extinguishment of debt upon relates to the settlement of certain liabilities by the issuance of shares of common stock at a discount.

Interest Expense

Interest expense primarily consists of interest related to our credit facilities and convertible notes and amortization of debt issuance costs.

Interest expense increased $2.5 million, or 288%, during the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily as a result of an increase in the Shearwater debt facility.

Non-GAAP Financial Measures

Non-GAAP financial measures are an addition, and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP and should not be considered as an alternative to any performance measures derived in accordance with GAAP.

We believe that these non-GAAP financial measures of financial results provide useful supplemental information to investors, about Volato.

However, there are a number of limitations related to the use of these non-GAAP financial measures and their nearest GAAP equivalents, including that they exclude significant expenses that are required by GAAP to be recorded in Volato’s financial measures.

In addition, other companies may calculate non-GAAP financial measures differently, or may use other measures to calculate their financial performance, and therefore, our non-GAAP financial measures may not be directly comparable to similarly titled measures of other companies.

Adjusted EBITDA

We calculate Adjusted EBITDA as net loss adjusted for (i) interest expense, net, (ii) provision for income taxes (benefit) (iii) depreciation and amortization, (iv) equity-based compensation expense, (v) acquisition, integration, and capital raise related expenses, and (v) other items not indicative of our ongoing operating performance.

We include Adjusted EBITDA as a supplemental measure for assessing operating performance.

The following table reconciles Adjusted EBITDA to net loss, which is the most directly comparable GAAP measure (in thousands):

Year Ended December 31,

Adjusted EBITDA 2023 2022

Net loss $ (52,822) $ (9,367)

Interest expense, net 3,358 866

Provision for income tax expense (benefit) 2 (55)

Loss from change in fair value of forward purchase agreement 13,403 —

Depreciation and amortization 200 162

Equity-based compensation expense 82 17

Net loss attributable to non-controlling interest — (33)

Gain from deconsolidation of investments — (581)

Gain from sale of consolidated entity (387) —

Gain from sale of equity-method investment (883) —

Other income (180) (15)

Acquisition, integration, and capital raise related expenses (1)

Other items not indicative of our ongoing operating performance (2)

Adjusted EBITDA $ (32,142) $ (8,985)

(1) Represents non-capitalizable Business Combination expenses in 2023 and acquisition expenses associated with Gulf Coast Aviation in 2022.

(2) Represents cost incurred related to business realignment.

Interest expense primarily consists of interest related to our aircraft purchase and sale agreement with TVPX Aircraft Solutions, Inc., the business loan and security agreement with TVT Capital Source LLC, credit facilities and convertible notes and amortization of debt issuance costs.

Interest expense increased $4.1 million during the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily as a result of the aircraft purchase agreement and the business loan and security agreement.

Liquidity and Capital Resources

Our principal sources of liquidity have historically consisted of financing activities, including proceeds from the issuance of stock, borrowings under our credit facilities, and capital raises from convertible debt and preferred stock.

We additionally manage liquidity through the aircraft sales which provides up front deposits from our customers and aircraft usage.

As of December 31, 2023, we had $14.5 million of cash and cash equivalents.

During the year ended December 31, 2023, we converted our line of credit from a related party into convertible notes, and therefore have no credit facilities for future borrowings.

We additionally managed liquidity through the aircraft sales which provides up front deposits from our customers and aircraft usage.

As of December 31, 2024, we had $2.2 million of cash and cash equivalents and $1.8 million in restricted cash which will become available in Q1 2025.

During the year ended December 31, 2024, the Company entered into a Securities Purchase Agreement (“Securities Purchase Agreement”).

Under the Securities Purchase Agreement, the Company has agreed to issue 10% original issue discount senior unsecured convertible promissory notes (“Notes”) in an aggregate original principal amount of up to $36.0 million, which will be convertible into shares of the Company’s Class A common stock.

The closing of the first tranche was consummated on December 4, 2024, and the Company issued the initial Note for an aggregate original principal amount of $4.5 million (the “Initial Tranche”).

The second Note is expected to be an aggregate original principal amount of $1.5 million, and will be issued after the satisfaction of certain conditions precedent, including the Company having an effective registration statement for the resale of the shares of common stock issuable pursuant to the Notes.

