Saker Aviation Services, Inc 10-Q for FY2020 Q3
Saker Aviation Services, Inc. (SKAS)
About this 10-Q
Saker Aviation Services, Inc filed this 10-Q on November 16, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).
Headline figures
Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $720.79K
- down 78.7% from $3.38M a year earlier
- Net income
- $6364
- down 97.7% from net income of $277.88K a year earlier
- Diluted EPS
- $0.01
- down 96.3% from $0.27 a year earlier
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 September 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 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 November 16, 2020, the registrant had 1,028,863 shares of its common stock, $0.03 par value, issued and outstanding.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Form 10-Q
September 30, 2020
Index
|
PART I - FINANCIAL INFORMATION |
|||
|
|
|
|
|
| ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | Page | |
|
|
|
Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019 |
1 |
|
|
|
|
|
|
|
|
Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited) |
2 |
|
Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2020 and 2019 (unaudited) |
3 |
||
|
|
|
Statements of Cash Flows for the Nine Months Ended September 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 | 9 | |
| 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 |
||
|
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES |
|
CONDENSED CONSOLIDATED BALANCE SHEETS |
|
September 30, 2020 |
December 31, 2019 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
|
CURRENT ASSETS |
|
|||||||
|
Cash |
$ | 2,368,473 | $ | 3,597,491 | ||||
|
Accounts receivable |
501,609 | 678,045 | ||||||
|
Inventories |
180,309 | 181,204 | ||||||
|
Notes receivable |
188,828 | 188,828 | ||||||
|
Held for sale assets |
--- | 270,000 | ||||||
|
Prepaid expenses and other current assets |
690,995 | 294,644 | ||||||
|
Total current assets |
3,930,214 | 5,210,212 | ||||||
|
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $3,735,038 and $3,676,488 as of September 30, 2020 and December 31, 2019, respectively |
269,678 | 323,316 | ||||||
|
OTHER ASSETS |
||||||||
|
Deposits |
2,512 | 2,512 | ||||||
|
Right of use assets |
455,389 | 495,377 | ||||||
|
Goodwill |
750,000 | 750,000 | ||||||
|
Deferred income taxes |
476,000 | 476,000 | ||||||
|
Total other assets |
1,683,901 | 1,723,889 | ||||||
|
TOTAL ASSETS |
$ | 5,883,793 | $ | 7,257,417 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
|
CURRENT LIABILITIES |
||||||||
|
Accounts payable |
$ | 100,652 | $ | 397,343 | ||||
|
Customer deposits |
130,987 | 130,395 | ||||||
|
Accrued dividends payable |
--- | 373,370 | ||||||
|
Accrued expenses |
143,254 | 319,557 | ||||||
|
Right of use leases payable – current portion |
42,721 | 60,675 | ||||||
|
Total current liabilities |
417,614 | 1,281,340 | ||||||
|
LONG-TERM LIABILITIES |
||||||||
|
Loans payable |
304,833 | --- | ||||||
|
Right of use leases payable - less current portion |
384,263 | 399,733 | ||||||
|
Total liabilities |
1,106,710 | 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; 1,028,863 and 1,020,135 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively |
30,866 | 30,604 | ||||||
|
Additional paid-in capital |
19,874,364 | 19,818,637 | ||||||
|
Accumulated deficit |
(15,128,147 | ) | (14,272,897 | ) | ||||
|
TOTAL STOCKHOLDERS’ EQUITY |
4,777,083 | 5,576,344 | ||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 5,883,793 | $ | 7,257,417 | ||||
See accompanying notes to condensed consolidated financial statements.
