Notes To Consolidated Financial Statements
NOTE 1 - Nature of Operations
Saker Aviation Services, Inc. (“Saker”), through its subsidiaries (collectively the “Company”), operates in the aviation services segment of the general aviation industry, in which it serves as the operator of a heliport and a fixed base operation (“FBO”), and as a provider of aircraft maintenance, repair and overhaul (“MRO”). FBOs provide ground-based services, such as fueling and aircraft storage for general aviation, commercial and military aircraft, and other miscellaneous services.
FirstFlight Heliports, LLC d/b/a Saker Aviation Services (“FFH”), a wholly-owned subsidiary, operates the Downtown Manhattan Heliport via a concession agreement with the City of New York. FBO Air Garden City, Inc. d/b/a Saker Aviation Services (“FBOGC”), a wholly-owned subsidiary provides FBO and MRO services in Garden City, Kansas.
NOTE 2 – Liquidity and Material Agreements
As of December 31, 2021, we had cash and restricted cash of $2,446,906 and a working capital surplus of $3,442,031. We generated revenue of $5,382,565 and had net income of $726,184 for the year ended December 31, 2021. For the year ended December 31, 2021, cash flows included net cash provided by operating activities of $813,751, net cash used in investing activities of $81,544, and net cash used in financing activities of $184,383.
As disclosed in a Current Report on Form 8-K filed on March 21, 2018 with the Securities and Exchange Commission (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”). There are currently no amounts outstanding under the Key Bank Term Note.
Proceeds of the Key Bank Acquisition Note were to be disbursed 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. Until the Change of Terms Agreement, as defined below, 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 have become due and payable. All loans under the Key Bank Acquisition Note would have, after the Conversion Date, accrued 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, and as subsequently amended, the Company entered into a new loan agreement with the Bank (as so amended, the “Change of Terms Agreement”) which modified the original terms of the Key Bank Acquisition Note. Under the Change of Terms Agreement, the Company could have continued to, at the discretion of the Bank, borrow up to an aggregate amount of $2,500,000 through September 1, 2021 (the “Maturity Date”), to be used for the Company’s acquisition of one or more business entities. The Change of Terms Agreement required the Company to make consecutive monthly payments of interest on any outstanding principal calculated at a rate per annum equal to 4.25% and was secured by substantially all of the Company’s assets. The entire principal balance, plus all accrued interest, was due in full on the Maturity Date. The Bank notified the Company of its decision to discontinue the Key Bank Acquisition Note, effective June 30, 2021. There are no amounts due under the Changes of Terms Agreement.
The Key Bank Revolver Note, at the discretion of the Bank, provides 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 is required to pay the entire balance, including principal and all accrued and unpaid interest and fees, upon demand by the Bank. Any proceeds from the Key Bank Revolver Note would be secured by substantially all of the Company’s assets. As of December 31, 2021, there were no amounts due under the Key Bank Revolver Note.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
On August 14, 2020, the Company was granted a loan from the Bank (the “Loan”) in the amount of $304,833, pursuant to the Paycheck Protection Program (PPP) under Division, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a note dated August 14, 2020,was to matures in August 2025 and bore interest at a rate of 1% per annum and was payable in monthly installments commencing on, or before, October 31, 2021 if not forgiven and legally released. At December 31, 2020, in accordance with FASB ASC 470, Debt, and ASC 405-20, Liabilities – Extinguishment of Liabilities, the Company recorded the cash inflow from the Loan as a liability, and cash flows from financing, pending legal release from the obligation by the U.S. Small Business Administration (“S.B.A.”). The Company used the Loan proceeds for eligible expenses during the covered period and the Loan was forgiven and legally released by the S.B.A. in full in the second quarter of 2021. The Company recorded the forgiveness of the Loan as a gain on extinguishment of debt – PPP loan.
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.
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, the Company has not been allowed to permit its tenant operators to conduct tourist flights from the Downtown Manhattan Heliport on Sundays since 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. The Air Tour Agreement also provided for 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. Additionally, since June 1, 2016, the Company has been 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 and gave the City of New York two one-year options to extend the term of the Concession Agreement. The term of the Concession Agreement was subsequently extended by the City through April 30, 2023 by the City’s exercise of both their two one-year option renewals.
