# Surf Air Mobility Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Surf Air Mobility Inc.](/companies/srfm.md) (CIK 1936224)
- Form: 10-Q
- Filed: 2024-11-14
- Accepted by EDGAR: Nov 14, 2024, 16:28 ET
- Period: 2024-09-30
- Accession: 0000950170-24-127106
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1936224/000095017024127106/srfm-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1936224/000095017024127106/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $28.4m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $91.4m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$8.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$68.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $2.1m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $5.7m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | −$14.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | −$95.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$12.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$76.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.94 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$6.40 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.94 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$6.40 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 12,970,898 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 11,908,406 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$30.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $2.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $506.0k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $14.2m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $97.9m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $133.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $233.5m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $17.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $4.8m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | −$135.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,424 characters.

*The following discussion and analysis reflects the historical results of operations and financial position of Surf Air Mobility Inc., and its consolidated subsidiaries. Prior to the Internal Reorganization (as defined below) on July 21, 2023, these results comprised of the operations of Surf Air Global, Limited., the predecessor to Surf Air Mobility Inc. References in this section to the “Company”, “we”, “us” or “our” refer to Surf Air Mobility Inc, and its consolidated subsidiaries, including Southern Airways Corporation. Unless otherwise indicated, all dollar amounts are set forth in thousands, except share and per share data.*

*The following discussion and analysis is intended to help the reader understand the Company’s results of operations and financial condition. This discussion and analysis is provided as a supplement to, and should be read in conjunction with, the information included in Item 1. Financial Statements in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to the Company’s plans and strategy for its business, includes forward-looking statements that involve significant risks and uncertainties. The Company’s actual results and outcomes, and the timing of its results and outcomes, may differ materially from management’s expectations as a result of various factors, including but not limited to those discussed in the section entitled “Special Note Regarding Forward-Looking Statements” included in this Quarterly Report on Form 10-Q and the sections entitled “Risk Factors” included within the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (“SEC”) on March 29, 2024, the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 filed with the SEC on August 14, 2024 and the factors discussed elsewhere in this Quarterly Report..*

### Overview of the Business

Surf Air Mobility Inc., a Delaware corporation (the “Company”), is building a regional air mobility ecosystem that will aim to sustainably connect communities. The Company intends to accelerate the adoption of green flying by developing, together with its commercial partners, fully-electric and hybrid-electric powertrain technology to upgrade existing fleets, and by creating a financing and services infrastructure to enable this transition on an industry-wide level.

Surf Air Global Limited (“Surf Air”) is a British Virgin Islands holding company and was formed on August 15, 2016. Surf Air is a technology-enabled regional air travel network, offering daily scheduled flights and on-demand charter flights. Its customers consist of regional business and leisure travelers. Headquartered in Hawthorne, California, Surf Air commenced flight operations in June 2013.

### Internal Reorganization

On July 21, 2023, SAGL Merger Sub Inc., a wholly-owned subsidiary of the Company, was merged with and into Surf Air, after which Surf Air became a wholly-owned subsidiary of the Company (the “Internal Reorganization”).

Pursuant to the Internal Reorganization, all ordinary shares of Surf Air outstanding as of immediately prior to the closing, were canceled in exchange for the right to receive shares of the Company’s common stock and all rights to receive ordinary shares of Surf Air (after giving effect to the conversions) were exchanged for shares of the Company’s common stock (or warrants, options or RSUs to acquire the Company’s common stock, as applicable) at a ratio of 22.4 Surf Air ordinary shares to 1 share of the Company’s common stock. Such conversions, as they relate to the ordinary shares of Surf Air, and all rights to receive ordinary shares, have been reflected as of all periods presented herein.

On July 27, 2023, the Company’s common stock was listed for trading on the New York Stock Exchange (“NYSE”).

As the Internal Reorganization did not take effect until the quarter ended September 30, 2023, the historical financial statements presented in this Quarterly Report on Form 10-Q reflect the financial position, results of operations and cash flows of Surf Air, the predecessor to the Company, for all periods prior to the date of the Internal Reorganization.

### Reverse Stock Split

On August 16, 2024, the Company effected a seven-for-one reverse stock split for all shares of the Company’s common stock then issued and outstanding. As a result of the reverse stock split, every seven shares of the Company’s old common stock was converted into one share of the Company’s new common stock. Fractional shares resulting from the reverse stock split were settled by cash payment.

Options, and other like awards, to purchase the Company’s common stock were also adjusted in accordance with their terms to reflect the reverse stock split.

Adjustments resulting from the reverse stock split have been retroactively reflected as of all periods presented herein.

### Southern Acquisition

On July 27, 2023 (the “Acquisition Date”), immediately prior to the Company’s listing on the NYSE and after the consummation of the Internal Reorganization, the Company effected the acquisition of all equity interests of Southern Airways Corporation (“Southern”), whereby a wholly-owned subsidiary of the Company merged with and into Southern, after which Southern became a wholly-owned subsidiary of the Company (the “Southern Acquisition”). Pursuant to the Southern Acquisition, Southern stockholders received 2,321,429 shares of the Company’s common stock.

Southern, a Delaware corporation founded on April 5, 2013, and its wholly owned subsidiaries Southern Airways Express, LLC, Southern Airways Pacific, Southern Airways Autos, LLC, and Multi-Aero Inc. are collectively referred to hereafter as “Southern.” Southern is a scheduled service commuter airline serving cities across the United States that is headquartered in Palm Beach, Florida and commenced flight operations in June 2013. It is a certified Part 135 operator which operates a fleet of over 50 aircraft, including the Cessna Caravan, the Cessna Grand Caravan, the Saab 340, the Pilatus PC-12, and the Tecnam Traveller. Southern provides both seasonal and full-year scheduled passenger air transportation service in the Mid-Atlantic and Gulf regions, Rockies and West Coast, and Hawaii, with select routes subsidized by the United States Department of Transportation (“U.S. DOT”) under the Essential Air Service (“EAS”) program.

