SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

Form 10-Q

March 31, 2024

Index

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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, 2023.

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 subsidiary, we operate in the aviation services segment of the general aviation industry in which we serve as the operator of a heliport.

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 fixed base operator (“FBO”) and provider of aircraft maintenance and repairs services (“MRO”) at the Garden City (Kansas) Regional Airport. On October 31, 2022, the Garden City facilities were sold and we no longer maintain an FBO or MRO at the Garden City (Kansas) Regional Airport.

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

On April 28, 2023, the Company entered into a Temporary Use Authorization Agreement (the “Use Agreement”), effective as of May 1, 2023, with the City of New York acting by and through the New York City of Department of Small Business Services (“DSBS”). The Use Agreement had a term of one year. Pursuant to the terms of the Use Agreement, the Company was granted the exclusive right to operate as the fixed base operator for the Downtown Manhattan Heliport and collect all revenue derived from the Downtown Manhattan Heliport operations. In addition to terminations for an event of default, the Use Agreement could be terminated at any time by the Commissioner of the DSBS or suspended at any time by the NYCEDC. The Company was required under the Use Agreement to remit a monthly administrative fee to the NYCEDC in the amount of $5,000.

On July 13, 2023, the DSBS was granted approval by the Franchise and Concession Review Committee to enter into an Interim Concession Agreement (the “Interim Agreement”) with the Company to provide for the continued operation of the Downtown Manhattan Heliport. The Interim Agreement became effective upon registration with the Comptroller of the City of New York and commenced on December 12, 2023, the date set forth in a written notice to proceed received by the Company. The Interim Agreement provides for one (1) six-month term (the “Initial Period”), with two (2) six-month options to renew (the “Renewal Periods”). The Company is required to pay the greater of $1,036,811 or 30% of Gross Receipts during the Initial Term and the greater of $518,406 or 30% of Gross Receipts during both Renewal Periods.

On April 30, 2024, the Company received notice from DSBS of its exercise of the first of the two six-month renewal options extending the term of the Interim Concession Agreement through December 12, 2024. In addition to terminations for an event of default, the Interim Agreement can be terminated at any time by the Commissioner of the DSBS or suspended at any time by the NYCEDC. During the three months ended March 31, 2024 and 2023, we incurred approximately $425,000 and $343,000 in concession fees, respectively, which are recorded in the cost of revenue.

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 OPERATING RESULTS

Comparison of Operations for the Three Months Ended March 31, 2024 and March 31, 2023.

REVENUE

Revenue from operations increased by 1.2 percent to $1,338,367 for the three months ended March 31, 2024 as compared with corresponding prior-year period revenue of $1,322,058.

For the three months ended March 31, 2024, revenue from operations associated with the sale of jet fuel and related items decreased by 6.7 percent to approximately $315,000 as compared to approximately $338,000 in the three months ended March 31, 2023. This decrease was largely attributable to lower volume of gallons of aviation gasoline sold at our New York location in the three months ended March 31, 2024 compared to the same period in 2023.

For the three months ended March 31, 2024, revenue from operations associated with services and supply items increased by 4.1 percent to approximately $994,000 as compared to approximately $955,000 in the three months ended March 31, 2023. This increase was largely attributable to a higher demand for services at our New York location in the three months ended March 31, 2024 compared to the same period in 2023.

For the three month periods ended March 31, 2024 and 2023, all other revenue from operations was approximately $29,000.

COST OF REVENUE

Total cost of revenue from operations increased by 3.7 percent to $706,172 in the three months ended March 31, 2024, as compared to $681,007 in the three months ended March 31, 2023. The increase was largely attributable to slightly higher demand for services at our New York location.

GROSS PROFIT

Total gross profit from operations decreased by 1.4 percent to $632,195 in the three months ended March 31, 2024 as compared with the three months ended March 31, 2023. Gross margin was 47.2 percent in the three months ended March 31, 2024 as compared to 48.5 percent in the same period in the prior year.

OPERATING EXPENSE

Selling, General and Administrative

Total selling, general and administrative expenses, (“SG&A”), from operations were $431,133 in the three months ended March 31, 2024, representing a decrease of $310,648 or 41.9 percent, as compared to the same period in 2023.

SG&A from operations associated with our aviation services operation were approximately $311,000 in the three months ended March 31, 2024, representing a decrease of approximately $221,000, or 41.5 percent, as compared to the three months ended March 31, 2023. SG&A from operations associated with our aviation services operation, as a percentage of revenue, was 23.3 percent for the three months ended March 31, 2024, as compared with 40.2 percent in the corresponding prior year period. The decreased operating expenses, and expense as a percentage of revenue, were largely attributable to the termination of the Company’s management agreement with Empire Aviation on April 30, 2023.

Corporate SG&A from operations was approximately $120,000 for the three months ended March 31, 2024, representing a decrease of approximately $90,000 as compared with the corresponding prior year period. The decreased corporate expenses were primarily attributable to a decrease in services provided by various service providers.

