10-Q: Surf Air Mobility Faces Going Concern Doubt Amid Losses

Surf Air Mobility reported continued net losses and significant liquidity challenges, raising substantial doubt about its ability to continue as a going concern, despite efforts to reduce operating expenses and raise capital.

Summary

• Net loss for the three months ended June 30, 2025, was $27.998 million, a slight increase from $26.983 million in the same period of 2024.
• Revenue decreased by 15% to $27.431 million for Q2 2025, down from $32.366 million in Q2 2024, primarily due to exiting unprofitable routes and on-demand products.
• Operating expenses decreased significantly by 25% to $43.362 million for Q2 2025, compared to $57.623 million in Q2 2024, driven by reductions in technology and development, sales and marketing, and general and administrative costs.
• Net cash used in operating activities increased to $26.447 million for the six months ended June 30, 2025, from $18.432 million in the prior year period.
• The company raised $31.4 million in net proceeds from common stock issuance and $10.7 million from draws under the Share Purchase Agreement with GEM during the six months ended June 30, 2025.
• Outstanding federal excise tax liability, including penalties and interest, is $8.8 million as of June 30, 2025, with the company in default on a payment plan.
• Total outstanding property tax liability, including penalties and interest, is approximately $1.8 million as of June 30, 2025, with a tax lien on four aircraft in Los Angeles County.
• The company is in default of a SAFE-T note with an outstanding principal of $0.5 million, which matured in July 2019.
• Material weaknesses in internal control over financial reporting were identified, including insufficient accounting knowledge, lack of segregation of duties, and ineffective controls over complex transactions and period-end reporting.
• The company is attempting to resolve a NYSE listing requirement violation related to its market capitalization, with a compliance deadline of November 2025.
• Headcount decreased by 19% (152 employees) for the six months ended June 30, 2025, compared to the same period in 2024.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, explicitly stating 'substantial doubt about its ability to continue as a going concern.' This is compounded by recurring losses, negative operating cash flows, defaults on tax and debt obligations, and material weaknesses in internal controls. While there are efforts to reduce costs and raise capital, and some strategic initiatives, the fundamental financial health and operational stability are highly concerning.

Positives

• Operating expenses decreased significantly by 25% for the three months ended June 30, 2025, and 30% for the six months ended June 30, 2025, indicating effective cost management.
• Technology and development expenses decreased by 52% for Q2 2025, primarily due to the completion of an initial license stage with Textron.
• Sales and marketing expenses decreased by 42% for Q2 2025, mainly due to reduced employee compensation and headcount.
• General and administrative expenses decreased by 36% for Q2 2025, largely due to a $3.5 million reduction in stock-based compensation and lower professional service fees and salaries.
• Net cash provided by financing activities increased by $12.6 million for the six months ended June 30, 2025, primarily from common stock issuances and long-term debt borrowings.
• The company has remaining availability of up to $97.5 million in further advances and an additional $287.9 million under the Share Purchase Agreement with GEM, providing potential future liquidity.
• A modified software license agreement with Palantir Technologies Inc. extends the partnership by two years and grants Surf Air Mobility exclusive partnership rights for configuration and sale of software to Part 135 operators and charter brokers, with sub-licensing ability.

Negatives

• The company incurred continued losses from operations and negative cash flows from operating activities, leading to a working capital deficit.
• Net loss increased by 4% for the three months ended June 30, 2025, compared to the same period in 2024.
• Revenue decreased by 15% for Q2 2025 and 19% for the six months ended June 30, 2025, primarily due to exiting unprofitable routes and on-demand products.
• The company is in default of certain excise and property taxes, including an $8.8 million federal excise tax liability and a $1.8 million property tax liability, with tax liens on aircraft.
• The company is in default of a SAFE-T note with an outstanding principal of $0.5 million, which matured in July 2019.
• Significant increase in other expense, net, by 589% for Q2 2025, primarily due to increased losses from changes in fair value of financial instruments and higher interest expense.
• Net cash used in operating activities increased by $8.0 million for the six months ended June 30, 2025, indicating worsening operational cash burn.
• The company has identified material weaknesses in its internal control over financial reporting, indicating a risk of material misstatements.
• Scheduled Flight Hours decreased by 13%, On-Demand Flights by 30%, Scheduled Passengers by 20%, and Scheduled Departures by 12% for the six months ended June 30, 2025, compared to the prior year period.
• The company voluntarily cancelled a significant number of scheduled flights in January 2025 due to maintenance concerns, resulting in lost revenues and unplanned maintenance costs.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to incurred losses, negative operating cash flows, and a working capital deficit.
• Inability to raise additional debt and equity capital to fund operating losses and refinance outstanding debt.
• Failure to maintain efficient aircraft utilization due to underutilization of pilots and shortages of maintenance personnel and critical aircraft components.
• Inability to sustain ongoing operations, attract and maintain customers, or successfully integrate and grow recent acquisitions and new business initiatives.
• Challenges in obtaining and maintaining relevant regulatory approvals for powertrain technology, which does not yet exist and remains subject to approval.
• Impact of changes in U.S. or foreign trade policies, including tariffs and protectionist measures.
• Risks associated with accidents or incidents involving aircraft, including future fully-electric or hybrid-electric aircraft.
• Dependence on third-party partners and suppliers for the development of powertrains, software platforms, and other products, with risks of interruptions, disagreements, or delays.
• Increased costs as a result of operating as a public company and the need for management to devote substantial time to public company responsibilities and corporate governance.
• The ability of customers and potential customers to pay for services.
• Outcome of legal proceedings, including the Monarch Air lawsuit and potential collection actions from tax authorities.
• Inability to cure NYSE listing requirement violation related to market capitalization by November 2025, which would impact the ability to raise capital through existing sources.
• Exposure to fluctuations in prices of material operating costs, such as fuel and labor, as the company does not hedge these costs.
• The company's estimates and assumptions in financial statements may differ from actual results, potentially materially affecting financial condition and results of operations.