Any additional Notes will be aggregate principal amounts agreed to by the parties;

provided, that no additional Note will be in an amount in excess of $4.0 million, unless otherwise mutually agreed to by the Company and the investor.

Further, no additional Notes will be issued at any time when the aggregate principal balance outstanding on all previously issued Notes is greater than $2.0 million.

It is also a condition to closing of any additional Notes that during the twenty (20) trading days immediately preceding the most recent additional closing, a minimum of $500 thousand in shares of common stock has been traded and the daily VWAP (as defined in the Notes) of the common stock is greater than the Conversion Price (as defined in the Notes).

Each Note will mature twelve (12) months after the issuance date.

During 2023, the pre-business combination Company closed a series of preferred stock subscriptions, raising a total of $24.2 million and converted $38.4 million of convertible promissory notes into shares of the Company’s preferred stock.

Our primary needs for liquidity are to fund working capital, acquisitions, debt service requirements, and for general corporate purposes.

We believe factors that could affect our liquidity include the ability of our OEM partners to meet our delivery schedule and our ability to sell those aircraft, the growth rate of our charter and deposit program flying, changes in demand for our services, competitive pricing pressures, the timing and extent of spending on software development and other growth initiatives, our ability to improve the efficiency of our network flying, and overall economic conditions.

To the extent that our current liquidity is insufficient to fund future activities, we may need to raise additional funds.

In the future, we may attempt to raise additional capital through the sale of equity securities or through debt financing arrangements.

If we raise additional funds by issuing equity securities, the ownership of existing shareholders will be diluted.

We believe factors that could affect our liquidity include the ability of Gulfstream to meet our delivery schedule and our ability to sell those aircraft, our ability to raise additional funds on favorable terms, the timing and extent of spending on software development and other growth initiatives, our ability to manage our expense, and overall economic conditions.

To the extent that our current liquidity is insufficient to fund future activities, we will need to raise additional funds.

We may attempt to raise additional capital through the sale of equity securities, through debt financing arrangements, or both.

Raising additional funds by issuing equity securities will dilute the ownership of existing shareholders.

The occurrence of additional debt financing would result in debt service obligations, and any future instruments governing such debt could provide for operating and financing covenants that could restrict our operations.

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We have incurred negative cash flows from operating activities and significant losses from operations historically.

We believe our cash on hand, together with our results of operations including our planned sale of aircraft during the year ending December 31, 2024, will be sufficient to meet our projected working capital and capital expenditure requirements for a period of at least 12 months from the date of this report.

The following table summarizes our cash flows for the year ended December 31, 2023, and 2022 and the years ended December 31, 2023 and 2022 (in thousands):

We believe our cash on hand, together with our results of operations including our planned sale of aircraft during the year ending December 31, 2025, and any additional capital raise will be sufficient to meet our projected working capital and capital expenditure requirements for a period of at least 12 months from the date of this report.

The following table summarizes our cash flows for the twelve months ended December 31, 2024, and 2023 (in thousands):

Year Ended December 31,

Net cash used in operating activities (16,919) (30,393)

Net cash provided by investing activities 1,776 5,145

Net cash (used in) provided by investing activities (115) 1,776

Net cash provided by financing activities 4,311 37,461

Net Increase In Cash and Cash Equivalents and Restricted Cash

$ 8,843 $ 6,271

Net (Decrease) Increase In cash and restricted cash $ (12,723) $ 8,844

Cash Flow from Operating Activities

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The cash outflow from operating activities consisted of our net loss of $40.6 million, non-cash items of $6.8 million, and a change in net operating assets and liabilities of $16.9 million.

The increase in net operating assets and liabilities was primarily as a result of an increase in customer deposits and deferred revenue of $10.7 million and an increase in accounts payable and accrued liabilities of $5.7 million.

This was offset by a decrease in deposits of $3.9 million, a decrease in prepaid and other current assets of $1.6 million, and a decrease in accounts receivable, net of $1.1 million.

The increase in net operating assets and liabilities was primarily as a result of an increase in customer deposits and deferred revenue of $8.7 million, a decrease in aircraft deposits of $4.3 million and an increase in accounts payable and accrued liabilities of $2.6 million.

The change in net assets and liabilities for discontinued operations for the twelve months ended December 31, 2024 was $52 thousand.

