UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification Number) |
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(Address of principal executive office) |
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(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
[ ] |
Accelerated filer |
[ ] |
[X] |
Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
The number of shares outstanding of the registrant’s Common Stock as of May 10, 2022 was 51,258,576 shares, consisting of
GLOBAL CROSSING AIRLINES GROUP INC.
(FORMERLY “CANADA JETLINES LTD.”)
Form 10-Q
Period Ended March 31, 2022
Index
i
GLOBAL CROSSING AIRLINES GROUP INC.
(FORMERLY “CANADA JETLINES LTD.”)
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31, 2022 (Unaudited) |
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December 31, 2021 |
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Current Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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$ |
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$ |
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||
Accounts receivable, net of allowance |
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$ |
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$ |
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||
Prepaid expenses and other current assets |
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$ |
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$ |
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Total Current Assets |
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$ |
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$ |
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||
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Property and equipment, net |
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$ |
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$ |
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Operating lease right-of-use assets |
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$ |
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$ |
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Deferred costs and other assets |
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$ |
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$ |
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Total Assets |
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$ |
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$ |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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$ |
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Due from related parties |
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$ |
— |
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$ |
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Current portion of notes payable |
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$ |
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$ |
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Current portion of long-term operating leases |
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$ |
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$ |
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Total current liabilities |
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$ |
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$ |
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Other liabilities |
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Note payable |
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$ |
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$ |
— |
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Long-term operating leases |
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$ |
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$ |
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Other liabilities |
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$ |
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$ |
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Total other liabilities |
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$ |
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$ |
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Equity |
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Common stock - $ par value; |
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$ |
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$ |
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Additional paid-in capital |
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$ |
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$ |
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Retained deficit |
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$ |
( |
) |
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$ |
( |
) |
Total stockholders’ equity |
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$ |
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$ |
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Total Liabilities and Equity |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
1
GLOBAL CROSSING AIRLINES GROUP INC.
(FORMERLY “CANADA JETLINES LTD.”)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended |
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Three Months Ended |
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March 31, 2022 |
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March 31, 2021 |
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Operating Revenue |
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$ |
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$ |
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$ |
— |
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Operating Expenses |
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Salaries, Wages, & Benefits |
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Aircraft Fuel |
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Maintenance, materials and repairs |
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Depreciation and amortization |
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Contracted ground and aviation services |
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Travel |
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Insurance |
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Aircraft Rent |
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— |
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Other |
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Total Operating Expenses |
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Operating Loss |
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( |
) |
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( |
) |
Non-Operating Expenses (Income) |
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Loss on Warrant Valuation |
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— |
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Interest Expense |
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Total Non-Operating Expenses |
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Loss before income taxes |
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( |
) |
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( |
) |
Income tax expense |
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— |
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— |
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Net Loss |
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( |
) |
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( |
) |
Loss per share: |
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Basic |
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$ |
( |
) |
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$ |
( |
) |
Diluted |
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$ |
( |
) |
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$ |
( |
) |
Weighted average number of shares outstanding |
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Fully diluted shares outstanding |
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See accompanying notes to condensed consolidated financial statements.
2
GLOBAL CROSSING AIRLINES GROUP INC.
(FORMERLY “CANADA JETLINES LTD.”)
STATEMENTS OF CONDENSED STOCKHOLDERS' EQUITY
(UNAUDITED)
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Common Stock Number of Shares |
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Amount |
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Common Stock Subscribed |
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Additional Paid in Capital |
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Retained Deficit |
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Total |
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Beginning – January 1, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Issuance of shares – private placement |
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( |
) |
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— |
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Issuance of shares – warrants and options exercised |
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( |
) |
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— |
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Issuance of shares – RSUs |
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— |
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( |
) |
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— |
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— |
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Share based compensation on stock options or RSUs |
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— |
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— |
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— |
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— |
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Loss for the period |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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Ending – March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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Beginning – January 1, 2022 |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
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||||
Issuance of shares – warrants and options exercised |
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— |
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— |
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Warrants issued - Triage Capital |
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Share based compensation on stock options or RSUs |
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— |
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— |
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— |
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— |
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Loss for the period |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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Ending – March 31, 2022 |
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— |
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( |
) |
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$ |
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||||
See accompanying notes to condensed consolidated financial statements.
3
GLOBAL CROSSING AIRLINES GROUP INC.
