SKAS Saker Aviation Services Inc (QB)

General

Saker Aviation Services, Inc. (“we”, “us”, “our”) 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.

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 subsequ.ly 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 a fixed base operation (“FBO”) and a provider of aircraft maintenance and repair services (“MRO”) at the Garden City (Kansas) Regional Airport. FBOs provide ground-based services, such as fueling and aircraft storage for general aviation, commercial and military aircraft, and other miscellaneous services.

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

We believe the tourism industry has been historically cyclical, with revenue correlated to general U.S. economic conditions. Although not truly seasonal in nature, the spring and summer months tend to generate higher levels of revenue and our operations generally follow that trend. The COVID-19 pandemic contributed to a decline in travel and tourism related businesses and general economic conditions in the United States and significantly disrupted our business and operations in the year ended December 31, 2021 and the first quarter of 2022, as well as disrupted business operations in the United States and globally. Beginning in April 2022, sightseeing tour operators saw an increase in activity and a much higher demand for tours. There can be no assurance that this increased activity will continue as demand for sightseeing tours will depend on future developments of the COVID-19 pandemic, including the duration and spread and any future related travel advisories and restrictions and associated impact on overall demand for air travel. The COVID-19 pandemic had a less substantial impact on our former operations at our Kansas FBO and MRO. Please see Item 1A. “Risk Factors” below.

Concession Agreement for New York Heliport

We are a party to a Concession Agreement, dated as of November 1, 2008, with the City of New York for the operation of the New York Heliport (the “Concession Agreement”). Pursuant to the terms of the Concession Agreement, we 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.

We 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, we have not been allowed to permit our tenant operators to conduct tourist flights from the New York Heliport on Sundays since April 1, 2016. We are 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 we are 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, we have 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 New York 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 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 of New York through April 30, 2023 by the city’s exercise of both its two one-year option renewals

On February 15, 2023, it was reported in the public record that NYCEDC would be bringing a new Concession Agreement with the Company as the operator of the Downtown Manhattan Heliport to the Franchise and Concession Review Committee meeting on March 3, 2023. The item was subsequently pulled off the agenda, with NYCEDC announcing on April 7, 2023 that the previous Request for Proposals ("RFP") had been cancelled and that it is their intention to put out a new RFP in 2023. Saker's current Concession Agreement terminates on April 30, 2023. The Company has been notified by NYCEDC that the Company will receive a new permit to operate the heliport from May 1, 2023 until a new RFP process is concluded. The Company is currently working with NYCEDC on the new agreement and expects to file a Form 8-K once the new agreement is finalized.

Lease for Garden City (Kansas) Regional Airport

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

As disclosed in a Current Report on Form 8-K filed with the SEC on November 2, 2022, on October 31, 2022 (the “Closing Date”), the transaction contemplated by the Transfer Agreement closed and we became subject to the Non-Compete, for an aggregate purchase price of, after certain closing adjustments, approximately $1.5 million. The Crosby paid the purchase price on the Closing Date less $160,000 which is to be paid in cash upon the first anniversary of the Closing Date subject to GCK’s and our compliance with the Non-Compete, pursuant to the Transfer Agreement. Both GCK leases, which allowed us to operate at the Garden City Regional Airport, were terminated by Garden City as of the October 31, 2022 closing date.

Suppliers and Raw Materials

We obtain supplies from a variety of sources, generally from more than one supplier. Our suppliers are both domestic and foreign, and we believe that our sources of supplies and materials are adequate to meet our needs for the foreseeable future. We do not believe the loss of any one supplier would have a material adverse effect on our business or results of operations. We generally purchase our supplies on the open market, where certain commodities have fluctuated in price significantly in recent years. We have not experienced any significant shortage of our key supplies.

Marketing and Sales

The main goal of our marketing and sales efforts was to increase traffic at both our Kansas facility and New York Heliport, which we believed would then drive revenue through the sale of our products and services. Our marketing and sales efforts at our Kansas location ceased with the sale of our Kansas operation on October 31, 2022. Going forward, our marketing and sales effort will be to focus advertising efforts in the environments (web, periodical and industry publications) which we believe will increase our incremental revenue from our customer’s sale of services at our New York Heliport. We intend to continue to invest in improvements to our sales and marketing strategies to drive revenue growth.

