Notes To Consolidated Financial Statements
NOTE 1 -
Nature of Operations
Saker Aviation Services, Inc. (“Saker”), through its
subsidiaries (collectively the “Company”), operates in the aviation services segment of the general aviation industry,
in which it serves as the operator of a heliport and a fixed base operation (“FBO”). FBOs provide ground-based services,
such as fueling and aircraft storage for general aviation, commercial and military aircraft, and other miscellaneous services.
FirstFlight Heliports, LLC d/b/a Saker Aviation Services (“FFH”),
a wholly-owned subsidiary, operates the Downtown Manhattan Heliport via a concession agreement with the City of New York. FBO Air
Garden City, Inc. d/b/a Saker Aviation Services (“FBOGC”), a wholly-owned subsidiary provides FBO services in Garden
City, Kansas. Phoenix Rising Aviation, Inc. (“PRA”), a wholly-owned subsidiary previously provided MRO services in
Bartlesville, Oklahoma – see Discontinued Operations below.
NOTE 2 –
Management’s Liquidity Plans
As of December 31, 2015, the Company had cash of $414,661 and had
a working capital surplus of $1,986,997. The Company generated revenue from continuing operations of $15,974,307 and income from
continuing operations before income taxes of $1,918,696 for the twelve months ended December 31, 2015.
On May 17, 2013, the Company entered into a loan agreement with
PNC Bank (the “PNC Loan Agreement”). The PNC Loan Agreement contains three components: (i) a $2,500,000 non-revolving
acquisition line of credit (the “PNC Acquisition Line”); (ii) a $1,150,000 working capital line (the “PNC Working
Capital Line”); and (iii) a $280,920 term loan (the “PNC Term Loan”). Substantially all assets of the Company
are pledged as collateral under the PNC Loan Agreement.
Proceeds of the PNC Acquisition Line were able to be dispersed,
based on parameters defined in the PNC Loan Agreement, until May 17, 2014 (the “Conversion Date”). As of the Conversion
Date, there was $1,350,000 outstanding under the PNC Acquisition Line. The payment terms provide that 30 days following the Conversion
Date, and continuing on the same day of each month thereafter, the Company is required to make equal payments of principal over
a 60 month period. Interest on the outstanding principal continues to accrue at a rate equal to one-month LIBOR plus 275 basis
points (2.947% as of December 31, 2015). An unused commitment fee had been applied at a rate of 1.5% on the unused portion of the
PNC Acquisition Line and was charged for each fiscal quarter through the Conversion Date. As of December 31, 2015, there was $922,500
outstanding under the PNC Acquisition Line.
The PNC Working Capital was to have been dispersed
for working capital and general corporate purposes. Interest on outstanding principal accrued at a rate equal to daily LIBOR plus
250 basis points (2.697% as of December 31, 2015). The PNC Working Capital Line expired on December 31, 2015, with $0 outstanding.
The PNC Term Loan was dispersed to settle miscellaneous Company
debt of the same amount. Interest on outstanding principal accrued at a rate equal to one-month LIBOR plus 275 basis points and
principal and interest payments were to be made over a 34 month period. At December 31, 2015, all amounts outstanding under the
PNC Term Loan had been repaid.
The Company is party to a concession agreement, dated as of November
1, 2008, with the City of New York for the operation of the Downtown Manhattan Heliport (the “Concession Agreement”).
Pursuant to the terms of the Concession Agreement, the Company must pay the greater of 18% of the first $5,000,000 in program year
gross receipts and 25% of gross receipts in excess of $5 million or minimum annual guaranteed payments. The Company paid the City
of New York $1,200,000 in the first year of the term and minimum payments are scheduled to increase to approximately $1,700,000
in the final year of Concession Agreement, which was set to expire on October 31, 2018. During the twelve months ended December
31, 2015 and 2014, the Company incurred approximately $2,900,000 and $2,800,000 in concession fees, respectively, which is recorded
in the cost of revenue.
As disclosed in a Current Report on Form 8-K
filed on February 5, 2016 with the Securities and Exchange Commission (the “SEC”), on February 2, 2016, the New York
City Economic Development Corporation (the “NYCEDC”) and the Company announced new measures to reduce helicopter noise
and impacts across New York City (the “Agreement”).
Under the Agreement, filed as an exhibit
with this report, the Company may not allow its tenant operators to conduct tourist flights from the Downtown Manhattan
Heliport on Sundays beginning April 1, 2016. The Company must also ensure its tenant operators reduce the total allowable
number of tourist flights from 2015 levels by 20 percent beginning June 1, 2016, by 40 percent beginning October 1, 2016 and
by 50 percent beginning January 1, 2017. Additionally, beginning on June 1, 2016, the Company is required to provide monthly
written reports to the NYCEDC and the New York City Council detailing the number of tourist flights conducted out of the
Downtown Manhattan Heliport compared to the Company’s 2015 levels, as well as information on any tour flight that flies
over land and/or strays from agreed upon routes.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
The Agreement also extends the Company's Concession
Agreement with the City of New York for 30 months, resulting in a new expiration date of April 30, 2021. The City of New York has
two one year options to further extend the Concession Agreement. The Agreement also provides that the minimum annual guarantee
payments required to be made by the Company to the City of New York under the Concession Agreement will be reduced by 50%, effective
January 1, 2017.
These reductions will negatively impact the business and financial
results of the Company and its management company at the Heliport, Empire Aviation which, as previously disclosed, is owned by
the children of Alvin Trenk, the Company’s CEO and a member of its Board of Directors. The Company incurred management
fees with Empire Aviation of approximately $3,700,000 and $3,300,000 during the twelve months ended December 31, 2015 and 2014,
respectively, which is recorded in administrative expenses. The Company and Empire have also contributed to the Helicopter
Tourism and Jobs Council (“HTJC”), an association that lobbies on behalf of the helicopter air tour industry, and which
had engaged in discussions with the Mayor’s office. Mr. Trenk is also an active participant with HJTC, which is managed
by his grandson.
NOTE 3 –
Discontinued Operations
As disclosed in a Current Report on Form 8-K filed with the Securities
and Exchange Commission (the “SEC”) on July 6, 2015, the Company entered into a Stock Purchase Agreement, dated June
30, 2015, by and between the Company and Warren A. Peck (the “Agreement”). Pursuant to the Agreement, Mr. Peck was
to purchase all of the outstanding capital stock of the Company’s wholly-owned subsidiary Phoenix Rising Aviation, Inc. (“PRA”).
The closing of the transactions contemplated by the Agreement occurred on September 30, 2015. At that time, in exchange for all
of the outstanding capital stock of PRA, Mr. Peck was required to (i) pay the Company $250,000 in cash; (ii) execute a $250,000
Secured Promissory Note in favor of the Company; and (iii) execute an Installment Payment Agreement giving the Company rights to
earn-out payments based on EBITDA thresholds achieved by PRA post-closing. As a result of the sale, PRA results of operations have
been reported as discontinued operations in the Condensed Consolidated Balance Sheets and Statements of Operations for 2015 and
2014.
The Agreement, Secured Promissory Note and Installment Payment Agreement
were included as exhibits with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2015. On September
30, 2015 the Company and Mr. Peck executed the Closing Cash Agreement “the “Closing Agreement”, which was filed
with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2015. The Closing Agreement provided
for Mr. Peck to sign over to the Company title to an aircraft to defer the $250,000 cash consideration due at closing. As further
described in the Closing Agreement, the Company shall receive the $250,000 closing cash payment, plus other identified costs, when
the aircraft is subsequently sold. The $250,000 closing cash consideration plus receivables associated with the Note are therefore
reflected as a Note Receivable in the Consolidated Balance Sheets as of December 31, 2015.
Components of discontinued operations are as follows:
As of December 31, 2015 and 2014, assets principally consisting
of $0.00 and $667,617, respectively, and liabilities of $0.00 and $1,224,281, respectively, were included in the consolidated balance
sheets.
|
|
For the Twelve Months Ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,763,944
|
|
|
$
|
1,871,615
|
|
Cost of revenue
|
|
|
1,346,760
|
|
|
|
1,419,923
|
|
Gross profit
|
|
|
417,184
|
|
|
|
451,692
|
|
Operating expenses
|
|
|
766,281
|
|
|
|
1,086,017
|
|
Operating loss from discontinued operations
|
|
|
(349,097
|
)
|
|
|
(634,325
|
)
|
Interest expense, net
|
|
|
(24,575
|
)
|
|
|
(38,603
|
)
|
Impairment of goodwill, intangible and fixed assets
|
|
|
(107,500
|
)
|
|
|
(689,963
|
)
|
Other income (expense), net
|
|
|
24,684
|
|
|
|
(54,206
|
)
|
Income tax benefit
|
|
|
265,000
|
|
|
|
719,999
|
|
Net loss from discontinued operations
|
|
$
|
(191,488
|
)
|
|
$
|
(697,098
|
)
|
Basic net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
Weighted average number of common shares outstanding, basic
|
|
|
33,157,610
|
|
|
|
33,057,610
|
|
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 4 -
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, FirstFlight Heliports, LLC (“FFH”), its FBO at Garden City (Kansas) Regional
Airport (“FBOGC”) and Phoenix Rising Aviation, Inc. (“PRA”), see Note 3, Discontinued Operations. All significant
inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity
with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s
significant estimates include depreciation, amortization, impairment of goodwill and intangibles, stock-based compensation, allowance
for doubtful accounts and deferred tax assets.
Cash
The Company maintains its cash with various financial institutions.
As part of its cash management process, the Company periodically reviews the relative credit standing of these financial institutions.
Accounts Receivable, Trade and Revenue Concentration
The Company extends credit to companies for products and services.
The Company has concentrations of credit risk because 93.9% of the balance of accounts receivable, trade at December 31, 2015 was
incurred by only four customers. At December 31, 2015, accounts receivable from the Company’s four largest accounts amounted
to approximately $957,886 (38.0%), $676,632 (26.8%), $491,033 (19.5%), and $242,633 (9.6%), respectively. In addition, four customers
represented approximately $12,560,000 (78.6%) of revenue in 2015. At December 31, 2014, accounts receivable from the Company’s
four largest accounts amounted to approximately $685,000 (33.4%), $359,000 (17.5%), $292,000 (14.2%), and $233,000 (11.4%), respectively.
In addition, three customers represented approximately $10,400,000 (57%) of revenue in 2014. The Company has in place a security
deposit in connection with each of these four receivables but its receivables are otherwise not collateralized. Accounts receivable
are carried at their estimated collectible amounts. Accounts receivable are periodically evaluated for collectability and the allowance
for doubtful accounts is adjusted accordingly. Management determines collectability based on their experience and knowledge of
the customers. As of December 31, 2015 and 2014, the Company has recorded an allowance for doubtful accounts of $0.
Inventories
Inventories consist primarily of maintenance parts and aviation
fuel and are stated at the lower of cost or market determined by the first-in, first out method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided
primarily using the straight-line method over the estimated useful lives as set forth in footnote 6. Amortization of leasehold
improvements is provided using the straight-line method over the shorter of their estimated useful life or lease term, including
renewal option periods expected to be exercised. Maintenance and repairs are charged to expense as incurred; costs of major additions
and betterments are capitalized. When property and equipment is sold or otherwise disposed of, the cost and related accumulated
depreciation are eliminated from the accounts and any resulting gain or loss is reflected in income.
Goodwill and Intangible Assets
Goodwill and intangibles that are deemed to have indefinite lives
are not amortized but, instead, are to be reviewed at each reporting period for impairment. The Company assessed potential impairment
of goodwill using qualitative factors by considering various factors including macroeconomic conditions, industry and market conditions,
cost factors, a sustained share price or market capitalization decrease and any reporting unit specific events. The Company performed
an analysis of its goodwill and intangible assets at December 31, 2015 and 2014. In addition to amounts recorded in 2013 with respect
to discontinued operations, the Company recorded an impairment charge in 2015 and 2014 relating to intangibles recorded in connection
with the Company’s purchase of its MRO in Oklahoma.
Revenue Recognition
Revenue for the sales of products is recognized at the time products
are delivered to customers. Revenue for services is recognized at the time the services are performed and provided to customers.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Reclassifications
Certain reclassifications were made to prior year amounts to conform
to the current year presentation. None of the reclassifications affected the Company’s net (loss) income in any period.
Customer Deposits
Customer deposits consist of amounts that customers are required
to remit in advance to the Company in order to secure payment for future purchases and services.
Advertising
The Company expenses all advertising costs as incurred. Advertising
expense for the years ended December 31, 2015 and 2014 was approximately $45,250 and $117,401, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between their financial statement carrying amounts and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income or loss in the years
in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date.
Deferred tax assets are subject to a valuation allowance because
it is more likely than not that certain of the deferred tax assets will not be realized in future periods. The Company files income
tax returns in the United States (federal) and in various state and local jurisdictions. In most instances, the Company is no longer
subject to federal, state and local income tax examinations by tax authorities for years prior to 2012.
Fair Value of Financial Instruments
The reported amounts of the Company’s financial instruments,
including accounts receivable, accounts payable and accrued liabilities, approximate their fair value due to their short maturities.
The carrying amounts of debt approximate fair value because the debt agreements provide for interest rates that approximate market.
The carrying value of the note receivable approximated fair value because it was discounted at a current market rate.
Net Income Per Common Share
Basic net income per share applicable to common stockholders is
computed based on the weighted average number of shares of the Company’s common stock outstanding during the periods presented.
Diluted net income per share reflects the potential dilution that could occur if securities or other instruments to issue common
stock were exercised or converted into common stock. Potentially dilutive securities, consisting of options and warrants, are excluded
from the calculation of the diluted income per share when their exercise prices are greater than the average market price of the
common stock during the period or when their inclusion would be antidilutive.
The following table sets forth the components used in the computation
of basic and diluted income per share:
|
|
For the Year Ended
December 31,
|
|
|
|
2015(1)
|
|
|
2014(1)
|
|
Weighted average common shares outstanding, basic
|
|
|
33,112,542
|
|
|
|
33,106,788
|
|
|
|
|
|
|
|
|
|
|
Common shares upon exercise of options or warrants
|
|
|
486,002
|
|
|
|
221,029
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
33,598,544
|
|
|
|
33,327,817
|
|
|
(1)
|
Common shares of 1,713,998 and 1,950,000 underlying outstanding stock options for the years ended December 31, 2015 and 2014,
respectively, were excluded from the computation of diluted earnings per share as their inclusion would be antidilutive.
|
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Stock-Based Compensation
Stock-based compensation expense for all share-based payment awards
are based on the estimated grant-date fair value. The Company recognizes these compensation costs over the requisite service period
of the award, which is generally the option vesting term. For the years ended December 31, 2015 and 2014, the Company incurred
stock based compensation of $33,946 and $36,675, respectively. Such amounts have been recorded as part of the Company’s selling,
general and administrative expenses in the accompanying consolidated statements of operations. As of December 31, 2015, the unamortized
fair value of the options totaled $29,333 and the weighted average remaining amortization period of the options approximated 5
years.
Option valuation models require the input of highly subjective assumptions,
including the expected life of the option. Because the Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee
stock options.
The fair value of each share-based payment award granted during
the years ended December 31, 2015 and 2014 were estimated using the Black-Scholes option pricing model with the following weighted
average fair values:
|
|
For the Year Ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
Expected volatility
|
|
|
692%
|
|
|
|
678%
|
|
Risk-free interest rate
|
|
|
1.6%
|
|
|
|
1.5%
|
|
Expected lives
|
|
|
5.0 years
|
|
|
|
5.0 years
|
|
The weighted average fair value of the options on the date of grant,
using the fair value based methodology during the years ended December 31, 2015 and 2014, was $0.074 and $0.068, respectively.
Recently Issued Accounting Pronouncements
In April 2014, the FASB issued Accounting Standards Update No. 2014-08
“Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360) – Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity” (ASU 2014-08) which requires entities to change the criteria
for reporting discontinued operations and enhance convergence of the FASB’s and International Accounting Standard Board’s
(IASB) reporting requirements for discontinued operations so as not to be overly complex or difficult to apply to stakeholders.
Only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on the
entity’s operations and financial results will be reported as discontinued operations in the financial statements. ASU 2014-08
is effective for fiscal years beginning on or after December 15, 2014 and interim periods thereafter. ASU 2014-08 was effective
for the Company’s financial statements for fiscal years beginning January 1, 2015. Based on the Company’s evaluation
of ASU 2014-08, the adoption of this statement on January 1, 2015 did not have a material impact on the Company’s financial
statements.
NOTE 5 –
Inventories
Inventory consists primarily of aviation fuel which the Company
dispenses to its customers. The Company also maintains fuel inventories for commercial airlines, to which it charges into-plane
fees when servicing commercial aircraft.
Inventories consist of the following:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Parts inventory
|
|
$
|
0
|
|
|
$
|
219,374
|
|
Fuel inventory
|
|
|
52,475
|
|
|
|
68,891
|
|
Other inventory
|
|
|
15,385
|
|
|
|
11,074
|
|
Total inventory
|
|
$
|
67,860
|
|
|
$
|
299,339
|
|
Included in fuel inventory are amounts held for third parties of
$55,798 and $76,021 as of December 31, 2015 and 2014, respectively, with an offsetting liability included as part of accrued expenses.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 6 –
Property and Equipment
Property and equipment consist of the following:
|
|
December 31,
|
|
|
Estimated
|
|
|
2015
|
|
|
2014
|
|
|
Useful Life
|
Aircraft
|
|
$
|
56,000
|
|
|
$
|
45,872
|
|
|
7 – 12 years
|
Vehicles
|
|
|
274,384
|
|
|
|
386,604
|
|
|
5 – 10 years
|
Office furniture and equipment
|
|
|
368,709
|
|
|
|
339,842
|
|
|
3 – 7 years
|
Tools and shop equipment
|
|
|
61,290
|
|
|
|
233,912
|
|
|
3 – 10 years
|
Leasehold improvements
|
|
|
2,652,949
|
|
|
|
2,592,107
|
|
|
10 – 20 years
|
Building/fuel farm
|
|
|
200,000
|
|
|
|
200,000
|
|
|
7 – 17 years
|
Total
|
|
|
3,613,332
|
|
|
|
3,798,337
|
|
|
|
Less: accumulated depreciation and amortization
|
|
|
(2,116,676
|
)
|
|
|
(1,711,543
|
)
|
|
|
Property and equipment, net
|
|
$
|
1,496,656
|
|
|
$
|
2,086,794
|
|
|
|
Depreciation expense for the years ended December 31, 2015 and 2014
was approximately $569,000 and $549,000, respectively.
NOTE 7 –
Goodwill and Intangible Assets
The Company had $530,000 of goodwill at December
31, 2015 and 2014 from its FBO operations. The Company had assessed its goodwill using the qualitative approach and determined
it was more likely than not that the fair value of its goodwill resulting from the purchase of PRA was less than its carrying value
and, therefore, recorded a $550,380 impairment charge in 2014. Due to macroeconomic, industry and market conditions, the PRA facility
had not been able to establish positive cash flow and future cash flows were insufficient to support any value of goodwill or indefinite
live intangibles so the Company recorded the impairment charge in the 2014 audited financial statements for their remaining value.
As of December 31, 2015, intangible assets consisted
of a charter certificate ($35,000). As of December 31, 2014, intangible assets consisted of a non-compete agreement ($107,500)
and a charter certificate ($35,000). At December 31, 2014, the Company recorded an impairment charge of $139,583 for the trade
name and customer relationships at the PRA facility using the aforementioned procedures. In connection with the Company’s
sale of PRA at September 30, 2015, the Company recorded a $107,500 charge for the full value of the PRA non-compete agreement.
NOTE 8 –
Line of Credit
The Company had a working capital line aggregating $750,000, which
was secured by substantially all assets of the Company. The line, which bore interest at a rate equal to daily LIBOR plus 250 basis
points and was renewable at PNC Bank’s option, expired on December 31, 2015 with $0 outstanding.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 9 –
Notes Payable
Notes payable consist of:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
PNC Bank Acquisition Line of Credit converted to a Promissory Note on May 17, 2014 – secured by assets of acquisition. One month LIBOR plus 275 bps, matures May 17, 2019.
|
|
$
|
922,500
|
|
|
$
|
1,192,500
|
|
|
|
|
|
|
|
|
|
|
PNC Bank Term Loan – paid in full
|
|
|
—
|
|
|
|
128,420
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
2,374
|
|
|
|
8,516
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
924,874
|
|
|
|
1,329,436
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
(272,374
|
)
|
|
|
(372,457
|
)
|
|
|
|
|
|
|
|
|
|
Total – long term
|
|
$
|
652,500
|
|
|
$
|
956,979
|
|
Aggregate annual maturities of debt are as follows:
For the years ended December 31,
|
|
Total
|
|
2016
|
|
$
|
272,374
|
|
2017
|
|
|
270,000
|
|
2018
|
|
|
270,000
|
|
2019
|
|
|
112,500
|
|
TOTAL
|
|
$
|
924,874
|
|
NOTE 10 –
Income Taxes
The Company’s deferred tax assets
and deferred tax liabilities consisted of the following:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Stock based compensation
|
|
$
|
53,000
|
|
|
$
|
44,000
|
|
Deferred start-up costs
|
|
|
30,000
|
|
|
|
38,000
|
|
Goodwill and intangibles
|
|
|
39,000
|
|
|
|
388,000
|
|
Property and equipment
|
|
|
101,000
|
|
|
|
—
|
|
Total deferred tax assets
|
|
|
223,000
|
|
|
|
470,000
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
—
|
|
|
|
(65,000
|
)
|
Total deferred tax liabilities
|
|
|
0
|
|
|
|
(65,000
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets – net
|
|
|
223,000
|
|
|
|
405,000
|
|
|
|
|
|
|
|
|
|
|
Valuation Allowance
|
|
|
(50,000
|
)
|
|
|
(42,000
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax asset – net of valuation allowance
|
|
$
|
173,000
|
|
|
$
|
363,000
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
$
|
8,000
|
|
|
$
|
7,000
|
|
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
The provision for income taxes using the statutory federal tax rate
as compared to the Company's effective tax rate is summarized as follows:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Tax expense at statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State and local income taxes, net of federal
|
|
|
19.8
|
%
|
|
|
18.3
|
%
|
Effective income tax expense rate
|
|
|
53.8
|
%
|
|
|
52.3
|
%
|
NOTE 11 –
Stockholders’ Equity
Stock Options
On December 12, 2006, at the Company’s Annual Meeting, the
stockholders of the Company approved the Stock Option Plan of 2005 (the “Plan”). The Plan is administered by the Company’s
Compensation Committee and provides for 7,500,000 shares of common stock to be reserved for issuance under the Plan. Directors,
officers, employees, and consultants of the Company are eligible to participate in the Plan. The Plan provides for the awards of
incentive and non-statutory stock options. The Committee determined the vesting schedule to be up to five years at the time of
grant of any options under the Plan, and unexercised options will expire in up to ten years. The exercise price is to be equal
to at least 100% of the fair market value of a share of the common stock, as determined by the Compensation Committee, on the grant
date. As of December 31, 2015 and 2014, there were 5,300,000 and 5,600,000 shares, respectively, available for grant as options
under the Plan.
Details of all options outstanding under the Plan are presented
in the table below:
|
|
Number of
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Balance, January 1, 2014
|
|
|
1,800,000
|
|
|
$
|
0.070
|
|
Granted
|
|
|
300,000
|
|
|
|
0.085
|
|
Exercised
|
|
|
(100,000
|
)
|
|
|
0.050
|
|
Forfeited
|
|
|
(100,000
|
)
|
|
|
0.120
|
|
Balance, December 31, 2014
|
|
|
1,900,000
|
|
|
$
|
0.071
|
|
Granted
|
|
|
400,000
|
|
|
|
0.080
|
|
Exercised
|
|
|
(100,000
|
)
|
|
|
0.040
|
|
Balance, December 31, 2015
|
|
|
2,200,000
|
|
|
$
|
0.074
|
|
On December 1, 2015, the Company granted a stock option under the
Plan to each of the three non-employee directors plus the Chief Executive Officer, who otherwise accepts no compensation, to purchase
100,000 shares of common stock at $0.080 per share, the closing price of the Company’s common stock on December 1, 2015.
Each option vests on December 1, 2016 and expires on December 1, 2020. These options are collectively valued at $32,000 and are
being amortized over the vesting period.
On November 25, 2015, four sets of options of 25,000 shares each,
representing a total of 100,000 shares, were exercised.
On December 1, 2014, the Company granted a stock option under the
Plan to each of the two non-employee directors plus the Chief Executive Officer, who otherwise accepts no compensation, to purchase
100,000 shares of common stock at $0.085 per share, the closing price of the Company’s common stock on December 1, 2014.
Each option vests on December 1, 2015 and expires on December 1, 2019. These options are collectively valued at $25,500 and are
being amortized over the vesting period.
On December 1, 2014, four sets of options of 25,000 shares each,
representing a total of 100,000 shares, expired.
On January 6, 2014, an option of 100,000 shares was exercised.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
A summary of the Company’s stock options outstanding at December
31, 2015 is presented in the table below:
Exercise Price
|
|
|
Outstanding
|
|
|
Weighted average
remaining
contractual life of
options
(in years)
|
|
|
Exercisable
|
|
|
Intrinsic
Value
|
|
$
|
0.030
|
|
|
|
300,000
|
|
|
|
2.81
|
|
|
|
300,000
|
|
|
$
|
19,372
|
|
$
|
0.077
|
|
|
|
400,000
|
|
|
|
2.92
|
|
|
|
400,000
|
|
|
$
|
7,030
|
|
$
|
0.078
|
|
|
|
400,000
|
|
|
|
0.94
|
|
|
|
400,000
|
|
|
$
|
6,470
|
|
$
|
0.080
|
|
|
|
400,000
|
|
|
|
4.92
|
|
|
|
—
|
|
|
$
|
5,830
|
|
$
|
0.084
|
|
|
|
400,000
|
|
|
|
1.92
|
|
|
|
400,000
|
|
|
$
|
4,230
|
|
$
|
0.085
|
|
|
|
300,000
|
|
|
|
3.92
|
|
|
|
300,000
|
|
|
$
|
2,872
|
|
|
TOTALS
|
|
|
|
2,200,000
|
|
|
|
|
|
|
|
1,800,000
|
|
|
$
|
45,803
|
|
Warrants
Details of all warrants outstanding are presented in the table below:
|
|
Number of
Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Balance, January 1, 2014
|
|
|
3,250,000
|
|
|
$
|
0.06
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(2,900,000
|
)
|
|
|
0.05
|
|
Balance, December 31, 2014
|
|
|
350,000
|
|
|
|
0.10
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(350,000
|
)
|
|
|
0.10
|
|
Balance, December 31, 2015
|
|
|
0
|
|
|
|
0.00
|
|
On December 31, 2015, a warrant for 350,000 shares expired.
