UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For The Quarterly Period Ended June 30, 2016

 

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)

 

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  x          No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web-site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x          No ¨

 

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

12b-2 of the Exchange Act.

 Large accelerated filer   ¨ Accelerated filer   ¨ Non-accelerated filer   ¨ Smaller Reporting Company   x

 

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

Yes  ¨           No  x

As of August 15, 2016, the registrant had 33,157,610 shares of its common stock, $0.001 par value, issued and outstanding.

 

 

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

Form 10-Q

June 30, 2016

 

Index

 

  Page
   
PART I - FINANCIAL INFORMATION  
       
  ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
       
    Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015 1
       
    Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015 (unaudited) 2
       
    Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015 (unaudited) 3
       
    Notes to Financial Statements (unaudited) 4
       
  ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
       
  ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
       
  ITEM 4.   CONTROLS AND PROCEDURES 14
       
PART II - OTHER INFORMATION  
       
  ITEM 6. EXHIBITS 15
       
SIGNATURES 15

 

  i

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    June 30,
2016 		    December 31,
2015 		 
    (unaudited)        
ASSETS                
                 
CURRENT ASSETS                
Cash   $ 1,337,004     $ 414,661  
Accounts receivable     1,942,434       2,520,955  
Inventories     58,214       67,860  
Notes receivable – current portion     270,000       300,000  
Prepaid expenses and other current assets     308,541       354.485  
Total current assets     3,916,193       3,657,961  
                 
PROPERTY AND EQUIPMENT , net of accumulated depreciation and amortization of $2,354,543 and $2,116,676 respectively     1,274,734       1,496,656  
                 
OTHER ASSETS                
Deposits     123,773       150,297  
Note receivable     200,000       200,000  
Intangible assets     35,000       35,000  
Goodwill     530,000       530,000  
Deferred income taxes     173,000       173,000  
Total other assets     1,061,773       1,088,297  
TOTAL ASSETS   $ 6,252,700     $ 6,242,914  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
CURRENT LIABILITIES                
Accounts payable   $ 736,809     $ 682,916  
Customer deposits     126,415       126,257  
Accrued expenses     278,660       589,417  
Notes payable – current portion     270,000       272,374  
Total current liabilities     1,411,884       1,670,964  
                 
LONG-TERM LIABILITIES                
Notes payable - less current portion     517,500       652,500  
Total liabilities     1,929,384       2,323,464  
                 
STOCKHOLDERS’ EQUITY                
Preferred stock - $.001 par value; authorized 9,999,154; none issued and outstanding                
Common stock - $.001 par value; authorized 100,000,000; 33,157,610 shares issued and outstanding as of June 30, 2016 and December 31, 2015     33,157       33,157  
Additional paid-in capital     20,013,426       19,996,428  
Accumulated deficit     (15,723,267 )     (16,110,135 )
TOTAL STOCKHOLDERS’ EQUITY     4,323,316       3,919,450  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 6,252,700     $ 6,242,914  

 

See notes to condensed consolidated financial statements.

 

  1  

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

    For the Three Months Ended
June 30, 		    For the Six Months Ended
June 30, 		 
    2016     2015     2016     2015  
                         
REVENUE   $ 4,064,488     $ 4,557,736     $ 7,031,568     $ 7,044,851  
                                 
COST OF REVENUE     1,971,961       1,816,397       3,237,351       3,099,461  
                                 
GROSS PROFIT     2,092,527       2,741,339       3,794,217       3,945,390  
                                 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES     1,668,176       1,939,103       2,996,788       3,058,645  
                                 
OPERATING INCOME FROM CONTINUING OPERATIONS     424,351       802,236       797,429       886,745  
                                 
OTHER INCOME (EXPENSE)                                
OTHER (EXPENSE) INCOME, net     —       (284 )     —       1,666  
INTEREST EXPENSE     (7,849 )     (6,403 )     (15,061 )     (12,150 )
                                 
TOTAL OTHER EXPENSE, net     (7,849 )     (6,687 )     (15,061 )     (10,484 )
                                 
INCOME FROM CONTINUING OPERATIONS, before income taxes     416,502       795,549       782,368       876,261  
                                 
INCOME TAX EXPENSE     216,000       456,000       395,500       456,000  
                                 
INCOME FROM CONTINUING OPERATIONS     200,502       339,549       386,868       420,261  
                                 
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of income taxes     0       88,160       0       (129,144 )
                                 
NET INCOME   $ 200,502     $ 427,709     $ 386,868     $ 291,117  
                                 
Basic and Diluted Net Income Per Common Share   $ 0.01     $ 0.01     $ 0.01     $ 0.01  
                                 
Weighted Average Number of Common Shares – Basic     33,157,610       33,107,610       33,157,610       33,107,610  
                                 
Weighted Average Number of Common Shares - Diluted     33,294,336       33,824,541       33,294,336       33,824,541  

 

See notes to condensed consolidated financial statements

 

  2  

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    Six Months Ended
June 30, 		 
    2016     2015  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income   $ 386,868     $ 291,117  
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depreciation and amortization     237,867       303,506  
Stock based compensation     16,998       16,998  
Changes in operating assets and liabilities:                
Accounts receivable, trade     578,521       (799,547 )
Inventories     9,646       (17,197 )
Prepaid expenses and other current assets     45,944       176,730  
Deposits     26,524       —  
Deferred income taxes     —       232,000  
Accounts payable     53,893       198,811  
Customer deposits     158       (5,638 )
Accrued expenses     (310,757 )     (242,279 )
TOTAL ADJUSTMENTS     658,794       (136,616 )
                 
NET CASH PROVIDED BY OPERATING ACTIVITIES     1,045,662       154,501  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Payment of note receivable     30,000       —  
Net cash, held for sale subsidiary     —       (79,875 )
Purchase of property and equipment     (15,945 )     (83,354 )
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES     14,055       (163,229 )
                 
CASH FLOWS USED IN FINANCING ACTIVITIES                
Repayment of notes payable     (137,374 )     (187,018 )
                 
NET CHANGE IN CASH     922,343       (195,746 )
                 
CASH – Beginning     414,661       531,003  
CASH – Ending   $ 1,337,004     $ 335,257  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Cash paid during the periods for:                
Interest   $ 15,061     $ 28,150  
Income taxes   $ 365,894     $ 152,000  

 

See notes to condensed consolidated financial statements.

 

  3  

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 - Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Saker Aviation Services, Inc. (the “Company”) and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial statements and in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and disclosures required by GAAP for annual financial statements and should be read in conjunction with the financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

The condensed consolidated balance sheet and statements of cash flows as of June 30, 2016 and the condensed consolidated statements of operations for the three and six months ended June 30, 2016 and 2015 have been prepared by the Company without audit. In the opinion of the Company’s management, all necessary adjustments (consisting of normal recurring accruals) have been included to make the Company’s financial position as of June 30, 2016 and its results of operations and cash flows for the three and six months ended June 30, 2016 not misleading. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for any full year or any other interim period.