The reductions under the Air Tour Agreement 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 two children and a grandchild of a former officer and director of the Company. The Company incurred management fees with Empire Aviation of approximately $0 and $144,000 during the years ended December 31, 2021 and 2020, respectively, which is recorded in selling, general and administrative expenses. Empire Aviation has notified the Company they believe additional fees are due under their management agreement with the New York Heliport for both 2021 and 2020. If the Company is unable to come to an agreement with Empire Aviation regarding amounts due under the agreement, the Company could incur additional expense (See Note 15. Contingent Liabilities). The Company and Empire Aviation had historically 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. The Company has suspended its contributions to HTJC in light of the pandemic. The Company’s former officer and director was also an active participant with HTJC, which is managed by the former officer and director’s grandson.
During the program year that began on May 1, 2020, the City of New York agreed, in recognition of the pandemic’s impact, that the Company could defer payment of minimum guaranteed payments. In April 2021, the City of New York waived the deferred fees through December 31, 2020. In May 2021, the City of New York waived the deferred fees through April 30, 2021 which coincided with the original expiration of the Concession Agreement as amended by the Air Tour Agreement. The Company has worked with the City of New York to address fees to be paid by the Company for the period May 1, 2021 through December 31, 2021. Concession fees in this Form 10-K have been accounted for based on the months abated in 2021 and the City of New York’s acceptance of 18% of monthly Gross Receipts in excess of $100,000 for the period May 2021 through December 2021. Due to the continued reduced activity at the Heliport, the Company is actively working with the City of New York to address fees to be paid to the City of New York in 2022 and through the remainder of the Air Tour Agreement. During the years ended December 31, 2021 and 2020, we incurred approximately $192,000 and $103,000 in concession fees, respectively, which are recorded in the cost of revenue.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
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 with a monthly payment of $2,568 and 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 an unsecured note by one of its customers at the Heliport. The note schedules payments of approximately $276,000 in receivables payable by such customer, had 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 and the Company was working on changes to the note when the customer filed for Chapter 11 Bankruptcy in October 2019. In February 2021, the bankruptcy court allowed the customer to convert from a Chapter 11 Bankruptcy to a Chapter 7 Liquidation. Under the Chapter 7 Liquidation, the note will now be treated as a general unsecured claim as opposed to a prioritized payment under the Chapter 11 Bankruptcy to cure the permit default. This change has substantially diminished the Company’s expectation to collect amounts due under the note. Therefore, the Company deemed unpaid principal and accrued interest of approximately $205,000 at December 31, 2020 as uncollectable. The $205,000 was written off to bad debt expense in the fourth quarter of 2020.
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. In 2019, the Company accepted the title to a Falcon 10 aircraft owned by Mr. Peck as satisfaction in full of the remainder of the $270,000 stock purchase price. The Company intended to sell the aircraft and classified it as “Held For Sale” on the Company’s consolidated balance sheet at December 31, 2019. The Company has been unable to find a buyer due to a depressed market as well as a drop in demand for this type of aircraft. Without a market in which to sell the aircraft, the Company recorded an impairment charge in the quarter ended June 30, 2020 for the full carrying amount of the aircraft. The Company does not believe the aircraft has any value and, in December 2020, filed an application with the FAA Aircraft Registry to cancel the aircraft’s registry.
On May 1, 2021, the Company’s Kansas subsidiary executed a promissory note for $76,000 with Avfuel Corporation (“Avfuel”) for the purchase of a Jet-A refueling truck (the “Truck Note”). The Truck Note requires six annual payments of $13,432.56 commencing April 30, 2022 with the entire balance of unpaid principal and interest due on, or before, April 30, 2028. Interest accrues at prime plus 3% on the outstanding principal amount. The Company is required to make prepayments against the Truck Note at the rate of $0.018 per gallon of fuel purchased under a fuel supply agreement between the Company and Avfuel.
