What changed in this filing

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Item 1. Financial Statements

2022-11-10 compared with 2022-08-11 · 316 added, 229 removed, 1089 unchanged (33% of the section changed)

3 unchanged sentences

(in thousands, except share data)

June 30, 2022

September 30, 2022

December 31, 2021

$ 6,805  

Restricted cash

36 unchanged sentences

$0.0001 par value;

10,000,000 shares authorized as of June 30, 2022;

10,000,000 shares authorized as of September 30, 2022;

none issued and outstanding

Class A common stock, $0.0001 par value;

200,000,000 shares authorized as of June 30, 2022;

14,937,581 shares issued and outstanding as of June 30, 2022

200,000,000 shares authorized as of September 30, 2022;

14,962,831 shares issued and outstanding as of September 30, 2022

Class B common stock, $0.0001 par value;

50,000,000 shares authorized as of June 30, 2022;

42,192,250 shares issued and outstanding as of June 30, 2022

50,000,000 shares authorized as of September 30, 2022;

42,192,250 shares issued and outstanding as of September 30, 2022

Additional paid-in capital

2 unchanged sentences

( 3,711 )  

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

( 231 )  

15 unchanged sentences

Three Months Ended

Six months ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Rental revenue

$ 1,236  

$ 1,187  

Total revenue

1 unchanged sentence

General and administrative

12,136  

Total expenses

9 unchanged sentences

( 2,904 )  

Net income (loss)

$ ( 3,092 )  

1 unchanged sentence

$ ( 12,343 )  

Net income (loss) attributable to non-controlling interests

Net loss attributable to non-controlling interests

( 2,479 )  

( 8,632 )  

Net income (loss) attributable to Sky Harbour Group Corporation shareholders

Net loss attributable to Sky Harbour Group Corporation shareholders

$ ( 613 )  

1 unchanged sentence

$ ( 3,711 )  

Earnings (loss) per share

Loss per share

$ ( 0.04 )  

12 unchanged sentences

Three Months Ended

Six Months Ended

Net income (loss)

Nine Months Ended

September 30,

$ (3,092)  

2 unchanged sentences

$ (8,362)  

Other comprehensive income (loss), before related income taxes:

Unrealized gains (losses) on available-for-sale securities

Total other comprehensive income (loss)

Other comprehensive loss, before related income taxes:

Unrealized losses on available-for-sale securities

Total other comprehensive loss

$ (3,239)  

6 unchanged sentences

(in thousands, except share data)

Redeemable Sky

Redeemable Sky Series B

Accumulated Other

50 unchanged sentences

101,930  

Share-based compensation

Sky incentive compensation

Issuance of initial commitment shares

25,000  

Exercise of warrants

Other comprehensive income (loss)

( 147 )  

Net income (loss)

( 613 )  

( 2,479 )  

Balance at September 30, 2022

14,962,831  

42,192,250  

$ 29,254  

$ ( 3,711 )  

$ ( 231 )  

$ 25,317  

$ 73,872  

$ 99,189  

See accompanying Notes to Unaudited Consolidated Financial Statements

SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’

(in thousands, except share data)

Redeemable Series B

20 unchanged sentences

25,265  

Issuance of Sky Redeemable Series B Preferred Units, net of equity issuance costs

54,029  

Issuance of Warrants

Equity issuance costs

Sky incentive compensation

( 3,539 )  

Balance at September 30, 2021

$ 54,029  

$ 22,093  

See accompanying Notes to Unaudited Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Six months ended

June 30, 2022

June 30, 2021

Nine months ended

September 30, 2022

September 30, 2021

Cash flows from operating activities:

23 unchanged sentences

( 35,597 )  

Issuance of notes receivable

( 1,955 )  

Purchases of available for sale investments

9 unchanged sentences

30,000  

Proceeds from issuance of Sky Series B Preferred Units and Warrants

55,000  

Proceeds from issuance of BOC PIPE

2 unchanged sentences

15,691  

Proceeds from exercise of warrants

Payments for equity issuance costs

1 unchanged sentence

Payments for debt issuance costs

Refund of debt issuance costs

Payment of loan payable and redemption of Sky membership interest

Payments of loans payable

Proceeds of bonds payable

166,589  

Proceeds of loans payable

14 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

September 30, 2022

(in thousands, except share data)

5 unchanged sentences

As of the Closing Date, SHG owned approximately 26.1 % of the common units of Sky (the “Sky Common Units”), and the prior holders of Sky’s Existing Common Units (the “LLC Interests”) owned approximately 73.9 % of the Sky Common Units and control the Company through their ownership of the Class B Common Stock, $ 0.0001 par value (“Class B Common Stock”) of the Company.

As of June 30, 2022 , the Company and the LLC Interests owned approximately 26.1 % and 73.9 % of Sky Common Units, respectively.

As of September 30, 2022 , the Company and the LLC Interests owned approximately 26.1 % and 73.9 % of Sky Common Units, respectively.

See Notes 2 and 3 for additional discussion related to the Yellowstone Transaction.

6 unchanged sentences

In the Company’s opinion, these Financial Statements include all adjustments, consisting of normal recurring items, considered necessary by management to fairly state the Company’s results of operation, financial position, and cash flows.

Certain prior year amounts have been reclassified to conform to the current year’s presentation.

Except for per share data, all dollar amounts are in thousands unless otherwise noted.

Certain historical amounts have been reclassified to conform to the current year’s presentation, including salaries, wages, and benefits associated with operations personnel employed at the Company's hangar development sites.

$ 54 and $ 123 of amounts previously classified within general and administrative expenses on the consolidated statement of operations for the three and nine months ended September 30, 2021, respectively, have been reclassified to operating expenses.

This reclassification had no effect on total expenses, net loss, net loss per common share and had no impact on the Company’s consolidated balance sheets, statement of stockholders’

equity and statement of cash flows for the prior year period.

Notwithstanding the legal form of the Yellowstone Transaction pursuant to the terms therein, the Yellowstone Transaction was accounted for as a reverse recapitalization in accordance with GAAP (the “Reverse Recapitalization”).

10 unchanged sentences

Thus, the financial statements included in this quarterly report for the 

three and six months ended June 30, 2022 reflect (i) the historical operating results of Sky prior to the Yellowstone Transaction;

three and nine months ended September 30, 2022 reflect (i) the historical operating results of Sky prior to the Yellowstone Transaction;

(ii) the combined results of Sky and SHG from the date of the Yellowstone Transaction;

30 unchanged sentences

Pursuant to the Company’s bond offering described in Note 8, various restricted trust bank accounts were established.

Such trust bank accounts are included in Restricted cash and Restricted investments on the consolidated balance sheet as of June 30, 2022 and December 31, 2021 .

Such trust bank accounts are included in Restricted cash and Restricted investments on the consolidated balance sheet as of September 30, 2022 and December 31, 2021 .

Investments of the Company's cash in various U.S.

Treasury securities have been classified as available-for-sale and are carried at estimated fair value as determined based upon quoted market prices.

Such investments amounted to $ 29,913 as of June 30, 2022, of which $ 14,973 will mature in one year or less, and $ 14,940 will mature in one through five years.

Such investments amounted to $ 29,765  as of September 30, 2022, of which $ 15,009 will mature in one year or less, and $ 14,756 will mature in one through five years.

Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive income (loss).

12 unchanged sentences

The held-to-maturity restricted investments are carried on the consolidated balance sheet at amortized cost.

The carrying amount of such investments was $ 138,072  on June 30, 2022 , of which $ 80,346 will mature in one year or less, and $ 57,762 will mature in one through five years.

The carrying amount of such investments was $ 145,322 on September 30, 2022 , of which $ 107,580 will mature in one year or less, and $ 37,742 will mature in one through five years.

Cost of Construction

9 unchanged sentences

Once a capital project is complete, the Company begins to depreciate the constructed asset on a straight-line basis over the lesser of the life of the asset or the remaining term of the related ground lease, including expected renewal terms.

