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Saker Aviation Services, Inc. – ‘10-Q’ for 6/30/20

On:  Friday, 8/14/20, at 3:45pm ET   ·   For:  6/30/20   ·   Accession #:  1437749-20-18025   ·   File #:  0-52593

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 8/14/20  Saker Aviation Services, Inc.     10-Q        6/30/20   39:2M                                     RDG Filings/FA

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    256K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     17K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     18K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     15K 
11: R1          Document And Entity Information                     HTML     42K 
12: R2          Condensed Consolidated Balance Sheets (Current      HTML     99K 
                Period Unaudited)                                                
13: R3          Condensed Consolidated Balance Sheets (Current      HTML     31K 
                Period Unaudited) (Parentheticals)                               
14: R4          Condensed Consolidated Statements of Operations     HTML     77K 
                (Unaudited)                                                      
15: R5          Statements of Condensed Stockholders' Equity        HTML     49K 
                (Unaudited)                                                      
16: R6          Condensed Consolidated Statements of Cash Flows     HTML     84K 
                (Unaudited)                                                      
17: R7          Note 1 - Basis of Presentation                      HTML     21K 
18: R8          Note 2 - Liquidity and Material Agreements          HTML     37K 
19: R9          Note 3 - Summary of Significant Accounting          HTML     35K 
                Policies                                                         
20: R10         Note 4 - Inventories                                HTML     24K 
21: R11         Note 5 - Related Parties                            HTML     17K 
22: R12         Note 6 - Litigation                                 HTML     16K 
23: R13         Note 7 - Stockholders' Equity                       HTML     17K 
24: R14         Note 8 - Dividend Payable                           HTML     17K 
25: R15         Note 9 - Subsequent Events                          HTML     16K 
26: R16         Significant Accounting Policies (Policies)          HTML     43K 
27: R17         Note 3 - Summary of Significant Accounting          HTML     27K 
                Policies (Tables)                                                
28: R18         Note 4 - Inventories (Tables)                       HTML     23K 
29: R19         Note 2 - Liquidity and Material Agreements          HTML    141K 
                (Details Textual)                                                
30: R20         Note 3 - Summary of Significant Accounting          HTML     26K 
                Policies (Details Textual)                                       
31: R21         Note 3 - Summary of Significant Accounting          HTML     19K 
                Policies - Computation of Basic Net Income Per                   
                Share (Details)                                                  
32: R22         Note 4 - Inventories (Details Textual)              HTML     14K 
33: R23         Note 4 - Inventories - Summary of Inventory         HTML     18K 
                (Details)                                                        
34: R24         Note 7 - Stockholders' Equity (Details Textual)     HTML     19K 
35: R25         Note 8 - Dividend Payable (Details Textual)         HTML     15K 
36: R26         Note 9 - Subsequent Events (Details Textual)        HTML     16K 
38: XML         IDEA XML File -- Filing Summary                      XML     64K 
37: EXCEL       IDEA Workbook of Financial Reports                  XLSX     34K 
 5: EX-101.INS  XBRL Instance -- skas-20200630                       XML    429K 
 7: EX-101.CAL  XBRL Calculations -- skas-20200630_cal               XML     78K 
 8: EX-101.DEF  XBRL Definitions -- skas-20200630_def                XML    478K 
 9: EX-101.LAB  XBRL Labels -- skas-20200630_lab                     XML    438K 
10: EX-101.PRE  XBRL Presentations -- skas-20200630_pre              XML    495K 
 6: EX-101.SCH  XBRL Schema -- skas-20200630                         XSD     84K 
39: ZIP         XBRL Zipped Folder -- 0001437749-20-018025-xbrl      Zip     59K 


‘10-Q’   —   Quarterly Report


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For The Quarterly Period Ended June 30, 2020

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to ________________

 

Commission File Number: 000-52593

SAKER AVIATION SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada

87-0617649

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

   

20 South Street, Pier 6 East River, New York, NY

10004

(Address of principal executive offices)

(Zip Code)

 

(212) 776-4046


(Registrant’s telephone number, including area code)

 

N/A


(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒         No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.05 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒         No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 Large accelerated filer

 ☐

Accelerated filer

 ☐

Non-accelerated filer

  ☒

Smaller reporting company

 ☒

                                        Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐          No ☒

As of August 14, 2020, the registrant had 1,023,744 shares of its common stock, $0.03 par value, issued and outstanding.

