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, 2018.
The condensed consolidated balance sheet as of June 30, 2019 and the condensed consolidated statements of operations and cash flows for the three and six months ended June 30, 2019 and 2018 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, 2019 and its results of operations and cash flows for the three and six months ended June 30, 2019 not misleading. The results of operations for the three and six months ended June 30, 2019 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 June 30, 2019, and through the date of the filing of this Quarterly Report on Form 10-Q with the Securities and Exchange Commission (“SEC”), and has determined that no subsequent events have occurred after the current reporting period.
NOTE 2 –
Liquidity and Material Agreements
As of June 30, 2019, we had cash of $3,041,897 and a working capital surplus of $4,023,571. We generated revenue of $5,235,369 and net income of $278,525 for the six months ended June 30, 2019.
As disclosed in a Current Report on Form 8-K filed on March 21, 2018 with the SEC, on March 15, 2018 the Company entered into a loan agreement (the “Loan Agreement”) with Key Bank National Association (the “Bank”). The Loan Agreement contains three components: (i) a $2,500,000 acquisition line of credit (the “Key Bank Acquisition Note”); (ii) a $1,000,000 revolving line of credit (the “Key Bank Revolver Note”); and (iii) a $338,481 term loan (the “Key Bank Term Note”).
Proceeds of the Key Bank Acquisition Note were to be dispersed pursuant to a multiple draw demand note dated as of the agreement date, where the Company could, at the discretion of the Bank, borrow up to an aggregate amount of $2,500,000, to be used for the Company’s acquisition of one or more business entities. The Company was required to make consecutive monthly payments of interest, calculated at a rate per annum equal to one-day LIBOR (adjusted daily) plus 2.75%, on any outstanding principal under the Key Bank Acquisition Note from the date of its issuance through September 15, 2018 (the “Conversion Date”).
At any time through and including the Conversion Date, at the Bank’s discretion, the Company had the opportunity to request that any loan made under the Key Bank Acquisition Note be converted into a term loan to be repaid in full, including accrued interest, by consecutive monthly payments over a 48 month amortization period beginning after the Conversion Date. For any loan that was not converted into a term loan on or before the Conversion Date, the Company would have been required to begin making monthly payments of principal and interest after the Conversion Date, over a 48 month amortization period, after which the remaining unpaid principal and accrued interest would become due and payable. All loans under the Key Bank Acquisition Note would, after the Conversion Date, accrue interest at a rate per annum equal to the Bank’s four year cost of funds rate plus 2.5%. As of the Conversion Date, there were no amounts due under the Key Bank Acquisition Note and no amounts had been converted to a term loan.
On October 11, 2018, the Company entered into a new loan agreement with the Bank (the “Change of Terms Agreement”) which modified the original terms of the Key Bank Acquisition Note. Under the Change of Terms Agreement, the Company may continue to, at the discretion of the Bank, borrow up to an aggregate amount of $2,500,000 through September 1, 2019 (the “Maturity Date”), to be used for the Company’s acquisition of one or more business entities. The Change of Terms Agreement requires the Company to make consecutive monthly payments of interest on any outstanding principal calculated at a rate per annum equal to 4.25%. The entire principal balance, plus all accrued interest, is due in full on the Maturity Date. As of June 30, 2019, there are no amounts due under the Change of Terms Agreement.
Proceeds from the Key Bank Revolver Note, at the discretion of the Bank, provide for the Company to borrow up to $1,000,000 for working capital and general corporate purposes. This revolving line of credit is a demand note with no stated maturity date. Borrowings under the Key Bank Revolver Note will bear interest at a rate per annum equal to one-day LIBOR (adjusted daily) plus 2.75%. The Company is required to make monthly payments of interest on any outstanding principal under the Key Bank Revolver Note and are required to pay the entire balance, including principal and all accrued and unpaid interest and fees, upon demand by the Bank. As of June 30, 2019, there were no amounts due under the Key Bank Revolver Note.
SAKER AVIATION SERVICES
, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Proceeds from the Key Bank Term Note were utilized to retire amounts previously outstanding under a $280,920 term loan from PNC Bank. As of June 30, 2019, all amounts outstanding under the Key Bank Term Note 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 any program year based on cash collected (“Gross Receipts”) and 25% of Gross Receipts in excess of $5,000,000, or minimum annual guaranteed payments. During the six months ended June 30, 2019 and 2018, we incurred approximately $760,000 and $903,000 in concession fees, respectively, which are recorded in the cost of revenue.