As described throughout this Annual Report on Form 10-K, on March 17, 2020, all sightseeing tour operations at the Downtown Manhattan Heliport ceased as a result of the COVID-19 pandemic. On July 20, 2020, New York City began Phase 4 of the city’s reopening. Sightseeing tours resumed under this phase. Sightseeing tour operators have experienced low demand and minimal activity since July 20, 2020, but sightseeing tour operators have seen an uptick in demand in the second quarter of 2021 through the date of this report. To mitigate this loss of revenue, we may need additional financing to continue operations through the issuance of equity or debt and any such financing will be dependent on general market conditions, which itself is subject to the effects of the COVID-19 pandemic. Although we have access to the Key Bank Revolver Note described above, we can make no assurance that that the Key Bank Revolver Note will be sufficient to fund our operations. Additionally, certain restrictions in the Key Bank Revolver Note may prohibit us from obtaining more attractive financing.
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, FFH and FBOGC. All significant inter-company accounts and transactions have been eliminated in consolidation.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates include depreciation, amortization, impairment of goodwill and intangibles, stock-based compensation, allowance for doubtful accounts, deferred tax assets, and contingent liabilities.
Cash and restricted cash
The Company maintains its cash with various financial institutions which often exceeds federally insured limits. The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits. As part of its cash management process, the Company periodically reviews the relative credit standing of these financial institutions. Amounts included in restricted cash are a deposit required by the Concession Agreement with NYEDC and aggregated $425,000 at December 31, 2021 and 2020.
Accounts Receivable and Revenue Concentration
In 2020, the Company’s accounts receivable was comprised of four customers at our New York Heliport. Due to the COVID-19 pandemic, two of these customers were unable to sustain their business and ceased operating in 2020. Their receivable balances at December 31, 2020, totaling approximately $208,000, have been deemed uncollectable by the Company and have been written off to bad debt expense in the fourth quarter of 2020. The Company’s remaining two customers continued to operate, but at substantially reduced levels of operation. For the fiscal year ended December 31, 2020, these remaining two customers represented approximately $137,000, or 52.4%, of the balance of accounts receivable. No customer represented more than 10% of revenue in 2020. The Company has a security deposit in place in connection with both of these receivables. Accounts receivable amounted to $678,045 at December 31, 2019.
In 2021, the Company’s accounts receivable was comprised of its two customers at our New York Heliport. These customers continued to operate throughout 2021, but at substantially reduced levels of operation when compared to pre-pandemic levels. For the fiscal year ended December 31, 2021, these two customers represented approximately $180,000, or 59.8%, of the balance of accounts receivable. In addition, these two customers represented approximately 27.6% of our revenue in 2021. The Company has a security deposit in place in connection with both of these receivables. In March 2022, one of the Company’s former customers resumed operations. The Company has a security deposit in place with this customer.
Inventories
Inventories consist primarily of maintenance parts and aviation fuel and are stated at the lower of cost or net realizable value determined by the first-in, first out method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided primarily using the straight-line method over the estimated useful lives as set forth in footnote 5. Amortization of leasehold improvements is provided using the straight-line method over the shorter of their estimated useful life or lease term, including renewal option periods expected to be exercised. Maintenance and repairs are charged to expense as incurred; costs of major additions and betterments are capitalized. When property and equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in income.
Goodwill
Goodwill that is deemed to have an indefinite life is not amortized but, instead, are to be reviewed at each reporting period for impairment. The Company assessed potential impairment of goodwill using qualitative factors by considering various factors including macroeconomic conditions, industry and market conditions, cost factors, a sustained share price or market capitalization decrease and any reporting unit specific events. The Company performed an analysis of its goodwill at December 31, 2021 and 2020 and deemed no impairment necessary.
Leases
At December 31, 2021 and December 31, 2020, our consolidated balance sheets include a right of use asset of approximately $387,860 and $446,000, respectively, a long-term lease liability of approximately $328,000 and $377,000, respectively, and a short-term liability of approximately $46,000 and $43,000, respectively.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Revenue Recognition
The Company recognizes revenue from ground-based services, such as fueling and aircraft storage, and aircraft maintenance and repair services. Revenue for the sale of ground-based services is recognized as a sale of services at the time the service is performed and provided to customers. Revenue for the sale of aircraft fuel is recognized at the time products are delivered to customers. Customers are invoiced at the time the services are performed and the associated revenue is recognized in the period it is earned. Revenue from aircraft storage services is recognized monthly based upon agreement. Aircraft maintenance and repair service revenue is recognized at the time the performance obligations are met, which is generally less than a month. Performance obligations are satisfied when control of the aircraft has been transferred back to the customer.
Customer Deposits
Customer deposits consist of amounts that customers are required to remit in advance to the Company in order to secure payment for future purchases and services. Customer deposits amounted to $130,395 at December 31, 2019.
Advertising
The Company expenses all advertising costs as incurred. Advertising expense for the years ended December 31, 2021 and 2020 was approximately $3,000 and $4,000, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between their financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income or loss in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Company’s tax positions, and has concluded that no liability should be recorded related to uncertain tax positions taken.
Deferred tax assets are subject to a valuation allowance because it is more likely than not that certain of the deferred tax assets will not be realized in future periods due to the uncertainty of future taxable income and the lack thereof of taxable income in carry-back periods. The Company files income tax returns in the United States (federal) and in various state and local jurisdictions. In most instances, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2018.
Fair Value of Financial Instruments
The reported amounts of the Company’s financial instruments, including accounts receivable, accounts payable and accrued liabilities, approximate their fair value due to their short maturities. The carrying amounts of debt approximate fair value because the debt agreements provide for interest rates that approximate market. The carrying value of the note receivable approximated fair value because it was discounted at a current market rate.
Net Income (Loss) Per Common Share
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 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, are excluded from the calculation of the diluted income per share when their exercise prices are greater than the average market price of the common stock during the period or when their inclusion would be anti-dilutive.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
The following table sets forth the components used in the computation of basic and diluted income (loss) per share:
| | | For the Year Ended December 31, | |
| | | 2021(1) | | | 2020(1) | |
| Weighted average common shares outstanding, basic | | | 1,023,709 | | | | 1,024,907 | |
| Common shares upon exercise of options | | | 3,020 | | | | - | |
| Weighted average common shares outstanding, diluted | | | 1,026,729 | | | | 1,024,907 | |
| | (1) | Common shares of 36,663 and 53,328 underlying outstanding stock options for the years ended December 31, 2021 and 2020, respectively, were excluded from the computation of diluted earnings per share as their inclusion would be anti-dilutive. |
Stock-Based Compensation
Stock-based compensation expense for all share-based payment awards are based on the estimated grant-date fair value. The Company recognizes these compensation costs over the requisite service period of the award, which is generally the option vesting term. For each of the years ended December 31, 2021 and 2020, the Company incurred stock based compensation of $34,392 and $74,659, respectively. Such amounts have been recorded as part of the Company’s selling, general and administrative expenses in the accompanying consolidated statements of operations. As of December 31, 2021, the unamortized fair value of the options totaled $45,995 and the weighted average remaining amortization period of the options approximated five years.
Option valuation models require the input of highly subjective assumptions, including the expected life of the option. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
The fair value of each share-based payment award granted during the years ended December 31, 2021 and 2020 were estimated using the Black-Scholes option pricing model with the following weighted average fair values:
| | | For the Year Ended December 31, | |
| | | 2021 | | | 2020 | |
| Dividend yield | | | 0 | % | | | 0 | % |
| Expected volatility | | | 732 | % | | | 636 | % |
| Risk-free interest rate | | | 0.0 | % | | | 0.36 | % |
| Expected lives (years) | | | 5.0 | | | | 5.0 | |
The weighted average fair value of the options on the date of grant, using the fair value based methodology during the years ended December 31, 2021 and 2020, was $0.74 and $1.14, respectively.
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:
| | | December 31, | |
| | | 2021 | | | 2020 | |
| Parts inventory | | $ | 102,763 | | | $ | 92,481 | |
| Fuel inventory | | | 115,364 | | | | 59,336 | |
| Other inventory | | | 24,977 | | | | 11,802 | |
| Total inventory | | $ | 243,104 | | | $ | 163,619 | |
Included in fuel inventory are amounts held for third parties of $28,042 and $30,904 as of December 31, 2021 and 2020, respectively, with an offsetting liability included as part of accrued expenses.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 5 – Property and Equipment
Property and equipment consist of the following:
| | | December 31, | | | Estimated | |
| | | 2021 | | | 2020 | | | Useful Life (years) | |
| Aircraft | | $ | 56,000 | | | $ | 56,000 | | | 7 | – | 12 | |
| Vehicles | | | 472,484 | | | | 396,483 | | | 5 | – | 10 | |
| Office furniture and equipment | | | 459,713 | | | | 454,170 | | | 3 | – | 7 | |
| Tools and shop equipment | | | 85,110 | | | | 85,110 | | | 3 | – | 10 | |
| Leasehold improvements | | | 2,812,954 | | | | 2,812,954 | | | 10 | – | 20 | |
| Building/fuel farm | | | 200,000 | | | | 200,000 | | | 7 | – | 17 | |
| Total | | | 4,086,261 | | | | 4,004,717 | | | | | | |
| Less: accumulated depreciation and amortization | | | (3,817,000 | ) | | | (3,745,861 | ) | | | | | |
| Property and equipment, net | | $ | 269,261 | | | $ | 258,856 | | | | | | |
Depreciation and amortization expense for the years ended December 31, 2021 and 2020 was approximately $129,000 and $119,000, respectively.
NOTE 6 – Goodwill
The Company had $750,000 of goodwill at each of December 31, 2021 and 2020. The Company assessed potential impairment of goodwill using qualitative factors by considering various factors including macroeconomic conditions, industry and market conditions, cost factors, a sustained share price or market capitalization decrease and any reporting unit specific events. The Company performed an analysis of its goodwill at December 31, 2021 and 2020 and deemed no impairment necessary.
NOTE 7 – Notes Payable
| Notes payable consist of: | | December 31, | |
| | | 2021 | | | 2020 | |
| Avfuel Corporation loan for $76,000, 6 year term, prime plus 3%, final payment due on, or before, 4/30/28. Collateral is a Jet-A refueler truck. | | $ | 67,045 | | | $ | - | |
| KeyBank PPP SBA loan forgiven in 2021. | | | - | | | | 304,833 | |
| Subtotal | | | 67,045 | | | | 304,833 | |
| Less: current portion | | | (9,315 | ) | | | (304,833 | ) |
| Total – long term | | $ | 57,730 | | | $ | - | |
NOTE 8 – Income Taxes
The Company’s deferred tax assets consisted of the following:
| | | December 31, | |
| Deferred tax assets: | | 2021 | | | 2020 | |
| Stock based compensation | | $ | 72,000 | | | $ | 60,000 | |
| Property and equipment | | | 399,000 | | | | 466,000 | |
| Total deferred tax assets | | | 471,000 | | | | 526,000 | |
| Valuation Allowance | | | (471,000 | ) | | | (526,000 | ) |
| | | | | | | | | |
| Deferred tax asset – net of valuation allowance | | $ | - | | | $ | - | |
| | | | | | | | | |
| Increase (decrease) in valuation allowance | | $ | (55,000 | ) | | $ | 484,000 | |
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
The valuation allowance fluctuated due to the uncertainty of future taxable income and the lack thereof of taxable income in carry-back periods.
The provision for income taxes using the statutory federal tax rate as compared to the Company's effective tax rate is summarized as follows:
| | | December 31, | |
| | | 2021 | | | 2020 | |
| Tax at statutory rate | | | 21.0 | % | | | 21.0 | % |
| Extinguishment of debt (PPP loan) | | | (6.9 | ) | | | - | |
| Net operating loss carry-back | | | - | | | | 15.8 | % |
| Valuation allowance | | | - | | | | (21.8 | %) |
| State and local income taxes, net of federal | | | 7.7 | % | | | 4.7 | % |
| Effective income tax expense rate | | | 21.8 | % | | | 19.7 | % |
Income tax receivable principally consists of funds due from the taxing authorities resulting from the carryback of of net operating loss to prior tax years.
NOTE 9 – Stockholders’ Equity
Common Stock
A summary of the Company’s shares of Common Stock outstanding at December 31, 2021 is presented in the table below:
| | | Number of shares outstanding | |
| December 31, 2020 | | | 1,028,863 | |
| Purchase and cancellation of common stock | | | (53,789 | ) |
| December 31, 2021 | | | 975,074 | |
Stock Options
On August 27, 2019, at the Company’s Annual Meeting, the stockholders of the Company approved the Stock Incentive Plan of 2019 (”the “Plan”). The Plan is administered by the Company’s Compensation Committee and provides for 250,000 shares of common stock to be reserved for issuance under the Plan. Directors, officers, employees, and consultants of the Company are eligible to participate in the Plan. The Plan provides for the awards of incentive and non-statutory stock options. The Compensation Committee determined the vesting schedule to be up to five years at the time of grant of any options under the Plan, and unexercised options will expire in up to ten years. The exercise price is to be equal to at least 100% of the fair market value of a share of the common stock, as determined by the Compensation Committee, on the grant date. The fair value of stock options are calculated in accordance with FASB ASC Topic 718. As of December 31, 2021 and 2020, there were 190,006 and 196,672 shares available for grant as options under the Plan.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Details of all options outstanding under the Plan are presented in the table below:
| | | Number of Options | | | Weighted Average Exercise Price | |
| | | | | | | | | |
| Balance, January 1, 2020 | | | 53,328 | | | $ | 3.391 | |
| Granted | | | 13,332 | | | | 2.580 | |
| Exercised | | | (6,666 | ) | | | 2.820 | |
| Expired | | | (6,666 | ) | | | 2.400 | |
| Balance, December 31, 2020 | | | 53,328 | | | $ | 3.384 | |
| Granted | | | 13,332 | | | | 3.450 | |
| Expired | | | (6,666 | ) | | | 2.250 | |
| Balance, December 31, 2021 | | | 59,994 | | | $ | 2.184 | |
A summary of the Company’s stock options outstanding at December 31, 2021 is presented in the table below:
| Exercise Price | | | Outstanding | | | Weighted average remaining contractual life of options (in years) | | | Exercisable | | | Intrinsic Value | |
| $ | 3.45 | | | | 13,332 | | | | 4.92 | | | | - | | | $ | - | |
| $ | 2.58 | | | | 13,332 | | | | 3.92 | | | | 13,332 | | | $ | 3,933 | |
| $ | 5.60 | | | | 13,332 | | | | 2.92 | | | | 13,332 | | | $ | - | |
| $ | 2.40 | | | | 9,999 | | | | 1.92 | | | | 9,999 | | | $ | 4,750 | |
| $ | 3.24 | | | | 9,999 | | | | .92 | | | | 9,999 | | | $ | - | |
| TOTALS | | | | 59,994 | | | | | | | | 46,662 | | | $ | 8,683 | |
Preferred Stock
As of December 31, 2021 and 2020, the Company has 333,306 shares of preferred stock authorized and none of which is issued and outstanding. On February 27, 2019, the Company filed with the Secretary of State of the state of Nevada a certificate of amendment to our articles of incorporation. The amendment provided for, among other things, a reduction in the number of authorized shares of preferred stock to 333,306. The Company’s Board of Directors currently has the right, with respect to the authorized shares of our preferred stock, to authorize the issuance of one or more series of preferred stock with such voting, dividend and other rights as the directors determine. As of December 31, 2020 and 2019, there were no shares of preferred stock outstanding.
NOTE 10 – Employee Benefit Plan
The Company maintains a 401K Plan which covers all employees of the Company (the “401K Plan”). Effective January 1, 2020, the Company switched to a Safe Harbor 401K plan. The Safe Harbor 401K Plan stipulates that, going forward, all employees become vested 100% on day one. Employer contributions prior to the change vest over a five-year period on a 20% per year basis. The Company’s Safe Harbor 401K Plan provides that the Company match each participant's contribution at 100% up to 4% of the employee’s deferral. The employer match prior to the change was 50% up to 6% of the employee’s deferral. Company contributions to the 401K Plan totaled approximately $36,000 and $42,000 for the years ended December 31, 2021 and 2020, respectively.
