Saker Aviation Services, Inc. - Quarter Report: 2021 September (Form 10-Q)

See accompanying notes to condensed consolidated financial statements.

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

STATEMENT OF CONDENSED STOCKHOLDERS’ EQUITY

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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, 2020.

The condensed consolidated balance sheet as of September 30, 2021 and the condensed consolidated statements of operations and cash flows for the three and nine months ended September 30, 2021 and 2020 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, 2021 and its results of operations and cash flows for the nine months ended September 30, 2021 not misleading. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for any full year or any other interim period.

Throughout 2020 and 2021, the COVID-19 pandemic has impacted the global and United States economies. Federal, state, and local governments implemented certain travel restrictions, “stay-at-home” orders, and social distancing initiatives which negatively impacted our operations and those of our customers. As a result of the COVID-19 pandemic, on March 17, 2020 all sightseeing tour operations at the Downtown Manhattan Heliport ceased. On July 20, 2020, New York City started Phase 4 of the city’s reopening. Sightseeing tour operators at the heliport restarted operations under this phase. Sightseeing tour operators have experienced low demand and minimal activity since July 20, 2020, but our sightseeing tour operators have seen a slight uptick in demand in the second quarter of 2021 through the date of this report. To date, the COVID-19 pandemic has had a less substantial impact on our operations at our Kansas FBO and MRO. Although the Downtown Manhattan Heliport has been able to reopen and our Kansas FBO and MRO is operating, there can be no assurance that these facilities will be able to remain open for the foreseeable future, depending on future developments related to the COVID-19 pandemic.

In addition, the employee retention credit (“ERC”) is a refundable tax credit against certain employment taxes. The ERC was established under the CARES Act and amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the “Relief Act”) and the American Rescue Plan Act of 2021 (“ARPA”). Under the CARES Act, a company needed more than 50% decline in gross receipts in 2020, compared to the same quarter in 2019, in order to use the gross receipts test to be eligible for the credit. The Company determined it qualified for the ERC for 2020.

The Relief Act provided for changes in the ERC for 2020 and provided an additional credit for the first and second quarters of 2021. The Relief Act revised the gross receipts test so a company that has had a more than 20% decline in gross receipts in 2021, compared to the same quarter in 2019, satisfies the gross receipts test. In addition, the Relief Act allows a company to elect to use the gross receipts from the immediately preceding quarter, and compare these prior quarter gross receipts to the same quarter in 2019, rather than the current quarter.

The Company evaluated its eligibility for the ERC for the first three quarters of 2021. Under the aggregation rules of the Relief Act, the Company reviewed consolidated revenue when measuring the decline in gross receipts. The ARPA extended the ERC to the third and fourth quarters of 2021. The Company determined it qualified for the ERC for the first three quarters of 2021 and expects to be eligible for the fourth quarter. As of September 30, 2021 the Company recognized approximately $418,000 as a reduction of payroll tax expenses, in accordance with IAS 20, Accounting for Government Grants and Disclosure of Government Assistance.

NOTE 2 – Liquidity and Material Agreements

As of September 30, 2021, we had cash of $2,010,293 and a working capital surplus of $3,413,169. We generated revenue of $3,439,977 and had net income of $508,576 for the nine months ended September 30, 2021. For the nine months ended September 30, 2021, cash flows included net cash provided by operating activities of $444,389, net cash used in investing activities of $78,044, and net cash used in financing activities of $255,134. .

As disclosed in a Current Report on Form 8-K filed on March 21, 2018 with the Securities and Exchange Commission (the “SEC”), on March 15, 2018 the Company entered into a loan agreement (the “Loan Agreement”) with Key Bank National Association (the “Bank”). The Loan Agreement contains three components: (i) a $2,500,000 acquisition line of credit (the “Key Bank Acquisition Note”); (ii) a $1,000,000 revolving line of credit (the “Key Bank Revolver Note”); and (iii) a $338,481 term loan (the “Key Bank Term Note”). There are currently no amounts outstanding under the Key Bank Term Note.

Proceeds of the Key Bank Acquisition Note were to be disbursed pursuant to a multiple draw demand note dated as of the agreement date, where the Company could, at the discretion of the Bank, borrow up to an aggregate amount of $2,500,000, to be used for the Company’s acquisition of one or more business entities. Until the Change of Terms Agreement, as defined below, the Company was required to make consecutive monthly payments of interest, calculated at a rate per annum equal to one-day LIBOR (adjusted daily) plus 2.75%, on any outstanding principal under the Key Bank Acquisition Note from the date of its issuance through September 15, 2018 (the “Conversion Date”).

At any time through and including the Conversion Date, at the Bank’s discretion, the Company had the opportunity to request that any loan made under the Key Bank Acquisition Note be converted into a term loan to be repaid in full, including accrued interest, by consecutive monthly payments over a 48 month amortization period beginning after the Conversion Date. For any loan that was not converted into a term loan on or before the Conversion Date, the Company would have been required to begin making monthly payments of principal and interest after the Conversion Date, over a 48 month amortization period, after which the remaining unpaid principal and accrued interest would have become due and payable. All loans under the Key Bank Acquisition Note would have, after the Conversion Date, accrued interest at a rate per annum equal to the Bank’s four year cost of funds rate plus 2.5%. As of the Conversion Date, there were no amounts due under the Key Bank Acquisition Note and no amounts had been converted to a term loan.