As disclosed in a Current Report on Form 8-K filed with the SEC on February 5, 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 “Air Tour Agreement”).
Under the Air Tour Agreement, filed as an exhibit to our 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. The Company was also required to ensure that 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 was 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 Air Tour Agreement also extended the Concession Agreement 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 Air Tour 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 have negatively impacted the Company’s business and financial results as well as those of its management company at the Heliport, Empire Aviation which, as previously disclosed, is owned by the children of Alvin Trenk, the Company’s former Chief Executive Officer and a former member of its Board of Directors. The Company incurred management fees with Empire Aviation of approximately $910,000 and
$
628,000 during the six months ended June 30, 2019 and 2018, 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. One of our Directors, Sam Goldstein, serves as deputy director of HJTC.
On April 20, 2018, the Company’s Kansas subsidiary entered into a purchase lease with Commerce Bank for a refueling truck (the “Truck Lease”). The Truck Lease commenced on May 1, 2018 and continues for 60 months at an interest rate of LIBOR plus 416 basis points. At the end of the Truck Lease, the Company’s subsidiary may purchase the vehicle for $1.00.
On January 15, 2019, the Company was issued a note by one of its customers at the Heliport. The note schedules payments of approximately $276,000 in receivables payable by such customer, has a maturity date of October 31, 2019, as amended, and carries a 7.5% rate of interest. The note payments were to be made in six monthly installments beginning May 31, 2019. The customer’s payments on the note have not met the installment plan. It is management’s anticipation that the note will be fulfilled.
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, pursuant to which Mr. Peck purchased all of the capital stock of the Company’s wholly-owned subsidiary, Phoenix Rising Aviation, Inc. The details of the agreement are described in such Current Report as well as in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the SEC on April 11, 2016. The Company received $100,000 due under this agreement in September 2017 and an additional payment of $100,000 in September 2018. The Company accepted as down payment for the stock purchase the title to a Falcon 10 aircraft owned by Mr. Peck. The aircraft was subsequently sold but that sale did not close. The Company repossessed the aircraft and is in the process of re-marketing the sale. $270,000 of the Notes Receivable on the balance sheet is attributable to this transaction and the Company expects will be recouped through the sale.
SAKER AVIATION SERVICES
, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 -
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, and its fixed base operation and aircraft maintenance and repair services at Garden City (Kansas) Regional Airport. All significant inter-company accounts and transactions have been eliminated in consolidation.
Net
Income
(Loss)
Per Common Share
Net income (loss) was $278,525 and $(13,912) for the six months ended June 30, 2019 and 2018, respectively. Basic net income (loss) 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 (loss) 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 (loss) 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 (loss) per share:
|
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Weighted average common shares outstanding, basic
|
|
|
1,007,293
|
|
|
|
1,043,153
|
|
|
|
1,007,293
|
|
|
|
1,086,497
|
|
|
Common shares upon exercise of options and warrants
|
|
|
10,167
|
|
|
|
11,862
|
|
|
|
10,167
|
|
|
|
11,862
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
1,017,460
|
|
|
|
1,055,015
|
|
|
|
1,017,460
|
|
|
|
1,098,359
|
|
Stock Based Compensation
Stock-based compensation expense for all stock-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 each of the six months ended June 30, 2019 and 2018, 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, 2019, the unamortized fair value of the options totaled $17,000.
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 February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which requires an entity to recognize assets and liabilities on the balance sheet for the rights and obligations created by leased assets and provide additional disclosures. ASU 2016-02 became effective for us on January 1, 2019 and we have adopted the new standard using a modified retrospective approach.
SAKER AVIATION SERVICES
, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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, Inc. 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:
|
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Parts inventory
|
|
$
|
86,358
|
|
|
$
|
82,384
|
|
|
Fuel inventory
|
|
|
95,121
|
|
|
|
76,761
|
|
|
Other inventory
|
|
|
12,219
|
|
|
|
11,720
|
|
|
Total inventory
|
|
$
|
193,698
|
|
|
$
|
170,865
|
|
Included in fuel inventory are amounts held for third parties of $54,375 and $37,675 as of June 30, 2019 and December 31, 2018, respectively, with an offsetting liability included as part of accrued expenses.
