SRFM

Business Context and Reporting Period

Company: Surf Air Mobility Inc. (SRFM)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2025
Business Overview: A regional air mobility platform operating scheduled and on-demand air services, with a strategic focus on developing electrified powertrain technology and AI-enhanced aviation software. The Company operates as a single segment (Air Mobility).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Revenue decreased 15% in Q2 2025 and 19% YTD 2025 compared to the prior year. This was driven by the exit of unprofitable scheduled routes, termination of membership subscription revenue, and a strategic shift away from certain on-demand products to prioritize profitability.
• Expense Reduction: Total operating expenses decreased 25% in Q2 and 30% YTD. Significant reductions occurred in General and Administrative expenses (down 36% Q2, 47% YTD) due to lower stock-based compensation (specifically a $14.3M reduction in management incentive plan expenses) and headcount reductions.
• Net Loss Improvement: Despite revenue declines, the Net Loss improved by 27% YTD ($17.5M reduction) primarily due to the substantial decrease in operating expenses.
• Other Expenses: "Other income (expense), net" deteriorated significantly, increasing losses by 589% in Q2 and 181% YTD. This was driven by a $7.6M increase in losses from changes in fair value of financial instruments (convertible notes and GEM Mandatory Convertible Security) and higher interest expenses.
• Capital Raises: The Company raised approximately $31.4M in net proceeds from the issuance of common stock and $10.7M from draws under the Share Purchase Agreement with GEM during the first half of 2025.

Guidance, Outlook, Risks, and Contingencies

• Going Concern: The filing explicitly states that substantial doubt exists regarding the Company's ability to continue as a going concern. This is due to recurring operating losses, negative operating cash flows, a working capital deficit, and defaults on certain tax and debt obligations.
• Liquidity Risks: The Company is in default of federal excise taxes ($8.8M liability) and property taxes ($1.8M liability). It is also in default of a SAFE-T note ($0.5M). The Company is actively seeking settlement options for tax liabilities.
• Listing Compliance: The Company is attempting to resolve a New York Stock Exchange listing requirement violation regarding market capitalization. Failure to cure this deficiency by November 2025 could impact its ability to raise capital through existing sources.
• Operational Strategy: Management is implementing stringent cost controls and operational improvements. Future success depends on raising additional capital, achieving high aircraft utilization, and advancing electrification technology.
• Internal Controls: Management concluded that disclosure controls and internal controls over financial reporting were not effective as of June 30, 2025, citing material weaknesses in the control environment, IT general controls, and accounting for complex transactions.

Investor Verification Checklist

• Capital Adequacy: Verify the status of the $8.8M federal excise tax liability and the $1.8M property tax liability, and the Company's ability to settle these without asset seizure.
• Listing Status: Monitor the Company's progress in curing the NYSE market capitalization deficiency to ensure continued access to capital markets.
• Debt Covenants: Review the terms of the Comvest Credit Agreement and LamVen Note to assess immediate default risks given the current liquidity position.
• Revenue Sustainability: Assess whether the exit of unprofitable routes and on-demand products has stabilized the core business model or if further revenue contraction is likely.
• Internal Control Remediation: Evaluate the timeline and effectiveness of the remediation plan for the identified material weaknesses in financial reporting.