 

NOTE 2 – Liquidity

 

As of June 30, 2016, we had cash and cash equivalents of $1,337,004 and a working capital surplus of $2,504,309. For the six months ended June 30, 2016, we generated revenue from continuing operations of $7,031,568 and had net income from continuing operations before taxes of $782,368. For the six months ended June 30, 2016, cash flows included net cash provided by operating activities of $1,045,662, net cash provided by investing activities of $14,055, and net cash used in financing activities of $137,374.

 

On May 17, 2013, we entered into a loan agreement with PNC Bank (the “PNC Loan Agreement”). The PNC Loan Agreement contained three components: (i) a $2,500,000 non-revolving acquisition line of credit (the “PNC Acquisition Line”); (ii) a $1,150,000 working capital line (the “PNC Working Capital Line”); and (iii) a $280,920 term loan (the “PNC Term Loan”).

 

Proceeds of the PNC Acquisition Line were able to be dispersed, based on parameters defined in the PNC Loan Agreement, until May 17, 2014 (the “Conversion Date”). As of the Conversion Date, there was $1,350,000 outstanding under the PNC Acquisition Line. The payment terms provided that 30 days following the Conversion Date, and continuing on the same day of each month thereafter, we are required to make equal payments of principal over a 60 month period. Interest on the outstanding principal continues to accrue at a rate equal to one-month LIBOR plus 275 basis points (3.18% as of June 30, 2016). As of June 30, 2016, there was $787,500 outstanding under the PNC Acquisition Line.

 

The PNC Working Capital was to have been dispersed for working capital and general corporate purposes. Interest on outstanding principal accrued at a rate equal to daily LIBOR plus 250 basis points. The PNC Working Capital Line expired on December 31, 2015, with $0 outstanding.

 

The PNC Term Loan was utilized to retire our previously outstanding miscellaneous debt of the same amount. Interest on outstanding principal accrued at a rate equal to one-month LIBOR plus 275 basis points and principal and interest payments were to be made over a thirty-four month period. At December 31, 2015, all amounts under the PNC Term loan have been repaid.

 

The Company is party to a concession agreement, dated as of November 1, 2008, with the City of New York for the operation of the Downtown Manhattan Heliport (the “Concession Agreement”). Pursuant to the terms of the Concession Agreement, the Company must pay the greater of 18% of the first $5,000,000 in program year gross receipts and 25% of gross receipts in excess of $5 million or minimum annual guaranteed payments. The Company paid the City of New York $1,200,000 in the first year of the term and minimum payments were scheduled to increase to approximately $1,700,000 in the final year of Concession Agreement which now, in accordance with an agreement (the “Agreement”) between the Company and the New York City Economic Development Corporation (“NYCEDC”), expires on April 30, 2021. In addition to the extended base term, the City of New York has two one year options to further extend the Concession Agreement. The Agreement also calls for certain reductions in air tour activity at the Heliport as well as reductions to the Company’s minimum annual guaranteed payments, which are further detailed in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on April 11, 2016. During the six months ended June 30, 2016 and 2015, we incurred approximately $1,416,000 and $1,024,000, respectively, in concession fees which are recorded in the cost of revenue.

 

  4  

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

On July 13, 2016, the Franchise and Concession Review Committee of New York City approved an amendment (the “Amendment”) to the Concession Agreement between the Company and the City of New York. The Amendment, which memorializes the Agreement, is filed as an exhibit with this report. In addition to elements described above, the Amendment redefines the plan year as well as the applicable minimum annual guaranteed payments through the extended base term and option periods.

 

The air tour reductions articulated in the Agreement are expected to negatively impact the Company’s business and financial results as well as those of the Company’s management company at the Heliport, Empire Aviation which, as previously disclosed, is owned by the children of Alvin Trenk, our CEO and a member of our Board of Directors.  The Company incurred management fees with Empire Aviation of approximately $648,000 and $486,000 during the six months ended June 30, 2016 and 2015, respectively, which is recorded in administrative expenses.  The Company and Empire have also contributed to the Helicopter Tourism and Jobs Council (“HTJC”), an association that lobbies on behalf of the helicopter air tour industry, and which had engaged in discussions with the Mayor’s office in connection with the Agreement.  Mr. Trenk is also an active participant with HJTC, which is managed by his grandson.

 

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 (the “Stock Agreement”). The details of the Stock Agreement are included in that Current Report as well as in the Company’s Annual Report on Form 10-K, which was filed with the SEC on April 11, 2016.

 

On September 30, 2015, the Company and Mr. Peck executed a Closing Cash Agreement (“the “Closing Agreement”), which was filed with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2015. The Closing Agreement provided for Mr. Peck to sign over to the Company title to an aircraft to defer the $250,000 cash consideration due at closing. As further described in the Closing Agreement, the Company is to receive the $250,000 closing cash payment, plus other identified costs, when the aircraft is subsequently sold. On June 13, 2016, the Company entered into a sale agreement (the “Sale Agreement”) with an unrelated third party to acquire the aircraft subject to the Closing Agreement. Under the terms of the Sale Agreement, the Company received a down-payment of $30,000, which was credited against the $250,000 cash consideration owed by Mr. Peck. In addition, the Company will receive monthly payments of at least $28,000 to satisfy the remainder of the $250,000 cash consideration and $50,000 of the Note owed by Mr. Peck. The $220,000 remaining balance of closing cash consideration, plus receivables associated with the Note, are reflected as a Note Receivable as of June 30, 2016.

 

NOTE 3 - Summary of Significant Accounting Policies

 

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries, FirstFlight Heliports, LLC (“FFH”), our FBO at Garden City (Kansas) Regional Airport (“FBOGC”) and Phoenix Rising Aviation, Inc. (“PRA”), see Note 5, Discontinued Operations. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

Reclassifications

Certain reclassifications were made to prior year amounts to conform to the current year presentation. None of the reclassifications affected the Company’s net income in any period.

 

Net Income Per Common Share

Net income was $386,868 and $291,117 for the six months ended June 30, 2016 and 2015, 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.

 

  5  

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

    For the Three Months Ended
June 30, 		    For the Six Months Ended
June 30, 		 
    2016     2015     2016     2015  
                         
Weighted average common shares outstanding, basic     33,157,610       33,107,610       33,157,610       33,107,610  
                                 
Common shares upon exercise of options and warrants     136,726       716,931       136,726       716,931  
                                 
Weighted average common shares outstanding, diluted     33,294,336       33,824,541       33,294,336       33,824,541  

 

Stock Based Compensation

Stock-based compensation expense for all share-based payment awards are based on the grant-date fair value. The Company recognizes these compensation costs over the requisite service period of the award, which is generally the option vesting term. For the six months ended June 30, 2016 and 2015, the Company incurred stock-based compensation costs of $16,998. Such amounts have been recorded as part of the Company’s selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. As of June 30, 2016, the unamortized fair value of the options totaled $8,000.

