SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,500,469
|
|
|
$
|
2,192,057
|
|
Accounts receivable
|
|
|
1,545,973
|
|
|
|
1,474,407
|
|
Inventories
|
|
|
117,813
|
|
|
|
113,105
|
|
Notes receivable – current portion
|
|
|
270,000
|
|
|
|
270,000
|
|
Prepaid expenses and other current assets
|
|
|
396,139
|
|
|
|
437,586
|
|
Total current assets
|
|
|
3,830,394
|
|
|
|
4,487,155
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND
EQUIPMENT,
net of accumulated depreciation and amortization of $2,750,113 and $2,622,066 respectively
|
|
|
949,850
|
|
|
|
1,074,397
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
86,502
|
|
|
|
97,251
|
|
Note Receivable
|
|
|
200,000
|
|
|
|
200,000
|
|
Intangible assets
|
|
|
35,000
|
|
|
|
35,000
|
|
Goodwill
|
|
|
750,000
|
|
|
|
750,000
|
|
Deferred income taxes
|
|
|
323,000
|
|
|
|
323,000
|
|
Total other assets
|
|
|
1,394,502
|
|
|
|
1,405,251
|
|
TOTAL ASSETS
|
|
$
|
6,174,746
|
|
|
$
|
6,966,803
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
379,180
|
|
|
$
|
842,411
|
|
Customer deposits
|
|
|
134,698
|
|
|
|
126,572
|
|
Accrued expenses
|
|
|
235,610
|
|
|
|
361,443
|
|
Notes payable – current portion
|
|
|
345,000
|
|
|
|
345,000
|
|
Total current liabilities
|
|
|
1,094,488
|
|
|
|
1,675,426
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Notes payable - less current portion
|
|
|
390,000
|
|
|
|
457,500
|
|
Total liabilities
|
|
|
1,484,488
|
|
|
|
2,132,926
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock - $.001 par value; authorized 9,999,154; none issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock - $.001 par value; authorized 100,000,000; 33,157,610
shares issued and outstanding as of March 31, 2017 and December 31, 2016
|
|
|
33,157
|
|
|
|
33,157
|
|
Additional paid-in capital
|
|
|
20,038,925
|
|
|
|
20,030,425
|
|
Accumulated deficit
|
|
|
(15,381,824
|
)
|
|
|
(15,229,705
|
)
|
TOTAL STOCKHOLDERS’ EQUITY
|
|
|
4,690,258
|
|
|
|
4,833,877
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
6,174,746
|
|
|
$
|
6,966,803
|
|
See notes to condensed consolidated financial statements.
|
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For the Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
2,041,261
|
|
|
$
|
2,967,080
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUE
|
|
|
1,201,866
|
|
|
|
1,265,390
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
839,395
|
|
|
|
1,701,690
|
|
|
|
|
|
|
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
888,761
|
|
|
|
1,328,612
|
|
|
|
|
|
|
|
|
|
|
OPERATING (LOSS) INCOME FROM OPERATIONS
|
|
|
(49,366
|
)
|
|
|
373,078
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSE:
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
(5,412
|
)
|
|
|
(7,212
|
)
|
|
|
|
|
|
|
|
|
|
(LOSS) INCOME FROM OPERATIONS, before income taxes
|
|
|
(54,778
|
)
|
|
|
365,866
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE
|
|
|
97,341
|
|
|
|
179,500
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
$
|
(152,119
|
)
|
|
$
|
186,366
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net (Loss) Income Per Common Share
|
|
$
|
(0.00
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Common Shares – Basic
|
|
|
33,157,610
|
|
|
|
33,157,610
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Common Shares – Diluted
|
|
|
34,684,661
|
|
|
|
33,295,579
|
|
See notes to condensed consolidated financial statements.
