UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

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

 

For The Quarterly Period Ended June 30, 2012

 

or

 

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

 

For the transition period from _______________ to ________________

 

Commission File Number: 000-52593

 

SAKER AVIATION SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada	87-0617649
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
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 August 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

June 30, 2012

 

Index

 

		Page
PART I - FINANCIAL INFORMATION
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011	1
	Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2011 (unaudited)	2
	Statements of Cash Flows for the Six Months Ended June 30, 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	8
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	13
ITEM 4.	CONTROLS AND PROCEDURES	13
PART II - OTHER INFORMATION
ITEM 6.	EXHIBITS	14
SIGNATURES		15

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

  

		June 30, 2012				December 31, 2011
		(unaudited)
ASSETS
CURRENT ASSETS
Cash		$	803,215			$	451,957
Accounts receivable			1,556,613				1,532,673
Inventories			283,084				285,171
Note receivable – current portion, less discount			104,666				101,077
Prepaid expenses and other current assets			370,115				373,385
Deferred income taxes			—				204,000
Total current assets			3,117,693				2,948,263
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $1,159,419 and $961,189 respectively			2,424,517				2,539,198
OTHER ASSETS
Deposits			197,534				181,259
Note receivable, less current portion and discount			247,466				300,712
Intangible assets – trade names			135,000				135,000
Goodwill			2,368,284				2,368,284
Total other assets			2,948,284				2,985,255
TOTAL ASSETS		$	8,490,494			$	8,472,716
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		$	786,763			$	781,675
Customer deposits			129,830				138,756
Lines of credit			616,995				650,000
Accrued expenses			368,079				385,872
Deferred income taxes			12,000				—
Notes payable – current portion			551,101				488,846
Total current liabilities			2,464,768				2,445,149
LONG-TERM LIABILITIES
Notes payable - less current portion			1,478,144				1,809,902
Total liabilities			3,942,912				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  June 30, 2012 and December 31, 2011			33,040				33,040
Additional paid-in capital			19,866,278				19,850,134
Accumulated deficit			(15,351,736	)			(15,665,509	)
TOTAL STOCKHOLDERS’ EQUITY			4,547,582				4,217,665
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	8,490,494			$	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 June 30,								For the Six Months Ended June 30,
		2012				2011				2012				2011
REVENUE		$	4,864,253			$	4,574,759			$	8,010,329			$	7,349,977
COST OF REVENUE			2,726,187				2,465,410				4,717,183				4,162,696
GROSS PROFIT			2,138,066				2,109,349				3,293,146				3,187,281
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			1,580,908				1,583,537				2,662,577				2,635,229
OPERATING INCOME			557,158				525,812				630,569				552,052
OTHER INCOME (EXPENSE)
OTHER INCOME (EXPENSE), net			2,894				(43,647	)			35,909				(76,828	)
INTEREST INCOME			6,455				9,217				13,343				18,812
INTEREST EXPENSE			(37,085	)			(39,243	)			(74,048	)			(78,194	)
TOTAL OTHER INCOME (EXPENSE)			(27,736	)			(73,673	)			(24,796	)			(136,210	)
INCOME BEFORE INCOME TAX EXPENSE			529,422				452,139				605,773				415,842
INCOME TAX EXPENSE
CURRENT			73,000				—				76,000				—
DEFERRED			190,000				176,000				216,000				176,000
INCOME TAX EXPENSE			263,000				176,000				292,000				176,000
NET INCOME		$	266,422			$	276,139			$	313,773			$	239,842
Net income per Common Share – Basic and Diluted		$	0.01			$	0.01			$	0.01			$	0.01
Weighted Average Number of Common Shares Outstanding – Basic			33,040,422				33,040,422				33,040,422				33,047,960
Weighted Average Number of Common Shares    Outstanding – Diluted			34,436,629				34,743,200				33,436,629				34,750,738

 

See notes to condensed consolidated financial statements.