 

i

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

Form 10-Q

June 30, 2020

 

 

Index

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Page

 

 

 

 

 

 

Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019

1

 

 

 

 

 

 

Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

2

       
   

Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

3

       

 

 

Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (unaudited)

4

 

 

 

 

 

Notes to Financial Statements (unaudited)

5

 

 

 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

10
     

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  

16

     

 

ITEM 4. CONTROLS AND PROCEDURES

16

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

ITEM 1A. RISK FACTORS

17

     

 

ITEM 6. EXHIBITS

18

 

 

 

 

SIGNATURES

19

 

ii

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   

June 30,

2020

   

December 31,

2019

 
    (unaudited)          
ASSETS              

CURRENT ASSETS

 

 

         

Cash

  $ 2,618,331     $ 3,597,491  

Accounts receivable

    378,625       678,045  

Inventories

    135,507       181,204  

Notes receivable

    188,828       188,828  

Held for sale assets

    ---       270,000  

Prepaid expenses and other current assets

    482,490       294,644  

Total current assets

    3,803,781       5,210,212  
                 

PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $3,715,521 and $3,676,488 as of June 30, 2020 and December 31, 2019, respectively

    289,195       323,316  
                 

OTHER ASSETS

               

Deposits

    2,512       2,512  

Right of use assets

    468,742       495,377  

Goodwill

    750,000       750,000  

Deferred income taxes

    476,000       476,000  

Total other assets

    1,697,254       1,723,889  

TOTAL ASSETS

  $ 5,790,230     $ 7,257,417  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
                 

CURRENT LIABILITIES

               

Accounts payable

  $ 177,681     $ 397,343  

Customer deposits

    130,987       130,395  

Accrued dividends payable

    117,433       373,370  

Accrued expenses

    164,228       319,557  

Right of use leases payable – current portion

    42,152       60,675  

Total current liabilities

    632,481       1,281,340  
                 

LONG-TERM LIABILITIES

               

Right of use leases payable - less current portion

    395,160       399,733  

Total liabilities

    1,027,641       1,681,073  
                 

STOCKHOLDERS’ EQUITY

               

Preferred stock - $0.03 par value; authorized 333,306; none issued and outstanding

               

Common stock - $0.03 par value; authorized 3,333,334; 1,023,744 and 1,020,135 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

    30,712       30,604  

Additional paid-in capital

    19,855,849       19,818,637  

Accumulated deficit

    (15,123,972 )     (14,272,897 )

TOTAL STOCKHOLDERS’ EQUITY

    4,762,589       5,576,344  

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

  $ 5,790,230     $ 7,257,417  

 

See accompanying notes to condensed consolidated financial statements

 

 

1

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   

For the Three Months Ended

June 30,

   

For the Six Months Ended

June 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

REVENUE

  $ 438,632     $ 3,162,597     $ 2,112,387     $ 5,235,369  
                                 

COST OF REVENUE

    543,600       1,535,550       1,625,265       2,718,787  
                                 

GROSS (LOSS) PROFIT

    (104,968 )     1,627,047       487,122       2,516,582  
                                 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

    375,125       1,284,490       1,068,702       2,116,446  
                                 

OPERATING (LOSS) INCOME

    (480,093 )     342,557       (581,580 )     400,136  
                                 

OTHER EXPENSE (INCOME)

                               

IMPAIRMENT CHARGE

    270,000       ---       270,000       ---  

INTEREST INCOME

    (6,217 )     (6,227 )     (12,793 )     (14,635 )

INTEREST EXPENSE

    11,059       2,595       12,288       5,246  

TOTAL OTHER EXPENSE (INCOME), net

    274,842       (3,632 )     269,495       (9,389 )
                                 

(LOSS) INCOME BEFORE INCOME TAX

    (754,935 )     346,189       (851,075 )     409,525  
                                 

INCOME TAX EXPENSE

    0       (120,000 )     0       (131,000 )
                                 

NET (LOSS) INCOME

  $ (754,935 )   $ 226,189     $ (851,075 )   $ 278,525  
                                 

Basic Net (Loss) Income Per Common Share

  $ (0.74 )   $ 0.22     $ (0.83 )   $ 0.27  
                                 

Diluted Net (Loss) Income Per Common Share

  $ (0.73 )   $ 0.22     $ (0.82 )   $ 0.27  
                                 

Weighted Average Number of Common Shares – Basic

    1,023,129       1,007,293       1,023,744       1,007,293  
                                 

Weighted Average Number of Common Shares - Diluted

    1,035,650       1,017,460       1,036,265       1,017,460  

 

See accompanying notes to condensed consolidated financial statements

 

2

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF CONDENSED STOCKHOLDERS' EQUITY

(UNAUDITED)

 

                   

Additional

           

Total

 
   

Common Stock

   

Paid-in

   

Accumulated

   

Stockholders’

 
   

Shares

   

Amount

   

Capital

   

Deficit

   

Equity

 