The Southern Acquisition resulted in a combined regional airline network servicing U.S. cities across the Mid-Atlantic, Gulf South, Midwest, Rocky Mountains, West Coast, New England and Hawaii.

The results of operations of Southern are included in the Company’s condensed consolidated financial statements from the date of acquisition, July 27, 2023, through September 30, 2024. *For historical financial information of Southern, prior to the Acquisition Date, refer to the sections entitled “Unaudited Condensed Consolidated Financial Statements for Southern Airways Corporation” and “Audited Financial Statements for Southern Airways Corporation as of December 31, 2022 and 2021 and for the Years Ended December 31, 2022 and 2021”* in the Company’s Registration Statement on Form S-1 filed with the SEC on November 9, 2023 (the “Registration Statement”), as well as the Form 8-K/A filed August 29, 2023.

### Operating Environment

The Company is developing fully-electric and hybrid-electric powertrain technologies with its commercial partners to electrify existing fleets and new aircraft. Additionally, the Company has been incurring expenses to support the development of the technology of its digital platform with the aim of enabling the regional air-mobility market to operate at scale and to enhance the user’s ability to make informed decisions based on multiple first and third party data sources as well as connected aircraft. As a result, the Company expects to incur significant costs in the future to support the development of this technology.

Beginning in early 2020, the effects and potential effects of the global COVID-19 pandemic, including, but not limited to, its impact on general economic conditions, trade and financing markets, changes in customer behavior with regard to air mobility services, and continuity in business operations created significant uncertainty for the Company. The Company has seen some recovery in on-demand flights through the third quarter of 2024, however the Company’s business has been and will continue to be affected by many changing economic and other conditions beyond the Company’s control, including global events that affect travel behavior. The spread of COVID-19 also disrupted the manufacturing, delivery and overall supply chain of aircraft manufacturers and suppliers and has led to a global decrease in aircraft sales in markets around the world. The Company has experienced inflationary pressures, which have materially increased the Company’s costs for aircraft fuel, wages and benefits and other goods and services critical to its operations during 2023 and through the third quarter of 2024 and believes perceived recessionary risks may impact results for the remainder of 2024. For example, perceived recessionary risks may cause companies and individuals to reduce travel for either professional or personal reasons, and drive higher prices in the supply chain the Company relies upon. In addition, the Company incurred greater than expected losses and negative cash flows from operating activities through the third quarter of 2024 due to inefficient aircraft utilization, primarily caused by an underutilization of pilots and a shortage of maintenance personnel and critical aircraft components, which, in aggregate, have challenged the Company’s ability to serve its customers as desired and, in turn, cover expenses.

As such, the extent to which global events and market inflationary impacts will affect our financial condition, liquidity and future results of operations is uncertain. Given the uncertainty regarding the length of these factors, the Company cannot reasonably estimate their impact on its future results of operations, cash flows or financial condition. The Company continues to actively monitor its financial condition, liquidity, operations, suppliers, industry and workforce. As the Company does not currently, and does not intend in the foreseeable future to, enter into any transactions to hedge fuel costs, or otherwise fix labor costs, the Company will continue to be fully exposed to fluctuations in prices of material operating costs.

### Key Operating Measures

In addition to the data presented in our condensed consolidated financial statements, we use the following key operating measures commonly used throughout the air transport industry to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. The following table summarizes key operating measures for each period presented below, which are unaudited.

|  | Three Months Ended September 30, 2024 | 2023 | Change Increase/ Decrease% |  | Nine Months Ended September 30, 2024 | 2023 | Change Increase/ Decrease% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Scheduled Flight Hours(1) | 17,074 | 14,218 | 2,856 | 20% | 51,483 | 15,867 | 35,616 | 224% |
| On-Demand Flights(2) | 819 | 926 | (107) | (12)% | 2,721 | 1,913 | 808 | 42% |
| Scheduled Passengers(3) | 87,214 | 74,142 | 13,072 | 18% | 266,675 | 78,011 | 188,664 | 242% |
| Headcount(4) | 775 | 802 | (27) | (3)% | 775 | 802 | (27) | (3)% |
| Scheduled Departures(5) | 17,508 | 13,146 | 4,362 | 33% | 52,094 | 14,420 | 37,674 | 261% |
| (1)Scheduled Flight Hours represent actual flight time from takeoff through landing that were flown in the period and excludes departures for maintenance or repositioning events. This metric only measures flight hours for flights that generated scheduled revenue and does not include flight hours for flights that generated on-demand revenue. |  |  |  |  |  |  |  |  |
| (2)On-Demand Flights represent the number of flights that generate on-demand revenue taken by customers on the Company's aircraft or third-party operated aircraft during the period. |  |  |  |  |  |  |  |  |
| (3)Scheduled Passengers represent the number of passengers flown during the period for scheduled service. |  |  |  |  |  |  |  |  |
| (4)Headcount represents all full-time and part-time employees at the end of the period. |  |  |  |  |  |  |  |  |
| (5)Scheduled Departures represent the number of takeoffs in the period, agnostic of operator and excludes departures for maintenance or repositioning events. This metric only measures takeoffs that generated scheduled revenue and does not include takeoffs that generated on-demand revenue. |  |  |  |  |  |  |  |  |