(FORMERLY “CANADA JETLINES LTD.”)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For the three months ended March 31, |
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2022 |
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2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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Loss on warrant revaluation |
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Amortization of operating lease right of use asset |
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Share-based payments |
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Non-cash working capital item changes: |
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Accounts receivable |
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— |
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Prepaid expenses and other current assets |
|
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( |
) |
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( |
) |
Accounts payable |
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Accrued liabilities |
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Decrease in operating lease obligations |
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( |
) |
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( |
) |
Net cash used in operating activities |
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( |
) |
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( |
) |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Proceeds from asset disposal |
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Purchases of property and equipment |
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( |
) |
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( |
) |
Deferred costs and other assets |
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( |
) |
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( |
) |
Net cash used in investing activities |
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( |
) |
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( |
) |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Payments to related party |
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( |
) |
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( |
) |
Other liabilities |
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( |
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Proceeds on issuance of shares |
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Long term loan payable |
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Net cash provided by financing activities |
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Net increase in cash |
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Cash, cash equivalents and restricted cash - beginning of the period |
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Cash, cash equivalents and restricted cash - end of the period |
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See accompanying notes to condensed consolidated financial statements.
4
GLOBAL CROSSING AIRLINES GROUP INC.
(FORMERLY “CANADA JETLINES LTD.”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Global Crossing Airlines Inc. (the “Company” or “Global”) principal business activity is providing passenger aircraft to customers through aircraft operating service agreements including, crew, maintenance, insurance (“ACMI”) and charter services “Charter” serving the US, Caribbean and Latin American markets
The consolidated financial statements include the accounts of the Company, and its subsidiaries, Global Crossing Airlines, Inc. and Global Crossing Airlines, LLC (collectively “Global USA”), GlobalX A320 Aircraft Acquisitions Corp. (“Acquisition A320”), GlobalX A321 Aircraft Acquisition Corp. (“Acquisition A321”), GlobalX Travel Technologies, Inc. (“Technologies”), CubaX Air Tours, LLC (“CubaX”) and Capitol Airlines, LLC. All intercompany transactions and balances have been eliminated on consolidation.
The accompanying unaudited condensed consolidated financial statements and related notes (the “Financial Statements”) have been prepared in accordance with the U.S. Securities and Exchange Commission (the “SEC”) requirements for quarterly reports on Form 10-Q, and consequently exclude certain disclosures normally included in audited consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP). The Financial Statements should be read in conjunction with the audited consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which includes additional disclosures and a summary of our significant accounting policies. The December 31, 2021, balance sheet data was derived from that Annual Report and may not include disclosures required for presentation in conformity with U.S. GAAP. In our opinion, these Financial Statements include all adjustments, consisting of normal recurring items, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows
Our quarterly results are subject to seasonal and other fluctuations, including fluctuations resulting from the global COVID-19 pandemic and the operating results for any quarter are therefore not necessarily indicative of results that may be otherwise expected for the entire year.
The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. As of March 31, 2022, the Company had a working capital deficit of $
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The update requires the use of an “expected loss” model on certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. For trade receivables, loans and held-to-maturity debt securities, entities will be required to estimate lifetime expected credit losses. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. ASU 2016-13 was initially effective for non- public companies for fiscal years and interim periods beginning after December 15, 2021, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which delayed the effective date for certain entities, such as the Company, to apply ASU 2016-13 until fiscal years and interim periods beginning after December 15, 2022. The Company evaluated the impact of ASU 2016-13 and determined the adoption of Topic 326 will not have a material impact on our consolidated financial statements.
5
In May 2021, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2021-04—Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption was permitted, including adoption in an interim period. The adoption of this pronouncement had no impact on our accompanying consolidated financial statements.
Investments in partnerships and less-than-majority owned subsidiaries in which the Company does not have control but has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method of accounting. The equity method investments are included in the accompanying Balance Sheets with Deferred Costs and Other Assets. The Company’s share of earnings or losses from these investments is shown in the accompanying Consolidated Statements of Operations in Other Expense. Equity method investments are initially recognized at cost. The carrying amount of the equity investment is adjusted at each reporting period by the percentage of any change in its equity corresponding to the Company’s percentage interest in these equity affiliates. The carrying costs of these investments are also increased or decreased to reflect additional contributions or withdrawals of capital. Any difference in the book equity and the Company’s pro-rata share of the net assets of the investment will be reported as gain or loss at the time of the liquidation of the investment. It is the Company’s policy to record losses in excess of the investment if the Company is committed to provide financial support to the investee.