Future Outlook

The company expects to continue incurring significant costs for the development of its digital platform and fully-electric/hybrid-electric powertrain technologies. It is implementing operational improvements and stringent operating expense management to improve airline profitability and is advancing technology initiatives. The company continues to evaluate strategies for additional funding, including equity financing, debt issuance, joint ventures, and operational restructuring. There is no assurance that strategic plans will be successful or that new financing will be available on acceptable terms. The company is evaluating the impact of the One Big Beautiful Bill Act (OBBBA) on its financial statements.

Management Comments

• Management believes perceived recessionary risks have impacted operating results for 2024 and the first half of 2025.
• Management states that inefficient aircraft utilization, primarily caused by underutilization of pilots and a shortage of maintenance personnel and critical aircraft components, challenged the company's ability to serve customers and cover expenses.
• Management is currently implementing operational improvements and stringent operating expenses management to improve the profitability of its airline operations.
• Management is advancing technology initiatives, including its software technology platform and Caravan electrification programs.
• Management continues to evaluate strategies to obtain additional funding for future operations, including equity financing, debt, joint ventures, and operational restructuring.

Industry Context

The company operates in the regional air mobility sector, which is cyclical and highly competitive. Its strategy involves transforming regional flying through a technology-enabled platform, including developing AI-enhanced aviation software and electrifying existing fleets. This aligns with broader industry trends towards sustainable aviation and digital transformation, but the company faces challenges common to new and rapidly evolving markets, such as significant development costs and the need for regulatory approvals for new technologies like electrified powertrains. The industry is also experiencing inflationary pressures on fuel, wages, and maintenance, impacting operational costs.

Comparison to Industry Standards

• The company's continued net losses and negative cash flows from operations are below industry standards for established, profitable airlines, which typically generate positive cash flow from operations.
• The stated 'substantial doubt about the Company's ability to continue as a going concern' is a critical indicator of financial distress, significantly below the stability expected of publicly traded companies in the transportation sector.
• The defaults on tax obligations and debt, along with tax liens on aircraft, indicate severe liquidity and financial management issues, which are not typical for well-managed industry peers.
• The identified material weaknesses in internal control over financial reporting are a significant governance and operational deficiency, contrasting sharply with the robust internal controls expected of public companies, especially those in highly regulated industries like aviation.
• The need for multiple reverse stock splits and continuous reliance on equity and convertible debt financing (e.g., GEM Share Purchase Agreement) suggests a struggle to achieve sustainable profitability and access traditional capital markets on favorable terms, unlike more mature and financially stable airlines.
• The decrease in key operating measures such as Scheduled Flight Hours (-13%), On-Demand Flights (-30%), and Scheduled Passengers (-20%) for the six months ended June 30, 2025, indicates a contraction in core business activity, which is unfavorable compared to industry growth trends or even stable operations among competitors.
• While the strategic focus on electrification and AI software aligns with future industry trends, the current financial instability and operational challenges (e.g., pilot and maintenance shortages, flight cancellations) hinder the company's ability to effectively compete with larger, more established players or even agile startups in the advanced air mobility space that may have stronger financial backing or more mature technology.

Corporate Governance

Legal Proceedings

• The company is a party to a lawsuit by Menagerie Enterprises, Inc. (Monarch Air) relating to breach of contract for failure to pay Monarch Air for flight services prior to the company's acquisition of Rise U.S. Holdings, LLC. A final judgment was entered on November 8, 2021, requiring payment of $1.0 million in actual damages, $0.2 million in pre-judgment interest, $60 thousand in attorneys' fees, and approximately $3 thousand in court costs. The full settlement has been accrued as of June 30, 2025.
• The company is subject to various other claims and matters of litigation incidental to the normal course of its business, none of which were expected to have a material adverse effect as of June 30, 2025, but resolution or increased accruals could have a material adverse effect.