BALANCEJanuary 1, 2019

    1,006,768     $ 30,203     $ 19,756,839     $ (14,440,541 )   $ 5,346,501  
                                         

Issuance of Common Stock in connection with reverse split

    525       16       (16 )             0  
                                         

Amortization of stock based compensation

                    8,500               8,500  
                                         

Net income

                            52,336       52,336  
                                         

BALANCEMarch 31, 2019

    1,007,293     $ 30,219     $ 19,765,323     $ (14,388,205 )   $ 5,407,337  
                                         

Amortization of stock based compensation

                    8,498               8,498  
                                         

Net income

                            226,189       226,189  
                                         

BALANCEJune 30, 2019

    1,007,293     $ 30,219     $ 19,773,821     $ (14,162,016 )   $ 5,642,024  
                                         

BALANCEJanuary 1, 2020

    1,020,135     $ 30,604     $ 19,818,637     $ (14,272,897 )   $ 5,576,344  
                                         

Issuance of additional Common Stock

    3,609       108       (108 )             0  
                                         

Amortization of stock based compensation

                    18,651               18,651  
                                         

Net loss

                            (96,140 )     (96,140 )
                                         

BALANCEMarch 31, 2020

    1,023,744     $ 30,712     $ 19,837,180     $ (14,369,037 )   $ 5,498,855  
                                         

Amortization of stock based compensation

                    18,669               18,669  
                                         

Net loss

                            (754,935 )     (754,935 )
                                         

BALANCEJune 30, 2020

    1,023,744     $ 30,712     $ 19,855,849     $ (15,123,972 )   $ 4,762,589  

 

See notes to condensed consolidated financial statements.

 

3

 

 
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   

Six Months Ended

June 30,

 
   

2020

   

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net (loss) income

  $ (851,075 )   $ 278,525  

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

               

Depreciation and amortization

    65,668       48,171  

Stock based compensation

    37,320       16,998  

Impairment charge

    270,000       ---  

Changes in operating assets and liabilities:

               

Accounts receivable, trade

    299,420       (179,305 )

Inventories

    45,697       (22,833 )

Prepaid expenses and other current assets

    (187,846 )     204,427  

Customer deposits

    592       2,444  

Accounts payable

    (219,662 )     24,652  

Accrued expenses

    (155,329 )     (12,261 )

TOTAL ADJUSTMENTS

    155,860       82,293  
                 

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

    (695,215 )     360,818  
                 

CASH FLOWS USED IN INVESTING ACTIVITIES

               

Payment of notes receivable

    ---       32,610  

Purchase of property and equipment

    (4,912 )     (62,260 )

NET CASH USED IN INVESTING ACTIVITIES

    (4,912 )     (29,650 )
                 

CASH FLOWS USED IN FINANCING ACTIVITIES

               

Dividends paid

    (255,937 )     ---  

Repayment of right of use leases payable

    (23,096 )     (9,656 )

Repayment of notes payable

    ---       (118,264 )

NET CASH USED IN FINANCING ACTIVITIES

    (279,033 )     (127,920 )
                 

NET CHANGE IN CASH

    (979,160 )     203,248  
                 

CASH – Beginning

    3,597,491       2,838,649  

CASH – Ending

  $ 2,618,331     $ 3,041,897  
                 

NON-CASH OPERATING AND INVESTING ACTIVITIES:

               

Change in Accounts Receivable through issuance of a Note Receivable

  $ ---     $ 276,036  
                 

Cash paid during the periods for:

               

Interest

  $ 12,288     $ 5,246  

Income taxes

  $ 28,079     $ ---  

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

NOTE 1 - Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Saker Aviation Services, Inc. (the “Company”) and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial statements and in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and disclosures required by GAAP for annual financial statements and should be read in conjunction with the financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

 

The condensed consolidated balance sheet as of June 30, 2020 and the condensed consolidated statements of operations and cash flows for the three and six months ended June 30, 2020 and 2019 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, 2020 and its results of operations and cash flows for the three months ended June 30, 2020 not misleading. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for any full year or any other interim period.

 

Throughout 2020, the COVID-19 pandemic has continued to spread and impact the global and United States economies. Federal, state, and local governments have implemented certain travel restrictions, “stay-at-home” orders, and social distancing initiatives which have negatively impacted our operations. As a result of the ongoing COVID-19 pandemic, on March 17, 2020 all sightseeing tour operations at the Downtown Manhattan Heliport ceased. On July 20, 2020, New York City started Phase 4 of the city’s reopening and sightseeing tour operators at the heliport restarted operations under this phase. For the period July 20, 2020 through the date of this report, sightseeing tour operators have experienced low demand and minimal activity. To date, the COVID-19 pandemic has had a less substantial impact on our operations at our Kansas FBO and MRO.

