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, 2021.
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. 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 March 31, 2022, sightseeing tour operators
experienced much lower demand for tours as compared to pre-pandemic levels of
activity. Beginning in April 2022, sightseeing tour operators have seen an
increase in activity and a much higher demand for tours. There can be no
assurance that this increased activity will continue as demand for sightseeing
tours will depend on future developments in the COVID-10 pandemic, including the
duration and spread and related travel advisories and restrictions and the
impact on overall demand for air travel. The COVID-19 pandemic has had a less
substantial impact on our operations at our Kansas FBO and MRO.
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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, 2022
and March 31, 2021.
REVENUE
Revenue from operations increased by 125.0 percent to $1,820,739 for the three
months ended March 31, 2022 as compared with corresponding prior-year period
revenue of $809,096.
For the three months ended March 31, 2022, revenue from operations associated
with the sale of jet fuel, aviation gasoline and related items increased by 98.6
percent to approximately $1,006,000 as compared to approximately $506,000 in the
three months ended March 31, 2021. This increase was largely attributable to
higher volume of gallons of aviation gasoline sold at both our Kansas and our
New York location.
For the three months ended March 31, 2022, revenue from operations associated
with services and supply items increased by 208.5 percent to approximately
$788,000 as compared to approximately $255,000 in the three months ended March
31, 2021. This increase was largely attributable to a higher demand for services
at our New York location.
For the three months ended March 31, 2022 all other revenue from operations
decreased by 43.5 percent to approximately $27,000 as compared to approximately
$47,000 in the three months ended March 31, 2021. 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.
COST OF REVENUE
Total cost of revenue from operations increased by 121.8 percent to $1,253,220
in the three months ended March 31, 2022 as compared to $565,135 in the three
months ended March 31, 2021. The increase was largely attributable to higher
volume of gallons of aviation gasoline sold at both our Kansas and our New York
location as well as higher demand for services at our New York location.
GROSS PROFIT
Total gross profit from operations increased by 132.6 percent to $567,519 in the
three months ended March 31, 2022 as compared with the three months ended March
31, 2021. Gross profit was positively impacted by the items previously
discussed. Gross margin increased to 31.2 percent in the three months ended
March 31, 2022 as compared to 30.2 percent in the same period in the prior year.
OPERATING EXPENSE
Selling, General and Administrative
Total selling, general and administrative expenses, ("SG&A"), from operations
were $692,517 in the three months ended March 31, 2022, representing an increase
of $192,973 or 38.6 percent, as compared to the same period in 2021.
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SG&A from operations associated with our aviation services operations were
approximately $566,000 in the three months ended March 31, 2022, representing an
increase of approximately $183,000, or 47.7 percent, as compared to the three
months ended March 31, 2021. SG&A from operations associated with our aviation
services operations, as a percentage of revenue, was 31.1 percent for the three
months ended March 31, 2022, as compared with 47.3 percent in the corresponding
prior year period. The increased operating expenses were largely attributable to
increased costs related to the higher levels of activity at both our New York
and Kansas operations. The decrease in SG&A as a percentage of revenue is
largely attributable to our fixed costs as a percentage relative to higher
levels of activity at both our New York and Kansas locations.
Corporate SG&A from operations was approximately $127,000 for the three months
ended March 31, 2022, representing an increase of approximately $10,000 as
compared with the corresponding prior year period.
OPERATING LOSS
Operating loss from operations for the three months ended March 31, 2022 was
$(124,998) as compared to operating loss of $(255,583) in the three months ended
March 31, 2022.
Depreciation and Amortization
Depreciation and amortization was approximately $33,000 and $25,000 for the
three months ended March 31, 2022 and 2021, respectively.
Interest Expense
Interest expense for the three months ended March 31, 2022 was approximately
$6,200 as compared to approximately $5,700 in the same period in 2021.
Bad Debt Recovery
Bad Debt Recovery for the three months ended March 31, 2022 was $100,000 as
compared to $0 in the same period in 2021.
Income Tax
Income tax expense for the three months ended March 31, 2022 and 2021 was $0 and
$4,426, respectively.