The Company’s investments in affiliates accounted for using the equity method include a
Investment in GlobalX Ground Team, LLC:
On September 9, 2020, the Company entered into a joint venture agreement with KD Holdings, LLC (“KD Holdings”) for the purpose of providing ground handling services. Under the terms of the agreement, KD Holdings will run the day-to-day operations of the ground handling division and supply the ground equipment and Global will provide assistance and guidance to the operations. The Company accounts for the joint venture in accordance with the equity method.
As of December 31, 2021, the Company elected to write down GlobalX’s investment in the joint venture to zero. Going forward GlobalX has elected to self-perform all ground handling activities at Miami International Airport. As March 31, 2022 and December 31, 2021, there was $
Investment in Canada Jetlines Operations Ltd.:
On June 28, 2021, the Company completed the spin-out pursuant to the Arrangement under which the Company transferred
On March 17, 2022, the Company entered into agreements (each a “Subscription Agreement”) pursuant to which the Company sold US$
The terms of the Debentures include:
6
The Company determined that the terms of the Warrants issued in the financing require the Warrants to be classified as equity. Accordingly, upon issuance, the Company recorded debt issuance costs of $
Since the Warrants may purchase a fixed number of shares for a fixed price, the Company chose to use the Black-Scholes option pricing model to value the warrants at issuance. The inputs selected are: underlying stock price at date of issuance of $
The debt issuance costs resulting from the warrants along with other direct costs of the Financing will be amortized to interest expense using the effective interest method.
On July 12, 2021, the Company completed a share capital reorganization creating a new class of shares, Class B Non-Voting Common Stock. As of March 31, 2022 and 2021, the Company had
Following is a summary of the warrant activity during the three months ended March 31, 2022 and 2021:
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Number of |
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Weighted |
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Outstanding, January 1, 2021 |
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Issued |
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Exercised |
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( |
) |
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Expired |
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- |
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Outstanding March 31, 2021 |
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Outstanding, January 1, 2022 |
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Issued |
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Exercised |
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( |
) |
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Expired |
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- |
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Outstanding, March 31, 2022 |
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As of March 31, 2021, the following share purchase warrants were outstanding and exercisable:
Outstanding |
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Exercise Price |
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Remaining life |
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Expiry Date |
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USD$ |
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USD$ |
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USD$ |
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USD$ |
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CAD$ |
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As of March 31, 2022, the following share purchase warrants were outstanding and exercisable:
7
Outstanding |
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Exercise Price |
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Remaining life |
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Expiry Date |
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USD$ |
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USD$ |
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USD$ |
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CAD$ |
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USD$ |
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USD$ |
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The maximum number of Voting Shares issuable pursuant to share-based payment arrangements, including stock options, restricted share units and performance share units, is
Stock options
The Company grants stock options to directors, officers, employees and consultants as compensation for services, pursuant to its Amended Stock Option Plan (the “Stock Option Plan”). The maximum price shall not be less than the closing price of the Company’s shares on the last trading day preceding the date on which the grant of options is approved by the Board of Directors. Options have a maximum expiry period of
The following is a summary of stock option activities for the three months ended March 31, 2022 and 2021:
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Number of stock |
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Weighted average |
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Weighted average |
|
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Outstanding, January 1, 2021 |
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$ |
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$ |
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Granted |
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— |
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— |
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— |
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Exercised |
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— |
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— |
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— |
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Forfeited |
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— |
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— |
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— |
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Outstanding M arch 31, 2021 |
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Outstanding January 1, 2022 |
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Granted |
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— |
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Exercised |
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— |
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Forfeited |
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( |
) |
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Outstanding, March 31, 2022 |
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As of March 31, 2022, the following stock options were outstanding and exercisable:
Outstanding |
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Exercisable |
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Exercise Price |
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Remaining life (years) |
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Expiry Date |
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As of March 31, 2021, the following stock options were outstanding and exercisable:
Outstanding |
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Exercisable |
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Exercise Price |
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Remaining life (years) |
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Expiry Date |
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8
The Company recognizes share-based payments expense for all stock options granted based on the grant date fair value with the expense recognized ratably over the service period. The fair value of stock options is determined by the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Company’s shares, forfeiture rate, and expected life of the options.
There were
|
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For the year ended December 31, 2020 |
Risk-free interest rate |
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Expected life (years) |
|
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Annualized volatility |
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Dividend yield |
|
Restricted share units
The Company grants restricted share units (“RSUs”) to directors, officers, employees and consultants as compensation for services, pursuant to its Amended RSU Plan (the “RSU Plan”). One restricted share unit has the same value as a Voting Share. The number of RSUs awarded and underlying vesting conditions are determined by the Board of Directors in its discretion.
At the election of the Board of Directors, upon each vesting date, participants receive (a) the issuance of Voting Shares from treasury equal to the number of RSUs vesting, or (b) a cash payment equal to the number of vested RSUs multiplied by the fair market value of a Voting Share, calculated as the closing price of the Voting Shares on the TSXV for the trading day immediately preceding such payment date; or (c) a combination of (a) and (b).
On the grant date of RSUs, the Company determines whether it has a present obligation to settle in cash. If the Company has a present obligation to settle in cash, the RSUs are accounted for as liabilities, with the fair value remeasured at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the period. The Company has a present obligation to settle in cash if the choice of settlement in shares has no commercial substance, or the Company has a past practice or a stated policy of settling in cash, or generally settles in cash whenever the counterparty asks for cash settlement.
If no such obligation exists, RSUs are accounted for as equity settled share-based payments and are valued using the share price on grant date. Upon settlement:
The following is a summary of RSU activities for the years ended March 31, 2022 and 2021:
9
|
|
Number of RSUs |
|
|
Weighted average grant date fair value per RSU |
|
||
Outstanding, January 1, 2021 |
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Granted |
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Issuance of common stock |
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( |
) |
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Forfeited |
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( |
) |
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Outstanding March 31, 2021 |
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Outstanding, January 1, 2022 |
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$ |
|
||
Granted |
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Issuance of common stock |
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— |
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— |
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Forfeited |
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( |
) |
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Outstanding, December 31, 2021 |
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During the three months ended March 31, 2022 and 2021, the Company recognized share-based payments expense with respect to stock options and RSUs of $
The remaining compensation that has not been recognized as of March 31, 2022 with regards to stock options and RSUs and the weighted average period they will be recognized are $
The Company’s expected effective tax rate for the three months ended March 31, 2022, and 2021 was
The Company has contractual obligations and commitments primarily with regard to management and development services, lease arrangements and financing arrangements
On January 23,
The Company is subject to various legal proceedings in the normal course of business and records legal costs as incurred. Management believes these proceedings will not have a materially adverse effect on the Company.
Basic earnings per share, which excludes dilution, is computed by dividing Net Income or loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The number of incremental shares from the assumed issuance of shares relating to share-based awards is calculated by applying the treasury stock method.
The following table shows the computation of basic and diluted earnings per share
|
|
March 31, 2022 |
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|
March 31, 2021 |
|
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Numerator: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Denominator: |
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Weighted average common shares outstanding - Basic |
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Dilutive effect of stock options and warrants |
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Weighted average common shares outstanding - Diluted |
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Basic loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
10
There were
Related parties and related party transactions impacting the consolidated financial statements not disclosed elsewhere in these consolidated financial statements are summarized below and include transactions with the following individuals or entities:
Key Management Personnel
As of March 3, 2022, amounts due to related parties include the following:
Other Related Party Transactions and Balances
The amounts due to related parties are unsecured, non-interest bearing and have no stated terms of repayment.
Smartlynx Airlines Malta Limited is an entity whose Chief Executive Officer is a Board Member of Global. During the year ending December 31, 2020, Global made advanced payments totaling $
Add as appropriate
11
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read together with the accompanying unaudited condensed consolidated financial statements and related notes in this report and the audited financial statements included in the Company’s Annual Report for December 31, 2021 on Form 10-K. This Item 2 contains forward-looking statements that involve risks and uncertainties. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date of this report. Actual results may differ materially from those expressed or implied in such forward-looking statements. Factors which could cause actual results to differ materially are discussed throughout this report and include, but are not limited to, those set forth at the end of this Item 2 under the heading "Cautionary Statement Regarding Forward Looking Statements." Additional factors are under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Business Overview
Global Crossing Airlines Group Inc. (“GlobalX” or the “Company”) operates a US Part 121 flag and charter airline using the Airbus A320 family of aircraft. GlobalX’s business model is to (1) provide services on an ACMI using wet lease contracts to airlines and non-airlines, and (2) on a charter basis whereby we provide passenger aircraft charter services to customers by charging an “all-in” fee that includes fuel, insurance, landing fees, navigation fees and most other operational fees and costs. GlobalX operates within the United States, Europe, Canada, Central and South America. GlobalX also plans to operate the Airbus A321 freighter (“A321F”) commencing in the fourth quarter of 2022 after completing all FAA certification requirements with the A321F.
Focused on becoming a market leader with differentiated, value-creating solutions
GlobalX intends to become the best-in-class U.S. narrow-body, ACMI charter airline, operating both passenger and cargo charter aircraft while recruiting and maintaining a dynamic team of customer-centric flight crews, ground and maintenance teams and management staff.
GlobalX operates its A320 family aircraft for airlines, tour operators, college and professional sports teams, incentive groups, resorts and casino groups and government agencies. It is our goal to deliver best in class on time performance and dispatch reliability; Expand existing relationships and develop additional relationships with leading charter/our operators to provide aircraft during their peak seasons; and provide ad-hoc and track charter programs for non-airline customers, including hotels, casinos, cruise ship companies, tour operators.
Launch cargo charter flights with A321P2F (Passenger to Freighter)
GlobalX plans to add A321F (passenger to freighter) aircraft to its operating certificate and into the fleet commencing Q4 2022, and cargo will be an integral part of the GlobalX business. GlobalX intends to operate its A321Fs under ACMI charter operations with major package operators and major freight and logistics companies. Under these arrangements, customarily, these operators will take the commercial risk associated with the selling of the cargo and provide all ground handling and cargo-specific operations, with GlobalX assuming the operational risk of providing a functional aircraft, trained crew, in a safe and on time manner as the ACMI operator.
Location of Operations Bases
GlobalX operates from four primary geographic bases:
12
Reducing Operational Costs
To control costs and maintain a competitive cost per Block Hour flown, GlobalX:
Marketing Plan
GlobalX plans to achieve its revenue goals by flying charter operations for a variety of client groups:
GlobalX Aircraft Fleet
Critical to GlobalX’s business model is a fleet of modern and cost-effective aircraft. To achieve this objective, GlobalX has selected what it believes is the best overall single-aisle aircraft family to operate. This approach differs from traditional airlines, which purchase a variety of aircraft, often from different manufacturers, to achieve their operational flight sectors, resulting in increased training, operating and spare part costs. GlobalX conducted research to determine the best aircraft to fly in competition with other narrow-body charter airlines in the single-aisle seat market and GlobalX selected the A320 aircraft family.
The following factors support GlobalX’s choice to operate the Airbus A320 and A321 aircraft versus the Boeing family of aircraft:
Cost and Operating factors: lower fuel burn, and better aircraft and cockpit crew pool availability.
Operational Capability: the A320 has a range advantage over the 737-800 and can fly non-stop from Miami to selected airports in North America, South America, the Caribbean, and between most major destinations in Europe. The A320 has excellent maintenance dispatch reliability and strong availability of spare parts and components, making the A320, in management’s estimation, the most popular aircraft among low-cost airlines.
Passenger comfort: better seat width, cargo bin volume for carry-on baggage and cargo hold volume.
Aircraft Maintenance
Heavy maintenance checks are expected to be sourced out to FAA-approved service providers. The "6Y" and "12Y" checks will be primarily paid for using funds from the accrued maintenance reserves paid to lessors under operating leases.
Strategy to Address Competitive Response
We expect the existing charter operators based in the U.S. to respond to GlobalX’s entry into the market by lowering their pricing to customers. The expected competitive response typically includes lowered ACMI rates for key contracts. We believe GlobalX’s existing relationships with potential customers and the underserved demand in the U.S., coupled with our newer planes allowing for a more cost-efficient operation, will allow us to address any competitive pressure and grow as anticipated.
13
GlobalX Charter Service
GlobalX is a charter provider that currently focuses exclusively on providing customized, non-scheduled passenger air transport services with narrow-body Airbus A320 and A321 aircraft. We expect our primary line of business and focus to be commercial charter services from MIA to destinations throughout North and South America and the Caribbean, with established scheduled airlines that need additional air lift to supplement their own, and established tour and travel operators that sell tour packages in and between these markets.