 

We have experienced a substantial decrease in revenue during the first two fiscal quarters of 2020 compared to prior year periods and expect this trend to continue throughout the remainder of the fiscal year. The full extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the COVID-19 pandemic and related travel advisories and restrictions, and the impact of the COVID-19 pandemic on overall demand for air travel, all of which are highly uncertain and cannot be predicted. Based on the impact that the COVID-19 pandemic has already had on our business, we expect to experience a significant decrease in revenue for the fiscal year ending December 31, 2020 relative to prior year periods.

 

 

NOTE 2 – Liquidity and Material Agreements

 

As of June 30, 2020, we had cash of $2,618,331 and a working capital surplus of $3,171,299. We generated revenue of $2,112,387 and had a net loss of $(851,075) for the six months ended June 30, 2020. For the six months ended June 30, 2020, cash flows included net cash used in operating activities of $695,215, net cash used in investing activities of $4,912, and net cash used in financing activities of $279,033.

 

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”).

 

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.

 

5

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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”), and as the result of a subsequent extension agreement between the Company and the Bank entered into on June 30, 2020, the Company may continue to, at the discretion of the Bank, borrow up to an aggregate amount of $2,500,000 through June 30, 2021 (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, 2020, there were 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 is 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, 2020, 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, 2020, 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, 2020 and 2019, we incurred approximately $414,000 and $760,000 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, 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. 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.

 

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 a former officer and director of the CompanyThe Company incurred management fees with Empire Aviation of approximately $144,000 and $910,000 during the six months ended June 30, 2020 and 2019, 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.  The Company’s former officer and director is also an active participant with HJTC, which is managed by the former officer and director’s grandson. One of our Directors, Sam Goldstein, serves as deputy director of HJTC.  

 

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.

 

6

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 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. The Company intends to pursue remaining amounts due under the note and it is the Company’s expectation 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. 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 COVID-19 pandemic has significantly depressed the market value and demand for this type of aircraft and given these conditions, the Company has recorded an impairment charge in the quarter ended June 30, 2020 for the full carrying amount of the aircraft. Should market conditions change, the Company intends to pursue a sale or other disposition of the aircraft.

 

As described throughout this Quarterly Report on Form 10-Q, 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 and sightseeing tours resumed under this phase. For the period July 20, 2020, through the date of this report, sightseeing tour operators have experienced low demand and minimal activity. 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 and the PPP loan described below, we can make no assurance that these sources of liquidity 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 condensed 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 (Loss) Income Per Common Share

Net (loss) income was $(851,075) and $278,525 for the six months ended June 30, 2020 and 2019, respectively. Basic net income per share applicable to common stockholders is computed based on the weighted average number of shares of the Company’s common stock outstanding during the periods presented. Diluted net income per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities, consisting of options and warrants, are excluded from the calculation of the diluted income per share when their exercise prices were greater than the average market price of the common stock during the period. 

 

The following table sets forth the components used in the computation of basic net income per share:

 

   

For the Three Months Ended

June 30,

   

For the Six Months Ended

June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Weighted average common shares outstanding, basic

    1,023,129       1,007,293       1,023,744       1,007,293  

Common shares upon exercise of options and warrants

    12,521       10,167       12,521       10,167  

Weighted average common shares outstanding, diluted

    1,035,650       1,017,460       1,036,265       1,017,460  

 

7

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Stock-Based Compensation

Stock-based compensation expense for all stock-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 the six months ended June 30, 2020 and 2019, the Company incurred stock-based compensation of $37,320 and $16,998 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 June 30, 2020, the unamortized fair value of the options totaled $37,340 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.

 

Recently Adopted 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. The adoption of ASU No. 2016-02 did not have a material impact on the Company’s financial statements.

 

 

NOTE 4 – Inventories

 

Inventory consists primarily of aviation fuel, which the Company dispenses to its customers, and parts inventory as a result of the acquisition of Aircraft Services, 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,

2020

   

December 31,

2019

 

Parts inventory

  $ 88,649     $ 87,625  

Fuel inventory

    35,215       79,497  

Other inventory

    11,643       14,082  

Total inventory

  $ 135,507     $ 181,204  

 

Included in fuel inventory are amounts held for third parties of $38,722 and $25,804 as of June 30, 2020 and December 31, 2019, 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, 2020, 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 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.

 

8

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

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.

 

 

NOTE 8 – 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 is being paid in equal quarterly installments of $0.125 per share which began on November 1, 2019, with the final dividend scheduled to be paid on August 28, 2020. The total amount of future cash dividends to be paid has been accrued in the Company’s consolidated balance sheets as of June 30, 2020. In the September 30, 2019 announcement, the Company stated that it anticipated establishing a regular dividend after the special dividend was paid, depending on a number of factors including the profitability of the Company. In light of the COVID-19 pandemic’s impact on the Company’s business, no such regular dividend will be established at this time or for the foreseeable future. The declaration and payment of any future dividend will be at the sole discretion of the Board of Directors.

