Saker Aviation Services, Inc. - Quarter Report: 2022 September (Form 10-Q)

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements.

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See notes to condensed consolidated financial statements

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED 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, 2021.

The condensed consolidated balance sheet as of September 30, 2022 and the condensed consolidated statements of operations and cash flows for the three and nine months ended September 30, 2022 and 2021 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, 2022 and its results of operations, stockholders’ equity, and cash flows for the three and nine months ended September 30, 2022 not misleading. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for any full year or any other interim period.

The COVID-19 pandemic has impacted the global and United States economies. Federal, state, and local governments implemented certain travel restrictions, “stay-at-home” orders, and social distancing initiatives which negatively impacted our operations and those of our customers. As a result of the COVID-19 pandemic, on March 17, 2020 all sightseeing tour operations at the Downtown Manhattan Heliport ceased. On July 20, 2020, New York City started Phase 4 of the city’s reopening. Sightseeing tour operators at the heliport restarted operations under this phase.

For the period July 20, 2020 through March 31, 2022, sightseeing tour operators experienced much lower demand for tours as compared to pre-pandemic levels of activity. Beginning in April 2022, sightseeing tour operators have seen an increase in activity and a much higher demand for tours. There can be no assurance that this increased activity will continue as demand for sightseeing tours will depend on future developments in the COVID-19 pandemic, including the duration and spread and related travel advisories and restrictions and the impact on overall demand for air travel. The COVID-19 pandemic has had a less substantial impact on our operations at our Kansas FBO and MRO.

NOTE 2 – Liquidity and Material Agreements

As of September 30, 2022, we had cash and restricted cash of $4,714,669 and a working capital surplus of $5,040,762. We generated revenue from continuing operation of $5,744,342 and had net income of $903,992 for the nine months ended September 30, 2022. For the nine months ended September 30, 2022, cash flows included net cash provided by operating activities of $2,321,290, net cash used in investing activities of $9,680, and net cash used in financing activities of $43,847.

As disclosed in a Current Report on Form 8-K filed on March 21, 2018 with the Securities and Exchange Commission (the “SEC”), on March 15, 2018 the Company entered into a loan agreement (the “Loan Agreement”) with Key Bank National Association (the “Bank”). The Loan Agreement contains three components: (i) a $2,500,000 acquisition line of credit (the “Key Bank Acquisition Note”); (ii) a $1,000,000 revolving line of credit (the “Key Bank Revolver Note”); and (iii) a $338,481 term loan (the “Key Bank Term Note”). On October 11, 2018, and as subsequently amended, the Company entered into a new loan agreement with the Bank (as so amended, the “Change of Terms Agreement”) which modified the original terms of the Key Bank Acquisition Note. The Bank notified the Company of its decision to discontinue the Key Bank Acquisition Note, effective June 30, 2021. There were no amounts due under the Changes of Terms Agreement at September 30, 2022 or 2021.

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 Daily Simple SOFR 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. There were no amounts due under the Key Bank Revolver Note or Key Bank Term Note at September 30, 2022 or 2021.

On August 14, 2020, the Company was granted a loan from the Bank (the “Loan”) in the amount of $304,833, pursuant to the Paycheck Protection Program (PPP) under Division, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a note dated August 14, 2020, was to mature in August 2025 and bore interest at a rate of 1% per annum and was payable in monthly installments commencing on, or before, October 31, 2021 if not forgiven and legally released. At December 31, 2020, in accordance with FASB ASC 470, Debt, and ASC 405-20, Liabilities – Extinguishment of Liabilities, the Company recorded the cash inflow from the Loan as a liability, and cash flows from financing, pending legal release from the obligation by the U.S. Small Business Administration (“S.B.A.”). The Company used the Loan proceeds for eligible expenses during the covered period and the Loan was forgiven and legally released by the S.B.A. in full in the second quarter of 2021. The Company recorded the forgiveness of the Loan as a gain on extinguishment of debt – PPP Loan.

