Forward-looking Statements
This Annual Report on Form 10-K contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Forward-looking statements can be identified by
words such as "anticipates," "intends," "plans," "seeks," "believes,"
"estimates," "expects" and similar references to future periods. These
statements may include projections of revenue, provisions for doubtful accounts,
income or loss, capital expenditures, repayment of debt, other financial items,
statements regarding our plans and objectives for future operations,
acquisitions, divestitures and other transactions, statements of future economic
performance, statements of the assumptions underlying or relating to any of the
foregoing statements and statements other than statements of historical fact.
Forward-looking statements are based on our current expectations and assumptions
regarding our business, the economy and other future conditions. Because
forward-looking statements relate to the future, they are subject to inherent
uncertainties, risks and changes in circumstances that are difficult to
predict. Our actual results may differ materially from those contemplated by
such forward-looking statements. We therefore caution you against relying on any
of these forward-looking statements because they are neither statements of
historical fact nor guarantees or assurances of future performance. Important
factors that could cause actual results to differ materially from those in the
forward-looking statements include our services and pricing, the impact of the
COVID-19 pandemic, general economic conditions, our ability to raise additional
capital, our ability to obtain the various approvals and permits for the
acquisition and operation of FBOs and the other risk factors contained in Item
1A of this report.
Any forward-looking statement made by us in this report speaks only as of the
date on which it is made. Factors or events that could cause our actual results
to differ may emerge from time to time and it is not possible for us to predict
all of them. We undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future developments or
otherwise, except as may be required by law.
11
--------------------------------------------------------------------------------
Overview
Saker Aviation Services, Inc. is a Nevada corporation. Our common stock, $0.03
par value per share (the "common stock"), is quoted on the OTCQB Marketplace
("OTCQB") under the symbol "SKAS". Through our subsidiaries, we operate in the
aviation services segment of the general aviation industry, in which we serve as
the operator of a heliport, a fixed base operation ("FBO"), and as a provider of
aircraft maintenance and repair services ("MRO"). FBOs provide ground-based
services, such as fueling and aircraft storage for general aviation, commercial
and military aircraft, and other miscellaneous services.
We were formed on January 17, 2003 as a proprietorship and were incorporated in
Arizona on January 2, 2004. We became a public company as a result of a reverse
merger transaction on August 20, 2004 with Shadows Bend Development, Inc., an
inactive public Nevada corporation, and subsequently changed our name to FBO
Air, Inc. On December 12, 2006, we changed our name to FirstFlight, Inc. On
September 2, 2009, we changed our name to Saker Aviation Services, Inc.
Our business activities are carried out as the operator of the Downtown
Manhattan (New York) Heliport and as an FBO and MRO at the Garden City (Kansas)
Regional Airport.
The Garden City facility became part of our company as a result of our
acquisition of the FBO assets of Central Plains Aviation, Inc. in March 2005 and
of Aircraft Services, Inc. in October 2016.
Our business activities at the Downtown Manhattan (New York) Heliport facility
(the "Heliport") commenced in November 2008 when we were awarded the Concession
Agreement by the City of New York to operate the Heliport, which we assigned to
our subsidiary, FirstFlight Heliports, LLC d/b/a Saker Aviation Services
("FFH").
Throughout 2020 and 2021, the COVID-19 pandemic impacted the global and United
States economies. Federal, state, and local governments implemented certain
travel restrictions, "stay-at-home" orders, and social distancing initiatives
which negatively impacted our operations and those of our customers. As a result
of the COVID-19 pandemic, on March 17, 2020, all sightseeing tour operations at
the Downtown Manhattan Heliport ceased due to a drop in demand. On July 20,
2020, New York City started Phase 4 of the city's reopening. Sightseeing tour
operators at the heliport restarted operations under this phase. For the period
July 20, 2020 through the date of this report, sightseeing tour operators have
experienced much lower demand. To date, the COVID-19 pandemic has had a less
substantial impact on our operations at our Kansas FBO and MRO.
While we expect the COVID-19 pandemic to continue to adversely impact our
business and operations, the full extent of the impact of the COVID-19 pandemic
on our operational and financial performance will depend on future developments,
including the duration and spread of the COVID-19 pandemic and related travel
advisories and restrictions and the impact of the COVID-19 pandemic on overall
demand for air travel.
