NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
|
DESCRIPTION
OF ORGANIZATION AND BUSINESS OPERATIONS
|
Tempus
Applied Solutions Holdings, Inc. (“we”, the “Company” or “Tempus Holdings”) is a Delaware
corporation organized on December 19, 2014. Tempus provides turnkey flight operations, customized design, engineering and modification
solutions and training services that support critical aviation missions of the United States Department of Defense (the “DoD”),
the U.S. intelligence community, foreign governments, heads of state and high net worth individuals worldwide. The Company has
its headquarters in Williamsburg, Virginia. The Company’s activities are subject to significant risks and uncertainties,
including without limitation the risks of deadline and budget overruns and risks specific to government and international contracting
businesses.
The
Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern. The Company
has suffered recurring losses from operations since inception which raises substantial doubt about the Company’s ability
to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty
.
The
Company’s ability to continue as a going concern is dependent on its ability to generate profitable operations in the future
and/or obtain the necessary financing to meets its obligations and repay its liabilities arising from the normal business operations
when they come due. The Company continues to explore possibilities for raising both working capital and longer-term capital from
outside sources in various possible transactions. These plans, if successful, will mitigate the factors which raise substantial
doubt about the Company’s ability to continue as a going concern. Nevertheless, whether, and when, the Company can attain
positive operating cash flows for operations is highly dependent on the commencement of new contracts and the timing of their
commencement. There can be no assurance that the Company’s cash flows or costs of operations will develop as currently expected.
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Presentation
The
condensed consolidated unaudited interim financial statements included herein have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements and notes are presented
as permitted on Form 10-Q and do not contain information included in the Company’s annual statements and notes. Certain
information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested these
condensed consolidated financial statements be read in conjunction with the December 31, 2016 audited consolidated financial statements
and the accompanying notes thereto. The results of operations for the interim periods are not necessarily indicative of the results
to be expected for the full year.
These
condensed consolidated unaudited financial statements reflect all adjustments, including normal recurring adjustments which, in
the opinion of management, are necessary to present fairly the operations and cash flows for the periods presented.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”)
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of
accounts receivable, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets,
estimate of fair value of warrant liabilities, estimates of tax liabilities and estimates of the probability and potential magnitude
of contingent liabilities.
Making
estimates requires management to exercise significant judgement. It is at reasonably possible that the estimate of the effect
of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered
in formulating its estimate could change in the near-term due to one or more future non-conforming events. Accordingly, actual
results could differ significantly from estimates.
Property
and Equipment
Property
and equipment is stated at cost, less accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Depreciation
of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 3-5 years
of respective assets. Expenditures for maintenance and repairs are charged to expense as incurred.
Upon
sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and
any gain or loss is reflected in the statement of operations.
Intangibles
Intangibles
are stated at cost, less accumulated amortization. Intangibles consist of computer software, Federal Aviation Administration (the
“FAA”) licenses and independent research and development costs associated with the development of supplemental type
certificates (“STCs”).
STCs
are authorizations granted by the FAA for specific modifications of a certain aircraft. An STC authorizes us to perform modifications,
installations, and assemblies on applicable customer-owned aircraft. Costs incurred to obtain STC’s are capitalized and
subsequently amortized against revenue being generated from aircraft modifications associated with the STC. The costs are expensed
as services are rendered on each aircraft through cost of sales using the units of production method. The legal life of an STC
is indefinite. We believe we have enough future sales to fully amortize our STC development costs. As of June 30, 2017 and 2016
we have recognized no amortization of these costs.
On
October 1, 2015, the Company purchased Proflight Aviation Services, LLC, which provides flight training services under a Federal
Aviation Regulations (“FAR”) Part 141 certificate. The total purchase price of $50,000 was allocated to intangibles
and is considered to be indefinite-lived.
It
is the Company’s policy to commence amortization of computer software upon the date that assets are placed into service.
Amortization is computed on a straight-line basis over a 3-year life.
Sales
and Marketing
The
Company records costs for general advertising, promotion and marketing programs at the time those costs are incurred. Sales and
Marketing expense was $124,750 and $485,617 for the six months ended June 30, 2017 and 2016, respectively.
Long-Lived
Assets
The
Company reviews its long-lived assets and certain related intangibles for impairment whenever changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. As a result of its review, the Company does not believe that
any such change has occurred. If such changes in circumstance are present, a loss is recognized to the extent the carrying value
of the asset is in excess of the fair value of cash flows expected to result from the sale of the asset and amounts expected to
be realized upon its eventual disposition.