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

As disclosed in a Current Report on Form 8-K filed with the SEC on February 5, 2016, the Company and the New York City Economic Development Corporation (the “NYCEDC”) announced new measures to reduce helicopter noise and impacts across New York City (the “Air Tour Agreement”). Under the Air Tour Agreement, the Company has not been allowed to permit its tenant operators to conduct tourist flights from the Downtown Manhattan Heliport on Sundays since April 1, 2016. The Company was also required to ensure that its tenant operators reduce the total allowable number of tourist flights from 2015 levels by 20 percent beginning June 1, 2016, by 40 percent beginning October 1, 2016 and by 50 percent beginning January 1, 2017. The Air Tour Agreement also provided for the minimum annual guarantee payments the Company is required to pay to the City of New York under the Concession Agreement be reduced by 50%, effective January 1, 2017. Additionally, since June 1, 2016, the Company has been required to provide monthly written reports to the NYCEDC and the New York City Council detailing the number of tourist flights conducted out of the Downtown Manhattan Heliport compared to 2015 levels, as well as information on any tour flight that flies over land and/or strays from agreed upon routes. The Air Tour Agreement also extended the Concession Agreement for 30 months, resulting in a new expiration date of April 30, 2021 and gave the City of New York two one-year options to extend the term of the Concession Agreement. The term of the Concession Agreement was subsequently extended by the City through April 30, 2023 by the City’s exercise of both one-year option renewals.

The reductions under the Air Tour Agreement have negatively impacted the Company’s business and financial results as well as those of its management company at the Heliport, Empire Aviation which, as previously disclosed, is owned by two children and a grandchild of a former officer and director of the Company. The Company incurred management fees with Empire Aviation of approximately $1,622,000 and $0 during the nine months ended September 30, 2022 and 2021, respectively. Empire Aviation has notified the Company that it believes additional fees are due under the management agreement with the New York Heliport for both 2021 and 2020. If the Company is unable to come to an agreement with Empire Aviation regarding amounts due under the agreement, the Company could incur additional expense as disclosed in the Company’s 2021 Annual Report on Form 10-K (Note 15. Contingent Liabilities).

During the program year that began on May 1, 2020, the City of New York agreed, in recognition of the pandemic’s impact, that the Company could defer payment of minimum guaranteed payments. In April 2021, the City of New York waived the deferred fees through December 31, 2020. In May 2021, the City of New York waived the deferred fees through April 30, 2021 which coincided with the original expiration of the Concession Agreement as amended by the Air Tour Agreement. The Company worked with the City of New York to address fees to be paid by the Company for the period May 1, 2021 through December 31, 2021. In March 2022, the City of New York agreed to accept 18% of monthly Gross Receipts in excess of $100,000 as Concession fees for this period. In April 2022, the Company agreed to resume paying the City of New York the total monthly amounts due under the Concession Agreement retro-active to January 2022 and to continue paying fees due under the Concession Agreement through the remainder of the Air Tour Agreement. During the nine months ended September 30, 2022 and 2021, we incurred approximately $1,089,000 and $104,000 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 5.5%. At the end of the Truck Lease, the Company’s subsidiary may purchase the vehicle for $1.00. Subsequent to September 30, 2022, the refueling truck was sold in the sale of the Company’s Kansas subsidiary and the Truck Lease was paid in full. See Note 8.

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. Subsequent to September 30, 2022, the Jet-A refueling truck was sold in the sale of the Company’s Kansas subsidiary and the Truck Note was paid in full. See Note 8.

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.

Cash and restricted cash

The Company maintains its cash with various financial institutions which often exceeds federally insured limits. The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits. As part of its cash management process, the Company periodically reviews the relative credit standing of these financial institutions. Amounts included in restricted cash are a deposit required by the Concession Agreement with NYEDC and aggregated $425,000 at September 30, 2022 and 2021.