Related Party Transactions

• The company has term note agreements with LamVen, an entity affiliated with a co-founder, with an aggregate principal amount of $50.0 million as of June 30, 2025. This note accrues interest at the greater of SOFR + 5.00% or 9.75%.
• LamVen agreed to waive a provision requiring a portion of equity offering proceeds to repay the LamVen Note for the April and June 2025 Registered Direct Offerings.
• In July 2025, LamVen transferred $35.0 million of the outstanding principal of the LamVen Note to a non-affiliated third party, retaining a $15.0 million balance.
• The company entered into a reimbursement agreement with Park Lane, an affiliated entity, in connection with a letter of credit backstopping the Comvest Credit Agreement. This requires the company to hold $4.4 million as restricted cash for Park Lane's benefit.
• The company leases four aircraft from Park Lane for a monthly lease payment of $25 thousand per aircraft, with leases extended month-to-month as of January 31, 2025.
• Recorded approximately $122 thousand in combined lease and engine reserve expense attributable to JA Flight Services (50% owned by an employee/shareholder) and BAJ Flight Services (100% owned by the same employee/shareholder) for the six months ended June 30, 2025.
• Leased six aircraft from Schuman Aviation Ltd., an entity owned by a former employee and shareholder, incurring approximately $558 thousand in combined lease and engine reserve expense for the six months ended June 30, 2025. Owed approximately $151 thousand to Schuman as of June 30, 2025.
• Has an existing agreement with Schuman for a 10-year non-compete on Hawaiian Islands commuter airspace, with two annual $100 thousand installment payments remaining.
• Proxima Centauri, LLC, wholly-owned by a Board member, provides advisory services for a monthly fee of $20,000 and received a warrant to purchase 142,857 shares of common stock.

Stakeholder Impact

• **Shareholders:** Face significant dilution risk from ongoing equity raises and potential future reverse stock splits. The 'going concern' doubt and material weaknesses in internal controls pose substantial risks to investment value. The NYSE listing compliance issue could lead to de-listing, further impacting liquidity and share price.
• **Employees:** Headcount reductions (19% decrease) indicate job insecurity. Shortages of pilots and maintenance personnel impact operational efficiency and potentially employee morale.
• **Customers:** Voluntary flight cancellations due to maintenance concerns and exiting unprofitable routes/on-demand products may lead to reduced service availability and customer dissatisfaction.
• **Suppliers/Partners:** Dependence on third-party partners (Textron, Palantir) for technology development and aircraft components carries risks of interruptions or delays. Defaults on tax and debt obligations could strain relationships with creditors and other financial partners.
• **Creditors:** The company is in default on certain tax and debt obligations, raising concerns about its ability to meet financial commitments. The subordination of the SAFE-T note to other debt obligations impacts its holders.

Next Steps

• Resubmit a revised Offer-in-Compromise (OIC) to the IRS to resolve consolidated excise tax liabilities.
• Continue to explore additional available options regarding settlement of federal excise tax liability.
• Remediate the late filing of property tax returns and pay property taxes due to Los Angeles County.
• Implement operational improvements and stringent operating expenses management to improve airline profitability.
• Advance technology initiatives, including the software technology platform and Caravan electrification programs.
• Evaluate strategies to obtain additional funding for future operations, including equity financing, debt, joint ventures, and operational restructuring.
• Address and remediate identified material weaknesses in internal control over financial reporting, including adding key personnel, integrating accounting operations, and designing/implementing key controls.
• Regain compliance with NYSE listing requirements related to market capitalization by November 2025, absent an extension.
• The Board of Directors may implement a reverse stock split (2:1 to 5:1) at any time prior to December 31, 2025.

Key Dates

Recommendation

The company explicitly states 'substantial doubt about its ability to continue as a going concern,' which is the most severe warning for investors. This is underpinned by persistent net losses, negative cash flow from operations, and defaults on significant tax and debt obligations. The identified material weaknesses in internal controls indicate fundamental issues with financial reporting reliability. While the company is attempting to raise capital and cut costs, these efforts are reactive to a dire financial situation. The NYSE listing compliance issue adds another layer of significant risk. Given the severe liquidity issues, operational challenges, and governance deficiencies, the stock carries extremely high risk and is likely to face further downward pressure.

Keywords

Regional Air Mobility, Electrified Aviation, Hybrid-Electric Aircraft, SEC Filing, 10-Q, Financial Results, Airline Operations, Going Concern, Capital Raise, NYSE Listing, Internal Controls, Aircraft Electrification, Software Platform, Aviation Technology, Tax Liabilities