SURF AIR MOBILITY INC.

Previous wording

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 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 this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the U.S. Securities and Exchange Commission (“SEC”) on March 12, 2026.

Current wording

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 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, the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 filed with the U.S. Securities and Exchange Commission (“SEC”) on May 11, 2026, and the sections entitled “Risk Factors” included within this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the SEC on March 12, 2026.

Previous wording

Since 2020, 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, and the Company expects these development expenses to continue to be incurred. Additionally, the Company is developing fully-electric and hybrid-electric powertrain technologies with its commercial partners to electrify existing fleets and new aircraft. As a result, the Company expects to incur significant costs in the future to support the development of this technology.

Current wording

Since 2020, 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, and the Company expects these development expenses to continue to be incurred. Additionally, the Company intends to continue developing fully electric and hybrid-electric powertrain technologies with commercial partners to electrify existing fleets and new aircraft. As a result, the Company expects to incur significant costs in the future to support the development of this technology.

Previous wording

In addition to incremental costs incurred in the execution of the Company’s near and long-term business strategy, 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 2024 and 2025 and believes perceived recessionary risks have impacted the 2025 results. For example, perceived recessionary risks, as a result of tariff or trade uncertainty or otherwise, as well as shifting travel patterns, 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 has incurred greater than expected losses and negative cash flows from operating activities 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, specifically related to its scheduled service offerings.

Current wording

In addition to incremental costs incurred in the execution of the Company’s near and long-term business strategy, 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 2024 and 2025 and believes perceived recessionary risks have impacted 2026 results. For example, perceived recessionary risks, as a result of tariff or trade uncertainty or otherwise, as well as shifting travel patterns, 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 has incurred greater than expected losses and negative cash flows from operating activities due to previous inefficient aircraft utilization, primarily caused by an underutilization of pilots and a shortage of maintenance personnel and critical aircraft components. This, coupled with operating cost variability in the current global economic setting, have challenged the Company’s ability to serve its customers as desired and, in turn, cover expenses, specifically related to its scheduled service offerings.

Previous wording

Revenue increased by $2.1 million, or 9%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase in revenue was attributable to the following changes in scheduled and on-demand revenues (in thousands, except percentages):

Current wording

Revenue increased by $2.1 million, or 8%, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The increase in revenue was attributable to the following changes in scheduled and on-demand revenues (in thousands, except percentages):

Previous wording

Scheduled revenue decreased $2.3 million, or 13%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The decrease in scheduled revenue was primarily related to the exiting of unprofitable routes, partially offset by higher completion factors.

Current wording

Scheduled revenue decreased $4.0 million, or 19%, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The decrease in scheduled revenue was primarily related to the exiting of unprofitable routes, partially offset by higher completion factors.

Previous wording

On-Demand revenue increased $4.4 million, or 77%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase in on-demand revenue was related to a focus on larger jet charter sales, driving higher average revenue per charter flight, as well as increase in the number of charter flights flown.

Current wording

On-Demand revenue increased $6.1 million, or 101%, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The increase in on-demand revenue was related to a focus on larger jet charter sales, driving higher average revenue per charter flight, as well as an increase in the number of charter flights flown.

Previous wording

Cost of revenue increased by $1.2 million, or 5%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The decrease of $3.0 million in scheduled cost of revenue was primarily attributable to a reduction in block hours flown as a result of exiting unprofitable routes, partially offset by investments to improve operations. The increase of $4.2 million in on-demand cost of revenue was primarily associated with achieving higher revenue performance, slightly offset by improving on-demand margins with higher volumes.

Current wording

Cost of revenue increased by $5.4 million, or 22%, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The decrease of $1.8 million in scheduled cost of revenue was primarily attributable to a reduction in block hours flown as a result of exiting unprofitable routes, partially offset by higher average fuel costs and investments to improve operations. The increase of $7.2 million in on-demand cost of revenue was primarily associated with achieving higher revenue performance, slightly offset by improving on-demand margins with higher volumes.

Previous wording

Technology and development expenses decreased by $0.2 million, or 9%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The flat technology and development expense is due to a similar mix of product development activities related to the Company’s Surf O/S platform.

Current wording

Technology and development expenses decreased by $1.0 million, or 35%, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The decrease in technology and development expense is due to a higher amount of cost capitalization relating to the Company’s Surf O/S platform.

Previous wording

Sales and marketing expenses increased by $0.3 million, or 19%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to an increase of $0.3 million in external marketing initiatives.

Current wording

Sales and marketing expenses increased by $1.6 million, or 109%, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025, primarily due to increases in external marketing initiatives.

