UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

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

 

For The Quarterly Period Ended March 31, 2012

 

or

 

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

 

For the transition period from _______________ to ________________

 

Commission File Number: 000-52593

 

SAKER AVIATION SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada	87-0617649
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
101 Hangar Road, Avoca, PA	18641
(Address of principal executive offices)	(Zip Code)

 

(570) 457-3400

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes x         No o

 

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

Yes x         No o

 

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

12b-2 of the Exchange Act.

Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

o

Smaller Reporting Company

x

 

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

Yes o          No x

 

As of May 14, 2012, the registrant had 33,040,422 shares of its common stock, $0.001 par value, issued and outstanding. 

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

Form 10-Q

March 31, 2012

 

 

Index

 

PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	Page
Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011	1
Statements of Operations for the Three Months Ended March 31, 2012 and 2011 (unaudited)	2
Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011 (unaudited)	3
Notes to Financial Statements (unaudited)	4
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS	7
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	11
ITEM 4.  CONTROLS AND PROCEDURES	11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS	12
SIGNATURES	13

 

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

 

			March 31, 2012				December 31, 2011
CURRENT ASSETS
Cash		$	518,642			$	451,957
Accounts receivable			1,241,472				1,532,673
Inventories			301,827				285,171
Note receivable – current portion, less discount			102,856				101,077
Prepaid expenses and other current assets			298,803				373,385
Deferred income taxes			178,000				204,000
Total current assets			2,641,600				2,948,263
PROPERTY AND EQUIPMENT, net
of accumulated depreciation and amortization of $1,062,094 and $961,189 respectively			2,497,849				2,539,198
OTHER ASSETS
Deposits			185,434				181,259
Note receivable, less current portion and discount			274,321				300,712
Intangible assets – trade names			135,000				135,000
Goodwill			2,368,284				2,368,284
Total other assets			2,963,039				2,985,255
TOTAL ASSETS		$	8,102,488			$	8,472,716
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		$	668,008			$	781,675
Customer deposits			126,911				138,756
Lines of credit			650,000				650,000
Accrued expenses			234,252				385,872
Notes payable – current portion			480,827				488,846
Total current liabilities			2,159,998				2,445,149
LONG-TERM LIABILITIES
Notes payable - less current portion			1,669,576				1,809,902
Total liabilities			3,829,574				4,255,051
STOCKHOLDERS’ EQUITY
Controlling interest
Preferred stock - $.001 par value; authorized 9,999,154;
none issued and outstanding			—				—
Common stock - $.001 par value; authorized 100,000,000;
33,040,422 shares issued and outstanding as of March 31, 2012 and December 31, 2011			33,040				33,040
Additional paid-in capital			19,858,032				19,850,134
Accumulated deficit			(15,618,158	)			(15,665,509	)
TOTAL STOCKHOLDERS’ EQUITY			4,272,914				4,217,665
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	8,102,488			$	8,472,716

 

See notes to condensed consolidated financial statements.

  

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		For the Three Months Ended March 31,
		2012				2011
REVENUE		$	3,146,075			$	2,775,218
COST OF REVENUE			1,862,214				1,556,470
GROSS PROFIT			1,283,861				1,218,748
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			1,210,450				1,192,509
OPERATING INCOME (LOSS)			73,411				26,239
OTHER INCOME (EXPENSE)
OTHER INCOME (EXPENSE), net			33,015				(33,181	)
INTEREST INCOME			6,888				9,595
INTEREST EXPENSE			(36,963	)			(38,951	)
TOTAL OTHER INCOME (EXPENSE), net			2,940				(62,537	)
INCOME (LOSS) BEFORE INCOME TAX BENEFIT			76,351				(36,298	)
INCOME TAX EXPENSE
CURRENT			3,000				—
DEFERRED			26,000				—
INCOME TAX EXPENSE			29,000				—
NET INCOME (LOSS)		$	47,351			$	(36,298	)
Net Income (Loss) per Common Share – Basic and Diluted		$	0.00			$	(0.00	)
Weighted Average Number of Common Shares – Basic			33,040,422				33,055,581
Weighted Average Number of Common Shares – Diluted			34,730,145				33,055,581

 

See notes to condensed consolidated financial statements.