On October 11, 2018, and as subsequently amended, the Company entered into a new loan agreement with the Bank (as so amended, the “Change of Terms Agreement”) which modified the original terms of the Key Bank Acquisition Note. Under the Change of Terms Agreement, the Company could have continued to, at the discretion of the Bank, borrow up to an aggregate amount of $2,500,000 through September 1, 2021 (the “Maturity Date”), to be used for the Company’s acquisition of one or more business entities. The Change of Terms Agreement required the Company to make consecutive monthly payments of interest on any outstanding principal calculated at a rate per annum equal to 4.25% and was secured by substantially all of the Company’s assets. The entire principal balance, plus all accrued interest, was due in full on the Maturity Date. The Bank notified the Company of its decision to discontinue the Key Bank Acquisition Note, effective June 30, 2021. There are no amounts due under the Changes of Terms Agreement.

The Key Bank Revolver Note, at the discretion of the Bank, provides for the Company to borrow up to $1,000,000 for working capital and general corporate purposes. This revolving line of credit is a demand note with no stated maturity date. Borrowings under the Key Bank Revolver Note will bear interest at a rate per annum equal to one-day LIBOR (adjusted daily) plus 2.75%. The Company is required to make monthly payments of interest on any outstanding principal under the Key Bank Revolver Note and is required to pay the entire balance, including principal and all accrued and unpaid interest and fees, upon demand by the Bank. Any proceeds from the Key Bank Revolver Note would be secured by substantially all of the Company’s assets. As of September 30, 2021, there were no amounts due under the Key Bank Revolver Note.

On August 14, 2020, the Company was granted a loan from the Bank (the “Loan”) in the amount of $304,833, pursuant to the Paycheck Protection Program under Division, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a note dated August 14, 2020, matures in August 2025 and bore interest at a rate of 1% per annum and was payable in monthly installments commencing on, or before, October 31, 2021. At December 31, 2020, in accordance with FASB ASC 470, Debt, and ASC 405-20, Liabilities – Extinguishment of Liabilities, the Company recorded the cash inflow from the Loan as a liability, and cash flows from financing, pending legal release from the obligation by the U.S. Small Business Administration (“S.B.A.”). The Company used the Loan proceeds for eligible expenses during the covered period and the Loan was forgiven by the S.B.A. in full in the second quarter of 2021. The Company recorded the forgiveness of the Loan as a gain on extinguishment of debt.

The Company is party to a Concession Agreement, dated as of November 1, 2008, with the City of New York for the operation of the Downtown Manhattan Heliport (the “Concession Agreement”). Pursuant to the terms of the Concession Agreement, the Company must pay the greater of 18% of the first $5,000,000 in any program year based on cash collected (“Gross Receipts”) and 25% of Gross Receipts in excess of $5,000,000, or minimum annual guaranteed payments.

As disclosed in a Current Report on Form 8-K filed with the SEC on February 5, 2016, the Company and the New York City Economic Development Corporation (the “NYCEDC”) announced new measures to reduce helicopter noise and impacts across New York City (the “Air Tour Agreement”). Under the Air Tour Agreement, the Company has not been allowed to permit its tenant operators to conduct tourist flights from the Downtown Manhattan Heliport on Sundays since April 1, 2016. The Company was also required to ensure that its tenant operators reduce the total allowable number of tourist flights from 2015 levels by 20 percent beginning June 1, 2016, by 40 percent beginning October 1, 2016 and by 50 percent beginning January 1, 2017. The Air Tour Agreement also provided for the minimum annual guarantee payments the Company is required to pay to the City of New York under the Concession Agreement be reduced by 50%, effective January 1, 2017. Additionally, since June 1, 2016, the Company has been required to provide monthly written reports to the NYCEDC and the New York City Council detailing the number of tourist flights conducted out of the Downtown Manhattan Heliport compared to 2015 levels, as well as information on any tour flight that flies over land and/or strays from agreed upon routes. The Air Tour Agreement also extended the Concession Agreement for 30 months, resulting in a new expiration date of April 30, 2021 and gave the City of New York two one-year options to extend the term of the Concession Agreement. The term of the Concession Agreement was subsequently extended by the City through April 30, 2022 by the City’s exercise of the first of their two one-year option renewals.

The reductions under the Air Tour Agreement have negatively impacted the Company’s business and financial results as well as those of its management company at the Heliport, Empire Aviation which, as previously disclosed, is owned by the children of a former officer and director of the Company.  The Company incurred management fees with Empire Aviation of approximately $0 and $144,000 during the nine months ended September 30, 2021 and 2020, respectively, which is recorded in administrative expenses. The Company and Empire Aviation had historically contributed to the Helicopter Tourism and Jobs Council (“HTJC”), an association that lobbies on behalf of the helicopter air tour industry, and which had engaged in discussions with the Mayor’s office.  The Company has suspended its contributions to HTJC in light of the pandemic. The Company’s former officer and director was also an active participant with HTJC, which is managed by the former officer and director’s grandson. One of our Directors and our current acting principal executive officer, Sam Goldstein, serves as deputy director of HTJC.  

During the program year that began on May 1, 2020, the City agreed, in recognition of the pandemic’s impact, that the Company could defer payment of minimum guaranteed payments. In April 2021, the City waived the deferred fees through December 31, 2020. In May 2021, the City waived the deferred fees through April 30, 2021 which coincided with the expiration of the Concession Agreement as amended by the Air Tour Agreement. The City is currently working toward obtaining approval of an amendment to the Air Tour Agreement relative to fees to be paid by the Company to the City during the one year extension period, among other things. Concession fees in this Form 10-Q have been accounted for based on the months abated and the Company’s commitment to pay the City 18% of monthly Gross Receipts in excess of $100,000 during the amendment approval process. During the nine months ended September 30, 2021 and 2020, we incurred approximately $103,810 and $254,000 in concession fees, respectively, which are recorded in the cost of revenue.

