DEF: Volato Group Faces Going Concern Doubts Amidst Executive Salary Cuts and Proposed New Stock Plan

Volato Group, Inc. is seeking stockholder approval for a new stock incentive plan and director election at its upcoming 2025 Annual Meeting, while facing significant financial challenges including a 'going concern' warning from its former auditor and substantial executive salary reductions.

Summary

• Volato Group, Inc. will hold its 2025 Annual Meeting of Stockholders virtually on July 21, 2025, at 9:00 a.m. Eastern Time, with a record date of May 19, 2025.
• Key proposals include the election of Christopher Burger as a Class II director, approval of the Volato Group, Inc. 2025 Stock Incentive Plan, and ratification of Elliott Davis, LLC as the independent registered public accounting firm for fiscal year 2025.
• The proposed 2025 Stock Incentive Plan initially reserves 415,584 shares, with automatic annual increases of 5% of outstanding shares and an additional 20% of consideration shares from acquisitions.
• The company's former independent registered public accounting firm, Rose, Snyder, Jacobs LLP, issued an explanatory paragraph in its December 31, 2024 financial statements report, citing substantial doubt about Volato Group's ability to continue as a going concern due to significant operating losses, negative cash flows, and limited positive working capital.
• Executive officers experienced significant annualized salary decreases effective June 1, 2024: Matthew Liotta (CEO) from $310,000 to $2,400; Keith Rabin (former President) from $300,000 to $277,500; Michael Prachar (COO) from $235,000 to $223,250; and Mark Heinen (CFO) from $275,000 to $261,250.
• No annual bonuses were paid to named executive officers for the calendar years ended December 31, 2023, and 2024, due to company performance.
• Keith Rabin, former President, resigned on July 19, 2024, receiving a cash payment of $89,609.37 as part of a separation agreement.
• Cash compensation for directors was suspended effective March 31, 2024, replaced by Restricted Stock Unit (RSU) awards.
• As of May 19, 2025, 2,077,921 shares of common stock were outstanding and entitled to vote.
• Matthew Liotta (13.1%) and Nicholas Cooper (5.8%) are significant beneficial owners, along with Hoop Capital LLC (5.8%) and Argand Group LLC (6.7%), both linked to management.

Sentiment

Score: 2

Explanation: The sentiment is overwhelmingly negative due to the explicit 'going concern' warning from the auditor, significant operating losses, negative cash flows, and drastic executive salary cuts. While there are some positive corporate governance practices and a proposed new stock plan, these are overshadowed by the severe financial distress and uncertainty regarding the company's future viability.

Positives

• The Board of Directors and its committees (Audit, Compensation, Nominating and Corporate Governance) demonstrate active oversight, with all incumbent directors attending at least 75% of meetings in 2024.
• The company has adopted robust corporate governance practices, including a Code of Ethics and an Insider Trading Policy that prohibits short sales, derivatives, and hedging transactions by insiders.
• The proposed 2025 Stock Incentive Plan incorporates 'best practices' such as no discounted options/SARs, no repricings without stockholder approval, robust minimum one-year vesting requirements (with limited exceptions), and double-trigger vesting upon a change of control, aligning employee incentives with long-term stockholder value.
• The company is committed to efficient use of equity awards and is mindful of potential stockholder dilution, considering burn rate and overhang in equity award design.

Negatives

• The company's former auditor, Rose, Snyder, Jacobs LLP, included an explanatory paragraph in its December 31, 2024 financial statements report, indicating substantial doubt about Volato Group's ability to continue as a going concern.
• Volato Group incurred significant operating losses and negative cash flows from operations during the year ended December 31, 2024, and has limited positive working capital.
• Executive officers experienced substantial annualized salary decreases effective June 1, 2024, with CEO Matthew Liotta's salary reduced from $310,000 to $2,400, reflecting severe cost-cutting measures.
• No annual bonuses were awarded to named executive officers for 2023 and 2024 due to the company's performance, indicating a lack of achievement against performance objectives.
• Keith Rabin, the former President, resigned on July 19, 2024, which could signal instability in senior management.
• Two Section 16(a) reports for 2024 were not filed in a timely manner by the then-serving Chief Technology Officer and Director Christopher Burger, indicating potential internal control weaknesses in compliance reporting.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to significant operating losses, negative cash flows from operations, and limited positive working capital.
• Risks related to financial condition, operations, strategic direction, and intellectual property, as more fully discussed in the 'Risk Factors' section of the Annual Report on Form 10-K for the year ended December 31, 2024.
• Potential for insufficient votes for the approval of proposals at the Annual Meeting, necessitating an adjournment to solicit further proxies.
• The company's reliance on the proposed 2025 Stock Incentive Plan to attract and retain talent, which if not approved, could hinder its ability to motivate employees and directors.
• The at-will employment status of executive officers after November 30, 2024, could increase management turnover risk.
• Potential for conflicts of interest arising from related party transactions, despite review and approval policies.