 

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

		Three Months Ended March 31,
		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	47,351			$	(36,298	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			100,905				74,616
Management fee recorded through additional paid in capital			—				203,331
Loss on dispositions of equipment			—				8,379
Stock based compensation			7,898				1,166
Changes in operating assets and liabilities:
Accounts receivable			291,201				166,414
Inventories			(16,656	)			(83,241	)
Prepaid expenses and other current assets			74,582				102,292
Deposits			(4,175	)			(1,046	)
Deferred income taxes			26,000				—
Accounts payable			(113,667	)			504,357
Customer deposits			(11,845	)			(38,363	)
Accrued expenses			(151,620	)			(310,026	)
TOTAL ADJUSTMENTS			202,623				627,879
NET CASH PROVIDED BY OPERATING ACTIVITIES			249,974				591,581
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposition of equipment			—				28,250
Payment of note receivable			24,612				22,953
Purchase of property and equipment			(59,556	)			(799,339	)
NET CASH USED IN INVESTING ACTIVITIES			(34,944	)			(748,136	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable			(148,345	)			(105,673	)
Purchase of common stock, retired			—				(11,989	)
NET CASH USED IN FINANCING ACTIVITIES			(148,345	)			(117,662	)
NET CHANGE IN CASH			66,685				(274,217	)
CASH – Beginning			451,957				1,541,992
CASH – Ending		$	518,642			$	1,267,775
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest		$	36,963			$	38,951

 

 

See 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 have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial statements and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and disclosures required for annual financial statements. These condensed consolidated financial statements should be read in conjunction with the financial statements and related footnotes for Saker Aviation Services, Inc. and its subsidiaries (collectively, the “Company”), which appear in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 as filed with the Securities and Exchange Commission.

 

The condensed consolidated balance sheet as of March 31, 2012 and the condensed consolidated statements of operations and cash flows for the three months ended March 31, 2012 and 2011 have been prepared by the Company without audit. In the opinion of the Company’s management, all adjustments (consisting of normal recurring accruals) necessary to make the Company’s financial position as of March 31, 2012 and its results of operations and cash flows for the three months ended March 31, 2012 not misleading have been included. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for any full year or any other interim period.

The Company has evaluated subsequent events which have occurred after March 31, 2012.

 

NOTE 2 – Management’s Liquidity Plans

 

As of March 31, 2012, the Company had cash of $518,642 and had a working capital surplus of $481,602. The Company generated revenue of $3,146,075 and net income of $47,351 for the three months ended March 31, 2012.

 

On and effective January 30, 2012, the Company entered into an amended and restated Loan Agreement (the “Amended and Restated Loan Agreement”) with Bank of America. The Amended and Restated Loan Agreement increased the Company’s revolving credit facility (“B of A Credit Facility”) to $1,150,000.

 

The B of A Credit Facility, with an extended balance of $650,000 as of March 31, 2012, requires interest payments based on outstanding balances at an interest rate of 30-day LIBOR plus 300 basis points, and is annually renewable at Bank of America’s option. An annual fee of 0.50% is incurred against the total availability of the B of A Credit Facility.

 

On September 21, 2011, the Company entered into an agreement with Bank of America whereby the bank established an equipment line of credit for up to $130,000. As of May 1, 2012, the principal amount drawn by the company against the line of credit will be converted into a term loan (the “B of A Equipment Loan”). The B of A Equipment Loan shall be amortized over five years and shall bear interest at a rate equal to the bank’s prime rate plus 1.5 percentage points.

 

On July 20, 2011, the Company entered into a loan agreement (the “Loan Agreement”) with Bank of America. The Loan Agreement provided the Company with a $318,198 term loan facility (the “B of A Term Loan”). The B of A Term Loan is amortized over 48 months at an interest rate of 4.2% and matures on July 20, 2015. A one-time origination fee of 1.0% was incurred at the commencement of the B of A Term Loan.

 

The Company is party to a concession agreement with the City of New York for the operation of the Downtown Manhattan Heliport (the “Heliport”). Under this agreement, the Company must pay the greater of 18% of the first $5 million in program year gross receipts and 25% of gross receipts in excess of $5 million or minimum annual guaranteed payments that began at $1.2 million in Year 1 of the agreement, which commenced on November 1, 2008, and increase to approximately $1.7 million in Year 10 of the agreement, which expires on October 31, 2018. During the three months ended March 31, 2012, the Company incurred with the City of New York approximately $331,000 in concession fees, which is recorded in the cost of revenue.