Government Approvals

The aviation services that we provide are performed on government owned real estate properties. Accordingly, at times we will need to obtain certain consents or approvals from governmental entities in conjunction with our operations. There can be no assurance that we will obtain further consents or approvals on favorable terms or be able to renew existing consents or approvals on favorable terms, if at all.

Government Regulation

We are subject to a variety of governmental laws and regulations that apply to companies in the aviation industry. These include, among other matters, compliance with the Federal Aviation Administration (“FAA”) rules and regulations, and local, regional and national rules and regulations as they relate to environmental matters. The FAA, from time to time, issues directives and other regulations relating to the management, maintenance and operation of facilities, including the potential of emergency regulations, such as those related to public health crises including pandemics and epidemics. Additionally, we may be subject to government procurement regulations as they relate to obtaining new agreements or renewing or extending existing agreements with governmental entities. Compliance with those requirements may cause us to incur significant expenditures. The proposal and enactment of additional laws and regulations, as well as any charges that we have not complied with any such laws and regulations, could significantly increase the cost of our operations and reduce overall revenue. We believe we are in compliance with, and intend to continue to comply with, all applicable government regulations but cannot provide assurance that compliance with existing laws and regulations or that laws or regulations enacted in the future will not adversely affect our business and results of operations. The adoption of new regulations could result in increased costs and have an adverse impact on our results of operations, including, for example, regulations that restricted air travel such as reduced seating capacity or possible temporary orders to cease operations as a result of public health crises.

Customers

In 2021, the Company’s accounts receivable primarily comprised of 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-COVID-19 levels. For the fiscal year ended December 31, 2021, these two customers represented approximately $180,000, or 59.8%, of the balance of our accounts receivable. In addition, these two customers represented approximately 27.6% of our revenue in 2021.

One of the Company’s former customers resumed operations at our New York Heliport from March 2022 through June 2022, when it ceased operation. A new tenant began operating at our New York Heliport in June 2022. Beginning in April 2022, the Company’s customers began operating at pre-pandemic levels which continued through the end of 2022. For the fiscal year ended December 31, 2022, three customers represented approximately $184,000, or 75%, of the balance of our accounts receivable. In addition, these three customers represented approximately 83 % of our revenue in 2022. The Company has a security deposit in place for each of these customers.

Competition

Our New York location is the only heliport authorized by New York City to perform sightseeing tours. Therefore, we face no direct competition in servicing this line of business. There are two other New York City heliports who offer fuel and corporate charter services that we face direct competition from in providing these services.

Costs and Effects of Complying With Environmental Laws

We are subject to a variety of federal, state and local environmental laws and regulations, including those that govern health and safety requirements, the discharge of pollutants into the air or water, the management and disposal of hazardous substances and wastes and the responsibility to investigate and clean up contaminated sites that are or were owned, leased, operated or used by us or our predecessors. Some of these laws and regulations require us to obtain permits, which contain terms and conditions that impose limitations on our ability to emit and discharge hazardous materials into the environment and may be periodically subject to modification, renewal and revocation by issuing authorities. Fines and penalties may be imposed for non-compliance with applicable environmental laws and regulations and the failure to have or to comply with the terms and conditions of required permits. We intend to comply with these laws and regulations. However, from time to time, our operations may not be in full compliance with the terms and conditions of our permits or licenses. We periodically review our procedures and policies for compliance with environmental laws and requirements. We believe that our operations are in material compliance with applicable environmental laws and requirements and that any potential non-compliance would not be expected to result in us incurring material liability or cost to achieve compliance. Although the cost of achieving and maintaining compliance with environmental laws and requirements has not been material, we can provide no assurance that such cost will not become material in the future.

Employees

As of December 31, 2022, we employed 13 persons, 12 of whom were employed on a full-time basis. None of these employees were an executive officer. All of our personnel are employed in connection with our operations in New York.

Available Information

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Therefore, we file periodic reports, proxy statements and other information with the SEC. We maintain a website at www.sakeraviation.com where we make available, free of charge, documents that we file with, or furnish to, the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, registration statements and any amendments to those reports. Our SEC reports can be found under the “SEC Filings” heading in the “Investor Relations” tab on our website. The information found on our website is not part of this or any other report we file with, or furnish to, the SEC.