Fair
Value of Financial Instruments
The
Company complies with ASC Topics 820, “Fair Value Measurement”, and 815, “Derivatives and Hedging” for
its liabilities, which are re-measured and reported at fair value for each reporting period. The fair value of the Company’s
assets and liabilities, which qualify as financial instruments under ASC Topic 820, approximates the carrying amounts represented
in the accompanying consolidated balance sheets.
Revenue
Recognition
The
Company uses the percentage-of-completion method for accounting for long-term aircraft maintenance and modification fixed-price
contracts to recognize revenues and receivables for financial reporting purposes. Revenues from firm fixed price contracts
are measured by the percentage of costs incurred to date to estimated total costs for each contract. Revenues from time-and-material
line items are measured by direct labor hours or flight hours incurred during the period at the contracted hourly rates plus the
cost of materials, if applicable. To the extent this earned revenue is not invoiced, it is recognized as earnings in excess of
billings and is represented in other accounts receivable on the consolidated balance sheets.
Revenue
on leased aircraft and equipment representing rental fees and financing charges are recorded on a straight- line basis over the
term of the leases.
Currently,
the Company’s consolidated revenues consist principally of revenues earned under aircraft management contracts (which are
based on fixed expenses and fees plus variable expenses and fees tied to actual aircraft flight hours) and revenues earned from
the provision of leased aircraft (which are based on actual aircraft flight hours) and modification of aircraft that will be utilized
for the provision of leased aircraft services to our customers.
Accounts
Receivable
Trade
accounts receivable are recorded at the invoiced amount and do not bear interest.
The
Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical
trends and other relevant information. Management believes that its contract acceptance, billing and collection policies
are adequate to minimize the potential credit risk associated with accounts receivable. The Company had $29,302 and $37,369
allowance for doubtful accounts as of June 30, 2017 and December 31, 2016, respectively.
In
June 2016, the Company entered a factoring agreement to sell without recourse, certain U.S. government contract receivables to
an unrelated third-party financial institution. Under the current terms of the factoring agreement, the maximum amount of outstanding
advances at any one time is $1.0 million. The discount rate included in the agreement was subject to change based on the historical
performance of the receivables sold.
Approximately,
$2.0 million of receivables has been sold under the factoring agreement during fiscal year 2016 and the first and second
quarters of 2017. The sale of these receivables accelerated the collection of the Company’s cash and reduced credit
exposure during year. Sales of accounts receivable are reflected as a reduction of Accounts receivable trade, net in the
Consolidated Balance Sheets, and any costs incurred by the Company associated with the factoring activity is reflected in
Other Income / Expense in the Consolidated Statements of Operations, as they meet the applicable criteria of ASC 860,
“Transfers and Servicing” (“ASC 860”). The amount due from the factoring company, net of advances received
from the factoring company, was approximately $32,000 at June 30, 2017. The Company pays factoring fees associated with the
sale of receivables based on the dollar value of the receivables sold. Such fees are immaterial and are included in the Other
Income / Expense in the Consolidated Statement of Operations.
In the normal course of business, the Company
receives cash as security for certain contractual obligations, which are held on deposit until termination of the contract. Customer
deposits are returned to the customer at contract termination or taken into income if the customer fails to perform under the contract.
As of June 30, 2017 and December 31, 2016, the Company held $80,195 and $165,094, respectively, in customer deposits.
Stock
Based Compensation
The
Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based
upon fair value at the date of award using a fair value based option pricing model. The compensation expense is recognized on
a straight-line basis over the requisite service period
Foreign
Currency Translation
The
measurement currency of the company is the U.S. Dollar. Transactions in foreign currencies are translated at the exchange rate
in effect at the transaction date. Monetary assets and liabilities denominated in other than the measurement currency, if any,
are translated at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized
in earnings.
Net
Earnings (Loss) per Share
Basic
and diluted net loss per share information is presented under the requirements of ASC Topic 260, Earnings per Share. Basic net
loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period.
Diluted net loss per share reflects the potential dilution of securities by adding other common stock equivalents, including stock
options, warrants and convertible notes in the weighted-average number of common shares outstanding for a period, if dilutive.
As the Company has incurred losses for
the six months ended June 30, 2017 and 2016, the potentially dilutive shares are anti-dilutive and are thus not added into the
loss per share calculations. For the six months ended June 30, 2017 and 2016, there were 11,242,292 and 9,470,851 weighted average
shares outstanding, respectively.
