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, 2020.
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").
The COVID-19 pandemic has impacted the global and United States economies.
Federal, state, and local governments implemented certain travel restrictions,
"stay-at-home" orders, and social distancing initiatives which negatively
impacted our operations and those of our customers. As a result of the 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 experienced a decrease in revenue during the three months ended March 31,
2021 as compared to the prior year period. This decrease is primarily
attributable to a portion of the first quarter 2020 operations being negatively
affected by the COVID pandemic as compared to the negative effect of the COVID
pandemic on the entire first quarter of 2021 operation. While we expect the
COVID-19 pandemic to continue to adversely impact our business and operations,
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.
10
--------------------------------------------------------------------------------
Our long-term strategy is to increase our sales through growth within our
aviation services operations. To do so, we may expand our geographic reach and
product offering through strategic acquisitions and improved market penetration
within the markets we serve. We expect that any future acquisitions or product
offerings would be to complement and/or augment our current aviation services
operations.
If we are able to grow our business as planned, we anticipate that our larger
size would provide us with greater buying power from suppliers, resulting in
lower costs. We expect that lower costs would allow for a more aggressive
pricing policy against some competition. More importantly, we believe that the
higher level of customer service offered in our facilities will allow us to draw
additional aircraft to our facilities and thus allow us to compete against other
FBOs of varying sizes.
REVENUE AND OPERATING RESULTS
Comparison of Continuing Operations from the Three Months Ended March 31, 2021
and March 31, 2020.
REVENUE
Operating results for the three month periods ended March 31, 2021 and March 31,
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. This decrease in year-over-year
activity is primarily attributable to a portion of the first quarter 2020
operations being negatively affected by the COVID pandemic as compared to the
negative effect of the COVID pandemic on the entire first quarter of 2021
operation.
Revenue from operations decreased by 51.7 percent to $809,096 for the three
months ended March 31, 2021 as compared with corresponding prior-year period
revenue of $1,673,755.
For the three months ended March 31, 2021, revenue from operations associated
with the sale of jet fuel, aviation gasoline and related items decreased by 37.2
percent to approximately $506,000 as compared to approximately $807,000 in the
three months ended March 31, 2020. This decrease was largely attributable to the
lower volume of gallons of aviation gasoline sold at our New York location.
For the three months ended March 31, 2021, revenue from operations associated
with services and supply items decreased by 70 percent to approximately $255,000
as compared to approximately $853,000 in the three months ended March 31, 2020.
This decrease was largely attributable to a lower demand for services at our New
York location due to the COVID-19 pandemic.
For the three months ended March 31, 2021 all other revenue from operations
increased by 235.6 percent to approximately $47,000 as compared to approximately
$14,000 in the three months ended March 31, 2020. This increase was largely
attributable to an increase in non-aeronautical revenue generated at our New
York location compared to the same period last year.
GROSS PROFIT
Total gross profit from operations decreased by 58.8 percent to $243,961 in the
three months ended March 31, 2021 as compared with the three months ended March
31, 2020. Gross profit was negatively impacted by the items previously
discussed. Gross margin decreased to 30.2 percent in the three months ended
March 31, 2021 as compared to 35.4 percent in the same period in the prior year.
11
--------------------------------------------------------------------------------
OPERATING EXPENSE
Selling, General and Administrative
Total selling, general and administrative expenses, ("SG&A"), from operations
were $499,544 in the three months ended March 31, 2021, representing a decrease
of approximately $194,000 or 28 percent, as compared to the same period in 2020.
SG&A from operations associated with our aviation services operations were
approximately $383,000 in the three months ended March 31, 2021, representing a
decrease of approximately $193,000, or 33.6 percent, as compared to the three
months ended March 31, 2020. SG&A from operations associated with our aviation
services operations, as a percentage of revenue, was 47.3 percent for the three
months ended March 31, 2021, as compared with 34.4 percent in the corresponding
prior year period. The decreased operating expenses were largely attributable to
reduced costs related to the lower levels of activity in our Heliport
operations. The increase in SG&A as a percentage of revenue is largely
attributable to the lower offset of fixed costs due to lower levels of activity
at our Heliport.
Corporate SG&A from operations was approximately $116,000 for the three months
ended March 31, 2021, representing a decrease of approximately $1,000 as
compared with the corresponding prior year period.
OPERATING (LOSS) INCOME
Operating loss from operations for the three months ended March 31, 2021 was
$(255,583) as compared to operating loss of $(101,487) in the three months ended
March 31, 2020. The increase in operating loss on a year-over-year basis was
driven by the factors described above.
Depreciation and Amortization
Depreciation and amortization was approximately $25,000 and $33,000 for the
three months ended March 31, 2021 and 2020, respectively.