### Results of Operations

### Results of the Company’s Operations for the Three Months Ended September 30, 2024 and 2023

The following table sets forth our condensed consolidated statements of operations data for the three months ended September 30, 2024 and 2023 (*in thousands, except percentages):*

|  | Three months ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| **Revenue** | $28,386 | $21,967 | $6,419 | 29% |
| **Operating expenses:** |  |  |  |  |
| Cost of revenue, exclusive of depreciation and amortization | 27,496 | 20,610 | 6,886 | 33% |
| Technology and development | 5,710 | 2,877 | 2,833 | 98% |
| Sales and marketing | 1,282 | 4,529 | (3,247) | (72)% |
| General and administrative | 415 | 55,618 | (55,203) | (99)% |
| Depreciation and amortization | 2,121 | 1,356 | 765 | 56% |
| **Total operating expenses** | 37,024 | 84,990 | (47,966) | (56)% |
| **Operating loss** | (8,638) | (63,023) | 54,385 | (86)% |
| **Other income (expense):** |  |  |  |  |
| Changes in fair value of financial instruments carried at fair value, net | (1,249) | (10,926) | 9,677 | (89)% |
| Interest expense | (2,087) | (935) | (1,152) | (123)% |
| Gain (loss) on extinguishment of debt | — | 63 | (63) | (100)% |
| Other expense | (265) | (3,359) | 3,094 | (92)% |
| **Total other income (expense), net** | (3,601) | (15,157) | 11,556 | (76)% |
| **Loss before income taxes** | (12,239) | (78,180) | 65,941 | (84)% |
| Income tax benefit | (14) | (3,571) | 3,557 | (100)% |
| **Net loss** | $(12,225) | $(74,609) | $62,384 | (84)% |

37

### Revenue

Revenue increased by $6.4 million, 29%, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase in revenue was attributable to the following changes in scheduled and on-demand revenues (in thousands, except percentages):

|  | For the three months ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Scheduled | $22,238 | $15,547 | $6,691 | 43% |
| On-Demand | 6,148 | 6,420 | (272) | (4)% |
| Total revenue | $28,386 | $21,967 | $6,419 | 29% |

Scheduled revenue increased $6.7 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Scheduled revenue, absent the impact of the Southern Acquisition, decreased by roughly $0.3 million, primarily due to a decrease in membership subscription revenue, from a lower overall membership usage. The increase in scheduled revenue was primarily due to an increase of 18% in scheduled passengers and an 33% increase in scheduled departures, primarily due to the timing of the Southern Acquisition in 2023 and a full three-months of operations in the 2024 period.

### Operating Expenses

#### Cost of Revenue, exclusive of depreciation and amortization

Cost of revenue increased by $6.9 million, or 33%, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase was primarily attributable to the increase in scheduled services noted above, primarily due to the timing of the Southern Acquisition in 2023 and a full three-months of operations in the 2024 period.

#### Technology and Development

Technology and development expenses increased by $2.8 million, or 98%, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase was driven primarily by accruals pertaining to the Textron data license of $3.1 million, partially offset by a decrease in labor and labor related expenses for the technology team of $0.3 million due to a decrease in headcount.

#### Sales and Marketing

Sales and marketing expenses decreased by $3.2 million, or 72%, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to a decrease of $2.2 million in employee compensation and commission expenses, due to a reduced headcount and a decrease in brand awareness and digital marketing expenses of $1.0 million, which was incurred during the lead up to the Company’s direct listing in the 2023 period.

#### General and Administrative

General and administrative expenses decreased by $55.2 million, or 99%, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The decrease in general and administrative expense is driven primarily by a $37.9 million reduction in stock-based compensation expense, primarily due to the recognition of $22.6 million in listing day RSPA vesting and a $14.7 million reduction in expenses related to the Management Incentive Plan, a $15.3 million reduction in transaction related expenses pertaining to the Company’s direct listing in July 2023, and accrual reductions related to incentive bonus plans of $3.6 million.

#### Depreciation and Amortization

Depreciation and amortization expenses increased by $0.8 million, or 56%, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. This was primarily due overall increases in aircraft depreciation due to capital expenditures subsequent to the 2023 period.

#### Other Income/(Expense)

Other expense, net decreased by $11.6 million, or 76%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This was primarily attributable to a $9.6 million decrease in losses from changes in fair value of financial instruments, due to a significant amount of financial instruments converting to common stock as of the direct listing, and a $3.1 million reduction in other loss due to $3.1 million in contract settlement expense pertaining to the Company’s July 2023 direct listing. This was partially offset by a $1.2 million increase in interest expense due to an overall higher debt Southern Acquisition, other expenses increased by $0.6 million primarily attributable to interest expense associated with the debt instruments acquired from Southern.

#### Net Loss

The decrease in net loss of $62.4 million, or 84%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, was primarily attributable to an increase in revenue of $6.4 million, decreases in general and administrative expenses of $55.2 million, decreases in sales and marketing expense of $3.2 million, and decreases in other expense of $11.6 million. These decreases in expenses were offset by increases in cost of revenue of $6.9 million, increases in technology and development expenses of $2.8 million, increases in depreciation and amortization of $0.8 million, and a decrease of $3.6 million in income tax benefit.

### Results of Operations

### Results of the Company’s Operations for the Nine Months Ended September 30, 2024 and 2023

The following table sets forth our condensed consolidated statements of operations data for the nine months ended September 30, 2024 and 2023 (*in thousands, except percentages):*

|  | Nine Months Ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| **Revenue** | $91,376 | $33,669 | $57,707 | 171% |
| **Operating expenses:** |  |  |  |  |
| Cost of revenue, exclusive of depreciation and amortization | 83,714 | 34,309 | 49,405 | 144% |
| Technology and development | 18,377 | 4,506 | 13,871 | 308% |
| Sales and marketing | 6,869 | 7,850 | (981) | (12)% |
| General and administrative | 44,620 | 73,354 | (28,734) | (39)% |
| Depreciation and amortization | 6,161 | 1,875 | 4,286 | 229% |
| **Total operating expenses** | 159,741 | 121,894 | 37,847 | 31% |
| **Operating loss** | (68,365) | (88,225) | 19,860 | (23)% |
| **Other income (expense):** |  |  |  |  |
| Changes in fair value of financial instruments carried at fair value, net | (1,918) | (49,426) | 47,508 | (96)% |
| Interest expense | (5,669) | (1,632) | (4,037) | (247)% |
| Gain (loss) on extinguishment of debt | — | (326) | 326 | (100)% |
| Other expense | (316) | (3,664) | 3,348 | (91)% |
| **Total other income (expense), net** | (7,903) | (55,048) | 47,145 | (86)% |
| **Loss before income taxes** | (76,268) | (143,273) | 67,005 | (47)% |
| Income tax benefit | (95) | (3,571) | 3,476 | (97)% |
| **Net loss** | $(76,173) | $(139,702) | $63,529 | (45)% |

