Sky Harbour Group Corp 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   INDEX TO FINANCIAL STATEMENTS   Financial Statements Page     Report of Independent Registered Public Accounting Firm  (PCAOB ID: 274 ); EisnerAmper LLP, New York, NY 44     Balance Sheets - December 31, 2022 and December 31, 2021 45     Statements of Operations - Years Ended December 31, 2022 and December 31, 2021 46     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 48     Statements of Cash Flows - Years ended December 31, 2022 and December 31, 2021 49     Notes to Financial Statements 50   43 Table of Contents   Report of Independent Registered Public Accounting Firm   To the Stockholders and Board of Directors Sky Harbour Group Corporation:   Opinion on the Financial Statements   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 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 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.   EISNERAMPER LLP New York, New York March 24, 2023   44 Table of Contents Table of Contents       SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)       December 31, 2022     December 31, 2021   Assets                 Cash   $ 2,174     $ 6,805   Restricted cash     39,222       197,130   Investments     24,895       -   Restricted investments     114,648       -   Prepaid expenses and other assets     4,448       3,142   Cost of construction     48,242       25,034   Constructed assets, net     39,709       14,500   Right-of-use assets     56,716       56,867   Long-lived assets, net     1,150       409   Total assets   $ 331,204     $ 303,887                     Liabilities and equity                 Accounts payable, accrued expenses and other liabilities   $ 14,184     $ 10,959   Operating lease liabilities     53,531       61,289   Bonds payable, net of debt issuance costs and premiums     162,210       160,679   Warrants liability     2,904       -   Total liabilities     232,829       232,927                     Commitments and contingencies (Note 16)                     Redeemable Sky Series B Preferred Units     -       54,029                     Stockholders’ equity                 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 as of December 31, 2022; 14,962,831 shares issued and outstanding as of December 31, 2022     1       -   Class B common stock, $ 0.0001 par value; 50,000,000 shares authorized as of December 31, 2022; 42,192,250 shares issued and outstanding as of December 31, 2022     4       -   Additional paid-in capital     29,560       -   Accumulated deficit     ( 3,184 )     -   Accumulated other comprehensive loss     ( 102 )     -   Total Sky Harbour Group Corporation stockholders’ equity     26,279       -                     Members’ equity     -       16,931   Non-controlling interests     72,096       -   Total equity     98,375       16,931                     Total liabilities and equity   $ 331,204     $ 303,887     See accompanying Notes to Consolidated Financial Statements   45 Table of Contents     SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)       Year ended       December 31, 2022     December 31, 2021   Revenue:                 Rental revenue   $ 1,845     $ 1,578   Total revenue     1,845       1,578                     Expenses:                 Operating     5,046       4,471   Depreciation     695       570   Loss on impairment of long-lived assets     248       -   General and administrative     14,714       8,737   Total expenses     20,703       13,778                     Other (income) expense:                 Interest expense, net of capitalized interest     -       1,160   Other (income) expense     ( 98 )     -   Unrealized (gain) loss on warrants     ( 5,082 )     -   Loss on extinguishment of note payable to related party     -       250   Total other (income) expense     ( 5,180 )     1,410                     Net loss   $ ( 13,678 )   $ ( 13,610 )                   Net loss attributable to non-controlling interests     ( 10,494 )     -   Net loss attributable to Sky Harbour Group Corporation shareholders   $ ( 3,184 )   $ ( 13,610 )                   Loss per share                 Basic   $ ( 0.23 )   $ -   Diluted   $ ( 0.23 )   $ -   Weighted average shares                 Basic     13,965       -   Diluted     13,965       -     See accompanying Notes to Consolidated Financial Statements   46 Table of Contents     SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands)       Year Ended       December 31, 2022     December 31, 2021   Net loss   $ (13,678 )   $ (13,610 ) Other comprehensive loss, before related income taxes:                 Unrealized losses on available-for-sale securities     (102 )     -   Total other comprehensive loss   $ (13,780 )   $ (13,610 )   See accompanying Notes to Consolidated Financial Statements   47 Table of Contents     SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY (in thousands, except share data)       Redeemable Sky Series B     Class A     Class B     Additional             Accumulated Other     Total             Non-               Preferred Units     Common Stock     Common Stock     Paid-in     Accumulated     Comprehensive     Stockholders’     Members     Controlling     Total       Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Loss     Equity     Equity     Interests     Equity   Balance at December 31, 2020     -     $ -       -     $ -       -     $ -     $ -     $ -     $ -       -     $ ( 6,509 )   $ -     $ ( 6,509 ) Gain on extinguishment of related party loan, net of repurchase of membership interests     -       -       -       -       -       -       -       -       -       -       5,621       -       5,621   Conversion of SH I loan to equity     -       -       -       -       -       -       -       -       -       -       1,250       -       1,250   Issuance of Sky Series A Preferred Units, net of equity issuance costs     -       -       -       -       -       -       -       -       -       -       29,683       -       29,683   Issuance of Sky Redeemable Series B Preferred Units, net of equity issuance costs     -       54,029       -       -       -       -       -       -       -       -       -       -       -   Issuance of Warrants     -       -       -       -       -       -       -       -       -       -       290       -       290   Equity issuance costs     -       -       -       -       -       -       -       -       -       -       ( 12 )     -       ( 12 ) Sky incentive compensation     -       -       -       -       -       -       -       -       -       -       217       -       217   Net loss     -       -       -       -       -       -       -       -       -       -       ( 13,609 )     -       ( 13,609 ) Balance at December 31, 2021     -       54,029       -       -       -       -       -       -       -       -       16,931       -       16,931   Sky incentive compensation prior to recapitalization     -       -       -       -       -       -       -       -       -       -       23       -       23   Net income (loss) prior to recapitalization     -       -       -       -       -       -       -       -       -       -       ( 1,247 )     -       ( 1,247 ) Yellowstone Transaction and recapitalization, See Note 3     -       ( 54,029 )     14,937,581       1       42,192,250       4       28,681       -       -       28,686       ( 15,707 )     81,024       94,003   Share-based compensation     -       -       -       -       -       -       764       -       -       764       -       -       764   Sky incentive compensation following recapitalization     -       -       -       -       -       -       -       -       -       -       -       320       320   Issuance of initial commitment shares     -       -       25,000       -       -       -       112       -       -       112       -       -       112   Exercise of warrants     -       -       250       -       -       -       3       -       -       3       -       -       3   Other comprehensive income (loss)     -       -       -       -       -       -       -       -       ( 102 )     ( 102 )     -       -       ( 102 ) Net income (loss) following recapitalization     -       -       -       -       -       -       -       ( 3,184 )     -       ( 3,184 )     -       ( 9,248 )     ( 12,432 ) Balance at December 31, 2022     -     $ -       14,962,831     $ 1       42,192,250     $ 4     $ 29,560     $ ( 3,184 )   $ ( 102 )   $ 26,279     $ -     $ 72,096     $ 98,375     See accompanying Notes to Consolidated Financial Statements   48 Table of Contents     SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)       Year ended       December 31, 2022     December 31, 2021   Cash flows from operating activities:                 Net loss   $ ( 13,678 )   $ ( 13,610 ) Adjustments to reconcile net loss to net cash used in operating activities:                 Depreciation and amortization     695       1,009   Straight-line rent adjustments, net     10       ( 100 ) Loss on extinguishment of related party loan payable     -       250   Equity-based compensation     1,217       217   Loss on impairment of long-lived assets     248       -   Non-cash operating lease expense     1,960       2,633   Unrealized gain on warrants     ( 5,082 )     -   Changes in operating assets and liabilities:                 Prepaid expenses and other assets     ( 1,981 )     ( 316 ) Right-of-use asset initial direct costs     ( 9,567 )     -   Accounts payable, accrued expenses and other liabilities     ( 1,313 )     3,302   Net cash used in operating activities     ( 27,491 )     ( 6,615 )                   Cash flows from investing activities:                 Purchases of long-lived assets     ( 1,050 )     ( 162 ) Payments for cost of construction     ( 44,917 )     ( 15,832 ) Issuance of notes receivable     ( 2,199 )     -   Purchases of available for sale investments     ( 29,997 )     -   Purchases of held-to-maturity investments     ( 193,822 )     -   Proceeds from held-to-maturity investments     79,126       -   Proceeds for available for sale investments     5,021       -   Net cash used in investing activities     ( 187,838 )     ( 15,994 )                   Cash flows from financing activities:                 Proceeds from issuance of Sky Series A Preferred Units     -       30,000   Proceeds from issuance of Sky Series B Preferred Units and Warrants     -       55,000   Proceeds from issuance of BOC PIPE     45,000       -   Proceeds from Yellowstone trust     15,691       -   Proceeds from exercise of warrants     3       -   Payments for equity issuance costs     ( 9,153 )     ( 1,633 ) Payments for debt issuance costs     -       ( 6,072 ) Refund of debt issuance costs     1,249       -   Payment of loan payable and redemption of Sky membership interest     -       ( 5,221 ) Payments of loans payable     -       ( 13,831 ) Proceeds of bonds payable     -       166,589   Proceeds of loans payable     -       1,010   Proceeds of loans payable to related parties     -       630   Net cash provided by financing activities     52,790       226,472                     Net (decrease) increase in cash and restricted cash     ( 162,539 )     203,863                     Cash and restricted cash, beginning of year     203,935       72                     Cash and restricted cash, end of year   $ 41,396     $ 203,935     See accompanying Notes to Consolidated Financial Statements   49 Table of Contents   SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 (in thousands, except share data)     1. Organization and Business Operations   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.     2. Basis of Presentation and Significant Accounting Policies   Basis of Presentation   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; and   • 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.   50 Table of Contents   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 .    