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Six months ended June 30,
		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	313,773			$	239,842
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			198,230				166,565
Management fee recorded through additional paid in capital			—				708,382
Loss on dispositions of equipment			—				2,799
Stock based compensation			16,144				3,498
Changes in operating assets and liabilities:
Accounts receivable			(23,940	)			(285,222	)
Inventories			2,087				(48,766	)
Prepaid expenses and other current assets			3,270				(46,779	)
Deposits			(16,275	)			(2,118	)
Deferred income taxes			216,000				176,000
Accounts payable			5,088				172,509
Customer deposits			(8,926	)			3,539
Accrued expenses			(17,793	)			(757,982	)
TOTAL ADJUSTMENTS			373,885				92,425
NET CASH PROVIDED BY OPERATING ACTIVITIES			687,659				332,267
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposition of equipment			—				65,247
Payment of note receivable			49,657				46,310
Purchase of property and equipment			(83,549	)			(931,196	)
NET CASH USED IN INVESTING ACTIVITIES			(33,892	)			(819,639	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable			(269,503	)			(47,139	)
Purchase of common stock, retired			—				(11,989	)
Repayment of line of credit			(33,005	)			—
NET CASH USED IN FINANCING ACTIVITIES			(302,508	)			(59,128	)
NET CHANGE IN CASH			351,258				(546,500	)
CASH – Beginning			451,957				1,541,992
CASH – Ending		$	803,215			$	995,492
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest		$	74,048			$	78,194
Income Taxes		$	76,176			$	—

  

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 June 30, 2012 and the condensed consolidated statements of operations for the three and six months ended June 30, 2012 and 2011 and the cash flows for the six months ended June 30, 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 June 30, 2012 and its results of operations for the three and six months ended June 30, 2012 and cash flows for the six months ending June 30, 2012 not misleading have been included. The results of operations for the three and six months ended June 30, 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 June 30, 2012.

 

NOTE 2 – Management’s Liquidity Plans

 

As of June 30, 2012, the Company had cash of $803,215 and had a working capital surplus of $652,925. The Company generated revenue of $8,010,329 and net income of $313,773 for the six months ended June 30, 2012.

 

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 $616,995 as of June 30, 2012, requires interest payments based on outstanding balances at an interest rate calculated using the 30-day LIBOR rate plus 300 basis points, and is annually renewable at Bank of America’s option. An annual fee of 0.50% against the total availability of the B of A Credit Facility is also incurred.

 

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. On May 1, 2012, the principal amount drawn by the company against this line of credit of $118,703 was converted into a term loan (the “B of A Equipment Loan”). The B of A Equipment Loan is being amortized over five years and bears interest at a rate equal to the bank’s prime rate plus 1.5 %.

 

On July 20, 2011, the Company entered into a loan agreement with Bank of America that provided the Company with a $318,198 term loan facility (the “B of A Term Loan”). The B of A Term Loan is being amortized over 48 months, bears interest at a 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”), which expires on October 31, 2018. 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. During the six months ended June 30, 2012, the Company incurred with the City of New York approximately $875,000 in concession fees, which are 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 the Company 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)

 

Reclassifications

Certain reclassifications were made to the prior period amounts to conform to the current period presentation. None of the reclassifications affected our net income or loss in any period.

 

Net Income Per Common Share

Net income for the three and six months ended June 30, 2012 was $266,422 and $313,773, respectively, and net income for the three and six months ended June 30, 2011 was $276,139 and $239,842, respectively. Basic net income per share applicable to common stockholders is computed based on the weighted average number of shares of the Company’s common stock outstanding during the periods presented. Diluted net income per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities, consisting of options and warrants, are excluded from the calculation of the diluted income per share when their exercise prices are 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:

 

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2012*				2011*				2012*				2011*
Weighted average common shares outstanding, basic			33,040,422				33,040,422				33,040,422				33,047,960
Common shares upon exercise of options			1,396,207				1,702,778				1,396,207				1,702,778
Weighted average common shares outstanding, diluted			34,436,629				34,743,200				34,436,629				34,750,738

 

* Outstanding stock options and warrants aggregating 1,400,000 and 4,975,000, respectively, were excluded from the compilation of diluted earnings per share as their exercise prices were greater than the average market price of the common stock for the three and six months ended June 30, 2012 and 2011, respectively.

 

Stock Based Compensation

Stock-based compensation expense for all share-based payment awards are based on the grant-date fair value. The Company recognizes these compensation costs over the requisite service period of the award, which is generally the option vesting term. For the six months ended June 30, 2012 and 2011, the Company incurred stock-based compensation of $16,144 and $3,498, 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 June 30, 2012, the unamortized fair value of such options totaled $16,340.

 

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 the year ending December 31, 2012 and earlier adoption is permitted. The Company is currently evaluating the impact of its pending adoption of ASU 2011-08 on its consolidated financial statements.

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 June 30, 2012 and December 31, 2011 is set forth in the following table:

 

		June 30, 2012				December 31, 2011
Parts inventory		$	104,574			$	105,162
Fuel inventory			167,134				167,540
Other inventory			11,376				12,469
Total inventory		$	283,084			$	285,171

 

Included in inventories are amounts held for third parties of $147,823 and $173,023 as of June 30, 2012 and December 31, 2011, respectively, with an offsetting liability included as part of accrued expenses.

 

NOTE 5 - Stockholders’ Equity

 

Stock Options

Details of all options outstanding are presented in the table below:

 

		Number of Options				Weighted Average Exercise Price
Balance, January 1, 2012			1,675,000			$	0.14
Granted			100,000				0.05
Exercised			—				—
Forfeited			—				—
Balance, June 30, 2012			1,775,000			$	0.14
Exercisable at June 30, 2012			775,000			$	0.14

 

On June 1, 2012, the Company granted an employee a stock option under the Plan to purchase 100,000 shares of common stock at $0.05 per share, the closing price of the Company’s common stock on May 31, 2012. Fifty-thousand shares subject to such option vest on December 31, 2012 and the remaining 50,000 shares vest on December 31, 2013. This option is valued at $5,000 and is being amortized over the vesting period.

 

NOTE 6 – 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 six months ended June 30, 2012 and 2011, the Company was billed approximately $0 for legal services. At June 30, 2012 and December 31, 2011, the Company has recorded in accounts payable an obligation for legal fees to such firm of approximately $250 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 $624,000 has been paid through June 30, 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.

 

 

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 OTCQB market place system under the symbol “SKAS”. 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 aircraft storage for general aviation, commercial and military aircraft; aircraft maintenance; as well as 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 and Six Months Ended June 30, 2012 and June 30, 2011.

 

 

REVENUE

 

Revenue increased by 6.3 percent to $4,864,253 for the three months ended June 30, 2012 as compared with corresponding prior-year period revenue of $4,574,759. For the six months ended June 30, 2012, revenue increased by 9.0% to $8,010,329 as compared with revenue of $7,349,977 in the same period in the prior year.

 

For the three months ended June 30, 2012, revenue associated with the sale of jet fuel, aviation gasoline and related items increased by 15.5 percent to approximately $2,600,000 as compared to approximately $2,200,000 in the three months ended June 30, 2011. The increase 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.

 

For the three months ended June 30, 2012, revenue associated with services and supply items decreased by 1.1 percent to approximately $2,200,000 as compared to approximately $2,300,000 in the three months ended June 30, 2011. The decrease was in large part impacted by a decrease in maintenance activity and revenue in the three months ended June 30, 2012 as compared to the same period in the prior year.

 

For the three months ended June 30, 2012, all other revenue decreased by 39.1 percent to approximately $49,000 as compared to approximately $81,000 in the three months ended June 30, 2011.

 

For the six months ended June 30, 2012, revenue associated with the sale of jet fuel, aviation gasoline and related items increased by 16.7 percent to approximately $4,400,000 as compared to approximately $3,750,000 in the six months ended June 30, 2011. The increase was related to a combination of higher volume along with higher average fuel prices as compared with the prior year.

 

For the six months ended June 30, 2012, revenue associated with services and supply items increased by 1.4 percent to approximately $3,535,000 as compared to approximately $3,486,000 in the six months ended June 30, 2011.

 

For the six months ended June 30, 2012, all other revenue decreased by 12.4 percent to approximately $96,000 as compared to approximately $110,000 in the six months ended June 30, 2011.