Our long-term strategy is to increase our sales through growth within our
aviation services operations. To do so, we may expand our geographic reach and
product offering through strategic acquisitions and improved market penetration
within the markets we serve. We expect that any future acquisitions or product
offerings would be to complement and/or augment our current aviation services
operations.
If we are able to grow our business as planned, we anticipate that our larger
size would provide us with greater buying power from suppliers, resulting in
lower costs. We expect that lower costs would allow for a more aggressive
pricing policy against some competition. More importantly, we believe that the
higher level of customer service offered in our facilities will allow us to draw
additional aircraft to our facilities and thus allow us to compete against other
FBOs of varying sizes.
12
--------------------------------------------------------------------------------
Summary Financial Information
The summary financial data set forth below is derived from and should be read in
conjunction with the consolidated financial statements, including the notes
thereto, filed as part of this Annual Report on Form 10-K.
Year Ended Year Ended
December 31, December 31,
Consolidated Statement of Operations Data: 2021 2020
(in thousands, except for share and per share data)
Revenue
$ 5,383 $ 3,506
Operating income (loss), before income tax expense $ 928 $ (2,180 )
Income tax expense (benefit)
$ 202 $ (431 )
Net Income (Loss) $ 726 $ (1,749 )
Net income (loss) per share - basic and diluted $ 0.71 $ (1.71 )
Weighted average number of shares - basic 1,023,709 1,024,907
Weighted average number of shares - diluted 1,026,729 1,024,907
December 31, December 31,
Balance Sheet Data: (in thousands) 2021 2020
Working capital surplus $ 3,442 $ 2,828
Total assets $ 5,602 $ 4,995
Total liabilities $ 1,138 $ 1,087
Stockholders' equity $ 4,464 $ 3,908
Total liabilities and Stockholders' equity $ 5,602 $ 4,995
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Comparison of Results for the Years Ended December 31, 2021 and December 31,
2020.
REVENUE
Revenue increased by 53.5 percent to $5,382,565 for the twelve months ended
December 31, 2021 as compared with corresponding prior-year period revenue of
$3,506,268.
For the twelve months ended December 31, 2021, revenue associated with services
and supply items increased by 44.9 percent to approximately $2,200,000 as
compared to approximately $1,500,000 in the twelve months ended December 31,
2020. This increase was attributable to increased demand for services at our New
York location in 2021 compared to the prior year.
For the twelve months ended December 31, 2021, revenue associated with the sale
of jet fuel, aviation gasoline and related items increased by 47.6 percent to
approximately $2,900,000 as compared to approximately $1,950,000 in the twelve
months ended December 31, 2020. This increase was attributable to the higher
volume of gallons of aviation gasoline sold at both our New York and Kansas
locations in 2021 compared to the prior year.
For the twelve months ended December 31, 2021, all other revenue increased by
473.2 percent to approximately $334,000 as compared to approximately $58,000 in
the twelve months ended December 31, 2020. This increase was attributable to an
increase in non-aeronautical revenue generated at our New York location compared
to last year.
13
--------------------------------------------------------------------------------
GROSS PROFIT
Total gross profit increased 160.3 percent to $2,553,625 in the twelve months
ended December 31, 2021 as compared to $980,928 in the twelve months ended
December 31, 2020. Gross margin was 47.4 percent for the twelve months ended
December 31, 2021 as compared to 28.0 percent for the same period in 2020. Gross
profit for the year ended December 31, 2021 was positively impacted by Employee
Retention Tax Credits ("ERTC") due the Company under the CARES Act. These
credits were recorded in the second and third quarters of 2021 and offset
operating payroll costs by approximately $69,000. The increase in gross profit
is also related to higher levels of activity at both our New York and Kansas
locations in 2021 as compared to the prior year. The increase in gross margin is
related to higher levels of revenue from services and supplies, which generally
carry a higher overall gross margin, in 2021 as compared to the prior year.
OPERATING EXPENSE
Selling, General and Administrative
Total selling, general and administrative expenses ("SG&A") were $1,909,132 in
the twelve months ended December 31, 2021, a decrease of $563,071, or 22.8
percent, as compared to the same period in 2020.