Net Income Per Common Share

Net income was $903,992 and $508,576 for the nine months ended September 30, 2022 and 2021, respectively. Net income was $213,102 and $197,078 for the three months ended September 30, 2022 and 2021, 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 loss 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 costs over the requisite service period of the award, which is generally the option vesting term. For the nine months ended September 30, 2022 and 2021, the Company incurred stock-based compensation of $34,497 and $25,794, 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, 2022, the unamortized fair value of the options totaled $11,498.

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.

NOTE 4 – Inventories

Inventory consists primarily of aviation fuel, which the Company dispenses to its customers, and parts inventory for our MRO operation in Kansas. 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 $1,929 and $28,042 as of September 30, 2022 and December 31, 2021, respectively, with an offsetting liability included as part of accrued expenses.

NOTE 5 – Related Parties

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 and grandchild 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 – Changes in Management

On June 29, 2022, the Company filed a Form 8-K with the SEC announcing that the Company’s President, Chief Executive Officer, and Director, Ronald J. Ricciardi, had passed away on June 23, 2022. In a subsequent Form 8-K filed with the SEC on July 11, 2022, the Company announced that the Company’s Director, Samuel Goldstein, had been appointed to serve as President and Chief Executive Officer.

NOTE 8 – Subsequent Events and Discontinued Operations

As disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC) on October 3, 2022, FBO Air-Garden City, Inc., (“GCK”) a wholly owned subsidiary of Saker Aviation Services, Inc. (the “Company”) entered into a FBO Transfer Agreement (the “Agreement”) with Crosby Flying Services, LLC (the “Buyer”) pursuant to which GCK agreed (i) to sell to the Buyer substantially all of its assets (the “Assets”) and none of its liabilities, and (ii) to a seven year non-competition covenant (the “Non-Compete”) whereby the Company, including its subsidiaries and affiliates, will not engage in any business involving the operation of a fixed based operation supplying aviation fuels and lubricants or the supply of other goods or provision of services typically supplied or performed at fixed base operations at airports at any facility located within one hundred (100) miles of the Garden City Regional Airport in Garden City, Kansas (the “Airport”), for $1.6 million.

As disclosed in a Current Report on Form 8-K filed with the SEC on November 2, 2022, on October 31, 2022 (the “Closing Date”), the Company closed on the sale of the Assets to the Buyer and became subject to the Non-Compete, for an aggregate purchase price of $1.5 million, after certain closing adjustments. The Buyer paid the purchase price on the Closing Date less $160,000 which is to be paid in cash upon the first anniversary of the Closing Date subject to GCK’s and the Company’s compliance with the Non-Compete, pursuant to the Agreement.

GCK results of operations have been reported as discontinued operations in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021. The assets sold by GCK have been re-classed to “Assets Held For Sale” in the Condensed Consolidated Balance Sheets as of September 30, 2022.

Assets held for sale are as follows:

Components of discontinued operations are as follows:

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, 2021.

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

OVERVIEW

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

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

Our business activities are carried out as the operator of the Downtown Manhattan (New York) Heliport and until October 31, 2022 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. Subsequent to September 30, 2022, the Garden City facility was sold and we no longer maintain an FBO or MRO at the Garden City (Kansas) Regional Airport.

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.

The COVID-19 pandemic has impacted the global and United States economies. Federal, state, and local governments implemented certain travel restrictions, “stay-at-home” orders, and social distancing initiatives which negatively impacted our operations and those of our customers. As a result of the COVID-19 pandemic, on March 17, 2020 all sightseeing tour operations at the Downtown Manhattan Heliport ceased. On July 20, 2020, New York City started Phase 4 of the city’s reopening. Sightseeing tour operators at the heliport restarted operations under this phase.

For the period July 20, 2020 through March 31, 2022, sightseeing tour operators experienced much lower demand for tours as compared to pre-pandemic levels of activity. Beginning in April 2022, sightseeing tour operators have seen an increase in activity and a much higher demand for tours. There can be no assurance that this increased activity will continue as demand for sightseeing tours will depend on future developments in the COVID-19 pandemic, including the duration and spread and related travel advisories and restrictions and the impact on overall demand for air travel. The COVID-19 pandemic has had a less substantial impact on our operations at our Kansas FBO and MRO.

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.

REVENUE AND RESULTS OF CONTINUING OPERATIONS

DISCONTINUED OPERATIONS

As disclosed in a Current Report on Form 8-K filed with the SEC on November 2, 2022, on October 31, 2022 (the “Closing Date”), the Company completed the asset sale of its subsidiary FBO Air-Garden City, Inc. (“GCK”) to Crosby Flying Services, LLC (the “Buyer”) for an aggregate purchase price of approximately $1.5 million, after certain closing adjustments. The Buyer paid the purchase price on the Closing Date less $160,000 which is to be paid in cash upon the first anniversary of the Closing Date subject to GCK’s and the Company’s compliance with a Non-Compete agreement. GCK results of operations have been reported as discontinued operations in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021. The assets sold by GCK have been re-classed to “Assets Held For Sale” in the Condensed Consolidated Balance Sheets as of September 30, 2022.

Comparison of Continuing Operations from the Three and Nine Months Ended September 30, 2022 and September 30, 2021.

REVENUE

Total revenue from continuing operations increased by 282.5 percent to $2,061,799 for the three months ended September 30, 2022 as compared with corresponding prior-year period revenue of $680,278.

For the three months ended September 30, 2022, revenue from continuing operations associated with the sale of jet fuel, aviation gasoline and related items increased by 473.2 percent to approximately $626,000 as compared to approximately $109,000 in the three months ended September 30, 2021. This increase was attributable to the higher volume of gallons and price of aviation gasoline sold at our New York location compared to the third quarter of 2021.

For the three months ended September 30, 2022, revenue from continuing operations associated with services and supply items increased by 257.1 percent to approximately $1,791,000 as compared to approximately $502,000 in the three months ended September 30, 2021. This increase was attributable to increased demand for services at our New York location compared to the third quarter of 2021.

For the three months ended September 30, 2022 all other revenue from continuing operations increased by 165.8 percent to approximately $185,000 as compared to approximately $70,000 in the three months ended September 30, 2021. This decrease was attributable to an increase in non-aeronautical revenue generated at our New York location compared to the same period last year.

Total revenue from continuing operations increased by 326.4 percent to $ 5,744,342 for the nine months ended September 30, 2022 as compared with corresponding prior-year period revenue of $1,347,183.

For the nine months ended September 30, 2022, revenue from continuing operations associated with the sale of jet fuel, aviation gasoline and related items increased by 561.2 percent to approximately $1,395,000 as compared to approximately $211,000 in the nine months ended September 30, 2021. This increase was attributable to the higher volume of gallons and price of aviation gasoline sold at our New York location compared to the same period in 2021.

For the nine months ended September 30, 2022, revenue from continuing operations associated with services and supply items increased by 350.7 percent to approximately $4,115,000 as compared to approximately $913,000 in the nine months ended September 30, 2021. This increase was attributable to the increased demand for services at our New York location compared to the same period in 2021.

For the nine months ended September 30, 2022, all other revenue from continuing operations increased by 4.7 percent to approximately $233,000 as compared to approximately $223,000 in the nine months ended September 30, 2021. This increase was attributable to an increase in non-aeronautical revenue generated by our New York location compared to the same period in 2021.

GROSS PROFIT

Total gross profit from continuing operations increased by 214.5 percent to $1,592,552 in the three months ended September 30, 2022 compared to $506,308 in the three months ended September 30, 2021. Gross profit was positively impacted by an increase in activity and much higher demand for tours at our New York location. Gross margin decreased to 61.2 percent in the three months ended September 30, 2022 as compared to 74.4 percent in the same period in the prior year. This decrease in gross margin is largely attributable to Cares Act tax credits recorded by the Company in the second quarter of 2021 period which were not available in 2022.

Total gross profit from continuing operations increased by 231.1 percent to $3,460,920 in the nine months ended September 30, 2022 as compared to $1,045,358 in the nine months ended September 30, 2021. Gross margin decreased to 60.2 percent in the nine months ended September 30, 2022 as compared to 77.6 percent in the same period in the prior year. The increase in gross profit and decrease in gross margin were a result of the items discussed above.

OPERATING EXPENSE

Selling, General and Administrative

Total selling, general and administrative expenses (“SG&A”) from continuing operations were approximately $1,077,000 in the three months ended September 30, 2022, representing an increase of approximately $870,000 or 421.8 percent, as compared to the same period in 2021. The increase in SG&A for the three months ended September 30, 2022 was primarily attributable to increased fees due under the Company’s Concession Agreement with the City of New York and management agreement with Empire Aviation. SG&A in the nine months ended September 30, 2022 were approximately $2,501,000, representing an increase of approximately $1,868,000 or 294.8 percent, as compared to the same period in 2021. The increase in SG&A operating expenses for the nine months ended September 30, 2022 were primarily attributable to increases in amounts due under agreement as described above for the three month period.

Corporate SG&A from continuing operations was approximately $109,000 for the three months ended September 30, 2022, representing an increase of approximately $105,000 as compared with the corresponding prior year period. Corporate SG&A was approximately $408,000 for the nine months ended September 30, 2022, representing an increase of approximately $60,000 as compared with the corresponding prior year period. The increase in the nine month periods on a year-over-year basis, were largely attributable to non-recurring miscellaneous expenses in the second quarter of 2022.

OPERATING INCOME

Operating income from continuing operations for the three months ended September 30, 2022 was $406,736 as compared to operating income of $195,039 in the three months ended September 30, 2021. Operating income from continuing operations for the nine months ended September 30, 2022 was $551,778 as compared to operating income of $63,919 in the nine months ended September 30, 2021. The increase in operating income for both periods was largely attributable to more activity and much higher demand for tours at our New York location.

Depreciation and Amortization

Depreciation and amortization were approximately $101,000 and $82,000 for the nine months ended September 30, 2022 and 2021, respectively. The increase in depreciation and amortization was largely attributable to depreciation related to our right of use assets.

Interest Expense

Interest expense for the nine months ended September 30, 2022 and September 30, 2021 was approximately $18,000 in both periods.

Bad Debt Recovery

Bad Debt Recovery for the nine months ended September 30, 2022 was $125,000 as compared to $0 in the same period in 2021. The increase in bad debt recovery is attributable to collection of amounts previously deemed uncollectable in 2020.

Life Insurance Proceeds

As part of an employment agreement with the Company’s President, Chief Executive Officer, and Director, Ronald J. Ricciardi, the Company was required to provide Executive Life Insurance insuring the life of Mr. Ricciardi during the term of the agreement. The term policy was to be in the amount of $1 million, with one-half (1/2) of the proceeds thereof directed to such beneficiary or beneficiaries of Mr. Ricciardi may from time to time appoint, and one-half (1/2) of the proceeds directed to the Company. As discussed in Note 7 to the financial statements, Mr Ricciardi passed away on June 23, 2022. The Company recorded the life insurance receivable of $500,000 as Other Income during the period ending June 30, 2022. The Company received the payment of $500,000 in life insurance proceeds in the third quarter ending September 30, 2022.

Income Tax

Income tax expense for the nine months ended September 30, 2022 and 2021 was $240,000 and $8,364 respectively. The increase in income tax is attributable to higher net income in the nine months ended September 30, 2022 compared to the same period in 2021.

Net income Per Share

Net income was $903,992 and $508,576 for the nine months ended September 30, 2022 and 2021, respectively.

Basic net income per share for the nine months ended September 30, 2022 and 2021 was $0.93 and $0.49, respectively. Diluted net income per share for the nine months ended September 30, 2022 and 2021 was $0.91 and $0.49, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2022, we had cash and restricted cash of $4,714,669 and a working capital surplus of $5,040,762. We generated revenue from continuing operation of $5,744,342 and had net income of $903,992 for the nine months ended September 30, 2022. For the nine months ended September 30, 2022, cash flows included net cash provided by operating activities of $2,321,290, net cash used in investing activities of $9,680, and net cash used in financing activities of $43,847.

As disclosed in a Current Report on Form 8-K filed on March 21, 2018 with the Securities and Exchange Commission (the “SEC”), on March 15, 2018 the Company entered into a loan agreement (the “Loan Agreement”) with Key Bank National Association (the “Bank”). The Loan Agreement contains three components: (i) a $2,500,000 acquisition line of credit (the “Key Bank Acquisition Note”); (ii) a $1,000,000 revolving line of credit (the “Key Bank Revolver Note”); and (iii) a $338,481 term loan (the “Key Bank Term Note”). On October 11, 2018, and as subsequently amended, the Company entered into a new loan agreement with the Bank (as so amended, the “Change of Terms Agreement”) which modified the original terms of the Key Bank Acquisition Note. The Bank notified the Company of its decision to discontinue the Key Bank Acquisition Note, effective June 30, 2021. There were no amounts due under the Changes of Terms Agreement at September 30, 2022 or 2021.

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 Daily Simple SOFR 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. There were no amounts due under the Key Bank Revolver Note or Key Bank Term Note at September 30, 2022 or 2021.

On August 14, 2020, the Company was granted a loan from the Bank (the “Loan”) in the amount of $304,833, pursuant to the Paycheck Protection Program (PPP) under Division, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a note dated August 14, 2020, was to mature in August 2025 and bore interest at a rate of 1% per annum and was payable in monthly installments commencing on, or before, October 31, 2021 if not forgiven and legally released. At December 31, 2020, in accordance with FASB ASC 470, Debt, and ASC 405-20, Liabilities – Extinguishment of Liabilities, the Company recorded the cash inflow from the Loan as a liability, and cash flows from financing, pending legal release from the obligation by the U.S. Small Business Administration (“S.B.A.”). The Company used the Loan proceeds for eligible expenses during the covered period and the Loan was forgiven and legally released by the S.B.A. in full in the second quarter of 2021. The Company recorded the forgiveness of the Loan as a gain on extinguishment of debt – PPP Loan.

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

As disclosed in a Current Report on Form 8-K filed with the SEC on February 5, 2016, the Company and the New York City Economic Development Corporation (the “NYCEDC”) announced new measures to reduce helicopter noise and impacts across New York City (the “Air Tour Agreement”). Under the Air Tour Agreement, the Company has not been allowed to permit its tenant operators to conduct tourist flights from the Downtown Manhattan Heliport on Sundays since April 1, 2016. The Company was also required to ensure that its tenant operators reduce the total allowable number of tourist flights from 2015 levels by 20 percent beginning June 1, 2016, by 40 percent beginning October 1, 2016 and by 50 percent beginning January 1, 2017. The Air Tour Agreement also provided for the minimum annual guarantee payments the Company is required to pay to the City of New York under the Concession Agreement be reduced by 50%, effective January 1, 2017. Additionally, since June 1, 2016, the Company has been required to provide monthly written reports to the NYCEDC and the New York City Council detailing the number of tourist flights conducted out of the Downtown Manhattan Heliport compared to 2015 levels, as well as information on any tour flight that flies over land and/or strays from agreed upon routes. The Air Tour Agreement also extended the Concession Agreement for 30 months, resulting in a new expiration date of April 30, 2021 and gave the City of New York two one-year options to extend the term of the Concession Agreement. The term of the Concession Agreement was subsequently extended by the City through April 30, 2023 by the City’s exercise of both one-year option renewals.