ITEM 1A.          RISK FACTORS

Risks related to our business and operations:

The impact of pandemics, including the COVID-19 pandemic, or other epidemics or widespread health crises is difficult to predict and could materially and adversely affect our business and results of operations.

Our ability to generate revenues is highly sensitive to the strength of the economies in which we operate. Any adverse public health developments in locations where we conduct business, as well as any governmental restrictive measures implemented to control such outbreaks and consumer responses to such outbreaks, could have a material adverse impact on our financial condition. These impacts, which are highly uncertain and cannot be accurately predicted, could be significant and long term. Further, any actions taken to mitigate any health crises could lead to an economic recession. For example, ." The COVID-19 pandemic has impacted the global and United States economies. Federal, state, and local governments implemented certain travel restrictions, “stay-at-home” orders, and social distancing initiatives which negatively impacted our operations and those of our customers. As a result of the COVID-19 pandemic, on March 17, 2020 all sightseeing tour operations at the New York Heliport ceased. On July 20, 2020, New York City started Phase 4 of the city’s reopening. Sightseeing tour operators at the New York Heliport restarted operations under this phase. For the period July 20, 2020 through March 31, 2022, sightseeing tour operators experienced much lower demand for tours as compared to pre-pandemic levels of activity. Beginning in April 2022 and through the date of this report, sightseeing tour operators have seen an increase in activity and a much higher demand for tours. The COVID-19 pandemic had a less substantial impact on our operations at our Kansas FBO and MRO.

Further, there can be no assurance that cost constraint actions, if any, in response to the pandemic or any future crisis, will offset possible future impacts of the crisis. While restrictions related to the COVID-19 pandemic have eased, the ultimate impact of it or any other public health crisis on our business and results of operations will depend on, among other things, the severity and length of the health crisis, the duration, effectiveness, and extent of the mitigation measures and actions designed to contain the outbreak, the emergence, contagiousness, and threat of new and different strains of the disease, the availability and efficacy of vaccines and effective treatments, public acceptance of the vaccines, changes in customer and consumer behavior as a result of the crisis, as well as the resulting economic conditions and how quickly and to what extent normal economic and operating conditions resume, all of which are highly uncertain. Such extraordinary events and their aftermaths can cause investor fear and panic, which could further materially and adversely affect our operations, the economies in which we operate, and the financial markets generally in ways that cannot necessarily be predicted. The effects of the COVID-19 pandemic, or any future public health crisis, and mitigation measures taken in response, have had and could have a material negative impact on our business and results of operations and may amplify many of the other risk factors disclosed elsewhere in this "Item 1A. Risk Factors."

We could be adversely affected by increases in the price, or decreases in the availability, of jet fuel.

Our operations could be significantly affected by the availability and price of jet fuel. The price and supply of jet fuel is unpredictable and fluctuates based on events we cannot control, such as geopolitical developments, including but not limited to heightened uncertainties and impacts resulting from Russian military actions in Ukraine and associated response, supply and demand for crude oil, actions by oil and jet fuel producers, actions by jet fuel refiners, conflict, unrest or economic instability in oil producing countries and regions, regional production patterns and weather conditions. A significant increase in the price of jet fuel would most likely have a material impact on our ability to achieve and maintain profitability unless we are able to pass on such costs to our customers. Due to the competitive nature of the industry, our ability to pass on increased fuel prices by increasing our rates is uncertain. Likewise, any potential benefit of lower fuel prices may be offset by increased competition and lower revenue, in general. If there are new outbreaks of hostility or other conflicts in oil producing areas or elsewhere, there could be a reduction in the availability of jet fuel or significant increases in costs to our business, as well as to the entire aviation industry, which in turn would adversely affect our business and results of operations. While we do not currently anticipate a significant reduction in fuel availability, dependency on foreign imports of crude oil and the impacts resulting from Russian military actions in Ukraine and possibility of changes in government policy on jet fuel production, transportation and marketing make it impossible to predict the future availability of jet fuel. As a result, any increases in these prices or decrease in the availability of fuel may adversely affect our profitability and competitiveness.

We could be adversely affected by the loss of our Concession Agreement with the City of New York.