On April 20, 2018, the Company’s Kansas subsidiary entered into a purchase lease with Commerce Bank for a refueling truck (the “Truck Lease”). The Truck Lease commenced on May 1, 2018 and continues for 60 months with a monthly payment of $2,568 and an interest rate of LIBOR plus 416 basis points. At the end of the Truck Lease, the Company’s subsidiary may purchase the vehicle for $1.00.

On January 15, 2019, the Company was issued an unsecured note by one of its customers at the Heliport. The note schedules payments of approximately $276,000 in receivables payable by such customer, had a maturity date of October 31, 2019, as amended, and carries a 7.5% rate of interest. The note payments were to be made in six monthly installments beginning May 31, 2019. The customer’s payments on the note have not met the installment plan and the Company was working on changes to the note when the customer filed for Chapter 11 Bankruptcy in October 2019. In February 2021, the bankruptcy court allowed the customer to convert from a Chapter 11 Bankruptcy to a Chapter 7 Liquidation. Under the Chapter 7 Liquidation, the note will now be treated as a general unsecured claim as opposed to a prioritized payment under the Chapter 11 Bankruptcy to cure the permit default. This change has substantially diminished the Company’s expectation to collect amounts due under the note. Therefore, the Company deemed unpaid principal and accrued interest of approximately $205,000 at December 31, 2020 as uncollectable. The $205,000 was written off to bad debt expense in the fourth quarter of 2020.

As disclosed in a Current Report on Form 8-K filed with the SEC on July 6, 2015, the Company entered into a stock purchase agreement, dated June 30, 2015, by and between the Company and Warren A. Peck, pursuant to which Mr. Peck purchased all of the capital stock of the Company’s wholly-owned subsidiary, Phoenix Rising Aviation, Inc. The details of the agreement are described in such Current Report as well as in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the SEC on April 11, 2016. The Company received $100,000 due under this agreement in September 2017 and an additional payment of $100,000 in September 2018. In 2019, the Company accepted the title to a Falcon 10 aircraft owned by Mr. Peck as satisfaction in full of the remainder of the $270,000 stock purchase price. The Company intended to sell the aircraft and classified it as “Held For Sale” on the Company’s consolidated balance sheet at December 31, 2019. The Company has been unable to find a buyer due to a depressed market as well as a drop in demand for this type of aircraft. Without a market in which to sell the aircraft, the Company recorded an impairment charge in the quarter ended June 30, 2020 for the full carrying amount of the aircraft. The Company does not believe the aircraft has any value and, in December 2020, filed an application with the FAA Aircraft Registry to cancel the aircraft’s registry.

On May 1, 2021, the Company’s Kansas subsidiary executed a promissory note for $76,000 with Avfuel Corporation (“Avfuel”) for the purchase of a Jet-A refueling truck (the “Truck Note”). The Truck Note requires six annual payments of $13,432.56 commencing April 30, 2022 with the entire balance of unpaid principal and interest due on, or before, April 30, 2028. Interest accrues at prime plus 3% on the outstanding principal amount. The Company is required to make prepayments against the Truck Note at the rate of $0.018 per gallon of fuel purchased under a fuel supply agreement between the Company and Avfuel.

As described throughout this Quarterly Report on Form 10-Q, on March 17, 2020, all sightseeing tour operations at the Downtown Manhattan Heliport ceased as a result of the COVID-19 pandemic. On July 20, 2020, New York City began Phase 4 of the city’s reopening. Sightseeing tours resumed under this phase. Sightseeing tour operators have experienced low demand and minimal activity since July 20, 2020, but sightseeing tour operators have seen a slight uptick in demand in the second quarter of 2021 through the date of this report. To mitigate this loss of revenue, we may need additional financing to continue operations through the issuance of equity or debt and any such financing will be dependent on general market conditions, which itself is subject to the effects of the COVID-19 pandemic. Although we have access to the Key Bank Revolver Note described above, we can make no assurance that that the Key Bank Revolver Note will be sufficient to fund our operations. Additionally, certain restrictions in the Key Bank Revolver Note may prohibit us from obtaining more attractive financing.

NOTE 3 - Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, FirstFlight Heliports, LLC, and its fixed base operation and aircraft maintenance and repair services at Garden City (Kansas) Regional Airport. All significant inter-company accounts and transactions have been eliminated in consolidation.

Net Income (Loss) Per Common Share

Basic net income (loss) per share was $0.49 and ($0.83) for the nine months ended September 30, 2021 and 2020, respectively. Basic net income and net loss per share applicable to common stockholders is computed based on the weighted average number of shares of the Company’s common stock outstanding during the periods presented. Diluted net income per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities, consisting of options and warrants, are excluded from the calculation of the diluted income per share when their exercise prices were greater than the average market price of the common stock during the period. 

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

Stock-Based Compensation

Stock-based compensation expense for all stock-based payment awards are based on the estimated grant-date fair value. The Company recognizes these compensation expenses over the requisite service period of the award, which is generally the option vesting term. For the nine months ended September 30, 2021 and 2020, the Company incurred stock-based compensation of $25,794 and $55,989, respectively. Such amounts have been recorded as part of the Company’s selling, general and administrative expenses in the accompanying consolidated statements of operations. As of September 30, 2021, the unamortized fair value of the options totaled $8,600 and the weighted average remaining amortization period of the options approximated five years.