OPERATING INCOME (LOSS)

Operating income from operations for the three months ended March 31, 2024 was $201,062 as compared to operating loss of $(100,730) in the three months ended March 31, 2023. The change on a year-over-year basis was largely attributable to the items discussed above.

Depreciation

Depreciation for the three months ended March 31, 2024 and 2023 was $3,879 and $4,216, respectively.

Interest Income

Interest income for the three months ended March 31, 2024 and 2023 was $91,228 and $0, respectively.

Income Tax

Income tax expense for the three months ended March 31, 2024 and 2023 was $105,000 and $0, respectively.

Net Income (Loss) Per Share

Net income (loss) from operations was $187,290 and $(100,730) for the three months ended March 31, 2024 and 2023, respectively. The change on a year-over-year basis was largely attributed to the items discussed above.

Basic net income (loss) per share from operations for the three months ended March 31, 2024 and 2023 was $0.19 and $(0.10), respectively. Diluted net income (loss) per share from operations for the three months ended March 31, 2024 and 2023 was $0.18 and $(0.10), respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2024, we had cash, cash equivalents, and restricted cash of $6,202,337 and a working capital surplus of $8,483,946. We generated revenue from operations of $1,338,367 and had net income of $187,290 for the three months ended March 31, 2024. For the three months ended March 31, 2024, cash flows included net income of $187,290, cash provided by operating activities of $193,497, and cash used in investing activities of $922,869.

On March 15, 2018, the Company entered into a loan agreement for a $1,000,000 revolving line of credit (the “Key Bank Revolver Note”) which, at the discretion of the Bank, provides for the Company to borrow up to $1,000,000 for working capital and general corporate purposes. On November 22, 2023, the Bank reduced the amount available under the Key Bank Revolver Note to $500,000. 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 at March 31, 2024 or 2023.

The Company has invested its excess working capital reserves in a high yield savings account and government backed securities with UBS Financial Services Inc. (“UBS”).

Cash from Operating Activities

For the three months ended March 31, 2024, net cash provided by operating activities was $193,497. This amount included an increase in operating cash related to net profit of $187,290 and additions for the following items: (i) depreciation and amortization, $3,879; (ii) stock-based compensation, $25,420; (iii) accounts receivable, trade, $55,933; (iv) prepaid expenses, $85,598; (v) customer deposits, $3,126; and (vi) accrued expenses, $99,493. These increases in operating activities were offset by (i) inventories, $4,279; and (ii) accounts payable, $262,963.

For the three months ended March 31, 2023, net cash provided by operating activities was $171,768. This amount included a decrease in operating cash related to net loss of $(100,730) and additions for the following items: (i) depreciation and amortization, $4,216; (ii) stock based compensation, $25,500; (iii) accounts receivable, trade, $42,316; (iv) inventory, $10,779; (v) prepaid expenses, $139,844; and (vi) accounts payable, $52,667. These increases in operating activities were offset by a decrease in accrued expenses of $2,824.

Cash from Investing Activities

For the three months ended March 31, 2024, cash used in investing activities was $922,869. This amount included purchases of investments of $920,699 and the purchase of property and equipment of $2,170. For the three months ended March 31, 2023, there was no cash used in, or provided by, investing activities.

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, 2023 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 (principal financial officer) and Chief Executive Officer (principal executive officer), have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15(e)) 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 and our Chief Executive 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 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 and our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

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

Item-1 – Legal Proceedings

Empire Aviation, LLC (“Empire”) and the Company were parties to a certain Management Agreement (the “Management Agreement”) effective November 1, 2008. The Management Agreement terminated on April 30, 2023. As previously disclosed in the Company’s 2022 Annual Report on Form 10-K, Note 10. Contingent Liabilities, Empire Aviation notified the Company that it believes additional fees (“Management Fees”) are due under the Management Agreement.

On March 14, 2024, the Company and Empire participated in an arbitration of this dispute. In their filing, Empire claims that Saker failed to pay Empire certain Management Fees in various months throughout the term of the Management Agreement, aggregating approximately $1,050,000 plus $250,000 in accrued interest. Of this amount, approximately $350,000 has been accrued by the Company in 2023 and is included in the Company’s Condensed Consolidated Statement of Operations in selling, general and administrative expenses and the Consolidated Balance Sheet in accounts payable. Saker has asserted numerous defenses including, but not limited to, Empire waiving its rights to such fees by the parties’ course of conduct. Further, Saker asserted counterclaims against Empire. On May 2, 2024, the Company and Empire each submitted proposed findings to the arbitrator. We anticipate that the arbitrator will issue his rulings within 60 days of these submissions. Although we believe that Saker has valid defenses and a good chance to prevail on the merits against Empire’s claims, we can give no assurance as to the same.

Item–1A – Risk Factors

For a discussion of the Company’s potential risks or uncertainties, please see: (i) “Part I—Item 1A—Risk Factors” and “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC.

Item 6 - Exhibits

* 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.