SG&A associated with our FBO operations were approximately $1,438,000 in the
twelve months ended December 31, 2021, a decrease of approximately $427,000, or
22.9 percent, as compared to the twelve months ended December 31, 2020. SG&A
associated with our FBO operations, as a percentage of revenue, was 26.7 percent
for the twelve months ended December 31, 2021, as compared with 53.2 percent in
the corresponding prior year period. The reduction in SG&A was primarily
attributable to a reduction in expenses in 2020 due to the COVID-19 pandemic as
compared to the same period in 2021 as well as ERTC due the Company under the
CARES Act. These credits of approximately $154,000 offset SG&A payroll expenses
in 2021.
Corporate SG&A was approximately $471,000 for the twelve months ended December
31, 2021, representing a decrease of approximately $136,000 as compared with the
corresponding prior year period. The decrease in Corporate SG&A on a
year-over-year basis was largely attributable to a non-recurring write-off of
miscellaneous receivables in the second quarter of 2020.
OPERATING INCOME (LOSS)
Operating income for the year ended December 31, 2021 was $644,494 as compared
to operating loss of $(1,491,276) in the year ended December 31, 2020. The
increase in operating income on a year-over-year basis was driven by the factors
described above.
Depreciation and Amortization
Depreciation and amortization was approximately $129,000 and $119,000 for the
twelve months ended December 31, 2021 and 2020, respectively.
Interest Income and Expense
Interest income was $3,780 and $18,109 for the twelve months ended December 31,
2021 and 2020, respectively. Interest expense for the year ended December 31,
2021 was $24,823, as compared to $24,025 in the same period in 2020. The
decrease in interest income on a year-over-year basis was due primarily to
interest income recorded in 2020 on a receivable that was no longer recorded in
2021
Impairment of Goodwill and Other Intangibles
We had $750,000 of goodwill at December 31, 2021 and 2020.
Income Tax Expense (Benefit)
Income tax expense for the twelve months ended December 31, 2021 was
approximately $202,000, as compared to income tax benefit of $(431,000) in the
same period in 2020. The income tax expense is attributable to net income in the
twelve months ended December 31, 2021 as compared to a net loss in the same
period in 2020.
14
--------------------------------------------------------------------------------
Net Income (Loss) Per Share
Net income for the twelve months ended December 31, 2021 was $726,184 as
compared to net loss of $(1,748,928) in the twelve months ended December 31,
2020.
Basic and diluted net income per share for the twelve months ended December 31,
2021 was $0.71 as compared to basic net loss per share of ($1.71) in 2020.
Liquidity and Capital Resources
As of December 31, 2021, we had cash and restricted cash of $2,446,906 and a
working capital surplus of $3,442,031. We generated revenue of $5,382,565 and
had net income of $726,184 for the year ended December 31, 2021. For the year
ended December 31, 2021, cash flows included net cash provided by operating
activities of $813,751, net cash used in investing activities of $81,544, and
net cash used in financing activities of $184,383.
As disclosed in a Current Report on Form 8-K filed on March 21, 2018 with the
Securities and Exchange Commission (the "SEC"), on March 15, 2018 the Company
entered into a loan agreement (the "Loan Agreement") with Key Bank National
Association (the "Bank"). The Loan Agreement contains three components: (i) a
$2,500,000 acquisition line of credit (the "Key Bank Acquisition Note"); (ii) a
$1,000,000 revolving line of credit (the "Key Bank Revolver Note"); and (iii) a
$338,481 term loan (the "Key Bank Term Note"). There are currently no amounts
outstanding under the Key Bank Term Note.
Proceeds of the Key Bank Acquisition Note were to be disbursed pursuant to a
multiple draw demand note dated as of the agreement date, where the Company
could, at the discretion of the Bank, borrow up to an aggregate amount of
$2,500,000, to be used for the Company's acquisition of one or more business
entities. Until the Change of Terms Agreement, as defined below, the Company was
required to make consecutive monthly payments of interest, calculated at a rate
per annum equal to one-day LIBOR (adjusted daily) plus 2.75%, on any outstanding
principal under the Key Bank Acquisition Note from the date of its issuance
through September 15, 2018 (the "Conversion Date").
At any time through and including the Conversion Date, at the Bank's discretion,
the Company had the opportunity to request that any loan made under the Key Bank
Acquisition Note be converted into a term loan to be repaid in full, including
accrued interest, by consecutive monthly payments over a 48 month amortization
period beginning after the Conversion Date. For any loan that was not converted
into a term loan on or before the Conversion Date, the Company would have been
required to begin making monthly payments of principal and interest after the
Conversion Date, over a 48 month amortization period, after which the remaining
unpaid principal and accrued interest would have become due and payable. All
loans under the Key Bank Acquisition Note would have, after the Conversion Date,
accrued interest at a rate per annum equal to the Bank's four year cost of funds
rate plus 2.5%. As of the Conversion Date, there were no amounts due under the
Key Bank Acquisition Note and no amounts had been converted to a term loan.
