SRFM

Business Context and Reporting Period

Company: Surf Air Mobility Inc. (SRFM)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2025
Business Overview: Surf Air Mobility is a regional air mobility platform operating one of the largest commuter airlines in the U.S. by scheduled departures, alongside an on-demand charter marketplace. The company is transitioning toward electrified aviation, developing proprietary software (SurfOS) and hybrid-electric powertrains in partnership with Textron Aviation and Palantir. The company operates under two primary revenue streams: Scheduled Air Service (including Essential Air Service subsidies) and On-Demand charter flights.

Key Financial Metrics (Year Ended Dec 31, 2025)

Note: Revenue decreased 11% year-over-year. Net loss increased 48% year-over-year.

Material Changes vs. Prior Period

• Revenue Decline: Total revenue dropped $12.9 million (11%) primarily due to a $13.7 million decrease in scheduled revenue. Management exited unprofitable routes to improve unit economics, resulting in fewer scheduled departures (down 13%) and flight hours (down 18%). On-demand revenue increased slightly by 3%.
• Expense Volatility: General and Administrative (G&A) expenses surged 79% ($23.4 million increase) driven by a $16.0 million increase in stock-based compensation, $6.4 million in transaction costs related to convertible note financing, and $4.2 million in incentive bonus accruals. Conversely, Technology and Development expenses fell 57% due to reduced costs associated with the Textron data license and Palantir software development.
• Other Expenses: Total other expense increased 128% to $34.1 million. This was driven by a $3.9 million loss on the extinguishment of debt (Comvest Credit Agreement) and $8.4 million in other expenses, including contract settlements and finance charges on tax liabilities.
• Operational Metrics: Scheduled passengers decreased by 15% to 299,639. Headcount was reduced by 18% to 573 employees.

Guidance, Outlook, Risks, and Contingencies

Going Concern and Liquidity

The filing explicitly states there is substantial doubt about the Company's ability to continue as a going concern. The company has incurred significant losses, negative operating cash flows, and a working capital deficit. It is currently in default of certain excise and property taxes (approx. $10.8 million combined liability) and certain debt obligations. Continued operations depend on securing additional financing.

Financing and Capital Resources

• Share Subscription Facility: The company has a $400 million facility with GEM Global Yield LLC. As of Dec 31, 2025, $251.4 million remained available, though daily volume limitations restrict immediate drawdowns.
• Recent Capital Raises: In 2025, the company raised $51.4 million via direct/private stock offerings, $65 million via convertible notes (High Trail), and $47.2 million via the GEM facility.
• Debt Defaults: The company is in default on federal excise taxes (liability of $9.9 million) and property taxes ($0.9 million). An Offer-in-Compromise (OIC) to the IRS was rejected in December 2024, though a request for reconsideration was submitted in December 2025.

Strategic Outlook

Management plans to deploy electrified aircraft and the SurfOS software platform to reduce operating costs. The company is pursuing Supplemental Type Certificates (STCs) for hybrid-electric powertrains. However, the commercialization of electric aviation remains unproven and subject to regulatory approval.

Material Weaknesses in Internal Controls

Management identified material weaknesses in internal control over financial reporting, including insufficient segregation of duties, lack of resources with appropriate accounting expertise, and ineffective controls over complex transactions and IT general controls. These weaknesses resulted in audit adjustments to substantially all accounts.

Investor Verification Checklist

• Going Concern Status: Verify the company's ability to secure immediate liquidity to cover the $10.8 million in defaulted tax liabilities and ongoing operating losses.
• Debt Covenants: Review the terms of the High Trail Convertible Note and other debt instruments for liquidity covenants and potential acceleration triggers given the current default status on taxes.
• IRS Settlement: Monitor the status of the IRS Offer-in-Compromise reconsideration and potential collection actions regarding the $9.9 million excise tax lien.
• Route Economics: Assess the impact of exiting unprofitable routes on long-term revenue growth versus the immediate reduction in operating losses.
• Internal Controls: Evaluate the progress of the remediation plan for material weaknesses in financial reporting, which poses a risk to the accuracy of future disclosures.
• Electric Aviation Timeline: Scrutinize the realistic timeline for FAA certification of hybrid-electric powertrains, as this is central to the company's long-term cost-reduction thesis.