SURF AIR MOBILITY INC

Previous wording

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 King Air Super 200, the Saab 340, the Pilatus PC-12, the Tecnam Traveller, and the Citation Bravo. Southern provides both seasonal and full-year scheduled passenger air transportation service in the Mid-Atlantic and Gulf regions, Rockies and West Coast, Far Pacific, and Hawaii, with select routes subsidized by the United States Department of Transportation (“U.S. DOT”) under the Essential Air Service (“EAS”) program.

Current wording

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.

Previous wording

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 first 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 the first 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 during the first 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.

Current wording

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 second 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 second 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 second 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.

Previous wording

In addition to the data presented in our 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.

Current wording

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.

Previous wording

Revenue increased by $25.1 million, 456%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase in revenue was attributable to the following changes in on-demand and scheduled revenues (in thousands, except percentages):

Current wording

Revenue increased by $26.2 million, 422%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase in revenue was attributable to the following changes in scheduled and on-demand revenues (in thousands, except percentages):

Previous wording

Of the increase in scheduled revenue, $22.0 million was related to the Southern Acquisition, primarily related to EAS revenue of $11.9 million, passenger revenue of $9.3 million, and other revenue of $0.8 million in the first quarter of 2024 after the acquisition of Southern.

Current wording

Scheduled revenue increased $23.2 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Scheduled revenue, absent the impacts of the acquisition of Southern, decreased by roughly $0.3 million, primarily due to a decrease in membership subscription revenue, from a lower overall membership usage. Of the increase in scheduled revenue, $23.5 million was related to the Southern Acquisition, primarily related to EAS revenue of $13.3 million, passenger revenue of $9.4 million, and other revenue of $0.8 million in the second quarter of 2024 after the acquisition of Southern.

Previous wording

On-demand revenue increased by $3.0 million, or 63%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The Company conducted 906 on-demand flights during the three months ended March 31, 2024, and absent the impact of the acquisition of Southern, the Company conducted 630 on-demand charter flights during the first quarter of 2024 compared to 422 on-demand charter flights during the first quarter of 2023. The increase in on-demand charter flights was driven by increases in marketing efforts for our on-demand product and service strategy growth. Price per trip increased during the first quarter of 2024 compared to the first quarter of 2023, primarily driven by a shift in customer preference to more expensive aircraft to service charter trips in 2024. These variables accounted for roughly $2.1 million, or 69% of the total on-demand revenue increase period over period.

Current wording

On-Demand revenue increased by $3.0 million, or 58%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The Company conducted 996 on-demand flights during the three months ended June 30, 2024, and absent the impact of the acquisition of Southern, the Company conducted 692 on-demand charter flights during the second quarter of 2024 compared to 531 on-demand charter flights during the second quarter of 2023. The increase in on-demand charter flights was driven by increases in marketing efforts for our on-demand product and service strategy growth. Price per trip increased during the second quarter of 2024 compared to the second quarter of 2023, primarily driven by a shift in customer preference to more expensive aircraft to service charter trips in 2024. These variables accounted for roughly $2.1 million, or 69% of the total on-demand revenue increase period over period. With the Southern Acquisition, on-demand revenue increased $0.9 million, or 31%, during the three months ended June 30, 2024, primarily from Hawaii based operations focusing on providing route services for construction crews, school events, and leisure travel.

Previous wording

Cost of revenue increased by $21.8 million, or 328%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. Of the total 906 on-demand charter flights, and absent the impact of the acquisition of Southern, the Company serviced 630 on-demand charter flights in the three months ended March 31, 2024, an increase from 422 for the three months ended March 31, 2023, resulting in a $2.0 million increase, or 9%, in cost of revenue associated with the Company’s on-demand charter flights. Of the total 16,187 scheduled flight hours, and absent the impact of the acquisition of Southern, the Company flew 660 flight hours in the three months ended March 31, 2024, a decrease from 722 for the three months ended March 31, 2023, resulting in a $0.2 million decrease, or -1% of the total.

Current wording

Cost of revenue increased by $20.7 million, or 293%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Of the total 996 on-demand charter flights, and absent the impact of the acquisition of Southern, the Company serviced 692 on-demand charter flights in the three months ended June 30, 2024, an increase from 531 for the three months ended June 30, 2023, resulting in a $2.1 million increase, or 10%, in cost of revenue associated with the Company’s on-demand charter flights. Of the total 17,591 scheduled flight hours, and absent the impact of the acquisition of Southern, the Company flew 413 flight hours in the three months ended June 30, 2024, a decrease from 926 for the three months ended June 30, 2023, resulting in a $0.3 million decrease, or -2% of the total.