Option valuation models require the input of highly subjective assumptions, including the expected life of the option. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which requires an entity to recognize assets and liabilities on the balance sheet for the rights and obligations created by leased assets and provide additional disclosures. ASU 2016-02 became effective for us on January 1, 2019 and we have adopted the new standard using a modified retrospective approach. The adoption of ASU No. 2016-02 did not have a material impact on the Company’s financial statements.

NOTE 4 – Inventories

Inventory consists primarily of aviation fuel, which the Company dispenses to its customers, and parts inventory as a result of the acquisition of Aircraft Services, Inc. The Company also maintains fuel inventories for commercial airlines, to which it charges into-plane fees when servicing commercial aircraft.

Inventories consist of the following:

Included in fuel inventory are amounts held for third parties of $26,438 and $30,904 as of September 30, 2021 and December 31, 2020, respectively, with an offsetting liability included as part of accrued expenses.

NOTE 5 – Related Parties

From time to time, the law firm of Wachtel Missry, LLP provides certain legal services to the Company and its subsidiaries. William B. Wachtel, Chairman of the Company’s Board of Directors, is a managing partner of such firm. For the periods ending September 30, 2021 and 2020, no services were provided to the Company by Wachtel & Missry, LLP.

As described in more detail in Note 2, Liquidity and Material Agreements, the Company is party to a management agreement with Empire Aviation, an entity owned by the children of the Company’s former Chief Executive Officer and a former member of our Company’s Board of Directors.

NOTE 6 – Litigation

From time to time, the Company 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 7 – Dividend Payable

On September 30, 2019, the Company announced that its Board of Directors had declared a special cash dividend of $0.50 per share (the “Dividend”). The Dividend was paid in equal quarterly installments of $0.125 per share beginning on November 1, 2019, with the final dividend paid on August 13, 2020. The accrued dividend payment amounted to $373,370 at December 31, 2019. The declaration and payment of any future dividend will be at the sole discretion of the Board of Directors.

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

The following discussion should be read together with the accompanying unaudited condensed consolidated financial statements and related notes in this report. This Item 2 contains forward-looking statements that involve risks and uncertainties. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date of this report. Actual results may differ materially from those expressed or implied in such forward-looking statements. Factors which could cause actual results to differ materially are discussed throughout this report and include, but are not limited to, those set forth at the end of this Item 2 under the heading "Cautionary Statement Regarding Forward Looking Statements." Additional factors are under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The terms “we”, “us”, and “our” are used below to refer collectively to the Company and the subsidiaries through which our various businesses are actually conducted.

OVERVIEW

Saker Aviation Services, Inc. is a Nevada corporation. Our common stock, $0.03 par value per share (the “common stock”), is quoted on the OTCQB Marketplace (“OTCQB”) under the symbol “SKAS”. Through our subsidiaries, we operate in the aviation services segment of the general aviation industry, in which we serve as the operator of a heliport, a fixed base operation (“FBO”), and as a provider of aircraft maintenance and repair services (“MRO”). FBOs provide ground-based services, such as fueling and aircraft storage for general aviation, commercial and military aircraft, and other miscellaneous services.

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

Our business activities are carried out as the operator of the Downtown Manhattan (New York) Heliport and as an FBO and MRO at the Garden City (Kansas) Regional Airport.

The Garden City facility became part of our Company as a result of our acquisition of the FBO assets of Central Plains Aviation, Inc. in March 2005 and of Aircraft Services, Inc. in October 2016.

Our business activities at the Downtown Manhattan (New York) Heliport facility (the “Heliport”) commenced in November 2008 when we were awarded the Concession Agreement by the City of New York to operate the Heliport, which we assigned to our subsidiary, FirstFlight Heliports, LLC d/b/a Saker Aviation Services (“FFH”).

The COVID-19 pandemic has impacted the global and United States economies. Federal, state, and local governments implemented certain travel restrictions, “stay-at-home” orders, and social distancing initiatives which negatively impacted our operations and those of our customers. As a result of the COVID-19 pandemic, on March 17, 2020, all sightseeing tour operations at the Downtown Manhattan Heliport ceased due to a drop in demand. On July 20, 2020, New York City started Phase 4 of the city’s reopening. Sightseeing tour operators at the heliport restarted operations under this phase. Sightseeing tour operators have experienced low demand and minimal activity since July 20, 2020, but have seen a slight uptick in demand beginning in the second quarter of 2021 through the date of this report. The COVID-19 pandemic has had a less substantial impact on our operations at our Kansas FBO and MRO.

While we expect the COVID-19 pandemic to continue to adversely impact our business and operations, the full extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the COVID-19 pandemic and related travel advisories and restrictions and the impact of the COVID-19 pandemic on overall demand for air travel.

Our long-term strategy is to increase our sales through growth within our aviation services operations. To do so, we may expand our geographic reach and product offering through strategic acquisitions and improved market penetration within the markets we serve. We expect that any future acquisitions or product offerings would be to complement and/or augment our current aviation services operations.

If we are able to grow our business as planned, we anticipate that our larger size would provide us with greater buying power from suppliers, resulting in lower costs. We expect that lower costs would allow for a more aggressive pricing policy against some competition. More importantly, we believe that the higher level of customer service offered in our facilities will allow us to draw additional aircraft to our facilities and thus allow us to compete against other FBOs of varying sizes.