 

NOTE 3 - Summary of Significant Accounting Policies

 

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Saker Aviation Services, Inc. and its wholly-owned subsidiaries, FirstFlight Heliports, LLC d/b/a Saker Aviation Services (“FFH”), FBO Air Wilkes-Barre, Inc. d/b/a Saker Aviation Services (“FBOWB”), and FBO Air Garden City, Inc. d/b/a Saker Aviation Services (“FBOGC”). All significant inter-company accounts and transactions have been eliminated in consolidation.

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Net Income (Loss) Per Common Share

Net income for the three months ended March 31, 2012 was $47,351 and net loss for the three months ended March 31, 2011 was $36,298. Basic 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 (loss) per share:

 

		For the Three Months Ended March 31,
			2012(1)				2011(2)
Weighted average common shares outstanding, basic			33,040,422				33,055,581
Common shares upon exercise of options			447,691				—
Common shares upon exercise of warrants			1,242,032				—
Weighted average common shares outstanding, diluted			34,730,145				33,055,581

 

(1) Potential common shares of 900,000 for the three months ended March 31, 2012 were excluded from the computation of diluted earnings as their exercise prices were greater than the average market price of the common stock during the period.

(2) Potential common shares of 8,600,000 for the three months ended March 31, 2011 were excluded from the computation of diluted earnings per share as their inclusion would be anti-dilutive.

 

Stock Based Compensation

Stock-based compensation expense for all share-based payment awards are based on the grant-date fair value. The Company recognizes these compensation costs over the requisite service period of the award, which is generally the option vesting term. For the three months ended March 31, 2012 and 2011, the Company incurred stock based compensation of $7,898 and $1,166 respectively. Such amounts have been recorded as part of the Company’s selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. As of March 31, 2012, the unamortized fair value of the options totaled $26,180.

 

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 Issued Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-08, Intangibles – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment (ASU 2011-08), to allow entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. ASU 2011-08 is effective for the Company in fiscal 2013 and earlier adoption is permitted. The Company is currently evaluating the impact of its pending adoption of ASU 2-11-08 on its consolidated financial statements.

 

NOTE 4 - Inventories

 

Inventories consist primarily of maintenance parts and aviation fuel, which the Company sells to its customers. The Company also maintains fuel inventories for commercial airlines, to which it charges into-plane fees when servicing commercial aircraft. A summary of inventories as of March 31, 2012 and December 31, 2011 is set forth in the following table:

 

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

		March 31, 2012				December 31, 2011
Parts inventory		$	102,451			$	105,162
Fuel inventory			188,355				167,540
Other inventory			11,020				12,469
Total inventory		$	301,826			$	285,171

 

Included in inventories are amounts held for third parties of $108,002 and $173,023 as of March 31, 2012 and December 31, 2011, respectively, with an offsetting liability included as part of accrued expenses.

 

NOTE 5 – Related Parties

 

The law firm of Wachtel & Masyr, LLP provides certain legal services to the Company. William B. Wachtel, the Company’s Chairman of the Board of Directors, is a managing partner of this firm. During the three months ended March 31, 2012 and 2011, the Company was billed approximately $0 for legal services. At March 31, 2012 and December 31, 2011, the Company has recorded in accounts payable an obligation for legal fees to such firm of approximately $4,200 related to legal services provided by such firm.

 

On August 29, 2011, the Company entered into a Redemption Agreement with the non-controlling interest in a subsidiary of the Company. As part of this agreement, the non-controlling interest relinquished its membership interest in the subsidiary in return for earn-out payments of the non-controlling interest’s capital account of $2,769,000. Of that amount, $444,000 was paid upon the execution of the Redemption Agreement, an additional approximately $447,000 was paid through March 31, 2012, and the balance is recorded as a liability at a discount rate of seven (7%) percent. Continuing earn-out payments shall be made on a monthly basis in an amount equal to (i) five percent (5%) of the subsidiary’s gross receipts, plus (ii) five percent (5%) of the subsidiary’s pre-tax profit.

 

NOTE 7 - 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.