On October 11, 2018, and as subsequently amended, the Company entered into a new
loan agreement with the Bank (as so amended, the "Change of Terms Agreement")
which modified the original terms of the Key Bank Acquisition Note. Under the
Change of Terms Agreement, the Company could have continued to, at the
discretion of the Bank, borrow up to an aggregate amount of $2,500,000 through
September 1, 2021 (the "Maturity Date"), to be used for the Company's
acquisition of one or more business entities. The Change of Terms Agreement
required the Company to make consecutive monthly payments of interest on any
outstanding principal calculated at a rate per annum equal to 4.25% and was
secured by substantially all of the Company's assets. The entire principal
balance, plus all accrued interest, was due in full on the Maturity Date. The
Bank notified the Company of its decision to discontinue the Key Bank
Acquisition Note, effective June 30, 2021. There are no amounts due under the
Changes of Terms Agreement.
The Key Bank Revolver Note, at the discretion of the Bank, provides for the
Company to borrow up to $1,000,000 for working capital and general corporate
purposes. This revolving line of credit is a demand note with no stated maturity
date. Borrowings under the Key Bank Revolver Note will bear interest at a rate
per annum equal to one-day LIBOR (adjusted daily) plus 2.75%. The Company is
required to make monthly payments of interest on any outstanding principal under
the Key Bank Revolver Note and is required to pay the entire balance, including
principal and all accrued and unpaid interest and fees, upon demand by the Bank.
Any proceeds from the Key Bank Revolver Note would be secured by substantially
all of the Company's assets. As of December 31, 2021, there were no amounts due
under the Key Bank Revolver Note.
15
--------------------------------------------------------------------------------
On August 14, 2020, the Company was granted a loan from the Bank (the "Loan") in
the amount of $304,833, pursuant to the Paycheck Protection Program (PPP) under
Division, Title I of the CARES Act, which was enacted March 27, 2020. The Loan,
which was in the form of a note dated August 14, 2020, was to mature in August
2025 and bore interest at a rate of 1% per annum and was payable in monthly
installments commencing on, or before, October 31, 2021 if not forgiven and
legally released. At December 31, 2020, in accordance with FASB ASC 470, Debt,
and ASC 405-20, Liabilities - Extinguishment of Liabilities, the Company
recorded the cash inflow from the Loan as a liability, and cash flows from
financing, pending legal release from the obligation by the U.S. Small Business
Administration ("S.B.A."). The Company used the Loan proceeds for eligible
expenses during the covered period and the Loan was forgiven and legally
released by the S.B.A. in full in the second quarter of 2021. The Company
recorded the forgiveness of the Loan as a gain on extinguishment of debt - PPP
Loan.
The Company is party to a Concession Agreement, dated as of November 1, 2008,
with the City of New York for the operation of the Downtown Manhattan Heliport
(the "Concession Agreement"). Pursuant to the terms of the Concession Agreement,
the Company must pay the greater of 18% of the first $5,000,000 in any program
year based on cash collected ("Gross Receipts") and 25% of Gross Receipts in
excess of $5,000,000, or minimum annual guaranteed payments.
As disclosed in a Current Report on Form 8-K filed with the SEC on February 5,
2016, the Company and the New York City Economic Development Corporation (the
"NYCEDC") announced new measures to reduce helicopter noise and impacts across
New York City (the "Air Tour Agreement"). Under the Air Tour Agreement, the
Company has not been allowed to permit its tenant operators to conduct tourist
flights from the Downtown Manhattan Heliport on Sundays since April 1, 2016. The
Company was also required to ensure that its tenant operators reduce the total
allowable number of tourist flights from 2015 levels by 20 percent beginning
June 1, 2016, by 40 percent beginning October 1, 2016 and by 50 percent
beginning January 1, 2017. The Air Tour Agreement also provided for the minimum
annual guarantee payments the Company is required to pay to the City of New York
under the Concession Agreement be reduced by 50%, effective January 1, 2017.