Net cash used in operating activities for the year ended December 31, 2023 was $30.4 million.

The cash outflow from operating activities consisted of our net loss of $9.4 million, non-cash items of $0.3 million, and a change in net operating assets and liabilities of $11.7 million.

The decrease in net operating assets and liabilities was primarily as a result of a decrease in deposits of $11.4 million, a decrease in accounts receivable of $2.2 million and a decrease in prepaid expenses and other current assets of $1.6 million.

This was offset by an increase in accounts payable and accrued liabilities of $2.2 million and an increase in customer deposits and deferred revenue of $1.3 million.

The cash outflow from operating activities consisted of our net loss of $52.8 million and non-cash items of $13.6 million.

The change in net assets and liabilities for discontinued operations for the twelve months ended December 31, 2023 was $9.1 million.

Cash Flow from Investing Activities

Net cash provided by investing activities for the year ended December 31, 2023 was $1.8 million.

The cash flow from investing activities consisted of $4.2 million in proceeds from the sale of an equity method investment, offset somewhat by $2.3 million in payment for the purchase of an equity method investment.

Net cash used by investing activities for the year ended December 31, 2024 was $115 thousand.

The cash flow from investing activities consisted primarily of the purchase of property and equipment.

Net cash provided by investing activities for the year ended December 31, 2023 was $1.8 million.

In 2022, the cash inflow from investing activities was primarily attributable to $6.6 million from the sale of equity method investments net of $1.9 million paid for the acquisition of GCA.

In addition, we used $300,000 for capital expenditures.

The cash flow from investing activities of discontinued operations of $2.4 million, offset by $0.6 million for capital expenditures.

Cash Flow from Financing Activities

Net cash from financing activities for the year ended December 31, 2024 was $4.3 million.

Cash flow from financing activities consisted of proceeds of $7.9 million from the issuance of the term loan and convertible notes.

This was offset by the payments on debt of $3.7 million.

Net cash provided by financing activities for December 31, 2023 was $37.5 million.

Cash flow from financing activities consisted proceeds of $24.2 million from the sale of preferred stock, $16.7 million from the Business Combination, net of closing costs, $12.7 million from the issuance of convertible notes, $2.5 million in proceeds from the forward purchase agreement and $1 million from our line of credit.

This was offset by the payment for a forward purchase agreement of $18.9 and $0.8 million for the payment of a loan.

Net cash provided in financing activities for December 31, 2022 was $22.6 million.

In 2022, the cash inflow from financing activities was primarily attributable to $18.9 million of proceeds related to the issuance of convertible notes and $3.7 million of proceeds, net of repayments related to long-term debt.

This was offset by the payment for a forward purchase agreement of $18.9 and $0.8 million for the repayment of a loan.

Sources of Liquidity

To date, we have financed our operations primarily through issuance of preferred interests, cash from operations, borrowings of long-term debt, loans and convertible notes.

To date, we have financed our operations primarily through the business combination, sale of preferred stock, borrowings of long-term and short-term debt, loans and convertible notes.

As of December 31, 2024, we had a working capital deficit of approximately $18.9 million.

As of December 31, 2024, our primary sources of liquidity were cash totaling approximately $2.2 million.

Based on our recent trends, we expect to fund our operations in 2025 from our cash on hand, cash from operations, one or more sales of Notes (as defined below) and potentially additional sales of equity or debt securities.

The Company believes it has the ability to generate and obtain enough cash to meets its obligations for the next 12 months.

During the year ended December 31, 2022, the Company executed a series of purchase agreements with Gulfstream Aerospace, LP for the acquisition of four (4) Gulfstream G-280 aircraft.

The first Gulfstream G280 was delivered in the third quarter of 2024.

As of December 31, 2024, total consideration due on the remaining three Gulfstream G280s was $62.6 million with expected deliveries in 2025.

Deposits on the Gulfstream G280s of $36.0 million were funded and paid through December 31, 2024, through a credit facility from SAC leasing G 280 for $28.5 million and $7.5 million through cash deposits.

The maturity date is the earlier of the delivery date of the aircraft or September 14, 2025, which is thirty-five (35) months from the date of funding.

The purchase agreement contracts were assigned to SAC G280 LLC as collateral on this credit facility.