 

GROSS PROFIT

 

Total gross profit increased 1.4 percent to $2,138,066 in the three months ended June 30, 2012 as compared with the three months ended June 30, 2011. Gross profit as a percent of revenue decreased to 44.0 percent in the three months ended June 30, 2012 as compared to 46.1 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.

 

Total gross profit increased 3.3 percent to $3,293,146 in the six months ended June 30, 2012 as compared with the six months ended June 30, 2011. Gross profit as a percent of revenue decreased to 41.1 percent in the six months ended June 30, 2012 as compared to 43.4 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 $1,580,908 in the three months ended June 30, 2012, a decrease of approximately $2,600 or 0.2 percent, as compared to the same period in 2011.

 

 

SG&A associated with our FBO operations were approximately $1,500,000 in the three months ended June 30, 2012, a decrease of approximately $39,000, or 2.6 percent, as compared to the three months ended June 30, 2011. SG&A associated with our FBO operations as a percentage of revenue was 30.8 percent for the three months ended June 30, 2012, as compared with 33.6 percent in the corresponding prior year period.

 

Corporate SG&A was approximately $84,000 for the three months ended June 30, 2012, representing an increase of approximately $37,000 as compared with the corresponding prior year period. The increase was driven largely by fees associated with our audit being recorded in the three months ended June 30, 2012 while comparable expenses were recorded in the three months ended March 31, 2011.

 

Total SG&A was $2,662,577 in the six months ended June 30, 2012, an increase of approximately $27,000 or 1.0 percent, as compared to the same period in 2011.

 

SG&A associated with our FBO operations were approximately $2,500,000 in the six months ended June 30, 2012, an increase of approximately $27,000, or 1.1 percent, as compared to the six months ended June 30, 2011. SG&A associated with our FBO operations as a percentage of revenue was 31.6 percent for the six months ended June 30, 2012, as compared with 34.1 percent in the corresponding prior year period.

 

Corporate SG&A was approximately $131,000 for the six months ended June 30, 2012 and 2011.

 

OPERATING INCOME

 

Operating income for the three and six months ended June 30, 2012 was $557,158 and $630,569, respectively, as compared to $525,812 and $552,052 in the three and six months ended June 30, 2011, respectively. Improvements on a year-over-year basis were driven by a combination of higher levels of revenue leading to increased gross profit, which offset slightly higher SG&A, as described above.

 

Depreciation and Amortization

Depreciation and amortization was approximately $198,000 and $167,000 for the six months ended June 30, 2012 and 2011, respectively. The increase was largely attributed to the depreciation recorded in connection with the capital improvement program at the Heliport, as described in our Annual Report on Form 10-K for the year ended December 31, 2011.

 

Interest Income/Expense

Interest income for the three and six months ended June 30, 2012 was $6,455 and $13,343, respectively, as compared to $9,217 and $18,812 in three and six months ended June 30, 2011, respectively, with the decreases largely attributable to lesser deposited amounts. Interest expense for the three and six months ended June 30, 2012 was $37,085 and $74,048, respectively, as compared to $39,243 and $78,194 in the same periods in 2011.

 

Income Tax

Income tax expense for the three and six months ended June 30, 2012 was $263,000 and $292,000, respectively, as compared to $176,000 for the three and six months ended June 30, 2011. Increases for both periods were a result of higher pre-tax income due to the factors described above.

 

Net Income Per Share

Net income for the three and six months ended June 30, 2012 was $266,422 and $313,773, respectively. Net income for the three and six months ended June 30, 2011 was $276,139 and $239,842, respectively.

 

Basic and diluted net income per share for the three and six months ended June 30, 2012 was $0.01. Basic and diluted net income per share for the three and six months ended June 30, 2011 was $0.01.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of June 30, 2012, we had cash of $803,215 and had a working capital surplus of $652,925. We generated revenue of $8,010,329 and net income of $313,773 for the six months ended June 30, 2012.

 

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 (“B of A Credit Facility”) to $1,150,000.