REVENUE AND OPERATING RESULTS

Comparison of Continuing Operations for the Three and Nine Months Ended September 30, 2021 and September 30, 2020.

REVENUE

Total revenue from operations increased by 101.4 percent to $1,451,817 for the three months ended September 30, 2021 as compared with corresponding prior-year period revenue of $720,287.

For the three months ended September 30, 2021, revenue from operations associated with the sale of jet fuel, aviation gasoline and related items increased by 63.0 percent to approximately $762,000 as compared to approximately $467,000 in the three months ended September 30, 2020. This increase was attributable to the higher volume of gallons of aviation gasoline sold at both our New York and Kansas locations compared to the third quarter of 2020.

For the three months ended September 30, 2021, revenue from operations associated with services and supply items increased by 149.1 percent to approximately $605,000 as compared to approximately $243,000 in the three months ended September 30, 2020. This increase was attributable to increased demand for services at our New York and Kansas locations compared to the third quarter of 2020.

For the three months ended September 30, 2021 all other revenue from operations increased by 688.4 percent to approximately $85,000 as compared to approximately $11,000 in the three months ended September 30, 2020. This increase was attributable to an increase in non-aeronautical revenue generated at our New York location compared to the same period last year.

Total revenue increased by 21.4 percent to $3,439,977 for the nine months ended September 30, 2021 as compared with corresponding prior- period revenue of $2,833,174.

For the nine months ended September 30, 2021, revenue from operations associated with the sale of jet fuel, aviation gasoline and related items increased by 24.3 percent to approximately $1,935,000 as compared to approximately $1,557,000 in the nine months ended September 30, 2020. This increase was attributable to the higher volume of gallons of aviation gasoline sold at both our New York and Kansas locations compared to the same period in 2020.

For the nine months ended September 30, 2021, revenue from operations associated with services and supply items decreased by 0.3 percent to approximately $1,239,000 as compared to approximately $1,243,000 in the nine months ended September 30, 2020.

For the nine months ended September 30, 2021, all other revenue from operations increased by 689.3 percent to approximately $266,000 as compared to approximately $34,000 in the nine months ended September 30, 2020. This increase was attributable to an increase in non-aeronautical revenue generated by our Heliport compared to the same period last year.

GROSS PROFIT

Total gross profit (loss) from operations increased by 124.1 percent in the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The Company experienced a profit from operations of $670,440 as compared to net income of $299,125 in the three months ended September 30, 2020. Gross profit for the three months ended September 30, 2021 was positively impacted by Employee Retention Tax Credits (“ERTC”) due the Company under the CARES Act. These credits were recorded in the second and third quarters of 2021 and offset operating payroll costs in the third quarter by approximately $69,000. Gross margin increased to 46.2 percent in the three months ended September 30, 2021 as compared to 41.5 percent in the same period in the prior year. Gross margin was also positively impacted by the ERTC amounts due the Company under the CARES Act recorded in the second and third quarters of 2021. Gross profit in the three months ended September 30, 2020 was positively impacted by a credit in the amount of approximately $475,000 in connection with the abatement of fees at our New York facility that were formerly deferred.

Total gross profit from operations increased by 103.2 percent to $1,597,790 in the nine months ended September 30, 2021 as compared to $786,247 in the nine months ended September 30, 2020. Gross margin increased to 46.4 percent in the nine months ended September 30, 2021 as compared to 27.8 percent in the same period in the prior year. The increases in gross profit and gross margin in a year over year basis were driven by the items discussed above.

OPERATING EXPENSE

Selling, General and Administrative

Total selling, general and administrative expenses, (“SG&A”), from operations were approximately $358,000 in the three months ended September 30, 2021, representing a decrease of approximately $336,000 or 48.4 percent, as compared to the same period in 2020. The decrease in SG&A for the three months ended September 30, 2021 was primarily attributable to a reduction in expenses in 2020 due to the COVID-19 pandemic as compared to the same period in 2021. SG&A from operations for the nine months ended September 30, 2021 were approximately $1,019,000, representing a decrease of approximately $418,000 or 29.1 percent, as compared to the same period in 2020. The decrease in SG&A operating expenses for the nine months ended September 30, 2021, were largely attributable to ERTC due the Company under the CARES Act. These credits of approximately $154,000 offset SG&A payroll expenses in 2021.

Corporate SG&A from operations was approximately $105,000 for the three months ended September 30, 2021, representing a decrease of approximately $8,000 as compared with the corresponding prior year period. Corporate SG&A was approximately $348,000 for the nine months ended September 30, 2021, representing a decrease of approximately $91,000 as compared with the corresponding prior year period. The decrease in both the three and nine month periods on a year-over-year basis were largely attributable to a non-recurring write-off of miscellaneous receivables in the second quarter of 2020.

OPERATING INCOME (LOSS)

Operating income from operations for the three and nine months ended September 30, 2021 was $207,537 and $230,585, respectively, compared to operating loss of ($508,380) and ($1,089,960) in the three and nine months ended September 30, 2021, respectively. The increase in operating income on a year-over-year basis was driven by the factors described above.

Depreciation and Amortization

Depreciation and amortization was approximately $82,000 and $99,000 for the nine months ended September 30, 2021 and 2020, respectively.

Interest Expense

Interest expense was approximately $18,000 for both the nine month periods ended September 30, 2021 and 2020.