Reclassification
Certain
prior period amounts have been reclassified to conform to the current period presentation in the accompanying consolidated financial
statements. These reclassifications had no material effect on the previously reported results of operations or accumulated deficit.
Correction
of an Error
The
Company determined that it had been accounting for a lease agreement and its purchase obligation related to an aircraft in error.
The Company should have accounted for its purchase obligation as a capital lease, thereby recording a capital lease aircraft asset
and a corresponding capital lease liability of approximately $6,000,000 as of the end of the quarter ended June 30, 2016. The
error was not material to the unaudited consolidated financial statements for the six months period ended June 30, 2016 since
the correction of the error increased assets and liabilities by the same amount.
4.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
Recent
Accounting Pronouncements
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under the update, revenue will be recognized
based on a five-step model. The core principle of the model is that revenue will be recognized when the transfer of promised goods
or services to customers is made in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. In the third quarter of 2015, the FASB deferred the effective date of the standard to annual and
interim periods beginning after December 15, 2017. Early adoption will be permitted for annual and interim periods beginning after
December 15, 2016. The Company is currently evaluating the impact that adopting this ASU will have on its financial position,
results of operations and cash flows.
In
August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This ASU is intended to define
management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue
as a going concern and to provide related footnote disclosures, and provides guidance to an organization’s management, with
principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided
by organizations today in the financial statement footnotes. Until the issuance of this ASU, U.S. GAAP lacked guidance about management’s
responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern
or to provide related footnote disclosures. The amendments are effective for annual periods ending after December 15, 2016 and
interim periods within annual periods beginning after December 15, 2016, with early adoption permitted. The Company has concluded
that there is substantial doubt about its ability to continue as a going concern and has presented the required disclosures of
this ASU in Note 2.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires the lessee to recognize assets and liabilities
for leases with lease terms of more than twelve months. For leases with a term of twelve months or less, the Company is permitted
to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Further,
the lease requires a finance lease to recognize both an interest expense and an amortization of the associated expense. Operating
leases generally recognize the associated expense on a straight-line basis. ASU 2016-02 requires the Company to adopt the standard
using a modified retrospective approach and adoption beginning on January 1, 2019. The Company is currently evaluating the impact
that ASU 2016-02 will have on its financial position, results of operations and cash flows.
In
March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). The update amends the guidelines for share-based
payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification
on the statement of cash flows. The standard is effective for annual and interim periods beginning January 1, 2017, and early
adoption is permitted. The Company adopted 2016-09 effective January 1, 2017. The adoption of this standard did not have a material
impact on the results of operations.
With
the exception of the new standards discussed above, there have been no recent accounting pronouncements or changes in accounting
pronouncements during the six months ended June 30, 2017, as compared to the recent accounting pronouncements described in our
Annual report on Form 10-K for the year ended December 31, 2016, that are of significance or potential significance to us.
The Company did not record a tax provision
or benefit for the period ended June 30, 2017, which is attributed primarily to the full valuation allowance that has been maintained
against the Company’s net deferred tax assets as of June 30, 2017. The Company’s deferred tax assets consist principally
of net operating losses, intangibles, and nondeductible reserves. The Company has not evaluated whether some or all of its net
operating losses may be limited pursuant to IRC 382.
In accordance with ASC 740, “Accounting
for Income Taxes”, the Company continually assesses the adequacy of the valuation allowance by assessing the tax consequences
of events that have been realized in the Company’s financial statements or tax returns, tax planning strategies, and future
profitability. As of June 30, 2017, the Company does not believe it is more likely than not that the deferred tax assets will be
realized.
Preferred
Stock
As
of June 30, 2017, we had 40,000,000 shares authorized and no shares of preferred stock outstanding. There is a total of 2,200,000
Series A Warrants outstanding that are convertible into common stock or preferred stock.
The
rights and obligations of the holders of the preferred stock are set forth in the certificate of designations relating thereto.
Holders
of preferred stock have no voting rights with respect to their preferred stock, except as required by law.