The reductions under the Air Tour Agreement have negatively impacted the Company’s business and financial results as well as those of its management company at the Heliport, Empire Aviation which, as previously disclosed, is owned by two children and a grandchild of a former officer and director of the Company. The Company incurred management fees with Empire Aviation of approximately $1,622,000 and $0 during the nine months ended September 30, 2022 and 2021, respectively. Empire Aviation has notified the Company that it believes additional fees are due under the management agreement with the New York Heliport for both 2021 and 2020. If the Company is unable to come to an agreement with Empire Aviation regarding amounts due under the agreement, the Company could incur additional expense as disclosed in the Company’s 2021 Annual Report on Form 10-K (Note 15. Contingent Liabilities).

During the program year that began on May 1, 2020, the City of New York agreed, in recognition of the pandemic’s impact, that the Company could defer payment of minimum guaranteed payments. In April 2021, the City of New York waived the deferred fees through December 31, 2020. In May 2021, the City of New York waived the deferred fees through April 30, 2021 which coincided with the original expiration of the Concession Agreement as amended by the Air Tour Agreement. The Company worked with the City of New York to address fees to be paid by the Company for the period May 1, 2021 through December 31, 2021. In March 2022, the City of New York agreed to accept 18% of monthly Gross Receipts in excess of $100,000 as Concession fees for this period. In April 2022, the Company agreed to resume paying the City of New York the total monthly amounts due under the Concession Agreement retro-active to January 2022 and to continue paying fees due under the Concession Agreement through the remainder of the Air Tour Agreement. During the nine months ended September 30, 2022 and 2021, we incurred approximately $1,089,000 and $104,000 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 5.5%. At the end of the Truck Lease, the Company’s subsidiary may purchase the vehicle for $1.00. Subsequent to September 30, 2022, the refueling truck was sold in the sale of the Company’s Kansas subsidiary and the Truck Lease was paid in full. See Note 8.

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. Subsequent to September 30, 2022, the Jet-A refueling truck was sold in the sale of the Company’s Kansas subsidiary and the Truck Note was paid in full. See Note 8.

During the nine months ended September 30, 2022, we had a net increase in cash of $2,267,763. Our sources and uses of funds during this period were as follows:

Cash from Operating Activities

For the nine months ended September 30, 2022, net cash provided by operating activities was $2,321,290. This amount included an increase in operating cash related to net income of $903,992 and additions for the following items: (i) depreciation and amortization, $101,181; (ii) stock based compensation, $34,497; (iii) inventories, 13,437; (iv) income tax receivable, $573,679; (v) prepaid expenses, $268,564; (vi) customer deposits, $124,079; (vii) accounts payable, $341,989; and (viii) accrued expenses, $25,582. These increases in operating activities were offset by an increase in accounts receivable, trade, of $65,710.

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.

Cash from Investing Activities

For the nine months ended September 30, 2022, net cash of $9,680 used in investing activities for the purchase of property and equipment. 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.

Cash from Financing Activities

For the nine months ended September 30, 2022, net cash of $43,847 was used in financing activities for the following items: (i) payment of right of use leases, $34,041; and (ii) repayment of notes payable, $9,806. 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.

CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

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

Any one of these or other risks, uncertainties, other factors, or any inaccurate assumptions made by the Company may cause actual results to be materially different from those described herein or elsewhere by us. Undue reliance should not be placed on any such forward-looking statements, which speak only as of the date they were made. Certain of these risks, uncertainties, and other factors are described in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2021 and in other filings we make with the SEC. Subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above and elsewhere in our reports filed with the SEC. We expressly disclaim any intent or obligation to update any forward-looking statements, except as may be required by law.

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 and Chief Executive 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 management and our President and Chief Executive 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 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.

PART II – OTHER INFORMATION

Item 6 - Exhibits

* Filed herewith

+ Schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish a copy of any omitted schedule or similar attachment to the Securities and   Exchange Commission upon request.

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.