Constructed assets, net, as of June 30, 2022 and December 31, 2021 consists of the Sugar Land Phase I project, which is being depreciated over approximately 28 years.

Constructed assets, net, as of September 30, 2022 and December 31, 2021 consists of the Sugar Land Phase I project, which is being depreciated over approximately 28 years.

Other long-lived assets

14 unchanged sentences

ASC Topic 842 requires lessees to recognize lease liabilities and right-of-use (“ROU”) assets for all operating leases with terms of more than 12 months on the consolidated balance sheets.

The Company has made an accounting policy election that will keep leases with an initial term of 12 months or less off the Company’s consolidated balance sheets and will result in recognizing those lease payments in the consolidated statements of operations on a straight-line basis over the lease term.

The Company has made an accounting policy election to not recognize leases with an initial term of 12 months or less on the Company’s consolidated balance sheets and will result in recognizing those lease payments in the consolidated statements of operations on a straight-line basis over the lease term.

When management determines that it is reasonably certain that the Company will exercise its options to renew the leases, the renewal terms are included in the lease term and the resulting ROU asset and lease liability balances.

26 unchanged sentences

As of December 31, 2021, the Company had $ 2,696 of equity issuance costs included within prepaid and other assets which were subsequently reclassified as part of accounting for the Yellowstone Transaction.

As of June 30, 2022 , there were no equity issuance costs included within prepaid expenses and other assets.

As of September 30, 2022 , there were no equity issuance costs included within prepaid expenses and other assets.

Revenue recognition

4 unchanged sentences

Rental revenue is recognized in accordance with ASC Topic 842, Leases (see Note 7 ) and includes (i) fixed payments of cash rents, which represents revenue each tenant pays in accordance with the terms of its respective lease and is recognized on a straight-line basis over the term of the lease and (ii) variable payments of tenant reimbursements, which are recoveries of all or a portion of the common area maintenance and operating expenses of the property and are recognized in the same period as the expenses are incurred.

As of June 30, 2022 and December 31, 2021 , the deferred rent receivable included in prepaid expenses and other assets was $ 61 and $ 103 , respectively.

As of September 30, 2022 and December 31, 2021 , the deferred rent receivable included in prepaid expenses and other assets was $ 73 and $ 103 , respectively.

The Company evaluates the collectability of tenant receivables for payments required under the lease agreements.

If the Company determines that collectability is not probable, the Company recognizes any difference between revenue amounts recognized to date under ASC 842 and payments that have been collected from the lessee, including security deposit amounts held, as a current period adjustment to rental revenue.

There were no adjustments to rental revenue for uncollectible tenant rental payments in either of the three and six months ended June 30, 2022 or 2021 .

For the three months ended June 30, 2022 and 2021, the Company derived approximately 88 % and 90 % of its revenue from two tenants, respectively.

For the six months ended June 30, 2022 and 2021, the Company derived 89 % and 90 % of its revenue from two tenants, respectively.

There were no adjustments to rental revenue for uncollectible tenant rental payments in either of the three and nine months ended September 30, 2022 or 2021 .

For the three months ended September 30, 2022 and 2021, the Company derived approximately 82 % and 90 % of its revenue from two tenants, respectively.

For the nine months ended September 30, 2022 and 2021, the Company derived 87 % and 89 % of its revenue from two tenants, respectively.

Such tenants have ongoing leases with the Company which expire in December 2023 and November 2025, respectively.

Operating Expenses

For the three and six months ended June 30, 2022, operating expenses within the consolidated statements of operations includes operating lease expense of $ 911 and $ 1,899 , respectively.

For the three and six months ended June 30, 2021 , operating expense includes operating lease expense of $ 990 and $ 1,871 , respectively.

General and administrative expenses on the consolidated statements of operations also includes $ 18 and $ 36  of operating lease expense for the 

three and six months ended June 30, 2022, respectively and $ 9 and $ 16 of operating lease expense for the three and six months ended and June 30, 2021 , respectively.

For the three and nine months ended September 

30, 2022, operating expenses within the consolidated statements of operations includes operating lease expense of $ 904  and $ 2,797 , respectively.

For the three and nine months ended September 30, 2021 , operating expense includes operating lease expense of $ 935  and $ 2,807 , respectively.

General and administrative expenses on the consolidated statements of operations also includes $ 22  and $ 58 of operating lease expense for the 

three and nine months ended September 30, 2022, respectively and $ 17 and $ 34 of operating lease expense for the three and nine months ended and September 30, 2021 , respectively.

Advertising Costs

The Company expenses the cost of advertising and marketing as incurred.

Advertising and marketing costs recognized as general and administrative expenses totaled $ 121 and $ 224 for three and six months ended June 30, 2022, respectively.

Advertising and marketing costs recognized as general and administrative expenses totaled $ 110  and $ 147 for the three and six months ended June 30, 

Advertising and marketing costs recognized as general and administrative expenses totaled $ 42  and $ 268  for three and nine months ended September 30, 2022, respectively.

Advertising and marketing costs recognized as general and administrative expenses totaled $ 106  and $ 252 for the three and nine months ended September 30, 

2021, respectively.

13 unchanged sentences

When a valuation allowance is increased or decreased, a corresponding tax expense or benefit is recorded.

The Company recorded income tax expense of $ 0 and the effective tax rate was 0.0 % for the three and six months ended June 30, 2022 .

The Company recorded income tax expense of $ 0 and the effective tax rate was 0.0 % for the three and nine months ended September 30, 2022 .

The effective income tax rate for the 

three and six months ended June 30, 2022 differs from the federal statutory rate of 21 % primarily due to a full valuation allowance against net deferred tax assets as it is more likely than not that the deferred tax assets will not be realized.

three and nine months ended September 30, 2022 differs from the federal statutory rate of 21 % primarily due to a full valuation allowance against net deferred tax assets as it is more likely than not that the deferred tax assets will not be realized.

Amounts payable under the Tax Receivable Agreement, as defined in Note 3, are accrued by a charge to income when it is probable that a liability has been incurred and the amount is estimable.

10 unchanged sentences

The Yellowstone Warrants that were issued and outstanding immediately prior to the Closing Date became SHG Warrants.

The following table reconciles the elements of the Yellowstone Transaction to the consolidated statements of changes in equity for the six months ended June 30, 2022 :

The following table reconciles the elements of the Yellowstone Transaction to the consolidated statements of changes in equity for the nine months ended September 30, 2022 :

Yellowstone Transaction

42 unchanged sentences

tax deductions in respect of portions of certain payments made under the Tax Receivable Agreement (each of the foregoing, collectively, the “Tax Attributes”).

As of June 30, 2022 , no transactions occurred that would result in a cash tax savings benefit that would trigger the recording of a liability based on the terms in the Tax Receivable Agreement.

As of September 30, 2022 , no transactions occurred that would result in a cash tax savings benefit that would trigger the recording of a liability under the terms of the Tax Receivable Agreement.

Cost of Construction and Constructed Assets

The Company’s portfolio as of June 30, 2022 includes the following development projects:

The Company’s portfolio as of September 30, 2022 includes the following development projects:

Sugar Land Regional Airport (“SGR”), Sugar Land, TX (Houston area);

5 unchanged sentences

Constructed assets, net, and cost of construction, consists of the following:

June 30, 2022

September 30, 2022

December 31, 2021

10 unchanged sentences

$ 25,034  

Depreciation expense for the three months ended June 30, 2022 and 2021 totaled $ 139 and $ 133 , respectively.

Depreciation expense for the three months ended September 30, 2022 and 2021 totaled $ 135  and $ 135 , respectively.

Depreciation expense for the 

six months ended June 30, 2022 and 2021 totaled $ 274 and $ 269 , respectively.

nine months ended September 30, 2022 and 2021 totaled $ 409 and $ 404 , respectively.

Long-lived Assets

Long-lived assets, net, consists of the following:

June 30, 2022

September 30, 2022

December 31, 2021

2 unchanged sentences

Depreciation expense for the 

six months ended June 30, 2022 and 2021 totaled $ 25 and $ 14 , respectively.

Depreciation expense for the three months ended June 30, 2022 and 2021 totaled $ 15 and $ 8 , respectively.

During the three months ended June 30, 2022, the Company evaluated the development progress related to its smart hangar app.

nine months ended September 30, 2022 and 2021 totaled $ 38 and $ 22 , respectively.

Depreciation expense for the three months ended September 

30, 2022 and 2021 totaled $ 13  and $ 8 , respectively. As of September 30, 2022 and December 31, 2021, equipment included approximately $ 575 and $ 0 , respectively, of purchase deposits towards ground support equipment which are not being depreciated as the assets have not been placed into service.

In June 2022, the Company evaluated the development progress related to its smart hangar app.

This evaluation included the decision to abandon previous software development efforts and the transition of development efforts to a new third -party development company.

In connection with this evaluation, the Company determined that previously capitalized software costs associated with the abandoned development were not recoverable and recognized an impairment loss of $ 248 during the three and six months ended June 30, 2022.

Supplemental Balance Sheet and Cash Flow Information

1 unchanged sentence

In July 2022, the Company entered into a vendor agreement to acquire construction materials related to the Company's development projects (the “Vendor Agreement”).

In connection with the Vendor Agreement, the Company entered into a revolving line of credit loan and security agreement (the "Vendor Loan Agreement"), whereby the Company agreed to provide up to $ 2.5 million of availability under a revolving credit line to fund the working capital requirements of the vendor, of which $ 1.5 million was loaned to the vendor in July 2022.

The Vendor Loan Agreement matures in July 2029 and initially bears interest at a rate of 5 % per annum for the first year, and increases by 1 % per annum each year on the anniversary date of the Vendor Loan Agreement until its maturity.

1 unchanged sentence

Accounts payable, accrued expenses and other liabilities, consists of the following:

June 30, 2022

September 30, 2022

December 31, 2021

3 unchanged sentences

Employee compensation and benefits

Transaction costs

Professional Fees

$ 15,749  

2 unchanged sentences

The following table summarizes non-cash investing and financing activities:

Six months ended

June 30, 2022

June 30, 2021

Nine months ended

September 30, 2022

September 30, 2021

Accrued costs of construction, including capitalized interest

$ 10,121  

$ 5,485  

Accrued debt issuance costs

Accrued equity issuance costs

3 unchanged sentences

The following table summarizes non-cash activities associated with the Company’s operating leases:

Six months ended

June 30, 2022

June 30, 2021

Nine months ended

September 30, 2022

September 30, 2021

Right-of-use assets obtained in exchange for operating lease liabilities

4 unchanged sentences

The following table summarizes interest paid:

Six months ended

June 30, 2022

June 30, 2021

Nine months ended

September 30, 2022

September 30, 2021

Interest paid

1 unchanged sentence

The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets to the total shown within the consolidated statements of cash flows:

Six months ended

June 30, 2022

June 30, 2021

Nine months ended

September 30, 2022

September 30, 2021

Cash, beginning of year

6 unchanged sentences

$ 9,481  

$ 15,604  

Restricted cash, end of period

17,164  

207,559  

Cash and restricted cash, end of period

7 unchanged sentences

These variable payments were excluded from the calculation of the ROU asset and operating lease liability balances since they are not fixed or in-substance fixed payments.

These variable payments were not material in amount for both of the three and six month periods ended June 30, 2022 and 2021 .

These variable payments were not material in amount for both of the three and nine month periods ended September 30, 2022 and 2021 .

Some of the leases contain covenants that require the Company to construct the hangar facilities on the leased grounds within a certain period and spend a set minimum dollar amount.

For one of the leases, the shortfall (if any) must be paid to the lessor.

The Company’s ground leases have terms ranging between 27 to 75 years, including options for the Company to extend the terms.

The Company’s ground leases have remaining terms ranging between 26 to 74 years, including options for the Company to extend the terms.

These leases expire between 2049 and 2097, which include all lease extension options available to the Company.

7 unchanged sentences

The Company has accounted for the OPF Lease Transaction as a lease modification requiring remeasurement and remeasured the right-of-use asset and operating lease liability utilizing the Company’s incremental borrowing rate as of the date of remeasurement.

As a result of the remeasurement, non-cash subtractions to the right-of-use asset and operating lease liability of $ 12,289 were recorded during the six months ended June 30, 2022.

As a result of the remeasurement, non-cash subtractions to the right-of-use asset and operating lease liability of $ 12,289 were recorded during April 

On January 1, 2021, the Company commenced an operating lease for a ground lease located at APA (“APA Lease”), with an initial lease term of 41 years (or up to 76 years including extension options).

6 unchanged sentences

Supplemental consolidated cash flow information related to the Company’s leases was as follows: 

Six months ended

Nine months ended

September 30,

Cash paid for amounts included in measurement of lease liabilities:

Operating cash flows from operating leases as lessee

$ 1,384  

Supplemental consolidated balance sheet information related to the Company’s leases was as follows: 

Weighted Average Remaining Lease Term

June 30, 2022

September 30, 2022

December 31, 2021

3 unchanged sentences

The Company’s future minimum lease payments required under leases as of 

June 30, 2022  were as follows: 

September 30, 2022  were as follows: 

Year Ending December 31,

22 unchanged sentences

Tenant leases to which the Company is the lessor require the following non-cancelable future minimum lease payments from tenants as of 

June 30, 2022 :

September 30, 2022 :

Year Ending December 31,

2 unchanged sentences

Total lease payments

$ 3,645  

Less rent concessions to be applied at Company’s discretion

18 unchanged sentences

These accounts also include funds to pay debt service through the end of construction at each site and various reserve funds such as a ramp-up reserve, debt service reserve, and a maintenance reserve fund.

Such trust bank accounts total approximately $ 175.5 million, of which $ 37.5 million and $ 138.0 million and are included in Restricted cash and Restricted investments, respectively, on the consolidated balance sheet as of June 30, 2022 .

Such trust bank accounts total approximately $ 161.3 million, of which $ 16.0 million and $ 145.3 million and are included in Restricted cash and Restricted investments, respectively, on the consolidated balance sheet as of September 30, 2022 .

The Borrowers have agreed to use all commercially reasonable efforts to jointly maintain a Debt Service Coverage Ratio (as defined in the agreement) of 1.25 for each applicable test period;

19 unchanged sentences

In lieu of redemption, the Bonds may be purchased by any of the Borrowers or by any party designated by Sky Harbour Capital LLC.

The following table summarizes the Company’s Bonds payable as of June 30, 2022 and December 31, 2021 :

June 30, 2022

The following table summarizes the Company’s Bonds payable as of September 30, 2022 and December 31, 2021 :

September 30, 2022

December 31, 2021

15 unchanged sentences

Interest that is incurred at the stated interest rate of the bonds, as well as the amortization of bond premium and amortization of debt issuance costs are capitalized and added to the cost of construction on the consolidated balance sheet.

See Interest, below.

During the three months ended September 30, 2022, the Company received a refund of approximately $ 1.2 million of debt issuance costs associated with the issuance of the Bonds Payable, and recognized the refund as a reduction of debt issuance costs. See Interest, below.

Loans payable

In connection with two of its development projects, Sky had two secured construction loans that were outstanding during the three and six months ended June 30, 2021, and through the loans’

In connection with two of its development projects, Sky had two secured construction loans that were outstanding through the loans’

respective payoff dates of August 11, 2021 and September 3, 2021.

8 unchanged sentences

Three months ended

Six months ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

$ 1,735  

$ 5,205  

$ 1,402  

Amortization of bond premium and debt issuance costs

5 unchanged sentences

Interest expense

$ 1,160  

As part of Yellowstone’s initial public offering, Yellowstone issued to third -party investors 6,799,439 warrants which entitled the holder to purchase one share of Class A Common Stock at an exercise price of $ 11.50 per share (the “Public Warrants”).

2 unchanged sentences

Following the Yellowstone Transaction, the Warrants remain outstanding under the same terms and conditions to purchase shares of the Company’s Class A Common Stock.

As of June 30, 2022 , 6,799,439 and 7,719,779 Public and Private Warrants remain outstanding, respectively.

As of September 30, 2022 , 6,799,189 and 7,719,779 Public and Private Warrants remain outstanding, respectively.

The terms of the Private Warrants are identical to those of the Public Warrants, except for that so long as the Private Warrants are held by the Sponsor or its permitted transferees, they may be exercised on a cashless basis.

3 unchanged sentences

As the terms of the Private Warrants are identical to those of the Public Warrants, the Company determined the fair value of its Private Warrants based on the publicly listed trading price of the Public Warrants as of the valuation date and have classified the Private Warrants as Level 2 financial instruments.

The closing price of the Public Warrants was $ 0.45 and $ 0.55 per warrant on June 30, 2022 and the Closing Date, respectively.

The aggregate fair value of the Warrants was approximately $ 6.5 million and $ 8.0 million as of June 30, 2022 and the Closing Date, respectively.

The Company recorded an unrealized gain of approximately $ 15.4 million during the three months ended June 30, 2022.

During the six months ended June 30, 2022 , the Company recorded an unrealized gain of approximately $ 1.5 million, reflecting the change in fair value of the Warrants from the Closing Date through June 30, 2022 .

The closing price of the Public Warrants was $ 0.35 and $ 0.55 per warrant on September 30, 2022 and the Closing Date, respectively.

The aggregate fair value of the Warrants was approximately $ 5.1 million and $ 8.0 million as of September 30, 2022 and the Closing Date, respectively.

The Company recorded an unrealized gain of approximately $ 1.5 million during the three months ended September 30, 2022.

During the nine months ended September 30, 2022 , the Company recorded an unrealized gain of approximately $ 2.9 million, reflecting the change in fair value of the Warrants from the Closing Date through September 30, 2022 .

Equity and Redeemable Equity

16 unchanged sentences

The Series B Preferred Units converted to 5,500,000 shares of SHG’s Class A Common Stock, and Sky issued 14,937,581 Sky Common Units to SHG, which was equivalent to the total number of shares of the SHG’s Class A Common Stock outstanding on the Closing Date.

As of June 30, 2022 , there were 14,937,581 and 42,192,250 shares of Class A Common Stock and Class B Common Stock outstanding, respectively.

As of September 30, 2022 , there were 14,962,831  and 42,192,250 shares of Class A Common Stock and Class B Common Stock outstanding, respectively.

Holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters submitted to the stockholders for their vote or approval, except as required by applicable law.

9 unchanged sentences

As a result, a total of approximately $ 6.7 million was remitted to the Company by the Counterparty.

Common Stock Purchase Agreement

On August 18, 2022, the Company entered into a Common Stock Purchase Agreement (the “Stock Purchase Agreement”) with B.

Riley Principal Capital II, LLC (“B.

Riley”).

Pursuant to the Stock Purchase Agreement, subject to the conditions and limitations set forth therein, the Company has the right, but not the obligation, from time to time at the Company's sole discretion over a 36 -month term of the Stock Purchase Agreement, to direct B.

Riley to purchase up to 10 million shares of the Company's Class A Common Stock in the aggregate.

Under the Stock Purchase Agreement, on any trading day selected by the Company, the Company has the right, in its sole discretion, to present B.

Riley with a purchase notice (each, a "VWAP Purchase Notice"), directly B.

Riley (as principal) to purchase a specified amount of shares not to exceed the lesser of (i) one million shares of Common Stock and (ii) 20 % of the total aggregate number (or volume) of shares of Class A Common Stock traded on the NYSE American at a price(the "VWAP Purchase Price") equal to the product of 0.97 and the VWAP of the Company's Class A Common Stock on the applicable date for each VWAP Purchase Notice, subject to certain limitations contained in the Stock Purchase Agreement.

Sales of Class A Common Stock pursuant to the Stock Purchase Agreement, and the timing of any such sales, are solely at the discretion of the Company, and the Company is under no obligation to sell any securities to B.

Riley under the Stock Purchase Agreement.

In consideration for entering into the Stock Purchase Agreement and concurrently with the execution of the Stock Purchase Agreement, the Company issued to B.

Riley 25,000 shares of Class A Common Stock as initial commitment shares and will issue up to an aggregate of 75,000 shares of its Class A Common Stock as additional commitment shares if certain conditions and milestones are met.

The Company recognized expense associated with the issuance of such commitment shares of $ 112 during the three and nine months ended September 30, 2022 based on the fair value of the Company's Class A Common Stock on the date of issuance.

Non-controlling interests

The LLC Interests’

ownership in Sky is presented as non-controlling interests within the Equity section of the consolidated balance sheet as of June 30, 2022 and represents the Sky Common Units held by holders other than SHG.

ownership in Sky is presented as non-controlling interests within the Equity section of the consolidated balance sheet as of September 30, 2022 and represents the Sky Common Units held by holders other than SHG.

The holders of LLC Interests may, following the expiration of an applicable lock-up period, exchange Sky Common Units along with an equal number of Class B Common Shares, for Class A Common Shares on the Company.

The LLC Interests do not have the option to redeem their Sky Common Units for cash or a variable number of Class A Common Shares, nor does SHG have the option to settle a redemption in such a manner.

As of June 30, 2022 , the LLC interests owned approximately 73.9 % of the Sky Common Units outstanding.

As of September 30, 2022 , the LLC interests owned approximately 73.9 % of the Sky Common Units outstanding.

Equity Compensation

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A total of 721,000 of time-based awards were granted, which will vest ratably over a four -year period beginning on the first anniversary of the grant date and ending on May 16, 2026.

During the three and six months ended June 30, 2022, the Company recognized stock compensation expense of $ 160 .

As of June 30, 2022, there are approximately 661,000 non-vested RSUs outstanding with a weighted average grant date fair value of $ 7.74 . The unrecognized compensation costs associated with all unvested RSUs at June 30, 2022 was $ 4,956 .

During the three and nine months ended September 30, 2022, the Company recognized stock compensation expense of $ 298 and $ 458 , respectively.

As of September 30, 2022, there are approximately 631,000 non-vested RSUs outstanding with a weighted average grant date fair value of $ 7.74 . The unrecognized compensation costs associated with all unvested RSUs at September 30, 2022 was $ 4,426 .

Sky Incentive Units

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The key inputs and assumptions used in the valuation of the Sky’s Incentive Units were:

Fair value of total equity

$ 62,287,970  

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Risk-free interest rate

Below is a summary of activity related to the Sky Incentive Units for the six months ended June 30, 2022 :

Below is a summary of activity related to the Sky Incentive Units for the nine months ended September 30, 2022 :

Sky Incentive

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$ 0.45  

Sky units outstanding as of June 30, 2022

Sky units outstanding as of September 30, 2022

2,807,750  

$ 0.45  

Vested Units outstanding as of June 30, 2022

Vested Units outstanding as of September 30, 2022

1,054,293  

$ 0.45  

Non-vested Units outstanding as of June 30, 2022

Non-vested Units outstanding as of September 30, 2022

1,753,457  

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The Company recorded equity-based compensation expense relating to Sky Incentive Units of $ 85 and $ 256 for the three and 

six months ended June 30, 2022 , respectively, which is recorded within General and Administrative Expenses within the statement of operations, and as a component of the non-controlling interest in the consolidated statement of changes in stockholders’

The Company recorded equity-based compensation expense relating to Sky Incentive Units of $ 46 for the three and six months ended June 30, 2021.