NOTE 5 –
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 six months ended June 30, 2019, no services were provided to the Company by Wachtel & Missry, LLP.
As described in more detail in Note 2, Liquidity and Material Agreements, the Company is party to a management agreement with Empire Aviation, an entity owned by the children of Alvin S. Trenk, the Company’s former Chief Executive Officer and a former member of our Company’s Board of Directors.
NOTE 6 –
Litigation
From time to time, we may be a party to one or more claims or disputes which may result in litigation. However, we are currently not a party to, nor is our property subject to, any material pending legal proceedings.
NOTE 7 -
Stockholders’ Equity
On February 27, 2019, the Company filed with the Secretary of State of the state of Nevada a certificate of amendment to its articles of incorporation. The amendment provided for a reverse stock split (the “Reverse Stock Split”) of the Company’s outstanding shares of common stock at a ratio of 1-for-30. This amendment further provided for a reduction in the number of authorized shares of Common Stock to 3,333,334, as well as for a reduction in the number of authorized shares of preferred stock to 333,306. The amendment had an effective date and time of 12:01 a.m. Eastern Time on March 1, 2019 for stockholders of record on February 27, 2019. Accordingly, the Company presents historical share data in the condensed consolidated financial statements after giving effect to the Reverse Stock Split.
Item 2 -
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read together with the accompanying unaudited 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, 2018.
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”, or “our”) is a Nevada corporation. Our common stock, $0.03 par value per share (the “common stock”), is quoted 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”), a provider of aircraft maintenance and repair services (“MRO”), 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, and as an FBO and MRO at the Garden City (Kansas) Regional Airport.
The Garden City facility became part of our company as a result of our acquisition of the FBO assets of Central Plains Aviation, Inc. in March 2005 and of Aircraft Services, Inc. in October 2016.
Our business activities at the Downtown Manhattan (New York) Heliport facility (the “Heliport”) commenced in November 2008 when we were awarded 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.
REVENUE AND OPERATING RESULTS
Comparison of
Continuing Operations from
the
Three
and Six
Months
Ended
June 30
, 201
9
and
June 30
, 201
8
.
REVENUE
Operating results for the three and six months ended June 30, 2019 increased on a year-over-year basis largely due to the diminished impact of a fatal helicopter accident independent of our operations that occurred on March 11, 2018, as previously reported.
Total revenue increased by 9.9 percent to $3,162,597 for the three months ended June 30, 2019 as compared with corresponding prior-year period revenue of $2,877,419.
For the three months ended June 30, 2019, revenue from operations associated with the sale of jet fuel, aviation gasoline and related items increased by 17.1 percent to approximately $1,278,000 as compared to approximately $1,091,000 in the three months ended June 30, 2018.
For the three months ended June 30, 2019, revenue from operations associated with services and supply items increased by 6.2 percent to approximately $1,853,000 as compared to approximately $1,744,000 in the three months ended June 30, 2018.
For the three months ended June 30, 2019 all other revenue from operations decreased by 24.1 percent to approximately $32,000 as compared to approximately $42,000 in the three months ended June 30, 2019. The decrease was largely attributable to a decrease in non-aeronautical revenue generated by our Heliport compared to the same period last year.
Total revenue increased by 5.6 percent to $5,235,369 for the six months ended June 30, 2019 as compared with corresponding prior-year period revenue of $4,955,908.
For the six months ended June 30, 2019, revenue from operations associated with the sale of jet fuel, aviation gasoline and related items increased by 11.2 percent to approximately $2,109,000 as compared to approximately $1,897,000 in the six months ended June 30, 2018.
For the six months ended June 30, 2019, revenue from operations associated with services and supply items increased by 1.0 percent to approximately $3,011,000 as compared to approximately $2,981,000 in the six months ended June 30, 2018.
For the six months ended June 30, 2019, all other revenue from operations increased by 47.6 percent to approximately $115,000 as compared to approximately $78,000 in the six months ended June 30, 2018. The increase was largely attributable to an increase in non-aeronautical revenue generated by our Heliport in the first quarter of 2019 as compared to last year.
GROSS PROFIT
Total gross profit from operations increased by 16.8 percent to $1,627,047 in the three months ended June 30, 2019 as compared with the three months ended June 30, 2018. Gross margin increased to 51.4 percent in the three months ended June 30, 2019 as compared to 48.4 percent in the same period in the prior year.
Total gross profit from operations increased by 22.0 percent to $2,516,582 in the six months ended June 30, 2019 as compared with the six months ended June 30, 2018. Gross margin increased to 48.1 percent in the six months ended June 30, 2019 as compared to 41.6 percent in the same period in the prior year.
OPERATING EXPENSE
Selling, General and Administrative
Total selling, general and administrative expenses, (“SG&A”), were $1,284,490 in the three months ended June 30, 2019, representing an increase of approximately $92,000 or 7.7 percent, as compared to the same period in 2018. Total SG&A expenses were $2,116,446 in the six months ended June 30, 2019, an increase of $19,966 or 1.0 percent, as compared to the same period in 2018. The increased operating expenses relating to our aviation services operations were largely attributable to increased costs related to the higher levels of activity in our Heliport operations.
SG&A expenses associated with our aviation services operations were approximately $1,137,000 in the three months ended June 30, 2019, representing an increase of approximately $44,000, or 4.0 percent, as compared to the three months ended June 30, 2018. SG&A expense, as a percentage of revenue, was 35.9 percent for the three months ended June 30, 2019, as compared with 38.0 percent in the corresponding prior year period.
SG&A expenses associated with our aviation services operations were approximately $1,843,000 in the six months ended June 30, 2019, representing an increase of approximately $14,000 or 0.8 percent, as compared to the six months ended June 30, 2018. SG&A expense, as a percentage of revenue, was 35.2 percent for the six months ended June 30, 2019, as compared with 36.9 percent in the corresponding prior year period.
Corporate SG&A was approximately $148,000 for the three months ended June 30, 2019, representing an increase of approximately $48,000 as compared with the corresponding prior year period. Corporate SG&A was approximately $273,000 for the six months ended June 30, 2019, representing an increase of approximately $6,000 as compared with the corresponding prior year period.
OPERATING
INCOME (
LOSS
)
Operating income from operations for the three months and six months ended June 30, 2019 was $342,557 and $400,136, respectively, compared to operating income (loss) of $200,958 and ($32,875) in the three and six months ended June 30, 2018, respectively. The increase in operating income on a year-over-year basis was driven by the factors described above.
Depreciation and Amortization
Depreciation and amortization was approximately $48,000 and $286,000 for the six months ended June 30, 2019 and 2018, respectively. The decrease in depreciation was attributable to the Company’s leasehold improvements becoming fully depreciated at the end of 2018.
Interest
Income and
E
xpense
Interest income for the six months ended June 30, 2019 was approximately $14,000 as compared to approximately $26,000 in the same period in 2018. The decrease in interest income was mainly attributable to the issuance of a note receivable from one of our customers at the Heliport in 2018, which was fully paid as of December 31, 2018. Interest expense for the six months ended June 30, 2019 was approximately $5,000 as compared to $7,000 in the same period in 2018.
Income Tax
Income tax expense for the three and six months ended June 30, 2019 was $120,000 and $131,000, respectively, as compared to $0 during each of the same periods in 2018.
Net
Income (
Loss
)
Per Share
Net income (loss) was $278,525 and ($13,912) for the six months ended June 30, 2019 and 2018, respectively.
Basic and diluted net income (loss) per share for the six month periods ended June 30, 2019 and 2018 was $0.27 and ($0.01), respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2019, we had cash and cash equivalents of $3,041,897 and a working capital surplus of $4,023,571. We generated revenue of $5,235,369 and had net income before taxes of $409,525 for the six months ended June 30, 2019. For the six months ended June 30, 2019, cash flows included net cash provided by operating activities of $360,818, net cash used in investing activities of $29,650, and net cash used in financing activities of $127,920.