|
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES |
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
|
(UNAUDITED) |
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
|
2020 |
2019 |
2020 |
2019 |
|||||||||||||
|
REVENUE |
$ | 720,787 | $ | 3,383,514 | $ | 2,833,174 | $ | 8,618,883 | ||||||||
|
COST OF REVENUE |
421,662 | 1,679,938 | 2,046,927 | 4,398,725 | ||||||||||||
|
GROSS (LOSS) PROFIT |
299,125 | 1,703,576 | 786,247 | 4,220,158 | ||||||||||||
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
807,505 | 1,284,521 | 1,876,207 | 3,400,967 | ||||||||||||
|
OPERATING (LOSS) INCOME |
(508,380 | ) | 419,055 | (1,089,960 | ) | 819,191 | ||||||||||
|
OTHER EXPENSE (INCOME) |
||||||||||||||||
|
IMPAIRMENT CHARGE |
--- | --- | 270,000 | --- | ||||||||||||
|
INTEREST INCOME |
(3,683 | ) | (6,808 | ) | (16,476 | ) | (21,443 | ) | ||||||||
|
INTEREST EXPENSE |
5,939 | 1,427 | 18,227 | 6,673 | ||||||||||||
|
TOTAL OTHER EXPENSE (INCOME), net |
2,256 | (5,381 | ) | 271,751 | (14,770 | ) | ||||||||||
|
(LOSS) INCOME BEFORE INCOME TAX |
(510,636 | ) | 424,436 | (1,361,711 | ) | 833,961 | ||||||||||
|
INCOME TAX BENEFIT (EXPENSE) |
517,000 | (146,554 | ) | 517,000 | (277,554 | ) | ||||||||||
|
NET INCOME (LOSS) |
$ | 6,364 | $ | 277,882 | $ | (844,711 | ) | $ | 556,407 | |||||||
|
Basic Net (Loss) Income Per Common Share |
$ | 0.01 | $ | 0.28 | $ | (0.83 | ) | $ | 0.55 | |||||||
|
Diluted Net Income Per Common Share |
$ | 0.01 | $ | 0.27 | $ | --- | $ | 0.54 | ||||||||
|
Weighted Average Number of Common Shares – Basic |
1,024,467 | 1,007,293 | 1,023,579 | 1,007,293 | ||||||||||||
|
Weighted Average Number of Common Shares - Diluted |
1,034,643 | 1,023,118 | 1,033,755 | 1,023,118 | ||||||||||||
|
See accompanying notes to condensed consolidated financial statements |
|
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 |
||||||||||||||||
|
BALANCE – January 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 | ||||||||||||||||||
|
BALANCE – March 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 | ||||||||||||||||||
|
BALANCE – June 30, 2019 |
1,007,293 | $ | 30,219 | $ | 19,773,821 | $ | (14,162,016 | ) | $ | 5,642,024 | ||||||||||
|
Amortization of stock-based compensation |
8,500 | 8,500 | ||||||||||||||||||
|
Accrued dividends |
(500,000 | ) | (500,000 | ) | ||||||||||||||||
|
Net income |
277,882 | 277,882 | ||||||||||||||||||
|
BALANCE – September 30, 2019 |
1,007,293 | $ | 30,219 | $ | 19,782,321 | $ | (14,384,134 | ) | $ | 5,428,406 | ||||||||||
|
BALANCE – January 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 | ) | ||||||||||||||||
|
BALANCE – March 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 | ) | ||||||||||||||||
|
BALANCE – June 30, 2020 |
1,023,744 | $ | 30,712 | $ | 19,855,849 | $ | (15,123,972 | ) | $ | 4,762,589 | ||||||||||
|
Issuance of additional Common Stock |
5,119 | 154 | (154 | ) | 0 | |||||||||||||||
|
Payment of dividends |
(10,539 | ) | (10,539 | ) | ||||||||||||||||
|
Amortization of stock-based compensation |
18,669 | 18,669 | ||||||||||||||||||
|
Net income\ |
6,364 | 6,364 | ||||||||||||||||||
|
BALANCE – September 30, 2020 |
1,028,863 | $ | 30,866 | $ | 19,874,364 | $ | (15,128,147 | ) | $ | 4,777,083 | ||||||||||
See notes to condensed consolidated financial statements.