|
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(152,119
|
)
|
|
$
|
186,366
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
128,047
|
|
|
|
93,672
|
|
Stock based compensation
|
|
|
8,500
|
|
|
|
8,500
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, trade
|
|
|
(71,566
|
)
|
|
|
224,203
|
|
Inventories
|
|
|
(4,708
|
)
|
|
|
3,064
|
|
Prepaid expenses and other current assets
|
|
|
41,447
|
|
|
|
65,305
|
|
Deposits
|
|
|
18,875
|
|
|
|
13,340
|
|
Accounts payable
|
|
|
(463,231
|
)
|
|
|
74,370
|
|
Accrued expenses
|
|
|
(125,833
|
)
|
|
|
(250,233
|
)
|
TOTAL ADJUSTMENTS
|
|
|
(468,469
|
)
|
|
|
232,221
|
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
|
|
(620,588
|
)
|
|
|
418,587
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(3,500
|
)
|
|
|
(8,175
|
)
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(3,500
|
)
|
|
|
(8,175
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Repayment of notes payable
|
|
|
(67,500
|
)
|
|
|
(68,675
|
)
|
NET CASH USED IN FINANCING ACTIVITIES
|
|
|
(67,500
|
)
|
|
|
(68,675
|
)
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
|
(691,588
|
)
|
|
|
341,737
|
|
|
|
|
|
|
|
|
|
|
CASH
– Beginning
|
|
|
2,192,057
|
|
|
|
414,661
|
|
CASH
– Ending
|
|
$
|
1,500,469
|
|
|
$
|
756,398
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the periods for:
|
|
|
|
|
|
|
|
|
Income Taxes
|
|
|
129,093
|
|
|
|
365,894
|
|
Interest
|
|
$
|
5,412
|
|
|
$
|
7,212
|
|
See notes to condensed consolidated financial statements.
|
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
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, 2016.
The condensed consolidated balance sheet as of March 31, 2017 and
the condensed consolidated statements of operations and cash flows for the three months ended March 31, 2017 and 2016 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 March 31, 2017 and its results
of operations and cash flows for the three months ended March 31, 2017 not misleading. The results of operations for the three
months ended March 31, 2017 are not necessarily indicative of the results to be expected for any full year or any other interim
period.
The Company has evaluated events which have occurred subsequent
to March 31, 2017, and through the date of the filing of this Quarterly Report on Form 10-Q with the SEC, and has determined that
no subsequent events have occurred after the current reporting period.
NOTE 2 –
Liquidity
As of March 31, 2017, the Company had cash and cash equivalents
of $1,500,469 and a working capital surplus of $2,735,906. The Company generated revenue from operations of $2,041,261 and had
net loss from operations before taxes of $54,778 for the three months ended March 31, 2017. For the three months ended March 31,
2017, cash flows included net cash used by operating activities of $620,588, net cash used in investing activities of $3,500, and
net cash used in financing activities of $67,500.
On May 17, 2013, the Company entered into a loan agreement with
PNC Bank (the “PNC Loan Agreement”). The PNC Loan Agreement included a $2,500,000 non-revolving acquisition line of
credit (the “PNC Acquisition Line”).
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, 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 (3.693% as of March 31, 2017). As of March 31, 2017, there was $585,000 outstanding under the PNC Acquisition Line.
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 was set to expire on October 31, 2018. During the three months ended March 31,
2017 and 2016, the Company incurred approximately $305,000 and $478,000, respectively, in concession fees which are recorded in
the cost of revenue.
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 Company and the New York City Economic
Development Corporation (the “NYCEDC”) announced new measures to reduce helicopter noise and impacts across New York
City (the “Agreement”).
Under the Agreement, filed as an exhibit to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2015, the Company may not allow its tenant operators to conduct tourist
flights from the Downtown Manhattan Heliport on Sundays beginning April 1, 2016. We also were required to ensure the Company’s
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 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 CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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
the Company is required to pay to the City of New York under the Concession Agreement be reduced by 50%, effective January 1, 2017.
These reductions will 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, the Company’s Chief Executive Officer and a member of the Company’s
Board of Directors. The Company incurred management fees with Empire Aviation of approximately $195,000 and $710,000 during
the three months ended March 31, 2017 and 2016, respectively, which is recorded in administrative expenses. The Company and
Empire Aviation 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.
On October 3,2016, the Company purchased all of the capital stock
of Aircraft Services, Inc. (“Aircraft Services”), an aircraft maintenance services firm located in Garden City, Kansas.
Under the terms of the transaction, the Company made a $150,000 cash payment at closing and will make installment payments totaling
an additional $150,000 over the next two years. The closing cash payment for the transaction was funded with internal resources.