Net Loss Per Share
Net loss was $(31,152) and $(265,666) for the three months ended March 31, 2022
and 2021, respectively.
Basic and diluted net loss per share for the three month periods ended March 31,
2022 and 2021 was $(0.03) and $(0.26), respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2022, we had cash and restricted cash of $3,094,329 and a
working capital surplus of $3,440,026. We generated revenue of $1,820,739 and
had a net loss of $(31,152) for the quarter ended March 31, 2022. For the
quarter 9ended March 31, 2022, cash flows included net cash provided by
operating activities of $662,099 and net cash used in financing activities of
$14,676.
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"). 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. The Bank notified the Company
of its decision to discontinue the Key Bank Acquisition Note, effective June 30,
2021. There were no amounts due under the Changes of Terms Agreement during the
three months ended March 31, 2022 or 2021.
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The Key Bank Revolver Note, at the discretion of the Bank, provides for the
Company to borrow up to $1,000,000 for working capital and general corporate
purposes. This revolving line of credit is a demand note with no stated maturity
date. Borrowings under the Key Bank Revolver Note will bear interest at a rate
per annum equal to one-day LIBOR (adjusted daily) plus 2.75%. The Bank notified
the Company in 2022 that LIBOR had been replaced with Daily Simple SOFR 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. There were no amounts due
under the Key Bank Revolver Note or Key Bank Term Note during the three months
ended March 31, 2022 or 2021.
On August 14, 2020, the Company was granted a loan from the Bank (the "Loan") in
the amount of $304,833, pursuant to the Paycheck Protection Program (PPP) under
Division, Title I of the CARES Act, which was enacted March 27, 2020. The Loan,
which was in the form of a note dated August 14, 2020, was to mature in August
2025 and bore interest at a rate of 1% per annum and was payable in monthly
installments commencing on, or before, October 31, 2021 if not forgiven and
legally released. At December 31, 2020, in accordance with FASB ASC 470, Debt,
and ASC 405-20, Liabilities - Extinguishment of Liabilities, the Company
recorded the cash inflow from the Loan as a liability, and cash flows from
financing, pending legal release from the obligation by the U.S. Small Business
Administration ("S.B.A."). The Company used the Loan proceeds for eligible
expenses during the covered period and the Loan was forgiven and legally
released by the S.B.A. in full in the second quarter of 2021. The Company
recorded the forgiveness of the Loan as a gain on extinguishment of debt - PPP
Loan.
The Company is party to a Concession Agreement, dated as of November 1, 2008,
with the City of New York for the operation of the Downtown Manhattan Heliport
(the "Concession Agreement"). Pursuant to the terms of the Concession Agreement,
the Company must pay the greater of 18% of the first $5,000,000 in any program
year based on cash collected ("Gross Receipts") and 25% of Gross Receipts in
excess of $5,000,000, or minimum annual guaranteed payments.
As disclosed in a Current Report on Form 8-K filed with the SEC on February 5,
2016, the Company and the New York City Economic Development Corporation (the
"NYCEDC") announced new measures to reduce helicopter noise and impacts across
New York City (the "Air Tour Agreement"). Under the Air Tour Agreement, the
Company has not been allowed to permit its tenant operators to conduct tourist
flights from the Downtown Manhattan Heliport on Sundays since April 1, 2016. The
Company was also required to ensure that its tenant operators reduce the total
allowable number of tourist flights from 2015 levels by 20 percent beginning
June 1, 2016, by 40 percent beginning October 1, 2016 and by 50 percent
beginning January 1, 2017. The Air Tour Agreement also provided for the minimum
annual guarantee payments the Company is required to pay to the City of New York
under the Concession Agreement be reduced by 50%, effective January 1, 2017.
Additionally, since June 1, 2016, the Company has been required to provide
monthly written reports to the NYCEDC and the New York City Council detailing
the number of tourist flights conducted out of the Downtown Manhattan Heliport
compared to 2015 levels, as well as information on any tour flight that flies
over land and/or strays from agreed upon routes. The Air Tour Agreement also
extended the Concession Agreement for 30 months, resulting in a new expiration
date of April 30, 2021 and gave the City of New York two one-year options to
extend the term of the Concession Agreement. The term of the Concession
Agreement was subsequently extended by the City through April 30, 2023 by the
City's exercise of both their two one-year option renewals.
The reductions under the Air Tour Agreement have negatively impacted the
Company's business and financial results as well as those of its management
company at the Heliport, Empire Aviation which, as previously disclosed, is
owned by two children and a grandchild of a former officer and director of the
Company. The Company recorded no management fees with Empire Aviation during the
quarters ended March 31, 2022 and 2021. Empire Aviation has notified the Company
they believe additional fees are due under their management agreement with the
New York Heliport for both 2021 and 2020. If the Company is unable to come to an
agreement with Empire Aviation regarding amounts due under the agreement, the
Company could incur additional expense as disclosed in the Company's 2021 Annual
Report on Form 10-K (Note 15. Contingent Liabilities). The Company incurred
management fees with Empire Aviation of approximately $123,000 and $0 during the
three months ended March 31, 2022 and 2021, respectively.
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During the program year that began on May 1, 2020, the City of New York agreed,
in recognition of the pandemic's impact, that the Company could defer payment of
minimum guaranteed payments. In April 2021, the City of New York waived the
deferred fees through December 31, 2020. In May 2021, the City of New York
waived the deferred fees through April 30, 2021 which coincided with the
original expiration of the Concession Agreement as amended by the Air Tour
Agreement. The Company worked with the City of New York to address fees to be
paid by the Company for the period May 1, 2021 through December 31, 2021. In
March 2022, the City of New York agreed to accept 18% of monthly Gross Receipts
in excess of $100,000 as Concession fees for this period. In April 2022, the
Company agreed to resume paying the City of New York the total monthly amounts
due under the Concession Agreement retro-active to January 2022 and to continue
paying fees due under the Concession Agreement through the remainder of the Air
Tour Agreement. During the quarters ended March 31, 2022 and 2021, we incurred
approximately $249,000 and $0 in concession fees, respectively, which are
recorded in the cost of revenue.
On April 20, 2018, the Company's Kansas subsidiary entered into a purchase lease
with Commerce Bank for a refueling truck (the "Truck Lease"). The Truck Lease
commenced on May 1, 2018 and continues for 60 months with a monthly payment of
$2,568 and an interest rate of 5.5%. At the end of the Truck Lease, the
Company's subsidiary may purchase the vehicle for $1.00.
On May 1, 2021, the Company's Kansas subsidiary executed a promissory note for
$76,000 with Avfuel Corporation ("Avfuel") for the purchase of a Jet-A refueling
truck (the "Truck Note"). The Truck Note requires six annual payments of
$13,432.56 commencing April 30, 2022 with the entire balance of unpaid principal
and interest due on, or before, April 30, 2028. Interest accrues at prime plus
3% on the outstanding principal amount. The Company is required to make
prepayments against the Truck Note at the rate of $0.018 per gallon of fuel
purchased under a fuel supply agreement between the Company and Avfuel.
During the three months ended March 31, 2022, we had a net increase in cash of
$647,423. Our sources and uses of funds during this period were as follows:
Cash from Operating Activities
For the three months ended March 31, 2022, net cash provided by operating
activities was $662,099. This amount included a decrease in operating cash
related to net loss of $(31,152) and additions for the following items: (i)
depreciation and amortization, $33,090; (ii) stock based compensation, $11,499;
(iii) accounts receivable, trade, $14,393; (iv) prepaid expenses, $295,036; (v)
customer deposits, $100,000; and (vi) accounts payable, $283,987. These
increases in operating activities were offset by a decrease in inventories of
$38,064 and accrued expenses of $6,690.
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.
Cash from Investing Activities
For the three months ended March 31, 2022, there was no cash used in, or
provided by, 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.
Cash from Financing Activities
For the three months ended March 31, 2022, net cash of $14,676 was used in
financing activities for the payment of notes payable of $3,483 and the payment
of right of use leases of $11,193. 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.
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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," 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, 2021 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.
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SAKER AVIATION SERVICES, INC. 