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
Nine Months Ended September 30, |
||||||||
|
2020 |
2019 |
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
|
Net (loss) income |
$ | (844,711 | ) | $ | 556,407 | |||
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||
|
Depreciation and amortization |
98,538 | 80,572 | ||||||
|
Impairment charge |
270,000 | --- | ||||||
|
Stock based compensation |
55,989 | 25,498 | ||||||
|
Changes in operating assets and liabilities: |
||||||||
|
Accounts receivable, trade |
176,436 | (148,034 | ) | |||||
|
Inventories |
895 | (34,098 | ) | |||||
|
Prepaid expenses and other current assets |
(396,351 | ) | 402,984 | |||||
|
Customer deposits |
592 | 3,032 | ||||||
|
Accounts payable |
(296,691 | ) | 25,371 | |||||
|
Accrued expenses |
(176,303 | ) | (29,496 | ) | ||||
|
TOTAL ADJUSTMENTS |
(266,895 | ) | 325,829 | |||||
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES |
(1,111,606 | ) | 882,236 | |||||
|
CASH FLOWS USED IN INVESTING ACTIVITIES |
||||||||
|
Payment of notes receivable |
-- | 87,208 | ||||||
|
Purchase of property and equipment |
(4,912 | ) | (168,857 | ) | ||||
|
NET CASH USED IN INVESTING ACTIVITIES |
(4,912 | ) | (81,649 | ) | ||||
|
CASH FLOWS USED IN FINANCING ACTIVITIES |
||||||||
|
Dividends paid |
(383,909 | ) | --- | |||||
|
Repayment of right of use leases payable |
(33,424 | ) | (25,589 | ) | ||||
|
Issuance of note payable |
304,833 | --- | ||||||
|
Repayment of notes payable |
--- | (112,117 | ) | |||||
|
NET CASH USED IN FINANCING ACTIVITIES |
(112,500 | ) | (137,706 | ) | ||||
|
NET CHANGE IN CASH |
(1,229,018 | ) | 662,881 | |||||
|
CASH – Beginning |
3,597,491 | 2,838,649 | ||||||
|
CASH – Ending |
$ | 2,368,473 | $ | 3,501,530 | ||||
|
NON-CASH OPERATING AND INVESTING ACTIVITIES: |
||||||||
|
Change in Accounts Receivable through issuance of a Note Receivable |
$ | --- | $ | 276,036 | ||||
|
Accrued Dividend Payable |
$ | --- | $ | 500,000 | ||||
|
Cash paid during the periods for: |
||||||||
|
Interest |
$ | 18,227 | $ | 6,673 | ||||
|
Income taxes |
$ | 28,079 | $ | 65,554 | ||||
See accompanying notes to condensed consolidated financial statements.
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 December 31, 2019 has been derived from the audited financial statements and the condensed consolidated balance sheet as of September 30, 2020 have been prepared by the Company without audit. The condensed consolidated statements of operations and stockholders equity for the three and nine months ended September 30, 2020 and 2019 and the condensed consolidated statement of cash flows for the nine months ended September 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 September 30, 2020 and its results of operations and cash flows and changes in equity for the nine months ended September 30, 2020 not misleading. The results of operations for the three and nine months ended September 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. 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 operations at our Kansas FBO and MRO.
We have experienced a substantial decrease in revenue during the first three fiscal quarters of 2020 compared to prior year periods and expect this trend to continue throughout the remainder of the fiscal year and into 2021. 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. 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 September 30, 2020, we had cash of $2,368,473 and a working capital surplus of $3,512,600. We generated revenue of $2,833,174 and had a net loss of $(844,711) for the nine months ended September 30, 2020. For the nine months ended September 30, 2020, cash flows included net cash used in operating activities of $1,111,606, net cash used in investing activities of $4,912, and net cash used in financing activities of $112,500.
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.
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 may continue 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 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 September 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 September 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 September 30, 2020, all amounts outstanding under the Key Bank Term Note have been repaid.
On August 14, 2020, the Company was granted a loan from KeyBank National Association (“the Loan”) in the amount of $304,833, pursuant to the Paycheck Protection Program (the “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 (“the “Note”), matures in August 2025 and bears interest at a rate of 1% per annum and is payable in monthly installments commencing on, or before, October 31, 2021. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations. The Company intends to use the proceeds for purposes consistent with the PPP. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
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 program year that began on May 1, 2020, the City agreed, in recognition of the pandemic’s impact, that the Company could defer payment of minimum guaranteed payments. Further discussions with City led to a tentative agreement that the deferred fees would be abated. Concession fees in this Form 10-Q have been accounted for based on the abatement. During the nine months ended September 30, 2020 and 2019, we incurred approximately $315,000 and $1,190,000 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, beginning on June 1, 2016, the Company was required to provide monthly written reports to the NYCEDC and the New York City Council detailing the number of tourist flights conducted out of the Downtown Manhattan Heliport compared to 2015 levels, as well as information on any tour flight that flies over land and/or strays from agreed upon routes.
The Air Tour Agreement also extended the Concession Agreement for 30 months, resulting in a new expiration date of April 30, 2021. The City of New York has two one-year options to further extend the Concession Agreement. The Air Tour Agreement also 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.
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 Company. The Company incurred management fees with Empire Aviation of approximately $144,000 and $1,600,000 during the nine months ended September 30, 2020 and 2019, respectively, which is recorded in administrative expenses. 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 is also an active participant with HTJC, which is managed by the former officer and director’s grandson. One of our Directors, Sam Goldstein, serves as deputy director of HTJC.
