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Item 8. Financial Statements and Supplementary Data

2023-03-24 compared with 2022-03-28 · 916 added, 360 removed, 89 unchanged (93% of the section changed)

2 unchanged sentences

Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID:

KPMG LLP , Omaha, NE

Balance Sheets - December 31, 2021  

and December 31, 2020  

Statements of Operations - Year Ended December 31, 2021 and for the Period From August 25, 2020 (inception) to December 31, 2020  

Statements of Changes In Stockholders' Equity - Year ended December 31, 2021 and for the Period From August 25, 2020 (inception) to December 31, 2020  

Statements of Cash Flows - Year ended December 31, 2021 and for the Period From August 25, 2020 (inception) to December 31, 2020  

Notes to Financial Statements  

Report of Independent Registered Public Accounting Firm  (PCAOB ID:

EisnerAmper LLP, New York, NY

Balance Sheets - December 31, 2022 and December 31, 2021

Statements of Operations - Years Ended December 31, 2022 and December 31, 2021

Statements of Comprehensive Income (Loss) - Years Ended December 31, 2022 and December 31, 2021 47

Statements of Changes In Stockholders' Equity - Years ended December 31, 2022 and December 31, 2021

Statements of Cash Flows - Years ended December 31, 2022 and December 31, 2021

Notes to Financial Statements

Report of Independent Registered Public Accounting Firm

2 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Sky Harbour Group Corporation (formerly Yellowstone Acquisition Company) (the Company) as of December 31, 2021 and 2020, the related statements of operations, changes in stockholders’

equity, and cash flows for the year ended December 31, 2021 and for the period from August 25, 2020 (inception) to December 31, 2020, and the related notes (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the year ended December 31, 2021 and for the period August 25, 2020 (inception) to December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

We have audited the accompanying consolidated balance sheets of Sky Harbour Group Corporation and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive income (loss), stockholders’

equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). 

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021, and the consolidated  results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

These financial statements are the responsibility of the Company’s management. 

Our responsibility is to express an opinion on the Company’s financial statements based on our audits. 

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We conducted our audits in accordance with the standards of the PCAOB. 

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. 

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. 

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. 

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. 

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 

We believe that our audits provide a reasonable basis for our opinion.

/s/ EisnerAmper

We have served as the Company’s auditor since 2020.

Omaha, Nebraska

EISNERAMPER LLP

New York, New York

March 24, 2023

SKY HARBOUR GROUP CORPORATION (f/k/a YELLOWSTONE ACQUISITION COMPANY)

BALANCE SHEETS

Current assets:

SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

December 31, 2022

December 31, 2021

$ 2,174  

$ 6,805  

Assets held in Trust

Restricted cash

39,222  

197,130  

Prepaid expenses

24,895  

Restricted investments

114,648  

Prepaid expenses and other assets

Cost of construction

48,242  

25,034  

Liabilities and Stockholders' Equity:

Current liabilities:

Accounts payable and accrued expenses

Constructed assets, net

39,709  

14,500  

Note payable to Sponsor

Right-of-use assets

56,716  

Deferred underwriting fee payable

56,867  

Long-lived assets, net

$ 331,204  

Total current liabilities

$ 303,887  

Liabilities and equity

Accounts payable, accrued expenses and other liabilities

$ 14,184  

Warrants liability

$ 10,959  

Operating lease liabilities

53,531  

Total Liabilities

61,289  

Bonds payable, net of debt issuance costs and premiums

162,210  

Commitments and Contingencies:

Class A common stock, $ 0.0001 par value;

13,598,898 shares subject to possible redemption at $ 10.20 per share

160,679  

Warrants liability

Total liabilities

232,829  

Stockholders' Equity:

Preferred stock, $ 0.0001 par value;

1,000,000 shares authorized;

232,927  

Commitments and contingencies (Note 16)

Redeemable Sky Series B Preferred Units

54,029  

Stockholders’

Preferred stock;

$ 0.0001 par value;

10,000,000 shares authorized as of December 31, 2022;

none issued and outstanding

Class A common stock, $ 0.0001 par value;

200,000,000 shares authorized

200,000,000 shares authorized as of December 31, 2022;

14,962,831 shares issued and outstanding as of December 31, 2022

Class B common stock, $ 0.0001 par value;

20,000,000 shares authorized;

3,399,724 shares issued and outstanding

50,000,000 shares authorized as of December 31, 2022;

42,192,250 shares issued and outstanding as of December 31, 2022

Additional paid-in capital

29,560  

Accumulated deficit

( 18,437,959 )

( 21,384,878 )

Total Stockholders' Equity

( 18,437,619 )

( 21,384,538 )

Total Liabilities and Stockholders' Equity

( 3,184 )  

Accumulated other comprehensive loss

( 102 )  

See accompanying notes to financial statements.

SKY HARBOUR GROUP CORPORATION (f/k/a YELLOWSTONE ACQUISITION COMPANY)

STATEMENTS OF OPERATIONS

STATEMENT OF OPERATIONS

For the period

Professional fees and other expenses

State franchise taxes, other than income tax

General and administrative costs

Change in fair value of warrant liability

Net income (loss) income from operations

Other income - interest and dividend income

Gain on disposition of investments

Unrealized gain on marketable securities held in Trust

Income (loss) before income taxes

Income tax (provision) benefit

Net income (loss) attributable to common shares

Net income (loss) per common share:

Class A common stock - basic and diluted

Class B common stock - basic and diluted

See accompanying notes to financial statements.

SKY HARBOUR GROUP CORPORATION (f/k/a YELLOWSTONE ACQUISITION COMPANY)

STATEMENT OF CHANGES IN STOCKHOLDERS ’

For the Period from August 25, 2020 (inception) to December 31, 2021

Stockholder's

Balance –

August 25, 2020 (inception)

Issuance of Class B common stock to Sponsor

Sale of units in initial public offering, gross

Offering costs

Over-allotment reduction of Class B common stock

Sale of private placement warrants to Sponsor

Reclassification of warrants to liabilities

Common stock subject to possible redemption

( 120,348,686

( 138,708,760

Balance –

Total Sky Harbour Group Corporation stockholders’

26,279  

Members’

16,931  

Non-controlling interests

72,096  

98,375  

16,931  

Total liabilities and equity

$ 331,204  

$ 303,887  

See accompanying Notes to Consolidated Financial Statements

SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

December 31, 2022

Balance –

December 31, 2021

See accompanying notes to financial statements.

SKY HARBOUR GROUP CORPORATION (f/k/a YELLOWSTONE ACQUISITION COMPANY)

STATEMENTS OF CASH FLOWS

For the period

Rental revenue

Total revenue

Loss on impairment of long-lived assets

General and administrative

Total expenses

Other (income) expense:

Interest expense, net of capitalized interest

Other (income) expense

Unrealized (gain) loss on warrants

Loss on extinguishment of note payable to related party

Total other (income) expense

Net loss attributable to non-controlling interests

Net loss attributable to Sky Harbour Group Corporation shareholders

Loss per share

Weighted average shares

See accompanying Notes to Consolidated Financial Statements

SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

December 31, 2022

December 31, 2021

Other comprehensive loss, before related income taxes:

Unrealized losses on available-for-sale securities

Total other comprehensive loss

See accompanying Notes to Consolidated Financial Statements

SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’

(in thousands, except share data)

Redeemable Sky Series B

Accumulated Other

Preferred Units

Comprehensive

Stockholders’

Balance at December 31, 2020

Gain on extinguishment of related party loan, net of repurchase of membership interests

Conversion of SH I loan to equity

Issuance of Sky Series A Preferred Units, net of equity issuance costs

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

Issuance of Warrants

Equity issuance costs

Sky incentive compensation

Balance at December 31, 2021

Sky incentive compensation prior to recapitalization

Net income (loss) prior to recapitalization

Yellowstone Transaction and recapitalization, See Note 3

Share-based compensation

Sky incentive compensation following recapitalization

Issuance of initial commitment shares

Exercise of warrants

Other comprehensive income (loss)

Net income (loss) following recapitalization

Balance at December 31, 2022

See accompanying Notes to Consolidated Financial Statements

SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

December 31, 2022

December 31, 2021

Cash flows from operating activities:

Net Income (Loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Unrealized gain on marketable securities held in Trust

Gain on disposition of investments

Issuance costs related to warrant liability

Change in fair value of warrant liability

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Straight-line rent adjustments, net

Loss on extinguishment of related party loan payable

Equity-based compensation

Loss on impairment of long-lived assets

Non-cash operating lease expense

Unrealized gain on warrants

Changes in operating assets and liabilities:

Prepaid expenses

Accounts payable and accrued expenses

Prepaid expenses and other assets

Right-of-use asset initial direct costs

Accounts payable, accrued expenses and other liabilities

Net cash used in operating activities

Cash flows from investing activities:

Proceeds from sales of investments

1,179,227,029

Purchase of investments

( 1,179,269,305

( 404,701,848

Purchases of long-lived assets

Payments for cost of construction

Issuance of notes receivable

Purchases of available for sale investments

Purchases of held-to-maturity investments

Proceeds from held-to-maturity investments

Proceeds for available for sale investments

Net cash used in investing activities

( 138,701,848

Cash flows from financing activities:

Proceeds from issuance of Class A common stock, gross

Proceeds from issuance of Class B common stock to Sponsor

Proceeds from issuance of Private Placement Warrants

Proceeds from note payable to Sponsor

Offering costs

Proceeds from issuance of Sky Series A Preferred Units

Proceeds from issuance of Sky Series B Preferred Units and Warrants

Proceeds from issuance of BOC PIPE

Proceeds from Yellowstone trust

Proceeds from exercise of warrants

Payments for equity issuance costs

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

Proceeds of loans payable

Proceeds of loans payable to related parties

Net cash provided by financing activities

Net (decrease) increase in cash

Cash –

beginning of the period

Cash –

end of the period

Interest Paid in Cash

Income Taxes Paid in Cash

See accompanying notes to financial statements.

SKY HARBOUR GROUP CORPORATION (f/k/a YELLOWSTONE ACQUISITION COMPANY)

NOTES TO FINANCIAL STATEMENTS

Net (decrease) increase in cash and restricted cash

Cash and restricted cash, beginning of year

Cash and restricted cash, end of year

See accompanying Notes to Consolidated Financial Statements

SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

(in thousands, except share data)

Organization and Business Operations

Organization and General

Yellowstone Acquisition Company (the “Company”) was incorporated in Delaware on August 25, 2020.