We provide our services through two contract structures: (1) ACMI and (2) Charter
We believe operating charter flights will largely insulate our expected profitability from fluctuations in jet fuel prices, which are typically the largest and most volatile expense for an air carrier. Under the vast majority of our commercial passenger charter arrangements, our customers bear 100% of the cost of jet fuel. In addition, consistent with industry practice, we plan for those customers to pay us our contract price approximately two weeks in advance of their flights.
Because we expect that our ACMI customers would be responsible for fuel costs, our expected commercial ACMI revenues would not be affected directly by fuel price changes. However, a significant increase in fuel prices would likely have an adverse effect on demand for the use of our aircraft, which could have a material adverse effect on our profitability and financial position.
Experienced management team
Our management team has extensive operating and leadership experience in the airfreight, airline, and aircraft leasing, maintenance, and management industries at companies such as Republic Airways, Eastern Airlines, JetBlue Airways, Virgin America, Hawaiian Airlines, American Airlines, US Airways, Atlas Air, Breeze Airways, Emirates, North American Airlines, Miami Air, AAR, Continental Airlines, Pan Am, Atlantic Coast Airlines, and Flair Airlines, as well as the United States Army, and Air Force. In addition, our management team has a diversity of experience from other industries at companies such as KBR, Teladoc, The Home Depot, Halliburton, Lehman Brothers, and the Burger King Corporation.
Business Strategy
GlobalX seeks to become the best-in-class U.S. narrow-body, ACMI and Full Contract charter airline, operating both passenger and cargo charter aircraft while recruiting and maintaining a dynamic team of customer-centric flight crews, ground teams and management staff.
In launching a US 121 Flag and Supplemental charter airline in the United States, GlobalX has done, or plans to do, the following:
Launch passenger charter flights with A320/A321 all passenger aircraft
GlobalX operates its A320 family aircraft under ACMI/Full Contract charter operations for major airlines, tour operators, college and professional sports teams, incentive groups, major resorts and casino groups.
Launch cargo charter flights with A321P2F (Passenger to Freighter)
GlobalX plans to add A321F (passenger to freighter) aircraft to its operating certificate and into the fleet commencing Q3 2022. Cargo is an important revenue stream for airlines and will be an integral part of the GlobalX operation.
GlobalX intends to operate its A321Fs under ACMI/Wet Lease charter operations with major package operators and major freight and logistics companies. Under these arrangements, customarily, these operators will take the commercial risk associated with the selling of the cargo capacity and provide all ground handling and cargo-specific operations, with GlobalX assuming the operational risk of providing a functional aircraft, trained crew, in a safe and on time manner as the ACMI operator.
Business Developments
14
Our results for the three months ended March 31, 2022, were impacted by the following:
Results of Operations
The following discussion should be read in conjunction with our Financial Statements and other financial information appearing and referred to elsewhere in this report.
Three months ended March 31, 2022 and 2021
Operating Statistics
The following table compares our Operating Fleet (average aircraft equivalents during the period) and total Block Hours operated:
Fleet & Block Hours
|
|
Three Months Ended |
|
|
|
|
||||||
Operating Fleet |
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|||
A320 |
|
|
5 |
|
|
|
1 |
|
|
|
4 |
|
A321 |
|
|
1 |
|
|
|
1 |
|
|
|
— |
|
Total Operating Average Aircraft Equivalents |
|
|
6 |
|
|
|
2 |
|
|
|
4 |
|
Total Block Hours |
|
|
1,729 |
|
|
|
— |
|
|
|
|
|
Operating Revenue
The following table compares our Operating Revenue (in dollars):
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|||
Operating Revenue |
|
$ |
16,380,011 |
|
|
$ |
— |
|
|
$ |
16,380,011 |
|
|
N/A |
Operating revenue increased $16.4 million due to the initiation of revenue operations. Block Hours increased 1,729, also as a direct result of the initiation of revenue service.