 

Option valuation models require the input of highly subjective assumptions, including the expected life of the option. In management's opinion, the use of such option valuation models does not necessarily provide a reliable single measure of the fair value of the Company’s employee stock options. Management holds this view partly because the Company's employee stock options have characteristics significantly different from those of traded options and also because changes in the subjective input assumptions can materially affect the fair value estimate.

 

Recently Issued Accounting Pronouncements

 

In April 2014, the FASB issued Accounting Standards Update No. 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360) – Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (ASU 2014-08) which requires entities to change the criteria for reporting discontinued operations and enhance convergence of the FASB’s and International Accounting Standard Board’s (IASB) reporting requirements for discontinued operations so as not to be overly complex or difficult to apply to stakeholders. Only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on the entity’s operations and financial results will be reported as discontinued operations in the financial statements. ASU 2014-08 is effective for fiscal years beginning on or after December 15, 2014 and interim periods thereafter. ASU 2014-08 is effective for the Company’s financial statements for fiscal years beginning January 1, 2015. Based on the Company’s evaluation of ASU 2014-08, the adoption of this statement on January 1, 2015 did not have a material impact on the Company’s financial statements.

 

NOTE 4 - Inventories

 

Inventories consist primarily of aviation fuel which the Company sells to its customers. The Company also maintains fuel inventories for commercial airlines, to which it charges into-plane fees when servicing commercial aircraft. A summary of inventories as of June 30, 2016 and December 31, 2015 is set forth in the table below:

 

  6  

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

    June 30, 2016     December 31, 2015  
Fuel inventory   $ 43,246     $ 52,475  
Other inventory     14,968       15,385  
Total inventory   $ 58,214     $ 67,860  

 

Included in inventories are amounts held for third parties of $75,519 and $55,798 as of June 30, 2016 and December 31, 2015, respectively, with an offsetting liability included as part of accrued expenses.

 

NOTE 5 – Discontinued Operations

 

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 (the “Agreement”). The details of this Agreement are included in that Current Report as well as in the Company’s Annual Report on Form 10-K, which was filed with the SEC on April 11, 2016.

 

Components of discontinued operations are as follows:

 

As of June 30, 2016 and June 30, 2015, assets of $0 and $702,199, and liabilities of $0 and $102,638, respectively, were included in the consolidated balance sheets.

 

    For the Three Months Ended
June 30, 		    For the Six Months Ended
June 30, 		 
    2016     2015     2016     2015  
                         
Revenue   $ 0.00     $ 640,508     $ 0.00     $ 863,536  
Cost of revenue     0.00       348,945       0.00       559,606  
Gross profit     0.00       291,563       0.00       303,930  
Operating expenses     0.00       261,145       0.00       499,074  
Operating income (loss) from discontinued operations     0.00       30,418       0.00       (195,144 )
Interest expense     0.00       (8,258 )     0.00       (17,044 )
Other expense     0.00       —       0.00       (1,956 )
Income tax benefit     0.00       66,000       0.00       85,000  
Net income (loss) from discontinued operations     0.00       88,160       0.00       (129,144 )
Basic net income (loss) per common share     0.00       0.00       0.00       (0.00 )
Weighted average number of shares outstanding, basic     33,157,610       33,107,610       33,157,610       33,107,610  

 

NOTE 6 – Related Parties

 

The law firm of Wachtel & Missry, LLP provides certain legal services to the Company and its subsidiaries from time to time. William B. Wachtel, Chairman of the Company’s Board of Directors, is a managing partner of such firm. During the six months ended June 30, 2016 and 2015, no services were provided to the Company by Wachtel & Missry, LLP.

 

As described in Note 2, Liquidity, the Company is party to a management agreement with Empire Aviation, an entity owned by the children of Alvin S. Trenk, the Company’s CEO and a member of the Company’s Board of Directors.

 

NOTE 7 - Litigation

 

From time to time, the Company and/or its subsidiaries may be a party to one or more claims or disputes which may result in litigation. The Company's management does not, however, presently expect that any such matters will have a material adverse effect on the Company's business, financial condition or results of operations.

 

  7  

 

 

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read together with the accompanying consolidated condensed 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, 2015.

 

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. (“we”, “us”, “our”) is a Nevada corporation. Our common stock, $0.001 par value per share (the “common stock”), is publicly traded 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 consultant for a seaplane base that we do not own. FBOs provide ground-based services, such as fueling and aircraft storage for general aviation, commercial and military aircraft, and other miscellaneous services.

 

We were formed on January 17, 2003 as a proprietorship and were incorporated in Arizona on January 2, 2004. We became a public company as a result of a reverse merger transaction on August 20, 2004 with Shadows Bend Development, Inc., an inactive public Nevada corporation, and subsequently changed our name to FBO Air, Inc. On December 12, 2006, we changed our name to FirstFlight, Inc. On September 2, 2009, we changed our name to Saker Aviation Services, Inc.

 

Our business activities are carried out as the operator of the Downtown Manhattan (New York) Heliport, as an FBO at the Garden City (Kansas) Regional Airport, as a consultant to the operator of a seaplane base in New York City, and prior to our divestiture, as an MRO at the Bartlesville (Oklahoma) Municipal 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. (“CPA”) in March 2005.

 

Our business activities at the Downtown Manhattan (New York) Heliport facility (the “Heliport”) commenced as a result of the Company’s award of 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”). See Note 2 to the condensed consolidated financial statements included in Item 1. of this report.

 

The Bartlesville facility became part of our company as a result of our acquisition of all of the outstanding stock of Phoenix Rising Aviation, Inc. (“PRA”) on August 15, 2013.

 

The FBO segment of the general aviation industry is highly fragmented. According to the National Air Transportation Association (“NATA”), there are over 3,000 FBOs that serve customers at one or more of over 3,000 airport facilities across the country that have at least one paved 3,000-foot runway. The vast majority of these entities are single location operators. NATA characterizes companies with operations at three or more airports as “chains.” An operation with FBOs in at least two distinctive regions of the country is considered a “national” chain while an operation with FBOs in multiple locations within a single region is considered a “regional” chain.

 

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As described in greater detail below in Liquidity and Capital Resources, upcoming reductions to the number of air tours emanating from the Heliport is expected to have a negative impact on our operations. The first stage of these reductions was initiated on June 1, 2016.

 

REVENUE AND OPERATING RESULTS

 

Comparison of Continuing Operations for the Three and Six Months Ended June 30, 2016 and June 30, 2015.