Additionally, since June 1, 2016, the Company has been required to provide
monthly written reports to the NYCEDC and the New York City Council detailing
the number of tourist flights conducted out of the Downtown Manhattan Heliport
compared to 2015 levels, as well as information on any tour flight that flies
over land and/or strays from agreed upon routes. The Air Tour Agreement also
extended the Concession Agreement for 30 months, resulting in a new expiration
date of April 30, 2021 and gave the City of New York two one-year options to
extend the term of the Concession Agreement. The term of the Concession
Agreement was subsequently extended by the City through April 30, 2023 by the
City's exercise of both their two one-year option renewals.
The reductions under the Air Tour Agreement have negatively impacted the
Company's business and financial results as well as those of its management
company at the Heliport, Empire Aviation which, as previously disclosed, is
owned by two children and a grandchild of a former officer and director of the
Company. The Company incurred management fees with Empire Aviation of
approximately $0 and $144,000 during the years ended December 31, 2021 and 2020,
respectively, which is recorded in selling, general and administrative expenses.
Empire Aviation has notified the Company they believe additional fees are due
under their management agreement with the New York Heliport for both 2021 and
2020. If the Company is unable to come to an agreement with Empire Aviation
regarding amounts due under the agreement, the Company could incur additional
expense (See Note 15. Contingent Liabilities). The Company and Empire Aviation
had historically contributed to the Helicopter Tourism and Jobs Council
("HTJC"), an association that lobbies on behalf of the helicopter air tour
industry, and which had engaged in discussions with the Mayor's office. The
Company has suspended its contributions to HTJC in light of the pandemic. The
Company's former officer and director was also an active participant with HTJC,
which is managed by the former officer and director's grandson.
During the program year that began on May 1, 2020, the City of New York agreed,
in recognition of the pandemic's impact, that the Company could defer payment of
minimum guaranteed payments. In April 2021, the City of New York waived the
deferred fees through December 31, 2020. In May 2021, the City of New York
waived the deferred fees through April 30, 2021 which coincided with the
original expiration of the Concession Agreement as amended by the Air Tour
Agreement. The Company has worked with the City of New York to address fees to
be paid by the Company for the period May 1, 2021 through December 31, 2021.
Concession fees in this Form 10-K have been accounted for based on the months
abated in 2021 and the City of New York's acceptance of 18% of monthly Gross
Receipts in excess of $100,000 for the period May 2021 through December 2021.
Due to the continued reduced activity at the Heliport, the Company is actively
working with the City of New York to address fees to be paid to the City of New
York in 2022 and through the remainder of the Air Tour Agreement. During the
years ended December 31, 2021 and 2020, we incurred approximately $192,000 and
$103,000 in concession fees, respectively, which are recorded in the cost of
revenue.
16
--------------------------------------------------------------------------------
On April 20, 2018, the Company's Kansas subsidiary entered into a purchase lease
with Commerce Bank for a refueling truck (the "Truck Lease"). The Truck Lease
commenced on May 1, 2018 and continues for 60 months with a monthly payment of
$2,568 and an interest rate of LIBOR plus 416 basis points. At the end of the
Truck Lease, the Company's subsidiary may purchase the vehicle for $1.00.
On January 15, 2019, the Company was issued an unsecured note by one of its
customers at the Heliport. The note schedules payments of approximately $276,000
in receivables payable by such customer, had a maturity date of October 31,
2019, as amended, and carries a 7.5% rate of interest. The note payments were to
be made in six monthly installments beginning May 31, 2019. The customer's
payments on the note have not met the installment plan and the Company was
working on changes to the note when the customer filed for Chapter 11 Bankruptcy
in October 2019. In February 2021, the bankruptcy court allowed the customer to
convert from a Chapter 11 Bankruptcy to a Chapter 7 Liquidation. Under the
Chapter 7 Liquidation, the note will now be treated as a general unsecured claim
as opposed to a prioritized payment under the Chapter 11 Bankruptcy to cure the
permit default. This change has substantially diminished the Company's
expectation to collect amounts due under the note. Therefore, the Company deemed
unpaid principal and accrued interest of approximately $205,000 at December 31,
2020 as uncollectable. The $205,000 was written off to bad debt expense in the
fourth quarter of 2020.
As disclosed in a Current Report on Form 8-K filed with the SEC on July 6, 2015,
the Company entered into a stock purchase agreement, dated June 30, 2015, by and
between the Company and Warren A. Peck, pursuant to which Mr. Peck purchased all
of the capital stock of the Company's wholly-owned subsidiary, Phoenix Rising
Aviation, Inc. The details of the agreement are described in such Current Report
as well as in the Company's Annual Report on Form 10-K for the year ended
December 31, 2015, which was filed with the SEC on April 11, 2016. The Company
received $100,000 due under this agreement in September 2017 and an additional
payment of $100,000 in September 2018. In 2019, the Company accepted the title
to a Falcon 10 aircraft owned by Mr. Peck as satisfaction in full of the
remainder of the $270,000 stock purchase price. The Company intended to sell the
aircraft and classified it as "Held For Sale" on the Company's consolidated
balance sheet at December 31, 2019. The Company has been unable to find a buyer
due to a depressed market as well as a drop in demand for this type of aircraft.
Without a market in which to sell the aircraft, the Company recorded an
impairment charge in the quarter ended June 30, 2020 for the full carrying
amount of the aircraft. The Company does not believe the aircraft has any value
and, in December 2020, filed an application with the FAA Aircraft Registry to
cancel the aircraft's registry.
On May 1, 2021, the Company's Kansas subsidiary executed a promissory note for
$76,000 with Avfuel Corporation ("Avfuel") for the purchase of a Jet-A refueling
truck (the "Truck Note"). The Truck Note requires six annual payments of
$13,432.56 commencing April 30, 2022 with the entire balance of unpaid principal
and interest due on, or before, April 30, 2028. Interest accrues at prime plus
3% on the outstanding principal amount. The Company is required to make
prepayments against the Truck Note at the rate of $0.018 per gallon of fuel
purchased under a fuel supply agreement between the Company and Avfuel.
As described throughout this Annual Report on Form 10-K, on March 17, 2020, all
sightseeing tour operations at the Downtown Manhattan Heliport ceased as a
result of the COVID-19 pandemic. On July 20, 2020, New York City began Phase 4
of the city's reopening. Sightseeing tours resumed under this phase. Sightseeing
tour operators have experienced low demand and minimal activity since July 20,
2020, but sightseeing tour operators have seen an uptick in demand in the second
quarter of 2021 through the date of this report. To mitigate this loss of
revenue, we may need additional financing to continue operations through the
issuance of equity or debt and any such financing will be dependent on general
market conditions, which itself is subject to the effects of the COVID-19
pandemic. Although we have access to the Key Bank Revolver Note described above,
we can make no assurance that that the Key Bank Revolver Note will be sufficient
to fund our operations. Additionally, certain restrictions in the Key Bank
Revolver Note may prohibit us from obtaining more attractive financing.
17
--------------------------------------------------------------------------------
During the twelve months ended December 31, 2021, we had a net increase in cash
of $547,824. Our sources and uses of funds during this period were as follows:
Cash from Operating Activities
For the year ended December 31, 2021, net cash provided by operating activities
was $813,751. This amount included an increase in operating cash related to net
profit of $726,184 and additions for the following items: (i) depreciation,
$128,990; (ii) stock based compensation, $34,392; (iii) extinguishment of debt,
$304,833; (iv)income tax receivable, $261,922; (v) customer deposits, $2,512;
(vi) accounts payable, $150,200; and (vii) accrued expenses, $185,266. The
increase in cash provided by operating activities in 2021 was offset by the
following items: (i) accounts receivable, trade, $43,308; (ii) inventories,
$79,485; and (iii) prepaid expenses, $248,089. For the year ended December 31,
2020, net cash used in operating activities was $1,590,447. This amount included
a decrease in operating cash related to net loss of $1,748,928 and additions for
the following items: (i) depreciation, $119,039; (ii) bad debt, $396,000; (iii)
impairment charge, $270,000; (iv) impairment of notes receivable, $205,730; (v)
stock-based compensation expense, $74,659; (vi) deferred income taxes, $476,000;
(vii) accounts receivable, trade, $19,944; and (viii) inventories, $17,585. The
decrease in cash used in operating activities in 2020 was offset by the
following items: (i) prepaid expenses and income tax receivable, $935,387; (ii)
customer deposits, $49,517; (iii) accounts payable, $335,322; and (iv) accrued
expenses, $100,250.