39

### Revenue

Revenue increased by $57.7 million, 171%, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The increase in revenue was attributable to the following changes in scheduled and on-demand revenues (in thousands, except percentages):

|  | Nine Months Ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Scheduled | $69,461 | $17,427 | $52,034 | 299% |
| On-Demand | 21,915 | 16,242 | 5,673 | 35% |
| Total revenue | $91,376 | $33,669 | $57,707 | 171% |

Scheduled revenue increased $52.0 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. Scheduled revenue, absent the impacts of the acquisition of Southern, increased by roughly $0.3 million primarily due to a higher recognized usage of membership subscription revenue. Of the increase in scheduled revenue, $51.9 million was related to the Southern Acquisition, primarily related to EAS revenue of $29.5 million, passenger revenue of $20.8 million, and other revenue of $1.6 million as a result of only including operating results for the period of July 27, 2023 through September 30, 2023 as a result of the Southern Acquisition. On-Demand revenue increased by $5.7 million, or 35%, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The Company conducted 2,721 on-demand flights during the nine months ended September 30, 2024, and absent the impact of the acquisition of Southern, the Company conducted 1,916 on-demand charter flights during the nine months ended September 30, 2024 compared to 1,617 on-demand charter flights during the the nine months ended September 30, 2023. The increase in on-demand charter flights was driven by increases in marketing efforts for our on-demand product. Price per trip increased slightly during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily driven by a shift in customer preference to more expensive aircraft to service charter trips in 2024, accounting for roughly $3.8 million, or 67% of the total on-demand revenue increase period over period.

With the Southern Acquisition, on-demand revenue increased $1.9 million, or 33%, during the nine months ended September 30, 2024, primarily from Hawaii based operations focusing on providing charter services for construction crews, school events, and leisure travel.

### Operating Expenses

#### Cost of Revenue, exclusive of depreciation and amortization

Cost of revenue increased by $49.4 million, or 144%, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. Of the total 2,721on-demand charter flights, and absent the impact of the acquisition of Southern, the Company serviced 1,916 on-demand charter flights in the nine months ended September 30, 2024, an increase from 1,617 for the nine months ended September 30, 2023, resulting in a $5.1 million increase, or 10%, in cost of revenue associated with the Company’s on-demand charter flights. Of the total 51,483 scheduled flight hours, and absent the impact of the acquisition of Southern, the Company flew 1,253 flight hours in the nine months ended September 30, 2024, a decrease from 2,629 for the nine months ended September 30, 2023, resulting in a $0.8 million decrease, or 2% of the total.

With the Southern Acquisition, cost of revenue increased by $45.4 million, or 92%, during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to aircraft expenses of $25.4 million, pilot expenses of $11.1 million, customer care expenses of $5.7 million, station expenses of $1.8 million, and reservation system cost of $1.0 million, and passenger re-accommodation expenses of $0.4 million.

#### Technology and Development

Technology and development expenses increased by $13.9 million, or 308%, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The increase was driven primarily by amounts accrued pertaining to the Textron data license of $9.4 million, expenses related to work with Palantir for $4.1 million, and increases in software platform and electrification development expenses for $1.3 million. These increases were partially offset by a decrease in labor and labor related expenses for the technology team of $0.9 million due to a decrease in headcount.

#### Sales and Marketing

Sales and marketing expenses decreased by $1.0 million, or 12%, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to a decrease in brand awareness and strategic digital marketing expenses of $0.5 million and a $0.9 million decrease in management incentive plan expenses due to reduced headcount.

With the Southern Acquisition, sales and marketing expenses increased by $0.4 million primarily attributable to marketing for scheduled revenue.

#### General and Administrative

General and administrative expenses decreased by $28.7 million, or 39%, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The decrease in general and administrative expense is driven primarily by $20.7 million reduction in stock-based compensation expense, and a decrease of $19.3 million in transaction related costs associated with the Company’s direct listing in July 2023. Partially offset by a increase in non-direct listing professional fees of $2.9 million due to a higher volume of corporate transactions during the nine months ended September 30, 2024.

With the Southern Acquisition, general and administrative expenses increased by $9.7 million primarily attributable to labor expenses, professional fees, insurance, utilities, rent and travel.

#### Depreciation and Amortization

Depreciation and amortization expenses increased by $4.3 million, or 229%, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. This was primarily due to depreciation of engines and aircraft acquired from Southern, as well as amortization of intangibles acquired in the Southern Acquisition.

#### Other Income/(Expense)

Other expense, net decreased by $47.1 million, or 86%, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. There are two primary drivers for the increase in net income/(expense).

For the nine months ended September 30, 2024, there was a decrease of $1.9 million in fair value of financial debt instruments, including SAFE notes and certain convertible notes which resulted in a $47.5 million decrease in expense period over period.

There was an increase in interest expense of $4.0 million period over period, due to additional related party term loans and interest associated with aircraft term loan assumed as part of the Southern Acquisition.