In the third quarter of 2024, $9 million was repaid to SAC G280 LLC as a result of the delivery of the first Gulfstream G280.

In the first quarter of 2025, an addition $18 million was repaid to SAC G280 LLC as a result of the delivery of the second Gulfstream G280 and the return of $9 million in deposits related to the fourth Gulfstream G280.

After the delivery of the second Gulfstream G280 and the deposit return related to the fourth Gulfstream G280, the outstanding balance of the credit facility from SAC Leasing was $9 million.

In July 2024, the Company entered into a business loan and security agreement (the “Loan”) with TVT Capital Sources LLC (the “Lender”), which provides for a term loan in the amount of $4.0 million.

Net proceeds of $3.8 million were received by the Company and used to fund operations.

The Loan bears interest at an annual percentage rate of 165% and matures on January 28, 2025, with principal and interest payments made weekly.

The Loan provides for events of default customary for term loans.

As of December 31, 2024 the Company was in compliance with all covenants.

The Loan is collateralized by all assets of the Company with the exception of the purchase agreements of G280 aircraft or any collateral pledged to SAC Leasing G280.

In the first quarter of 2025, the term loan was repaid in full.

On November 4, 2024, the Company entered into a Settlement Agreement and Stipulation (the "Settlement Agreement”) with Sunpeak Holdings Corporation ("SHC”), which became effective on November 6, 2024, to settle outstanding claims owed to SHC.

Pursuant to the Settlement Agreement, SHC agreed to purchase certain outstanding payables between the Company and designated vendors of the Company totaling approximately $4.7 million (the "Claims”) and exchange such Claims for a settlement amount payable in shares of common stock of the Company (the "Settlement Shares”).

The Settlement Shares were priced at the closing price of the Company’s common stock on November 4, 2024, subject to adjustment pursuant to the terms of the Settlement Agreement.

The Company also issued to SHC, 100,000 freely trading shares pursuant to Section 3(a)(10) of the Securities Act in accordance herewith as a Settlement Fee (the "Settlement Fee Shares”).

In December 2024, the Company entered into the Securities Purchase Agreement, described above, and closed on the Initial Tranche.

Interest under the Note issued as the Initial Tranche is payable quarterly at the Company’s option shall either be (i) paid in cash;

(ii) paid-in-kind in shares of common stock;

or (iii) compound and become additional principal outstanding.

The Company recorded $14 thousand of accrued interest expense in the twelve months ended December 31, 2024.

As described above, subject to the satisfaction of certain conditions, the Company may issue additional Notes during 2025.

On December 9, 2021, the Company entered into a revolving loan agreement with Dennis Liotta, an affiliate of the Company, for a total amount of $8 million which was set to mature on January 1, 2023 (“December 2021 note”).

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The notes (principal and interest) were due and payable at any time on or after March 31, 2024, upon the written demand of the majority holders, which can be extended at the sole election of the Company to September 30, 2024, should the Company submit or file a prospectus, proxy statement or registration statement with the SEC.

The convertibles notes carried a four percent (4%)

coupon per annum effective July 1, 2023.

The convertibles notes carried a four percent (4%) coupon per annum effective July 1, 2023.

The Company could not prepay the convertible notes prior to maturity without the written consent of a majority of the holders.

During the year ended December 31, 2022, the Company executed a series of purchase agreements with Gulfstream Aerospace, LP for the acquisition of four (4) Gulfstream G-280 aircraft for total consideration of $79.0 million with expected deliveries in 2024 and 2025, of which $39 million were funded and paid through December 31, 2023, through a credit facility from SAC leasing G 280 for $28.5 million and $10.5 million through cash deposits.

The Company has a credit facility in place with SAC Leasing G280 LLC to fund $40.5 million of the original $79.0 million due under these purchase agreements with Gulfstream Aerospace LP.

The remaining balance to be funded by SAC Leasing G280 LLC is $12 million.

The maturity date is the earlier of the delivery date of the aircraft or September 14, 2025, which is thirty-five (35) months from the date of funding.

The purchase agreement contracts were assigned to SAC G280 LLC as collateral on this credit facility.