As disclosed in a Current Report on Form 8-K filed on March 21, 2018 with the Securities and Exchange Commission (“SEC”), on March 15, 2018 we entered into a loan agreement (the “Loan Agreement”) with Key Bank National Association (the “Bank”). The Loan Agreement contains three components: (i) a $2,500,000 acquisition line of credit (the “Key Bank Acquisition Note”); (ii) a $1,000,000 revolving line of credit (the “Key Bank Revolver Note”); and (iii) a $338,481 term loan (the “Key Bank Term Note”).
Proceeds of the Key Bank Acquisition Note were to be dispersed pursuant to a multiple draw demand note dated as of the agreement date, where we could, at the discretion of the Bank, borrow up to an aggregate amount of $2,500,000, to be used for our acquisition of one or more business entities. We would have been required to make consecutive monthly payments of interest, calculated at a rate per annum equal to one-day LIBOR (adjusted daily) plus 2.75%, on any outstanding principal under the Key Bank Acquisition Note from the date of its issuance through September 15, 2018 (the “Conversion Date”).
At any time through and including the Conversion Date, at the Bank’s discretion, we had the opportunity to request that any loan made under the Key Bank Acquisition Note be converted into a term loan to be repaid in full, including accrued interest, by consecutive monthly payments over a 48 month amortization period beginning after the Conversion Date. For any loan that was not converted into a term loan on or before the Conversion Date, we would have been required to begin making monthly payments of principal and interest after the Conversion Date, over a 48 month amortization period, after which the remaining unpaid principal and accrued interest would become due and payable. All loans under the Key Bank Acquisition Note would, after the Conversion Date, accrue interest at a rate per annum equal to the Bank’s four year cost of funds rate plus 2.5%. As of the Conversion Date, there were no amounts due under the Key Bank Acquisition Note and no amounts had been converted to a term loan.
On October 11, 2018, we entered into a new loan agreement with the Bank (the “Change of Terms Agreement”) which modified the original terms of the Key Bank Acquisition Note. Under the Change of Terms Agreement, we may continue to, at the discretion of the Bank, borrow up to an aggregate amount of $2,500,000 through September 1, 2019 (the “Maturity Date”), to be used for our acquisition of one or more business entities. The Change of Terms Agreement requires us to make consecutive monthly payments of interest on any outstanding principal calculated at a rate per annum equal to 4.25%. The entire principal balance, plus all accrued interest, is due in full on the Maturity Date. As of June 30, 2019, there are no amounts due under the Change of Terms Agreement.
Proceeds from the Key Bank Revolver Note, at the discretion of the Bank, provide for us to borrow up to $1,000,000 for working capital and general corporate purposes. This revolving line of credit is a demand note with no stated maturity date. Borrowings under the Key Bank Revolver Note will bear interest at a rate per annum equal to one-day LIBOR (adjusted daily) plus 2.75%. We are required to make monthly payments of interest on any outstanding principal under the Key Bank Revolver Note and are required to pay the entire balance, including principal and all accrued and unpaid interest and fees, upon demand by the Bank. As of June 30, 2019, there were no amounts due under the Key Bank Revolver Note.
Proceeds from the Key Bank Term Note were utilized to retire amounts previously outstanding under a $280,920 term loan from PNC Bank. As of June 30, 2019, all amounts outstanding under the Key Bank Term Note have been repaid.
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 any program year based on cash collected (“Gross Receipts”) and 25% of Gross Receipts in excess of $5,000,000, or minimum annual guaranteed payments. During the six months ended June 30, 2019 and 2018, we incurred approximately $760,000 and $903,000 in concession fees, respectively, which are recorded in the cost of revenue.
As disclosed in a Current Report on Form 8-K filed with the SEC on February 5, 2016, we and the New York City Economic Development Corporation (the “NYCEDC”) announced new measures to reduce helicopter noise and impacts across New York City (the “Air Tour Agreement”).
Under the Air Tour Agreement, filed as an exhibit to 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 were also required to ensure that 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 Air Tour Agreement also extended the Concession Agreement 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 Air Tour 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 have negatively impacted 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 former Chief Executive Officer and a former member of its Board of Directors. We incurred management fees with Empire Aviation of approximately $910,000 and $628,000 during the six months ended June 30, 2019 and 2018, respectively, which is recorded in administrative expenses. We 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. One of our Directors, Sam Goldstein, serves as deputy director of HJTC.