Operating Expenses
The following table compares our Operating Expenses (in dollars):
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||
Operating Expenses |
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Salaries, Wages, & Benefits |
|
|
5,865,074 |
|
|
|
956,697 |
|
|
$ |
4,908,377 |
|
|
|
513.1 |
% |
Aircraft Fuel |
|
|
3,250,554 |
|
|
|
17,583 |
|
|
|
3,232,971 |
|
|
|
18386.9 |
% |
Maintenance, materials and repairs |
|
|
1,190,823 |
|
|
|
43,897 |
|
|
|
1,146,926 |
|
|
|
2612.8 |
% |
Depreciation and amortization |
|
|
23,312 |
|
|
|
3,652 |
|
|
|
19,660 |
|
|
|
538.3 |
% |
Contracted ground and aviation services |
|
|
2,955,576 |
|
|
|
33,145 |
|
|
|
2,922,431 |
|
|
|
8817.1 |
% |
Travel |
|
|
1,295,110 |
|
|
|
20,750 |
|
|
|
1,274,360 |
|
|
|
6141.5 |
% |
Insurance |
|
|
857,268 |
|
|
|
475,133 |
|
|
|
382,135 |
|
|
|
80.4 |
% |
Aircraft Rent |
|
|
3,359,674 |
|
|
|
— |
|
|
|
3,359,674 |
|
|
N/A |
|
|
Other |
|
|
2,345,908 |
|
|
|
1,361,813 |
|
|
|
984,095 |
|
|
|
72.3 |
% |
Total Operating Expenses |
|
$ |
21,143,299 |
|
|
$ |
2,912,670 |
|
|
$ |
18,230,629 |
|
|
|
625.9 |
% |
15
Salaries, wages and benefits increased $4.9 million, or 513%, primarily driven by our initiation of revenue service.
Aircraft fuel increased $3.2 million, or 18,386%, driven by our initiation of revenue service. The majority of this cost is included in our revenue.
Maintenance, materials and repairs increased by $1.1 million, or 2,612%, driven by our initiation of revenue service.
Depreciation and amortization increased $ 19.7 thousand, or 538%, driven by assets acquired to support our FAA certification and our initiation of revenue service.
Contracted ground and aviation services increased $ 2.9 million, or 8,817%, driven by our initiation of revenue service.
Travel increased $ 1.3 million, or 6,141 %, driven by our initiation of revenue service.
Insurance increased $ 382.1 thousand, or 80.4 %, driven by our initiation of revenue service.
Aircraft rent increased $ 3.4 million, or 100 %, driven by our initiation of revenue service.
Other in Q1 2022 increased $ 984.1 thousand, or 72.3 %, driven by our initiation of revenue service.
Non-operating Expenses (Income)
The following table compares our Non-operating Expenses (Income) (in thousands):
|
|
Three Months Ended March 31 |
|
|
|
|
|
|
|
|||||||
Non-Operating Expenses (Income) |
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Loss on Warrant Valuation |
|
|
— |
|
|
|
3,050,968 |
|
|
$ |
(3,050,968 |
) |
|
|
(100.0 |
)% |
Interest Expense |
|
|
16,214 |
|
|
|
11,286 |
|
|
|
4,928 |
|
|
|
43.7 |
% |
Total Non-Operating Expenses (Income) |
|
$ |
16,214 |
|
|
$ |
3,062,254 |
|
|
$ |
(3,046,040 |
) |
|
|
(99.5 |
)% |
Loss on Warrant Valuation decreased $3.0 million driven by the reclassification of warrants during 2021 from a liability to equity
Interest expense, net increased $ 5.0 thousand driven by financing of insurance premiums.
Income taxes. Our expected effective income tax rates were a benefit rate of 0% for the three months ended March 31, 2022 and 2021.
Liquidity and Capital Resources
The most significant liquidity events for the three months ended March 31,2022 and 2021 were as follows:
Operating Activities. For the three months ended March 31, 2022, Net cash used by operating activities decreased by $ 2.2 million to $ 912.0 thousand, which primarily reflected Net loss of $ 4.8 million, an increase in Prepaid expenses and other assets of $ 839.7 thousand, and a decrease in Operating Lease Obligations of $ 731.3 thousand. These were partially offset by noncash adjustments of $382.6 thousand for share-based payments, and $ 950.3 thousand for a decrease in operating lease right of use asset, as well as an increase in Accrued liabilities of $ 729.2 thousand, an increase in accounts payable of $ 3.1 million. For the three months ended March 31, 2021, Net cash used for operating activities was $3.1 million, which primarily reflected the lack of an airline operating certificate and revenue.
Investing Activities. For the three months ended March 31, 2022, net cash used for investing activities increased by $432.2 thousand to $ 890.9 thousand, consisting primarily of $ 617.8 thousand related to Deferred costs and other assets, and $ 273 thousand related to Purchases of property and equipment. For the three months ended March 31, 2021, Net cash used for investing activities was $ 458.6 thousand, consisting primarily of $ 300 thousand related to Deferred costs and other assets.