Income Tax (Benefit) Expense

Income tax expense for the nine months ended September 30, 2021 was $8,364 as compared to ($517,000) in income tax benefit during the same period in 2020. The income tax benefit is attributable to a net loss in the nine months ended September 30, 2020.

Net Income (Loss) Per Share

Net income was $508,576 and $(844,711) for the nine months ended September 30, 2021 and 2020, respectively.

Basic net income (loss) per share for the nine months ended September 30, 2021 and 2020 was $0.49 and $(0.83), respectively. Diluted net income per share for the nine months ended September 30, 2021 was $0.49. For the nine months ended September 30, 2020, underlying stock options were excluded from the computation of diluted earnings per share as their inclusion would be anti-dilutive.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2021, we had cash of $2,010,293 and a working capital surplus of $3,413,169. We generated revenue of $3,439,977 and had net income of $508,576 for the nine months ended September 30, 2021. For the nine months ended September 30, 2021, cash flows included net cash provided by operating activities of $444,389, net cash used in investing activities of $78,044, and net cash used in financing activities of $255,134.

As disclosed in a Current Report on Form 8-K filed on March 21, 2018 with the Securities and Exchange Commission (the “SEC”), on March 15, 2018 the Company entered into a loan agreement (the “Loan Agreement”) with Key Bank National Association (the “Bank”). The Loan Agreement contains three components: (i) a $2,500,000 acquisition line of credit (the “Key Bank Acquisition Note”); (ii) a $1,000,000 revolving line of credit (the “Key Bank Revolver Note”); and (iii) a $338,481 term loan (the “Key Bank Term Note”). There are currently no amounts outstanding under the Key Bank Term Note.

Proceeds of the Key Bank Acquisition Note were to be disbursed pursuant to a multiple draw demand note dated as of the agreement date, where the Company could, at the discretion of the Bank, borrow up to an aggregate amount of $2,500,000, to be used for the Company’s acquisition of one or more business entities. Until the Change of Terms Agreement, as defined below, the Company was required to make consecutive monthly payments of interest, calculated at a rate per annum equal to one-day LIBOR (adjusted daily) plus 2.75%, on any outstanding principal under the Key Bank Acquisition Note from the date of its issuance through September 15, 2018 (the “Conversion Date”).

At any time through and including the Conversion Date, at the Bank’s discretion, the Company had the opportunity to request that any loan made under the Key Bank Acquisition Note be converted into a term loan to be repaid in full, including accrued interest, by consecutive monthly payments over a 48 month amortization period beginning after the Conversion Date. For any loan that was not converted into a term loan on or before the Conversion Date, the Company would have been required to begin making monthly payments of principal and interest after the Conversion Date, over a 48 month amortization period, after which the remaining unpaid principal and accrued interest would have become due and payable. All loans under the Key Bank Acquisition Note would have, after the Conversion Date, accrued interest at a rate per annum equal to the Bank’s four year cost of funds rate plus 2.5%. As of the Conversion Date, there were no amounts due under the Key Bank Acquisition Note and no amounts had been converted to a term loan.

On October 11, 2018, and as subsequently amended, the Company entered into a new loan agreement with the Bank (as so amended, the “Change of Terms Agreement”) which modified the original terms of the Key Bank Acquisition Note. Under the Change of Terms Agreement, the Company could have continued to, at the discretion of the Bank, borrow up to an aggregate amount of $2,500,000 through September 1, 2021 (the “Maturity Date”), to be used for the Company’s acquisition of one or more business entities. The Change of Terms Agreement required the Company to make consecutive monthly payments of interest on any outstanding principal calculated at a rate per annum equal to 4.25% and was secured by substantially all of the Company’s assets. The entire principal balance, plus all accrued interest, was due in full on the Maturity Date. The Bank notified the Company of its decision to discontinue the Key Bank Acquisition Note, effective June 30, 2021. There are no amounts due under the Changes of Terms Agreement.

The Key Bank Revolver Note, at the discretion of the Bank, provides for the Company to borrow up to $1,000,000 for working capital and general corporate purposes. This revolving line of credit is a demand note with no stated maturity date. Borrowings under the Key Bank Revolver Note will bear interest at a rate per annum equal to one-day LIBOR (adjusted daily) plus 2.75%. The Company is required to make monthly payments of interest on any outstanding principal under the Key Bank Revolver Note and is required to pay the entire balance, including principal and all accrued and unpaid interest and fees, upon demand by the Bank. Any proceeds from the Key Bank Revolver Note would be secured by substantially all of the Company’s assets. As of September 30, 2021, there were no amounts due under the Key Bank Revolver Note.

On August 14, 2020, the Company was granted a loan from the Bank (the “Loan”) in the amount of $304,833, pursuant to the Paycheck Protection Program under Division, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a note dated August 14, 2020, matures in August 2025 and bore interest at a rate of 1% per annum and was payable in monthly installments commencing on, or before, October 31, 2021. At December 31, 2020, in accordance with FASB ASC 470, Debt, and ASC 405-20, Liabilities – Extinguishment of Liabilities, the Company recorded the cash inflow from the Loan as a liability, and cash flows from financing, pending legal release from the obligation by the U.S. Small Business Administration (“S.B.A.”). The Company used the Loan proceeds for eligible expenses during the covered period and the Loan was forgiven by the S.B.A. in full in the second quarter of 2021. The Company recorded the forgiveness of the Loan as a gain on extinguishment of debt.

The Company is party to a Concession Agreement, dated as of November 1, 2008, with the City of New York for the operation of the Downtown Manhattan Heliport (the “Concession Agreement”). Pursuant to the terms of the Concession Agreement, the Company must pay the greater of 18% of the first $5,000,000 in any program year based on cash collected (“Gross Receipts”) and 25% of Gross Receipts in excess of $5,000,000, or minimum annual guaranteed payments.

As disclosed in a Current Report on Form 8-K filed with the SEC on February 5, 2016, the Company and the New York City Economic Development Corporation (the “NYCEDC”) announced new measures to reduce helicopter noise and impacts across New York City (the “Air Tour Agreement”). Under the Air Tour Agreement, the Company has not been allowed to permit its tenant operators to conduct tourist flights from the Downtown Manhattan Heliport on Sundays since April 1, 2016. The Company was also required to ensure that its tenant operators reduce the total allowable number of tourist flights from 2015 levels by 20 percent beginning June 1, 2016, by 40 percent beginning October 1, 2016 and by 50 percent beginning January 1, 2017. The Air Tour Agreement also provided for the minimum annual guarantee payments the Company is required to pay to the City of New York under the Concession Agreement be reduced by 50%, effective January 1, 2017. Additionally, since June 1, 2016, the Company has been required to provide monthly written reports to the NYCEDC and the New York City Council detailing the number of tourist flights conducted out of the Downtown Manhattan Heliport compared to 2015 levels, as well as information on any tour flight that flies over land and/or strays from agreed upon routes. The Air Tour Agreement also extended the Concession Agreement for 30 months, resulting in a new expiration date of April 30, 2021 and gave the City of New York two one-year options to extend the term of the Concession Agreement. The term of the Concession Agreement was subsequently extended by the City through April 30, 2022 by the City’s exercise of the first of their two one-year option renewals.

The reductions under the Air Tour Agreement have negatively impacted the Company’s business and financial results as well as those of its management company at the Heliport, Empire Aviation which, as previously disclosed, is owned by the children of a former officer and director of the Company.  The Company incurred management fees with Empire Aviation of approximately $0 and $144,000 during the nine months ended September 30, 2021 and 2020, respectively, which is recorded in administrative expenses. The Company and Empire Aviation had historically contributed to the Helicopter Tourism and Jobs Council (“HTJC”), an association that lobbies on behalf of the helicopter air tour industry, and which had engaged in discussions with the Mayor’s office.  The Company has suspended its contributions to HTJC in light of the pandemic. The Company’s former officer and director was also an active participant with HTJC, which is managed by the former officer and director’s grandson. One of our Directors and our current acting principal executive officer, Sam Goldstein, serves as deputy director of HTJC.  

During the program year that began on May 1, 2020, the City agreed, in recognition of the pandemic’s impact, that the Company could defer payment of minimum guaranteed payments. In April 2021, the City waived the deferred fees through December 31, 2020. In May 2021, the City waived the deferred fees through April 30, 2021 which coincided with the expiration of the Concession Agreement as amended by the Air Tour Agreement. The City is currently working toward obtaining approval of an amendment to the Air Tour Agreement relative to fees to be paid by the Company to the City during the one year extension period, among other things. Concession fees in this Form 10-Q have been accounted for based on the months abated and the Company’s commitment to pay the City 18% of monthly Gross Receipts in excess of $100,000 during the amendment approval process. During the nine months ended September 30, 2021 and 2020, we incurred approximately $103,810 and $254,000 in concession fees, respectively, which are recorded in the cost of revenue.

On April 20, 2018, the Company’s Kansas subsidiary entered into a purchase lease with Commerce Bank for a refueling truck (the “Truck Lease”). The Truck Lease commenced on May 1, 2018 and continues for 60 months with a monthly payment of $2,568 and an interest rate of LIBOR plus 416 basis points. At the end of the Truck Lease, the Company’s subsidiary may purchase the vehicle for $1.00.

On January 15, 2019, the Company was issued an unsecured note by one of its customers at the Heliport. The note schedules payments of approximately $276,000 in receivables payable by such customer, had a maturity date of October 31, 2019, as amended, and carries a 7.5% rate of interest. The note payments were to be made in six monthly installments beginning May 31, 2019. The customer’s payments on the note have not met the installment plan and the Company was working on changes to the note when the customer filed for Chapter 11 Bankruptcy in October 2019. In February 2021, the bankruptcy court allowed the customer to convert from a Chapter 11 Bankruptcy to a Chapter 7 Liquidation. Under the Chapter 7 Liquidation, the note will now be treated as a general unsecured claim as opposed to a prioritized payment under the Chapter 11 Bankruptcy to cure the permit default. This change has substantially diminished the Company’s expectation to collect amounts due under the note. Therefore, the Company deemed unpaid principal and accrued interest of approximately $205,000 at December 31, 2020 as uncollectable. The $205,000 was written off to bad debt expense in the fourth quarter of 2020.

As disclosed in a Current Report on Form 8-K filed with the SEC on July 6, 2015, the Company entered into a stock purchase agreement, dated June 30, 2015, by and between the Company and Warren A. Peck, pursuant to which Mr. Peck purchased all of the capital stock of the Company’s wholly-owned subsidiary, Phoenix Rising Aviation, Inc. The details of the agreement are described in such Current Report as well as in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the SEC on April 11, 2016. The Company received $100,000 due under this agreement in September 2017 and an additional payment of $100,000 in September 2018. In 2019, the Company accepted the title to a Falcon 10 aircraft owned by Mr. Peck as satisfaction in full of the remainder of the $270,000 stock purchase price. The Company intended to sell the aircraft and classified it as “Held For Sale” on the Company’s consolidated balance sheet at December 31. 2019. The Company has been unable to find a buyer due to a depressed market as well as a drop in demand for this type of aircraft. Without a market in which to sell the aircraft, the Company recorded an impairment charge in the quarter ended June 30, 2020 for the full carrying amount of the aircraft. The Company does not believe the aircraft has any value and, in December 2020, filed an application with the FAA Aircraft Registry to cancel the aircraft’s registry.