As of June 30, 2022 , there was $ 871 of total unrecognized compensation expense that is expected to be recognized over a weighted-average future period of 2.7 years.

nine months ended September 30, 2022 , respectively, which is recorded within General and Administrative Expenses within the statement of operations, and as a component of the non-controlling interest in the consolidated statement of changes in stockholders’

The Company recorded equity-based compensation expense relating to Sky Incentive Units of $ 81 and $ 132  for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022 , there was $ 785 of total unrecognized compensation expense that is expected to be recognized over a weighted-average future period of 2.5 years.

Earnings (loss) per Share

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As such, separate presentation of basic and diluted earnings per share of Class B Common Stock under the two -class method has not been presented.

For the three and six months ended June 30, 2021, the membership structure of Sky solely included holders of Sky Common Units that received an equivalent number of Class B Common Stock following the Yellowstone Transaction, and there were no holders that received Class A Common Stock.

As the shares of Class B Common Stock are not participating securities, presentation of net loss per share for the three and six month periods ended June 30, 2021 would not be meaningful to the users of these condensed consolidated financial statements, and such information has not been presented.

For the three and nine months ended September 

30, 2021, the membership structure of Sky solely included holders of Sky Common Units that received an equivalent number of Class B Common Stock following the Yellowstone Transaction, and there were no holders that received Class A Common Stock.

As the shares of Class B Common Stock are not participating securities, presentation of net loss per share for the three and nine month periods ended September 30, 2021 would not be meaningful to the users of these condensed consolidated financial statements, and such information has not been presented.

Three Months Ended  

Six Months Ended  

June 30, 2022  

Net income (loss)

$ 10,263  

Net income (loss) attributable to non-controlling interests

( 2,402 )  

Basic net income (loss) attributable to Sky Harbour Group Corporation shareholders

12,665  

Unrealized gain on warrants

( 15,390 )  

Diluted net (loss) attributable to Sky Harbour Group Corporation shareholders

$ ( 2,725 )  

Basic weighted average shares of Class A Common Stock outstanding

14,938  

Nine Months Ended  

September 30, 2022  

$ ( 3,092 )  

Effect of dilutive warrants

Net loss attributable to non-controlling interests

( 2,479 )  

Effect of dilutive restricted stock

Diluted weighted average shares outstanding

Basic and diluted net loss attributable to Sky Harbour Group Corporation shareholders

$ ( 613 )  

Basic and diluted weighted average shares outstanding

14,949  

Earnings (loss) per share of Class A Common Stock –

13,628  

Earnings (loss) per share of Class A Common Stock –

Loss per share of Class A Common Stock –

Basic and diluted

$ ( 0.04 )  

Potentially dilutive shares associated with the outstanding Warrants were antidilutive for the six months ended 

June 30, 2022 due to the Company’s net loss position.

Thus, 14,519,218 shares issuable upon the exercise of the Warrants were excluded from the calculation of diluted weighted average shares outstanding and diluted loss per share for the six months ended June 30, 2022. 

651,514 and 661,000 antidilutive shares associated with the Company's restricted stock units were excluded from the calculation for the three and six months ended June 30, 2022, respectively.

Potentially dilutive shares associated with the outstanding Warrants were antidilutive for the three and nine months ended 

September 30, 2022 due to the Company’s net loss position.

Thus, 14,518,968  shares issuable upon the exercise of the Warrants were excluded from the calculation of diluted weighted average shares outstanding and diluted loss per share for the three and 

nine months ended September 

631,000 antidilutive shares associated with the Company's restricted stock units were excluded from the calculation for the three and nine months ended September 30, 2022 

due to the Company's net loss position.

Financial Instruments

The following table summarizes the carrying value, estimated fair value and classification of our financial instruments as of:

June 30, 2022

September 30, 2022

Carrying Value

Cash and cash equivalents

$ 3,796  

Restricted cash

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equity on the consolidated balance sheet.

Interest incurred on the loan payable to for the three and six months ended June 30, 2021 totaled $ 0 and $ 120 , respectively.

Interest incurred on the loan payable to for the three and nine months ended September 30, 2021 totaled $ 0 and $ 120 , respectively.

Beginning in November 2020, Sky entered into a note payable with a related party, SH Investment Fund I LLC, a company controlled by the Founder and CEO.

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thereby resulting in a loss on extinguishment of related party debt of $ 0.25 million which was recorded as a charge in the consolidated statement of operations.

For the three and six months ended June 30, 2022, the Company paid $ 25 and $ 45 respectively, for consulting services, to a company that employed the chief financial officer until prior to July 1, 2021.

The Company paid $ 32 and $ 62 during the three and six months ended June 30, 2021 to the same company.

For the three and nine  months ended September 30, 2022, the Company paid $ 40 and $ 85  respectively, for consulting services, to a company that employed the chief financial officer until prior to July 1, 2021.

The Company paid $ 30  and $ 92 during the three and nine  months ended September 30, 2021 to the same company.

On September 20, 2021, the Company entered into a non-exclusive agreement with Echo Echo, LLC, a related party to the Founder and CEO, for the use of a Beechcraft Baron G58 aircraft.

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Additionally, the Company will also incur the pro rata share of maintenance, overhead and insurance costs of the aircraft.

For the three and six months ended June 30, 2022 , the Company recognized $ 53 and $ 84  of expense, respectively, within General and administrative expense under the terms of this agreement, and the related liability is included in Accounts payable, accrued expenses and other liabilities on the consolidated balance sheet as of June 30, 2022 .

For the three and nine months ended September 30, 2022 , the Company recognized $ 50  and $ 134  of expense, respectively, within General and administrative expense under the terms of this agreement, and the related liability is included in Accounts payable, accrued expenses and other liabilities on the consolidated balance sheet as of September 30, 2022 .

Commitments and Contingencies

In addition to the lease payment commitments discussed in Note 7, the ground leases to which the Company is a party contain covenants that require the Company to conduct construction of hangar facilities on the leased grounds within a certain period and in some cases, to spend a minimum dollar amount.

With respect to the Company’s SGR Phase II project, the Company is subject to requirements that define (i) a minimum improvement amount of $ 2.0 million and (ii) that related construction commence by October 2022 and be completed by October 2023.

If these conditions are not met or otherwise waived or amended, the ground lease for the parcels designated for the SGR Phase II project will automatically terminate.

The Company has committed to spend $ 17.0 million in capital improvements on the BNA construction project by July 2, 2023.

If this amount is not expended, the shortfall would become due and payable within 60 days as additional rent under the lease agreement.

The APA Lease requires the Company to improve the property in accordance with a development plan included in the lease and to complete such improvements within 24 -months of the issuance of permitting documents.

The APA Phase I project is still in the permitting phase.

The DVT Lease requires improvements to be made for Phase I (estimated cost of improvements of $ 15.3 million) and for Phase II, if such option is exercised (estimated cost of improvements of $ 14.6 million), within 12 -months after receiving permitting documents for each Phase, but in no event later than May 2026.

The DVT Lease requires approximately $ 15.3 million and $ 14.6 million of improvements to be made for Phase I and for Phase II, if such option is exercised, respectively, within 12 -months after receiving permitting documents for each Phase, but in no event later than May 2026.

The Company is still in the permitting phase of its DVT Phase I project.

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Other comprehensive loss

Balance as of June 30, 2022

Balance as of September 30, 2022

MANAGEMENT ’

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The following analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”), as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities Exchange Commission (the “SEC”) on March 28, 2022 (the “Form 10-K”), which is accessible on the SEC’s website at www.sec.gov.

As described in Note 1 to the accompanying consolidated financial statements, the comparative period for the results of operations included herein are of Sky Harbour, LLC for the three and six months ended June 30, 2021. 

Cautionary Note Regarding Forward-Looking Statements

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expectations regarding the Company’s strategies and future financial performance, including the Company’s future business plans or objectives, prospective performance and commercial opportunities and competitors, services, pricing, marketing plans, operating expenses, market trends, revenues, liquidity, cash flows and uses of cash, capital expenditures, and the Company’s ability to invest in growth initiatives;

the effects of general economic conditions, including inflation, interest rates levels, and availability of construction materials for our development projects;

the outcome of any legal proceedings that may be instituted against Sky Harbour Group Corporation or its predecessors in connection with the Yellowstone Transaction and related transactions;

the effects of general economic conditions, including inflation, rising interest rates, and availability of construction materials and labor for our development projects;

our limited operating history makes it difficult to predict future revenues and operating results;

financial projections may not prove to be reflective of actual financial results;

the ability to recognize the anticipated benefits of the Yellowstone Transaction, which may be affected by, among other things, competition, and the ability of the combined business to grow and manage growth profitably;

our ability to implement our construction costs mitigation strategies;

changes in applicable laws or regulations;

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The post-pandemic surge in consumption of private aviation services is driving accelerated fleet growth, further widening the supply-demand gap.

Forecasted 2022 deliveries of approximately 770 new business jets, the constant increase in average aircraft length and wingspan, and historically low retirements of the oldest business jets in the US fleet, suggest that 2022 may see the most dramatic footprint growth of the US business aviation fleet on record.

Reported business aircraft activity increased 15.8% for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, which also included a 28.5% increase in activity in the large cabin market, which represents the primary target market for Sky Harbour's HBS campuses.

The constant increase in average aircraft length and wingspan, and historically low retirements of the oldest business jets in the US fleet, suggest that 2022 may see the most dramatic footprint growth of the US business aviation fleet on record.

Data from the major business aviation OEMs suggest that order backlog for new business aviation aircraft is almost $47 billion, with one OEM forecasting an industry-wide outlook of up to 8,500 new business jet deliveries over the next decade. Reported business aircraft activity increased 12.3% for the eight months ended August 31, 2022 as compared to pre-pandemic activity during the same period in 2019. 

Sky Harbour’s real estate-centric business model is uniquely optimized to capture this market opportunity.

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With six airport campuses either in development or ongoing operations, the company is targeting fourteen additional airfields in the current growth phase, and an additional 30 in the next.

The table below presents certain information with respect to our portfolio as of June 30, 2022.

The table below presents certain information with respect to our portfolio as of September 30, 2022.

Sugar Land Regional Airport (“SGR”), Sugar Land, TX (Houston area);

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Predevelopment

November 2023

December 2022

In Construction

November 2023

Predevelopment

November 2024

December 2022

Predevelopment

November 2023

February 2024

Predevelopment

$261.4 - 295.1

The Estimated Total Construction Cost includes estimated direct construction expenditures associated with each facility.

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Recent Developments

On April 29, 2022, our wholly-owned subsidiary outside the Obligated Group purchased the underlying ground lease at OPF from the sublessor for approximately $8.5 million, and we now lease the property directly from Miami-Dade county (“MDC”).

The transaction also required us to pay approximately $1.0 million in transfer fees to MDC.

The transaction extends the term of the ground lease and is expected to decrease the Company’s cash ground lease payments by at least $30 million over the term of the lease on an undiscounted basis.

On June 28, 2022, we entered into an operating lease for a ground lease located at ADS (“ADS Lease”).

The ADS Lease term is 40 years from the completion of construction with no additional extension options, which is the maximum allowable term permitted by the Town of Addison, Texas.

On October 27, 2022, we substantially completed the construction of its BNA Phase II development project.

We expect that our total construction costs associated with this project to be slightly less than our initial estimated construction cost. In connection with the substantial completion of our BNA HBS campus, the tenant leases associated with our constructed hangars will commence starting in November 2022.

Factors That May Influence Future Results of Operations

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One of our largest expenses is the lease payments under our ground leases.

For the six months ended June 30, 2022 and 2021, our operating lease expense for ground leases was $1.9 million and $1.9 million, respectively.

For the nine months ended September 30, 2022 and 2021, our operating lease expense for ground leases was $2.8 million and $2.8 million, respectively.

As we enter into new ground leases at new airport sites, our payments to airport landlords will continue to increase into the future.

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Interest Expense

We expect that future changes in interest rates will impact our overall economic performance, by, among other things, changing our future borrowing costs.

We expect to issue additional private activity bonds (see Private Activity Bonds , below) to finance future site developments and higher interest rates would increase our borrowing costs.

Economic conditions and actions by policymaking bodies are contributing to rising interest rates, which, along with increases in our borrowing levels, could increase our future borrowing costs.

We expect to issue additional private activity bonds (see Private Activity Bonds , below) to finance future site developments and higher interest rates would impact our overall economic performance.

In addition, we are subject to credit spreads demanded by fixed income investors.

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General and Administrative Expenses

We do not expect the general and administrative expenses reflected in our statement of operations to be reflective of our expected professional, legal and consulting fees, payroll costs and other general and administrative expenses.

As a public company, we estimate our annual general and administrative expenses will grow to approximately $15 million annually, which amount includes, among other things, $5 million for legal, insurance, accounting and other expenses related to corporate governance, SEC reporting and other compliance matters.

In addition, while we expect that our general and administrative expenses will rise in some measure as our portfolio of campuses grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies and economies of scale.

The general and administrative expenses reflected in our statement of operations are reflective of the professional, legal and consulting fees, payroll costs, and other general and administrative expenses, including those necessary to support our business as a public company such as expenses associated with corporate governance, SEC reporting, and other compliance matters. While we expect that our general and administrative expenses will rise in some measure as our portfolio of campuses grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies, economies of scale, insourcing of job functions, and cost control measures.

Construction Material Costs and Labor

When constructing our HBS campuses, we use various materials and components.

We generally contract for our materials and labor at a fixed price for the anticipated construction period of our HBS campuses.

This allows us to mitigate the risks associated with increases in building materials and labor costs between the time construction begins on an HBS campus and the time it is completed.

We generally contract for our materials and labor under guaranteed maximum price contracts upon receipt of building permits. This allows us to mitigate the risks associated with increases in building materials and labor costs between the time construction begins on an HBS campus and the time it is completed.

Typically, the materials and most of the components used to construct our HBS campuses are readily available in the United States.

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We continue to monitor the supply markets to achieve the best prices available.

Typically, the price changes that most significantly influence our operations are price increases in steel, concrete, and labor.

Recent inflationary and supply chain pressures have led to increased construction materials costs, specifically associated with steel, concrete, and other materials.

We believe we will continue to experience such pressures in future quarters, as well as delays in our contractors’

ability to requisition such materials.

These pressures have led to an overall increase in budgeted and actual construction costs, as well as delays in starting and completing certain of our development projects. There can be no assurance that we will be able to increase the lease rates for the hangars within our HBS campuses to absorb these increased costs and/or delays, if at all.

Typically, the price changes that most significantly influence our operations are price increases in steel, concrete, and labor. 

In late August 2022, we received revised final construction bids related to our APA Phase I and DVT Phase I HBS campus development projects.

The final bids received were both meaningfully higher than our original price estimates due to spikes in both construction material and labor costs, along with decreased labor availability.

We have updated our estimates for total construction costs for all future projects to reflect these price spikes.

We believe that recent inflationary pressures and market conditions will lead to continued increases in construction costs as well as market rental rates for hangars within our HBS campus development projects.

However, there can be no assurance that we will be able to increase the lease rates for the hangars within our HBS campuses to absorb these increased costs and/or delays, if at all.

We intend to continue to aggressively take action to mitigate these inflationary pressures, reduce construction costs, and shorten development schedules, both in the near term at our APA Phase I and DVT Phase I development projects, and in the long term at future projects.

We structure our guaranteed maximum price construction contracts with shared savings clauses to incentivize the general contractors to reduce construction costs.

At our SGR Phase I development project, our total construction costs were lower than both our original pricing estimate and the project’s contracted guaranteed maximum price, and, despite the current environment, we expect that the total construction costs at our BNA Phase II and OPF Phase I HBS campus development projects will be completed slightly below our original estimates for each project.

In July 2022, we entered an exclusive strategic vendor partnership with a metal building and hangar door manufacturer that we expect to result in a reduction in the cost of the metal building and hangar door components at all future HBS campuses.

As our strategic partnership grows, we expect this vertical integration will enable us to deliver metal buildings to each development site in shorter timeframes, which we believe will reduce the overall construction duration of each development project.

No assurance can be given that our cost mitigation strategies will be successful, the costs of our projects will not exceed budgets or the guaranteed maximum price for such projects, or that the completion will not be delayed beyond the projected completion dates.

Current Capital Requirements and Future Expenditures for Expansion

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All these future hangar campus projects are discretionary and require us to identify the appropriate airports with the target hangar demand economics, secure required ground leases and permits, and complete future construction at such sites.

The cumulative 20 airport site business plan is estimated to cost approximately $930 million, with approximately 75% anticipated from long term PABs and the balance with equity or equity linked financing.

The cumulative 20 airport site business plan is estimated to cost approximately $1.1 billion, with approximately 65 to 75% anticipated from long term PABs and the balance with equity or equity linked financing.

The equity portion of this business plan has been partially funded upon the closing of the Yellowstone Transaction, which included an additional $45 million equity investment from Boston Omaha through the BOC PIPE. 

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Results of Operations

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021

The following table sets forth a summary of our consolidated results of operations for the periods indicated below and the changes between the periods. 

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

The following table sets forth a summary of our consolidated results of operations for the periods indicated below and the changes between the periods (in thousands). 

Three months ended

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

Rental revenue

Total revenue

Loss on impairment of long-lived assets

General and administrative

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Net income (loss)

Revenues for the three months ended June 30, 2022, and 2021 were $409, compared to $394, respectively.

The increase in revenue primarily resulted from additional tenant leases commencing at SGR during the second quarter of 2022.

Revenues increased $29, or 7%, primarily as a result of additional tenant leases commencing at SGR during the third quarter of 2022.

Operating Expenses

Operating expenses increased 2% from $1,080 to $1,103 for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021.

The increase was primarily due to slight increases in insurance, property tax and utilities.

Operating expenses increased $89, or 8%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021.

The increase reflects higher operating costs as we prepare to commence operations at our BNA and OPF campuses in the fourth quarter of 2022.

Salaries, wages, and benefits associated with our campus personnel increased by $124, primarily driven by headcount increases at our BNA and OPF campuses.

These increases were offset by a $32 decrease in ground lease expense, primarily driven by lower lease costs due to the OPF Lease Transaction (see Note 7) executed in the second quarter of 2022.

Depreciation Expense

Depreciation expense for the three months ended June 30, 2022, and 2021 was $154 and $141, respectively.

The increase reflects the placement of additional long-lived assets into service following the second quarter of 2021.

Depreciation expense for the three months ended September 30, 2022, and 2021 was $148 and $143, respectively.

The increase reflects the placement of additional ground support equipment into service during the third quarter of 2022.

General and Administrative Expenses

For the three months ended June 30, 2022, and 2021, general and administrative expenses were $4,031, compared to $1,569, respectively.

The increase was primarily due to a $1,497 increase in salaries, wages, and benefits, driven by an increase in full-time and contracted employees, as well as incentive compensation programs instituted to attract and retain talented human capital.

Professional fees increased $167 due to an increase in legal, accounting, and consulting costs as compared to the prior year primarily as a result of becoming a public company.

Other administrative expenses increased $622 driven primarily by insurance, board compensation, and computer and software expenses.

Marketing and other pursuit costs increased $122 year-over-year, primarily driven by our growth strategy in securing airport site acquisitions and potential tenants.

Other income increased from a loss of $382 to income of $15,390 for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to a $15,390 mark-to-market adjustment of the outstanding warrants at June 30, 2022.

For the three months ended September 30, 2022, general and administrative expenses increased by $1,259 as compared to the three months ended September 30, 2021, primarily due to $664 increase in other administrative expenses, driven by increases in insurance, franchise taxes, and computer and software expenses. Salaries, wages, and benefits increased by $407, largely attributable to an increase in full-time and contracted employees.

The increase also reflects the implementation of stock and cash incentive compensation programs instituted to attract and retain talented human capital.

Marketing and other pursuit costs increased $219 year-over-year, reflecting our growth strategy in securing airport site acquisitions and potential tenants.

These increases were offset by a $31 decrease in professional fees, which was primarily driven by decreased in legal and accounting related costs due to our efforts to internalize job functions.

Other income increased from a loss of $319 to income of $1,452 for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily due to a $1,452 mark-to-market adjustment of the outstanding warrants at September 30, 2022.

These warrants were issued by Yellowstone as part of its initial public offering.

As a result, the warrants were not reflected in Sky’s financial statements for the three months ended June 30, 2021.

As a result, the warrants were not reflected in Sky’s financial statements for the three months ended September 30, 2021.

Results of Operations

Six months ended June 30, 2022 Compared to the Six months ended June 30, 2021

The following table sets forth a summary of our consolidated results of operations for the periods indicated below and the changes between the periods. 

Six months ended

June 30, 2022

June 30, 2021

Nine months ended September 30, 2022 Compared to the Nine months ended September 30, 2021

The following table sets forth a summary of our consolidated results of operations for the periods indicated below and the changes between the periods (in thousands). 

Nine months ended

September 30, 2022

September 30, 2021

Rental revenue

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Total other (income) expense

Revenues for the six months ended June 30, 2022 were $805, compared to $784 for the six months ended June 30, 2021.

The increase primarily resulted from additional tenant leases commencing at SGR during the second quarter of 2022.

Revenues for the nine months ended September 30, 2022 were $1,236, compared to $1,187 for the nine months ended September 30, 2021.

The increase primarily resulted from additional tenant leases commencing at SGR during the second and third quarters of 2022.

Operating Expenses

Operating expenses increased 8% from $2,075 to $2,247 for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021.

The increase was primarily due to an increase in insurance expense, particularly at the BNA and OPF locations.

Operating expenses increased $369, or 11%, primarily driven by a $235 increase in salaries, wages, and benefits associated with our campus personnel.

The increase was reflective of headcount increases at BNA and OPF as we prepare to commence operations at our BNA and OPF campuses in the fourth quarter of 2022, and a headcount increase at SGR to accommodate increased tenant activity.

Insurance expense increased $72, primarily driven by additional policies in effect at our BNA and OPF campuses. 

Depreciation Expense

Depreciation increased $15 for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021.

The increase reflects the placement of additional long-lived assets into service following the second quarter of 2021.

Depreciation increased $22 for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021.

The increase reflects the placement of additional ground support equipment into service throughout 2022.

General and Administrative Expenses

For the six months ended June 30, 2022, and 2021, general and administrative expenses were $8,714, as compared to $2,075, respectively.

The increase was primarily due to a $3,676 increase in salaries, wages, and benefits, driven by an increase in full-time and contracted employees, as well as incentive compensation programs instituted to attract and retain talented human capital.

For the nine months ended September 30, 2022, and 2021, general and administrative expenses were $12,136, as compared to $4,431, respectively.

The increase was primarily driven by a $4,261 increase in salaries, wages, and benefits, which is reflects an increase in full-time and contracted employees. The increase also reflects the implementation of stock and cash incentive compensation programs instituted to attract and retain employees.

Other administrative expenses increased $1,679 driven primarily by insurance, franchise taxes, and computer and software expenses.

Professional fees increased $1,190 due to an increase in legal, accounting, and consulting costs as compared to the prior year primarily as a result of becoming a public company.

Other administrative expenses increased $1,042 driven primarily by insurance, board compensation, and computer and software expenses.

Marketing and other pursuit costs increased $205 year-over-year, primarily driven by our growth strategy in securing airport site acquisitions and potential tenants.