Future Outlook

The company is seeking approval for a new 2025 Stock Incentive Plan, which aims to attract and retain talent by linking compensation to stockholder value, with awards potentially granted until August 1, 2035. The plan includes provisions for automatic annual increases in share reserves and additional shares for acquisitions, indicating a long-term strategy for equity-based compensation. The Board also seeks authorization to adjourn the Annual Meeting if necessary to secure sufficient votes for proposals, suggesting potential uncertainty in achieving desired outcomes.

Management Comments

• "Your vote is very important. Please vote whether or not you plan to attend the Annual Meeting. Your promptness in voting will assist us in ensuring that a quorum is present or represented." Matthew Liotta, Chair and Chief Executive Officer.
• "We are utilizing a virtual-only meeting format in order to leverage technology to enhance stockholder access to the Annual Meeting by enabling attendance and participation from any location. We believe that the virtual-only meeting format will give stockholders the opportunity to participate fully and equally, and without cost, and to exercise the same rights as if they had attended an in-person meeting." Volato Group, Inc.
• "Our executive compensation philosophy is rooted in our values, which emphasize transparency. Therefore, we seek to establish a compensation structure that is easily understood and applied. Our successful compensation structure rewards performance for living and demonstrating our values, achieving challenging objectives that propel us forward, and driving stockholder value, while ensuring the sustainability and long-term viability and value of the Company." Volato Group, Inc.
• "Compensation not only rewards performance, it is an essential tool that can be deployed to attract and retain top talent that will deliver results for stockholders." Volato Group, Inc.
• "Our compensation plan, as with all other business plans, will be reviewed and adjusted at regular intervals consistent with the market, business achievements, pay equity, experience, and individual negotiations." Volato Group, Inc.
• "Due to the performance of the Company, the named executive officers were not eligible to receive an annual bonus related to the calendar year ended December 31, 2023 and 2024." Volato Group, Inc.
• "Nonetheless, the Company anticipates that each executive officer will continue to serve in his existing capacity under substantially the same compensatory terms as contained in the applicable Employment Agreement." Volato Group, Inc., regarding at-will employment.

Industry Context

The company's shift to a virtual-only annual meeting aligns with a broader industry trend towards leveraging technology for increased accessibility and reduced costs. The proposal of a new stock incentive plan is a common practice for public companies to attract and retain talent, especially in competitive sectors. However, the 'going concern' warning from the auditor and significant executive salary cuts suggest severe financial distress, which is a critical deviation from healthy industry norms. The change in auditors, while sometimes routine, can also signal underlying issues, especially when accompanied by a going concern opinion. The company's focus on equity compensation amidst cash flow issues is a common strategy for cash-strapped businesses to incentivize employees without immediate cash outlays.

Comparison to Industry Standards

• **Corporate Governance:** Volato Group's board composition with independent directors on key committees (Audit, Compensation, Nominating and Corporate Governance) aligns with standard corporate governance best practices for publicly traded companies, particularly those listed on NYSE American.
• **Executive Compensation:** The move to significantly reduce executive cash salaries and suspend director cash fees, while relying on equity awards with performance-based vesting, is a stark contrast to typical compensation structures in stable, profitable companies. This strategy is more common in distressed or early-stage companies aiming to conserve cash and align management incentives with stock price recovery, but the magnitude of the CEO's salary reduction to $2,400 is highly unusual and suggests extreme financial pressure.
• **Auditor Opinion:** The 'going concern' explanatory paragraph from the independent auditor (Rose, Snyder, Jacobs LLP) for the fiscal year ended December 31, 2024, is a significant red flag that deviates sharply from the clean audit opinions typically received by financially healthy companies. This indicates that the company's financial viability is in question, a situation that would typically trigger heightened scrutiny from investors and regulators.
• **Equity Incentive Plans:** While the proposed 2025 Stock Incentive Plan incorporates 'best practices' like no discounted options/SARs and double-trigger change of control vesting, which are favorable to shareholders, the sheer volume of shares reserved (initially 415,584 plus annual 5% increases and 20% for acquisitions) could lead to significant dilution if the company's market capitalization is low, potentially exceeding typical dilution rates for established companies.
• **Related Party Transactions:** The extensive related party transactions, particularly the convertible notes and loans from the CEO's family members and the lease agreements with entities majority-owned by the CEO and his spouse, while disclosed, could raise corporate governance concerns regarding potential conflicts of interest and arm's-length dealings, which are often scrutinized more heavily than in companies with less concentrated ownership or management ties.