On July 21, 2023, Volato entered into a Series A Preferred Stock Purchase Agreement by and among (i) Volato, (ii) the PROOF.vc SPV, (iii) Proof Acquisition Sponsor I, LLC (“PASI”), and (iv) the holders of then-outstanding Series CN-001 and Series CN-0002 convertible promissory notes (the “Convertible Notes”), whereby (a) Volato may issue and sell up to a maximum aggregate of $60.0 million of Series A-1 Preferred Stock (the “Series A-1 Preferred Stock”) at a price of $10 per share, with $10.0 million of Series A-1 Preferred Stock issued and sold at an initial closing to the PROOF Investors, and (b) the Convertible Notes were converted into the amount of Series A-2 Preferred Stock (the “Series A-2 Preferred Stock”) or Series A-3 Preferred Stock (the “Series A-3 Preferred Stock” and together with the Series A-1 Preferred Stock and the Series A-2 Preferred Stock, the “Series A Preferred Stock”) at a conversion price of, in the case of the Series A-2 Preferred Stock, $5.9820 per share and in the case of the Series A-3 Preferred Stock, $9.00 per share (collectively, the “Private Financing”, such agreement, the “Series A Preferred Stock Purchase Agreement”).

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During 2023, PROOF Acquisition Sponsor I, LLC purchased 1,308,398 shares of Series A-1 Preferred Stock (equal to 1,328,132 shares of Common Stock) and the PROOF.vc SPV purchased 1,102,689 shares of Series A-1 Preferred Stock (equal to 1,119,321 shares of Common Stock, respectively), at a purchase price of $10 per share.

For further information on the credit facilities and promissory notes, see Note 7 “Revolving Loan and Promissory Note – Related Party”, Note 8 “Unsecured Convertible Notes”, and Note 9 “Long Term Note Payable and Credit Facility” of the accompanying Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

For further information on the credit facilities and promissory notes, see Note 12 “Revolving Loan and Promissory Note – Related Party”, Note 13“Unsecured Convertible Notes”, and Note 14 “Credit Facility and Other Loans” of the accompanying Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Contractual Obligations and Commitments

Our principal commitments consist of contractual cash obligations under our credit facilities, operating leases for certain controlled aircraft and the Notes.

We have committed to acquire four (4) Gulfstream G-280 aircraft for total consideration of $79.0 million with expected deliveries in 2024 and 2025, of which $39 million was funded and paid through December 31, 2023.

Additionally, we have committed to acquire 23 Honda HA-420 aircraft for a total consideration of $161.1 million, with expected deliveries between the fourth quarter of 2023 and fourth quarter of 2025, of which $7.5 million was funded and paid through December 31, 2023.

Our principal commitments consist of contractual cash obligations under our credit facilities, operating leases and the Notes.

We have committed to acquire three (3) additional Gulfstream G-280 aircraft for total consideration of $62.6 million with expected deliveries in 2025, of which $36 million was funded and paid through December 31, 2024.

Our obligations under our credit facilities and the Notes are described in “—Sources of Liquidity” above.

For further information on leases see Note 18 “Commitments and Contingencies” of the accompanying Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Agreement with Vellar

On November 28, 2023, the Company and Vellar entered into an agreement (the “Forward Purchase Agreement”) for an OTC Equity Prepaid Forward Transaction (the “Forward Purchase Transaction”).

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The Company received a payment of $2.5 million on December 29, 2023 in connection with its delivery of the OET Notice.

In July 2024, Vellar notified the Company of the termination of the Forward Purchase Agreement, following a delivery of a notice establishing the Valuation Date (as defined in the Forward Purchase Agreement);

upon termination, Vellar was not obligated to pay the Company a cash amount.

Critical Accounting Policies and Estimates

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Revenue Recognition

We determine revenue recognition pursuant to ASC 606, Revenue from Contracts with Customers, through the following steps:

Revenues are recognized on a gross basis and presented on the consolidated statements of operations net of rebates, discounts, and taxes collected concurrent with revenue-producing activities.

The transaction price in the Company’s contracts with its customers is fixed at the time control of goods and services are transferred to the customer.

Therefore, the Company does not estimate variable consideration or perform a constraint analysis for our contracts.

The Company determines revenue recognition pursuant to Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, through the following steps:

Identification of the contract, or contracts, with a customer.

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Allocation of the transaction to the performance obligation(s) in the contract.