 

The B of A Credit Facility, with an extended balance of $616,995 as of June 30, 2012, requires interest payments based on outstanding balances at an interest rate calculated using the 30-day LIBOR rate plus 300 basis points, and is annually renewable at Bank of America’s option. An annual fee of 0.50% against the total availability of the B of A Credit Facility is also incurred.

 

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. On May 1, 2012, the principal amount drawn by the company against this line of credit of $118,703 was converted into a term loan (the “B of A Equipment Loan”). The B of A Equipment Loan is being amortized over five years and bears interest at a rate equal to the bank’s prime rate plus 1.5 %.

 

On July 20, 2011, we entered into a loan agreement with Bank of America that provided us with a $318,198 term loan facility (the “B of A Term Loan”). The B of A Term Loan is being amortized over 48 months, bears interest at a 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 Downtown Manhattan Heliport (the “Heliport”), which expires on October 31, 2018. 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. During the six months ended June 30, 2012, we incurred with the City of New York approximately $875,000 in concession fees, which are recorded in the cost of revenue.

 

During the six months ended June 30, 2012, we had a net increase in cash of $351,258. Our sources and uses of funds during this period were as follows:

 

Cash from Operating Activities

 

For the six months ended June 30, 2012, net cash provided by operating activities was $687,659. This amount included an increase in operating cash related to net income of $313,773 and additions for the following items: (i) depreciation and amortization, $198,230; (ii) stock-based compensation expense, $16,144; (iii) accounts payable, $5,088; (iv) prepaid expense, $3,270; (iv) inventory, $2,087; and (vii) deferred income taxes, $216,000. The increase in cash used in operating activities in 2012 was offset by the following decreases: (i) accounts receivable, $23,940; (ii) deposits, $16,275; (iii) customer deposits, $8,926; (iv) and accrued expenses, $17,793. For the six months ended June 30, 2011 net cash provided by operating activities was $332,267. This amount included an increase in operating cash related to net income of $239,842 and additions for the following items: (i) depreciation and amortization, $166,565; (ii) management fees recorded through additional paid in capital, $708,382; (iii) stock-based compensation expense, $3,498; (iv) accounts payable, $172,509, (v) customer deposits, $3,539; (vi) deferred income taxes, $176,000; and (vii) loss on disposition of equipment, $2,799. The increase in cash used in operating activities in 2011 was offset by the following decreases: (i) accounts receivable, $285,222, (ii) inventories, $48,766; (iii) prepaid expenses, $46,779; (iv) deposits, $2,118; and (v) accrued expenses, $757,982.

 

 

Cash from Investing Activities

 

For the six months ended June 30, 2012, net cash used in investing activities was $33,892 and was attributable to the purchase of property and equipment of $83,549 offset by the repayment of notes receivable of $49,657. For the six months ended June 30, 2011, net cash used in investing activities was $819,639 and was attributable to the purchase of property and equipment of $931,196 offset by (i) the payment of notes receivable of $46,310; and (ii) proceeds from the disposition of equipment of $65,247.

 

Cash from Financing Activities

 

For the six months ended June 30, 2012, net cash used in financing activities was $302,508, consisting of the repayment of notes payable, $269,503, and the repayment of line of credit, $33,005. For the six months ended June 30, 2011, net cash used in financing activities was $59,128, consisting of the repayment of notes payable of $47,139 and purchase of common stock, retired, of $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 the year ended December 31, 2012 and earlier adoption is permitted. We are currently evaluating the impact of its pending adoption of ASU 2011-08 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 Quarterly Report on Form 10-Q. Based upon, and as of the date of that evaluation, our President, Chief Executive Officer and principal financial officer concluded that 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, 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.

 

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. *

 

* Filed herewith

 

** 101.INS	XBRL Instance Document
** 101.SCH	XBRL Taxonomy Extension Schema Document
** 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
** 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
** 101.LAB	XBRL Taxonomy Extension Label Linkbase Document
** 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

 

** Pursuant to Rule 406T of Regulation S-T, the information in this exhibit shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement, prospectus or other document filed under the Securities Act of 1933, or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filings.

 

 

SIGNATURES

 

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

 

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