Management Changes

Corporate Governance

Legal Proceedings

• Matthew Liotta was the Chief Executive Officer and a board member of PodPonics, Inc. in May 2016 when that company made a voluntary filing for bankruptcy under Chapter 7.

Related Party Transactions

• Convertible Notes (CN-001 and CN-002) were issued to Liotta Family Office, LLC (60% owned by Dennis Liotta, Matthew Liotta's father; 20% by John Liotta, Matthew Liotta's brother; 20% by Matthew Liotta) and the Matthew D. Liotta 2021 Trust, which subsequently converted into preferred stock.
• A $1 million unsecured term loan was extended by Dennis Liotta to Volato, Inc. in March 2023, which was repaid upon maturity.
• Jennifer Liotta, spouse of CEO Matthew Liotta, served as the company's prior General Counsel and received $160,000 in compensation in 2023.
• John Liotta, brother of CEO Matthew Liotta, served as the company's prior Executive Vice President of Corporate Development and received $122,500 in compensation in 2023.
• G C Aviation leased a HondaJet HA-420 aircraft from Volato 158, LLC, which is 25% owned by DCL H&I, LLC (100% owned by Dennis Liotta and his spouse).
• Volato, Inc. previously leased hangar and office space from Modern Aero, LLC, a company in which Matthew and Jennifer Liotta hold a majority interest, with the relationship terminating July 31, 2023.
• Volato provided payroll and benefits for Modern Aero flight instructors and maintenance personnel until July 31, 2023, waiving reimbursement in January 2024 in exchange for hangar lease assignment.
• Lock-Up Agreements were entered into with various stockholder parties, including Argand Group, Hoop Capital LLC, Liotta Family Office, LLC, and PDK Capital, LLC, all of which are related to management or significant shareholders.

Stakeholder Impact

• **Shareholders:** Face significant dilution risk from the proposed 2025 Stock Incentive Plan and potential loss of investment due to the 'going concern' warning. The drastic executive salary cuts and lack of bonuses indicate poor returns on investment.
• **Employees:** Subject to significant salary reductions and the expiration of employment agreements to an at-will basis, potentially impacting morale and retention. The new stock incentive plan aims to provide long-term incentives, but its value is tied to the company's uncertain future.
• **Customers:** No direct impact mentioned, but the company's financial instability could indirectly affect service quality or long-term viability of offerings.
• **Suppliers/Creditors:** The 'going concern' warning and negative cash flows suggest increased risk for creditors and suppliers, potentially leading to tighter credit terms or delayed payments.
• **Management:** Experiencing substantial pay cuts and increased pressure to improve financial performance. The at-will employment status adds job insecurity.

Next Steps

• Stockholders are invited to attend the virtual 2025 Annual Meeting on July 21, 2025, to vote on the proposed matters.
• Stockholders need to vote on the election of Christopher Burger as a Class II director.
• Stockholders need to vote on the approval of the Volato Group, Inc. 2025 Stock Incentive Plan.
• Stockholders need to vote on the ratification of Elliott Davis, LLC as the independent registered public accounting firm for fiscal year 2025.
• Stockholders will vote on a proposal to adjourn the Annual Meeting if necessary to permit further solicitation of proxies.
• The company expects to file a Current Report on Form 8-K with the SEC within four business days after the Annual Meeting to publish preliminary or final voting results.

Key Dates

Recommendation

Keywords

SEC filing, DEF 14A, Proxy Statement, Annual Meeting, Volato Group, SOAR, Corporate Governance, Executive Compensation, Stock Incentive Plan, Going Concern, Auditor Change, Related Party Transactions, Risk Factors, Shareholder Vote, Restricted Stock Units, Stock Options, NYSE American