Recognition of revenue when, or as the Company satisfies a performance obligation.

We generate revenue primarily through three sources (i) selling aircraft, (ii) commercial strategy which includes revenue from flights of deposit product customers and charter flights, and (iii) aircraft management services.

Volato also generates revenues from deposit products and charter flights.

Domestic products are complementary set of products available to retail charter customers whereby, the customer pays deposits in exchange for certain charter product offerings of Volato to be provided in the future.

Charter flights are flights offered to retail and non-retail charter customers in exchange for a fee.

Revenue is recognized upon transfer of control of our promised services, which generally occurs upon the flight hours being used during the period which the chartered flights were operated.

Volato aircraft management services are a full-service management and charter operator including dry leasing airplanes from owners, placing aircrafts on our FAA Air Carrier Certificate, operating the aircraft for owner flights and chartering the aircraft to customers.

Under the aircraft management services revenues stream, aircraft owners pay management fees to Volato and all operating expenses for the aircraft, maintenance, crew hiring and management, flight operations, dispatch, hangar, fuel, cleaning, insurance, and aircraft charter marketing.

Revenues from aircraft management services is partially recognized overtime for the administrative portion of the service, and partially recognized at a point in time, generally upon the transfer of control of the promised services included as part of the management services.

The Company generates revenue primarily through:

(i) the sale of aircraft, (ii) aircraft management services and (iii) our Vaunt software-as-a-subscription platform.

Revenue is recognized when control of the promised service is transferred to a customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies, as a performance obligation, each promise to transfer a good or service to a customer that is distinct.

To identify its performance obligations, the Company considers all of the goods and services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices.

For each revenue stream, we evaluate whether our obligation is to provide the good or service itself, as the principal or to arrange for the good or service to be provided by the other party, as the agent, using the control model.

For certain services provided to the customer, primarily in our aircraft management services revenue stream, the Company directs third-party providers to assist in our fulfillment of the performance obligation in contracts with our customers.

Any cost reimbursements and third-party costs are recognized in revenue on a gross basis as Volato has pre-negotiated these costs and takes a certain amount of risk that it will not fully recover the costs incurred.

In such circumstances, the Company is primarily responsible for satisfying the overall performance obligation with the customer and is considered the principal in the relationship because the Company has the ability to direct the third parties to provide services to our customers.

Revenue from aircraft sales is recognized upon the delivery of the aircraft.

The Company’s contracts for managing aircraft provide for fixed monthly management fees and reimbursement of operating expenses at a predetermined margin.

Generally, contracts require two months advance deposit of estimated expenses.

Intangible Assets

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Goodwill represents the excess of the aggregate purchase price paid over the fair value of the net assets acquired in a business combination.

Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Goodwill is not amortized and is tested for impairment at least annually or whenever events or

changes in circumstances indicate that the carrying value may not be recoverable.

Events or changes in circumstances that could trigger an impairment review include a significant adverse change in business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

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If, after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, additional impairment testing is not required.

We test for goodwill impairment annually during its fourth quarter on October 1.

We test for goodwill impairment annually during the fourth quarter.

Investment - Equity Method

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The Company periodically reviews the investment for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Variable Interest Entity (VIE) Accounting

The Company evaluates its ownership, contractual relationships, and other interests in entities to determine the nature and extent of the interests, whether such interests are variable interests and whether the entities are VIEs in accordance with ASC 810, Consolidations.

These evaluations can be complex and involve Management judgment as well as the use of estimates and assumptions based on available historical information, among other factors.

Based on these evaluations, if the Company determines that it is the primary beneficiary of a VIE, this VIE entity is consolidated into the consolidated financial statements.

Revenue is recognized when control of the promised service is transferred to our member or the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

The aircraft ownership program consists of facilitating the formation of limited liability companies owned by third-party members and subsequently selling an aircraft to the limited liability company.

Under the aircraft ownership program, a customer can purchase an ownership share in a limited liability company which permits the owner to participate in the aircraft revenue share.

Each Plane Co is managed by Volato, Inc.

a wholly-owned subsidiary of the Company, through an operating agreement.

The Company does not have the obligation to absorb losses that could be significant to the VIE or the right to receive significant benefits when it holds a minority ownership in each PlaneCo.

Stock-Based Compensation

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis