NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 1 -
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of Saker Aviation Services, Inc. (the “Company”) and its subsidiaries have been prepared in accordance with
generally accepted accounting principles in the United States of America (“GAAP”) for interim financial statements
and in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and disclosures required
by GAAP for annual financial statements and should be read in conjunction with the financial statements and related footnotes included
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
The condensed consolidated balance sheet and statements of cash
flows as of June 30, 2016 and the condensed consolidated statements of operations for the three and six months ended June 30, 2016
and 2015 have been prepared by the Company without audit. In the opinion of the Company’s management, all necessary adjustments
(consisting of normal recurring accruals) have been included to make the Company’s financial position as of June 30, 2016
and its results of operations and cash flows for the three and six months ended June 30, 2016 not misleading. The results of operations
for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for any full year
or any other interim period.
NOTE 2 –
Liquidity
As of June 30, 2016, we had cash and cash equivalents of $1,337,004
and a working capital surplus of $2,504,309. For the six months ended June 30, 2016, we generated revenue from continuing operations
of $7,031,568 and had net income from continuing operations before taxes of $782,368. For the six months ended June 30, 2016, cash
flows included net cash provided by operating activities of $1,045,662, net cash provided by investing activities of $14,055, and
net cash used in financing activities of $137,374.
On May 17, 2013, we entered into a loan agreement with PNC Bank
(the “PNC Loan Agreement”). The PNC Loan Agreement contained 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”).
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 provided that 30 days following the Conversion
Date, and continuing on the same day of each month thereafter, we are 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 (3.18%
as of June 30, 2016). As of June 30, 2016, there was $787,500 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. The PNC Working Capital Line expired on December 31, 2015, with $0 outstanding.
The PNC Term Loan was utilized to retire our previously outstanding
miscellaneous 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 thirty-four month period. At December 31, 2015, all amounts under
the PNC Term loan have 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 were scheduled to increase to approximately $1,700,000
in the final year of Concession Agreement which now, in accordance with an agreement (the “Agreement”) between the
Company and the New York City Economic Development Corporation (“NYCEDC”), expires on April 30, 2021. In addition to
the extended base term, the City of New York has two one year options to further extend the Concession Agreement. The Agreement
also calls for certain reductions in air tour activity at the Heliport as well as reductions to the Company’s minimum annual
guaranteed payments, which are further detailed in the Company’s Annual Report on Form 10-K, which was filed with the Securities
and Exchange Commission (the “SEC”) on April 11, 2016. During the six months ended June 30, 2016 and 2015, we incurred
approximately $1,416,000 and $1,024,000, respectively, in concession fees which are recorded in the cost of revenue.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
On July 13, 2016, the Franchise and Concession Review Committee
of New York City approved an amendment (the “Amendment”) to the Concession Agreement between the Company and the City
of New York. The Amendment, which memorializes the Agreement, is filed as an exhibit with this report. In addition to elements
described above, the Amendment redefines the plan year as well as the applicable minimum annual guaranteed payments through the
extended base term and option periods.
The air tour reductions articulated in the Agreement are expected
to negatively impact the Company’s business and financial results as well as those of the Company’s management company
at the Heliport, Empire Aviation which, as previously disclosed, is owned by the children of Alvin Trenk, our CEO and a member
of our Board of Directors. The Company incurred management fees with Empire Aviation of approximately $648,000 and $486,000
during the six months ended June 30, 2016 and 2015, 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 in connection with
the Agreement. Mr. Trenk is also an active participant with HJTC, which is managed by his grandson.
As disclosed in a Current Report on Form 8-K filed with 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 “Stock Agreement”). The details of the Stock Agreement are included in that Current Report as well as
in the Company’s Annual Report on Form 10-K, which was filed with the SEC on April 11, 2016.
On September 30, 2015, the Company and Mr. Peck executed a 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
is to receive the $250,000 closing cash payment, plus other identified costs, when the aircraft is subsequently sold. On June 13,
2016, the Company entered into a sale agreement (the “Sale Agreement”) with an unrelated third party to acquire the
aircraft subject to the Closing Agreement. Under the terms of the Sale Agreement, the Company received a down-payment of $30,000,
which was credited against the $250,000 cash consideration owed by Mr. Peck. In addition, the Company will receive monthly payments
of at least $28,000 to satisfy the remainder of the $250,000 cash consideration and $50,000 of the Note owed by Mr. Peck. The $220,000
remaining balance of closing cash consideration, plus receivables associated with the Note, are reflected as a Note Receivable
as of June 30, 2016.
NOTE 3 -
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and our wholly-owned subsidiaries, FirstFlight Heliports, LLC (“FFH”), our FBO at Garden City (Kansas)
Regional Airport (“FBOGC”) and Phoenix Rising Aviation, Inc. (“PRA”), see Note 5, Discontinued Operations.
All significant inter-company accounts and transactions have been eliminated in consolidation.
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 income in any period.
Net Income Per Common Share
Net income was $386,868 and $291,117 for the six months ended
June 30, 2016 and 2015, respectively. 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 were greater than the average market price of the common stock during the period.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
The following table sets forth the components used in the computation
of basic net income per share:
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Weighted average common shares outstanding, basic
|
|
|
33,157,610
|
|
|
|
33,107,610
|
|
|
|
33,157,610
|
|
|
|
33,107,610
|
|
Common shares upon exercise of options and warrants
|
|
|
136,726
|
|
|
|
716,931
|
|
|
|
136,726
|
|
|
|
716,931
|
|
Weighted average common shares outstanding, diluted
|
|
|
33,294,336
|
|
|
|
33,824,541
|
|
|
|
33,294,336
|
|
|
|
33,824,541
|
|
Stock Based Compensation
Stock-based compensation expense for all share-based payment
awards are based on the 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 six months ended June 30, 2016 and 2015, the Company incurred
stock-based compensation costs of $16,998. Such amounts have been recorded as part of the Company’s selling, general and
administrative expenses in the accompanying condensed consolidated statements of operations. As of June 30, 2016, the unamortized
fair value of the options totaled $8,000.
Option valuation models require the input of highly subjective
assumptions, including the expected life of the option. In management's opinion, the use of such option valuation models does not
necessarily provide a reliable single measure of the fair value of the Company’s employee stock options. Management holds
this view partly because the Company's employee stock options have characteristics significantly different from those of traded
options and also because changes in the subjective input assumptions can materially affect the fair value estimate.
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 is 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 4 -
Inventories
Inventories consist primarily of aviation fuel which the Company
sells to its customers. The Company also maintains fuel inventories for commercial airlines, to which it charges into-plane fees
when servicing commercial aircraft. A summary of inventories as of June 30, 2016 and December 31, 2015 is set forth in the table
below:
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Fuel inventory
|
|
$
|
43,246
|
|
|
$
|
52,475
|
|
Other inventory
|
|
|
14,968
|
|
|
|
15,385
|
|
Total inventory
|
|
$
|
58,214
|
|
|
$
|
67,860
|
|
Included in inventories are amounts held for third parties of
$75,519 and $55,798 as of June 30, 2016 and December 31, 2015, respectively, with an offsetting liability included as part of accrued
expenses.
NOTE 5 –
Discontinued Operations
As disclosed in a Current Report on Form 8-K filed with 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”). The details of this Agreement are included in that Current Report as well as in the Company’s
Annual Report on Form 10-K, which was filed with the SEC on April 11, 2016.
Components of discontinued operations are as follows:
As of June 30, 2016 and June 30, 2015, assets of $0 and $702,199,
and liabilities of $0 and $102,638, respectively, were included in the consolidated balance sheets.
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
0.00
|
|
|
$
|
640,508
|
|
|
$
|
0.00
|
|
|
$
|
863,536
|
|
Cost of revenue
|
|
|
0.00
|
|
|
|
348,945
|
|
|
|
0.00
|
|
|
|
559,606
|
|
Gross profit
|
|
|
0.00
|
|
|
|
291,563
|
|
|
|
0.00
|
|
|
|
303,930
|
|
Operating expenses
|
|
|
0.00
|
|
|
|
261,145
|
|
|
|
0.00
|
|
|
|
499,074
|
|
Operating income (loss) from discontinued operations
|
|
|
0.00
|
|
|
|
30,418
|
|
|
|
0.00
|
|
|
|
(195,144
|
)
|
Interest expense
|
|
|
0.00
|
|
|
|
(8,258
|
)
|
|
|
0.00
|
|
|
|
(17,044
|
)
|
Other expense
|
|
|
0.00
|
|
|
|
---
|
|
|
|
0.00
|
|
|
|
(1,956
|
)
|
Income tax benefit
|
|
|
0.00
|
|
|
|
66,000
|
|
|
|
0.00
|
|
|
|
85,000
|
|
Net income (loss) from discontinued operations
|
|
|
0.00
|
|
|
|
88,160
|
|
|
|
0.00
|
|
|
|
(129,144
|
)
|
Basic net income (loss) per common share
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
Weighted average number of shares outstanding, basic
|
|
|
33,157,610
|
|
|
|
33,107,610
|
|
|
|
33,157,610
|
|
|
|
33,107,610
|
|
NOTE 6 –
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 such firm. During the six months ended June 30, 2016 and 2015, no services were provided to the Company
by Wachtel & Missry, LLP.
As described in Note 2, Liquidity, the Company is party to a
management agreement with Empire Aviation, an entity owned by the children of Alvin S. Trenk, the Company’s CEO and a member
of the Company’s Board of Directors.
NOTE 7 -
Litigation
From time to time, the Company and/or its subsidiaries 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.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)