Other expense decreased by $3.3 million due to $3.1 million in contract settlement expense pertaining to the Company’s July 2023 direct listing.

#### Net Loss

The decrease in net loss of $63.5 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2024, was primarily attributable to a decrease in general and administrative expenses of $28.7 million and a decrease of $47.5 million in changes in fair market value of financial instruments. These decreases in expenses were offset by increases in technology and development expenses of $13.9 million.

### Cash Flow Analysis

The following table presents a summary of our cash flows (*in thousands):*

| Net cash provided by (used in): | Nine Months Ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Operating activities | $(30,742) | $(45,075) | $14,333 | (32)% |
| Investing activities | (4,465) | (11,123) | 6,658 | (60)% |
| Financing activities | 33,898 | 62,111 | (28,213) | (45)% |
| Net change in cash and cash equivalents | $(1,309) | $5,913 | $(7,222) | (122)% |

### Cash Flow from Operating Activities

For the nine months ended September 30, 2024, net cash used in operating activities was $30.7 million, driven by a net loss of $76.2 million. These operating outflows were partially offset by non-cash stock-based compensation expenses of $14.6 million, increases in accounts payable, amounts due to related parties and accrued expenses of $24.6 million, and increases in depreciation and amortization expense of $6.2 million.

For the nine months ended September 30, 2023, net cash used in operating activities was $45.1 million, primarily driven by a net loss of $139.7 million. This was partially offset by $35.4 million in non-cash stock-based compensation expenses, $49.4 million in changes in fair value of financial instruments, and increases in accounts payable, accrued expenses, and deferred revenue of $18.1 million, in aggregate. These were off-set by a $6.3 million increase in prepaid expenses.

Net cash used in operating activities decreased period over period by $14.3 million, driven by a $63.5 million decrease in net loss and a $47.5 million decrease in change in fair value of financial instruments.

### Cash Flow from Investing Activities

For the nine months ended September 30, 2024, net cash used in investing activities was $4.5 million, a decrease of $6.7 million compared to the nine months ended September 30, 2023, driven by a decrease of $9.0 million of property and equipment costs, offset by a $1.6 million increase in capitalized software development costs and a $0.7 million decrease in cash received as a result of the Southern Acquisition.

### Cash Flow from Financing Activities

For the nine months ended September 30, 2024, net cash provided by financing activities was $33.9 million due to proceeds from borrowings from related parties of $29.7 million, net proceeds of $2.8 million from collateralized borrowings, and proceeds from the GEM stock purchase agreement of $3.9 million, partially offset by $2.3 million in principal payments on long-term debt.

For the nine months ended September 30, 2023, net cash provided by financing activities was $62.1 million, primarily due to proceeds from the GEM Purchase of $25 million, proceeds from the GEM stock purchase agreement of $4.5 million, borrowings from related parties of $16.5 million, borrowings from convertible notes of $8 million, proceeds from the issuance of SAFE instruments of $3.7 million, and proceeds from the issuance of preferred shares of $3.0 million.

Net cash provided by financing activities decreased period over period by $28.2 million, primarily driven by reductions in proceeds from the GEM Purchase of $25.0 million and a $3.7 million reduction in proceeds from SAFE instruments.

### Liquidity and Capital Resources

The Company has incurred losses from operations, negative cash flows from operating activities and has a working capital deficit. In addition, the Company is currently in default of certain excise and property taxes as well as certain debt obligations. These tax and debt obligations are classified as current liabilities on the Company’s Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023. On May 15, 2018, the Company received a notice of a tax lien filing from the Internal Revenue Service (“IRS”) for unpaid federal excise taxes for the quarterly periods beginning October 2016 through September 2017 in the amount of $1.9 million, including penalties and interest as of the date of the notice. The Company agreed to a payment plan (the “Installment Plan”) whereby the IRS would take no further action and remove such liens at the time such amounts have been paid. In 2019, the Company defaulted on the Installment Plan. Defaulting on the Installment Plan can result in the IRS nullifying such plan, placing the Company in default and taking collection action against the Company for any unpaid balance. The Company’s total outstanding federal excise tax liability including accrued penalties and interest of $7.7 million is included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheet as of September 30, 2024. During June 2024, the Company submitted a formal offer-in-compromise

(“OIC”) to the IRS, seeking to resolve all excise tax liabilities. Under the terms of the OIC, all collection actions against the Company, in relation to these matters, will be abated and the Company will be making monthly payments of $34 thousand on historical excise tax liabilities while the IRS is considering the OIC. The Company has also defaulted on its property tax obligations in various California counties in relation to fixed assets, plane usage and aircraft leases. The Company’s total outstanding property tax liability including penalties and interest is approximately $1.8 million as of September 30, 2024. The Company received a net credit of $0.3 million as a result of the property tax audit, which concluded in June 2024. Additionally, Los Angeles County has imposed a tax lien on four of the Company’s leased aircraft due to the late filing of the Company’s 2022 property tax return. As of September 30, 2024, the amount of property tax, interest and penalties accrued related to the Los Angeles County tax lien for all unpaid tax years was approximately $1.2 million. The Company is in the process of remediating the late filing and payment of the property taxes due to Los Angeles County. As of September 30, 2024, the Company was also in default of the Simple Agreements for Future Equity with Token allocation (“SAFE-T”) note, where the note matured in July 2019. The SAFE-T note is subordinate to the Company’s Convertible Note Purchase Agreement; therefore, the Company cannot pay the outstanding balance prior to paying amounts due under the Convertible Note Purchase Agreement (as defined below). The SAFE-T note had an outstanding principal amount of $0.5 million as of September 30, 2024 (see Note 8, *Financing Arrangements ).*