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 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. Should market conditions change, the Company intends to pursue the sale.
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. 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, 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 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 $(844,711) and $556,407 for the nine months ended September 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 September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
|
2020 |
2019 |
2020 |
2019 |
|||||||||||||
|
Weighted average common shares outstanding, basic |
1,024,467 | 1,007,293 | 1,023,579 | 1,007,293 | ||||||||||||
|
Common shares upon exercise of options and warrants |
10,176 | 15,825 | 10,176 | 15,825 | ||||||||||||
|
Weighted average common shares outstanding, diluted |
1,034,643 | 1,023,118 | 1,033,755 | 1,023,118 | ||||||||||||
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 nine months ended September 30, 2020 and 2019, the Company incurred stock-based compensation of $55,989 and $25,498 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 September 30, 2020, the unamortized fair value of the options totaled $18,671 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:
|
September 30, 2020 |
December 31, 2019 |
|||||||
|
Parts inventory |
$ | 91.603 | $ | 87,625 | ||||
|
Fuel inventory |
74,469 | 79,497 | ||||||
|
Other inventory |
14,237 | 14,082 | ||||||
|
Total inventory |
$ | 180,309 | $ | 181,204 | ||||
Included in fuel inventory are amounts held for third parties of $25,911 and $25,804 as of September 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 nine months ended September 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.
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 was paid in equal quarterly installments of $0.125 per share beginning on November 1, 2019, with the final dividend paid on or about August 28, 2020. The declaration and payment of any future dividend will be at the sole discretion of the Board of Directors.
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”), and as a provider of aircraft maintenance and repair services (“MRO”). 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. 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 three 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. 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.
REVENUE AND OPERATING RESULTS
Comparison of Operations from the Three and Nine Months Ended September 30, 2020 and September 30, 2019.
REVENUE
Operating results for the three and nine month periods ended September 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 78.7 percent to $720,787 for the three months ended September 30, 2020 as compared with corresponding prior-year period revenue of $3,383,514.
For the three months ended September 30, 2020, revenue from operations associated with the sale of jet fuel, aviation gasoline and related items decreased by 68.5 percent to approximately $467,000 as compared to approximately $1,484,000 in the three months ended September 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 September 30, 2020, revenue from operations associated with services and supply items decreased by 86.9 percent to approximately $243,000 as compared to approximately $1,854,000 in the three months ended September 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 September 30, 2020 all other revenue from operations decreased by 76.2 percent to approximately $11,000 as compared to approximately $45,000 in the three months ended September 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 67.1 percent to $2,833,174 for the nine months ended September 30, 2020 as compared with corresponding prior-year period revenue of $8,618,833.
For the nine months ended September 30, 2020, revenue from operations associated with the sale of jet fuel, aviation gasoline and related items decreased by 56.7 percent to approximately $1,557,000 as compared to approximately $3,593,000 in the nine months ended September 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 nine months ended September 30, 2020, revenue from operations associated with services and supply items decreased by 74.5 percent to approximately $1,243,000 as compared to approximately $4,866,000 in the nine months ended September 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 nine months ended September 30, 2020, all other revenue from operations decreased by 79.0 percent to approximately $34,000 as compared to approximately $161,000 in the nine months ended September 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
Total gross profit from operations decreased by 82.4 percent in the three months ended September 30, 2020. The company experienced a gross profit from operations of $299,125 in the three months ended September 30, 2020 as compared to a gross profit of $1,703,576 during the three months ended September 30, 2019. Gross profit in the three months ended September 30, 2020 was positively impacted by a credit in the amount of approximately $475,000 in connection with the abatement of fees at our New York facility that were formerly deferred. 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 41.5 percent in the three months ended September 30, 2020 as compared to 50.3 percent in the same period in the prior year.
Total gross profit from operations decreased by 81.4 percent to $786,247 in the nine months ended September 30, 2020 as compared to $4,220,158 in the nine months ended September 30, 2019. Gross margin decreased to 27.8 percent in the nine months ended September 30, 2020 as compared to 49.0 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.
OPERATING EXPENSE
Selling, General and Administrative
Total selling, general and administrative expenses, (“SG&A”), from operations were approximately $1,876,000 in the nine months ended September 30, 2020, representing a decrease of approximately $1,525,000 or 44.8 percent, as compared to the same period in 2019. The decrease in SG&A operating expenses 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. The Company incurred management fees with Empire Aviation of approximately $0 and $144,000 in the three and nine months ended September 30, 2020, respectively, as compared to $690,000 and $1,600,000 during the same periods in 2019.