Financing Activities. For the three months ended March 31, 2022, net cash provided by financing activities increased by $ 913.4 thousand to $ 5.7 million, which primarily reflected $ 5.9 million related to Long-term loan payable, partially offset by $ 197.6 thousand for Payments to related parties. For 2020, Net cash provided by financing activities was $ 4.8 million, which primarily reflected $5.0 million in proceeds from issuances of units, partially offset by $ 101.5 thousand for payments from related parties.
16
We may access external sources of capital from time to time depending on our cash requirements, assessments of current and anticipated market conditions, and the after-tax cost of capital. Our access to capital markets can be adversely impacted by prevailing economic conditions and by financial, business and other factors, some of which are beyond our control. Additionally, our borrowing costs are affected by market conditions and may be adversely impacted by a tightening in credit markets.
We do not expect to pay any significant U.S. federal income tax in 2022.
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4 – Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, referred to collectively herein as the Certifying Officers, are responsible for establishing and maintaining our disclosure controls and procedures that are designed to ensure that information relating to the Company required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Certifying Officers have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of December 31, 2021. Our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, the Company’s disclosure controls and procedures were effective.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during fiscal quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
17
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
From time to time, we may be subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.
Current Proceedings
On October 1, 2021, GEM Yield Bahamas Limited (“GEM”) commenced an action in the Supreme Court of the State of New York, County Of New York against the Company (the “GEM Litigation”). GEM claims the Company breached a May 4, 2020 promissory note (the “Note”) pursuant to which the Company agreed to make certain payments to GEM in an aggregate amount of CDN $2,000,000 (the “Fee”) in consideration for GEM and GEM Global Yield LLC SCS (collectively the “GEM Parties”) entering into a share subscription agreement (the “SSA”) providing for the GEM Parties to purchase up to CDN$100,000,000 worth of common shares in the Company upon the occurrence of certain events. GEM claims that the Company failed to pay the first installment of the Fee on May 4, 2021 as due and that the full CDN$2,000,000 of the Fee is accelerated and due now.
The Company claims that the GEM Parties breached the SSA by, among other things, selling the Company’s common shares when prohibited from doing so pursuant to the SSA, as part of a stock manipulation scheme, and that such breach excuses the Company from paying the Fee. The Company is opposing the relief GEM seeks and cross-moving to stay the GEM Litigation on several bases including that (i) the parties agreed to arbitrate any dispute, (ii) GEM’s suit is procedurally improper, and (iii) the GEM Parties’ breach of the SSA excuses the Company from paying the Fee. The Company’s opposition papers were filed on November 19, 2021, at which point GEM had an opportunity to file reply papers. Given the backlog of cases at the court due to COVID and other factors, the Company has not heard from or estimate when the court will rule on the parties’ respective filings.
ITEM 1A Risk Factors
There have been no material changes in our risk factors from those disclosed in “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
Except as previously reported on our Current Reports on Form 8-K, we had no unregistered sales of equity securities during the period from January 1 2022 to March 31, 2022
ITEM 3 Defaults Upon Senior Securities
None.
ITEM 4 Mine Safety Disclosures
Not Applicable
ITEM 5 Other Information
None.
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Item 6 - Exhibits
Exhibit Number |
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Description |
31.1* |
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Rule 13a-14(a)/15d-14(a) Certification of acting principal executive officer. * |
31.2* |
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Rule 13a-14(a)/15d-14(a) Certification of acting principal financial officer. * |
32.1* |
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32.2* |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURE |
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TITLE |
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DATE |
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/s/ Edward Wegel |
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CEO |
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May 16, 2022 |
Edward Wegel |
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/s/ Ryan Goepel |
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CFO |
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May 16, 2022 |
Ryan Goepel |
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/s/ Alan Bird |
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Director |
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May 16, 2022 |
Alan Bird |
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/s/ T. Allan McArtor |
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Director |
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May 16, 2022 |
T. Allan McArtor |
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/s/ David G. Ross |
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Director |
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May 16, 2022 |
David G. Ross |
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/s/ Deborah Robinson |
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Director |
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May 16, 2022 |
Deborah Robinson |
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/s/ Cordia Harrington |
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Director |
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May 16, 2022 |
Cordia Harrington |
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