In connection with past due rental and maintenance payments under certain aircraft leases totaling in aggregate approximately $5.0 million, which is accrued for at September 30, 2024 and December 31, 2023, the Company entered into a payment plan pursuant to which all payments of the past due amounts are deferred until such time as the Company receives at least $30.0 million in aggregate funds in connection with any capital contribution, at which time it is required to repay $1.0 million of such past due payments, with the eventual full repayment of the remaining amounts being required upon the receipt of at least $50.0 million in capital contributions. As of September 30, 2024, the Company has classified $1.0 million as a current liability as potentially triggered by capital contributions received as follows: the funds received by the Company of $8.0 million under a convertible note purchase agreement with Partners for Growth V, L.P. (“PFG”), $25.0 million through the share purchase agreement with GEM Global Yield LLC SCS (“GEM”), and an entity affiliated with GEM that provides incremental financing (the “GEM Purchase”), and $14 million in cumulative funding through advances and share draws under the Share Purchase Agreement with GEM. As of September 30, 2024 the Company has not made any payments under this payment plan.

The airline industry and the Company’s operations are cyclical and highly competitive. The Company’s success is largely dependent on the ability to raise debt and equity capital, achieve a high level of aircraft and crew utilization, increase flight services and the number of passengers flown, and continue to profitably expand into regions throughout the United States.

The Company’s prospects and ongoing business activities are subject to the risks and uncertainties frequently encountered by companies in new and rapidly evolving markets. Risks and uncertainties that could materially and adversely affect the Company’s business, results of operations or financial condition include, but are not limited to, the ability to: (i) raise additional capital (or financing) to fund operating losses, (ii) refinance its current outstanding debt, (iii) maintain efficient aircraft utilization, primarily through the proper utilization of pilots and managing market shortages of maintenance personnel and critical aircraft components, (iv) sustain ongoing operations, (v) attract and maintain customers, (vi) integrate, manage and grow recent acquisitions and new business initiatives, (vii) obtain and maintain relevant regulatory approvals, and (viii) measure and manage risks inherent to the business model.

Prior to the year ended December 31, 2023, the Company has funded its operations and capital needs primarily through the net proceeds received from the issuance of various debt instruments, convertible securities, related party funding, and preferred and common share financing arrangements. During the year ended December 31, 2023, the Company received $8.0 million under a convertible note purchase agreement (the “Convertible Note Purchase Agreement”) with PFG, $25.0 million through the GEM Purchase Agreement and $10.2 million in advances under the second amended and restated Share Purchase Agreement with GEM (see Note 9, *Share Purchase Agreement, GEM Purchase, and Mandatory Convertible Security*). The Company had previously filed a Form S-1 registration statement (File No. 333-274573) with the U.S. Securities and Exchange Commission (the “SEC”), registering up to 3,571,429 million shares of the Company’s common stock, which represents 142,857 shares of the Company’s common stock issued to GEM under the GEM Purchase Agreement, 185,714 shares of the Company’s common stock issued to GEM in connection with the initial issuance to GEM under the Share Purchase Agreement, 571,429 shares of the Company’s common stock issued to GEM in satisfaction of the commitment fee under the Share Purchase Agreement, and up to 2,671,429 shares of the Company’s common stock to be issued to GEM in connection with the Share Purchase Agreement. Additionally, the Company had previously filed a Form S-1 registration statement (File No. 333-275434) with the SEC, registering up to 42.9 million shares of the Company’s common stock, which represents the balance of the full amount of shares of common stock that the Company estimated could be issued and sold to GEM for advances under the Share Purchase Agreement, plus the amount of shares the Company estimated could be sold to GEM for $50.0 million under the Share Purchase Agreement, (collectively, the “Prior Registration Statements”). In connection with the GEM Mandatory Convertible Security (see Note 9, *Share Purchase Agreement, GEM Purchase, and Mandatory Convertible Security*), the Company deregistered all of the shares registered but unsold under the Prior Registration Statements on June 4, 2024. The combined 46,428,571 shares contemplated under the Prior Registration Statements have been included in a Form S-1 Registration Statement (File No. 333-279929), which was declared effective by the SEC on August 7, 2024. As of September 30, 2024, the contractual terms allow the Company to make further advances of up to $97.5 million under the Share Purchase Agreement with GEM. Additionally, the Company has the ability to draw an additional $298.6 million, subject to daily volume limitations and GEM’s requirement to hold less than 10% of the fully-diluted shares of the Company, with shares obtained in the satisfaction of draws under the SPA. As of September 30, 2024, GEM held 9.4% of the then fully-diluted shares of the Company. At September 30, 2024, the daily volume limitations under the SPA restricted our ability to take additional draws under the Share Purchase Agreement to approximately 686 thousand shares per draw. Additionally, the availability of the Share Purchase Agreement is contingent on the Company’s common stock being listed on a national exchange. As of September, 2024, the Company is attempting to resolve one listing requirement violation with the NYSE. While not currently subject to de-listing, the Company’s inability to cure this listing requirement violation would impact its continued ability to raise capital through the Share Purchase Agreement.