Cash from Investing Activities
For the year ended December 31, 2021, net cash used in investing activities was
$81,544 for the purchases of property and equipment. For the year ended December
31, 2020, net cash used in investing activities was $4,913 for purchases of
property and equipment.
Cash from Financing Activities
For the year ended December 31, 2021, net cash used in financing activities was
$184,383. This amount included an addition for the issuance of notes payable of
$76,000 offset by the following items: (i) purchase and cancellation of common
stock, $204,399; (ii) repayment of notes payable, $8,955; and (iii) repayment of
right of use leases, $47,029. For the year ended December 31, 2020, net cash
used in financing activities was $103,049. This amount included additions for
the issuance of common stock of $16,196 and the issuance of notes payable of
$304,833 offset by $383,909 to the payment of accrued dividends and $40,169 to
the repayment of right of use leases.
Off-Balance Sheet Arrangements
We have not entered into any transactions with unconsolidated entities in which
we have financial guarantees, subordinated retained interests, derivative
instruments or other contingent arrangements that expose us to material
continuing risks, contingent liabilities or any other obligations under a
variable interest in an unconsolidated entity that provides us with financing,
liquidity, market risk or credit risk support.
Critical Accounting Estimates
Discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the amounts reported in the consolidated
financial statements and the accompanying notes. We evaluate our estimates on an
ongoing basis, including those estimates related to product returns, product and
content development expenses, bad debts, inventories, intangible assets, income
taxes, contingencies and litigation. We base our estimates on experience and on
various assumptions that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
18
--------------------------------------------------------------------------------
The critical accounting policies which we believe affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements are provided as follows:
Accounts Receivable
In 2020, the Company's accounts receivable was comprised of four customers at
our New York Heliport. Due to the COVID-19 pandemic, two of these customers were
unable to sustain their business and ceased operating in 2020. Their receivable
balances at December 31, 2020, totaling approximately $208,000, have been deemed
uncollectable by the Company and have been written off to bad debt expense in
the fourth quarter of 2020. The Company's remaining two customers at our New
York Heliport continue to operate, but at substantially reduced levels of
operation. For the fiscal year ended December 31, 2020, these remaining two
customers represented approximately $137,000, or 52.4% of the balance of
accounts receivable. No customer represented more than 10% of revenue in 2020.
The Company has a security deposit in place in connection with both of these
receivables. Accounts receivable amounted to $678,045 at December 31, 2019.
In 2021, the Company's accounts receivable was comprised of its two customers at
our New York Heliport. These customers continued to operate throughout 2021, but
at substantially reduced levels of operation when compared to pre-pandemic
levels. For the fiscal year ended December 31, 2021, these two customers
represented approximately $180,000, or 59.8%, of the balance of accounts
receivable. In addition, these two customers represented approximately 27.6% of
our revenue in 2021. The Company has a security deposit in place in connection
with both of these receivables. In March 2022, one of the Company's former
customers resumed operations. The Company has a security deposit in place with
this key customer.
Goodwill and Intangible Assets
Goodwill and intangibles that are deemed to have indefinite lives are not
amortized but, instead, are to be reviewed at each reporting period for
impairment. We assessed potential impairment of goodwill using qualitative
factors by considering various factors including macroeconomic conditions,
industry and market conditions, cost factors, a sustained share price or market
capitalization decrease and any reporting unit specific events. We performed an
analysis of our goodwill and intangible assets at December 31, 2021 and 2020.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between their financial statement
carrying amounts and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Deferred tax assets are subject to a valuation allowance because it is more
likely than not that certain of the deferred tax assets will not be realized in
future periods. During 2020 we experienced a decrease in demand and minimal
activity in our business. The extent of the impact of COVID-19 on our
operational and financial performance cannot be predicted and will depend on
future developments, including the duration and spread of the outbreak, related
travel advisories and restrictions. Accordingly, we have established a valuation
allowance on net deferred assets. We file income tax returns in the United
States (federal) and in various state and local jurisdictions. In most
instances, we are no longer subject to federal, state and local income tax
examinations by tax authorities for years prior to 2018.
Stock Based Compensation
Stock-based compensation expense for all share-based payment awards are based on
the estimated grant-date fair value. We recognize these compensation costs over
the requisite service period of the award, which is generally the option vesting
term.
Option valuation models require the input of highly subjective assumptions,
including the expected life of the option. Because our 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.
© Edgar Online, source Glimpses