Shares
of preferred stock rank pari passu to the shares of common stock in respect of preferences as to dividends, distributions and
payments upon our liquidation, dissolution and winding up, except that in a liquidation event, the holders of preferred stock
shall be entitled to receive in cash out of our assets an amount per share of preferred stock equal to the greater of $4.00 (plus
any unpaid dividends and accrued charges, as equitably adjusted for stock splits, recapitalizations and similar transactions)
and the amount per share such holder would receive if such holder converted such preferred stock into common stock immediately
prior to the date of such payment (without regard to any limitations on conversion), provided that if the liquidation funds are
insufficient to pay the full amount due to the holders, then each holder shall receive a percentage of the liquidation funds equal
to the full amount of liquidation funds payable to such holder, as a percentage of the full amount of liquidation funds payable
to all holders (on an as-converted basis, without regard to any limitations on conversion set forth herein) and all holders of
common stock.
During
the six months ended June 30, 2017, 4,578,070 shares of preferred stock were converted for 4,578,070 shares of common stock.
Common
Stock
As
of June 30, 2017, we had 100,000,000 shares of common stock authorized and 16,630,234 shares of common stock issued and outstanding.
Further, as of June 30, 2017, the company has 7,875,000 IPO and Placement Warrants outstanding exercisable into 7,875,000 shares
of common stock that were issued in exchange for former Chart warrants, and 2,200,000 Series A Warrants and outstanding that are
convertible into common stock or preferred stock.
Holders
of common stock have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions
applicable to the common stock. Holders of common stock are entitled to receive such dividends, if any, as may be declared from
time to time by the board of directors in its discretion out of funds legally available therefor.
Common
stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted
for the election of directors can elect all of the directors up for election at such time.
During
the six months ended June 30, 2017 the company issued 4,578,070 shares of common stock for conversion of 4,578,070 shares of preferred
stock.
During
the six months ended June 30, 2017 the company issued 987,500 shares of common stock for conversion of 987,500 Series A warrants
at a conversion price of $0.08 per share.
The
Company maintains a stock option plan under which the Company may grant incentive stock options and non-qualified stock options
to employees and non-employee directors. Stock options have been granted with exercise prices at or above the fair market value
of the underlying shares of common stock on the date of grant. Options vest and expire according to terms established at the grant
date.
The
Company records compensation expense for the fair value of stock-based awards determined as of the grant date, including employee
stock options. For the six months ended June 30, 2017 and 2016 there were -0- and 499,000 stock options granted, under the Company’s
option plan, respectively. The Company recognized $29,573 and $117,118 in stock-based compensation expense for the six months
ended June 30, 2017 and 2016, respectively. Stock options to purchase 126,000 and 322,000 shares of common stock were outstanding
as of June 30, 2017 and December 31, 2016, respectively.
The
Company uses the Black-Scholes option-pricing model to value the options. The life of the option is equivalent to the expiration
of the option award. The risk-free interest rate is assumed at 1.77%. The estimated volatility is based on management’s
expectations of future volatility and is assumed at 60%. Estimated dividend payout is zero, as the Company has not paid dividends
in the past and, at this time, does not expect to do so in the future.
|
|
Shares
|
|
|
Weighted Average Exercise Price Per Option
|
|
Options outstanding, December 31, 2016
|
|
|
322,000
|
|
|
$
|
2.05
|
|
Granted to employees and non-employee directors
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Canceled/expired/forfeited
|
|
|
196,000
|
|
|
|
-
|
|
Options outstanding, June 30, 2017
|
|
|
126,000
|
|
|
|
2.05
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, June 30, 2017
|
|
|
-
|
|
|
$
|
-
|
|
Compensation
cost is recognized over the required service period which is three years for all granted options. As of June 30, 2017, $88,719
of total unrecognized compensation cost related to stock options was expected to be recognized over the remaining 6 quarters.
As of June 30, 2016, $585,591 of total unrecognized compensation cost related to stock options was expected to be recognized over
the remaining 10 quarters.
On
April 28, 2017, the Company entered into a Note Purchase Agreement with Santiago Business Co. International Ltd, (“
Santiago
”),
regarding its 10% Senior Secured Convertible Note due April 28, 2018, in an aggregate principal amount of $6,200,000 (the “
Note
”)
and Santiago transferred to the Company certain shares of capital stock of a subsidiary of Santiago, Bluebell Business Limited,
a company limited by shares organized and existing under the laws of the British Virgin Islands (“
Bluebell
”).
Interest payments on the Note are due quarterly until repayment of the principal amount, which is due April 28, 2018. The Note
is convertible by the holder into 77,500,000 shares of common stock of the Company (conversion price of $0.08 per share).
If
the Note is fully converted by the holder, the holder would receive shares representing 82.3% of the Company’s share capital
outstanding as of June 30, 2017 (taking into account the shares issued upon conversion of the Note).
9.
|
FAIR
VALUE MEASUREMENTS
|
The
Company complies with ASC Topics 820, “Fair Value Measurement”, and 815, “Derivatives and Hedging” for
its liabilities, which are re-measured and reported at fair value for each reporting period.
The
following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis
as of December 31, 2016, and June 30, 2017, and indicates the fair value hierarchy of the valuation techniques the Company has
used to determine such fair value. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active
markets for identical assets or liabilities. Fair values determined by Level 2 inputs use data points that are observable, such
as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs use unobservable data points for the
asset or liability, and include situations where there is little, if any, market activity for the asset or liability:
|
|
December 31,
|
|
|
Quoted Prices
In Active
Markets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Other
Unobservable
Inputs
|
|
Description
|
|
2016
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
IPO and Placement Warrant Liability
|
|
$
|
78,750
|
|
|
$
|
78,750
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Series A Warrant Liability
|
|
|
23,435
|
|
|
|
-
|
|
|
|
23,435
|
|
|
|
-
|
|
Total Warrant Liability
|
|
$
|
102,185
|
|
|
$
|
78,750
|
|
|
$
|
23,435
|
|
|
$
|
-
|
|
|
|
June 30,
|
|
|
Quoted
Prices
In Active
Markets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Other
Unobservable
Inputs
|
|
Description
|
|
2017
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
IPO and Placement Warrant Liability
|
|
$
|
93,913
|
|
|
$
|
93,913
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Series A Warrant Liability
|
|
|
630,000
|
|
|
|
-
|
|
|
|
630,000
|
|
|
|
-
|
|
Total Warrant Liability
|
|
$
|
723,913
|
|
|
$
|
93,913
|
|
|
$
|
630,000
|
|
|
$
|
-
|
|
The
fair values of the Company’s warrant liabilities are determined through market, observable and corroborated sources. The
approach is described below:
IPO
and Placement Warrants – The value of the IPO and Placement Warrants was calculated based upon the quoted price of the warrants
that trade on the OTC markets under the ticker symbol TMPSW, which was $0.01 as of that date.
Series
A Warrants – The value of these warrants was calculated using a Black-Scholes option pricing model based on the value of
the common stock, the assumed volatility of such shares and the risk free rate at the of time of valuation.
Observable
inputs used in the calculation of the valuations include the implied valuation of the Company’s securities based on prior
sales, specifically the Financing associated with the Business Combination. Other inputs include a risk-free rate as of the valuation
date and implied volatility derived from comparable publicly traded companies, as well as the quoted price of Tempus’ common
shares and the quoted price of Tempus’ IPO and Placement Warrants.
10.
|
PROPERTY
AND EQUIPMENT, NET
|
Property
and equipment, net consists of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Office equipment
|
|
$
|
115,462
|
|
|
$
|
167,088
|
|
Furniture and fixtures
|
|
|
456
|
|
|
|
456
|
|
Aircraft
|
|
|
6,015,505
|
|
|
|
6,015,505
|
|
Total
|
|
|
6,131,423
|
|
|
|
6,183,049
|
|
Accumulated depreciation
|
|
|
(342,390
|
)
|
|
|
(249,109
|
)
|
Property and equipment, net
|
|
$
|
5,789,033
|
|
|
$
|
5,933,940
|
|
Intangibles,
net consists of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Infinite-lived intangible assets:
|
|
|
|
|
|
|
FAA license
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
STC costs
|
|
|
455,901
|
|
|
|
455,901
|
|
Accumulated amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
|
455,901
|
|
|
|
455,901
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
85,275
|
|
|
|
85,275
|
|
Accumulated amortization
|
|
|
(49,211
|
)
|
|
|
(36,337
|
)
|
|
|
|
36,064
|
|
|
|
48,938
|
|
Total intangible assets, net
|
|
$
|
541,965
|
|
|
$
|
554,839
|
|
FAA
licenses include the $50,000 purchase price for Proflight Aviation Services, LLC, which provides flight training services under
a FAR Part 141 certificate.
STC
costs relate to our efforts to gain approval from the FAA for modifications to Gulfstream III, IV and V business jets to upgrade
them for Future Air Navigation System (“FANS”) and Automatic Dependent Surveillance Broadcast (“ADS-B”)
capabilities. Regulatory mandates in the U.S and abroad will require FANS / ADS-B compliance on certain preferred air routes on
a rolling basis over the next four years. Tempus was awarded this STC in the fourth quarter of 2016.
12.
|
RELATED
PARTY TRANSACTIONS
|
Jackson River Aviation (“JRA”) is under common control with the Company.” JRA
(through its subsidiary, TJI) provides FAR Part 135 aircraft charter services to the Company. Total purchases by the Company from
JRA for the six months ended June 30, 2017 and 2016 were $2,117,808 and $162,576, respectively. Billings by the Company to JRA
for the six months ended June 30, 2017 and 2016 were $461,250 and $53,302, respectively. As of June 30, 2017, the Company had
a net outstanding payable to JRA of $333,143. As of December 31, 2016, the Company had a net outstanding receivable from JRA of
$38,962.
The
majority of Tempus Intermediate Holdings, LLC (“TIH”) is owned by Firefly Financials, Ltd, which is under common control
with the Company. The Manager of TIH is our CFO, Johan Aksel Bergendorff. TIH owns certain aircraft used by Tempus to provide
services to certain customers. Total purchases by the Company from TIH for the six months ended June 30, 2017 and 2016 were $1,278,422
and 947,011, respectively. Total billings from the Company to TIH for the six months ended June 30, 2017 and 2016 were $46,146
and 118,294, respectively. The net outstanding payable from Tempus to TIH at June 30, 2017 and December 2016 was $1,518,213 and
1,284,886, respectively.
Southwind
Capital, LLC (“Southwind”) is controlled by R. Lee Priest, Jr., the Company’s Executive Vice President. Southwind
owned certain aircraft used by Tempus to provide services to certain customers. Total purchases by the Company from Southwind
for the six months ended June 30, 2017 and 2016 were $0 and $98,226, respectively. The net outstanding payable from Tempus to
Southwind at June 30, 2017 and December 31, 2016 was $142,496.
All
related party transactions are entered into and performed under commercial terms consistent with what might be expected from a
third- party service provider.
See also ITEM 5. OTHER INFORMATION - 10%
Senior Secured Convertible Note due April 28, 2018.
13.
|
DISCONTINUED
OPERATIONS
|
On
March 1, 2017, the Company entered into a Stock Purchase Agreement (the “Agreement”), to be effective January 1, 2017,
for the sale of Tempus Jets, Inc. The following table shows the components of assets and liabilities that are classified as discontinued
operations in the Company’s consolidated balance sheet as per June 30, 2017 and December 31, 2016:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Current assets of discontinued operations
|
|
$
|
5,220
|
|
|
$
|
65
|
|
Noncurrent assets of discontinued operations
|
|
$
|
0
|
|
|
$
|
501,711
|
|
Current liabilities of discontinued operations
|
|
$
|
2,796
|
|
|
$
|
569,937
|
|
Net assets of discontinued operations
|
|
$
|
2,424
|
|
|
$
|
(68,161
|
)
|
Summarized
operating results related to these entities are included in discontinued operations in the accompanying consolidated statements
of operations and comprehensive loss for the three and six month ended June 30, 2017 and 2016.
|
|
Six months ended
|
|
|
Three months ended
|
|
|
|
June 30
|
|
|
June 30, 2016
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
|
|
|
|
$
|
588,731
|
|
|
|
|
|
|
$
|
511,808
|
|
Gross profit
|
|
|
|
|
|
|
(680,896
|
)
|
|
|
|
|
|
|
(593,284
|
)
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
(150,748
|
)
|
|
|
|
|
|
|
(146,346
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
(702
|
)
|
|
|
|
|
|
|
(702
|
)
|
Net loss from discontinued operations
|
|
|
-
|
|
|
$
|
(832,346
|
)
|
|
|
-
|
|
|
$
|
(740,332
|
)
|
The
company has evaluated subsequent events from June 30, 2017 and August 21, 2017, the date this report was available to be issued
and determined to disclose the following:
|
i.
|
A number of the Company’s Series A Warrants were exercised resulting
in the issuance of 812,500 new common shares.
|
|
|
|
|
ii.
|
As of August 14, 2017, the Company entered a definitive purchase agreement
for the acquisition of six Lockheed L-1011, subject only to satisfactory completion of inspection of the aircraft. As payment for
the aircraft, the Company expects to issue approximately 6.7 million shares to the seller during the third quarter of 2017.
|