NOTE 11 – Commitments
Right-Of-Use Leasing Arrangements
The Company leases facilities from Garden City, Kansas, which provides for: (a) a 21-year lease term expiring December 31, 2030, with one five-year renewal period, and (b) a base rent of $2,187 per month. In addition, the Company incurs a fuel flowage fee of $0.06 per gallon of fuel received. The fuel flowage fee is to be reviewed annually by the Garden City Regional Airport, the City of Garden, and the Company. Flowage fees on fuel gallons purchased aggregated approximately $43,000 and $36,000 for the years ended December 31, 2021 and 2020, respectively.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
The Company leases additional facilities from Garden City, Kansas, which provides for a 14 year lease term expiring December 31, 2030 with a base rent of $565 a month.
The Company’s Kansas subsidiary entered into a purchase lease with Commerce Bank for a refueling truck. The 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 lease, the Company’s subsidiary may purchase the vehicle for $1.00.
The Company’s lease right of use assets and lease liabilities as of December 31, 2021 and 2020 are summarized as follows:
| | | December 31, | |
| | | 2021 | | | 2020 | |
| Right of use assets | | $ | 387,860 | | | $ | 445,711 | |
| Current portion of debt and right of use lease liabilities | | $ | 45,697 | | | $ | 43,306 | |
| Long term portion of debt and right of use lease liabilities | | $ | 327,513 | | | $ | 376,933 | |
| Total right of use lease liabilities | | $ | 373,210 | | | $ | 420,239 | |
| Weighted average remaining lease terms (years) | | | 10 | | | | 11 | |
| Weighted average discount rate | | | 5.5 | % | | | 5.5 | % |
The maturities of the Company’s right of use lease liabilities as of December 31, 2021 are as follows:
| For the year ended | | | | |
| December 31, | | Total | |
| 2022 | | $ | 65,040 | |
| 2023 | | | 44,496 | |
| 2024 | | | 34,224 | |
| 2025 | | | 34,224 | |
| 2026 | | | 34,224 | |
| Thereafter | | | 308,016 | |
| TOTAL | | $ | 520,224 | |
| Less interest | | | (147,014 | ) |
| Present value of lease liabilities | | $ | 373,210 | |
The components of right of use lease expenses included in “Selling, General and Administrative Expenses” in the Company’s consolidated statements of operations aggregated approximately $34,000 in both 2021 and 2020.
NOTE 12 – Dividend Payable
On September 30, 2019, the Company announced that its Board of Directors had declared a special cash dividend of $0.50 per share (the “Dividend”). The Dividend was paid in equal quarterly installments of $0.125 per share beginning on November 1, 2019, with the final dividend paid on August 13, 2020. The declaration and payment of any future dividend will be at the sole discretion of the Board of Directors.
NOTE 13 – Related Parties
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 the Company’s former Chief Executive Officer and a former member of our Company’s Board of Directors.
NOTE 14 – 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.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 15 – Contingent Liabilities
Beginning in 2020, through the date of this report, the COVID-19 pandemic has negatively impacted the Company’s business and financial results at our New York Heliport. The negative impact on the Company’s business has also negatively affected our management company at the Heliport, Empire Aviation. As previously disclosed, Empire Aviation is owned by two children and a grandchild of a former officer and director of the Company.
On March 17, 2020, all sightseeing tour operations at the Downtown Manhattan Heliport ceased as a result of the COVID-19 pandemic. Payments to Empire Aviation also ceased around this time and did not resume due to the substantial losses the Company incurred throughout 2020. In May 2021, the Company began to see a slight uptick in activity at our New York Heliport, but activity levels continue to be at substantially lower levels than pre-pandemic years. Because of the continued lower levels of activity, payments to Empire Aviation did not resume in 2021. Empire Aviation had previously made a claim for $153,000 in unpaid fees in 2020 which the Company disputes. There can be no assurance that Empire Aviation will not make subsequent claims of amounts due under its management agreement. The Company estimates the range of the contigent liability at December 31, 2021 will not exceed $750,000, which has not been accrued at December 31,2021. Management intends to vigorously defend against any claim.
NOTE 16 – Subsequent Events
The Company has evaluated events which have occurred subsequent to December 31, 2021, and through the date of the filing of the Annual Report on Form 10-K with the SEC, and has determined that no subsequent events have occurred after the current reporting period.