 

 

NOTE 9 – Subsequent Events

 

The Company was notified by Key Bank that it had successfully applied for a Payroll Protection Program loan, the proceeds of which were anticipated to be funded shortly after the notification. The Company anticipates that the approximately $300,000 in proceeds would be used primarily for payroll purposes and that the Company intends to manage its usage for the purposes of maximizing the potential loan forgiveness built into the program.

 

9

 

 

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 condensed consolidated 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, 2019.

 

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. 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 (“FFH”).

 

              Throughout 2020, the COVID-19 pandemic has continued to spread and impact the global and United States economies. Federal, state, and local governments have implemented certain travel restrictions, “stay-at-home” orders, and social distancing initiatives which have negatively impacted our operations. As a result of the ongoing COVID-19 pandemic, on March 17, 2020, all sightseeing tour operations at the Downtown Manhattan Heliport ceased due to a drop in demand. On July 20, 2020, New York City started Phase 4 of the city’s reopening and sightseeing tour operators at the heliport restarted operations under this phase. For the period July 20, 2020 through the date of this report, sightseeing tour operators have experienced low demand and minimal activity. To date, the COVID-19 pandemic has had a less substantial impact on our operations at our Kansas FBO and MRO.

 

              We have experienced a decrease in revenue during the first two fiscal quarters of 2020 compared to prior year periods and expect this trend to continue throughout the remainder of the fiscal year. The full extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the COVID-19 pandemic and related travel advisories and restrictions and the impact of the COVID-19 pandemic on overall demand for air travel, all of which are highly uncertain and cannot be predicted. Based on the impact that the COVID-19 pandemic has already had on our business, we expect to experience a significant decrease in revenue for the fiscal year ending December 31, 2020 relative to prior year periods.

 

10

 

REVENUE AND OPERATING RESULTS

 

Comparison of Continuing Operations from the Three and Six Months Ended June 30, 2020 and June 30, 2019.

 

REVENUE

 

             Operating results for the three and six month periods ended June 30, 2020 were negatively impacted by the ongoing COVID-19 pandemic. The COVID-19 pandemic has depressed year-over-year activity at our Heliport and, consequently, the results reported below.

 

Revenue from operations decreased by 86.1 percent to $438,632 for the three months ended June 30, 2020 as compared with corresponding prior-year period revenue of $3,162,597.

 

For the three months ended June 30, 2020, revenue from operations associated with the sale of jet fuel, aviation gasoline and related items decreased by 77.8 percent to approximately $283,000 as compared to approximately $1,278,000 in the three months ended June 30, 2019. This decrease was attributable to the lower volume of gallons of aviation gasoline sold at our New York location due to the COVID-19 pandemic.

 

For the three months ended June 30, 2020, revenue from operations associated with services and supply items decreased by 92.1 percent to approximately $147,000 as compared to approximately $1,853,000 in the three months ended June 30, 2019. This decrease was attributable to a lower demand for services at our New York location due to the COVID-19 pandemic.

 

For the three months ended June 30, 2020 all other revenue from operations decreased by 72.3 percent to approximately $9,000 as compared to approximately $32,000 in the three months ended June 30, 2019. This decrease was largely attributable to a decrease in non-aeronautical revenue generated at our New York location compared to the same period last year.

 

Total revenue decreased by 59.7 percent to $2,112,387 for the six months ended June 30, 2020 as compared with corresponding prior-year period revenue of $5,235,369.

 

For the six months ended June 30, 2020, revenue from operations associated with the sale of jet fuel, aviation gasoline and related items decreased by 48.3 percent to approximately $1,090,000 as compared to approximately $2,109,000 in the six months ended June 30, 2019. This decrease was attributable to the lower volume of gallons of aviation gasoline sold at our New York location due to the COVID-19 pandemic.

 

For the six months ended June 30, 2020, revenue from operations associated with services and supply items decreased by 66.8 percent to approximately $1,000,000 as compared to approximately $3,011,000 in the six months ended June 30, 2019. This decrease was attributable to a lower demand for services at our New York location due to the COVID-19 pandemic.

 

For the six months ended June 30, 2020, all other revenue from operations decreased by 80.1 percent to approximately $23,000 as compared to approximately $115,000 in the six months ended June 30, 2019. This decrease was largely attributable to a decrease in non-aeronautical revenue generated by our Heliport compared to the same period last year.