 

REVENUE

 

Revenue from continuing operations decreased by 10.8 percent to $4,064,488 for the three months ended June 30, 2016 as compared with corresponding prior-year period revenue of $4,557,736.

 

For the three months ended June 30, 2016, revenue from continuing operations associated with the sale of jet fuel, aviation gasoline and related items decreased by 5.8 percent to approximately $1,663,000 as compared to approximately $1,766,000 in the three months ended June 30, 2015. The decrease was largely attributable to a lower volume of gallons, particularly gallons associated with fueling at our Heliport operation. This decrease was related to both the initiation of air tour reductions on June 1, 2016 and to the timing of the Easter holiday, which fell in the first quarter of 2016 but the second quarter of 2015.

 

For the three months ended June 30, 2016, revenue from continuing operations associated with services and supply items decreased by 13.6 percent to approximately $2,385,000 as compared to approximately $2,760,000 in the three months ended June 30, 2015. The decrease was attributable to same factors identified above.

 

For the three months ended June 30, 2016, all other revenue from continuing operations decreased by 48.0 percent to approximately $16,000 as compared to approximately $31,000 in the three months ended June 30, 2015. The decrease was largely attributable to a decrease in miscellaneous revenue generated by our Heliport compared to the same period last year.

 

Revenue from continuing operations decreased by 0.2 percent to $7,031,568 for the six months ended June 30, 2016 as compared with corresponding prior-year period revenue of $7,044,851.

 

For the six months ended June 30, 2016, revenue from continuing operations associated with the sale of jet fuel, aviation gasoline and related items decreased by 0.1 percent to approximately $2,778,000 as compared to approximately $2,781,000 in the six months ended June 30, 2015.

 

For the six months ended June 30, 2016, revenue from continuing operations associated with services and supply items increased by 1.0 percent to approximately $4,223,000 as compared to approximately $4,179,000 in the six months ended June 30, 2015.

 

For the six months ended June 30, 2016, all other revenue from continuing operations decreased by 64.4 percent to approximately $30,000 as compared to approximately $84,000 in the six months ended June 30, 2015. The decrease was largely attributable to a decrease in miscellaneous revenue generated by our Heliport compared to the same period last year.

 

GROSS PROFIT

 

Total gross profit from continuing operations decreased 23.7 percent to $2,092,527 in the three months ended June 30, 2016 as compared with the three months ended June 30, 2015. Gross margin decreased to 51.5 percent in the three months ended June 30, 2015 as compared to 60.1 percent in the same period in the prior year. The decrease in gross profit and gross margin is related to lower levels of gross profit in our fuel sales, as well as lower levels of activity at our Heliport operation in the three months ended June 30, 2016 as compared to the prior year.

 

  9  

 

 

Total gross profit from continuing operations decreased 3.8 percent to $3,794,217 in the six months ended June 30, 2016 as compared with the six months ended June 30, 2015. Gross margin decreased to 54.0 percent in the six months ended June 30, 2016 as compared to 56.0 percent in the same period in the prior year. The decrease in gross profit is related to lower levels of gross profit in our fuel sales, as well as lower levels of activity, at our Heliport operation in the six months ended June 30, 2016 as compared to the prior year.

 

OPERATING EXPENSE

 

Selling, General and Administrative

 

Total selling, general and administrative expenses, or SG&A, from continuing operations were approximately $1,668,000 in the three months ended June 30, 2016, representing a decrease of approximately $271,000 or 14.0 percent, as compared to the same period in 2015. Total selling, general and administrative expenses, or SG&A, from continuing operations were $ 2,997,000 in the six months ended June 30, 2016, representing a decrease of approximately $62,000 or 2.0 percent, as compared to the same period in 2015.

 

SG&A associated with continuing operations of our aviation services operations were approximately $1,543,000 in the three months ended June 30, 2016, representing a decrease of approximately $305,000 or 16.5 percent, as compared to the three months ended June 30, 2015. SG&A associated with our continuing FBO operations, as a percentage of revenue, was 38.0 percent for the three months ended June 30, 2016, as compared with 40.6 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.

 

SG&A associated with continuing operations of our aviation services operations were approximately $2,764,000 in the six months ended June 30, 2016, representing a decrease of approximately $114,000 or 4.0 percent, as compared to the six months ended June 30, 2015. SG&A associated with our continuing FBO operations, as a percentage of revenue, was 39.3 percent for the six months ended June 30, 2016, as compared with 40.9 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.

 

Corporate SG&A was approximately $125,000 for the three months ended June 30, 2016, representing an increase of approximately $35,000 as compared with the corresponding prior year period. Corporate SG&A was approximately $232,000 for the six months ended June 30, 2016, representing an increase of approximately $52,000 as compared with the corresponding prior year period.

 

OPERATING INCOME

 

Operating income from continuing operations for the three and six months ended June 30, 2016 was $424,351 and $797,429, respectively, as compared to operating income of $802,236 and $886,745, in the three and six months ended June 30, 2015. The decrease on a year-over-year basis was driven by lower levels of gross margin and gross profit offset by lower SG&A expenses.

 

Depreciation and Amortization

 

Depreciation and amortization was approximately $238,000 and $304,000 for the six months ended June 30, 2016 and 2015, respectively.

 

Interest Income/Expense

 

Interest income for the six months ended June 30, 2016 and June 30, 2015 was $0. Interest expense for the six months ended June 30, 2016 was approximately $15,000 as compared to approximately $12,000 in the same period in 2015.

 

Income Tax

 

Income tax expense for the three and six months ended June 30, 2016 was $216,000 and $395,500, respectively, as compared to approximately $456,000 for each of the three and six months ended June 30, 2015. The decrease is attributable to lower pre-tax income in the six months ended June 30, 2016 as compared to the same period in 2015.

 

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Net Income Per Share

 

Net income was $386,868 and $291,117 for the six months ended June 30, 2016 and 2015, respectively. The increase in net income is an outcome of the factors described above.

 

Basic and diluted net income per share for the six month periods ended June 30, 2016 and 2015 was $0.01.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of June 30, 2016, we had cash and cash equivalents of $1,337,004 and a working capital surplus of $2,504,309. We generated revenue from continuing operations of $7,031,568 and had net income from continuing operations before taxes of $782,368 for the six months ended June 30, 2016. For the six months ended June 30, 2016, cash flows included net cash provided by operating activities of $1,045,662, net cash provided by investing activities of $14,055, and net cash used in financing activities of $137,374.

 

On May 17, 2013, we entered into a loan agreement with PNC Bank (the “PNC Loan Agreement”). The PNC Loan Agreement contained three components: (i) a $2,500,000 non-revolving acquisition line of credit (the “PNC Acquisition Line”); (ii) a $1,150,000 working capital line (the “PNC Working Capital Line”); and (iii) a $280,920 term loan (the “PNC Term Loan”).

 

Proceeds of the PNC Acquisition Line were able to be dispersed, based on parameters defined in the PNC Loan Agreement, until May 17, 2014 (the “Conversion Date”). As of the Conversion Date, there was $1,350,000 outstanding under the PNC Acquisition Line. The payment terms provided that 30 days following the Conversion Date, and continuing on the same day of each month thereafter, we are required to make equal payments of principal over a 60 month period. Interest on the outstanding principal continues to accrue at a rate equal to one-month LIBOR plus 275 basis points (3.18% as of June 30, 2016). As of June 30, 2016, there was $ 787,500 outstanding under the PNC Acquisition Line.

 

The PNC Working Capital was to have been dispersed for working capital and general corporate purposes. Interest on outstanding principal accrued at a rate equal to daily LIBOR plus 250 basis points. The PNC Working Capital Line expired on December 31, 2015, with $0 outstanding.

 

The PNC Term Loan was utilized to retire our previously outstanding miscellaneous debt of the same amount. Interest on outstanding principal accrued at a rate equal to one-month LIBOR plus 275 basis points and principal and interest payments were to be made over a thirty-four month period. At December 31, 2015, all amounts under the PNC Term loan have been repaid.

 

The Company is party to a concession agreement, dated as of November 1, 2008, with the City of New York for the operation of the Downtown Manhattan Heliport (the “Concession Agreement”). Pursuant to the terms of the Concession Agreement, the Company must pay the greater of 18% of the first $5,000,000 in program year gross receipts and 25% of gross receipts in excess of $5 million or minimum annual guaranteed payments. The Company paid the City of New York $1,200,000 in the first year of the term and minimum payments were scheduled to increase to approximately $1,700,000 in the final year of Concession Agreement which now, in accordance with an agreement (the “Agreement”) between the Company and the New York City Economic Development Corporation (“NYCEDC”), expires on April 30, 2021. In addition to the extended base term, the City of New York has two one year options to further extend the Concession Agreement. The Agreement also calls for certain reductions in air tour activity at the Heliport as well as reductions to the Company’s minimum annual guaranteed payments, which are further detailed in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on April 11, 2016. During the six months ended June 30, 2016 and 2015, we incurred approximately $1,416,000 and $1,024,000, respectively, in concession fees which are recorded in the cost of revenue.

 

On July 13, 2016, the Franchise and Concession Review Committee of New York City approved an amendment (the “Amendment”) to the Concession Agreement between us and the City of New York. The Amendment, which memorializes the Agreement, is filed as an exhibit with this report. In addition to elements described above, the Amendment redefines the plan year as well as the applicable minimum annual guaranteed payments through the extended base term and option periods.

 

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The air tour reductions articulated in the Agreement are expected to negatively impact the Company’s business and financial results as well as those of the Company’s management company at the Heliport, Empire Aviation which, as previously disclosed, is owned by the children of Alvin Trenk, our CEO and a member of our Board of Directors.  The Company incurred management fees with Empire Aviation of approximately $648,000 and $486,000 during the six months ended June 30, 2016 and 2015, respectively, which is recorded in administrative expenses.  The Company and Empire have also contributed to the Helicopter Tourism and Jobs Council (“HTJC”), an association that lobbies on behalf of the helicopter air tour industry, and which had engaged in discussions with the Mayor’s office in connection with the Agreement.  Mr. Trenk is also an active participant with HJTC, which is managed by his grandson.

 

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 (the “Stock Agreement”). The details of the Stock Agreement are included in that Current Report as well as in the Company’s Annual Report on Form 10-K, which was filed with the SEC on April 11, 2016.

 

On September 30, 2015, we and Mr. Peck executed a Closing Cash Agreement (“the “Closing Agreement”), which was filed with our Quarterly Report on Form 10-Q for the period ended September 30, 2015. The Closing Agreement provided for Mr. Peck to sign over to the Company title to an aircraft to defer the $250,000 cash consideration due at closing. As further described in the Closing Agreement, we were to receive the $250,000 closing cash payment, plus other identified costs, when the aircraft was subsequently sold. On June 13, 2016, the Company entered into an agreement (the “Sale Agreement”) with an unrelated third party to acquire the aircraft subject to the Closing Agreement. Under the terms of the Sale Agreement, we received a down-payment of $30,000, which was credited against the $250,000 cash consideration owed by Mr. Peck. In addition, we will receive monthly payments of at least $28,000 to satisfy the remainder of the $250,000 cash consideration and $50,000 of the Note owed by Mr. Peck. The $220,000 remaining balance of closing cash consideration, plus receivables associated with the Note, are reflected as a Note Receivable as of June 30, 2016.

 

During the six months ended June 30, 2016, we had a net increase in cash of $922,343. Our sources and uses of funds during this period were as follows:

 

Cash from Operating Activities

 

For the six months ended June 30, 2016, net cash provided by operating activities was $1,045,662. This amount included an increase in operating cash related to net income of $386,868 and additions for the following items: (i) depreciation and amortization, $237,867; (ii) stock based compensation, $16,998; (iii) accounts receivable, trade, $578,521; (iv) inventories, $9,646; (v) prepaid expenses and other current assets, $45,944; (vi) deposits $26,524; (vii) accounts payable, $53,893; and (viii) customer deposits, $158. These increases in operating activities were offset by a decrease in accrued expenses, $310,757.

 

For the six months ended June 30, 2015, net cash provided by operating activities was $154,501. This amount included an increase in operating cash related to net income of $291,117 and additions for the following items: (i) depreciation and amortization, $303,506 ; (ii) stock based compensation, $16,998; (iii) prepaid expenses and other current assets, $176,730; (iv) deferred income taxes of $232,000; and (v) accounts payable, $198,811. These increases in operating activities were offset by the following decreases: (i) accounts receivable, $799,547; (ii) trade inventories, $17,197; (iii) customer deposits, $5,638; and (iv) accrued expenses, $242,279.

 

Cash from Investing Activities

 

For the six months ended June 30, 2016, net cash provided by investing activities was $14,055. This amount included $30,000 provided by the payment of notes receivable offset by amounts used in the purchase of property and equipment of $15,945. For the six months ended June 30, 2015, net cash used in investing activities was $163,229. This amount included $79,875 of net cash held for sale of a subsidiary and $83,354 used for the purchase of property and equipment.

 

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Cash from Financing Activities

 

For the six months ended June 30, 2016, net cash used in financing activities was $137,374 for the repayment of notes payable. For the six months ended June 30, 2015, net cash used in financing activities was $187,018 for the repayment of notes payable.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Recent Accounting Pronouncements

 

In April 2014, the FASB issued Accounting Standards Update No. 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360) – Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (ASU 2014-08) which requires entities to change the criteria for reporting discontinued operations and enhance convergence of the FASB’s and International Accounting Standard Board’s (IASB) reporting requirements for discontinued operations so as not to be overly complex or difficult to apply to stakeholders. Only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on the entity’s operations and financial results will be reported as discontinued operations in the financial statements. ASU 2014-08 is effective for fiscal years beginning on or after December 15, 2014 and interim periods thereafter. ASU 2014-08 will be effective for the Company’s financial statements for fiscal years beginning January 1, 2015. Based on the Company’s evaluation of ASU 2014-08, the adoption of this statement on January 1, 2015 did not have a material impact on the Company’s financial statements.

 

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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," "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:

 

§ 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;

 

§ 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 replaced 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, 2015 and in other filings we make with the Securities and Exchange Commission. 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 Securities and Exchange Commission. 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 Chief Executive Officer (principal executive officer) and our President (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 and our Chief Executive 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.

 

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PART II – OTHER INFORMATION

 

Item 6.  Exhibits

 

Exhibit No.   Description of Exhibit
     
  10.1   Amendment to NYC Heliport Concession Agreement, dated as of July 13, 2016 *
     
31.1   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (principal executive officer). *
     
31.2   Rule 13a-14(a)/15d-14(a) Certification of President (principal financial officer). *
     
32.1   Section 1350 Certification. *
     
101.INS   XBRL Instance Document. *
     
101.SCH   XBRL Taxonomy Extension Schema Document. *
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document. *
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document. *
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document. *
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document. *

 

* Filed herewith

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Saker Aviation Services, Inc.
     
Date: August 15, 2016 By: /s/ Ronald J. Ricciardi
    Ronald J. Ricciardi
    President

 

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Exhibit 10.1

 

 

AMENDMENT OF CONCESSION AGREEMENT

 

between

 

THE CITY OF NEW YORK ACTING BY AND THROUGH ITS DEPARTMENT OF SMALL BUSINESS SERVICES

 

and

 

FIRSTFLIGHT HELIPORTS, LLC D/B/A SAKER AVIATION SERVICES, as successor in interest to Saker Aviation Services, Inc.

 


THIS AMENDMENT OF CONCESSION AGREEMENT (this “Amendment”) is made as of the   th day of , 2016, by and between THE CITY OF NEW YORK , acting by and through its Department of Small Business Services, (the “City”), having an address at 110 William Street, 7 th Floor, New York, New York 10038 and FIRSTFLIGHT HELIPORTS, LLC D/B/A SAKER AVIATION SERVICES , as successor in interest to Saker Aviation Services, Inc. , a Nevada corporation, having an office at 20 South Street, Pier 6, East River, New York, New York 10004 (the “Operator”).

 

W I T N E S S E T H

 

WHEREAS, pursuant to a Concession Agreement dated as of July 23, 2008 by and between the City and FirstFlight, Inc. (the “Concession Agreement” or “Agreement”), and a Consent and Agreement dated September 29, 2009 by and between the City and FirstFlight Heliports, LLC, a wholly owned subsidiary of Saker Aviation Services, Inc. f/k/a FirstFlight, Inc. and FirstFlight Heliports, LLC d/b/a Saker Aviation Services, which agreements were amended by a further agreement dated February 2, 2016 (the “February Agreement”) (collectively, the “Original Concession Agreement” or “Original Agreement”), Operator is the fixed base operator of the Downtown Manhattan Heliport (“DMH”) which consists of 6,300 total square feet of terminal space and 71,900 square feet of barge and pier space together with all buildings and improvements as generally described in Exhibit “A” of the Concession Agreement; and

 

WHEREAS, pursuant to the Amended and Restated Maritime Contract between the City and the New York City Economic Development Corporation (“NYCEDC”), the City has retained NYCEDC to engage in, inter alia, various activities intended to promote the economic development of the City’s waterfront property and related transportation facilities, including the operation of DMH, and in that capacity, is the Agreement Administrator of the Original Concession Agreement; and

 

WHEREAS, the City and Operator wish to further amend the Original Concession Agreement as set forth below to extend the term and adjust the Minimum Annual Guarantee, the use and other ancillary items; and

 

 

 

 

WHEREAS, the Franchise and Concession Review Committee ("FCRC"), has authorized NYCEDC , on behalf of the New York City Department of Small Business Services, to use a different procedure to enter into this Amendment .

 

NOW, THEREFORE, for and in consideration of the mutual covenants herein contained and other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the City and the Operator hereby agree as follows:

 

1. Definitions . All capitalized terms used herein shall have the meanings ascribed to them in the Original Concession Agreement, unless otherwise specifically set forth herein to the contrary. The following definitions shall be added to Section 1.01 of the Agreement:

 

“ Tourist Flight ” or “ Tourist Flight Operations ” means an aircraft first taking off from DMH, then flying along the Authorized Routes, and then landing back at DMH.

 

2. Effective Date . This Amendment is effective upon written notice to the Operator from the Agreement Administrator of registration with the Comptroller (the “Effective Date”).

 

3. Modification of Concession Agreement . The Original Concession Agreement is hereby modified as follows:

 

a. As of the Effective Date, Section 2.01 of the Concession Agreement is deleted in its entirety and replaced with the following:

 

Section 2.01. Term . The initial term of this Agreement (“Initial Term”) shall commence on the date set forth in a written notice to proceed from Agreement Administrator (“Commencement Date”) and continue until midnight on April 30, 2021 unless sooner terminated in accordance with the provisions hereof (such date is hereinafter referred to as the “Expiration Date”). Six (6) months prior to the expiration of the Agreement, the City, at its sole discretion, may offer Operator an option to renew the Agreement for a one year period (the “First Renewal Term”) upon the same terms and conditions applicable during the initial term except as to the Minimum Annual Guarantee, which, in the event of any such renewal, shall be as provided in Section 3.01(b) hereof, provided that (1) the Agreement shall then be in full force and effect in accordance with its terms, (2) there shall not then exist any uncured default hereunder at the time of exercise of the option or at the beginning of any extension term and (3) Operator shall accept the option in writing within ten (10) days of notice. Six (6) months prior to the expiration of the renewal term, the City, at its sole discretion, may offer Operator another option to renew the Agreement for an additional one year period (the “Second Renewal Term,” and together with the First Renewal Term, the “Renewal Term”) upon the same terms and conditions applicable during the initial term except as to the Minimum Annual Guarantee, which, in the event of any such renewal, shall be as provided in Section 3.01(b) hereof, provided that (1) this Agreement shall then be in full force and effect in accordance with its terms, (2) there shall not then exist any uncured default hereunder at the time of exercise of the option or at the beginning of any extension term and (3) Operator shall accept the option in writing within ten (10) days of notice. In the event that Operator fails to timely notify Agreement Administrator in writing of its acceptance of the First Renewal Term or the Second Renewal Term, as applicable, in the manner provided herein, then Operator shall have waived or forfeited its right to extend this Agreement for any renewal term and this Amendment shall expire on the Expiration Date. (The Initial Term and the Renewal Terms shall be collectively referred to as the “Term”)

 

 

 

 

b. As of the Effective Date, the following paragraph (x) is added to Section 2.02(a) of the Concession Agreement:

 

(x) In addition to any other reporting and recordkeeping required under the Agreement, commencing July 1, 2016, and again each month thereafter, within fifteen (15) calendar days of the first day of the month for the duration of the Term, the Operator shall cause to be prepared and delivered a monthly report to The New York City Council (“City Council”) at City Hall, New York, NY 10007, Attn.: Chief of Staff with a copy to NYCEDC at 110 William Street, New York, NY 10038, Attn.: Senior Director of Aviation, detailing (a) the number of Tourist Flight Operations conducted out of the DMH for the previous calendar month, (b) a comparison to the relevant monthly maximum number of Tourist Flight Operations set forth in Section 2.03 and (c) the number and locations of any deviations of Tourist Flight Operations from the Authorized Routes which result in flights over land or piers, including land or piers on Governors Island and Staten Island. Agreement Administrator shall commission and the Operator shall pay, within reason, for reports of compliance, to be prepared by an impartial party.

 

c. As of the Effective Date, the following paragraph (xi) is added to Section 2.02(a) of the Concession Agreement:

 

(xi) establish and maintain a system approved by Agreement Administrator to monitor air quality in the vicinity of DMH for the duration of the Term. All expenses associated with such monitoring system are to be borne by the Operator. The Operator shall deliver monthly readings to the City Council with a copy to Agreement Administrator at the following addresses: (1) to the City Council at New York City Council, City Hall, New York, NY 10007, Attn.: Chief of Staff; (2) to Agreement Administrator at NYCEDC, 110 William Street, New York, NY 10038, Attn.: Senior Director of Aviation.

 

d. As of the Effective Date, the following paragraph (xii) is added to Section 2.02(a) of the Concession Agreement:

 

(xii) actively research available technologies to further mitigate helicopter noise, reduce emissions, and promote fuel efficiency, and implement any such technology as it becomes commercially feasible at the sole cost and expense of the Operator.

 

 

 

 

e. As of the Effective Date, the following paragraph (xiii) is added to Section 2.02(a) of the Concession Agreement:

 

(xiii) ensure that all flights for tour purposes leaving from or coming into DMH (i) shall not undertake any routes other than those set forth in the 2010 Helicopter Sightseeing Plan (attached hereto as Exhibit M), as modified to remove the Yankee Stadium routing and as may be further modified from time to time, (ii) shall not fly over Staten Island while conducting Tourist Flight Operations originating out of the DMH, (iii) shall not fly over Governors Island before the Tourist Flight Operations begin and after the Tourist Flight Operations end even if transitioning to and from DMH, and (iv) provided it is for tour purposes leaving from or coming into DMH, shall make best efforts, working in coordination with the air traffic control towers at Newark International Airport and LaGuardia, to fly at maximum altitudes permitted under FAA rules while en route to DMH from facilities outside New York City (the “Authorized Routes”).

 

f. As of the Effective Date, a new Exhibit L is added to the Concession Agreement in the form attached to this Amendment as Exhibit 2.

 

g. As of the Effective Date, the following paragraph (xiv) is added to Section 2.02(a) of the Concession Agreement:

 

(xiv) make best efforts to prevent helicopters at DMH from idling for a period greater than ten minutes.

 

h. As of the Effective Date, the fifth paragraph of Section 2.03 of the Concession Agreement is deleted in its entirety and replaced with the following, including Exhibit 3 attached hereto:

 

The City or Agreement Administrator may prelude certain types of helicopters during certain hours of operation. Operator acknowledges that the hours of operation of DMH for take-offs and landings shall be limited as follows unless otherwise modified by the City :

 

(i) Monday through Friday to 7:00 a.m. to 10:00 p.m.; Tourist Flights from 9:00 a.m. to 7:00 p.m. only

 

(ii) Saturdays from 7:00 a.m. to 7:00 p.m.; Tourist Flights from 9:00 a.m. to 7:00 p.m. only

 

(iii) Sundays from 7:00 a.m. to 5:00 p.m.; no Tourist Flights

  

Notwithstanding the above, DMH may be used for emergency landings and take-offs at any time. Emergency landings and take-off shall be those (i) used by any emergency service of any level of government (e.g., police, fire, military), (ii) used for time-critical medical treatment purposes, (iii) used in addressing any conditions where a threat to human life or safety or damage to property is present or imminent, or (iv) by operators experiencing in-flight mechanical difficulties.

  

Commencing on June 1, 2016, Tourist Flight Operations shall not exceed three hundred Tourist Flight Operations on any Saturday.

 

 

 

 

The total number of Tourist Flight Operations existing prior to June 1, 2016 shall be reduced by Fifty Percent (50%) in accordance with the following implementation schedule:

 

a. Commencing June 1, 2016, the Operator shall implement a Twenty Percent (20%) reduction in the number of Tourist Flight Operations out of the DMH on a month to month basis based on peak operational levels as set forth in Row A of the spreadsheet attached hereto as Exhibit L and incorporated herein by reference, effectively ensuring that the number of such operations do not exceed Eighty Percent (80%) of the peak operational levels on a monthly basis thereafter for the duration of the Term.

 

b. Commencing October 1, 2016, the Operator shall again reduce total number of Tourist Flight Operations out of the DMH on a monthly basis by a number equal to Twenty Percent (20%) of the peak operational levels set forth in Row A of Exhibit L, ensuring that the number of such operations do not exceed Sixty Percent (60%) of the peak operational levels set forth in Row A of Exhibit L on a monthly basis thereafter for the duration of the Term.

 

c. The Operator agrees that as of January 1, 2017, the Operator shall again reduce the total number of Tourist Flight Operations out of the DMH on a monthly basis by a number equal to Ten Percent (10%) of the peak operational levels set forth in Row A of Exhibit L, ensuring that the number of Tourist Flight Operations do not exceed Fifty Percent (50%) of the peak operational levels set forth in Row A of Exhibit L on a monthly basis thereafter for the duration of the Term. The parties to this Agreement explicitly acknowledge that the number of operations represented in Row B of Exhibit L represent a Fifty Percent (50%) reduction in peak operational levels of Tourist Flight Operations conducted out of the DMH on a month-to-month basis during calendar year 2015.

 

The City reserves the right to reduce the maximum number of Tourist Flight Operations by an additional 50% for any or all of the remainder of the Term if:

 

(i) Tourist Flight Operations in any given month exceed the level for that month set forth in this Section; or

 

(ii) on more than five occasions, other than in cases of emergency, Tourist Flight Operations cross over land or piers, including those lands or piers on Governors Island or Staten Island, and are documented as having done so by an independent professional commissioned by the Agreement Administrator and paid for by the Fixed Base Operator.

 

Upon each additional occurrence of the facts set forth in subparagraph (i) or (ii) above, pursuant to the terms herein, the City shall have the right to reduce the then maximum number of Tourist Flight Operations by an additional 50%.

 

i. As of the Effective Date, Exhibit E referenced in Section 3.01(b) of the Concession Agreement and attached thereto is deleted in its entirety and replaced with the document attached hereto as Exhibit 1.

 

 

 

 

j. As of the Effective Date, Section 3.01(g) of the Concession Agreement and Paragraph 3 of the February Agreement are deleted in their entirety and replaced with the following:

 

All payments of the Retention Payments and other payments due from Operator shall be directed to Agreement Administrator at:

 

New York City Economic Development Corporation

 

110 William Street

 

New York, NY 10038

 

Attn: Downtown Heliport Agreement Administrator

 

Or at such other location as Agreement Administrator may from time to time designate by written notice.

 

k. The following Sections 9.15 and 9.16 are added to the Concession Agreement:

 

Section 9.15. This Amendment and the Original Concession Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in the State of New York, excluding New York’s rules regarding conflict of laws and any rule requiring construction against the party drafting this Amendment and/or the Original Concession Agreement.

 

Section 9.16. If any one or more of the provisions of this Amendment and the Original Concession Agreement is deemed invalid, illegal, or unenforceable in any respect by a court of competent jurisdiction, the validity, legality, and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

 

4. Miscellaneous.

 

a. This Amendment may not be amended or modified except by a writing signed by the parties.

 

b. This Amendment constitutes the entire agreement of the parties hereto with respect to the matters herein amended.

 

c. Captions are inserted for convenience only and will not affect the construction hereof.

 

d. This Amendment may be executed in counterparts.

 

e. Rights and obligations under this Amendment may not be assigned by the Operator without the prior written consent of the City, which shall not be unreasonably delayed or withheld.

 

f. Operator hereby represents and warrants that it has all necessary power and authority to execute, deliver and perform its obligations under this Amendment. The undersigned signatory for Operator, by signing this Amendment, personally warrants that he or she has the power and authority to enter into this Amendment on behalf of Operator and to bind Operator to the terms and conditions of this Amendment.

 

g. Notwithstanding the reduction in Tourist Flight Operations set forth in Paragraphs 7 and 11 of the February Agreement and Section 2.03 of the Concession Agreement, the City continues to maintain the authority to preclude certain types of helicopters and further reduce flights pursuant to the terms of Section 2.03 of the Concession Agreement.

 

h. Except as modified by this Amendment, all of the terms and conditions of the Original Concession Agreement are hereby in all respects ratified and confirmed. In the event of any inconsistency between the terms of this Amendment and the Original Concession Agreement, the terms of this Amendment shall prevail.

 

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the day and year first written above.

 

 

THE CITY OF NEW YORK acting by and through the NEW YORK CITY DEPARTMENT OF SMALL BUSINESS SERVICES

 

         
By:          
Name:          
Title:          

 

 

FIRSTFLIGHT HELIPORTS, LLC d/b/a Saker Aviation Services

 

           
By:          
Name: Ronald J. Ricciardi        
Title: President        

 

 

APPROVED AS TO FORM

CERTIFIED AS TO LEGAL AUTHORITY:

 

         
ACTING CORPORATION COUNSEL        
           

 

 

 

 

 

EXHIBIT 1

 

EXHIBIT E

 

Retention Payments Fee Schedule

 

Operator shall pay the City the greater of Minimum Annual Guarantee ("MAG") or the Percentage of Gross Receipts (collectively, the "Retention Payments").

 

MAG:

 

                 
Year 1 2 3 4 5 6 7  
Guaranteed Minimum 1,200,000 1,245,000 1,292,250 1,341,863 1,393,956 1,448,654 1,506,086  
  Updated MAG Extended Term Optional Term
Year 8 9 10 1 2 3 4 5
Guaranteed Minimum 1,148,511 814,855.02 848,098 882,870 919,068 956,749 995,976 1,036,811
                     

 

Percentage of Gross Receipts:

 

Percentage of Gross Receipts shall be paid to the City at the rate of 18% of the first $5 million of Gross Receipts (the “Base Receipts”). Additionally, the City shall receive 25% of Gross Receipts collected in excess of the Base Receipts.

 

MAG shall be payable in equal monthly installments on the first day of each month during the Term of this Agreement, except that Retention Payments for Year 9 and subsequent years shall commence on May 1, 2016 and be payable on the first day of each month thereafter for the remainder of the Term. If at any time the Percentage of Gross Receipts for a particular operating year becomes applicable, then, in addition to the monthly installment of the MAG to be paid on the first day of each month, the Operator shall thereafter for the remainder of such operating year pay the additional amount due on the twentieth (20) day of each succeeding month in such operating year.

 

 

 

 

 

EXHIBIT 2

  

EXHIBIT M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT 3

EXHIBIT L

 

  Helicopter Flight Operations Downtown Manhattan Heliport (monthly)                  
  Calendar Year 2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Row A Baseline 2319 2216 3413 5732 6456 4607 5645 6673 5487 6979 4766 5008 59301
Row B

Post reduction (50%) Maximum

TFO/Month

1160 1108 1707 2866 3228 2304 2823 3337 2744 3490 2383 2504 296451

 

 

 

 

 

 

EXHIBIT 31.1

 

Certification of Chief Executive Officer

(principal executive officer)

Pursuant To Rule 13a-14(a)/15d-14(a)

 

I, Alvin S. Trenk, 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(s) 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)) 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)    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

 

(c)    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(s) 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: August 15, 2016

 

By:  /s/ Alvin S. Trenk

 
Alvin S. Trenk  
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(s) 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)) 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) 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

 

(c) 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(s) 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: August 15, 2016

 

By: /s/ Ronald J. Ricciardi

 
Ronald J. Ricciardi  
President (principal financial officer)  

 

 

 

EXHIBIT 32.1

 

Section 1350 Certification

 

Pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), Alvin S. Trenk, the Chief Executive Officer (principal executive officer), and Ronald J. Ricciardi, the President (principal financial officer) of Saker Aviation Services, Inc. does hereby certify that:

 

1. The Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016 (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; 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:           August 15, 2016 By: /s/ Alvin S. Trenk
    Alvin S. Trenk
    Chief Executive Officer
(principal executive officer)
     
Date:           August 15, 2016 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.