The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar Business Combination with one or more businesses (the “Business Combination”).

The Company has neither engaged in any operations nor generated any revenue to date.

The Company’s management has broad discretion with respect to the Business Combination, but intends to focus its search for a target business in the homebuilding, 

manufacturing serving the homebuilding market, financial services and commercial real estate industries.

The Company’s Sponsor is BOC Yellowstone LLC, a Delaware limited liability company (the “Sponsor”).

The Company has selected December 31 as its year-end.

The Company completed its initial public offering (“IPO”) on October 26, 2020 as further described below.

The Company will not generate any operating revenues until after the completion of its Business Combination, at the earliest.

Subsequent to the IPO, the Company has generated and will continue to generate non-operating income in the form of investment income on cash and cash equivalents from the proceeds derived from the IPO and the sale of the Private Placement Warrants (as defined below) held in the Trust Account (as defined below).

Sky Harbour Business Combination

On August 1, 2021, Yellowstone Acquisition Company (the “Company”) and Sky Harbour LLC (“SHG”), a Delaware limited liability company, entered into a definitive equity purchase agreement (the “Equity Purchase Agreement”), which was subsequently announced on August 2, 2021. 

Immediately thereafter, BOC YAC Funding LLC (“BOC YAC”), a Delaware limited liability company and wholly owned subsidiary of Boston Omaha Corporation (“Boston Omaha”), entered into a Series B Preferred Unit Purchase Agreement (the “Series B Purchase Agreement”) with SHG, which was also subsequently announced. 

On August 25, 2021, SHG announced that its subsidiary, Sky Harbour Capital LLC (“SH Capital”), entered into an agreement for $ 166  million in financing through the sale of Series 2021 private activity tax-exempt senior bonds through municipal conduit issuer, Public Finance Authority (“PFA”).

SH Capital and its subsidiaries Sky Harbour Sugar Land Airport, LLC, Sky Harbour Opa Locka Airport, LLC, Nashville Hangars LLC, APA Hangars LLC, and DVT Hangars LLC constitute an Obligated Group, the property and revenues of which secure the bonds on a joint and several basis.

The bond issuance consists of unrated senior fixed rate tax-exempt bonds with three term maturities, in 2036, 2041 and 2054, with principal amortization from 2032 thru 2054 (average life of 24 years).

The term bonds were priced to yield 3.80 % ( 2036 ), 4.00 % ( 2041 ) and 4.25 % ( 2054 ).

This bond financing was completed on September 14, 2021.

On December 22, 2021, Boston Omaha Corporation, through its subsidiary BOC YAC, LLC, agreed to provide $ 45 million of PIPE financing through the purchase of Yellowstone Class A common stock at a price of $ 10.00 per share immediately prior to the closing of the business combination. 

In consideration of the investment, SHG agreed to waive the $ 150 million minimum financing condition which required that the Company deliver cash proceeds of at least $150 million (after payment of certain expenses) to SHG as a condition precedent to consummating the business combination. 

The Business Combination with SHG closed on January 25, 2022.  

The cash proceeds are expected to be used to fund the development of several new hangar campuses.

Financing  

Upon the closing of the IPO, $ 127,500,000 ($ 10.20 per Unit) of the net proceeds of the sale of the Units in the IPO, including proceeds of the sale of the Private Placement Warrants, were placed in a trust account (“Trust Account”) located in the United States at JP Morgan Chase Bank, N.A.

with Continental Stock Transfer & Trust Company acting as trustee.  In connection with the exercise of the underwriters' overallotment option on December 1, 2020, $ 10,988,980 of the net proceeds of the sale of the additional Units sold, inclusive of the proceeds from the sale of the additional Private Placement Warrants to our Sponsor, were placed in the Trust Account.

Upon the closing of the Business Combination, the funds remaining in the Trust Account following were distributed to the Company.

Trust Account

Prior to the closing of the Business Combination, funds held in the Trust Account were invested in U.S.

government securities, within the meaning set forth in Section 2 (a)( 16 ) of the Investment Company Act, with a maturity of 185 days or less, or in any open-ended investment company that holds itself out as a money market fund meeting certain conditions of Rule 2a - 7 of the Investment Company Act, as determined by the Company.

Business Combination

The Company’s management had broad discretion with respect to the specific application of the net proceeds of the IPO and the sale of the Private Placement Warrants, although substantially all of the net proceeds were intended to be applied generally toward completing a Business Combination.

The Company was required to complete its initial Business Combination with one or more target businesses that together have a fair market value equal to at least 80 % of the net assets held in the Trust Account (excluding the amount of any deferred underwriting commissions held in the Trust Account) at the time of the agreement to enter into a Business Combination.

The Company would have only completed a Business Combination if the post-Business Combination company owns or acquires 50 % or more of the issued and outstanding voting securities of the target or otherwise acquires a controlling interest in the target business sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). 

The Company, after signing a definitive agreement for a business combination, was required to provide its stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer.

The stockholders were entitled to redeem their shares for a pro rata portion of the amount held in the Trust Account (initially $10.20 per share), calculated as of two business days prior to the completion of a Business Combination, including any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations.

There are no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.

The shares of Class A common stock are recorded at redemption value and classified as temporary equity, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.”

On January 25, 2022, the Company held a special meeting of the Company’s stockholders (the “Special Meeting”), held in lieu of the 2021 annual meeting of the Company’s stockholders, at which stockholders representing a majority of the outstanding shares of common stock approved the SHG business combination.

The actual redemptions of common stock by Company stockholders in conjunction with the stockholder vote was 12,061,041 shares.

Emerging Growth Company

The Company is an “emerging growth company,”

as defined in Section 2 (a) of the Securities Act, as modified by the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”), and it has opted to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, section 102 (b)( 1 ) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.

The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable.

The Company has not elected to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, will adopt the new or revised standard at the time private companies adopt the new or revised standard.

This may make comparison of the Company’s financial statement with another emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Significant Accounting Policies

Sky Harbour Group Corporation (“SHG”) is a holding company organized under the laws of the State of Delaware and, through its main operating subsidiary, Sky Harbour LLC and its subsidiaries (collectively, “Sky”), is an aviation infrastructure development company that develops, leases and manages general aviation hangars for business aircraft across the United States.

Sky Harbour Group Corporation and its consolidated subsidiaries are collectively referred to as the “Company.”

On January 25, 2022 ( the “Closing Date”), our predecessor, Yellowstone Acquisition Company (“Yellowstone”), a special purpose acquisition company incorporated in Delaware on August 25, 2020, consummated the business combination (the “Yellowstone Transaction”) contemplated by the Equity Purchase Agreement, dated as of August 1, 2021 ( the “Equity Purchase Agreement”), with Sky, a Delaware limited liability company.

As a result of the closing of the Yellowstone Transaction, and collectively with the other transaction described in the Equity Purchase Agreement, the Company was reorganized as an umbrella partnership-C corporation, or “Up-C”, structure in which substantially all of the operating assets of the Company are held by Sky and SHG’s only substantive assets are its equity interests in Sky (the “Common Units”).

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 December 31, 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.

Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission.

Net Loss Per Common Share  

Net (loss) income per share of common stock is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period.

We apply the two -class method in calculating earnings per share.

Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value.

As of December 31, 2021 and December 31, 2020, we had outstanding warrants to purchase up to 14,519,228 shares of Class A common stock.

The weighted average of these shares was excluded from the calculation of diluted net (loss) income per share of common stock since the exercise of the warrants is contingent upon the occurrence of future events.

As of December 31, 2021, we did not have any dilutive securities or other contracts that could, potentially, be exercised or converted into shares of common stock and then share in our earnings.

As a result, diluted net (loss) income per common share is the same as basic net (loss) income per common share for the periods presented.

Reconciliation of Net Earnings (Loss) per common share

Basic and diluted loss per common share is calculated as follows:

For the Year Ended

December 31, 2021

For the Period from

August 25, 2020 (inception)

through December 31, 2020

Basic and diluted net income (loss) per share

Allocation of net income (loss)

The accompanying consolidated financial statements and the related notes (the “Financial Statements”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission.

These Financial Statements include the accounts of the Company and its consolidated subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

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.

$ 193 of amounts previously classified within general and administrative expenses on the consolidated statement of operations for the year ended December 31, 2021 , 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”).

Under this method of accounting, Yellowstone was treated as the acquired company for financial reporting purposes, and Sky was treated as the accounting acquirer.

In accordance with this accounting method, the Yellowstone Transaction was treated as the equivalent of Sky issuing stock for the net assets of Yellowstone, accompanied by a recapitalization.

Sky was deemed the accounting acquirer for purposes of the Yellowstone Transaction based on an evaluation of the following facts and circumstances:

The LLC Interests, through their ownership of the Class B Common Stock, hold a majority voting interest in the Company;

The LLC Interests have the ability to nominate and elect the majority of the Company’s Board of Directors;

Sky’s senior management team comprises the senior management of the Company;

Sky’s assets were larger in relative size compared to Yellowstone’s assets prior to the Yellowstone Transaction.

Thus, the financial statements included in this annual report for the year ended December 31, 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;

and (iii) the net assets of SHG (formerly Yellowstone) were stated at historical cost, with no goodwill or other intangible assets recorded.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Such estimates include assumptions used within impairment analyses, estimated useful lives of depreciable assets and amortizable costs, estimates of inputs utilized in determining incentive compensation expense and financial instruments such as warrants, and estimates and assumptions related to right-of-use assets and operating lease liabilities.

Actual results could differ materially from those estimates.

Risks and Uncertainties

The Company’s operations have been limited to-date.

For most of its history, the Company was engaged in securing access to land through ground leases, and developing and constructing aviation hangars.

The major risks faced by the Company is its future ability to obtain additional tenants for the facilities that it constructs, and to contract with such tenants for rental income in an amount that is sufficient to meet the Company’s financial obligations, including increasing construction costs due to inflation.

The outbreak of COVID- 19 caused severe disruptions in the global economy and adversely impacted businesses and financial markets.

During 2020, the Company experienced delays in construction due to COVID- 19 mandates such as physical distancing, supply chain issues, and subcontractor availability.

In 2020, there was a significant slowdown in the aviation sector in general due to decreased travel which has since eased, particularly in private aviation.

During 2021 and 2022, vaccinations for COVID- 19 have become widely distributed among the general population which has resulted in loosened restrictions previously mandated.