The Company is currently implementing operational improvements and stringent operating expenses management to improve the profitability of its airline operations. In parallel, the Company is advancing its technology initiatives, including its software technology platform and Caravan electrification programs. In addition, the Company continues to evaluate strategies to obtain additional funding for future operations. These strategies may include, but are not limited to, obtaining additional equity financing, issuing additional debt or entering into other financing arrangements, forming joint ventures and other partnerships, and restructuring of operations to grow revenues and decrease expenses. There can be no assurance that the Company will be successful in achieving its strategic plans or that new financing will be available to the Company in a timely manner or on acceptable terms, if at all. If the Company is unable to raise sufficient financing when needed or events or circumstances occur such that the Company does not meet its strategic plans, the Company will be required to take additional measures to conserve liquidity, which could include, but are not necessarily limited to, reducing certain spending, altering or scaling back development plans, including plans to equip regional airline operations with fully-electric or hybrid-electric aircraft, or reducing funding of capital expenditures, which could have a material adverse effect on the Company’s financial position, results of operations, cash flows, and ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. The Company's condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company’s capital expenditures during the nine months ended September 30, 2024 were limited to payments made for aircraft parts, engines, immaterial purchases and internally developed software. Upon the Company’s ability to utilize the SPA or obtain alternative funding, the Company intends to invest significantly in expansion of its network footprint and in development of electrified powertrain technology and its commercial platform. Expansion of the network will require acquisition of aircraft over the next five years with an expected cost of approximately $1.2 billion. The Company has placed an order with TAI for 90 Cessna Grand Caravan aircraft with an option for an additional 26 Cessna Grand Caravan aircraft, with expected delivery taken over the next five years. As of September 30, 2024, the Company has made deposits of $2.0 million for aircraft that are scheduled to be delivered starting in the fourth quarter of 2024. The Company intends to finance these aircraft through Jetstream Aviation Capital, with which the Company currently has a sale-leaseback financing arrangement of up to $450 million, and additional debt and/or leasing facilities that it intends to obtain in the event sale-leaseback financing is not available through Jetstream Aviation Capital. See the section entitled “*Risk Factors — Risks Related to SAM’s Financial Position and Capital Requirements — SAM has no operating history. Surf Air and Southern’s past financial results may not be a reliable indicator of SAM’s future success” included within the Company’s Form 10-K filed on March 29, 2024*. The Company has engaged AeroTEC to develop hybrid-electric and fully electric STCs for the Cessna Grand Caravan in partnership with TAI. A portion of these costs are expected to be funded through the SPA.

### Commitments

The Company has entered into various contractual arrangements related to the build-out of the Company’s air service fleet, the development of its proprietary hybrid and electric aircraft technology, and the build out of its aircraft as a service platform. These arrangements include commitments for payments pursuant to licensing agreements, which routinely contain provisions for guarantees or minimum expenditures during the terms of the contracts. The Company also enters into long-term debt arrangements that include periodic interest and principal payments. Additionally, the Company routinely enters into noncancelable lease agreements for aircraft and operating locations, which contain minimum rental payments.

The timing and nature of these commitments are expected to have an impact on our liquidity and capital requirements in future periods. Refer to the Notes to the accompanying condensed consolidated financial statements included in Part I, Item 1 for additional information relating to our long-term debt, operating and finance leases, related party term notes, and commitments.

### Critical Accounting Policies and Estimates

The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

### Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period. Our most significant estimates and judgments involve difficult, subjective, or complex judgments made by management. Actual results may differ from these estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. We had no significant changes to our critical accounting estimates as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

### JOBS Act

The Company currently qualifies as an “emerging growth company” under the JOBS Act. Accordingly, the Company has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. The Company’s utilization of these transition periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act.

## Market risk

As filed, 868 characters.

The information provided in response to item 1.01 is incorporated herein by reference. The issuance of the LamVen Note, LamVen Shares, and LamVen Warrants are exempt from registration under Section 4(a)(2) under the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering.

**(b)** Not applicable.

### (c) Rule 10b5-1 Trading Plans or Other Preplanned Trading Arrangements

During the three months ended September 30, 2024, none of our directors or officers (as defined in Section 16 of the Exchange Act), adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K of the Exchange Act).

## Controls and procedures

As filed, 12,257 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act), that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure. It should be noted that, because of inherent limitations, our disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.

As required by Rule 13a-15(b) under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of September 30, 2024, due to presence of the material weaknesses in internal control over financial reporting described below.

Notwithstanding the pending remediation efforts described below, based on additional analysis and other post-closing procedures performed, our management believes that the financial statements included in this report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

### Material Weaknesses in Internal Control Over Financial Reporting

As of September 30, 2024, material weaknesses existed in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses are as follows:

- We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient complement of resources with (i) an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately, and (ii) an appropriate level of knowledge and experience to establish effective processes and controls. Additionally, the lack of a sufficient complement of resources resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in our finance and accounting functions.
- We did not design and maintain effective controls in response to the risks of material misstatement. Specifically, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement to financial reporting.

These material weaknesses contributed to the following additional material weaknesses:

- We did not design and maintain effective controls related to the identification of and accounting for certain non-routine, unusual or complex transactions, including the proper application of U.S. GAAP of such transactions. Specifically, we did not design and maintain effective controls to timely identify and account for capitalizable costs, revenue, stock-based compensation, and debt and equity financing transactions.
- We did not design and maintain effective controls related to the period-end financial reporting process, including designing and maintaining formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures. Additionally, we did not design and maintain effective controls over the preparation and review of account reconciliations and journal entries, including maintaining appropriate segregation of duties.
- We did not design and maintain effective information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain: (i) program change management controls to ensure that program and data changes are identified, tested, authorized, and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel; (iii) computer operations controls to ensure that processing and transfer of data, and data backups and recovery are monitored; and (iv) program development controls to ensure that new software development is tested, authorized and implemented appropriately.