51 Table of Contents   Investments   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.   52 Table of Contents   Leases   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. See Note 14.   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.   53 Table of Contents   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 .   Income Taxes   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.   54 Table of Contents     3. 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   Less: transaction costs and advisory fees     ( 12,731 ) Net proceeds from the Yellowstone Transaction   $ 47,960   Conversion of Sky Series B preferred units to Class A Common Stock     54,029   Less: Initial fair value of Warrants liability assumed on 1/25/2022     ( 7,986 ) 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   Less: redemption of Yellowstone Common Stock     ( 12,061,041 ) 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   Class A Common Stock outstanding after the Yellowstone Transaction     14,937,581   Class B Common Stock issued to LLC Interests     42,192,250   Total shares of common stock following the Yellowstone Transaction     57,129,831     55 Table of Contents   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; and   • 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.     4. 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; and     ● 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 )     ( 579 )     $ 39,709     $ 14,500   Cost of construction:                 OPF; APA; DVT; ADS   $ 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.      5. Long-lived Assets   Long-lived assets, net, consists of the following:       December 31, 2022     December 31, 2021   Equipment   $ 1,245     $ 200   Software     -       247         1,245       447   Accumulated depreciation     ( 95 )     ( 38 )     $ 1,150     $ 409     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 .   56 Table of Contents      6. 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     2,047       2,497   Interest     3,470       2,063   Professional Fees     1,621       2,048   Other     948       901       $ 14,184     $ 10,959     Supplemental Cash Flow Information   The following table summarizes non-cash investing and financing activities:       Year ended       December 31, 2022     December 31, 2021   Accrued costs of construction, including capitalized interest   $ 8,164     $ 5,513   Accrued equity issuance costs     1,500       2,048   Debt issuance costs and premium amortized to cost of construction     282       1,012   Net gain on extinguishment of related party notes     -       5,371   Settlement of related party note payable by issuing equity     -       1,250     The following table summarizes non-cash activities associated with the Company’s operating leases:       Year ended       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 )     ( 787 )   The following table summarizes interest paid:       Year ended       December 31, 2022     December 31, 2021   Interest paid   $ 5,533     $ 795     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:       Year ended       December 31, 2022     December 31, 2021   Cash, beginning of year   $ 6,805     $ -   Restricted cash, beginning of year     197,130       72   Cash and restricted cash, beginning of year   $ 203,935     $ 72                     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     57 Table of Contents      7. Leases   Lessee   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. See Note 17.   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  2022.   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.   58 Table of Contents   Supplemental consolidated cash flow information related to the Company’s leases was as follows:        Year ended       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)     55.30       54.39                     Weighted Average Discount Rate                 Operating leases as lessee     4.62 %     4.40 %   The Company’s future minimum lease payments required under leases as of  December 31, 2022  were as follows:    Year Ending December 31,   Operating Leases   2023   $ 2,027   2024     2,210   2025     2,268   2026     2,280   2027     2,343   Thereafter     196,639   Total lease payments     207,767   Less imputed interest     ( 154,236 ) Total   $ 53,531     Lessor   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   2023   $ 2,516   2024     1,200   2025     935   2026     -   2027     -   Thereafter     -   Total lease payments     4,651   Less rent concessions to be applied at Company’s discretion     ( 214 ) Total   $ 4,437     59 Table of Contents      8. 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.   60 Table of Contents   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     $ 166,340   Premium on bonds     249       249   Bond proceeds     166,589       166,589   Debt issuance costs     ( 4,753 )     ( 6,002 ) Accumulated amortization of debt issuance costs and bond premium     374       92   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.   On  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.   Interest   The following table sets forth the details of interest expense:       Year ended       December 31, 2022     December 31, 2021   Interest   $ 6,941     $ 1,402   Amortization of bond premium and debt issuance costs     282       1,359   Total interest incurred     7,223       2,761   Less: capitalized interest     ( 7,223 )     ( 1,601 ) Interest expense   $ -     $ 1,160     61 Table of Contents      9. Warrants   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 .       10. 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.   62 Table of Contents   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.       11. 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.   63 Table of Contents   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)     5   Risk-free interest rate     0.84 % Volatility     57 %   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)     3,951     $ 318.44   Sky units outstanding as of December 31, 2021 (recast for recapitalization)     2,807,750     $ 0.45   Granted     -     $ -   Forfeitures     -     $ -   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’ equity. 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.   64 Table of Contents      12. Income Taxes   Effective Tax Rate Reconciliation   We are subject to taxation in all jurisdictions in which we operate that impose an income tax on our business activities. The components of the income tax expense for the years ended  December 31,  and the tax effects of temporary differences that give rise to deferred taxes at  December 31,  are as follows:       Year Ended December 31,       2022     2021   Income tax benefit:                 Deferred federal income tax benefit     ( 1,558 )     -   Deferred state income tax benefit     ( 285 )     -   Total income tax benefit before valuation allowance     ( 1,843 )     -   Valuation allowance     1,843       -   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,       2022     2021   Income tax benefit at the federal statutory rate of 21%   $ ( 554 )   $ -   State income tax benefit, net of federal benefit     ( 225 )     -   Unrealized gain on warrants     ( 1,067 )     -   Other, net     3       -   Change in valuation allowance     1,843       -   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 ).   65 Table of Contents   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,         2022       2021   Deferred tax assets:                 Amortization   $ 470     $ -   Difference between book and tax capital accounts   $ 90         Stock-based compensation     179       -   Net operating loss carryforwards     1,923       -   Valuation allowance     ( 2,661 )     -   Total deferred tax assets   $ 1     $ -                     Deferred tax liabilities:                 Unrealized Gain/Loss on investments   $ ( 1 )   $ -   Total deferred tax liabilities   $ ( 1 )   $ -   Total   $ -     $ -     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 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  2017   may  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 $ 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.   The federal and state statutes of limitation for assessment of tax liability generally lapse within three years after the date the tax returns are filed. However, income tax attributes that are carried forward, such as net operating loss carryforwards, may be challenged and adjusted by taxing authorities at any time prior to the expiration of the statute of limitations for the tax year in which they are utilized. As of December 31, 2022 , we do not have any open exams; however, all tax years, including those of our legal predecessor, are subject to examination by the Internal Revenue Service.     66 Table of Contents     13. Earnings (loss)   per Share   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.       Year Ended       December 31, 2022   Numerator:         Net loss   $ ( 13,678 ) Less: Net loss attributable to non-controlling interests     ( 10,494 ) Basic and diluted net loss attributable to Sky Harbour Group Corporation shareholders   $ ( 3,184 )           Denominator:         Basic and diluted weighted average shares outstanding     13,965             Loss per share of Class A Common Stock – Basic and diluted   $ ( 0.23 )   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  may  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.   67 Table of Contents      14. 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     Fair Value     Level 1     Level 2     Level 3   Assets                                         Cash and cash equivalents   $ 2,174     $ 2,174     $ 2,174     $ -     $ -   Restricted cash     39,222       39,222       39,222       -       -   Investments     24,895       24,895       24,895       -       -   Restricted investments     114,648       112,956       112,956       -       -       $ 180,939     $ 179,247     $ 179,247     $ -     $ -                                             Liabilities                                         Bonds payable   $ 162,210     $ 119,461     $ -     $ 119,461     $ -   Warrants liability     2,904       2,904       1,360       1,544       -       $ 165,114     $ 122,365     $ 1,360     $ 121,005     $ -         December 31, 2021       Carrying Value     Fair Value     Level 1     Level 2     Level 3   Assets                                         Cash and cash equivalents   $ 6,805     $ 6,805     $ 6,805     $ -     $ -   Restricted cash     197,130       197,130       197,130       -       -       $ 203,935     $ 203,935     $ 203,935     $ -     $ -                                             Liabilities                                         Bonds payable   $ 160,679     $ 173,093     $ -     $ 173,093     $ -       $ 160,679     $ 173,093     $ -     $ 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.   68 Table of Contents      15. 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.   Services   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 .       16. 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.   69 Table of Contents     17. Accumulated Other Comprehensive Loss   The following table summarizes the components of Accumulated other comprehensive income (loss):       Unrealized loss on Available-for-sale Securities     Total   Balance as of December 31, 2021   $ -     $ -   Other comprehensive loss before reclassifications     ( 81 )     ( 81 ) Amounts reclassified to other (income) expense     ( 21 )     ( 21 ) Balance as of December 31, 2022   $ ( 102 )   $ ( 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.      18. Subsequent Events   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.   70 Table of Contents      ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES   Not applicable.