Interest Income and Expense
Interest income for the three months ended March 31, 2021 was approximately $0
as compared to approximately $7,000 in the same period in 2020. The decrease in
interest income is primarily due to the write-off of a note receivable in the
fourth quarter of 2020.
Interest expense for the three months ended March 31, 2021 was approximately
$5,600 as compared to approximately $1,000 in the same period in 2020. 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 three months ended March 31, 2021 and 2020 was $4,426
and $0, respectively.
Net Loss Per Share
Net loss was $(265,666) and $(96,140) for the three months ended March 31, 2021
and 2020, respectively.
Basic and diluted net loss per share for the three month periods ended March 31,
2021 and 2020 was $(0.26) and $(0.09), respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2021, we had cash of $1,791,853 and a working capital surplus of
$2,587,191. We generated revenue of $809,096 and had a net loss of $(265,666)
for the quarter ended March 31, 2021. For the quarter ended March 31, 2021, cash
flows included net cash used in operating activities of $99,191, net cash used
in investing activities of $1,203, and net cash used in financing activities of
$6,835.
12
--------------------------------------------------------------------------------
As disclosed in a Current Report on Form 8-K filed on March 21, 2018 with the
Securities and Exchange Commission (the "SEC"), on March 15, 2018 the Company
entered into a loan agreement (the "Loan Agreement") with Key Bank National
Association (the "Bank"). The Loan Agreement contains three components: (i) a
$2,500,000 acquisition line of credit (the "Key Bank Acquisition Note"); (ii) a
$1,000,000 revolving line of credit (the "Key Bank Revolver Note"); and (iii) a
$338,481 term loan (the "Key Bank Term Note"). There are currently no amounts
outstanding under the Key Bank Term Note.
Proceeds of the Key Bank Acquisition Note were to be disbursed pursuant to a
multiple draw demand note dated as of the agreement date, where the Company
could, at the discretion of the Bank, borrow up to an aggregate amount of
$2,500,000, to be used for the Company's acquisition of one or more business
entities. Until the Change of Terms Agreement, as defined below, the Company was
required to make consecutive monthly payments of interest, calculated at a rate
per annum equal to one-day LIBOR (adjusted daily) plus 2.75%, on any outstanding
principal under the Key Bank Acquisition Note from the date of its issuance
through September 15, 2018 (the "Conversion Date").
At any time through and including the Conversion Date, at the Bank's discretion,
the Company had the opportunity to request that any loan made under the Key Bank
Acquisition Note be converted into a term loan to be repaid in full, including
accrued interest, by consecutive monthly payments over a 48 month amortization
period beginning after the Conversion Date. For any loan that was not converted
into a term loan on or before the Conversion Date, the Company would have been
required to begin making monthly payments of principal and interest after the
Conversion Date, over a 48 month amortization period, after which the remaining
unpaid principal and accrued interest would have become due and payable. All
loans under the Key Bank Acquisition Note would have, after the Conversion Date,
accrued interest at a rate per annum equal to the Bank's four year cost of funds
rate plus 2.5%. As of the Conversion Date, there were no amounts due under the
Key Bank Acquisition Note and no amounts had been converted to a term loan.
On October 11, 2018, and as subsequently amended, the Company entered into a new
loan agreement with the Bank (as so amended, the "Change of Terms Agreement")
which modified the original terms of the Key Bank Acquisition Note. Under the
Change of Terms Agreement, the Company 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% and would be secured by substantially all of
the Company's assets. The entire principal balance, plus all accrued interest,
is due in full on the Maturity Date. As of March 31, 2021, 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. Any proceeds from the Key Bank Revolver Note would be
secured by substantially all of the Company's assets. As of March 31, 2021,
there were no amounts due under the Key Bank Revolver Note.
On August 14, 2020, the Company was granted a loan from the Bank ("the Loan") in
the amount of $304,833, pursuant to the Paycheck Protection Program (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. The Company did not provide any collateral or guarantees
in connection with the PPP loan. 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 incurred
during the covered 24 week period. The loan qualifies for forgiveness provided
the proceeds are used for eligible expenses on the covered period and certain
employee retention criteria are met. In accordance with FASB ASC 470, Debt, and
ASC 405-20, Liabilities - Extinguishment of Liabilities, the Company recorded
the cash inflow from the PPP loan as a liability, and cash flows from financing,
pending legal release from the obligation by the U.S. Small Business
Administration at December 31, 2020. Upon forgiveness and legal release, the
liability will be reduced by the amount forgiven and a gain on debt
extinguishment will be recorded. The Company has used the proceeds for purposes
consistent with the PPP and has applied for forgiveness. The Company expects
this loan to be forgiven in 2021.