Previous wording

With the Southern Acquisition, cost of revenue increased by $19.8 million, or 92%, during the three months ended March 31, 2024 primarily due to aircraft expenses of $11.2 million, pilot expenses of $4.7 million, customer care expenses of $2.6 million, station expenses of $0.8 million, reservation system cost of $0.4 million, and passenger re-accommodation expenses of $0.1 million.

Current wording

With the Southern Acquisition, cost of revenue increased by $18.9 million, or 92%, during the three months ended June 30, 2024 primarily due to aircraft expenses of $10.5 million, pilot expenses of $4.9 million, customer care expenses of $2.4 million, station expenses of $0.8 million, and passenger re-accommodation expenses of $0.2 million.

Previous wording

Technology and development expenses increased by $6.2 million, or 763%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase was driven primarily by the amortization of the Textron data license of $3.1 million, the amortization of software expenses related to work with Palantir for $2.0 million, and increases in software platform and electrification development expenses for $0.7 million and $0.5 million, respectively.

Current wording

Technology and development expenses increased by $4.8 million, or 593%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase was driven primarily by amounts accrued pertaining to the Textron data license of $3.1 million, and software expenses related to work with Palantir for $2.0 million. These increases were 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.

Previous wording

General and administrative expenses increased by $16.2 million, or 192%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase in general and administrative expense is driven primarily by the recognition of an additional $11.3 million in stock-based compensation expense, an increase in management incentive plans of $1.8 million, and $0.4 million increase in professional advisory fees. These increases were offset by a decrease in audit and tax related professional fees of $1.8 million.

Current wording

General and administrative expenses increased by $10.3 million, or 111%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase in general and administrative expense is driven primarily by the recognition of an additional $5.7 million in stock-based compensation expense, and management incentive plan expenses of $2.3 million. This was partially offset by a decrease in legal fees of $1.9 million.

Previous wording

With the Southern Acquisition, depreciation and amortization expenses increased by $1.7 million, or 667%, for the three months ended March 31, 2024, compared to the three months ended March 31, 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.

Current wording

With the Southern Acquisition, depreciation and amortization expenses increased by $1.8 million, or 690%, for the three months ended June 30, 2024, compared to the three months ended June 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.

Previous wording

Other expense, net decreased by $6.0 million, or -70%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. There are two primary drivers for the increase in net income/(expense).

Current wording

Other expense, net decreased by $29.6 million, or -94%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. There are two primary drivers for the increase in net income/(expense).

Previous wording

In the first quarter of 2023 there was a decrease of $8.1 million in fair value of financial debt instruments, including SAFE notes and certain convertible notes. In the first quarter of 2024 there was a decrease of $0.5 million in fair value of financial debt instruments, including SAFE notes and certain convertible notes which resulted in a $7.6 million decrease in expense period over period.

Current wording

In the second quarter of 2023 there was an increase of $30.4 million in fair value of financial debt instruments, including SAFE notes and certain convertible notes. In the second quarter of 2024 there was a decrease of $0.2 million in fair value of financial debt instruments, including SAFE notes and certain convertible notes which resulted in a $30.2 million decrease in expense period over period.

Previous wording

With the Southern Acquisition, other expenses increased by $0.8 million primarily attributable to interest expense associated with the debt instruments acquired from Southern.

Current wording

With the Southern Acquisition, other expenses increased by $0.6 million primarily attributable to interest expense associated with the debt instruments acquired from Southern.

Previous wording

The increase in net loss of $16.4 million from the existing business for the three months ended March 31, 2023 compared to the three months ended March 31, 2024, was primarily attributable to an increase in general and administrative expenses of $11.8 million, an increase in technology and development of $6.2 million, an increase in sales and marketing of $1.3 million, and an increase in cost of revenue of $2.0 million. These increases in expenses were offset by a decrease in other expenses of $6.8 million (including changes in fair market value of financial instruments, interest expense, and other expense), and an increase in revenue of $2.2 million.

Current wording

The decrease in net loss of $17.5 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2024, was primarily attributable to an increase in general and administrative expenses of $6.1 million, an increase in technology and development of $4.8 million, an increase in sales and marketing of $0.4 million, and an increase in cost of revenue of $1.8 million. These increases in expenses were offset by a decrease in other expenses of $30.2 million (including changes in fair market value of financial instruments, interest expense, and other expense), and an increase in revenue of $1.8 million.

Previous wording

With the Southern Acquisition net loss increased by $3.8 million primarily attributable to cost of revenue of $20.1 million, general and administrative expenses of $4.2 million, depreciation and amortization of $1.7 million, interest expense of $0.8 million, and marketing expenses of $0.3 million. These increases in expenses were offset by an increase of $23.2 million in revenue.