Marketing and other pursuit costs increased $575 year-over-year, reflecting our growth strategy in securing airport site acquisitions and potential tenants.

Other (Income) Expenses

Other (income) expenses increased from a $1,091 loss to $1,452 of income for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to a $1,452 mark-to-market gain of the outstanding warrants at June 30, 2022.

Other (income) expenses increased from a $1,410 expense to $2,904 of income for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to a $2,904 mark-to-market gain of the outstanding warrants at September 30, 2022.

These warrants were issued by Yellowstone as part of its initial public offering.

As a result, the warrants were not reflected in Sky’s financial statements for the six months ended June 30, 2021.

As a result, the warrants were not reflected in Sky’s financial statements for the nine months ended September 30, 2021.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund the construction of new assets, fund working capital and other general business needs.

Our primary sources of cash include the potential issuance of equity and debt securities.

Our long-term liquidity requirements include lease payments under our ground leases with airport authorities, repaying principal and interest on outstanding borrowings, funding for operations and paying accrued expenses.

Our primary sources of cash include the potential issuance of equity and debt securities and rental payments from tenants.

Construction Material Costs and Labor , above) funding for operations, and paying accrued expenses. 

We believe that we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional PABs and other debt and the issuance of additional equity securities.

However, as a new public company, we cannot assure you that we will have access to these sources of capital or that, even if such sources of capital are available, that these sources of capital will be available on favorable terms.

[We may be forced to issue equity securities at dilutive prices to meet our liquidity requirements.] Our ability to incur additional debt will depend on multiple factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that are or may be imposed by future lenders.

Our ability to incur additional debt will depend on multiple factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that are or may be imposed by future lenders.

Our ability to access the equity and debt capital markets will depend on multiple factors as well, including general market conditions for real estate companies, our degree of leverage, the trading price of our common stock and bonds and market perceptions about our company.

The following table summarizes our cash and cash equivalents, restricted cash, investments, and restricted investments as of September 30, 2022 and December 31, 2021:

September 30, 2022

December 31, 2021

Cash and cash equivalents

Restricted cash

Restricted investments

Total cash, restricted cash, investments, and restricted investments

Common Stock Purchase Agreement

On August 18, 2022, we entered into a Common Stock Purchase Agreement and a Registration Rights Agreement (collectively referred to as the “Purchase Agreement”) with B.

Riley Principal Capital, LLC (“B.

Riley”).

Pursuant to the Purchase Agreement, we have the right, in our sole discretion, to sell to B.

Riley up to 10 million shares of our Class A Common Stock at 97% of the volume weighted average price of our Class A Common Stock calculated in accordance with the Purchase Agreement, over a period of 36 months subject to certain limitations and conditions contained in the Purchase Agreement.

Sales and timing of any sales of Class A Common Stock are solely at our election, and we are under no obligation to sell any securities to B.

Riley under the Purchase Agreement.

As consideration for B.

Riley’s commitment to purchase shares of our Class A Common Stock, we have issued 25,000 shares of our Class A Common Stock to B.

Riley as initial commitment shares and may issue up to an aggregate of 75,000 shares of our Class A Common Stock to B.

Riley as additional commitment shares if certain conditions are met.

Equity Financing

20 unchanged sentences

The PABs are subject to a Continuing Disclosure Agreement whereby SHC is obligated to provide electronic copies of (i) monthly construction reports, (ii) quarterly reports containing quarterly financial information of SHC and (iii) annual reports containing audited consolidated financial statements of SHC to the Municipal Securities Rulemaking Board.

As of June 30, 2022, we were in compliance with all debt covenants.

As of September 30, 2022, we were in compliance with all debt covenants.

Lease Commitments

The table below sets forth certain information with respect to our future minimum lease payments required under operating leases as of June 30, 2022:

The table below sets forth certain information with respect to our future minimum lease payments required under operating leases as of September 30, 2022 (in thousands):

2022 (remainder of year)

2 unchanged sentences

Contractual Obligations

The following table sets forth our contractual obligations as of June 30, 2022:

The following table sets forth our contractual obligations as of September 30, 2022 (in thousands):

Principal Payments of Long-Term Indebtedness

5 unchanged sentences

Historical Cash Flows

The following table summarizes our sources and uses of cash for the six months ended June 30, 2022 and 2021:

Six months ended

June 30, 2022

June 30, 2021

The following table summarizes our sources and uses of cash for the nine months ended September 30, 2022 and 2021 (in thousands):

Nine months ended

September 30, 2022

September 30, 2021

Cash and restricted cash at beginning of period

4 unchanged sentences

Operating Activities —

Net cash used in operating activities was $24.3 million for the six months ended June 30, 2022, as compared to cash used in operating activities of $2.4 million for the same period in 2021.

Net cash used in operating activities was $25.3 million for the nine months ended September 30, 2022, as compared to cash used in operating activities of $4.7 million for the same period in 2021.

The $20.6 million increase in cash used in operating activities was primarily attributable to the $9.6 million of initial direct costs associated with the purchase of our former landlord's leasehold interest at OPF.

In addition, the increase was partially attributable to the $4.4 million increase in net loss, which was driven by general and administrative expenses incurred in the expansion of our business, including transaction-related expenses and other expenses related to corporate governance.

The increase in cash used for operating activities was also attributable to a $6.7 million change in operating assets and liabilities.

The increase was also partially attributable to a $7.1 million increase in net loss, net of non-cash adjustments. The increase it net loss was primarily driven by general and administrative expenses incurred in the expansion of our business, including transaction-related expenses and other expenses related to corporate governance.

Investing Activities —

Cash used in investing activities was $189.3 million for the six months ended June 30, 2022, as compared to cash used in investing activities of $2.9 million for the same period in 2021.

The increase of $186.4 million in cash used in investing activities was driven primarily by the $166.6 million purchase of held-to-maturity U.S.

Treasury securities during the first quarter of 2022, the $30.0 million purchase of available-for-sale U.S.

Treasury securities during the second quarter, and a $17.9 million increase in payments for costs of construction due to the Company’s ongoing construction projects at OPF and BNA.

Cash used in investing activities was $213.5 million for the nine months ended September 30, 2022, as compared to cash used in investing activities of $5.6 million for the same period in 2021.

The increase of $207.9 million in cash used in investing activities was driven primarily by the $193.8 million purchase of held-to-maturity U.S.

Treasury securities during the first and third quarters of 2022, the $30.0 million purchase of available-for-sale U.S.

Treasury securities during the second quarter, and a $30.1 million increase in payments for costs of construction due to the Company’s ongoing construction projects at BNA, OPF, APA, and DVT.

These increases were offset by proceeds of $48.5 million received at maturity of certain of the Company's restricted investments.

Financing Activities —

Net cash provided by financing activities was $51.9 million for the six months ended June 30, 2022, as compared to net cash provided by financing activities of $25.9 million for the same period in 2021.

The $26.0 million increase in net cash provided by financing activities was primarily driven by $45.0 million of proceeds from the issuance of the BOC PIPE and $15.7 million of gross proceeds from the Yellowstone trust account, as compared to $30.0 million of proceeds from the issuance of Series A Preferred Units in the first quarter of 2021. 

Net cash provided by financing activities was $52.8 million for the nine months ended September 30, 2022, as compared to net cash provided by financing activities of $227.3 million for the same period in 2021.

The $174.5 million decrease in net cash provided by financing activities was primarily driven by $166.5 million of bond proceeds received during the third quarter of 2021 due to the issuance of the Series 2021-1 PABs, and $55.0 million of proceeds received from the issuance of the Sky Series B Preferred Units during the third quarter of 2021, and $30.0 million of proceeds from the issuance of Series A Preferred Units in the first quarter of 2021.

These decreases were offset by $45.0 million of proceeds received from the issuance of the BOC PIPE and $15.7 million of gross proceeds from the Yellowstone trust account, both occurring in the first quarter of 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements