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 September 30, 2016

 

or

 

o 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 o

 

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 o

 

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   o Accelerated filer   o Non-accelerated filer   o 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 o           No x

 

As of November 14, 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

September 30, 2016

 

 

Index

 

PART I - FINANCIA L INFORMATION Page
   
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  3
   
  Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015 3
     
  Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015 (unaudited) 4
     
  Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (unaudited) 5
   
  Notes to Financial Statements (unaudited) 6
   
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
   
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
   
ITEM 4.  CONTROLS AND PROCEDURES 15
   
PART II - OTHER INFORMATION  
   
ITEM 6. EXHIBITS 16
   
SIGNATURES 17
   

 

2  

 

  

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

    September 30, 2016     December 31, 2015  
    (unaudited)        
ASSETS            
             
CURRENT ASSETS                
Cash   $ 2,084,576     $ 414,661  
Accounts receivable     1,588,167       2,520,955  
Inventories     76,007       67,860  
Notes receivable – current portion     270,000       300,000  
Prepaid expenses and other current assets     608,865       354,485  
Total current assets     4,627,615       3,657,961  
                 
PROPERTY AND EQUIPMENT, net                
   of accumulated depreciation and amortization of $2,485,887 and $2,116,676 respectively     1,198,226       1,496,656  
                 
OTHER ASSETS                
Deposits     110,512       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     1,048,512       1,088,297  
TOTAL ASSETS   $ 6,874,353     $ 6,242,914  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
CURRENT LIABILITIES                
Accounts payable   $ 1,089,821     $ 682,916  
Customer deposits     126,495       126,257  
Accrued expenses     325,839       589,417  
Notes payable – current portion     270,000       272,374  
Total current liabilities     1,812,155       1,670,964  
                 
LONG-TERM LIABILITIES                
Notes payable - less current portion     450,000       652,500  
Total liabilities     2,262,155       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
   September 30, 2016 and December 31, 2015
    33,157       33,157  
Additional paid-in capital     20,021,924       19,996,428  
Accumulated deficit     (15,442,883 )     (16,110,135 )
TOTAL STOCKHOLDERS’ EQUITY     4,612,198       3,919,450  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 6,874,353     $ 6,242,914  

   

See notes to condensed consolidated financial statements.

 

3  

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)  

 

 

    For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
    2016     2015     2016     2015  
                         
REVENUE   $ 3,840,800     $ 4,729,808     $ 10,872,366     $ 11,774,659  
                                 
COST OF REVENUE     1,521,181       2,255,109       4,758,531       5,354,570  
                                 
GROSS PROFIT     2,319,619       2,474,699       6,113,835       6,420,089  
                                 
SELLING, GENERAL AND ADMINISTRATIVE                                
     EXPENSES     1,747,290       1,833,063       4,744,077       4,891,708  
                                 
OPERATING INCOME FROM CONTINUING        OPERATIONS     572,329       641,636       1,369,758       1,528,381  
                                 
OTHER INCOME (EXPENSE)                                
     OTHER (EXPENSE) INCOME, net     ---       ---       ---       1,666  
     INTEREST EXPENSE     (6,445 )     (4,580 )     (21,506 )     (16,730 )
TOTAL OTHER EXPENSE, net     (6,445 )     (4,580 )     (21,506 )     (15,064 )
                                 
INCOME FROM CONTINUING OPERATIONS, before income   taxes     565,884       637,056       1,348,252       1,513,317  
                                 
INCOME TAX EXPENSE     285,500       352,000       681,000       808,000  
                                 
INCOME FROM CONTINUING OPERATIONS     280,384       285,056       667,252       705,317  
                                 
LOSS FROM DISCONTINUED OPERATIONS, net of income taxes     ---       (180,327 )     ---       (309,471 )
                                 
NET INCOME   $ 280,384     $ 104,729     $ 667,252     $ 395,846  
                                 
Basic and Diluted Net Income Per Common Share   $ 0.01     $ 0.01     $ 0.02     $ 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     33,305,833       33,674,676       33,305,833       33,674,676  

 

See notes to condensed consolidated financial statements

 

4  

 

  

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

    Nine Months Ended
September 30,
 
    2016     2015  
             
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income   $ 667,252     $ 395,846  
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depreciation and amortization     369,211       639,146  
Stock based compensation     25,496       25,496  
Changes in operating assets and liabilities:                
Accounts receivable, trade     932,788       (519,795 )
Inventories     (8,147 )     209,875  
Prepaid expenses and other current assets     (254,380 )     (602,700 )
Deposits     39,785       13,261  
Deferred income taxes     ---       55,000  
Accounts payable     406,905       358,656  
Customer deposits     238       (6,752 )
Accrued expenses     (263,578 )     797,900  
TOTAL ADJUSTMENTS     1,248,318       970,087  
                 
NET CASH PROVIDED BY OPERATING ACTIVITIES     1,915,570       1,365,933  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Payment (Issuance) of note receivable     30,000       (500,000 )
Purchase of property and equipment     (70,781 )     (49,950 )
NET CASH USED IN INVESTING ACTIVITIES     (40,781 )     (549,950 )
                 
CASH FLOWS USED IN FINANCING ACTIVITIES                
Repayment of notes payable     (204,874 )     (279,726 )
Repayment of line of credit     ---       (350,000 )
NET CASH USED IN FINANCING ACTIVITIES     (204,874 )     (629,726 )
                 
NET CHANGE IN CASH     1,669,915       186,257  
                 
CASH – Beginning     414,661       531,003  
CASH – Ending   $ 2,084,576     $ 717,260  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Cash paid during the periods for:                
Interest   $ 21,506     $ 16,730  
Income taxes   $ 1,050,685     $ 491,459  

 

See notes to condensed consolidated financial statements

 

5  

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 September 30, 2016 and the condensed consolidated statements of operations for the three and nine months ended September 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 September 30, 2016 and its results of operations and cash flows for the three and nine months ended September 30, 2016 not misleading. The results of operations for the three and nine months ended September 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 September 30, 2016, the Company had cash and cash equivalents of $2,084,576 and a working capital surplus of $2,815,460. For the nine months ended September 30, 2016, the Company generated revenue from continuing operations of $10,872,366 and had net income from continuing operations before taxes of $1,348,252. For the nine months ended September 30, 2016, cash flows included net cash provided by operating activities of $1,915,570, net cash used in investing activities of $40,781, and net cash used in financing activities of $204,874.

 

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, the Company is 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 (3.26% as of September 30, 2016). As of September 30, 2016, there was $720,000 outstanding under the PNC Acquisition Line.

 

The PNC Working Capital Line 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, in accordance with an Amendment to the Concession Agreement dated July 13, 2016 (the “Amendment”) between the Company and the New York City Economic Development Corporation (“NYCEDC”), expires on April 30, 2021. In addition to the extension of the base term, pursuant to the Amendment the City of New York has two one year options to further extend the Concession Agreement. The Amendment 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 described in greater detail 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 nine months ended September 30, 2016 and 2015, the Company incurred approximately $1,900,000 and $2,100,000, respectively, in concession fees which are recorded in the cost of revenue. The Amendment was included as an exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2016.

 

6  

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

  

The air tour reductions discussed in the Amendment are expected to negatively impact the Company’s business and financial results as well as those of the Company’s management company Empire Aviation which, as previously disclosed, is owned by the children of Alvin Trenk, the Company’s CEO and a member of its Board of Directors.  The Company incurred management fees with Empire Aviation of approximately $2,706,000 and $2,711,000 during the nine months ended September 30, 2016 and 2015, respectively, which is recorded in administrative expenses.  The Company and Empire Aviation have also contributed to the Helicopter Tourism and Jobs Council (“HTJC”), an association that lobbies on behalf of the helicopter air tour industry, and which had engaged in discussions with the City of New York Mayor’s office in connection with the Amendment.  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 Purchase Agreement are described in greater detail in such 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 assign to the Company title to an aircraft in order 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, beginning in October 2016, 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 September 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 $667,252 and $395,846 for the nine months ended September 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. 

 

7  

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
September 30,
    For the Nine Months Ended
September 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     148,223       567,066       148,223       567,066  
                                 
Weighted average common shares outstanding, diluted     33,305,833       33,674,676       33,305,833       33,674,676  

  

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 nine months ended September 30, 2016 and 2015, the Company incurred stock-based compensation costs of $25,496. 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 September 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 September 30, 2016 and December 31, 2015 is set forth in the table below:

 

    September 30, 2016     December 31, 2015  
Fuel inventory   $ 61,959     $ 52,475  
Other inventory     14,048       15,385  
Total inventory   $ 76,007     $ 67,860  

 

Included in inventories are amounts held for third parties of $53,562 and $55,798 as of September 30, 2016 and December 31, 2015, respectively, with an offsetting liability included as part of accrued expenses.

 

8  

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

  

NOTE 5 – Discontinued Operations

 

The Company entered into a Stock Purchase Agreement, dated June 30, 2015, by and between the Company and Warren A. Peck (the “Agreement”). The Agreement is discussed in greater detail in a Current Report on Form 8-K filed July 6,2015, 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:

 

    For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
    2016     2015     2016     2015  
                         
Revenue   $ 0.00     $ 900,408     $ 0.00     $ 1,763,944  
Cost of revenue     0.00       787,154       0.00       1,346,760  
Gross profit     0.00       113,254       0.00       417,184  
Operating expenses     0.00       387,448       0.00       867,765  
Operating income (loss) from discontinued operations     0.00       (274,194 )     0.00       (450,581 )
Interest expense     0.00       (7,774 )     0.00       (24,575 )
Other expense     0.00       26,641       0.00       24,685  
Income tax benefit     0.00       75,000       0.00       141,000  
Net income (loss) from discontinued operations     0.00       (180,327 )     0.00       (309,471 )
Basic net income (loss) per common share     0.00       (0.01 )     0.00       (0.01 )
Weighted average number of shares outstanding, basic     33,157,610       33,107,610       33,157,610       33,107,610  

 

NOTE 6 – Related Parties

 

From time to time, the law firm of Wachtel & Missry, LLP provides certain legal services to the Company and its subsidiaries. William B. Wachtel, Chairman of the Company’s Board of Directors, is a managing partner of such firm. During the nine months ended September 30, 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.

 

Note 8 – Subsequent Events

 

The Company’s wholly-owned subsidiary, FBO Air Garden City, Inc. (“GCK”), entered into a Stock Purchase Agreement, dated October 3, 2016, by and between the Company and Gary and Kim Keller, to purchase all of the capital stock of Aircraft Services, Inc. (“Aircraft Services”), an aircraft maintenance services firm located in Garden City, Kansas. Under the terms of the transaction, the Company made a $150,000 cash payment at closing and will make installment payments totaling an additional $150,000 over the next two years. The closing cash payment for the transaction was funded with internal resources. The Stock Purchase Agreement is discussed in greater detail in a Current Report on Form 8-K filed on October 7, 2016 and is filed as an Exhibit to this report.

 

9  

 

 

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

 

The following discussion should be read together with the accompanying 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. 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”), as a provider of aircraft maintenance services , 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 and provider of aircraft maintenance services 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 a provider of aircraft maintenance services 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 and our acquisition of Aircraft Services in October 2016 (see Note 8. Subsequent Events).

 

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 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.

 

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 and second stages of these reductions were initiated on June 1, 2016, and October 1, 2016, respectively.

 

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REVENUE AND OPERATING RESULTS

 

Comparison of Continuing Operations for the Three and Nine Months Ended September 30, 2016 and September 30, 2015.

 

REVENUE

 

Revenue from continuing operations decreased by 18.8 percent to $3,840,000 for the three months ended September 30, 2016 as compared with corresponding prior-year period revenue of $4,730,000.

 

For the three months ended September 30, 2016, revenue from continuing operations associated with the sale of jet fuel, aviation gasoline and related items decreased by 19.6 percent to approximately $1,551,000 as compared to approximately $1,928,000 in the three months ended September 30, 2015. The decrease was largely attributable to a lower volume of gallons, primarily associated with fueling at our Heliport operation. This decrease was related to the initiation of the air tour reductions which took effect on June 1, 2016.

 

For the three months ended September 30, 2016, revenue from continuing operations associated with services and supply items decreased by 18.2 percent to approximately $2,273,000 as compared to approximately $2,778,000 in the three months ended September 30, 2015. The decrease was attributable to the same factor identified above.

 

For the three months ended September 30, 2016, all other revenue from continuing operations decreased by 28.0 percent to approximately $17,000 as compared to approximately $23,000 in the three months ended September 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 7.7 percent to $10,872,000 for the nine months ended September 30, 2016 as compared with corresponding prior-year period revenue of $11,775,000.

 

For the nine months ended September 30, 2016, revenue from continuing operations associated with the sale of jet fuel, aviation gasoline and related items decreased by 8.1 percent to approximately $4,330,000 as compared to approximately $4,710,000 in the nine months ended September 30, 2015. The decrease was largely attributable to a lower volume of gallons, primarily associated with fueling at our Heliport operation. This decrease was related to the initiation of the air tour reductions which took effect on June 1, 2016.

 

For the nine months ended September 30, 2016, revenue from continuing operations associated with services and supply items decreased by 6.6 percent to approximately $6,496,000 as compared to approximately $6,958,000 in the nine months ended September 30, 2015. The decrease was attributable to the same factor identified above.

 

For the nine months ended September 30, 2016, all other revenue from continuing operations decreased by 56.5 percent to approximately $47,000 as compared to approximately $107,000 in the nine months ended September 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 6.3 percent to $2,320,000 in the three months ended September 30, 2016 as compared with the three months ended September 30, 2015. Gross margin increased to 60.4 percent in the three months ended September 30, 2016 as compared to 52.3 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 three months ended September 30, 2016 as compared to the prior year. The increase in gross margin is related to reduced costs associated with providing services at our Heliport operation.

 

Total gross profit from continuing operations decreased 4.8 percent to $6,114,000 in the nine months ended September 30, 2016 as compared with the nine months ended September 30, 2015. Gross margin increased to 56.2 percent in the nine months ended September 30, 2016 as compared to 54.5 percent in the same period in the prior year. The decrease in gross profit and increase in gross margin are attributable to the same factors identified above.

 

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OPERATING EXPENSE

 

Selling, General and Administrative

 

Total selling, general and administrative expenses, or SG&A, from continuing operations were approximately $1,747,000 in the three months ended September 30, 2016, representing a decrease of approximately $86,000 or 4.7 percent, as compared to the same period in 2015. Total selling, general and administrative expenses, or SG&A, from continuing operations were $4,744,000 in the nine months ended September 30, 2016, representing a decrease of approximately $148,000 or 3.0 percent, as compared to the same period in 2015.

 

SG&A associated with continuing operations of our aviation services operations were approximately $1,618,000 in the three months ended September 30, 2016, representing a decrease of approximately $160,000 or 9.0 percent, as compared to the three months ended September 30, 2015. SG&A associated with our continuing FBO operations, as a percentage of revenue, was 42.1 percent for the three months ended September 30, 2016, as compared with 37.6 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 $4,382,000 in the nine months ended September 30, 2016, representing a decrease of approximately $274,000 or 5.9 percent, as compared to the nine months ended September 30, 2015. SG&A associated with our continuing FBO operations, as a percentage of revenue, was 40.3 percent for the nine months ended September 30, 2016, as compared with 39.5 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 $130,000 for the three months ended September 30, 2016, representing an increase of approximately $75,000 as compared with the corresponding prior year period. Corporate SG&A was approximately $362,000 for the nine months ended September 30, 2016, representing an increase of approximately $126,000 as compared with the corresponding prior year period.

 

OPERATING INCOME

 

Operating income from continuing operations for the three and nine months ended September 30, 2016 was $572,329 and $1,369,758, respectively, as compared to operating income of $641,636 and $1,528,381, in the three and nine months ended September 30, 2015. The decrease on a year-over-year basis was driven by lower levels of gross profit offset by lower SG&A expenses.

 

Depreciation and Amortization

Depreciation and amortization was approximately $369,211 and $639,146 for the nine months ended September 30, 2016 and 2015, respectively.

 

Interest Expense

Interest expense for the nine months ended September 30, 2016 was approximately $21,506 as compared to approximately $16,730 in the same period in 2015.

 

Income Tax

Income tax expense for the three and nine months ended September 30, 2016 was $285,500 and $681,000, respectively, as compared to approximately $352,000 and $808,000, respectively, for the same periods in 2015. The decrease is attributable to lower pre-tax income in the nine months ended September 30, 2016 as compared to the same period in 2015.

 

Net Income Per Share

 

Net income was $667,252 and $395,846 for the nine months ended September 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 nine month periods ended September 30, 2016 and 2015 was $0.02 and $0.01, respectively.

 

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LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2016, we had cash and cash equivalents of $2,084,576 and a working capital surplus of $2,815,460. For the nine months ended September 30, 2016, we generated revenue from continuing operations of $10,872,366 and had net income from continuing operations before taxes of $1,348,252. For the nine months ended September 30, 2016, cash flows included net cash provided by operating activities of $1,915,570, net cash used in investing activities of $40,781, and net cash used in financing activities of $204,874.

 

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 (3.26% as of September 30, 2016). As of September 30, 2016, there was $720,000 outstanding under the PNC Acquisition Line.

 

The PNC Working Capital Line 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, in accordance with an Amendment to the Concession Agreement dated July 13, 2016 (the “Amendment”) between the Company and the New York City Economic Development Corporation (“NYCEDC”), expires on April 30, 2021. In addition to the extension of the base term, pursuant to the Amendment the City of New York has two one year options to further extend the Concession Agreement. The Amendment 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 described in greater detail 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 nine months ended September 30, 2016 and 2015, the Company incurred approximately $1,900,000 and $2,100,000, respectively, in concession fees which are recorded in the cost of revenue. The Amendment was included as an exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2016,

 

The air tour reductions discussed in the Amendment are expected to negatively impact the Company’s business and financial results as well as those of the Company’s management company Empire Aviation which, as previously disclosed, is owned by the children of Alvin Trenk, the Company’s CEO and a member of its Board of Directors.  The Company incurred management fees with Empire Aviation of approximately $2,706,000 and $2,711,000 during the nine months ended September 30, 2016 and 2015, respectively, which is recorded in administrative expenses. 

 

13  

 

  

The Company and Empire Aviation have also contributed to the Helicopter Tourism and Jobs Council (“HTJC”), an association that lobbies on behalf of the helicopter air tour industry, and which had engaged in discussions with the City of New York Mayor’s office in connection with the Amendment.  Mr. Trenk is also an active participant with HJTC, which is managed by his grandson.

 

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 a Current Report filed with the SEC July 6, 2015 as well as in the Company’s Annual Report on Form 10-K 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 assign over to the Company title to an aircraft in order 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, beginning in October 2016, 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 September 30, 2016.

 

During the nine months ended September 30, 2016, we had a net increase in cash of $1,669,915. Our sources and uses of funds during this period were as follows:

 

Cash from Operating Activities

 

For the nine months ended September 30, 2016, net cash provided by operating activities was $1,915,570. This amount included an increase in operating cash related to net income of $667,252 and additions for the following items: (i) depreciation and amortization, $369,211; (ii) stock based compensation, $25,496; (iii) accounts receivable, trade, $932,788; (iv) deposits $39,785; (v) accounts payable, $406,905; and (vi) customer deposits, $238. These increases in operating activities were offset by a decrease in (i) inventories, $8,147; (ii) prepaid expenses, $254,380; and (iii) accrued expenses, $263,578.

 

For the nine months ended September 30, 2015, net cash provided by operating activities was $1,365,933. This amount included an increase in operating cash related to net income of $395,846 and additions for the following items: (i) depreciation and amortization, $639,146; (ii) stock based compensation, $25,496; (iii) trade inventories, $209,875; (iv) deposits, $13,261; (v) deferred income taxes of $55,000; (vi) accounts payable of $358,656; and (vii) accrued expenses of $797,900 . These increases in operating activities were offset by the following decreases: (i) accounts receivable, $519,795; (ii) prepaid expenses and other current assets, $602,700; and (iii) customer deposits of $6,752.

 

Cash from Investing Activities

 

For the nine months ended September 30, 2016, net cash used in investing activities was $40,781. This amount included $30,000 provided by the payment of notes receivable offset by amounts used in the purchase of property and equipment of $70,781. For the nine months ended September 30, 2015, net cash used in investing activities was $549,950. This amount included issuances of note receivable of $500,000 and $49,950 used for the purchase of property and equipment.

 

Cash from Financing Activities

 

For the nine months ended September 30, 2016, net cash used in financing activities was $204,874 for the repayment of notes payable. For the nine months ended September 30, 2015, net cash used in financing activities was $629,726. This amount included the repayment of notes payable of $279,726 and repayment of the line of credit of $350,000.

 

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 principal executive officer and principal financial officer have 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
     
10.2   Stock Purchase Agreement, dated October 3, 2016, by and between the Company and Gary and Kim Keller, to purchase all of the capital stock of Aircraft Services, Inc. *
     
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

 

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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:     November 14, 2016 By: /s/ Ronald J. Ricciardi
    Ronald J. Ricciardi
    President

 

 

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Exhibit 10.2

 

STOCK PURCHASE AGREEMENT

 

This Stock Purchase Agreement (this “ Agreement ”), dated as of October 3, 2016, is entered into between Gary G. Keller and Kim L. Keller, each with an address at 703 Center Street, Garden City, KS 67846, as joint owners of the Company Shares as hereinafter defined (the “ Sellers ”), Aircraft Services, Inc., a Kansas corporation (the “ Company ”), and FBO Air-Garden City, Inc., d/b/a Saker Aviation Services, a Kansas corporation (“ Buyer ”). Seller and Buyer are collectively referred to herein as the “ Parties ” and individually as a “ Party .”

 

RECITALS

 

WHEREAS, Sellers jointly own 100 shares of common stock of the Company (the “ Company Shares ”), which constitute all of the issued and outstanding shares of capital stock of the Company;

 

WHEREAS, the Company is in the business of providing aircraft maintenance services (the “ Business ”); and

 

WHEREAS, the Parties desire to enter into this Agreement pursuant to which Sellers propose to sell to Buyer, and Buyer proposes to purchase from Sellers, all of the Company Shares on the terms and subject to the conditions set forth herein.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

Article I
DEFINITIONS

 

1.1.        Definitions . Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to as follows:

 

Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder.

 

Contract ” means any contract or agreement (in each case, whether written or oral).

 

Environmental Laws ” means all federal, state or local or foreign Laws relating to protection of the environment, health and safety, including pollution control, product registration and/or Hazardous Materials.

 

Governmental Body ” means any federal, state, local, foreign or other governmental or administrative body, instrumentality, department or agency or any court tribunal or administrative hearing body.

 

Hazardous Materials ” means any substance, waste, pollutant, contaminant, hazardous substance, toxic, ignitable, reactive or corrosive substance, hazardous waste, special waste, industrial substance, by-product, process-intermediate product or waste, asbestos or asbestos-containing materials, lead-based paint, petroleum or petroleum-derived substance or waste, chemical liquids or solids, liquid or gaseous products, or any constituent of any such substance or waste, which is regulated under any Environmental Law.

 

  1  

 

 

Knowledge ” with respect to the Company means the actual or constructive knowledge of Gary G. Keller or Kim Keller, after due inquiry.

 

Leased Real Property ” means that parcel of real property of which the Company is the lessee (together with all fixtures and improvements thereon) located at 2145 South Air Service Road, #1, Garden City, KS 67846.

 

Laws ” means all statutes, rules, codes, regulations, ordinances, orders, decrees, approvals, directives, judgments, injunctions, writ, awards and decrees of, or issued by, any federal, state, local, foreign or other administrative body.

 

Liability ” means any liability, debt, obligation of the Company, of any kind or nature whatsoever, whether asserted or unasserted, absolute or contingent, known or unknown, accrued or unaccrued, liquidated or unliquidated, and whether due or to become due.

 

Licenses ” means all notifications, licenses, permits (including environmental, construction and operation permits), qualifications, certificates, approvals, exemptions, classifications, registrations and other similar documents issued by any Governmental Body.

 

Liens ” means any mortgages, pledges, security interests, encumbrances, claims, liens or charges of the Company of any kind.

 

Person ” means an individual, a partnership, a limited liability company, a corporation, a cooperative, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or Governmental Body.

 

Real Property Lease ” means the Lease Agreement between the Company and the City of Garden City, Kansas, originally dated January 1, 2008 and including any amendments thereto.

 

Tax ” or “ Taxes ” means any federal, state, local or foreign income, gross receipts, capital gains, franchise, alternative or add-on minimum, estimated, sales, use, goods and services, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, employment, disability, payroll, license, employee or other withholding, contributions or other tax, of any kind whatsoever, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing.

 

Taxing Authority ” means any Governmental Body, board, bureau, body, person, department or authority of any United States federal, state or local jurisdiction or any non-United States jurisdiction, having jurisdiction with respect to any Tax.

 

Tax Returns ” means returns, declarations, reports, claims for refund, information returns or other documents (including any related or supporting schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes.

 

  2  

 

 

Transaction Documents ” means this Agreement and any other agreement contemplated by this Agreement to which Buyer, the Company or either Seller is a party.

 

Article II
PURCHASE AND SALE OF STOCK

 

2.1.        Stock Purchase . Subject to the terms and conditions set forth herein, at the Closing (as defined herein), Sellers shall sell to Buyer, and Buyer shall purchase from Sellers, all of Sellers’ right, title and interest in and to the Company Shares, free and clear of all Liens.

 

2.2.        Purchase Price . The aggregate purchase price for the Company Shares shall be $300,000 (the “ Purchase Price ”). The Buyer shall pay the Purchase Price to Sellers as follows: (a) $150,000 shall be paid to Sellers on the Closing Date (the “ Closing Cash Consideration ”) and will be delivered by check; (b) $75,000 shall be paid to Sellers on the date that is twelve (12) months after the Closing Date (the “ First Anniversary Payment ”) and will be delivered by check; and (c) $75,000 shall be paid to Sellers on the date that is twenty four (24) months after the Closing Date (the “ Second Anniversary Payment ” and together with the First Anniversary Payment, the “ Installment Payments ”) and will be delivered by check. In addition, the parties acknowledge and agree that the Company’s (i) 2014 Dodge Ram standard cab pickup, (ii) cash, (iii) accounts receivable, and (iv) accounts payable as of September 30, 2016 shall each, as of the Closing, be the property, liability and responsibility of the Sellers.

 

2.3.        Right of Set-off . Buyer shall have the right to withhold and set-off against any amount otherwise due to be paid in respect of the Installment Payments the amount of any Losses or other amounts that Sellers are responsible for or which are subject to a claim for indemnification by any Buyer Party pursuant to Article VIII of this Agreement; provided , that a Final Resolution with respect to such claim for Losses has occurred. As used in this Agreement, a “Final Resolution” with respect to a claim for indemnification pursuant to Article VIII of this Agreement shall mean (i) any final decision, judgment or award rendered by a Governmental Body of competent jurisdiction with respect to such claim, or a consummated settlement with respect to such claim, or (ii) any written agreement duly executed by the Buyer Parties and the Sellers with respect to an indemnifiable claim hereunder. It shall be in Buyer’s sole discretion whether to withhold and set-off any such Losses against the Installment Payments, and such right of set-off shall not prejudice or otherwise limit Buyer’s other rights and remedies under this Agreement or otherwise, including pursuant to Article VIII .

 

Article III
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY

 

As a material inducement to Buyer to enter into this Agreement, Sellers and the Company hereby jointly and severally represent and warrant to Buyer as follows:

 

3.1.        Organization . The Company is a corporation duly formed and validly existing under the laws of the jurisdiction of incorporation and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted.

 

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3.2.        Authorization . The Company has the requisite corporate power and authority to execute and deliver this Agreement and each of the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The board of directors of the Company has duly approved this Agreement and all other Transaction Documents to which the Company is a party and has duly authorized the execution and delivery of this Agreement and all other Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby. This Agreement and all other Transaction Documents to which the Company is a party have been duly executed and delivered by the Company and constitute the valid and binding agreements of the Company, enforceable against the Company in accordance with their terms.

 

3.3.        Capital Stock . The Company Shares owned by Sellers constitute 100% of the outstanding capital stock of the Company. All of the issued and outstanding shares of the Company’s capital stock have been duly authorized, are validly issued, fully paid and nonassessable, are not subject to, nor were they issued in violation of, any preemptive rights, rights of first refusal, or similar rights, and are owned of record and beneficially by Sellers. Except for this Agreement, there are no outstanding or authorized options, rights, Contracts, calls, puts, rights to subscribe, conversion rights or other agreements or commitments to which the Company is a party or which are binding upon the Company providing for the issuance, disposition or acquisition of any of the capital stock of the Company or any rights or interests exercisable therefor.

 

3.4.        Real Property . The Company does not own any interest in real property. The Real Property Lease constitutes the sole lease (including all amendments, extensions, renewals, guaranties and other agreements with respect thereto) of Leased Real Property binding on the Company. The Leased Real property comprises all of the real property used in the Business. The Real Property Lease has not been assigned or sublet or amended, modified or supplemented in any way. The Company is the sole owner of a valid leasehold interest in the Leased Real Property free and clear of all Liens. The Real Property Lease is in full force and effect with respect to the Company and, to the Knowledge of the Company, each counterparty to the Real Property Lease. The improvements and fixtures on the Leased Real Property are free of material defect, in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, and are adequate and suitable for the purposes for which they are presently being used. To the Knowledge of the Company, no buildings and improvements owned or utilized by the Company is constructed of, or contains as a component part thereof, any material that, either in its present form or as such material could reasonably be expected to change through aging and normal use and service, releases any substance, whether gaseous, liquid or solid, which is or may be, either in a single dose or through repeated and prolonged exposure, injurious or hazardous to the health of any individual who may from time to time be in or about such buildings or improvement.

 

3.5.        Title to Assets . The Company has good and marketable title to all of its property and assets, free and clear of all Liens. All equipment and other items of tangible personal property and assets of the Company (i) are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, (ii) were acquired and are usable in the ordinary course of business and (iii) conform to all Laws applicable thereto.

 

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3.6.        Inventory . All inventory of the Company, whether or not reflected in the Financial Information, consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving items that have been written off or written down to fair market value or for which adequate reserves have been established.

 

3.7.        Services . The Company does not have any liability for replacement of any services or other damages in connection therewith or any other customer or service obligations not reserved against in the Financial Information, except as disclosed on Schedule 3.10 . The Company does not have any liability arising out of any injury to individuals or property as a result of services provided by the Company, except as disclosed on Schedule 3.10 . The Company does not make any express warranty or guaranty as to services provided by the Company (a “ Warranty ”), and there is no pending or, to the Knowledge of the Company, threatened claim alleging any breach of any Warranty.

 

3.8.        Financial Statements . The Company has delivered to Buyer balance sheets as of December 31, 2015 and 2014, and May 31, 2016; and statements of income for the twelve months ending December 31, 2015 and 2014, and five months ended May 31, 2016 (the “ Financial Information ”). The Company’s Financial Information presents fairly, in all material respects, the financial position, results of operations and changes in financial position of the Business at the dates or for the periods set forth therein, as the case may be. The “actual results” set forth in that certain Letter of Intent by and among Buyer, the Company and Sellers, dated June 6, 2016, are accurate in all respects.

 

3.9.        Absence of Undisclosed Liabilities . The Company does not have any Liability arising out of transactions entered into at or prior to the Closing, or any action or inaction at or prior to the Closing, or any state of facts exist at or prior to the Closing, including any Taxes with respect to or based upon transactions or events occurring on or before the Closing, except for Liabilities reflected in the Financial Information and those disclosed on Schedule 3.10 .

 

3.10.        Legal Proceedings . Schedule 3. 10 sets forth a correct and complete list of all pending or known threatened actions, suits, proceedings, orders, judgments, decrees or investigations (“ Proceedings ”) on Company. Other than as disclosed on Schedule 3. 10, there are no Proceedings pending, or, to the Company’s Knowledge, threatened on Company at law or in equity, or before or by any Governmental Body and there is no basis for any of the foregoing. The Company is not a subject to any outstanding order, judgment or decree issued by any Governmental Body or any arbitrator.

 

3.11.        Compliance with Laws . The Company has complied with and is in compliance with all applicable Laws of all Governmental Bodies which are applicable to the Business, business practices (including, but not limited to, the Company’s production, marketing, sales and distribution of its products and services and laws related labor and employment) or the Leased Real Property and to which the Company may be subject, and no claims have been filed against the Company alleging a violation of any such Laws, and the Company has not received notice of any such violations.

 

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3.12.        Company Contracts . Schedule 3.12 sets forth a correct and complete list of all Contracts which are material to the Business (including, without limitation, (i) any Contracts relating to the lease of real and personal property, (ii) any Contracts for capital expenditure or the acquisition of assets, (iii) Contracts related to the cleanup or other actions in connection any Hazardous Materials or remediation of environmental condition or the performance of any environmental audit, (iv) all Contracts with customers of the Business, and (v) all Contracts with suppliers of the Business) (collectively, the “ Material Contracts ”). There is no existing default or breach of the Company under any Material Contract (or event or condition that, with notice or lapse of time or both could constitute a default or breach) and, to the Knowledge of the Company, there is no such default (or event or condition that, with notice or lapse of time or both, could constitute a default or breach) with respect to any third party to any Material Contract.

 

3.13.        Taxes . (a) The Company has timely filed all Tax Returns which are required to be filed on or before the Closing Date (taking into account any extension of time with which to file) and all such Tax Returns are true, complete and accurate in all respects, (b) all Taxes due and payable by the Company, whether or not shown on a Tax Return, have been paid by the Company or Sellers on or before the Closing Date and all Taxes which would be required to be accrued in accordance with United States generally accepted accounting principles but are not yet due are shown on Financial Information are set forth on Schedule 3.13 and no Taxes are delinquent, (c) no deficiency for any amount of Tax has been asserted or assessed by a Taxing Authority against the Company and the Company does not reasonably expect that any such assertion or assessment of Tax liability will be made and the Company does not have any outstanding claims for any Tax refunds, (d) there is no action, suit, proceeding or audit or any notice of inquiry of any of the foregoing pending against or with respect to the Company regarding Taxes and no action, suit, proceeding or audit has been threatened against or with respect to the Company regarding Taxes, and (e) the Company currently is not the beneficiary of any extension of time within which to file any Tax Return and the Company has not consented to extend the time in which any Tax may be assessed or collected by any Taxing Authority.

 

3.14.        Insurance . Schedule 3.14 sets forth a list of all policies of insurance maintained (currently maintained or held within the last 5 years), owned or held by or on behalf of the Company (collectively, the “ Insurance Contracts ”), including the policy limits or amounts of coverage, deductibles or self-insured retentions, and annual premiums with respect thereto. Such Insurance Contracts are valid and binding in accordance with their terms, are in full force and effect, and the Insurance Contracts will continue in effect after the Closing Date. The Company has not received written notice that (a) it has breached or defaulted under any of such Insurance Contracts, or (b) that any event has occurred that would permit termination, modification, acceleration or repudiation of such Insurance Contracts. The Company is not in default (including a failure to pay an insurance premium when due) in any material respect with respect to any Insurance Contract, nor has the Company failed to give any notice of any material claim under such Insurance Contract in due and timely fashion nor has the Company been denied or turned down for insurance coverage.

 

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3.15.        Environmental Health & Safety Matters . The Company is and has been in full compliance with, all Environmental Laws, and the Company is and has been in compliance with all applicable limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables pursuant to any and all Environmental Laws, and/or any notice or demand letters issued thereunder; (b) the Company has not been alleged to be in violation of, and has not been subject to any administrative or judicial proceeding pursuant to, applicable Environmental Laws either now or any time during the past five (5) years; (c) no real property owned, leased or otherwise utilized by the Company (including the Leased Real Property), improvement or equipment of the Company, to the Company’s Knowledge, contains any asbestos, polychlorinated biphenyls, underground storage tanks, open or closed pits, sumps or other containers; and (d) the Company has not imported, manufactured, stored, managed, used, operated, transported, treated, disposed of and/or otherwise handled any Hazardous Material other than in compliance with all Environmental Laws.

 

3.16.        Intellectual Property . The Company has no Knowledge of, and has not received written notice of or any other overt threat from any third party, that the operation of the Company as it is currently conducted and as proposed to be conducted, or any act, product or service of the Company, infringes or misappropriates the Intellectual Property of any third party or constitutes unfair competition or trade practices under the Laws of any jurisdiction.

 

3.17.        Licenses . The Company owns or possesses all Licenses that are necessary to enable it to carry on its operations as presently conducted. All such Licenses are valid, binding and in full force and effect. The execution, delivery and performance hereof and the consummation of the transactions contemplated hereby shall not adversely affect any such License, or require consent from, or notice to, any Governmental Body. The Company has taken all necessary action to maintain each License.

 

3.18.        Brokerage . There are no claims for brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of the Company, or any representative of the Company.

 

3.19.        No Violations; No Consents . There are no Proceedings pending or to the Knowledge of the Company, threatened against, relating to or involving the Company seeking to enjoin or prevent the Company from consummating the transactions contemplated by this Agreement or the Transaction Documents. The Company has the full right and power to perform this Agreement and the consummation of the transactions contemplated hereby shall not result in the material breach of any term or provision of, or constitute a default or accelerate maturities under, any loan or other agreement, instrument, indenture, mortgage, deed of trust, or other restriction to which the Company, as a party, is bound.

 

3.20.        Full Disclosure . No representation, warranty, statement, or information contained in this Agreement (including the Schedules hereto) or any other transaction document executed in connection herewith or delivered pursuant hereto or thereto contains or will contain any untrue statement of a material fact or omits or will omit any material fact necessary to make the information contained therein not misleading.

 

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Article IV
REPRESENTATIONS AND WARRANTIES
CONCERNING EACH SELLER

 

As a material inducement to Buyer to enter into this Agreement, Sellers jointly and severally represent and warrant to Buyer as follows:

 

4.1.        Authorization . Each Seller has the requisite legal capacity to execute and deliver this Agreement and each of the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. This Agreement and all other Transaction Documents to which such Seller is a party have been duly executed and delivered by such Seller and constitute the valid and binding agreements of such Seller, enforceable against such Seller in accordance with their terms.

 

4.2.        Ownership of Equity . Sellers are the sole legal, beneficial, record and equitable owner of the Company Shares, free and clear of all Encumbrances. Sellers hold of record and own beneficially free and clear of any Liens, restrictions on transfer (other than any restrictions under applicable securities laws), options, warrants, rights, calls, commitments, proxies or other contract rights, the Company Shares. At the Closing, Sellers will transfer to Buyer good and marketable title to such Company Shares, in each case free and clear of any Liens, restrictions on transfer (other than any restrictions under applicable securities laws), options, warrants, rights, calls, commitments, proxies or other contract rights.

 

4.3.        Legal Proceedings; Conflicts . There are no Proceedings pending or to the Knowledge of Sellers, threatened against, relating to or involving such Seller seeking to enjoin or prevent such Seller from consummating the transactions contemplated by this Agreement or the Transaction Documents. Seller have the full right and power to perform this Agreement and the consummation of the transactions contemplated hereby shall not result in the material breach of any term or provision of, or constitute a default or accelerate maturities under, any loan or other agreement, instrument, indenture, mortgage, deed of trust, or other restriction to which Sellers, as a party, are bound.

 

4.4.        Amounts Owed to Sellers . The Company does not (a) owe nor is it obligated to pay such Seller or any of their respective affiliates any amount, (b) guarantee any obligation of such Seller or any of their respective affiliates, contractually or otherwise or (c) have any liability, joint or several, with such Seller or any of their respective affiliates, for obligations to a third party.

 

Article V
REPRESENTATIONS AND WARRANTIES CONCERNING BUYER

 

As a material inducement to Sellers to enter into this Agreement, Buyer represents and warrants to Sellers as follows:

 

5.1.        Legal Proceedings; Conflicts . There are no Proceedings pending or to the knowledge of Buyer, threatened against, relating to or involving Buyer seeking to enjoin or prevent Byer from consummating the transactions contemplated by this Agreement or the Transaction Documents. Buyer has the full right and power to perform this Agreement and the consummation of the transactions contemplated hereby shall not result in the material breach of any term or provision of, or constitute a default or accelerate maturities under, any loan or other agreement, instrument, indenture, mortgage, deed of trust, or other restriction to which Buyer, as a party, is bound.

 

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5.2.        Organization and Good Standing . Buyer is a corporation duly organized and validly existing and in good standing under the laws of the State of Kansas, and has full corporate power and authority to conduct its business as such business is now being conducted.

 

5.3.        Validity of Agreement . The Agreement and the transactions contemplated hereby have been duly authorized and approved by the Board of Directors of Buyer, and this Agreement has been duly executed and delivered by Buyer and is the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. No other proceedings are necessary to authorize this Agreement and the transactions contemplated hereby, or the performance or compliance by Buyer with any of the terms, provisions or conditions hereof.

 

Article VI
ADDITIONAL AGREEMENTS

 

6.1.        Tax Matters . The following provisions shall govern the allocation of responsibility as between Buyer and Sellers for certain tax matters following the Closing Date:

 

(a)        Tax Indemnification . Sellers shall indemnify Buyer and hold it harmless from and against any Losses attributable to (i) all Taxes (or the non-payment thereof) of the Company for all taxable periods ending on or before the Closing Date and the portion through the end of the Closing Date for any taxable period that includes (but does not end on) the Closing Date (“ Pre-Closing Tax Period ”), except Taxes incurred solely by reason of any transaction undertaken by Buyer or the Company after the Closing Date or any election made by the Buyer or the Company without the consent of the Sellers, unless such transaction or election is specifically contemplated by the Agreement. Sellers shall reimburse Buyer for any Taxes of the Company that are the responsibility of Sellers pursuant to this Section 6.1(a) within fifteen (15) business days after payment of such Taxes by Buyer or the Company.

 

(b)        Straddle Period . In the case of any taxable period that includes (but does not end on) the Closing Date (a “ Straddle Period ”), the amount of any Taxes based on or measured by income, receipts, or payroll of the Company for the Pre-Closing Tax Period shall be determined based on an interim closing of the books as of the close of business on the Closing Date (and for such purpose, the taxable period of any partnership or other pass-through entity in which the Company holds a beneficial interest shall be deemed to terminate at such time) and the amount of other Taxes of the Company for a Straddle Period that relates to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the number of days in such Straddle Period.

 

(c)        Responsibility for Filing Tax Returns . Buyer shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Company that are filed after the Closing Date. Buyer shall take no position on any such Tax Returns inconsistent with past custom and practice of the Company that could result in the Sellers being required to make a payment pursuant to Section 6.1(a) , unless required to do so in compliance with applicable law. Prior to filing the Tax Return, Buyer will submit a copy of such Tax Return to Sellers for Sellers’ review and comment as to the conformity with the requirements of this Agreement, and Buyer shall include such comments in the Tax Returns as are reasonably requested by Sellers.

 

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(d)        Audits . Sellers shall not settle any audit of a Company income Tax Return to the extent that such return could adversely affect the Company after the Closing Date without the consent of Buyer, which consent cannot be unreasonably withheld.

 

(e)        Cooperation on Tax Matters . The Company, Sellers and Buyer shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns pursuant to this Section 6.1(e) and any audit, litigation or other proceeding with respect to Taxes. Sellers agree (i) to retain all books and records with respect to Tax matters pertinent to the Company and any subsidiary relating to any Tax period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Buyer, any extensions thereof) of the respective Tax periods, and to abide by all record retention agreements entered into with any Taxing Authority (if any), and (ii) to give Buyer reasonable written notice prior to transferring, destroying or discarding any such books and records and, if Buyer so requests, Sellers shall allow the Buyer to take possession of such books and records. Buyer and Sellers agree, upon request, to use their commercially reasonable efforts to obtain any certificate or other document from any Governmental Body or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby).

 

(f)        Certain Taxes . Sellers shall bear all transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement. Such Taxes shall be paid by Sellers when due, and Sellers will, at their own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees, and, if required by applicable Law, Buyer will, and will cause its affiliates to, join in the execution of any such Tax Returns and other documentation.

 

6.2.        Non-Competition, Non-Solicitation and Confidentiality .

 

(a)        Non-Competition . During the period beginning on the Closing Date and ending on the fifth (5th) anniversary of the Closing Date (the “ Non-Compete Period ”), neither Seller shall engage in, or be connected with any business, business operation, or activity (whether as an owner, partner, shareholder, member, joint venturer, operator, promoter, manager, employee, officer, director, consultant, advisor, independent contractor, agent, representative or otherwise), directly or indirectly, which consists in whole or in part of the Business within fifty (50) miles of 2145 S. Air Services Road, Garden City, Kansas 67846. Sellers expressly acknowledge and agree that each and every restriction imposed by this Section 6.2 is reasonable with respect to subject matter, time period and geographical area.

 

(b)        Confidentiality . Sellers shall treat and hold as confidential any information concerning the business and affairs of the Company that is not already generally available to the public (the “ Confidential Information ”), refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to Buyer or destroy, at the request and option of Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in their possession or under their control. In the event that Sellers are requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, Sellers shall notify Buyer promptly of the request or requirement so that Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 6.2(b) .

 

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Article VII
CLOSING

 

7.1.        Closing Transactions . The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at such place and on such date as may be mutually agreeable to Buyer and Sellers. The date and time of the Closing are herein referred to as the “ Closing Date .”

 

7.2.        Closing Deliveries of Company and Sellers . At the Closing, Sellers shall deliver, or causing to be delivered, to Buyer the following: (a) certificates representing the Company Shares owned by Sellers, duly endorsed for transfer or accompanied by duly executed stock powers; (b) a post-Closing employment agreement executed by the Company and Gary Keller; and (c) such other documents or instruments as Buyer may reasonably request to effectuate the transactions contemplated hereby.

 

7.3.        Buyer Deliverables at Closing . At the Closing, Buyer shall deliver, or causing to be delivered, to Sellers the following: (a) the Closing Cash Consideration; and (b) a post-Closing employment agreement executed by the Company and Gary Keller .

 

Article VIII
INDEMNIFICATION AND RELATED MATTERS

 

8.1.        Sellers’ Indemnity . Sellers shall, jointly and severally, indemnify Buyer and the Company and each of their respective officers, directors, employees, agents, representatives, affiliates, successors and permitted assigns (collectively, the “ Buyer Parties ”) and hold each of them harmless from and against and pay on behalf of or reimburse such Buyer Parties in respect of any loss, liability, damage, debt, obligation, deficiency, fine, claim, cause of action, fee, cost or expense of any kind or nature whatsoever, whether or not arising out of third party claims and regardless of when asserted (including, without limitation, interest, penalties, reasonable attorneys’ fees and expenses, court costs and all amounts paid in investigation, defense or settlement of any of the foregoing) (collectively, “ Losses ” and individually, a “ Loss ”) arising from or related to: (i) any misrepresentation or the breach of any representation or warranty made by the Company or any Seller contained in this Agreement, or any Schedule hereto or any certificate delivered by the Company or any Seller to Buyer with respect hereto or thereto in connection with the transactions contemplated hereby, (ii) the breach of any covenant or agreement made by the Company or the any Seller contained in this Agreement or Schedule hereto or any certificate delivered by the Company to Buyer with respect hereto or thereto in connection with the transactions contemplated by this Agreement; (iii) the operations of Company or the ownership, use, occupancy or operation of any asset owned by the Company prior to the Closing Date, including, but not limited to, the employment of any Person, personal injury claims, breach of contract and the failure to comply with any Law and any liabilities or obligations arising under any Environmental Laws; or (iv) any Taxes relating to the transfer of the Company’s 2014 Dodge Ram standard cab pickup from the Company to Sellers, whether assessed prior to, on or after the Closing Date.

 

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8.2.        Buyer’s Indemnity . Buyer shall indemnify Sellers and their successors and assigns, and hold each of them harmless from and against and pay on behalf of or reimburse Sellers in respect of any Losses arising from or related to: (i) any misrepresentation or the breach of any representation or warranty made by Buyer contained in this Agreement; (ii) the breach of any covenant or agreement made by Buyer contained in this Agreement; or (iii) the operations of Company or the ownership, use, occupancy or operation of any asset owned by the Company on and after the Closing Date, including, but not limited to, the employment of any Person, personal injury claims, breach of contract and the failure to comply with any Law and any liabilities or obligations arising under any Environmental Laws.

 

8.3.        Notice and Defense of Indemnity Claims . The party making a claim under this Article VIII is referred to as the “Indemnified Party”, and the party against whom such claims are asserted under this Article VIII is referred to as the “Indemnifying Party”. If any Indemnified Party receives notice of the assertion or commencement of any action or claim made or brought by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a “ Third Party Claim ”), the Indemnified Party shall give the Indemnifying Party notice thereof. Such notice shall set forth in reasonable detail the nature of such action or claim, and include copies of any written complaint, summons, correspondence or other communication from the party asserting the claim or initiating the action.

 

As to any Third Party Claim, the Indemnifying Party shall, subject to the limitations below, be entitled assume and thereafter control the defense of such Indemnity Claim. Notwithstanding any provision herein to the contrary, the Indemnifying Party shall not have the right to assume control of such defense and shall pay the fees and expenses of counsel retained by the Indemnified Party, if the claim which the Indemnifying Party seeks to assume control (i) seeks non-monetary relief, (ii) involves criminal or quasi-criminal allegations, (iii) involves a claim to which the Indemnified Party reasonably believes an adverse determination would be materially detrimental to or injure the Indemnified Party’s reputation or future business prospects, or (iv) involves a claim which, upon petition by the Indemnified Party, the appropriate court rules that the Indemnifying Party failed or is failing to vigorously prosecute or defend. The Indemnified Party shall be entitled, together with the Indemnifying Party, to participate in the defense, compromise or settlement of any such matter through the Indemnifying Party’s own attorneys and at its own expense. The Indemnified Party shall provide such cooperation and such access to its books, records and properties as the Indemnifying Party shall reasonably request with respect to such matters and the parties hereto agree to render each other such assistance as they may reasonably require of each other in order to ensure the proper and adequate defense thereof. An Indemnifying Party shall not make any settlement of any claims, other than claims strictly for monetary damages as to which the Indemnifying Party agrees to be responsible and which expressly unconditionally release the Indemnified Party from all liabilities with respect to such claim, without the written consent of the Indemnified Party, which consent shall not be unreasonably withheld. Without limiting the generality of the foregoing, it shall not be deemed to be unreasonable to withhold consent to a settlement involving injunctive or other equitable relief against the Indemnified Party or its assets, employees or business.

 

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8.4.        Payment . After any final decision, judgment or award shall have been rendered by a Governmental Body of competent jurisdiction and the expiration of the time in which to appeal therefrom, or a settlement shall have been consummated, or Buyer and Sellers shall have reached an agreement, in each case with respect to an indemnifiable claim hereunder, Buyer shall forward to Sellers notice of any sums due and owing by the Sellers pursuant to this Agreement with respect to such matter and Sellers shall pay all of such remaining sums so due and owing to Buyers by wire transfer of immediately available funds within ten (10) business days after the date of such notice; provided, however, that Buyer may, in its sole and absolute discretion, elect to set-off any such amounts in accordance with Section 2.3 .

 

8.5.        Purchase Price Adjustments . Amounts paid to or on behalf of Buyer Parties as indemnification shall be treated as adjustments to the Purchase Price.

 

8.6.        Survival . All representations, warranties, covenants and agreements contained herein and all related rights to indemnification shall survive the Closing.

 

8.7.        Cumulative Remedies . The rights and remedies provided in this are cumulative and are in addition to and not in substitution for any other rights and remedies available at law or in equity or otherwise.

 

Article IX
MISCELLANEOUS

 

9.1.        Notices . All notices, demands and other communications given or delivered under this Agreement shall be in writing and shall be deemed to have been given when personally delivered, mailed by first class mail, return receipt requested, or delivered by express courier service or telecopied (with hard copy to follow). Notices, demands and communications to shall, unless another address is specified in writing, be sent to the address or telecopy number indicated below:

 

Notices to Sellers:

 

with a copy to:

(which shall not constitute notice to Sellers)

 

Gary & Kim Keller

703 Center

Garden City, KS 67846

 

 

Charles F. Moser

Moser Law Office, P.A.

113 W. Greeley Ave.

Tribune, KS 67879

Facsimile: (620) 376-2325 

 

Notices to Buyer or, following the

Closing, the Company:

with copies to:

(which shall not constitute notice to Buyer or, following the Closing, the Company)

 

Saker Aviation Services, Inc.

20 South Street

New York, NY 10004

Attn: Ronald J. Ricciardi, President

Facsimile: (570) 300-2233

E-mail: RRicciardi@SakerAviation.com

Harter Secrest & Emery LLP

1600 Bausch & Lomb Place

Rochester, New York 14604

Attn: Daniel R. Kinel, Esq.

Facsimile: (585) 232-2152

E-mail: dkinel@hselaw.com

 

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9.2.        Schedules and Exhibits . The Schedules and Exhibits are hereby incorporated into this Agreement and are hereby made a part hereof as if set out in full herein.

 

9.3.        Assignment; Successors in Interest . No assignment or transfer by any Party of such Party’s rights and obligations hereunder shall be made except with the prior written consent of the other Parties; provided that Buyer shall, without the obligation to obtain the prior written consent of any other Party, be entitled to assign this Agreement or all or any part of its rights or obligations hereunder to one or more affiliates of Buyer. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns, and any reference to a Party shall also be a reference to the successors and permitted assigns thereof.

 

9.4.        Amendment; Waiver . This Agreement may not be amended, modified or supplemented except by written agreement of the Parties. Any agreement on the part of a Party to any extension or waiver of any provision hereof shall be valid only if set forth in an instrument in writing signed on behalf of such Party.

 

9.5.        Governing Law; Venue; WAIVER OF JURY TRIAL . This Agreement shall be governed by and construed in accordance with the internal laws of the State of Kansas without giving effect to any choice or conflict of law provision or rule. Each Party hereby irrevocably consents and agrees that any dispute relating to this Agreement or any related document shall be brought only to the exclusive jurisdiction of the courts of the State of Kansas or the federal courts located in the State of Kansas, and each Party hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding that is brought in any such court has been brought in an inconvenient forum. EACH PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE TRANSACTION DOCUMENTS OR ANY OTHER AGREEMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY.

 

9.6.        Severability . Any provision hereof that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

  14  

 

 

9.7.        Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement or the terms hereof to produce or account for more than one of such counterparts.

 

9.8.        Enforcement of Certain Rights . Nothing expressed or implied herein is intended, or shall be construed, to confer upon or give any Person other than the Parties, and their successors or permitted assigns, any right, remedy, obligation or liability under or by reason of this Agreement, or result in such Person being deemed a third-party beneficiary hereof.

 

9.9.        Integration; Entire Agreement . This Agreement and the documents executed pursuant hereto supersede all negotiations, agreements and understandings among the Parties with respect to the subject matter hereof and constitute the entire agreement among the Parties with respect thereto.

 

9.10.        Cooperation Following the Closing . Following the Closing, each Party shall deliver to the other Parties such further information and documents and shall execute and deliver to the other Parties such further instruments and agreements as any other Party shall reasonably request to consummate or confirm the transactions provided for herein, to accomplish the purpose hereof or to assure to any other Party the benefits hereof, including, but not limited to, the transfer of the 2014 Dodge Ram standard cab pickup as provided for in Section 2.2 herein. Within a reasonable time after the Closing, Buyer shall file all necessary documents with the Kansas Secretary of State to change the registered agent and registered address of the Company so that no Seller or Sellers’ agent will be listed as the Company’s registered agent and no address of a Seller or Sellers’ agent will be listed as the Company’s registered address.

 

 

 

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS.]

 

  15  

 

 

IN WITNESS WHEREOF, the Parties have executed this Stock Purchase Agreement as of the date first written above.

 

  BUYER:
   
  FBO AIR-GARDEN CITY, INC., D/B/A SAKER AVIATION SERVICES
   
   
  By: /s/ Ronald J. Ricciardi
  Name: Ronald J. Ricciardi
  Title: President
     
     
   
  COMPANY:
   
  AIRCRAFT SERVICES, INC.
   
   
  By: /s/ Gary G. Keller
  Name: Gary G. Keller
  Title: President
     
     
   
  SELLERS:
   
  GARY G. KELLER
   
  /s/ Gary G. Keller
   
  KIM KELLER
   
  /s/ Kim Keller

 

 

 

 

 

 

 

SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT

 

 

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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.     The registrant’s other certifying officer(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: November 14, 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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.    The registrant’s other certifying officer(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: N ovember 14, 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 September 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: November 14, 2016 By: /s/ Alvin S. Trenk    
    Alvin S. Trenk
   

Chief Executive Officer

(principal executive officer)

     
Date: November 14, 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.