Current wording

The Southern Acquisition increased net loss by $1.2 million primarily attributable to cost of revenue of $18.9 million, general and administrative expenses of $4.2 million, depreciation and amortization of $1.7 million, interest expense of $0.8 million, and marketing expenses of $0.3 million. These increases in expenses were offset by an increase of $24.5 million in revenue.

Previous wording

With the Southern Acquisition, on-demand revenue increased $0.9 million, or 31%, during the three months ended March 31, 2024, primarily from Hawaii based operations focusing on providing route services for construction crews, school events, and leisure travel.

Current wording

With the Southern Acquisition, on-demand revenue increased $1.8 million, or 31%, during the six months ended June 30, 2024, primarily from Hawaii based operations focusing on providing charter services for construction crews, school events, and leisure travel.

Previous wording

Sales and marketing expenses increased by $1.6 million, or 116%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to an increase in brand awareness and strategic digital marketing expenses of $0.6 million. Additionally, there was a $0.7 million increase due to management compensation and management incentive plans.

Current wording

Sales and marketing expenses increased by $2.3 million, or 68%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to an increase in brand awareness and strategic digital marketing expenses of $0.3 million. Additionally, there was a $1.5 million increase due to management compensation and management incentive plan expenses.

Previous wording

There was an increase in interest expense of $0.6 million period over period, due to additional related party term loans.

Current wording

There was an increase in interest expense of $1.3 million period over period, due to additional related party term loans.

Previous wording

For the three months ended March 31, 2024, net cash used in operating activities was $12.8 million, driven by a net loss of $36.9 million. These operating outflows were partially offset by non-cash stock-based compensation expenses of $12.6 million, increases in accounts payable and accrued expenses of $8.3 million, and increases in depreciation and amortization expense of $2.0 million.

Current wording

For the six months ended June 30, 2024, net cash used in operating activities was $18.4 million, driven by a net loss of $63.9 million. These operating outflows were partially offset by non-cash stock-based compensation expenses of $20.0 million, increases in accounts payable, amounts due to related parties and accrued expenses of $20.9 million, and increases in depreciation and amortization expense of $4.0 million.

Previous wording

For the three months ended March 31, 2023, net cash used in operating activities was $9.0 million, primarily driven by a net loss of $20.6 million. This was partially offset by $1.1 million in non-cash stock-based compensation expenses, $8.1 million in changes in fair value of financial instruments, and increases in accounts payable of $2.3 million.

Current wording

For the six months ended June 30, 2023, net cash used in operating activities was $20.6 million, primarily driven by a net loss of $65.1 million. This was partially offset by $2.8 million in non-cash stock-based compensation expenses, $38.5 million in changes in fair value of financial instruments, and increases in accounts payable, accrued expenses, and deferred revenue of $2.0 million, in aggregate.

Previous wording

For the three months ended March 31, 2024, net cash used in investing activities was $0.7 million, an increase of $0.6 million compared to the three months ended March 31, 2023, driven by an increase of $0.5 million of property and equipment costs.

Current wording

For the six months ended June 30, 2024, net cash used in investing activities was $2.6 million, an increase of $2.3 million compared to the six months ended June 30, 2023, driven by an increase of $1.2 million of property and equipment costs and a $1.1 million increase in capitalized software development costs.

Previous wording

For the three months ended March 31, 2024, net cash provided by financing activities was $13.1 million from proceeds from borrowings due to related parties of $10.0 million, and proceeds from the GEM stock purchase agreement of $3.8 million, offset by $0.8 million due to payments on long-term debt.

Current wording

For the six months ended June 30, 2024, net cash provided by financing activities was $20.7 million due to proceeds from borrowings from related parties of $19.5 million, and proceeds from the GEM stock purchase agreement of $3.8 million, partially offset by $1.5 million in principal payments on long-term debt.

Previous wording

For the three months ended March 31, 2023, net cash provided by financing activities was $9.4 million, primarily from proceeds from borrowings due to related parties of $9.2 million.

Current wording

For the six months ended June 30, 2023, net cash provided by financing activities was $23.2 million, primarily due to proceeds from borrowings from related parties of $16.5 million, proceeds from the issuance of SAFE instruments of $3.7 million, and proceeds from the issuance of preferred shares of $3.0 million.

Previous wording

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 March 31, 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 $7.6 million is included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheet as of March 31, 2024. 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 $2.0 million as of March 31, 2024. Additionally, Los Angeles County has imposed a tax lien on four of the Company’s aircraft due to the late filing of the Company’s 2022 property tax return. As of March 31, 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 March 31, 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. The SAFE-T note had an outstanding principal amount of $0.5 million as of March 31, 2024. (See Note 8, Financing Arrangements within Item 1. Financial Statements in this Quarterly Report on Form 10-Q).