On April 20, 2018, our Kansas subsidiary entered into a purchase lease with Commerce Bank for a refueling truck (the “Truck Lease”). The Truck Lease commenced on May 1, 2018 and continues for 60 months at an interest rate of LIBOR plus 416 basis points. At the end of the Truck Lease, ours subsidiary may purchase the vehicle for $1.00.
On January 15, 2019, we were issued a note by one of its customers at the Heliport. The note schedules payments of approximately $276,000 in receivables payable by such customer, has a maturity date of October 31, 2019, as amended, and carries a 7.5% rate of interest. The note payments were to be made in six monthly installments beginning May 31, 2019. The customer’s payments on the note have not met the installment plan. It is our anticipation that the note will be fulfilled.
As disclosed in a Current Report on Form 8-K filed with the SEC on July 6, 2015, we entered into a stock purchase agreement, dated June 30, 2015, by and between us and Warren A. Peck, pursuant to which Mr. Peck purchased all of the capital stock of our wholly-owned subsidiary, Phoenix Rising Aviation, Inc. The details of the agreement are described in such Current Report as well as in our Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the SEC on April 11, 2016. We received $100,000 due under this agreement in September 2017 and an additional payment of $100,000 in September 2018. We accepted as down payment for the stock purchase the title to a Falcon 10 aircraft owned by Mr. Peck. The aircraft was subsequently sold but that sale did not close. The Company repossessed the aircraft and is in the process of re-marketing the sale. $270,000 of the Notes Receivable on the balance sheet is attributable to this transaction and the Company expects will be recouped through the sale.
During the six months ended June 30, 2019, we had a net increase in cash of $203,248. Our sources and uses of funds during this period were as follows:
Cash from Operating Activities
For the six months ended June 30, 2019, net cash provided by operating activities was $360,818. This amount included an increase in operating cash related to net income of $278,525 and additions for the following items: (i) depreciation and amortization, $48,171; (ii) stock based compensation, $16,998; (iii) prepaid expenses and other current assets, $204,427; (iv) customer deposits, $2,444; and (v) accounts payable, $24,652. These increases in operating activities were offset by decreases for the following items: (i) accounts receivable, trade; $179,305; (ii) inventories, $22,833; and (iii) accrued expenses, $12,261.
For the six months ended June 30, 2018, net cash provided by operating activities was $510,804. This amount included a decrease in operating cash related to net loss of $13,912 and additions for the following items: (i) depreciation and amortization, $285,877; (ii) stock based compensation, $16,998; (iii) accounts receivable, trade, $361,744; (iv) inventories, $10,878; and (v) deposits, $26,523. These increases in operating activities were offset by decreases in (i) prepaid expenses and other current assets, $72,020; (ii) accounts payable, $99,635; and (iii) accrued expenses, $5,649.
Cash from Investing Activities
For the six months ended June 30, 2019, net cash of $29,650 was used in investing activities for the purchase of property and equipment of $62,260 offset by payment of notes receivable of $32,610. For the six months ended June 30, 2018, net cash of $147,384 was provided by the payment of notes receivable of $325,000 offset by the purchase of property and equipment of $177,616.
Cash from Financing Activities
For the six months ended June 30, 2019, net cash of $127,920 was used in financing activities for the repayment of right of use leases payable of $9,656 and repayment of notes payable of $118,264. For the six months ended June 30, 2018, net cash used in financing activities was $153,687. This amount included $175,774 for the repurchase and cancellation of common stock and $112,913 for the repayment of notes payable, offset by the issuance of notes payable of $135,000.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which requires an entity to recognize assets and liabilities on the balance sheet for the rights and obligations created by leased assets and provide additional disclosures. ASU 2016-02 became effective for us on January 1, 2019 and we have adopted the new standard using a modified retrospective approach.
CAUTIO
NARY 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:
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our ability to secure the additional debt or equity financing, if required, to execute our business plan;
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our ability to identify, negotiate and complete the acquisition of targeted operators and/or other businesses, consistent with our business plan;
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existing or new competitors consolidating operators ahead of us; and
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our ability to attract new personnel or retain existing personnel, which would adversely affect implementation of our overall business strategy.
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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 placed 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, 2018 and in other filings we make with the SEC. 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 SEC. We expressly disclaim any intent or obligation to update any forward-looking statements, except as may be required by law.