13
--------------------------------------------------------------------------------
Under the Air Tour Agreement, the Company has not been allowed to permit its
tenant operators to conduct tourist flights from the Downtown Manhattan Heliport
on Sundays since April 1, 2016. The Company was also required to ensure that its
tenant operators reduce the total allowable number of tourist flights from 2015
levels by 20 percent beginning June 1, 2016, by 40 percent beginning October 1,
2016 and by 50 percent beginning January 1, 2017. The Air Tour Agreement also
provided for the minimum annual guarantee payments the Company is required to
pay to the City of New York under the Concession Agreement be reduced by 50%,
effective January 1, 2017.
Additionally, beginning June 1, 2016, the Company is 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 Company. The
Company incurred management fees with Empire Aviation of approximately $0 and
$86,000 during the three months ended March 31, 2021 and 2020, 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 and our current acting principal executive officer, Sam Goldstein,
serves as deputy director of HTJC.
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 City has
agreed to continue to waive fees in anticipation of an amendment to the Air Tour
Agreement. Such amendment is anticipated to address terms and conditions of
ongoing fee waivers while also addressing the term of the Concession Agreement,
among other things.
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
in October 2019. In February 2021, the bankruptcy court allowed the customer to
convert from a Chapter 11 Bankruptcy to a Chapter 7 Liquidation. Under the
Chapter 7 Liquidation, the note will now be treated as a general unsecured claim
as opposed to a prioritized payment under the Chapter 11 Bankruptcy to cure the
permit default. This change has substantially diminished the Company's
expectation to collect amounts due under the note. Therefore, the Company has
deemed unpaid principal and accrued interest of approximately $205,000 at
December 31, 2020 as uncollectable. The $205,000 was written off to bad debt
expense in the fourth quarter of 2020.
As disclosed in a Current Report on Form 8-K filed with the SEC on July 6, 2015,
the Company entered into a stock purchase agreement, dated June 30, 2015, by and
between the Company and Warren A. Peck, pursuant to which Mr. Peck purchased all
of the capital stock of the Company's wholly-owned subsidiary, Phoenix Rising
Aviation, Inc. The details of the agreement are described in such Current Report
as well as in the Company's Annual Report on Form 10-K for the year ended
December 31, 2015, which was filed with the SEC on April 11, 2016. The Company
received $100,000 due under this agreement in September 2017 and an additional
payment of $100,000 in September 2018. In 2019, the Company accepted the title
to a Falcon 10 aircraft owned by Mr. Peck as satisfaction in full of the
remainder of the $270,000 stock purchase price. The Company intended to sell the
aircraft and classified it as "Held For Sale" on the Company's consolidated
balance sheet at December 31. 2019. The Company has been unable to find a buyer
due to a depressed market as well as a drop in demand for this type of aircraft.
Without a market in which to sell the aircraft, the Company recorded an
impairment charge in the quarter ended June 30, 2020 for the full carrying
amount of the aircraft. The Company does not believe the aircraft has any value
and, in December 2020, filed an application with the FAA Aircraft Registry to
cancel the aircraft's registry.
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 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 three months ended March 31, 2021, we had a net decrease in cash of
$107,229. Our sources and uses of funds during this period were as follows:
Cash from Operating Activities
For the three months ended March 31, 2021, net cash used in operating activities
was $99,191. This amount included a decrease in operating cash related to net
loss of $265,666 and additions for the following items: (i) depreciation and
amortization, $25,302; (ii) stock based compensation, $8,598; (iii) accounts
receivable, trade, $17,590; (iv) prepaid expenses, $85,485; (v) accounts
payable, $43,987; and (vi) accrued expenses, $16,024. These increases in
operating activities were offset by a decrease in inventories of $30,511.
For the three months ended March 31, 2020, net cash used in operating activities
was $310,882. This amount included a decrease in operating cash related to net
loss of $96,140 and additions for the following items: (i) depreciation and
amortization, $32,807; (ii) stock based compensation, $18,651; (iii) accounts
receivable, trade, $125,874; (iv) inventories, $19,854; (v) prepaid expenses and
other current assets, $98,058; and (vi) customer deposits, $426. These increases
in operating activities were offset by decreases for the following items: (i)
accounts payable; $370,021; and (ii) accrued expenses, $140,391.
Cash from Investing Activities
For the three months ended March 31, 2021, net cash of $1,203 was used in
investing activities for the purchase of property and equipment. For the three
months ended March 31, 2020, net cash of $4,912 was used in investing activities
for the purchase of property and equipment.
Cash from Financing Activities
For the three months ended March 31, 2021, net cash of $6,835 was used in
financing activities for the payment of right of use leases. For the three
months ended March 31, 2020, net cash of $138,022 was used in financing
activities for the payment of accrued dividends of $127,968 and repayment of
right of use leases payable of $10,054.
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.
© Edgar Online, source Glimpses
SAKER AVIATION SERVICES, INC. 