Previous wording

General and administrative expenses decreased by $4.8 million, or 44%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The decrease in general and administrative expense was driven primarily by a $2.7 million reduction in short term incentive bonus accruals, a $1.3 million decrease in compensation expense, a $0.5 million decrease in stock-based compensation expense, and a $0.3 million decrease in other general expenses.

Current wording

General and administrative expenses decreased by $6.0 million, or 25%, for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The decrease in general and administrative expense was driven primarily by a $2.3 million reduction in short term incentive bonus accruals, a $1.3 million decrease in compensation expense, a $1.5 million decrease in stock-based compensation expense, and a $0.9 million reduction in professional service expenses.

Previous wording

Depreciation and amortization expenses increased by $0.4 million, or 19%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. This was primarily due to overall increases in aircraft depreciation due to capital expenditures subsequent to March 31, 2025.

Current wording

Depreciation and amortization expenses increased by $0.4 million, or 9%, for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. This was primarily due to overall increases in aircraft depreciation due to capital expenditures subsequent to June 30, 2025.

Previous wording

Other expense, net increased by $7.0 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. This was primarily attributable to a $9.0 million increase in losses from changes in fair value of financial instruments, primarily due to the impact of changes in price of our common stock on valuations of convertible notes and the GEM Global Yield LLC SCS (“GEM”) mandatory convertible security, and a $0.6 million increase in other expense, primarily driven by non-cash transaction costs. This was offset by a $2.7 million decrease in interest expense due to restructuring of high interest debt in favor of zero-coupon, convertible, obligations.

Current wording

Other expense, net increased by $4.3 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. This was primarily attributable to a $8.1 million increase in losses from changes in fair value of financial instruments, primarily due to the impact of changes in price of our common stock on valuations of convertible notes and the GEM mandatory convertible security, and a $1.4 million increase in other expense, primarily driven by non-cash transaction costs. This was partially offset by a $5.2 million decrease in interest expense due to restructuring of high interest debt in favor of zero-coupon, convertible, obligations.

Previous wording

The increase in net loss of $1.8 million, or 10%, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, was primarily attributable to increases in other expense of $7.0 million. This was partially offset by an increase in revenue of $2.1 million, coupled with decreases in operating expenses of $3.1 million.

Current wording

The increase in net loss of $1.9 million, or 4%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, was primarily attributable to increases in operating expenses of $1.8 million and increases in other expense of $4.3 million. This was partially offset by an increase in revenue of $4.2 million.

Previous wording

For the three months ended March 31, 2025, net cash used in operating activities was $15.8 million, driven by a net loss of $18.5 million. These operating outflows were partially offset by depreciation and amortization expense of $2.1 million and losses on disposals of fixed assets of $0.7 million.

Current wording

For the six months ended June 30, 2026, net cash used in operating activities was $13.4 million, primarily driven by a net loss of $48.4 million. Operating outflows were partially offset by depreciation and amortization expense of $5.0 million, stock-based compensation expense of $4.1 million, changes in fair value of financial instruments of $10.4 million, increases in accounts payable of $3.7 million, and increases in deferred revenue of $12.2 million.

Previous wording

For the three months ended March 31, 2026, net cash used in operating activities was $12.3 million, primarily driven by a net loss of $20.3 million. Operating outflows were partially offset by depreciation and amortization expense of $2.6 million, stock-based compensation expense of $1.4 million, and changes in fair value of financial instruments of $3.6 million.

Current wording

For the six months ended June 30, 2025, net cash used in operating activities was $26.4 million, primarily driven by a net loss of $46.5 million. These operating outflows were partially offset by depreciation and amortization expense of $4.6 million, stock-based compensation expense of $5.7 million, changes in fair value of financial instruments of $2.4 million, and an $8.2 million increase in accounts payable and accrued liabilities.

Previous wording

For the three months ended March 31, 2026, net cash used in investing activities was $3.5 million, a decrease of $4.3 million compared to the three months ended March 31, 2025. The increase was driven by an increase of $1.6 million in purchases of property and equipment and internal use software development costs, partially offset by a decrease in proceeds from the sale of fixed assets of $2.7 million.

Current wording

For the six months ended June 30, 2026, net cash used in investing activities was $11.3 million, an increase of $10.2 million compared to the six months ended June 30, 2025. The increase was driven by an increase of $8.7 million in purchases of property and equipment and internal use software development costs, and compounded by a decrease in proceeds from the sale of fixed assets of $1.5 million.

Previous wording

For the three months ended March 31, 2026, net cash provided by financing activities was $7.3 million, primarily from $12.0 million in advances under the GEM Share Purchase Agreement (as defined below), partially offset by $4 million in borrowings under convertible note agreements.