 

GROSS PROFIT (LOSS)

 

             Total gross profit (loss) from operations decreased by 106.5 percent in the three months ended June 30, 2020. The company experienced a loss from operations of $(104,968) in the three months ended June 30, 2020 as compared to a gross profit of $1,627,048 during the three months ended June 30, 2019. Gross profit was negatively impacted by ongoing operating costs at our New York location with no offsetting revenues due to the COVID-19 pandemic. Gross margin decreased to (23.9) percent in the three months ended June 30, 2020 as compared to 51.4 percent in the same period in the prior year.

 

Total gross profit from operations decreased by 80.6 percent to $487,122 in the six months ended June 30, 2020 as compared to $2,516,582 in the six months ended June 30, 2019. Gross margin decreased to 23.1 percent in the six months ended June 30, 2020 as compared to 48.1 percent in the same period in the prior year. The decreases in gross profit and gross margin in a year over year basis were driven by the items discussed above.

 

11

 

OPERATING EXPENSE

 

Selling, General and Administrative

 

Total selling, general and administrative expenses, (“SG&A”), from operations were approximately $167,000 in the three months ended June 30, 2020, representing a decrease of approximately $970,000 or 85.3 percent, as compared to the same period in 2019. SG&A from operations in the six months ended June 30, 2020 were approximately $743,000, representing a decrease of approximately $1,100,000 or 59.7 percent, as compared to the same period in 2019. The decrease in SG&A operating expenses for both the three and six months ended June 30, 2020, were largely attributable to lower activity at our heliport as well as a reduction in fees due to the heliport’s management company, Empire Aviation.

 

Corporate SG&A from operations was approximately $208,000 for the three months ended June 30, 2020, representing an increase of approximately $61,000 as compared with the corresponding prior year period. Corporate SG&A was approximately $326,000 for the six months ended June 30, 2020, representing an increase of approximately $52,000 as compared with the corresponding prior year period. The increases in both the three and six month periods on a year over year basis were largely attributable to the non-recurring write-off of miscellaneous receivables in the second quarter of 2020.

 

OPERATING (LOSS) INCOME

 

Operating loss from operations for the three and six months ended June 30, 2020 was ($480,093) and ($581,580), respectively, compared to operating income of $342,557 and $400,136 in the three and six months ended June 30, 2019, respectively. The decrease in operating income on a year-over-year basis was driven by the factors described above.

 

Depreciation and Amortization

 

Depreciation and amortization was approximately $66,000 and $48,000 for the six months ended June 30, 2020 and 2019, respectively. The increase in depreciation and amortization is due primarily to amortization costs associated with our right of use leases.

 

Interest Income and Expense

 

Interest income for the six months ended June 30, 2020 was approximately $13,000 as compared to approximately $14,000 in the same period in 2019. Interest expense for the six months ended June 30, 2020 was approximately $12,000 as compared to approximately $5,000 in the same period in 2019. The increase in interest expense is due primarily to interest expense associated with our right of use leases.

 

Income Tax

 

Income tax expense for the six months ended June 30, 2020 was $0 as compared to $131,000 during the same period in 2019. The decrease is attributable to a net loss in the six months ended June 30, 2020 as compared to net income in the same period in 2019.

 

Net (Loss) Income Per Share

 

Net (loss) income was $(851,075) and $278,525 for the six months ended June 30, 2020 and 2019, respectively.

 

Basic net (loss) income per share for the six months ended June 30, 2020 and 2019 was $(0.83) and $0.27, respectively. Diluted net (loss) income per share for the six months ended June 30, 2020 and 2019 was $(0.82) and $0.27, respectively.

 

12

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of June 30, 2020, we had cash of $2,618,331 and a working capital surplus of $3,171,299. We generated revenue for the six months ended June 30, 2020 of $2,112,387 and had a net loss of $(851,075). For the six months ended June 30, 2020, cash flows included net cash used in operating activities of $695,215, net cash used in investing activities of $4,912, and net cash used in financing activities of $279,033.

 

              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 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”), and as the result of a subsequent extension agreement between the Company and the Bank entered into on June 30, 2020, the Company may continue to, at the discretion of the Bank, borrow up to an aggregate amount of $2,500,000 through June 30, 2021 (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, 2020, there were 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 is 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, 2020, 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, 2020, all amounts outstanding under the Key Bank Term Note have been repaid.

 

13

 

              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, 2020 and 2019, we incurred approximately $414,000 and $760,000 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, 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. Additionally, since on 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.

 

             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 a prior officer and director of the CompanyThe Company incurred management fees with Empire Aviation of approximately $144,000 and $910,000 during the six months ended June 30, 2020 and 2019, 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.  The former officer and director is also an active participant with HJTC, which is managed by the prior officer and director’s grandson. One of our Directors, Sam Goldstein, serves as deputy director of HJTC.  

 

  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.

 

             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 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. The Company intends to pursue remaining amounts due under the note and it is the Company’s expectation 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. 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 COVID-19 pandemic has significantly depressed the market value and demand for this type of aircraft and given these conditions, the Company has recorded an impairment charge in the quarter ended June 30, 2020 for the full carrying amount of the aircraft. Should market conditions change, the Company intends to pursue a sale or other disposition of the aircraft.

 

14

 

             As described throughout this Quarterly Report on Form 10-Q, on March 17, 2020, all sightseeing tour operations at the Downtown Manhattan Heliport ceased due to the COVID-19 pandemic. On July 20, 2020, New York City began Phase 4 of the city’s reopening and sightseeing tours resumed under this phase. For the period July 20, 2020, through the date of this report, sightseeing tour operators have experienced low demand and minimal activity. To mitigate the 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 and PPP loan described above, we can make no assurance that these sources of liquidity will be sufficient to fund our operations. Additionally, certain restrictions in the Key Bank Revolver Note may prohibit us from obtaining more attractive financing.

 

              During the six months ended June 30, 2020, we had a net decrease in cash of $979,160. Our sources and uses of funds during this period were as follows:

 

Cash from Operating Activities

 

             For the six months ended June 30, 2020, net cash used in operating activities was $695,215. This amount included a decrease in operating cash related to net loss of $851,075 and additions for the following items: (i) depreciation and amortization, $65,668; (ii) stock based compensation, $37,320; (iii) accounts receivable, trade, $299,420; (iv) inventories, $45,697; (v) impairment charge, $270,000; and (vi) customer deposits, $592. These increases in operating activities were offset by decreases for the following items: (i) prepaid expenses and other current assets, $187,846; (ii) accounts payable; $219,662; and (ii) accrued expenses, $155,329.

 

     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.

 

Cash from Investing Activities

 

            For the six months ended June 30, 2020, net cash of $4,912 was used in investing activities for the purchase of property and equipment. 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.

 

Cash from Financing Activities

 

             For the six months ended June 30, 2020, net cash of $279,033 was used in financing activities for the payment of accrued dividends of $255,937 and repayment of right of use leases payable of $23,096. 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.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Recently Adopted 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. The adoption of ASU No. 2016-02 did not have a material impact on the Company’s financial statements.

 

15

 

CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

 

Statements contained in this report may contain information that includes or is based upon "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent management's current judgment and assumptions, and can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are frequently accompanied by the use of such words as "anticipates," "plans," "believes," "expects," "projects," "intends," and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, including, but not limited to, those relating to:

 

 

the impact of the COVID-19 pandemic on our business and results of operations;

 

our ability to secure the additional debt or equity financing, if required, to execute our business plan;

 

our ability to identify, negotiate and complete the acquisition of targeted operators and/or other businesses, consistent with our business plan;

 

existing or new competitors consolidating operators ahead of us; and

 

our ability to attract new personnel or retain existing personnel, which would adversely affect implementation of our overall business strategy.

 

Any one of these or other risks, uncertainties, other factors, or any inaccurate assumptions made by the Company may cause actual results to be materially different from those described herein or elsewhere by us. Undue reliance should not be 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, 2019 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.

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 4 – Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

              Management, including our President, Chief Executive Officer and our principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon, and as of the date of that evaluation, our President, Chief Executive Officer and principal financial officer concluded that our disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports filed and submitted by us under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported as and when required, and (ii) is accumulated and communicated to our management, including our President, Chief Executive Officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

16

 

PART II – OTHER INFORMATION

 

Item 1A - Risk Factors

 

Except as stated below, there have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

 

We will need additional financing to expand our business.

 

Certain potential aviation services firms which we may seek to acquire in the future may accept shares of our common stock or other securities as payment by us for the acquisition. However, we believe that most will likely prefer cash payments, whether paid at the closing or in post-closing installment payments. There can be no assurance that our operations will generate sufficient cash flow to meet these acquisition obligations, particularly with the uncertainty related to the duration of the COVID-19 pandemic. Accordingly, we anticipate the need to seek additional equity or debt financing to meet any cash requirements for acquisitions. Any such financing will be dependent on general market conditions and the stock market’s evaluation of our performance and potential. With the significant economic and market volatility caused by the COVID-19 pandemic, we can give no assurance that we will obtain such equity or debt financing and, even if we do, that the terms would be satisfactory to us.

 

The COVID-19 pandemic has had, and is expected to continue to have, a material adverse impact on the Company's business, operating results and financial condition, and resulted in the temporary suspension, and continued minimal activity, of our customer’s operations at the Downtown Manhattan Heliport.