On December 28, 2014, a warrant for 2,900,000 shares expired.
Preferred Stock
As of December 31, 2015 and 2014, the Company has 9,999,154 shares
of preferred stock authorized and none of which is issued and outstanding. The Company’s Board of Directors currently
has the right, with respect to the authorized shares of our preferred stock, to authorize the issuance of one or more series of
preferred stock with such voting, dividend and other rights as the directors determine.
NOTE 12 –
Employee Benefit Plan
The Company maintains a 401K Plan (the “401K Plan”),
which covers all employees of the Company. The 401K Plan contains an option for the Company to match each participant's contribution.
Any Company contribution vests over a five-year period on a 20% per year basis. Company contributions to the 401K Plan totaled
approximately $41,000 and $45,000 for the years ended December 31, 2015 and 2014, respectively.
NOTE 13 –
Commitments
Operating Leases
The Company leases facilities from Garden City, Kansas, which provides
for: (a) a 21-year lease term expiring December 31, 2030, with one five-year renewal period, and (b) a base rent of $2,187 per
month. In addition, the Company incurs a fuel flowage fee of $0.06 per gallon of fuel received. The fuel flowage fee is to be reviewed
annually by the Garden City Regional Airport, the City of Garden City, and the Company.
The Company leases office space from the Lehigh Valley International
Airport, which provides for approximately 360 square feet, at a monthly cost of $518. The lease may be terminated with 30-days’
advance notice.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Fixed rent expense aggregated approximately $32,000 and $87,000
for the years ended December 31, 2015 and 2014, respectively. Flowage fees on fuel gallons purchased aggregated approximately
$42,000 and $44,000 for the years ended December 31, 2015 and 2014, respectively.
Future minimum rental payments under the Company’s operating
leases are as follows:
For the year ended
|
|
|
|
December 31,
|
|
Total
|
|
2016
|
|
$
|
26,244
|
|
2017
|
|
|
26,244
|
|
2018
|
|
|
26,244
|
|
2019
|
|
|
26,244
|
|
2020
|
|
|
26,244
|
|
Thereafter
|
|
|
262,440
|
|
TOTAL
|
|
$
|
393,660
|
|
NOTE 14 –
Related Parties
The law firm of Wachtel & Missry, LLP provides certain legal
services to the Company and its subsidiaries from time to time. William B. Wachtel, Chairman of the Company’s Board of Directors,
is a managing partner of this firm. During the twelve months ended December 31, 2015 and 2014, the Company was billed $0 for legal
services by Wachtel & Missry, LLP.
On August 29, 2011, the Company entered into a redemption agreement
with Empire Aviation (“Empire”), a non-controlling interest in a subsidiary of the Company (the “Redemption Agreement”).
Pursuant to the terms of the Redemption Agreement, Empire relinquished its membership interest in the subsidiary in return for
earn-out payments of its capital account of $2,769,000. Of that amount, $444,000 was paid upon the execution of the Redemption
Agreement, and the remaining balance of $2,325,000 was paid in full as of December 31, 2014.
As described in more detail in Note 2, Liquidity, the Company is
party to a management agreement with Empire, an entity owned by the children of Alvin S. Trenk, our CEO and a member of our Company’s
Board of Directors.
NOTE 15 –
Litigation
From time to time, the Company may be a party to one or more claims
or disputes which may result in litigation. The Company’s management does not, however, presently expect that any such matters
will have a material adverse effect on the Company’s business, financial condition or results of operations.
NOTE 16 –
Subsequent Events
As disclosed in a Current Report on Form 8-K
filed with the Securities and Exchange Commission (the “SEC”) on February 5, 2016, on February 2, 2016, the New York
City Economic Development Corporation (the “NYCEDC”) and the Company announced new measures to reduce helicopter noise
and impacts across New York City (the “Agreement”).
See Note 2, Liquidity, for relevant details.