Corporate SG&A from operations was approximately $113,000 for the three months ended September 30, 2020, representing an increase of approximately $15,000 as compared with the corresponding prior year period. Corporate SG&A was approximately $439,000 for the nine months ended September 30, 2020, representing an increase of approximately $68,000 as compared with the corresponding prior year period. The increase in the nine month period on a year over year basis was largely attributable to the non-recurring write-off of miscellaneous receivables in the second quarter of 2020.
OPERATING (LOSS) INCOME
Operating (loss) income from operations for the three and nine months ended September 30, 2020 was ($508,380) and ($1,089,960), respectively, compared to operating income of $419,055 and $819,191 in the three and nine months ended September 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 $99,000 and $81,000 for the nine months ended September 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 nine months ended September 30, 2020 was approximately $16,000 as compared to approximately $21,000 in the same period in 2019. Interest expense for the nine months ended September 30, 2020 was approximately $18,000 as compared to approximately $7,000 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 (Benefit) Expense
Income tax benefit for the nine months ended September 30, 2020 was ($517,000) as compared to $277,554 in income tax expense during the same period in 2019. The income tax benefit is attributable to a net loss in the nine months ended September 30, 2020 as compared to net income in the same period in 2019.
Net Income (Loss) Per Share
Net income (loss) was $6,364 and $277,882 for the three months ended September 30, 2020 and 2019, respectively, and $(844,711) and $556,407 for the nine months ended September 30, 2020 and 2019, respectively.
Basic net income per share for the three months ended September 30, 2020 and 2019 was $0.01 and $0.28, respectively. Basic net (loss) income per share for the nine months ended September 30, 2020 and 2019 was $(0.83) and $0.55, respectively. Diluted net income per share for the three months ended September 30, 2020 and 2019 was $0.01 and $0.27, respectively. Diluted net income per share for the nine months ended September 30, 2019 was $0.54.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2020, we had cash of $2,368,473 and a working capital surplus of $3,512,600. We generated revenue for the nine months ended September 30, 2020 of $2,833,174 and had a net loss of $(844,711). For the nine months ended September 30, 2020, cash flows included net cash used in operating activities of $1,111,606, net cash used in investing activities of $4,912, and net cash used in financing activities of $112,500.
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.
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 may continue 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 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 September 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 September 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 September 30, 2020, all amounts outstanding under the Key Bank Term Note have been repaid.
On August 14, 2020, the Company was granted a loan from KeyBank National Association (“the Loan”) in the amount of $304,833, pursuant to the Paycheck Protection Program (the “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 (“the “Note”), matures in August 2025 and bears interest at a rate of 1% per annum and is payable in monthly installments commencing on, or before, October 31, 2021. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations. The Company intends to use the proceeds for purposes consistent with the PPP. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
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 program year that began on May 1, 2020, the City agreed, in recognition of the pandemic’s impact, that the Company could defer payment of minimum guaranteed payments. Further discussions with City led to a tentative agreement that the deferred fees would be abated. Concession fees in this Form 10-Q have been accounted for based on the abatement. During the nine months ended September 30, 2020 and 2019, we incurred approximately $315,000 and $1,190,000 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, beginning on June 1, 2016, the Company was required to provide monthly written reports to the NYCEDC and the New York City Council detailing the number of tourist flights conducted out of the Downtown Manhattan Heliport compared to 2015 levels, as well as information on any tour flight that flies over land and/or strays from agreed upon routes.
The Air Tour Agreement also extended the Concession Agreement for 30 months, resulting in a new expiration date of April 30, 2021. The City of New York has two one-year options to further extend the Concession Agreement. The Air Tour Agreement also 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.
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 Company. The Company incurred management fees with Empire Aviation of approximately $144,000 and $1,600,000 during the nine months ended September 30, 2020 and 2019, respectively, which is recorded in administrative expenses. 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 is also an active participant with HTJC, which is managed by the former officer and director’s grandson. One of our Directors, Sam Goldstein, serves as deputy director of HTJC.
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 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. Should market conditions change, the Company intends to pursue the sale.
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. 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, 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.
During the nine months ended September 30, 2020, we had a net decrease in cash of $1,229,018. Our sources and uses of funds during this period were as follows:
Cash from Operating Activities
For the nine months ended September 30, 2020, net cash used in operating activities was $1,111,606. This amount included a decrease in operating cash related to net loss of $844,711 and additions for the following items: (i) depreciation and amortization, $98,538; (ii) impairment charge, $270,000; (iii) stock based compensation, $55,989; (iv) accounts receivable, trade, $176,436; (v) inventories, $895; 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, $396,351; (ii) accounts payable; $296,691 and (ii) accrued expenses, $176,303.