 

 

 

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

 

The following discussion should be read together with the consolidated condensed financial statements and related notes appearing elsewhere 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 included in such forward-looking statements. Factors which could cause actual results to differ materially include those set forth at the end of this Item 2 under the heading "Cautionary Statement Regarding Forward Looking Statements," as well as those discussed elsewhere in this report and those discussed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

OVERVIEW

 

Saker Aviation Services, Inc. (“we”, “us”, “our”) is a Nevada corporation, the common stock, $0.001 par value (the “common stock”), of which is publicly traded on the over the counter bulletin board system under the symbol “SKAS.OB”. Through our subsidiaries, we operate in the fixed base operation (“FBO”) segment of the general aviation industry, in which we serve as the operator of a heliport FBO, two primarily fixed-wing aircraft FBOs and provide consulting services for an FBO facility that we do not own. FBOs provide ground-based services, such as fueling and hangaring for general aviation, commercial and military aircraft; aircraft maintenance; and other miscellaneous services.

 

We were formed on January 17, 2003 (our date of inception) 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 an FBO at the Wilkes-Barre/Scranton (Pennsylvania) International Airport, as an FBO at the Garden City (Kansas) Regional Airport, as the FBO and operator of the Downtown Manhattan (New York) Heliport, and as a consultant to the FBO and operator of the Niagara Falls (New York) International Airport.

 

The Wilkes-Barre facility became part of our company as a result of our acquisition of Tech Aviation Service, Inc. (“Tech”) in March 2005. The Garden City facility became part of our company as a result of our acquisition of the FBO assets of Central Plains Aviation, Inc. (“CPA”) in March 2005.

 

The New York heliport facility became part of our company through the award of a concession agreement by the City of New York to operate the Downtown Manhattan Heliport, which we assigned to our subsidiary, FirstFlight Heliports, LLC d/b/a Saker Aviation Services (“FFH”).

 

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

 

REVENUE AND OPERATING RESULTS

 

Comparison of the Three Months Ended March 31, 2012 and March 31, 2011.

 

REVENUE

 

Revenue increased by 13.4 percent to $3,146,075 for the three months ended March 31, 2012 as compared with corresponding prior-year period revenue of $2,775,218.

 

 

 

For the three months ended March 31, 2012, revenue associated with the operation of the Downtown Manhattan Heliport (“Heliport”) increased by 11.4 percent to approximately $1,500,000 as compared to approximately $1,350,000 in the three months ended March 31, 2011. The increase in revenue was in large part impacted by an increase in helicopter landings and passenger counts in the three months ended March 31, 2012 as compared to the same period in the prior year. Unseasonably warm and dry weather during the 2012 period, as compared to 2011, was more conducive to helicopter tourist activity

 

Revenue associated with the sale of jet fuel, aviation gasoline and related items increased by 19.9 percent to approximately $1,645,000 as compared to the same period in the prior year. The increases in revenue associated with the sale of jet fuel, aviation gasoline and related items was related to a combination of higher volume along with higher average fuel prices as compared with the prior year. We generally price our fuel products on a fixed dollar margin basis. As the cost of fuel increases, the corresponding customer price increases as well. If volume is constant, this methodology yields higher revenue but at comparable gross margins.

 

Revenue associated with maintenance activities decreased by 30.1 percent to approximately $94,000 as compared to the same period in the prior year. The decrease in maintenance revenue was due to decreases in both charges for labor services and for parts as a result of a generally lower level of activity associated with piston aircraft domiciled at the Pennsylvania facility.

 

Revenue associated with the leasing of aircraft and office space along with the consultation to non-owned FBO facilities increased by 19.2 percent to approximately $17,400 in the three months ended March 31, 2012 as compared to the same period in the prior year. The increases in revenue were associated with higher fees associated with the consultation to non-owned FBO facilities.

 

GROSS PROFIT

 

Total gross profit increased 5.3 percent to $1,283,861 in the three months ended March 31, 2012 as compared with the three months ended March 31, 2011. Gross profit as a percent of revenue decreased to 40.8 percent in the three months ended March 31, 2012 as compared to 43.9 percent in the same period in the prior year.

 

The decrease in gross margin is related to higher fee payments to the City of New York in connection with the Heliport and higher costs of fuel, which translated to greater revenue but at comparable gross profit on a per gallon basis.

 

OPERATING EXPENSE

 

Selling, General and Administrative

 

Total selling, general and administrative (“SG&A”) expenses were $1,210,450 in the three months ended March 31, 2012, an increase of approximately $18,000 or 1.5 percent, as compared to the same period in 2011.

 

SG&A associated with our FBO operations were approximately $1,160,000 in the three months ended March 31, 2012, an increase of approximately $50,700, or 4.6 percent, as compared to the three months ended March 31, 2011. SG&A at the Heliport increased due to higher management fees, which offset reduced operating expenses at our other facilities. SG&A associated with our FBO operations as a percentage of revenue was 36.9 percent for the three months ended March 31, 2012, as compared with 40.0 percent in the corresponding prior year period.

 

Corporate SG&A was approximately $50,600 for the three months ended March 31, 2012, representing a decrease of approximately $32,700 as compared with the corresponding prior year period. The decrease in the three months ended March 31, 2012 was driven largely by lower audit fees, a large portion of which were accrued into 2011.

 

 

 

OPERATING INCOME

 

Operating income for the three months ended March 31, 2012 was $73,411 as compared to $26,239 in the three months ended March 31, 2011. Improvements on a year-over-year basis were driven by a combination of higher levels of revenue leading to increased gross profit as described above.

 

Depreciation and Amortization

Depreciation and amortization was approximately $101,000 and $75,000 for the three months ended March 31, 2012 and 2011, respectively. The increase was largely attributed to the depreciation recorded in connection with the capital improvement program at the Heliport, which was described in our Annual Report on Form 10-K for the year ended December 31, 2011.

 

Interest Income/Expense

Interest income for the three months ended March 31, 2012 was approximately $6,900, as compared to $9,600 in three months ended March 31, 2011, with the decrease largely attributable to lower rates of interest in connection with deposited amounts. Interest expense for the three months ended March 31, 2012 was approximately $37,000, as compared to $39,000 in the same period in 2011.

 

Income Tax

Income tax expense for the three months ended March 31, 2012 was $29,000 with no comparable expense recorded during the same period in 2011.

 

Net Income (Loss) Per Share

Net income for the three months ended March 31, 2012 was $47,351 and net loss for the three months ended March 31, 2011 was $36,298. The improved performance is a result of the performance characteristics described above.

 

Basic and diluted net income per share for the three months ended March 31, 2012 was $0.00. Basic and diluted net loss per share for the three months ended March 31, 2011 was $0.00.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of March 31, 2012, we had cash and cash equivalents of $518,642 and a working capital surplus of $481,602. We generated revenue of $3,146,075 and net income of $47,351 for the three months ended March 31, 2012. For the three months ended March 31, 2012, cash flows included net cash provided by operating activities of $249,974, net cash used in investing activities of $34,944, and net cash used in financing activities of $148,345.

 

On and effective January 30, 2012, we entered into an amended and restated Loan Agreement (the “Amended and Restated Loan Agreement”) with Bank of America. The Amended and Restated Loan Agreement increased our revolving credit facility with the bank (“B of A Credit Facility”) to $1,150,000.

 

The B of A Credit Facility, with an extended balance of $650,000 as of March 31, 2012, requires interest payments based on outstanding balances at an interest rate of 30-day LIBOR plus 300 basis points, and is annually renewable at Bank of America’s option. An annual fee of 0.50% is incurred against the total availability of the B of A Credit Facility.

 

On September 21, 2011, we entered into an agreement with Bank of America whereby the bank established an equipment line of credit for up to $130,000. As of May 1, 2012, the principal amount drawn by the company against the line of credit will be converted into a term loan (the “B of A Equipment Loan”). The B of A Equipment Loan shall be amortized over five years and shall bear interest at a rate equal to the bank’s prime rate plus 1.5 percentage points.

 

On July 20, 2011, we entered into a loan agreement (the “Loan Agreement”) with Bank of America. The Loan Agreement provided us with a $318,198 term loan facility (the “B of A Term Loan”). The B of A Term Loan is amortized over 48 months at an interest rate of 4.2% and matures on July 20, 2015. A one-time origination fee of 1.0% was incurred at the commencement of the B of A Term Loan.

 

 

 

We are party to a concession agreement with the City of New York for the operation of the Heliport. Under this agreement, we must pay the greater of 18% of the first $5 million in program year gross receipts and 25% of gross receipts in excess of $5 million or minimum annual guaranteed payments that began at $1.2 million in Year 1 of the agreement, which commenced on November 1, 2008, and increase to approximately $1.7 million in Year 10 of the agreement, which expires on October 31, 2018. During the three months ended March 31, 2012, we incurred with the City of New York approximately $331,000 in concession fees, which is recorded in the cost of revenue.

 

During the three months ended March 31, 2012, we had a net increase in cash of $66,685. Our sources and uses of funds during this period were as follows:

 

Cash from Operating Activities

 

For the three months ended March 31, 2012, net cash provided by operating activities was $249,974. This amount included an increase in operating cash related to net income of $47,351 and additions for the following items: (i) depreciation and amortization, $100,905; (ii) stock-based compensation expense, $7,898; (iii) accounts receivable, $291,201; (iv) prepaid expense, $74,582; and (iv) deferred income tax expense, $26,000. The increase in cash used in operating activities in 2012 was offset by the following decreases: (i) inventories, $16,656; (ii) deposits, $4,175; (iii) accounts payable, $113,667; (iv) customer deposits, $11,845; and (v) accrued expenses, $151,620. For the three months ended March 31, 2011, net cash provided by operating activities was $591,581. This amount included a decrease in operating cash related to a net loss of $36,298 and additions for the following items: (i) depreciation and amortization, $74,616; (ii) management fee recorded through additional paid in capital, $203,331; (iii) stock-based compensation expense, $1,166; (iv) accounts receivable, $166,414; (iv) prepaid expense, $102,292; (v) accounts payable, $504,357; and (vi) loss on disposition of equipment, $8,379. The increase in cash used in operating activities in 2011 was offset by the following decreases: (i) inventories, $83,241; (ii) deposits, $1,046; (iii) customer deposits, $38,363; and (iv) accrued expenses, $310,026.

 

Cash from Investing Activities

 

For the three months ended March 31, 2012, net cash used in investing activities was $34,944 and was attributable to the purchase of property and equipment of $59,556 offset by the repayment of notes receivable of $24,612. For the three months ended March 31, 2011, net cash used in investing activities was $748,136 and was attributable to the purchase of property and equipment of $799,339 offset by (i) proceeds from the disposition of equipment, $28,250; and (ii) the repayment of notes receivable, $22,953.

 

Cash from Financing Activities

 

For the three months ended March 31, 2012, net cash used in financing activities was $148,345, consisting entirely of the repayment of notes payable. For the three months ended March 31, 2011, net cash used in financing activities was $117,662, consisting entirely of (i) the repayment of notes payable, $105,673; and (ii) purchase of common stock, retired, $11,989.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Recent Accounting Pronouncements

 

In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-08, Intangibles – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment (ASU 2011-08), to allow entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. ASU 2011-08 is effective for us in fiscal 2013 and earlier adoption is permitted. We are currently evaluating the impact of its pending adoption of ASU 2-11-08 on our consolidated 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" relating to our business. These forward-looking statements represent management's current judgment and assumptions, and can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are frequently accompanied by the use of such words as "anticipates," "plans," "believes," "expects," "projects," "intends," and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, including, but not limited to, those relating to:

 

§

our ability to secure the additional debt or equity financing, if required, to execute our business plan;

 

§

our ability to identify, negotiate and complete the acquisition of targeted operators, consistent with our business plan;

 

§

existing or new competitors consolidating operators ahead of us;

 

§

our ability to attract new personnel or retain existing personnel, which would adversely affect implementation of our overall business strategy.

 

Any one of these or other risks, uncertainties, other factors, or any inaccurate assumptions made by the Company may cause actual results to be materially different from those described herein or elsewhere by us. Undue reliance should not be replaced on any such forward-looking statements, which speak only as of the date they were made. Certain of these risks, uncertainties, and other factors are described in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2011 and in other filings we make with the Securities and Exchange Commission. Subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above and elsewhere in our reports filed with the Securities and Exchange Commission. We expressly disclaim any intent or obligation to update any forward-looking statements.

 

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 and principal financial officer (the same executive is both our principal executive officer and principal financial officer), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based upon, and as of the date of that evaluation, our President, Chief Executive Officer and principal financial officer concluded that the 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 (the “Exchange Act”), 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 and 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

 

Exhibit No.		Description of Exhibit
31.1		Rule 13a-14(a)/15d-14(a) Certification of President and Chief Executive Officer (principal executive and principal financial officer). *
32.1		Section 1350 Certification. *
10.1		Amended Loan Agreement between the Company and Bank of America, incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
10.2		Forms of Security Agreements between the Company and Bank of America, incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

* Filed herewith

 

 

 

SIGNATURES

 

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

 

 

	Saker Aviation Services, Inc.
Date: May 14, 2012	By:	/s/ Ronald J. Ricciardi
		Ronald J. Ricciardi
		President and Chief Executive Officer