However, the potential emergence of vaccine-resistant variants of COVID- 19 could result in restrictions being mandated again or affect the timing of loosened restrictions.

The Company’s management is not able, at this time, to determine what, if any, the ultimate impact COVID- 19 will have on its future financial condition, results of operations and cash flows.

Liquidity and Capital Resources

As a result of ongoing construction projects and business development activities, including the development of aircraft hangars and the leasing of available hangar space, the Company has incurred recurring losses and negative cash flows from operating activities since its inception.

The Company expects to continue to invest in such activities and generate operating losses in the near future.

The Company obtained long-term financing through bond and equity offerings to fund its construction, lease, and operational commitments, and believes its liquidity is sufficient to allow continued operations for more than one year after the date these financial statements are issued.

Significant Accounting Policies

Basis of Consolidation

SHG is deemed to have a controlling interest of Sky through its appointment as the Managing Member of Sky, in which SHG has control over the affairs and decision-making of Sky.

The interests in Sky not owned by the Company are presented as non-controlling interests.

Sky’s ownership percentage in each of its consolidated subsidiaries is 100 %.

There are no unconsolidated variable interest entities (“VIEs”) in which Sky is considered to be the primary beneficiary.

Cash and Restricted Cash

The Company’s cash is held at a major commercial bank, which cash balance may at times exceed the Federal Deposit Insurance Corporation limit.

To date, the Company has not experienced any losses on its cash deposits.

The Company monitors the relative credit standing of financial institutions with whom the Company transacts and limits the amount of credit exposure with any one entity. 

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

Such trust bank accounts are included in Restricted cash and Restricted investments on the consolidated balance sheet as of December 31, 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 $ 24,895 as of December 31, 2022 , of which $ 15,028 will mature in one year or less, and $ 9,867 will mature in one through five years.

The gross and net amortized cost basis of such investments was $ 24,997 as of December 31, 2022.

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

The Company periodically evaluates whether declines in fair values of its available-for-sale securities below their book value are other-than-temporary.

This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company's ability and intent to hold the available-for-sale security until a forecasted recovery occurs or its contractual maturity.

Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any available-for-sale securities before recovery of its amortized cost basis. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in other (income) expenses.

The costs of investments sold is based on the specific-identification method.

The Company recognized realized gains of $ 21 and $ 0 for the years ended December 31, 2022 and 2021, respectively.

Interest on available-for-sale securities is included in other (income) expenses.

Restricted Investments Held-to-Maturity

Pursuant to provisions within the Master Indenture of the Series 2021 Bonds, as defined in Note 8, the Company invests the funds held in the restricted trust bank accounts in various U.S.

Treasury securities.

Therefore, such investments are reported as “Restricted investments”

in the accompanying consolidated balance sheets.

The Company has the ability and intent to hold these restricted investments until maturity, and as a result, the Company would not expect the value of these investments to decline significantly due to a sudden change in market interest rates.

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

The carrying amount of such investments was $ 114,648  on December 31, 2022 , of which $ 94,421 will mature in one year or less, and $ 20,227 will mature in one through five years.

Cost of Construction

Cost of construction on the consolidated balance sheets is carried at cost.

The cost of acquiring an asset includes the costs necessary to bring a capital project to the condition necessary for its intended use.

Costs are capitalized once the construction of a specific capital project is probable.

Construction labor and other direct costs of construction are capitalized.

Professional fees for engineering, procurement, consulting, and other soft costs that are directly identifiable with the project and are considered an incremental direct cost are capitalized.

The Company allocates a portion of its internal salaries to both capitalized cost of construction and to general and administrative expense based on the percentage of time certain employees worked in the related areas.

Interest, including the amortization of debt issuance costs and premiums and net of interest income earned on bond proceeds, is also capitalized until the capital project is completed.

Constructed assets, net

Constructed assets on the consolidated balance sheets consists of developed aircraft hangar buildings and are carried at cost less accumulated depreciation.

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.

Other long-lived assets

Long-lived assets on the consolidated balance sheets consists principally of ground support equipment, software, and computer equipment.

Long-lived assets are carried at cost less accumulated depreciation.

Maintenance and repair expenses are charged to expense as incurred.

Depreciation is recognized on a straight-line basis over 3 to 20  years, based on the estimated useful life of the assets.

Impairment of long-lived assets

The Company’s assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Impairment analyses are based on, in part, the Company’s current plans, intended holding periods and available market information at the time the analyses are prepared.

An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis.

An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value.

Estimates of fair value are determined using discounted cash flow models, which consider, among other things, anticipated holding periods, current market conditions and utilize unobservable quantitative inputs, including appropriate capitalization and discount rates.

If the estimates of the projected future cash flows, anticipated holding periods, or market conditions change, evaluation of impairment losses may be different and such differences could be material to the consolidated financial statements.

The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and other factors that could differ materially from actual results.

The Company accounts for leases under Accounting Standards Codification (“ASC”) Topic 842, Leases.

The Company determines whether a contract contains a lease at the inception of the contract.

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 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.

The Company also has tenant leases and accounts for those leases in accordance with the lessor guidance under ASC Topic 842.

The Company has lease agreements with lease and non-lease components;

the Company has elected the accounting policy to not separate lease and non-lease components for all underlying asset classes.

The Company has not elected to capitalize any interest cost that is implicit within its operating leases into cost of construction on the consolidated balance sheet, but instead, expenses its ground lease cost in the consolidated statements of operations.

Warrants liability

The Company accounts for the warrants assumed in the Yellowstone Transaction (see Note 9 ) in accordance with the guidance contained in ASC Topic 815, “Derivatives and Hedging”

(“ASC 815”

), under which warrants that do not meet the criteria for equity classification and must be recorded as derivative liabilities.

Accordingly, the Company classifies the warrants as liabilities carried at their fair value and adjusts the warrants to fair value at each reporting period.

This liability is subject to re-measurement at each balance sheet date until the warrants are exercised or expire, and any change in fair value is recognized in the consolidated statements of operations.

Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value and establishes a framework for measuring fair value.

The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).

ASC Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels:

Level 1 –

quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities;

Level 2 –

quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data;

and Level 3 –

unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.

Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of financial and non-financial assets and liabilities.

Accordingly, fair value estimates may be different than the amounts that may ultimately be realized upon sale or disposition of these assets or settlement of these liabilities.

Equity issuance costs

The Company accounts for equity issuance costs as an asset within prepaid expenses and other assets on the consolidated balance sheets until the related equity financing is obtained, and then reclassifies such costs as a reduction in equity.

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 December 31, 2022 , there were $ 217 of equity issuance costs included within prepaid expenses and other assets.

Revenue recognition

The Company leases the hangar facilities that it constructs to third parties.

The lease agreements are either on a month-to-month basis or have a defined term and may have options to extend the term.

Some of the leases contain options to terminate the lease by either party with given notice.

There are no options given to the lessee to purchase the underlying assets.

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 December 31, 2022 and December 31, 2021 , the deferred rent receivable included in prepaid expenses and other assets was $ 83 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 material adjustments to rental revenue for uncollectible tenant rental payments in either of the year ended December 31, 2022 or 2021 .

For the year ended December 31, 2022 and 2021 , the Company derived 78 % 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 years ended December 31, 2022  and 2021, operating expenses within the consolidated statements of operations includes operating lease expense of $ 3,735 and $ 3,747 , respectively.

General and administrative expenses on the consolidated statements of operations also includes $ 81  and $ 51 of operating lease expense for the year ended December 31, 2022  and 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 $ 340  for the year ended December 31, 2022 , and $ 292 for the year ended December 31, 2021 .

SHG is classified as a corporation for Federal income tax purposes and is subject to U.S.

Federal and state income taxes.

SHG includes in income, for U.S.

Federal income tax purposes, its allocable portion of income from the “pass-through”

entities in which it holds an interest, including Sky.

The “pass-through”

entities, are not subject to U.S.

Federal and certain state income taxes at the entity level, and instead, the tax liabilities with respect to taxable income are passed through to the members, including SHG.

As a result, prior to the Yellowstone Transaction, Sky was not subject to U.S.

Federal and certain state income taxes at the entity level.

The Company follows the asset and liability method of accounting for income taxes.

This method gives consideration to the future tax consequences associated with the differences between the financial accounting and tax basis of the assets and liabilities as well as the ultimate realization of any deferred tax asset resulting from such differences, as well as from net operating losses and other tax-basis carryforwards.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

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

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.

Yellowstone Transaction

As contemplated by the Equity Purchase Agreement, on the Closing Date, the following occurred:

Yellowstone changed its name to Sky Harbour Group Corporation.

All outstanding shares of stock held by BOC Yellowstone LLC (the “Sponsor”) were converted into shares of Class A Common Stock, $ 0.0001 par value (“Class A Common Stock”) of the Company.

Sky restructured its capitalization and issued to the Company 14,937,581 Sky Common Units, which was equal to the number of outstanding shares of Class A Common Stock immediately after giving effect to the Equity Purchase Agreement.

The number of outstanding shares after the Equity Purchase Agreement reflected the redemption of Class A Common Stock (by former holders of the special purpose acquisition company shares that elected to redeem such shares) and the Class A Common Stock issued as a result of the BOC PIPE investment (the “BOC PIPE”), the reclassification of the existing Sky Common Units (other than the Sky Incentive Units, as defined in Note 11 ), existing Sky Series A preferred units (the “Series A Preferred Units”) and Series B preferred units (the “Series B Preferred Units”) into Sky Common Units.

Certain adjustments were affected to the number of Sky Incentive Units to reflect the new capital structure.

SHG was appointed as the managing member of Sky under the Third Amended and Restated Operating Agreement (the “A&R Operating Agreement”).

The Sky Common Units issued to the Sponsor in respect of Sky’s Series B Preferred Units were converted into 5,500,000 shares of Class A Common Stock of the Company.

The LLC Interests received one share of Class B Common Stock for each Sky Common Unit that they held, and as consideration for the issuance of 14,937,581 Sky Common Units by Sky to the Company, Yellowstone contributed to Sky the net amount held in the Yellowstone trust account after deducting the amount required to fund the redemption of the Class A Common Stock held by eligible stockholders who properly elected to have their shares redeemed as of the Closing Date and the amount of various transaction costs.

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 year ended December 31, 2022 :

Yellowstone Transaction

Cash - Yellowstone trust and cash, net of redemptions

$ 15,691  

Cash - BOC PIPE investment

45,000  

$ ( 1,868,311 )

transaction costs and advisory fees

Net proceeds from the Yellowstone Transaction

$ 47,960  

Conversion of Sky Series B preferred units to Class A Common Stock

54,029  

Initial fair value of Warrants liability assumed on 1/25/2022

Net adjustment to total equity from the Yellowstone Transaction

$ 94,003  

The following table reconciles the number of shares of SHG Common Stock immediately following the consummation of the Yellowstone Transaction:

Number of shares

Yellowstone Common stock, outstanding prior to Yellowstone Transaction

13,598,898  

redemption of Yellowstone Common Stock

( 12,061,041 )

Weighted-average shares outstanding

Common stock of Yellowstone, net of redemptions

1,537,857  

Shares held by Sponsor

3,399,724  

Conversion of Sky Series B units to Class A Common Stock

5,500,000  

Shares issued in BOC PIPE investment

4,500,000  

Basic and diluted net income (loss) per share

Class A Common Stock outstanding after the Yellowstone Transaction

14,937,581  

Class B Common Stock issued to LLC Interests

42,192,250  

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000.

At December 31, 2021, the Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

Financial Instruments

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, “Fair Value Measurements and Disclosures,”

approximates the carrying amounts presented in the balance sheet.

Use of Estimates

The preparation of financial statements in conformity with U.S.

GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Warrants Liability

We account for the warrants in accordance with the guidance contained in Accounting Standards Codification 815 (“ASC 815”

), “Derivatives and Hedging”, under which the warrants do not meet the criteria for equity treatment and must be recorded as derivative liabilities.

Accordingly, we classify the warrants as liabilities at their fair value and adjust the warrants to fair value at each reporting period.

This liability is subject to re-measurement at each balance sheet date until the warrants are exercised, and any change in fair value is recognized in our statement of operations.

The fair value of the Private Placement Warrants and the Public Warrants issued in connection with the Public Offering have been measured based on the listed market price of such Warrants.

The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.”

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

For those liabilities or benefits to be recognized, a tax position must be more-likely-than- not to be sustained upon examination by taxing authorities.

The Company recognizes accrued interest and penalties related to uncertain tax positions as income tax expense.

At December 31, 2021, management has not identified any uncertain tax positions that are not more likely than not to be sustained.

The Company may be subject to potential examination by U.S.

federal, states or foreign jurisdiction authorities in the areas of income taxes.

These potential examinations may include questioning the timing and amount of deductions, the nexus of income amounts in various tax jurisdictions and compliance with U.S.

federal, states or foreign tax laws.

The Company is incorporated in the State of Delaware and is required to pay franchise taxes to the State of Delaware on an annual basis.

Redeemable Shares of Class A Common Stock

All of the 13,598,898 shares of Class A common stock sold as parts of the Units in the Public Offering contain a redemption feature.

In accordance with the Accounting Standards Codification 480 - 10 - S99 - 3A (“ASC 480”

), “Classification and Measurement of Redeemable Securities”, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity.

Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480.

The Company classifies all shares of Class A common stock as redeemable.

Recently issued accounting pronouncements not yet adopted

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements based on current operations of the Company.

The impact of any recently issued accounting standards will be re-evaluated on a regular basis or if a Business Combination is completed where the impact could be material.

Initial Public Offering

Public Units  

On October 26, 2020, the Company consummated its IPO of 12,500,000 units at $ 10.00 per Unit, generating gross proceeds of $ 125,000,000 .

Each unit issued in the offering consisted of one share of Yellowstone’s Class A common stock and one -half of one warrant, each whole warrant entitling the holder thereof to purchase one share of Class A common stock at an exercise price of $ 11.50 per share, subject to adjustment (see Note 6 ).

The underwriters were granted a 45 -day option from the date of the final prospectus to the Initial Public Offering to purchase up to 1,875,000 additional Units to cover over-allotments, if any, at $ 10.00 per Unit. 

On December 1, 2020, the underwriters' over-allotment option was exercised resulting in the purchase of an additional 1,098,898 Units.  

Related Party Transactions

Founder Shares

On August 31, 2020, the Sponsor purchased 5,750,000 shares (the “Founder Shares”) of the Company’s Class B common stock, par value $ 0.0001 per share (the “Class B common stock”), for an aggregate price of $ 25,000 .

Between October 9, 2020, and December 31, 2020, the Sponsor surrendered 2,350,276 Founder Shares to the Company for no consideration, resulting in an aggregate of 3,399,724 Founder Shares outstanding as of December 31, 2021 and December 31, 2020.

The Founder Shares will automatically convert into Class A common stock on a one -for- one basis at the time of the Company’s initial Business Combination and are subject to certain transfer restrictions.

The sale of the Founders Shares is in the scope of ASC Topic 718, “Compensation-Stock Compensation.” 

Under ASC Topic 718, stock-based compensation associated with equity-classified awards is measured at fair value upon the grant date.

The Founders Shares were granted subject to a performance condition (i.e., the occurrence of a Business Combination).

Compensation expense related to the Founders Shares is recognized only when the performance condition is probable of occurrence.

Stock-based compensation would be recognized at the consummation of a Business Combination in an amount equal to the number of Founders Shares that ultimately vest multiplied times the grant date fair value per share (unless subsequently modified) less the amount initially received for the purchase of the Founders Shares. 

Private Placement Warrants

The Sponsor purchased an aggregate of 7,500,000 Private Placement Warrants at a price of $ 1.00 per Private Placement Warrant from the Company in a private placement that closed simultaneously with the closing of the IPO.

In connection with the underwriter’s exercise of the over-allotment option on December 1, 2020, the Sponsor purchased an additional 219,779 private placement warrants at a price of $ 1.00 per whole warrant.

Each Private Placement Warrant is exercisable for one share of Class A common stock at a price of $ 11.50 per share, subject to adjustment (see Note 6 ).

Of the total $ 7,500,000 in initial proceeds from the sale of the Private Placement Warrants, $ 5,000,000 was added to the net proceeds from the IPO held in the Trust Account.

If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Placement Warrants held in the Trust Account will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire worthless.

Related Party Reimbursement and Loans

In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”).

Any Working Capital Loans made by the Sponsor may be converted into warrants, at the price of $ 1.50 per warrant at the option of the lender.

Such warrants would be identical to the Private Placement Warrants, including as to exercise price, exercisability and exercise period.

If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds held in the Trust Account released to the Company.

Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account.

In the event that a Business Combination is not completed, the Company may use a portion of the proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. 

On September 27, 2021, the Sponsor agreed to loan the Company an aggregate of up to $ 1,000,000 to cover expenses related to the Proposed Business Combination pursuant to a promissory note (the “Note”).

This loan bears interest at the Federal Short Term Rate published pursuant to Section 1274 (d) of the Internal Revenue Code, compounded annually. 

The loan is payable on the earlier of the date on which the Company consummates its Business Combination or the date that the Company’s winding up is effective. 

The principal balance, together with all accrued interest thereon, may be prepaid at any time at the election of the Company.

As of December 31, 2021, there was $ 1,000,000 outstanding under the Note.

The Sponsor may elect to convert all or any portion of the unpaid principal balance of the Note, together with all accrued and unpaid interest thereon, into that number of warrants, each whole warrant exercisable for one ordinary share of the Company (the “Conversion Warrants”), equal to:

( x ) the portion of the principal amount of the Note, together with all accrued and unpaid interest thereon, being converted, divided by (y) $ 1.50 , rounded up to the nearest whole number of warrants.

Total shares of common stock following the Yellowstone Transaction

57,129,831  

Tax Receivable Agreement

On the Closing Date, in connection with the completion of the Yellowstone Transaction and as contemplated by the Equity Purchase Agreement, the Company, Sky, the LLC Interests, and the TRA Holder Representative, entered into a tax receivable agreement (the “Tax Receivable Agreement”).

Pursuant to the Tax Receivable Agreement, the Company will generally be required to pay the LLC Interests 85 % of the amount of savings, if any, in U.S.

federal, state, local, and foreign taxes that are based on, or measured with respect to, net income or profits, and any interest related thereto that the Company realizes, or is deemed to realize, as a result of certain tax attributes, including:

existing tax basis in certain assets of Sky and certain of its direct or indirect subsidiaries, including assets that will eventually be subject to depreciation or amortization, once placed in service, attributable to Sky Common Units acquired by the Company from a TRA Holder, as determined at the time of the relevant acquisition;

tax basis adjustments resulting from taxable exchanges of Sky Common Units (including any such adjustments resulting from certain payments made by the Company under the Tax Receivable Agreement) acquired by the Company from a TRA Holder pursuant to the terms of the A&R Operating Agreement;

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 December 31, 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 December 31, 2022 includes the following development projects:

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

Miami-Opa Locka Executive Airport (“OPF”), Opa-Locka, FL (Miami area);

Nashville International Airport ("BNA"), Nashville, TN;

Centennial Airport (“APA”), Englewood, CO (Denver area);

Phoenix Deer Valley Airport (“DVT”), Phoenix, AZ;

Addison Airport (“ADS”), Addison, TX (Dallas area).

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

December 31, 2022

December 31, 2021

Constructed assets, net of accumulated depreciation:

Buildings, SGR (Phase I) and BNA

$ 40,921  

$ 15,079  

Accumulated depreciation

( 1,212 )  

$ 39,709  

$ 14,500  

Cost of construction:

$ 48,242  

$ 25,034  

The SGR Phase I and BNA Phase II projects are being depreciated over a weighted-average useful life of approximately 39.6 years.

Depreciation expense for the Year ended December 31, 2022 and 2021 totaled $ 633  and $ 539 , respectively. 

Long-lived Assets

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

December 31, 2022

December 31, 2021

$ 1,245  

Accumulated depreciation

( 95 )  

$ 1,150  

Depreciation expense for the year ended December 31, 2022 and 2021 totaled $ 61  and $ 31 , respectively. As of December 31, 2022 and December 31, 2021 , equipment included approximately $ 650  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 year ended December 31, 2022 .

Supplemental Balance Sheet and Cash Flow Information

Prepaid expenses and other assets

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.

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.

In December 2022, the Vendor Loan Agreement was amended to increase the commitment under the revolving line of credit to $ 4.5 million.

In connection with the amendment of the Vendor Loan Agreement, the Company was granted an option to purchase a 51 % interest in the vendor for nominal consideration (the "Vendor Purchase Option").

The Vendor Purchase Option is exercisable solely at the discretion of the Company and is deemed to have no fair value as its exercise price is essentially equivalent to the fair value of the underlying equity.

The Vendor Purchase Option does not confer any voting rights to the Company prior to its exercise.

As of December 31, 2022, the Company had loaned a total of $ 2.2 million to the vendor, the balance of which is presented as a component of Prepaid expenses and other assets within the Company's consolidated balance sheet.

Accounts payable, accrued expenses and other liabilities

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

December 31, 2022

December 31, 2021

Costs of construction

$ 6,098  

$ 3,450  

Employee compensation and benefits

Professional Fees

$ 14,184  

$ 10,959  

Supplemental Cash Flow Information

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

December 31, 2022

December 31, 2021

Accrued costs of construction, including capitalized interest

$ 8,164  

$ 5,513  

Accrued equity issuance costs

Debt issuance costs and premium amortized to cost of construction

Net gain on extinguishment of related party notes

Settlement of related party note payable by issuing equity

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

December 31, 2022

December 31, 2021

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

$ 3,260  

$ 25,847  

Net decrease in right-of-use assets and operating lease liabilities due to lease remeasurement

( 11,500 )  

The following table summarizes interest paid:

December 31, 2022

December 31, 2021

Interest paid

$ 5,533  

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:

December 31, 2022

December 31, 2021

Cash, beginning of year

$ 6,805  

Restricted cash, beginning of year

197,130  

Cash and restricted cash, beginning of year

$ 203,935  

Cash, end of year

$ 2,174  

$ 6,805  

Restricted cash, end of year

39,222  

$ 197,130  

Cash and restricted cash, end of year

$ 41,396  

$ 203,935  

All of the Company’s leases are classified as operating leases under ASC Topic 842.

Management has determined that it is reasonably certain that the Company will exercise its options to renew the leases, and therefore the renewal options are included in the lease term and the resulting ROU asset and operating lease liability balances.

As the Company’s lease agreements do not provide a readily determinable implicit rate, nor is the rate available to the Company from its lessors, the Company uses its incremental borrowing rate to determine the present value of the lease payments.

The Company’s lease population does not include any residual value guarantees, and therefore none were considered in the calculation of the ROU and operating lease liability balances.

The Company has operating leases that contain variable payments, most commonly in the form of common area maintenance and operating expense charges, which are based on actual costs incurred.

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 years ended December 31, 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 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.

Certain of the Company's ground leases contain options to lease additional parcels of land at the Company's option within a specified period of time.

The Company’s ground lease at OPF was entered into in May 2019 through its wholly owned subsidiary, Sky Harbour Opa Locka Airport LLC (“SHOLA”), with AA Acquisitions LLC (“AA”).

AA is the master ground lessee of Miami Dade County (“MDC”), the ultimate landowner.

On April 29, 2022, the Company, through a wholly-owned subsidiary outside the Obligated Group (as defined in Note 8 ), purchased AA’s underlying interest in the ground lease for approximately $ 8.5 million and now leases the OPF property directly from MDC (the “OPF Lease Transaction”).

The OPF Lease Transaction also required the Company to pay approximately $ 1.0 million in assignment fees to MDC, which, along with the $ 8.5 million purchase price, were recognized as initial direct costs and presented as a component of right-of-use assets.

Following the OPF Lease Transaction, SHOLA continues to be obligated under the existing sublease but to an affiliate within the Company.

The OPF Lease Transaction extends the term of the lease at OPF for the Company to approximately 57 years.

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 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).

The APA Lease contains an option to lease an additional parcel of land (Phase II) that must be exercised, at the Company’s option, within three -years of the lease’s commencement date.

On May 4, 2021, the Company commenced an operating lease for a ground lease located at DVT (“DVT Lease”), with a lease term of 40 years.

The DVT Lease contains an option to lease an additional parcel of land (Phase II) that must be exercised, at the Company’s option, within four -years of the lease’s commencement date.

On June 28, 2022, the Company commenced 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.

The ADS Lease was amended on January 19, 2023, see Note 18, Subsequent Events .

In addition to the Company’s ground leases, the company has operating leases for office space and ground support vehicles.

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

December 31, 2022

December 31, 2021

Cash paid for amounts included in measurement of lease liabilities:

Operating cash flows from operating leases as lessee

$ 1,822  

$ 1,188  

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

Weighted Average Remaining Lease Term

December 31, 2022

December 31, 2021

Operating leases as lessee (in years)

Weighted Average Discount Rate

Operating leases as lessee

4.62 %  

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

December 31, 2022  were as follows: 

Year Ending December 31,

Operating Leases

$ 2,027  

196,639  

Total lease payments

207,767  

Less imputed interest

$ 53,531  

The Company leases the hangar facilities that it constructs to third -party tenants.

These leases have been classified as operating leases.

The Company does not have any leases classified as sales-type or direct financing leases.

Lease agreements with tenants are either on a month-to-month basis or have a defined term with an option to extend the term.

The defined term leases vary in length at inception from one to five years with options to renew for additional term(s) given to the lessee.

One of the agreements contains an option by either party to terminate with appropriate notice, as defined.

There are no options given to the lessee to purchase the underlying assets.

The Company determines whether a contract contains a lease at the inception of the contract.

The Company expects to continue to derive benefit from the underlying assets after the end of the lease term through further leasing arrangements.

The underlying assets are the leasehold interest that the Company has in connection with its ground leases.

There are no residual value guarantees.

The Company mitigates risk related to the residual value of the assets by negotiating with current tenants and attempting to secure future tenants through letters of intent prior to the current lease term’s termination and/or the substantial completion of the promised hangar facilities that are presently under construction.

The leases may contain variable fees, most commonly in the form of tenant reimbursements, which are recoveries of the common area maintenance and operating expenses of the property and are recognized as income in the same period as the expenses are incurred.

The leases did not have any initial direct costs.

The leases do not contain any restrictions or covenants to incur additional financial obligations by the lessee.

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

December 31, 2022 :

Year Ending December 31,

Operating Leases

$ 2,516  

Total lease payments

Less rent concessions to be applied at Company’s discretion

$ 4,437  

Bonds payable, Loans payable and interest

Bonds payable

On May 20, 2021, Sky formed a new wholly-owned subsidiary, Sky Harbour Capital LLC, as a parent corporation to its wholly-owned subsidiaries that operate each of the aircraft hangar development sites under its ground leases.

Sky Harbour Capital LLC and these subsidiaries form an Obligated Group (the “Obligated Group”

or the “Borrowers”) under a series of bonds that were issued in September 2021 with a principal amount of $ 166.3 million (the “Series 2021 Bonds”).

The members of the Obligated Group are jointly and severally liable under the Series 2021 Bonds.

SHG and its other subsidiaries are not members of the Obligated Group and have no obligation to repay the bonds.

The Series 2021 Bonds are payable pursuant to a loan agreement dated September 1, 2021 between the Public Finance Authority (of Wisconsin) and the Borrowers.

The payments by the Borrowers under the loan agreement are secured by a Senior Master Indenture Promissory Note, Series 2021 - 1 issued by the Obligated Group under an indenture (the “Master Indenture”).

The obligations of the Borrowers are collateralized by certain leasehold and sub-leasehold deeds of trust or mortgages on the Borrowers’

interests in the development sites and facilities being constructed at each airport where the Borrowers hold ground leases.

In addition, the Borrowers have assigned, pledged and granted a first priority security interest in all funds held under the Master Indenture and all right, title and interest in the gross revenues of the Borrowers.

Furthermore, Sky, Sky Harbour Holdings LLC and Sky Harbour Capital LLC have each pledged as collateral its respective ownership interest in any of the Borrowers.

The bond trustee established various restricted bank accounts which were initially funded with the bond proceeds and cash on hand.

The bond trustee will continue to control the Borrowers’

cash receipts and disbursements under a Trust Agreement.

Such restricted funds are available to fund the construction expenditures of the two phases of OPF, BNA, DVT, and APA, and SGR Phase II, and, with certain approvals and supplemental reports, up to $ 50 million at other airport sites, in addition to certain operating expenses such as ground lease expense.

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 $ 152.5 million, of which $ 37.9  million and $ 114.6 million and are included in Restricted cash and Restricted investments, respectively, on the consolidated balance sheet as of December 31, 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;

provided, however, that the failure to maintain this ratio will not be considered an event of default so long as the Obligated Group takes all commercially reasonable action for correcting such deficiency.

The measurement of the Debt Service Coverage Ratio will commence with the period ending December 31, 2024.

If the Debt Service Coverage Ratio as of the end of any fiscal quarter is less than 1.0, the parent companies of the Borrowers will make contributions to the borrowers or otherwise cause the Debt Service Coverage Ratio to be at least 1.0 within 10 business days of the test date.

If the Debt Service Coverage Ratio as of the end of any fiscal quarter is less than 1.25 , Sky Harbour Capital LLC must deliver to the trustees, within 120 days, an independent consultant’s report and a specific plan designed to achieve a Debt Service Coverage Ratio of 1.25 in the following fiscal year.

The Series 2021 Bonds have principal amounts, interest rates, and maturity dates as follow:

$ 21.1 million bearing interest at 4.00 %, due July 1, 2036;

$ 30.4 million bearing interest at 4.00 %, due July 1, 2041;

and $ 114.8 million bearing interest at 4.25 %, due July 1, 2054.

The Series 2021 Bond that has a maturity date of July 1, 2036 was issued at a premium, and the Company received bond proceeds that were $ 0.2 million above its face value.

The bond premium is being amortized as a reduction of interest expense over the life of the bond.

Interest is payable on each January 1 and July 1, commencing January 1, 2022.

Principal repayments due under the Series 2021 Bonds are paid annually, commencing July 1, 2032.

The bonds maturing on July 1, 2036 are subject to optional early redemption, at the option of Sky Harbour Capital LLC, on or after July 1, 2028, in whole or in part, at a redemption price equal to the principal amount plus interest accrued to the redemption date.

The bonds maturing on July 1, 2041 and July 1, 2054 are subject to optional early redemption, at the option of Sky Harbour Capital LLC, on or after July 1, 2031, in whole or in part, at a redemption price equal to the principal amount plus interest accrued to the redemption date.

An extraordinary optional redemption is permitted in the event of damage or destruction of any of the underlying assets.

The Series 2021 Bonds are mandatorily redeemable upon the occurrence of certain events.

Upon the sale of an asset by any Borrower, the applicable portion of the Series 2021 Bonds is subject to special mandatory redemption at prices specified in the agreement.

Upon the occurrence of a determination of taxability in which the interest income of any of the bonds does not qualify as being excludable from the gross income of the holder (with limited exclusions), the Series 2021 Bonds are subject to mandatory redemption within 60 days, at a redemption price equal to the principal amount plus accrued interest.

Upon the termination of any ground lease of a Borrower, and unless certain other certifications can be made, the Series 2021 Bonds are subject to redemption in an amount and at a redemption price as specified in the agreement.

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 December 31, 2022 and December 31, 2021 :

December 31, 2022

December 31, 2021

Bonds payable:

Series 2021 Bonds Principal

$ 166,340  

Premium on bonds

Bond proceeds

166,589  

Debt issuance costs

( 4,753 )  

Accumulated amortization of debt issuance costs and bond premium

Total Bonds payable, net

$ 162,210  

$ 160,679  

In connection with the issuance of the Bonds Payable, the Company originally recognized debt issuance costs totaling $ 6 million which are being amortized into interest using the effective interest method over the life of the bonds.

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.

During the year ended December 31, 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.

Loans payable

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.

Sky closed on a construction loan on August 28, 2019 for up to $ 16.7 million for the development of the SGR project (the “SGR Loan”).

The loan bore interest at LIBOR (subject to a minimum of 2.2 %) plus 6%, plus pay-in-kind (“PIK”) interest of 2 % which was added to the principal amount.

The SGR Loan was repaid on September 3, 2021, including all accrued and PIK interest.

January 23, 2020, Sky closed on a construction loan for up to $ 46.0 million for the development of the OPF project (the “OPF Loan”).

The loan bore interest at LIBOR (subject to a minimum of 1.669 %) plus 6 %, plus PIK interest of 2 % which was added to the principal amount.

 An amendment to the loan on March 12, 2021 increased the interest rate to LIBOR (subject to a minimum of 1.669 %) plus 8 %, plus PIK interest of 2 % that was added to the principal amount.

The OPF Loan was repaid on August 11, 2021, including all accrued and PIK interest.

The following table sets forth the details of interest expense:

December 31, 2022

December 31, 2021

$ 6,941  

$ 1,402  

Amortization of bond premium and debt issuance costs

Total interest incurred

capitalized interest

( 7,223 )  

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”).

In addition, 7,719,779 private placement warrants were sold to the Sponsor (the “Private Placement Warrants”, and together with the Public Warrants, the “Warrants”).

Each Private Warrant allows the Sponsor to purchase one share of Class A Common Stock at an exercise price of $ 11.50 per share.

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 December 31, 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.

The Warrants contain an exercise price of $ 11.50 per share and expire on January 25, 2027.

The Company determined the fair value of its Public Warrants based on the publicly listed trading price as of the valuation date.

Accordingly, the Public Warrants are classified as Level 1 financial instruments.

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 $ 0.20  and $ 0.55 per warrant on December 31, 2022 and the Closing Date, respectively.

The aggregate fair value of the Warrants was approximately $ 2.9  million and $ 8.0 million as of December 31, 2022 and the Closing Date, respectively.

During the year ended December 31, 2022 , the Company recorded an unrealized gain of approximately $ 5.1  million, reflecting the change in fair value of the Warrants from the Closing Date through December 31, 2022 .  

Equity and Redeemable Equity

Prior to the Yellowstone Transaction

Sky and its members initially entered into a Limited Liability Company Agreement on February 12, 2018.

This LLC agreement was subsequently amended and restated on March 12, 2021 ( the “First A&R Operating Agreement”), which was again amended and restated on September 14, 2021 ( the “Second A&R Operating Agreement”).

On January 25, 2022, in connection with the Yellowstone Transaction, Sky, its members, and SHG entered into the A&R Operating Agreement.

On March 12, 2021, there was a change in the ownership of Sky such that the former majority member no longer held an interest in Sky pursuant to a redemption agreement (the “Redemption Agreement”), and additional members invested in Sky pursuant to a unit purchase agreement (the “Unit Purchase Agreement”).

Pursuant to the Unit Purchase Agreement, Sky’s former minority member (the “Founder”) received founder units of Sky (the “Founder Units”) and the new investors purchased a total of $ 31.3 million in Series A Preferred Units of Sky.

Pursuant to a convertible note and exchange agreement dated March 12, 2021 ( the “Convertible Note and Exchange Agreement”), a portion of the proceeds from the issuance of the Series A Preferred Units were used to fully satisfy outstanding note payable between Sky and a related party as described in Note 14 .

On August 1, 2021, Sky entered into the Equity Purchase Agreement with Yellowstone.

In conjunction with the Equity Purchase Agreement, Boston Omaha Corporation agreed to invest $ 55.0 million of equity in the form of Redeemable Series B Preferred Units through its affiliate BOC YAC Funding LLC (“BOC YAC”).

On September 14, 2021, Sky issued 8,049 Series B Preferred Units to BOC YAC in exchange for the $ 55.0 million.

The Series B Preferred Units contained redemption rights for both Sky and for the holders of the Series B Preferred Units under certain circumstances.

Because the Series B Preferred Units were redeemable in cash, they were classified as Temporary Equity, between the Liabilities and Equity sections of the consolidated balance sheet as of December 31, 2021 .

They were carried at their net issuance price and not reflected at redemption value in the consolidated balance sheet because no Series B Preferred Units were redeemed between December 31, 2021 and January 25, 2022, the date such Units were automatically converted to the Company’s Class A Common Stock equal to the original $ 55.0 million investment at the conversion price of $ 10 per share.

Recapitalization

As of December 31, 2021 , there were 31,250 Series A Preferred Units, 8,049 Series B Preferred Units, and 27,035 Founder Units authorized, issued and outstanding.

As a result of the Reverse Recapitalization on the Closing Date, the Series A Preferred Units and Founder Units converted into 42,192,250 Sky Common Units and the LLC Interests received 42,192,250 shares of SHG’s Class B Common Stock.

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 December 31, 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.

Holders of Class A Common Stock and Class B Common Stock are entitled to one vote per share on all matters submitted to the stockholders for their vote or approval.

The holders of Class A Common Stock are entitled to receive dividends, as and if declared by the Company’s Board of Directors out of legally available funds.

With respect to stock dividends, holders of Class A Common Stock must receive Class A Common Stock.

The holders of Class B Common Stock do not have any right to receive dividends other than stock dividends consisting of shares of Class B Common Stock, as applicable, in each case paid proportionally with respect to each outstanding share of Class B Common Stock.

Forward Purchase Agreement

On January 17, 2022, the Company entered into a forward purchase agreement (the “Forward Purchase Agreement”) with ACM ARRT VII E LLC (the “Counterparty”), pursuant to which the Counterparty had the right, but not the obligation, to purchase up to 7,000,000 shares of Class A Common Stock from shareholders who had redeemed shares, or indicated an interest in redeeming shares, prior to the closing of the Yellowstone Transaction.

The Counterparty purchased 664,909 such shares and, immediately following the Closing Date, pursuant to the agreement, the Company paid to the Counterparty a forward price of approximately $ 6.7 million.

The Counterparty also had the right to sell such shares to others during an 18 -month term, terminating the Company’s forward purchase obligations, and repaying to the Company a portion of the forward price, in amounts corresponding to the number of shares sold.

On March 7, 2022, the Counterparty notified the Company that it had sold the 664,909 shares covered by the agreement.

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"), directing 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 year ended December 31, 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 December 31, 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 December 31, 2022 , the LLC interests owned approximately 73.9 % of the Sky Common Units outstanding.  

Equity Compensation

Restricted Stock Units ( “

RSUs ”

On January 25, 2022, the Company's 

2022 Incentive Award Plan (the “2022 Incentive Award Plan”) became effective following approval by the Company's shareholders.

The 2022 Incentive Award Plan provides for grants of stock-based compensation awards, including without limitation, non-qualified stock options, incentive stock options, stock appreciation rights, or SARs, restricted stock awards, restricted stock unit awards, incentive unit awards other stock or cash based awards and dividend equivalent awards.

Employees, officers, and consultants of the Company or any parent or affiliate, including Sky, or any non-employee director of the Company’s Board of Directors are eligible to receive awards under the 2022 Incentive Award Plan.

An aggregate of 5.2 million shares of Class A Common Stock are issuable pursuant to the 2022 Incentive Award Plan.

During the year ended December 31, 2022, the Company granted 735,000 time-based RSUs to certain employees under the Company’s 2022 Incentive Award Plan at a weighted average grant date fair value of $ 7.64 .

The RSUs will vest ratably over a four -year period beginning on the first anniversary of the grant date and ending on fourth anniversary.

All RSUs were valued at their fair market value, which is the closing price of the Company's stock on the date of the grant.

During the year ended December 31, 2022 , the Company recognized stock compensation expense of $ 764 . As of December 31, 2022 , there are 645,000 non-vested RSUs outstanding with a weighted average grant date fair value of $ 7.63 .

No RSUs have vested during the year ended December 31, 2022 and 90,000 RSUs have been forfeited.

The unrecognized compensation costs associated with all unvested RSUs at December 31, 2022 was $ 4,159 that is expected to be recognized over a weighted-average future period of 3.4 years.

Sky Incentive Units

In May 2021, Sky granted 3,951 Sky Incentive Units to certain employees.

In connection with the Yellowstone Transaction and the execution of the Third A&R Operating Agreement, the number of existing Sky Incentive Units outstanding was adjusted based on a defined unit conversion ratio to reflect the new capital structure (see Note 10 ) and remain Sky Incentive Units, resulting in 2,807,750 outstanding Sky Incentive Units.

These Incentive Units may be exchanged for Sky Common Units at the holder’s discretion upon vesting.

There were no changes to the terms or conditions of the Sky Incentive Units effected by the Yellowstone Transaction.

The Sky Incentive Units are classified as equity instruments.

The Sky Incentive Units were valued as of the date of grant using the Option-Pricing Method described in the AICPA Accounting and Valuation Guide entitled Valuation of Privately Held Company Equity Securities Issued as Compensation.

The Option-Pricing Method treated profit units (such as Sky Incentive Units) and the capital units outstanding at the time of the valuation (Sky’s Series A Preferred Units, Series B Preferred Units, and the Founder Units) as call options on the total equity value of Sky, with exercise (or strike) prices based on the incremental equity required to repay liquidation preferences for the various holders of Sky interests.

The values of the options associated with each strike price were calculated using the Black-Scholes option pricing model based on the grant date.

The Sky Incentive Units were classified as Level 3 in the fair value hierarchy.

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

Fair value of total equity

$ 62,287,970  

Term (in years)

Risk-free interest rate

Below is a summary of activity related to the Sky Incentive Units for the Year ended December 31, 2022 :

Sky Incentive Units

Weighted-average grant date fair value

Sky units outstanding as of December 31, 2021 (as previously presented)

$ 318.44  

Sky units outstanding as of December 31, 2021 (recast for recapitalization)

2,807,750  

$ 0.45  

Sky units outstanding as of December 31, 2022

2,807,750  

$ 0.45  

Vested Units outstanding as of December 31, 2022

1,244,570  

$ 0.45  

Non-vested Units outstanding as of December 31, 2022

1,563,180  

$ 0.45  

The Company recognizes equity-based compensation expense on a straight-line basis over the requisite service period and has elected to account for forfeitures of Sky Incentive Units if and when they occur.

The Company recorded equity-based compensation expense relating to Sky Incentive Units of $ 341 for the year ended December 31, 2022, 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 $ 217  for the year ended December 31, 2021 .

As of December 31, 2022 , there was $ 700  of total unrecognized compensation expense that is expected to be recognized over a weighted-average future period of 2.3  years.

Effective Tax Rate Reconciliation

6 unchanged sentences

Year Ended December 31,

Income tax expense (benefit):

Deferred federal income tax expense (benefit)

Income tax benefit:

Deferred federal income tax benefit

( 1,558 )  

Deferred state income tax expense (benefit)

Deferred state income tax benefit

( 285 )  

2 unchanged sentences

Valuation allowance

992,575  

126,379  

Total Income Tax Expense (Benefit)

A reconciliation of the statutory federal income tax expense to the income tax expense (benefit) from continuing operations provided at December 31, 2021 and December 31, 2020 

is as follows:

For the Period

from August 25,

2020 (inception)

Income tax expense (benefit) at the federal statutory rate

$ 618,853  

State income taxes (benefit) - net of federal income tax benefits

182,709  

Unrealized gain on warrants  

Total income tax benefit

A reconciliation of the statutory federal income tax expense to the income tax expense (benefit) from continuing operations provided at December 31, 2022 and December 31, 2021  is as follows:

For the Year Ended December 31,

Income tax benefit at the federal statutory rate of 21%

$ ( 554 )  

Unrealized gain on securities

State income tax benefit, net of federal benefit

( 225 )  

Other, net  

Unrealized gain on warrants

( 1,067 )  

Change in valuation allowance

866,196  

126,379  

Total income tax expense (benefit)

Components of the Company’s deferred tax assets at December 31, 2021 

and December 31, 2020 are as follows:

Total income tax benefit

The Company recorded income tax expense of $ 0 and the effective tax rate was 0.0 % for the years ended December 31, 2022  and 2021.

 The effective income tax rate for the year ended December 31, 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.

For the year ended December 31, 2021, Sky was not subject to U.S.

Federal and certain state income taxes at the entity level prior to the Yellowstone Transaction (See Note 2 ).

Components of the Company’s deferred tax assets at December 31, 2022 and December 31, 2021 are as follows:

For the Year Ended December 31,  

Deferred tax assets:

Difference between book and tax capital accounts

Stock-based compensation

Net operating loss carryforwards

Valuation allowance

( 2,661 )  

Total deferred tax assets

Deferred tax liabilities:

Unrealized Gain/Loss on investments

$ ( 1 )  

Start-up costs  

Total deferred tax liabilities

$ ( 1 )  

Valuation allowance

Total deferred tax asset

The realization of deferred tax assets, including net operating loss carryforwards, is dependent on the generation of future taxable income sufficient to realize the tax deductions, carryforwards, and credits.

The realization of deferred tax assets, including net operating loss carryforwards ("NOLs"), is dependent on the generation of future taxable income sufficient to realize the tax deductions, carryforwards, and credits.

Valuation allowances on deferred tax assets are recognized if it is determined that it is more likely than not that the asset will not be realized.

For the years ended December 31, 2021 and 2020, we recorded a full valuation allowance due to historical losses before income taxes which reduced management's ability to rely on future expectations of income.

As of December 31, 2021, 

we have available federal tax operating loss carry forwards of approximately $ 1.7  million, which arose in tax years 2021 and 2020.

For the year ended December 31, 2022 , we recorded a full valuation allowance due to historical losses before income taxes which reduced management's ability to rely on future expectations of income.

As of December 31, 2022 , we have available federal tax operating loss carryforwards of approximately $ 8.2 million, including approximately $ 1.7 million generated by our legal predecessor prior to the Yellowstone Transaction.

All federal tax operating loss carryforwards arose in tax years subsequent to 2017.

 Tax operating loss carryovers arising in years after 

be carried forward indefinitely but are only available to offset 80% of future taxable income.

We have available state tax operating loss carryforwards of approximately $ 1.7  million, which are available to reduce future state taxable income and would begin to expire in tax year 2040 in various amounts.

Uncertain Tax Positions  

We have available state tax operating loss carryforwards of approximately $ 8.2 million, which are available to reduce future state taxable income and would begin to expire in tax year 2040 in various amounts.

Utilization of our net operating loss carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by Section 382  of the Internal Revenue Code, as amended, and similar state provisions.

Uncertain Tax Positions

We believe that there are no tax positions taken or expected to be taken that would significantly increase or decrease unrecognized tax benefits within 12 months of the reporting date.

2 unchanged sentences

As of December 31, 2022 , we do not have any open exams;

however, all tax years are subject to examination by the Internal Revenue Service.

Stockholders’ Equity

Class A common stock —

The Company is authorized to issue 200,000,000 shares of Class A common stock with a par value of $ 0.0001 per share.

As of December 31, 2021, there were 13,598,898 shares of Class A common stock issued and outstanding, all of which is subject to possible redemption.

Class B common stock —

The Company is authorized to issue 20,000,000 shares of Class B common stock with a par value of $ 0.0001 per share.

As of December 31, 2021, there were 3,399,724 shares of Class B common stock outstanding.

Common stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders.

Holders of the Class A common stock and holders of the Class B common stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders, except as required by law.

The shares of Class B common stock are identical to the shares of Class A common stock included in the units sold in the offering, and holders of Class B common stock have the same stockholder rights as public stockholders, except that (i) the shares of Class B common stock are subject to certain transfer restrictions, as described in more detail below, (ii) the Sponsor, officers and directors have entered into a letter agreement with the Company, pursuant to which they have agreed (A) to waive their redemption rights with respect to any Class B common stock and any public shares held by them in connection with the completion of the Business Combination and (B) to waive their rights to liquidating distributions from the Trust Account with respect to any Class B common stock held by them if the Company fails to complete the Business Combination within the prescribed time period, although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if the Company fails to complete the Business Combination within such time period, (iii) the Class B common stock are shares that will automatically convert into shares of the Class A common stock at the time of the initial Business Combination, on a one -for- one basis, subject to adjustment pursuant to certain anti-dilution rights and (iv) are subject to registration rights.

If the Company submits the Business Combination to the public stockholders for a vote, the Sponsor has agreed to vote any Class B common stock held by it and any public shares purchased during or after the offering in favor of the initial Business Combination.

With certain limited exceptions, the shares of Class B common stock are not transferable, assignable or saleable (except to the officers and directors and other persons or entities affiliated with the Sponsor and other permitted transferees, each of whom will be subject to the same transfer restrictions) until the earlier of (A) one year after the completion of the initial Business Combination or (B) subsequent to the initial Business Combination, ( x ) if the last sale price of the Class A common stock equals or exceeds $ 12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 -trading day period commencing at least 150 days after the initial Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the stockholders having the right to exchange their shares of common stock for cash, securities or other property.

On November 16, 2020, BOC Yellowstone LLC transferred to BOC Yellowstone II LLC 206,250 shares of Class B common stock for no consideration.

All other shares of Class B common stock are owned by BOC Yellowstone LLC.

BOC Yellowstone LLC sold to the lead investor in the Company's IPO a membership interest in BOC Yellowstone II LLC for a purchase price of $ 309,375 .

Upon the completion of any Business Combination, BOC Yellowstone LLC has agreed to transfer the 206,250 shares of Class B common stock to this investor.

Any Class B common stock ultimately distributed to the investor is subject to all restrictions imposed on the Sponsor, including but not limited to, waiver of redemption rights in connection with completion of any initial Business Combination and rights to liquidating distributions from the trust account if the Company fails to complete the initial Business Combination.

Any shares held by such investor will be subject to the anti-dilution provisions for the Class B common stock and the impact thereof.

BOC Yellowstone LLC is the sole managing member of BOC Yellowstone II LLC.

Preferred Stock

The Company is authorized to issue 1,000,000 shares of preferred stock, with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors.

As of December 31, 2021, there were no shares of preferred stock issued or outstanding.

Registration Rights

The holders of the Founder Shares, Private Placement Warrants, Conversion Warrants that may be issued upon conversion of the Note, and any additional warrants that may be issued in connection with any further Working Capital Loans (and any shares of Class A common stock issuable upon the exercise of the Private Placement Warrants, the Conversion Warrants that may be issued upon conversion of the Note and any additional warrants that may be issued in connection with any further Working Capital Loans and upon conversion of the Founder Shares) will be entitled to registration rights pursuant to a registration rights agreement.

The holders of these securities will be entitled to make up to three demands, excluding short form demands, that the Company register such securities.

In addition, the holders have certain “piggy-back”

registration rights with respect to registration statements filed subsequent to the completion of a Business Combination.

However, the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lockup period.

The Company will bear the expenses incurred in connection with the filing of any such registration statements.

Underwriting Agreement

The underwriters were entitled to a cash underwriting discount of $ 0.20 per Unit, or $ 2,500,000 in the aggregate, which amount was paid upon the closing of the Initial Public Offering.

In addition, the underwriters are entitled to a deferred fee of $ 0.35 per Unit, or $ 4,759,615 (including over-allotment units) in the aggregate.

The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.  

Fair Value Measurements

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.

The fair value of the Company's financial assets and liabilities reflects management's estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date.

In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).

The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Quoted prices in active markets for identical assets or liabilities.

An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Observable inputs other than Level 1 inputs.

Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.             

Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.

The Company's assets that are measured at fair value on a recurring basis at December 31, 2021 are comprised of $ 69,378,000 of marketable U.S.

treasury securities and $ 69,382,121 of money market funds, both of which are held in the Trust Account, and $ 11,908,671 of Public and Private Placement warrants issued in connection with our Initial Public Offering, all of which are classified as Level 1 within the fair value hierarchy and are measured using quoted prices in active markets for identical assets or liabilities. 

For the year ended December 31, 2021, the Company recognized a gain in the statement of operations resulting from a decrease in the fair value of the warrant liability of $ 6,095,170 presented as change in fair value of warrant liability.

however, all tax years, including those of our legal predecessor, are subject to examination by the Internal Revenue Service.  

Earnings (loss)  

Basic earnings (loss) per share of Class A Common Stock is computed by dividing net income (loss) attributable to SHG by the weighted-average number of shares of Class A Common Stock outstanding during the period.

Diluted net income (loss) per share of Class A Common Stock is computed by dividing net income (loss) attributable to SHG, adjusted for the assumed exchange of all potentially dilutive securities, by the weighted-average number of shares of Class A Common Stock outstanding adjusted to give effect to potentially dilutive shares using the treasury stock method.

Shares of the Company’s Class B Common Stock do not participate in the earnings or losses of the Company and are therefore not participating securities.

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 year ended December 31, 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 year ended December 31, 2021 would not be meaningful to the users of these consolidated financial statements, and such information has not been presented.

December 31, 2022

Net loss attributable to non-controlling interests

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

Basic and diluted weighted average shares outstanding

13,965  

Loss per share of Class A Common Stock –

Basic and diluted

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

December 31, 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 year ended December 31, 2022 .

645,000 potentially dilutive shares associated with the Company's restricted stock units were antidilutive for the year ended December 31, 2022  and excluded from the calculation due to the Company's net loss position.

The Company's Class B Common Stock and the Sky Incentive Units are both potentially dilutive as the holders of such securities 

ultimately exchange such securities for the Company's Class A Common Stock.

42,192,250 potentially dilutive shares associated with the Company's Class B Common Stock and 2,807,750 potentially dilutive shares associated with the Sky Incentive Units were antidilutive for the year ended December 31, 2022  and excluded from the calculation 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:

December 31, 2022

Carrying Value

Cash and cash equivalents

$ 2,174  

Restricted cash

39,222  

24,895  

Restricted investments

114,648  

112,956  

$ 180,939  

$ 179,247  

Bonds payable

$ 162,210  

$ 119,461  

Warrants liability

$ 165,114  

$ 122,365  

$ 1,360  

$ 121,005  

December 31, 2021

Carrying Value

Cash and cash equivalents

$ 6,805  

Restricted cash

197,130  

$ 203,935  

Bonds payable

$ 160,679  

$ 173,093  

$ 160,679  

$ 173,093  

The fair value of the Company’s investments and restricted investments is estimated utilizing Level 1 inputs including prices for U.S.

Treasury securities with comparable maturities on active markets.

The fair value of the Company’s bonds is estimated utilizing Level 2 inputs including prices for the bonds on inactive markets.

See Note 9 for discussion regarding the estimation of the fair value of the warrants.

The carrying values of all other financial instruments on the consolidated balance sheets, approximate their fair values due to the short-term nature of these instruments.

Related Party Transactions

Loans payable to Related parties

Sky previously was party to a loan from a company owned by its former majority member.

The loan payable bore interest at an annual rate of 5.50 % and all interest was PIK interest.

On March 12, 2021, pursuant to a Redemption Agreement between Sky and the former majority member, the loan was cancelled and all of the membership interests held by the former majority member were redeemed in exchange for a sum of $ 5.1 million, plus a Reimbursement and Indemnity Agreement from Sky and the Founder and CEO.

Sky recorded a gain on extinguishment of this related party loan payable of $ 5.6 million, net of related expenses of $ 0.15 million and net of redemption of membership interests.

The gain was recognized as a deemed contribution to stockholders’

equity on the consolidated balance sheet.

Interest incurred on the loan payable to for the year ended December 31, 2021 totaled $ 115 . 

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.

The note payable bore interest at 8 % per annum and had a maturity date of November 24, 2021.

Amounts payable under the note were drawn by requesting “advances”

from the lender, up to $ 1,000,000 , and could be used by Sky only for certain types of expenditures that were approved in advance by the lender.

On March 12, 2021, Sky issued 1,250 Series A Preferred Units in full satisfaction of the note payable by Sky to SH Investment Fund I LLC.

The fair value of the 1,250 units was $ 1.25 million and exceeded the carrying value of the $ 1.0 million note payable at the time of extinguishment;

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 year ended December 31, 2022 , the Company paid $ 108 for consulting services to a company that employed the chief financial officer until prior to July 1, 2021.

The Company paid $ 142 during the year ended December 31, 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.

The effective date of the agreement was September 8, 2021 and the agreement automatically renews annually.

The agreement can be terminated without penalty if either party provides 35 days written notice, or if the aircraft is sold or otherwise disposed of.

The Company is charged per flight hour of use along with all direct operating costs.

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

For the year ended December 31, 2022 , the Company recognized $ 194 of expense, within general and administrative expense under the terms of this agreement. The related liability of $ 48 is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheet as of December 31, 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 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 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.

Construction began on the APA Phase I project in October 2022.

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.

Construction began on the DVT Phase I project in December 2022.

The Company has committed to spend $ 10.0 million in capital improvements on the ADS construction project.

If this amount is not expended, the Company is subject to a reduction of the term of the lease.

The Company has contracts for construction of the OPF Phase I, APA Phase I, and DVT Phase I projects.

The Company may terminate any of the contracts or suspend construction without cause;

however, the Company would be subject to paying a penalty under the OPF Phase I construction contract of 50 % of the unrealized fee which remains to be earned as of the termination date.

There are no termination penalties under the APA Phase I or DVT Phase I construction contracts.

Accumulated Other Comprehensive Loss

The following table summarizes the components of Accumulated other comprehensive income (loss):

Unrealized loss on Available-for-sale Securities

Balance as of December 31, 2021

Other comprehensive loss before reclassifications

( 81 )  

Amounts reclassified to other (income) expense

( 21 )  

Balance as of December 31, 2022

$ ( 102 )  

During the year ended December 31, 2022, the Company reported reclassifications of $ 21 of unrealized gains on available-for-sale securities to net income as a component of other (income) expense.

Subsequent Events

Business Combination with Sky  

As described in Note 1, the Company completed the business combination with Sky on January 25, 2022, following stockholder approval.

Prior to the completion of the business combination, the Company entered into subscription agreements with BOC YAC, LLC, a subsidiary of Boston Omaha Corporation, pursuant to which the Company issued 4,500,000 shares of Class A common stock at $ 10 per share, for gross proceeds to the Company of $ 45,000,000 , immediately prior to the completion of the business combination.

Following this transaction, Sky became a consolidated subsidiary of the Company, which was renamed Sky Harbour Group Corporation, shares of which listed for trading on the New York Stock Exchange under the symbol “SKYH”

on January 25, 2022. 

The Company’s financial statement presentation to be included in quarterly and annual filings with the SEC on Forms 10 -Q and 10 -K with respect to periods subsequent to the business combination with Sky will include the consolidated financial statements of Sky and its subsidiaries for periods prior to the completion of the Business Combination and of the Company for periods from and after the Business Combination.   

The Company paid the deferred underwriting discount totaling $ 4,759,615 or 3.50 % of the gross offering proceeds of the Public Offering which was accrued as of December 31, 2021, to the underwriter on January 25, 2022 upon the Company’s consummation of the business combination with Sky. 

Also in connection with the closing of the business combination on January 25, 2022, the Company repaid the outstanding note payable to Sponsor of $ 1,000,000 in full.  

OPF Lease Transaction

The Company’s ground lease at OPF was entered into in May 2019 through its wholly owned subsidiary, Sky Harbour Opa Locka Airport LLC (“SHOLA”), with AA Acquisitions LLC (“AA”), the master ground lessee of Miami Dade County (“MDC”), the ultimate landowner.

On March 2, 2022, the Company, through a wholly-owned subsidiary outside the Obligated Group, entered into an agreement for the Company to purchase AA’s underlying ground lease for approximately $ 8.5 million and lease the OPF property directly from MDC.

The transaction will also require the Company to pay approximately $ 1.0 million in transfer fees to MDC and is expected to close in early April 2022.

After such closing, SHOLA will continue to be obligated under the existing sublease but to an affiliate within the Company.

The transaction would extend the term of the lease at OPF for the Company for an additional 10 years.

ADS Lease Amendment

In January 

2023, the Company executed a lease amendment with the Town of Addison, Texas, to add two additional parcels of land (the "ADS Expansion Parcels") to the existing ADS Lease.

The land associated with the ADS Expansion Parcels is expected to become available for possession no later than June 2023 for one parcel and July 2024 for the other. The lease term for the ADS Expansion Parcels will be 

40 years from the completion of construction for each respective parcel, and will effectively extend the term of the existing ADS Lease to be co-terminus with the ADS Expansion Parcels.

The ADS Lease and the ADS Expansion Parcels contain no additional extension options as the lease term is the maximum allowable term permitted by the Town of Addison.

Series 2021 PABs Scope Modification

On March 22, 2023, SHC elected to modify the scope of its Series 2021 PABs pursuant to the terms of the Master Indenture, in order to reallocate a portion of the proceeds of the Series 2021 PABs to its project site located at ADS.

In connection with the election to modify the scope of the Series 2021 PABs to include the ADS Project, (i) Addison Hangars LLC (“Sky Harbour Addison”) and OPF Hangars Landlord LLC (“OPF Hangars”) joined as members of the Obligated Group, (ii) Sky Harbour Holdings LLC contributed its membership interest in OPF Hangars to SHC, (iii) SHC pledged its equity interest in each of Sky Harbour Addison and OPF Hangars to the Master Trustee as security for the obligations under the Series 2021 PABs, (iv) Sky Harbour Addison granted to the Master Trustee a mortgage on its leasehold interest in the real property comprising the ADS Project, (v) OPF Hangars granted the Master Trustee a mortgage on its leasehold interest in the real estate comprising the project located in Opa Locka, Florida, and (vi) Sky Harbour Services LLC, a wholly-owned subsidiary of the Company, has agreed to waive all management fees and development fees during the construction period of the projects associated with the Series 2021 PABs.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

Information required by this item is set forth under Item 4.01 of our Current Report on Form 8-K filed with the SEC on January 31, 2022.

Not applicable.

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-K

Item 8. Financial Statements and Supplementary Data