Current wording

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 June 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 $7.9 million is included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheet as of June 30, 2024. During June 2024, the Company submitted a formal offer-in-compromise (“OIC”) to the IRS, seeking to resolve all consolidated 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 $1.7 million as of June 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 June 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 June 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 amo…

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Previous wording

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 March 31, 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 March 31, 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”) and $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”) in July 2023. As of March 31, 2024 the Company has not made any payments under this payment plan.

Current wording

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 June 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 June 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 June 30, 2024 the Company has not made any payments under this payment plan.

Previous wording

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 expand into regions profitably throughout the United States.

Current wording

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.

Previous wording

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 raise additional capital (or financing) to fund operating losses, refinance its current outstanding debt, maintain efficient aircraft utilization, primarily through the proper utilization of pilots and managing market shortages of maintenance personnel and critical aircraft components, sustain ongoing operations, attract and maintain customers, integrate, manage and grow recent acquisitions and new business initiatives, obtain and maintain relevant regulatory approvals, and measure and manage risks inherent to the business model.

Current wording

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.

Previous wording

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 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 and GEM Purchase). On August 2, 2023, the Company filed a Form S-1 registration statement with the SEC, which was declared effective by the SEC on September 28 2023, registering up to 25 million shares of the Company’s common stock, which represents 1,000,000 shares of the Company’s common stock issued to GEM in the GEM purchase, 1,300,000 shares of the Company’s common stock issued to GEM in connection with the initial issuance to GEM under the Share Purchase Agreement, 4,000,000 shares of the Company’s common stock issued to GEM in satisfaction of the commitment fee under the Share Purchase Agreement, and up to 18,700,000 shares of the Company’s common stock to be issued to GEM in connection with the Share Purchase Agreement. On November 9, 2023, the Company filed a Form S-1 registration statement with the SEC registering up to 300.0 million shares of the Company’s common stock, which represents the balance of the full amount of shares of common stock that the Company estimates could be issued and sold to GEM for advances under the Share Purchase Agreement, plus the amount of shares the Company estimates could be sold to GEM for $50 million under the Share Purchase Agreement. As of March 31, 2024, the contractual terms allow the Company to make further advances of up to $90.0 million under the Share Purchase Agreement with GEM. Additionally, the Company has the ability to draw an additional $296.0 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 March 31, 2024, GEM held 7.6% of the then fully-diluted shares of the Company. At March 31, 2024, the daily volume limitations under the SPA restricted our ability to take additional draws under the Share Purchase Agreement to approximately 2.3 million shares per draw.

Current wording

$10.2 million in advances under the second amended and restated Share Purchase Agreement with GEM (see Note 9, Share Purchase Agreement and GEM Purchase). 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 25 million shares of the Company’s common stock, which represents 1,000,000 shares of the Company’s common stock issued to GEM under the GEM Purchase Agreement, 1,300,000 shares of the Company’s common stock issued to GEM in connection with the initial issuance to GEM under the Share Purchase Agreement, 4,000,000 shares of the Company’s common stock issued to GEM in satisfaction of the commitment fee under the Share Purchase Agreement, and up to 18,700,000 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 300.0 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 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 and GEM Purchase), the Company deregistered all of the shares registered but unsold under the Prior Registration Statements on June 4, 2024. The combined 325,000,000 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 June 30, 2024, the contractual terms allow the Company to make further advances of up to $90.0 million under the Share Purchase Agreement with GEM. Additionally, the Company has the ability to draw an additional $296.0 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 June 30, 2024, GEM held 4.5% of the then fully-diluted shares of the Company. At June 30, 2024, the daily volume limitations under the SPA restricted our ability to take additional draws under the Share Purchase Agreement to approximately 5.7 million 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 June 30, 2024, the Company is attempting to resolve two listing requirement violations with the NYSE. While not currently subject to de-listing, the Company’s inability to cure these listing requirement violations would impact its continued ability to raise c…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

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, 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, 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 or, the Company will be required to take additional measures to conserve liquidity, which could include, but 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 would 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.

Current wording

The Company is currently implementing operational improvements and stringent operating expenses management to improve the profitability of its regional airline operations in the near term, with a longer-term focus on improvements to its on-demand 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 would 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.

Previous wording

The Company’s capital expenditures during the three months ended March 31, 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 38 Cessna Grand Caravan aircraft, with expected delivery taken over the next five years. As of March 31, 2024, the Company has made deposits of $5.0 million for aircraft that are scheduled to be delivered starting in Q3 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 facilities that it intends to obtain. 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.

Current wording

The Company’s capital expenditures during the six months ended June 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 June 30, 2024, the Company has made deposits of $5.0 million for aircraft that are scheduled to be delivered starting in the third 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. 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.

Previous wording

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, in 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.

Current wording

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.