 

The COVID-19 pandemic and its impact on travel demand, travel behavior, or travel restrictions has had, and is expected to continue to have, a material adverse impact on our business, financial condition and operating results. The pandemic has resulted in increased government restrictions and regulation, including certain interstate and other travel restrictions and quarantines of our personnel, and future regulations may make accessing our facilities overly burdensome or impossible, which would adversely affect our operations.

 

Throughout 2020, the COVID-19 pandemic has continued to spread and impact the global and United States economies. Federal, state, and local governments have implemented certain travel restrictions, “stay-at-home” orders, and social distancing initiatives which have negatively impacted our operations. As a result of the ongoing COVID-19 pandemic, on March 17, 2020 all sightseeing tour operations the Downtown Manhattan Heliport ceased. On July 20, 2020, New York City started Phase 4 of the city’s reopening and sightseeing tour operators at the heliport restarted operations under this phase. For the period July 20, 2020 through the date of this report, sightseeing tour operators have experienced low demand and minimal activity. Additionally, the general economic conditions resulting from the COVID-19 pandemic have significantly depressed the market value of certain types of aircraft, which led us to record a $270,000 impairment charge relating to a Falcon 10 aircraft we previously recorded as an asset held for sale. To date, the COVID-10 pandemic has had a less substantial impact on our operations at our Kansas FBO and MRO.

 

To-date, we have experienced a decrease in revenue during the first two fiscal quarters of 2020 compared to prior year periods and expect this trend to continue throughout the remainder of the fiscal year. The full extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the COVID-19 pandemic and related travel advisories and restrictions and the impact of the COVID-19 pandemic on overall demand for air travel, all of which are highly uncertain and cannot be predicted. Based on the impact that the COVID-19 pandemic has already had on our business, we expect to experience a significant decrease in revenue for the fiscal year ending December 31, 2020 relative to prior year periods.

 

17

 

We expect our business, results of operations and financial condition to be adversely affected by the COVID-19 pandemic.

 

The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption. Although the full extent to which the COVID-19 pandemic impacts our business, operations and financial results is uncertain and will depend on numerous evolving factors that we may not be able to accurately predict, we expect our results for the fiscal year ending December 31, 2020 to be adversely affected. Factors that will determine the full extent to which the COVID-19 pandemic impacts our business include, but are not limited to:

 

the duration and scope of the pandemic;

 

the length of time our customer’s sightseeing tour operations at the Downtown Manhattan Heliport are suspended due to decreased demand;

 

federal, state, and local governmental actions taken in response to the pandemic and the impact of those actions on global economic activity;

 

the duration and scope of “stay-at-home” orders implemented in New York City and our other operating regions and social distancing initiatives undertaken by businesses and individuals;

 

the actions taken in response to economic disruption, including any federal or state-level economic “phase-in” processes and the impact of such processes on the air tourism industry;

 

the impact of business disruptions and reductions in employment levels in the United States;

 

our customers’ continuing viability as businesses; and

 

the possibility that all of our facilities will be required to close.

 

 

Item 6 - Exhibits

 

Exhibit No.

 

Description of Exhibit

 
       

31.1

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (principal executive officer). *

 
       

31.2

 

Rule 13a-14(a)/15d-14(a) Certification of President (principal financial officer). *

 

 

 

 

 

32.1

 

Section 1350 Certification. *

 
       

 101.INS

 

 XBRL Instance Document *

 
       

101.SCH

 

XBRL Taxonomy Extension Schema Document. *

 
       

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document. *

 
       

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document. *

 
       

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document. *

 
       

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document. *

 

 

* Filed herewith

 

18

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Saker Aviation Services, Inc.

 

 

 

 

 

 

 

 

 

Date: August 14, 2020 

By:

/s/ Ronald J. Ricciardi

 

 

 

Ronald J. Ricciardi 

 

 

 

President, Chief Executive Officer, Principal Executive Officer,

Principal Financial Officer, and Principal Accounting Officer

 

       

 

 

 

19

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
6/30/2110-Q
4/30/21
12/31/2010-K
8/28/20
Filed on:8/14/20
7/20/20
For Period end:6/30/20
3/31/2010-Q
3/17/20
1/1/20
12/31/1910-K
11/1/19
10/31/19
9/30/1910-Q
6/30/1910-Q
5/31/19
3/31/1910-Q
3/1/19
2/27/198-K
1/15/19
1/1/19
10/11/18
9/15/18
5/1/18
4/20/18
3/21/188-K
3/15/188-K
1/1/17
10/1/16
6/1/16
4/11/1610-K
4/1/16
2/5/168-K
12/31/1510-K,  NT 10-K
7/6/153,  8-K,  SC 13D/A
6/30/1510-Q,  3,  8-K,  NT 10-Q
9/2/09
11/1/08
12/12/068-K
8/20/043,  8-K,  8-K/A
1/2/04
1/17/03
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