On May 1, 2021, the Company’s Kansas subsidiary executed a promissory note for $76,000 with Avfuel Corporation (“Avfuel”) for the purchase of a Jet-A refueling truck (the “Truck Note”). The Truck Note requires six annual payments of $13,432.56 commencing April 30, 2022 with the entire balance of unpaid principal and interest due on, or before, April 30, 2028. Interest accrues at prime plus 3% on the outstanding principal amount. The Company is required to make prepayments against the Truck Note at the rate of $0.018 per gallon of fuel purchased under a fuel supply agreement between the Company and Avfuel.

As described throughout this Quarterly Report on Form 10-Q, on March 17, 2020, all sightseeing tour operations at the Downtown Manhattan Heliport ceased as a result of the COVID-19 pandemic. On July 20, 2020, New York City began Phase 4 of the city’s reopening. Sightseeing tours resumed under this phase. Sightseeing tour operators have experienced low demand and minimal activity since July 20, 2020, but sightseeing tour operators have seen a slight uptick in demand in the second quarter of 2021 through the date of this report. To mitigate this loss of revenue, we may need additional financing to continue operations through the issuance of equity or debt and any such financing will be dependent on general market conditions, which itself is subject to the effects of the COVID-19 pandemic. Although we have access to the Key Bank Revolver Note described above, we can make no assurance that that the Key Bank Revolver Note will be sufficient to fund our operations. Additionally, certain restrictions in the Key Bank Revolver Note may prohibit us from obtaining more attractive financing.

During the nine months ended September 30, 2021, we had a net increase in cash of $111,211. Our sources and uses of funds during this period were as follows:

Cash from Operating Activities

For the nine months ended September 30, 2021, net cash provided by operating activities was $444,389. This amount included an increase in operating cash related to net income of $508,576 and additions for the following items: (i) depreciation and amortization, $82,244; (ii) stock based compensation, $25,794; (iii) accounts receivable, trade, $5,679; (iv) deposits, $2,512; and (v) accounts payable, $90,787. These increases in operating activities were offset by a decrease in the following items: (i) inventories, $69,365, (ii) prepaid expenses and other current assets, $179,151; and (iii) accrued expenses, $22,687.

For the nine months ended September 30, 2020, net cash used in operating activities was $1,111,606. This amount included a decrease in operating cash related to net loss of $844,711 and additions for the following items: (i) depreciation and amortization, $98,538; (ii) impairment charge, $270,000; (iii) stock based compensation, $55,989; (iv) accounts receivable, trade, $176,436; (v) inventories, $895; and (vi) customer deposits, $592. These increases in operating activities were offset by decreases for the following items: (i) prepaid expenses and other current assets, $396,351; (ii) accounts payable; $296,691 and (ii) accrued expenses, $176,303.

Cash from Investing Activities

For the nine months ended September 30, 2021, net cash of $78,044 was used in investing activities for the purchase of property and equipment. For the nine months ended September 30, 2020, net cash of $4,912 was used in investing activities for the purchase of property and equipment.

Cash from Financing Activities

For the nine months ended September 30, 2021, net cash of $255,134 was used in financing activities for the following items: (i) extinguishment of debt, $304,833; (ii) payment of right of use leases, $20,781; and (iii) repayment of notes payable, $5,520. These decreases in financing activities were offset by issuance of notes payable of $76,000. For the nine months ended September 30, 2020, net cash of $112,500 was used in financing activities for the payment of accrued dividends of $383,909 and repayment of right of use leases payable of $33,424, offset by the issuance of a notes payable of $304,833.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which requires an entity to recognize assets and liabilities on the balance sheet for the rights and obligations created by leased assets and provide additional disclosures. ASU 2016-02 became effective for us on January 1, 2019 and we have adopted the new standard using a modified retrospective approach. The adoption of ASU No. 2016-02 did not have a material impact on the Company’s financial statements.

CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

Statements contained in this report may contain information that includes or is based upon "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent management's current judgment and assumptions, and can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are frequently accompanied by the use of such words as "anticipates," "plans," "believes," "expects," "projects," "intends," and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, including, but not limited to, those relating to:

Any one of these or other risks, uncertainties, other factors, or any inaccurate assumptions made by the Company may cause actual results to be materially different from those described herein or elsewhere by us. Undue reliance should not be placed on any such forward-looking statements, which speak only as of the date they were made. Certain of these risks, uncertainties, and other factors are described in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2020 and in other filings we make with the SEC. Subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above and elsewhere in our reports filed with the SEC. We expressly disclaim any intent or obligation to update any forward-looking statements, except as may be required by law.

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, including our President, Chief Executive Officer, our acting principal executive officer, and our acting principal financial officer, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon, and as of the date of that evaluation, our President, Chief Executive Officer, our acting principal executive officer, and our acting 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, Chief Executive Officer, our acting principal executive officer, and our acting principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 6 - Exhibits

* Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.