Current wording

For the six months ended June 30, 2026, net cash provided by financing activities was $20.4 million, primarily from $25.0 million in advances under the GEM Share Purchase Agreement (as defined below), $14.3 million in proceeds from equity issuances, and $9.0 million in debt issuances with external and related parties. These were partially offset by $23 million in repayments of borrowings under convertible note agreements.

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, 2026 and December 31, 2025. As discussed in Note 10, Commitments and Contingencies, 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 from 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 is currently in default of these obligations, with a total outstanding federal excise tax liability, including accrued penalties and interest, of $9.9 million included in accrued expenses and other current liabilities on the Company’s Condensed Consolidated Balance Sheet as of March 31, 2026. 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 $0.9 million as of March 31, 2026. Additionally, Los Angeles County had previously imposed a tax lien on four of the Company’s aircraft due to the late filing of the Company’s 2022 property tax return. During the year ended December 31, 2025, the Los Angeles County tax liens were released as the Company finalized remediation of the late filing, inclusive of the completion of county audits, and made payments of $1.0 million on all property taxes due to Los Angeles County that were underlying the prior aircraft liens. As of March 31, 2026, 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 (see Note 7, Financing Arrangements). The SAFE-T note is subordinate to most of the Company’s debt obligations (see Note 7, Financing Arrangements); therefore, the Company cannot pay the outstanding balance prior to paying amounts due under more senior debt obligations. The SAFE-T note had an outstanding principal amount of $0.5 million as of March 31, 2026 and December 31, 2025.

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, 2026 and December 31, 2025. As discussed in Note 10, Commitments and Contingencies, 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 from 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 is currently in default of these obligations, with a total outstanding federal excise tax liability, including accrued penalties and interest, of $11.1 million included in accrued expenses and other current liabilities on the Company’s Condensed Consolidated Balance Sheet as of June 30, 2026. 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 $0.9 million as of June 30, 2026. Additionally, Los Angeles County had previously imposed a tax lien on four of the Company’s aircraft due to the late filing of the Company’s 2022 property tax return. During the year ended December 31, 2025, the Los Angeles County tax liens were released as the Company finalized remediation of the late filing, inclusive of the completion of county audits, and made payments of $1.0 million on all property taxes due to Los Angeles County that were underlying the prior aircraft liens. As of June 30, 2026, the Company was also in default of the Simple Agreements for Future Equity with Token allocation (“SAFE-T”)

Previous wording

During the three months ended March 31, 2026, the Company received $12 million in advances under the Share Purchase Agreement with GEM, of which $8.3 million had been settled through the issuance of 4,350,412 shares of the Company’s common stock. As of March 31, 2026, the contractual terms allow the Company to make further advances of up to $85.5 million under the Share Purchase Agreement. Additionally, the Company has the ability to draw an additional $251.4 million under the Share Purchase Agreement, subject to daily volume limitations and GEM’s requirement to hold less than 10% of the fully-diluted shares of the Company. As of March 31, 2026, GEM held 0% of the then fully-diluted shares of the Company. At March 31, 2026, the daily volume limitations under the Share Purchase Agreement significantly restricted our ability to take additional draws under the Share Purchase Agreement to approximately 8.6 million shares per draw. Additionally, the Company’s ability to draw upon the Share Purchase Agreement is contingent on the Company’s common stock being listed on a national exchange.

Current wording

During the six months ended June 30, 2026, the Company received $25.0 million in advances under the Share Purchase Agreement with GEM (the “SPA”), of which $25.0 million had been settled through the issuance of 21,100,000 shares of the Company’s common stock. As of June 30, 2026, the contractual terms allow the Company to make further advances of up to $72.5 million under the SPA. Additionally, the Company has the ability to draw an additional $251.4 million under the SPA, subject to daily volume limitations and GEM’s requirement to hold less than 10% of the fully-diluted shares of the Company. As of June 30, 2026, GEM held 0% of the then fully-diluted shares of the Company. At June 30, 2026, the daily volume limitations under the SPA restricted our ability to take additional draws under the SPA to approximately 33.5 million shares per draw. Additionally, the Company’s ability to draw upon the SPA is contingent on the Company’s common stock being listed on a national exchange. The original termination date of the SPA has been extended from July 2026 to the earlier of (i) January 2, 2028 and (ii) the date which GEM has purchased the Aggregate Limit under the SPA.

Previous wording

There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2026 as compared to those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Current wording

There have been no material changes to our critical accounting policies and estimates during the six months ended June 30, 2026 as compared to those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.