For the nine months ended September 30, 2019, net cash provided by operating activities was $882,236. This amount included an increase in operating cash related to net income of $556,407 and additions for the following items: (i) depreciation and amortization, $80,572; (ii) stock based compensation, $25,498; (iii) prepaid expenses and other current assets, $402,984; (iv) customer deposits, $3,032; and (v) accounts payable, $25,371. These increases in operating activities were offset by decreases for the following items: (i) accounts receivable, trade; $148,034; (ii) inventories, $34,098; and (iii) accrued expenses, $29,496.
Cash from Investing Activities
For the nine months ended September 30, 2020, net cash of $4,912 was used in investing activities for the purchase of property and equipment. For the nine months ended September 30, 2019, net cash of $81,649 was used in investing activities for the purchase of property and equipment of $168,857 offset by payment of notes receivable of $87,208.
Cash from Financing Activities
For the nine months ended September 30, 2020, net cash of $112,500 was used in financing activities for the payment of accrued dividends of $383,909 and repayment of right of use leases payable of $33,424, offset by the issuance of a notes payable of $304,833. For the nine months ended September 30, 2019, net cash of $137,706 was used in financing activities for the repayment of right of use leases payable of $25,589 and repayment of notes payable of $112,117.
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.
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.
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 has resulted in lower demand and reduced activity 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. 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. Although the Downtown Manhattan Heliport has been able to reopen and our Kansas FBO and MRO is operating, there can be no assurance that these facilities will be able to remain open for the foreseeable future if there is another wave of business and travel restrictions to attempt to slow the spread of COVID-19.
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, we have experienced a decrease in revenue during the first three 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, which we expect to remain low for the duration of the pandemic. 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.
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. The COVID-19 pandemic has significantly and adversely affected our business, operations and financial results, and we expect these adverse effects to continue for the duration of the pandemic. and the full extent to which the COVID-19 pandemic impacts our business, operations and financial results 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 experience diminished demand; |
|
● |
federal, state, and local governmental actions taken in response to the pandemic and the impact of those actions on global economic activity; |
|
● |
the social distancing initiatives undertaken by businesses and individuals and the possibility of another wave of business and travel restrictions implemented in New York City in response to any resurgence of the pandemic; |
|
● |
the actions taken in response to economic disruption, including any federal or state-level economic responses restricting or related to operations within 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 |
||
|
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
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: November 16, 2020 |
By: |
/s/ Ronald J. Ricciardi |
||
|
|
|
Ronald J. Ricciardi |
||
|
|
|
President, Chief Executive Officer, Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer |
||
EXHIBIT 31.1
Certification of Chief Executive Officer
(principal executive officer)
Pursuant To Rule 13a-14(a)/15d-14(a)
I, Ronald J. Ricciardi, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Saker Aviation Services, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 16, 2020
By: /s/ Ronald J. Ricciardi
Ronald J. Ricciardi
Chief Executive Officer (principal executive officer)
EXHIBIT 31.2
Certification of President
(principal financial officer)
Pursuant To Rule 13a-14(a)/15d-14(a)
I, Ronald J. Ricciardi, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Saker Aviation Services, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 16, 2020
By: /s/ Ronald J. Ricciardi
Ronald J. Ricciardi
President (principal financial officer)
EXHIBIT 32.1
Section 1350 Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), Ronald J. Ricciardi, the Chief Executive Officer (principal executive officer) and President (principal financial officer) of Saker Aviation Services, Inc., does hereby certify that:
|
1. |
The Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 (the “Report”) of Saker Aviation Services, Inc. fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of Saker Aviation Services, Inc. |
|
Date: November 16, 2020
|
By: |
/s/ Ronald J. Ricciardi |
|
|
|
Ronald J. Ricciardi |
|
|
|
Chief Executive Officer (principal executive officer) |
|
|
|
|
|
Date: November 16, 2020
|
By: |
/s/ Ronald J. Ricciardi |
|
|
|
Ronald J. Ricciardi |
|
|
|
President (principal financial officer) |
A signed original of this written statement required by Section 906 has been provided to Saker Aviation Services, Inc. and will be retained by Saker Aviation Services, Inc., and furnished to the Securities and Exchange Commission or its staff upon request.