These material weaknesses resulted in audit adjustments to substantially all of our accounts, which were recorded prior to the issuance of the consolidated financial statements as of December 31, 2021 and 2020 and for the years then-ended, and as of June 30, 2022 and 2021 and for the six-month periods then ended. Subsequently, these material weaknesses also resulted in audit adjustments to revenue, deferred revenue, accrued expenses, additional paid-in capital and stock-based compensation expense to the consolidated financial statements as of December 31, 2022 and 2023 and for the years then-ended. These material weaknesses also resulted in misstatements to prepaid expenses and other current assets and sales and marketing to the consolidated financial statements as of and for the quarter ended September 30, 2023. Additionally, these material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

Additionally, with the closing of the Southern Acquisition, and the continued integration of associated operations and processes into those of the Company, the following material weakness in internal control over financial reporting has also been identified, after considering alignment with previous material weaknesses identified and outlined above:

- We did not design and maintain effective controls to achieve complete, accurate and timely accounting for debt, deferred liabilities, leases, property and equipment, redeemable convertible preferred shares, accounts payable, and accrued liabilities. This material weakness did not result in adjustments to our consolidated financial statements. However, this material weakness could result in a misstatement of the aforementioned accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

Additionally, prior to our acquisition of Southern, Southern reported multiple material weaknesses related to its control environment, risks of material misstatement, period-end financial reporting and IT general controls in our Form S-1 filed on September 19, 2023. Those material weaknesses resulted in audit adjustments to substantially all of Southern’s accounts, which were recorded prior to the issuance of the consolidated financial statements of Southern as of December 31, 2022, 2021 and 2020 and for the years then-ended. Subsequently, those material weaknesses also resulted in a revision to the previously issued consolidated financial statements of Southern as of December 31, 2022 and 2021 and for the years then-ended, and the interim periods ended June 30, 2022 and 2021, to correct for errors in revenues and deferred revenues. Also, in connection with the preparation of Southern’s financial statements for the interim period ended March 31, 2023, Southern identified an error related to the accounting for prepaid passenger ticket deposits. Southern’s management determined that this error was the result of the previously reported material weaknesses. This error was corrected in Southern’s financial statements as of December 31, 2022 and 2021 and for the years then-ended and the interim periods ended June 30, 2022 and 2021 as a revision to previously issued financial statements.

### Remediation Plans to Address Material Weaknesses

To date, we have developed a plan to address the material weaknesses identified above. This remediation plan consists primarily of: (i) adding key personnel to strengthen the Company’s financial reporting processes, (ii) improving our internal controls around financial systems and processes, (iii) formalizing internal controls related to the identification of and accounting for certain non-routine, unusual or complex transactions, including the proper application of U.S. GAAP to such transactions, (iv) engaging a third party to assist in identifying risks of material misstatement and designing and implementing controls to address the identified risks of material misstatement, and (v) designing and operating computer operations, program and system development, and user access and change management controls. We intend to take additional steps to remediate the deficiencies identified above and further evolve our internal controls and processes.

### Changes in Internal Control over Financial Reporting

Except for changes related to our integration of Southern’s operations, control processes and information systems into our systems and control environment and changes related to our remediation plans to address our material weaknesses discussed above, there were no significant changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are currently in the process of integrating Southern’s operations, control processes and information systems into our systems and control environment.

### Inherent Limitation on the Effectiveness of Internal Control over Financial Reporting and Disclosure Controls and Procedures

Our management, including our Interim Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected or preventable.

## Risk factors

As filed, 3,938 characters.

Except as disclosed below and as previously disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

***Agreements governing our debt obligations include financial and other covenants that provide limitations on our business and operations under certain circumstances, and failure to comply with any of the covenants in such agreements could adversely impact us.***

Our current and any future financing agreements that we may enter into from time to time, contain certain affirmative, negative and financial covenants, and other customary events of default. Under certain circumstances, such covenants require us to maintain minimum liquidity levels, limit our ability to enter into certain strategic transactions, make certain investments, pay dividends and make certain other specified restricted payments. Certain covenants in our financing agreements are subject to important exceptions, qualifications and cure rights, including, under limited circumstances, the requirement to provide additional collateral or prepay or redeem certain obligations. In addition, certain of our financing agreements are cross-collateralized, such that an event of default or acceleration of indebtedness under one agreement could result in an event of default under other financing agreements. If we fail to comply with such covenants, if any other events of default occur for which no waiver or amendment is obtained, or if we are unable to timely refinance the debt obligations subject to such covenants or take other mitigating actions, the holders of our indebtedness could, among other things, declare outstanding amounts immediately due and payable and, subject to the terms of relevant financing agreements, repossess or foreclose on collateral, including certain of our aircraft or other assets used in our business. The acceleration of significant indebtedness or actions to repossess or foreclose on collateral may cause us to renegotiate, repay or refinance the affected obligations, and there is no assurance that such efforts would be successful or on terms we deem attractive. In addition, any acceleration or actions to repossess or foreclose on collateral under our financing agreements could result in a downgrade of any credit ratings then applicable to us, which could result in additional events of default or limit our ability to obtain additional financing.

For example, the Company’s 4-year credit agreement with certain affiliates of Comvest Partners, as lenders, is backstopped by a letter of credit issued by HSBC Bank USA, N.A. and arranged by Park Lane Investments, LLC, which is an entity owned by a family member of a co-founder of the Company (the “Credit Support Provider”). In connection with the foregoing, the Company is party to a senior secured reimbursement agreement with the Credit Support Provider (the “Reimbursement Agreement”) to, among other things, reimburse the Credit Support Provider for the costs of the letter of credit, and any amounts for which the letter of credit is drawn. The Reimbursement Agreement contains covenants that, among other things, restrict the ability of the Company to: (i) acquire or dispose of assets or businesses; (ii) incur additional indebtedness or liens; (iii) make cash distributions; and (iv) prepay outstanding debt, and otherwise restrict corporate activities of the Company without the consent of the Credit Support Provider. The Reimbursement Agreement also requires the Company to maintain a certain level of minimum liquidity and to limit variance to cash flow projections. Economic conditions and other variables could result in the inability of the Company to satisfy the requirements under the Reimbursement Agreement, could result in one or more events of default thereunder.

Filed Nov 14, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-127106. Last ingested by Listed: Nov 5, 2026, 21:06 ET. No prices; not investment advice.