The Stock Purchase Agreement is discussed in greater detail in a Current Report on Form 8-K filed on October 7, 2016 and filed
as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended September 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”) and our FBO and MRO at Garden City (Kansas)
Regional Airport (“FBOGC”). All significant inter-company accounts and transactions have been eliminated in consolidation.
Net Income Per Common Share
Net (loss) income was $(152,119) and $186,366 for the three months
ended March 31, 2017 and 2016, 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.
The following table sets forth the components used in the computation
of basic net income per share:
|
|
For the Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016 (1)
|
|
Weighted average common shares outstanding, basic
|
|
|
33,157,610
|
|
|
|
33,157,610
|
|
Common shares upon exercise of options
|
|
|
1,527,051
|
|
|
|
137,969
|
|
Weighted average common shares outstanding, diluted
|
|
|
34,684,661
|
|
|
|
33,295,579
|
|
(1) Potential common shares of 1,900,000 were excluded from the
computation of diluted shares as their exercise prices were greater than the average closing price of the common stock during the
period.
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 three months ended March 31, 2017 and 2016, the Company incurred stock-based
compensation costs of $8,500. 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 March 31, 2017, the unamortized fair value
of the options totaled $17,000.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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 will be 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 has not had a material impact on the Company’s financial
statements.
NOTE 4 –
Inventories
Inventory consists primarily of aviation fuel, which the Company
dispenses to its customers, and parts inventory as a result of the acquisition of Aircraft Services. 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:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Parts inventory
|
|
$
|
73,366
|
|
|
$
|
71,906
|
|
Fuel inventory
|
|
|
28,331
|
|
|
|
20,821
|
|
Other inventory
|
|
|
16,116
|
|
|
|
20,378
|
|
Total inventory
|
|
$
|
117,813
|
|
|
$
|
113,105
|
|
Included in fuel inventory are amounts held for third parties of
$17,519 and $36,692 as of March 31, 2017 and December 31, 2016, respectively, with an offsetting liability included as part of
accrued expenses.
NOTE 5 –
Acquisition
Our wholly-owned subsidiary, FBO Air Garden City, Inc. (“GCK”),
entered into a Stock Purchase Agreement, dated October 3, 2016, by and between the Company, GCK and Gary and Kim Keller, (the “Stock
Purchase Agreement”), to purchase all of the capital stock of Aircraft Services, an aircraft maintenance services firm located
in Garden City, Kansas. Under the terms of the transaction, the Company made a $150,000 cash payment at closing and will make installment
payments totaling an additional $150,000 over the next two years. The closing cash payment for the transaction was funded with
internal resources. The Stock Purchase Agreement is discussed in greater detail in a Current Report on Form 8-K filed with the
SEC on October 7, 2016 and filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended September
30, 2016.
The following table details the allocation of the purchase price:
|
|
Fair Value
|
|
Inventory
|
|
$
|
71,650
|
|
Equipment
|
|
|
6,850
|
|
Fixed Assets
|
|
|
1,500
|
|
Goodwill
|
|
|
220,000
|
|
Total
|
|
$
|
300,000
|
|
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
The following table presents the unaudited Pro-forma results of
the continuing operations of the Company and Aircraft Services for the three months ended March 31, 2016 as if Aircraft Services
had been acquired at the beginning of the period:
|
|
March 31, 2016
|
|
Revenue
|
|
$
|
3,071,915
|
|
|
|
|
|
|
Net income
|
|
|
211,082
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.01
|
|
|
|
|
|
|
Weighted Average Number of Common Shares Outstanding- Basic
|
|
|
33,157,610
|
|
NOTE 6 –
Related Parties
From time to time, the law firm of Wachtel Missry, LLP provides
certain legal services to the Company and its subsidiaries. William B. Wachtel, Chairman of the Company’s Board of Directors,
is a managing partner of such firm. During the quarters ended March 31, 2017 and 2016, no services were provided to the Company
by Wachtel & Missry, LLP.
As described in more detail 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 Chief
Executive Officer and a member of the Company’s Board of Directors.
NOTE 7 –
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.
Item 2 - Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion
should be read together with the accompanying consolidated condensed financial statements and related notes in this report. This
Item 2 contains forward-looking statements that involve risks and uncertainties. Undue reliance should not be placed on these forward-looking
statements, which speak only as of the date of this report. Actual results may differ materially from those expressed or implied
in such forward-looking statements. Factors which could cause actual results to differ materially are discussed throughout this
report and include, but are not limited to, those set forth at the end of this Item 2 under the heading "Cautionary Statement
Regarding Forward Looking Statements." Additional factors are under the heading “Risk Factors” in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2016.
The terms “we,” “us,”
and “our” are used below to refer collectively to the Company and the subsidiaries through which our various businesses
are actually conducted.
OVERVIEW
Saker Aviation Services,
Inc. (“we”, “us”, “our”) is a Nevada corporation. Our common stock, $0.001 par value per share
(the “common stock”), is publicly traded on the OTCQB Marketplace (“OTCQB”) under the symbol “SKAS”.
Through our subsidiaries, we operate in the aviation services segment of the general aviation industry, in which we serve as the
operator of a heliport, a fixed base operation (“FBO”), as a provider of aircraft maintenance, repair and overhaul
(“MRO”) services, and as a consultant for a seaplane base that we do not own. FBOs provide ground-based services, such
as fueling and aircraft storage for general aviation, commercial and military aircraft, and other miscellaneous services.
We were formed on January
17, 2003 as a proprietorship and were incorporated in Arizona on January 2, 2004. We became a public company as a result of a reverse
merger transaction on August 20, 2004 with Shadows Bend Development, Inc., an inactive public Nevada corporation, and subsequently
changed our name to FBO Air, Inc. On December 12, 2006, we changed our name to FirstFlight, Inc. On September 2, 2009, we changed
our name to Saker Aviation Services, Inc.
Our business activities
are carried out as the operator of the Downtown Manhattan (New York) Heliport, as an FBO and MRO at the Garden City (Kansas) Regional
Airport, and as a consultant to the operator of a seaplane base in New York City.
The Garden City facility
became part of our company as a result of our acquisition of the FBO assets of Central Plains Aviation, Inc. (“CPA”)
in March 2005. Our Garden City facility began offering maintenance services in October 2016 as a result of our acquisition of Aircraft
Services, Inc. (“Aircraft Services”).
Our business activities
at the Downtown Manhattan (New York) Heliport facility (the “Heliport”) commenced as a result of the Company’s
award of the Concession Agreement by the City of New York to operate the Heliport, which we assigned to our subsidiary, FirstFlight
Heliports, LLC d/b/a Saker Aviation Services (“FFH”). See Note 2 to the condensed consolidated financial statements
included in Item 1. of this report.
The FBO segment of the
general aviation industry is highly fragmented. According to the National Air Transportation Association (“NATA”),
there are over 3,000 FBOs that serve customers at one or more of over 3,000 airport facilities across the country that have at
least one paved 3,000-foot runway. The vast majority of these entities are single location operators. NATA characterizes companies
with operations at three or more airports as “chains.” An operation with FBOs in at least two distinctive regions of
the country is considered a “national” chain while an operation with FBOs in multiple locations within a single region
is considered a “regional” chain.
REVENUE AND OPERATING RESULTS
Comparison of Continuing Operations from
the Three Months Ended March 31, 2017 and March 31, 2016.
REVENUE
Revenue from operations
decreased by 31.2 percent to $2,041,261 for the three months ended March 31, 2017 as compared with corresponding prior-year period
revenue of $2,967,080.
For the three months ended
March 31, 2017, revenue from operations associated with the sale of jet fuel, aviation gasoline and related items decreased by
17.9 percent to approximately $915,000 as compared to approximately $1,115,000 in the three months ended March 31, 2016. This decrease
is related to the final stage of the air tour reductions which took effect on January 1, 2017, as further described below in Liquidity
and Capital Resources.
For the three months ended
March 31, 2017, revenue from operations associated with services and supply items decreased by 41.1 percent to approximately $1,182,000
as compared to approximately $1,838,000 in the three months ended March 31, 2016. This decrease is related to the final stage of
the air tour reductions which took effect on January 1, 2017, as noted above.
For the three months ended
March 31, 2017, all other revenue from operations increased by 214.7 percent to approximately $44,000 as compared to approximately
$14,000 in the three months ended March 31, 2016. The increase was attributable to greater amounts of miscellaneous income in the
three months ended March 31, 2017 as compared to prior year.
GROSS PROFIT
Total gross profit from
operations decreased by 50.7 percent to $839,395 in the three months ended March 31, 2017 as compared with the three months ended
March 31, 2016. Gross margin decreased to 41.1 percent in the three months ended March 31, 2017 as compared to 57.4% percent in
the same period in the prior year. The decrease in gross profit is related to the final stage of the air tour reductions, as noted
above. The decrease in gross margin is related to lower levels of revenue from services and supplies, which generally carry a higher
overall gross margin, in the three months ended March 31, 2017 as compared to the same period in 2016.
OPERATING EXPENSE
Selling, General and Administrative
Total selling, general
and administrative expenses, or SG&A, from operations were $888,761 in the three months ended March 31, 2017, representing
a decrease of approximately $440,000 or 33.1 percent, as compared to the same period in 2016. The overall decrease in SG&A
was largely attributable to reduced costs related to the lower levels of activity in our Heliport operations.
SG&A from operations
associated with our aviation services operations were approximately $785,000 in the three months ended March 31, 2017, representing
a decrease of approximately $436,000, or 35.7 percent, as compared to the three months ended March 31, 2016. SG&A from operations
associated with our FBO operations, as a percentage of revenue, was 38.4 percent for the three months ended March 31, 2017, as
compared with 41.2 percent in the corresponding prior year period. The decreased operating expenses were largely attributable to
reduced costs related to the lower levels of activity in our Heliport operations.
Corporate SG&A from
operations was approximately $104,000 for the three months ended March 31, 2017, representing a decrease of approximately $3,000
as compared with the corresponding prior year period.
OPERATING (LOSS) INCOME
Operating loss from operations
for the three months ended March 31, 2017 was $49,366 as compared to operating income of $373,078 in the three months ended March
31, 2016. The decrease on a year-over-year basis was driven by lower levels of gross profit, which was partially offset by lower
SG&A expenses.
Depreciation and Amortization
Depreciation and amortization
was approximately $128,000 and $94,000 for the three months ended March 31, 2017 and 2016, respectively.
Interest Expense
Interest expense for the
three months ended March 31, 2017 was approximately $5,000 as compared to $7,000 in the same period in 2016.
Income Tax
Income tax expense for
the three months ended March 31, 2017 was $72,357 as compared to $179,500 during the same period in 2016.
Net (Loss) Income Per Share
Net (loss) income was $(152,119)
and $186,366 for the three months ended March 31, 2017 and 2016, respectively.
Basic and diluted net (loss)
income per share for the three month periods ended March 31, 2017 and 2016 was $(0.00) and $0.01, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2017, we
had cash and cash equivalents of $1,500,469 and a working capital surplus of $2,735,906. We generated revenue from operations of
$2,041,261 and had a net loss from operations before taxes of $54,778 for the three months ended March 31, 2017. For the three
months ended March 31, 2017, cash flows included net cash used by operating activities of $620,588, net cash used in investing
activities of $3,500, and net cash used in financing activities of $67,500.
On May 17, 2013, we entered
into a loan agreement with PNC Bank (the “PNC Loan Agreement”). The PNC Loan Agreement included a $2,500,000 non-revolving
acquisition line of credit (the “PNC Acquisition Line”).
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 (3.693% as of March 31, 2017). As of March 31, 2017, there was $585,000 outstanding under the PNC Acquisition
Line.
We are 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, we 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. We 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 was set to expire on October 31, 2018. During the three months ended March 31,
2017 and 2016, we incurred approximately $305,000 and $478,000, respectively, in concession fees which are recorded in the cost
of revenue.
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 Company and the New York City Economic Development Corporation (the “NYCEDC”) announced new measures to reduce
helicopter noise and impacts across New York City (the “Agreement”).
Under the Agreement, filed
as an exhibit to the our Annual Report on Form 10-K for the year ended December 31, 2015, we may not allow our tenant operators
to conduct tourist flights from the Downtown Manhattan Heliport on Sundays beginning April 1, 2016. We also were required to ensure
our 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, we
were 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 2015 levels, as well as information on any tour flight that flies
over land and/or strays from agreed upon routes.
The Agreement also extends
our 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 we are required to pay to the City of New York under the Concession Agreement be reduced by 50%, effective January
1, 2017.
These reductions will negatively
impact our business and financial results as well as those of our management company at the Heliport, Empire Aviation which, as
previously disclosed, is owned by the children of Alvin Trenk, our Chief Executive Officer and a member of our Board of Directors.
The Company incurred management fees with Empire Aviation of approximately $195,000 and $710,000 during the three months ended
March 31, 2017 and 2016, respectively, which is recorded in administrative expenses. The Company and Empire Aviation 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.
On October 3,2016, the
Company purchased all of the capital stock of Aircraft Services, Inc. (“Aircraft Services”), an aircraft maintenance
services firm located in Garden City, Kansas. Under the terms of the transaction, the Company made a $150,000 cash payment at closing
and will make installment payments totaling an additional $150,000 over the next two years. The closing cash payment for the transaction
was funded with internal resources. The Stock Purchase Agreement is discussed in greater detail in a Current Report on Form 8-K
filed on October 7, 2016 and filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended September
30,2016.
During the three months
ended March 31, 2017, we had a net decrease in cash of $691,588. Our sources and uses of funds during this period were as follows:
Cash from Operating Activities
For the three months ended
March 31, 2017, net cash used in operating activities was $620,588. This amount included a decrease in operating cash related to
net loss of $152,119 and additions for the following items: (i) depreciation and amortization, $128,047 ; (ii) stock based compensation,
$8,500 ; (iii) prepaid expenses and other current assets, $41,447; and (iv) deposits, $18,875. These increases in operating activities
were offset by the following decreases in (i) accounts receivable, trade, $71,566; (ii) inventories, $4,708; (iii) accounts payable,
$463,231; and (iv) accrued expenses, $125,833.
For the three months ended
March 31, 2016, net cash provided by operating activities was $418,587. This amount included an increase in operating cash related
to net income of $186,366 and additions for the following items: (i) depreciation and amortization, $93,672 ; (ii) stock based
compensation, $8,500 ; (iii) accounts receivable, trade, $224,203; (iv) inventories, $3,064; (v) deposits, $13,340; (vi) prepaid
expenses and other current assets, $65,305; and (vii) accounts payable, $74,370. These increases in operating activities were offset
by the following decrease in (i) accrued expenses, $250,233.
Cash from Investing Activities
For the three months ended
March 31, 2017, net cash of $3,500 was used in investing activities for the purchase of property and equipment. For the three months
ended March 31, 2016, net cash of $8,175 was used in investing activities for the purchase of property and equipment.
Cash from Financing Activities
For the three months ended
March 31, 2017, net cash used in financing activities was $67,500 for the repayment of notes payable. For the three months ended
March 31, 2016, net cash used in financing activities was $68,675 for the repayment of notes payable.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Recent 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 will be 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 has not had a material impact on the Company’s financial statements.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING
STATEMENTS
Statements contained in this report may contain information
that includes or is based upon "forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These
forward-looking statements represent management's current judgment and assumptions, and can be identified by the fact that they
do not relate strictly to historical or current facts. Forward-looking statements are frequently accompanied by the use of such
words as "anticipates," "plans," "believes," "expects," "projects," "intends,"
and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, including,
but not limited to, those relating to:
|
§
|
our ability to secure
the additional debt or equity financing, if required, to execute our business plan;
|
|
§
|
our ability to identify,
negotiate and complete the acquisition of targeted operators and/or other businesses, consistent with our business plan;
|
|
§
|
existing or new competitors
consolidating operators ahead of us;
|
|
§
|
our ability to attract
new personnel or retain existing personnel, which would adversely affect implementation of our overall business strategy.
|
Any one of these or other
risks, uncertainties, other factors, or any inaccurate assumptions made by the Company may cause actual results to be materially
different from those described herein or elsewhere by us. Undue reliance should not be replaced on any such forward-looking statements,
which speak only as of the date they were made. Certain of these risks, uncertainties, and other factors are described in greater
detail in our Annual Report on Form 10-K for the year ended December 31, 2015 and in other filings we make with the Securities
and Exchange Commission. Subsequent written and oral forward-looking statements attributable to us or to persons acting on our
behalf are expressly qualified in their entirety by the cautionary statements set forth above and elsewhere in our reports filed
with the Securities and Exchange Commission. We expressly disclaim any intent or obligation to update any forward-looking statements,
except as may be required by law.