All of our business is conducted and reliant on the New York Heliport. Any disruption in business at the New York Heliport or additional restrictions imposed on the operations of the New York Heliport by the NYCEDC could adversely impact our results of operations. Additionally, our business depends on us remaining as the operator of the New York Heliport. Our current Concession Agreement with the City of New York expires April 30, 2023.

On February 15, 2023, it was reported in the public record that NYCEDC would be bringing a new Concession Agreement with the Company as the operator of the Downtown Manhattan Heliport to the Franchise and Concession Review Committee meeting on March 3, 2023. The item was subsequently pulled off the agenda, with NYCEDC announcing on April 7, 2023 that the previous Request for Proposals ("RFP") had been cancelled and that it is their intention to put out a new RFP in 2023. Saker's current Concession Agreement terminates on April 30, 2023. The Company has been notified by NYCEDC that the Company will receive a new permit to operate the heliport from May 1, 2023 until a new RFP process is concluded. The Company is currently working with NYCEDC on the new agreement and expects to file a Form 8-K once the new agreement is finalized.

Our business is subject to extensive governmental regulation.

We are subject to extensive regulatory requirements that could result in significant costs. For example, the FAA, from time to time, issues directives and other regulations relating to the management, maintenance and operation of facilities, including the potential of emergency regulations, such as those related to public health crises including pandemics and epidemics. Additionally, we may be subject to government procurement regulations as they relate to obtaining new agreements or renewing or extending existing agreements with governmental entities. Compliance with those requirements may cause us to incur significant expenditures. The proposal and enactment of additional laws and regulations, as well as any charges that we have not complied with any such laws and regulations, could significantly increase the cost of our operations and reduce overall revenue. We cannot provide assurance that compliance with existing laws and regulations or that laws or regulations enacted in the future will not adversely affect our business and results of operations.

We must maintain and add key management and other personnel.

Our future success is heavily dependent on the performance of our managers. Our growth and future success depends, in large part, on the continued contributions of management and our ability to retain management.

Our growth and future success also depends on our ability to motivate and retain these personnel or hire other persons. Although we believe we will be able to retain and hire qualified personnel, we can give no assurance that we will be successful in retaining and recruiting such personnel in sufficient numbers to increase revenue, maintain profitability or successfully implement our growth strategy. If we lose the services of management or any of our key personnel, or are not able to retain or hire qualified personnel, our business could be adversely affected.

If our employees were to unionize, our operating costs would increase and our business could be adversely affected.

None of our employees are currently represented under a collective bargaining agreement. From time to time, there may be efforts to organize our employees. There is no assurance that our employees will not unionize in the future, particularly if legislation is passed that facilitates unionization. The unionization of our employees could have a material adverse effect on our business, financial condition and results of operations due to the possibility of work stoppage, wage increases, or other developments that may result from the unionization of our employees.

Changes in minimum wage laws outside of our control could affect our profitability.

We have employees who are paid wage rates based on the applicable federal or state minimum wage and increases in the minimum wage may increase our labor costs and reduce profitability. Federal, state, or local minimum wages may be raised in the future and we may be unable or unwilling to increase our prices in order to pass these increased labor costs on to our customers, in which case, our business and results of operations could be materially and adversely affected.

We are subject to environmental laws that could impose significant costs on us and the failure to comply with such laws could subject us to sanctions and material fines and expenses.

We are subject to a variety of federal, state and local environmental laws and regulations, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances and wastes and the responsibility to investigate and clean-up contaminated sites that are or were owned, leased, operated or used by us or our predecessors. Some of these laws and regulations require us to obtain permits, which contain terms and conditions that impose limitations on our ability to emit and discharge hazardous materials into the environment and may be periodically subject to modification, renewal and revocation by issuing authorities. Fines and penalties may be imposed for non-compliance with applicable environmental laws and regulations, the failure to have required permits or the failure to comply with the terms and conditions of such permits. We intend to comply with all laws and regulations, however, from time to time, our operations may not be in full compliance with the terms and conditions of our permits. We periodically review our procedures and policies for compliance with environmental laws and requirements. We believe that our operations are in material compliance with applicable environmental laws, requirements and permits and any lapses in compliance are not expected to result in us incurring material liability or cost to achieve compliance. However, there can be no assurance that our operations will remain in material compliance with applicable environmental laws and requirements. Historically, the costs of achieving and maintaining compliance with environmental laws, requirements and permits have not been material; however, the operation of our business entails risks in these areas and a failure by us to comply with applicable environmental laws, regulations or permits could result in civil or criminal fines, penalties, enforcement actions, third party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup and/or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures. Moreover, if applicable environmental laws and regulations, or the interpretation or enforcement thereof, become more stringent in the future, we could incur capital or operating costs beyond those currently anticipated and our business and results of operations could be harmed.

Risks related to our securities:

There is no active market for our common stock, which makes our common stock less liquid.

To date, trading of our common stock has been sporadic and nominal in volume. In addition, there are only a limited number of broker-dealers trading our common stock. As a result, there is little, if any, liquidity in our common stock. We can provide no assurance that an active trading market will ever develop.

Our common stock is subject to the penny stock rules, which makes our common stock less liquid.

The SEC has adopted a set of rules called the “penny stock rules” that regulate broker-dealers with respect to trading in securities with a bid price of less than $5.00. These rules do not apply to securities registered on certain national securities exchanges (including the Nasdaq Stock Market), provided that current price and volume information regarding transactions in such securities is provided by the exchange. Our stock is not listed on such an exchange and we have no expectation that our common stock will be listed on such an exchange in the future. The penny stock rules require a broker-dealer to deliver to the customer a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. Additionally, the broker-dealer must provide the customer with other information. The penny stock rules also require that, prior to a transaction in a penny stock, the broker-dealer must determine in writing that the penny stock is a suitable investment for the purchaser. The broker-dealer must also receive the purchaser’s written agreement to the transaction. These disclosure requirements have the effect of reducing the level of trading activity in the secondary market for a stock such as ours that is subject to the penny stock rules.

Our common stock may not continue to be traded on the OTCQB.

We cannot provide any assurance that our common stock will continue to be eligible to be quoted on the OTCQB Marketplace (“OTCQB”). Should our common stock cease to be quoted on the OTCQB and fail to qualify for listing on a stock exchange (including the Nasdaq Stock Market), our common stock would only trade in the “pink sheets” which generally provides an even less liquid market than the OTCQB. In such event, stockholders may find it more difficult to trade their shares of our common stock or to obtain accurate and current information concerning market prices for our common stock.

Our management team currently has the ability to influence stockholder votes.

As of December 31, 2022, our executive officers, directors and their family members and associates, collectively, are entitled to vote 284,876 shares, or 29% of the 976,330 shares of our outstanding shares of common stock. Accordingly, and because there is no cumulative voting for directors, our executive officers and directors are currently in a position to influence the election of all of our Board of Directors. The management of our company is controlled by our Board of Directors, which is currently comprised of two independent directors, one non-independent director, and one executive officer/director.

General risk factors:

Potential additional financings, the granting of additional stock options and any anti-dilution provisions in potential future derivative securities could further dilute our existing stockholders.

As of December 31, 2022, there were 976,330 shares of our common stock outstanding. If all of our outstanding options were exercised, there would be 1,043,824 shares outstanding, an increase of approximately 6.9%. Any further issuances due to additional equity financings, or the granting of additional options could further dilute our existing stockholders, which could cause the value of our common stock to decline.

Our Board of Directors’ right to issue shares of preferred stock could adversely impact the rights of holders of our common stock.

Our Board of Directors currently has the right to authorize the issuance of up to 333,306 shares of one or more series of our preferred stock with such voting, dividend and other rights as our directors determine. Such action can be taken by our Board of Directors without the approval of our shareholders. Accordingly, the holders of any new series of preferred stock could be granted voting rights that reduce the voting power of the holders of our common stock. For example, the preferred holders could be granted the right to vote on a merger as a separate class even if the merger would not have an adverse effect on their rights. This right, if granted, would give such preferred holders a veto with respect to any merger proposal. Alternatively, such preferred holders could be granted a large number of votes per share while voting as a single class with the holders of our common stock, thereby diluting the voting power of the holders of our common stock. In addition, the holders of any new series of preferred stock could be given the option to redeem their shares for cash in the event of a merger. This would make acquiring us less attractive to a potential buyer. Thus, our Board of Directors could authorize the issuance of shares of the new series of preferred stock in order to defeat a proposal for the acquisition of our company that a majority of the holders of our common stock otherwise favor.