What changed in this filing

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Item 1. Financial Statements

2023-05-12 compared with 2022-11-10 · 423 added, 717 removed, 688 unchanged (62% of the section changed)

3 unchanged sentences

(in thousands, except share data)

September 30, 2022

March 31, 2023

December 31, 2022

$ 2,853  

$ 2,174  

Restricted cash

2 unchanged sentences

18,405  

24,895  

Restricted investments

74,594  

114,648  

Prepaid expenses and other assets

25 unchanged sentences

232,829  

Redeemable Sky Series B Preferred Units

54,029  

Commitments and contingencies (Note 14)

Stockholders’

1 unchanged sentence

$ 0.0001 par value;

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

10,000,000 shares authorized as of March 31, 2023;

none issued and outstanding

Class A common stock, $ 0.0001 par value;

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

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

200,000,000 shares authorized;

15,108,725 and 14,962,831 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Class B common stock, $ 0.0001 par value;

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

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

50,000,000 shares authorized;

42,046,356 and 42,192,250 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital

30,137  

Accumulated deficit

29,560  

Accumulated other comprehensive loss

Accumulated deficit

( 9,380 )  

Accumulated other comprehensive income (loss)

Total Sky Harbour Group Corporation stockholders’

20,837  

Members’

26,279  

3 unchanged sentences

90,269  

98,375  

Total liabilities and equity

6 unchanged sentences

Three Months Ended

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Rental revenue

$ 1,107  

$ 1,187  

Total revenue

Loss on impairment of long-lived assets

General and administrative

12,136  

Total expenses

Operating loss

( 4,684 )  

Other (income) expense:

Interest expense, net of capitalized interest

Unrealized (gain) loss on warrants

Unrealized loss on warrants

13,938  

Other (income) expense

( 133 )  

Loss on extinguishment of note payable to related party

Total other (income) expense

1 unchanged sentence

( 8,761 )  

$ ( 3,092 )  

$ ( 3,539 )  

$ ( 12,343 )  

Net loss attributable to non-controlling interests

( 2,565 )  

( 8,632 )  

Net loss attributable to Sky Harbour Group Corporation shareholders

$ ( 6,196 )  

$ ( 3,539 )  

$ ( 3,711 )  

Loss per share

1 unchanged sentence

$ ( 0.41 )  

$ ( 0.04 )  

$ ( 0.27 )  

Weighted average shares

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

$ (3,092)  

$ (3,539)  

$ (12,343)  

March 31, 2023

March 31, 2022

$ ( 8,761 )  

Other comprehensive loss, before related income taxes:

Unrealized losses on available-for-sale securities

Total other comprehensive loss

$ (3,239)  

$ (3,539)  

$ (12,574)  

Unrealized gains on available-for-sale securities

Total comprehensive loss

$ ( 8,538 )  

8 unchanged sentences

Stockholders’

Income (Loss)

Balance at December 31, 2022

2 unchanged sentences

$ 29,560  

Sky incentive compensation prior to recapitalization

Net income (loss) prior to recapitalization

$ ( 3,184 )  

Yellowstone Transaction and recapitalization, See Note 3

$ (102 )  

2 unchanged sentences

$ 98,375  

28,686  

( 15,707 )  

81,024  

94,003  

Sky incentive compensation following recapitalization

Net income (loss) following recapitalization

( 15,763 )  

( 2,504 )  

Balance at March 31, 2022

14,937,581  

42,192,250  

28,681  

( 15,763 )  

12,923  

78,583  

91,506  

Share-based compensation

Sky incentive compensation

Other comprehensive income (loss)

( 84 )  

Net income (loss)

12,665  

Exchange of Class B Common Stock

145,894  

( 145,894 )  

Balance at June 30, 2022

( 184 )  

Other comprehensive income

( 6,196 )  

1 unchanged sentence

( 2,565 )  

Balance at March 31, 2023

15,108,725  

2 unchanged sentences

$ ( 9,380 )  

Share-based compensation

Sky incentive compensation

Issuance of initial commitment shares

$ 20,837  

Exercise of warrants

Other comprehensive income (loss)

$ 69,432  

$ 90,269  

Net income (loss)

Redeemable Series B

Accumulated Other

Preferred Units

Comprehensive

Stockholders’

Balance at December 31, 2021

$ 54,029  

1 unchanged sentence

$ 16,931  

Balance at September 30, 2022

Sky incentive compensation prior to recapitalization

Net income (loss) prior to recapitalization

( 1,247 )  

Yellowstone Transaction and recapitalization

( 54,029 )  

5 unchanged sentences

81,024  

See accompanying Notes to Unaudited Consolidated Financial Statements

SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’

(in thousands, except share data)

Redeemable Series B

Accumulated Other

Preferred Units

Comprehensive

Stockholders’

Balance at December 31, 2020

94,003  

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

Conversion of SH I loan to equity

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

Sky incentive compensation following recapitalization

Net loss following recapitalization

( 15,763 )  

4 unchanged sentences

42,192,250  

Equity issuance costs

Sky incentive compensation

$ 28,681  

Balance at June 30, 2021

$ ( 15,763 )  

$ 12,923  

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

$ 78,583  

Issuance of Warrants

Equity issuance costs

Sky incentive compensation

$ 91,506  

Balance at September 30, 2021

$ 54,029  

$ 22,093  

See accompanying Notes to Unaudited Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Nine months ended

September 30, 2022

September 30, 2021

Three months ended

March 31, 2023

March 31, 2022

Cash flows from operating activities:

$ ( 12,343 )  

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

1 unchanged sentence

Straight-line rent adjustments, net

Loss on extinguishment of related party loan payable

Equity-based compensation

Loss on impairment of long-lived assets

Non-cash operating lease expense

Unrealized gain on warrants

( 2,904 )  

Unrealized loss on warrants

Changes in operating assets and liabilities:

Prepaid expenses and other assets

( 1,768 )  

Right-of-use asset initial direct costs

( 9,555 )  

Accounts payable, accrued expenses and other liabilities

( 1,698 )  

Net cash used in operating activities

( 25,282 )  

Cash flows from investing activities:

Purchases of long-lived assets

( 645 )  

Payments for cost of construction

( 35,597 )  

Issuance of notes receivable

( 1,955 )  

Purchases of available for sale investments

( 29,996 )  

Purchases of held-to-maturity investments

( 193,822 )  

Proceeds from available for sale investments

Proceeds from held-to-maturity investments

48,466  

Net cash used in investing activities

( 213,549 )  

Net cash provided by (used in) investing activities

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

Payments for equity issuance costs

( 9,153 )  

Payments for debt issuance costs

Refund of debt issuance costs

Payment of loan payable and redemption of Sky membership interest

Payments of loans payable

Proceeds of bonds payable

166,589  

Proceeds of loans payable

Proceeds of loans payable to related parties

Net cash provided by financing activities

52,790  

227,323  

Net (decrease) increase in cash and restricted cash

( 186,041 )  

216,968  

Net increase (decrease) in cash and restricted cash

Cash and restricted cash, beginning of year

203,935  

Cash and restricted cash, end of period

$ 17,894  

$ 217,040  

See accompanying Notes to Unaudited Consolidated Financial Statements

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

March 31, 2023

(in thousands, except share data)

2 unchanged sentences

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

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

Basis of Presentation and Significant Accounting Policies

The Company is organized 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 “Sky Common Units”).

As of March 31, 2023 , SHG owned approximately 26.2 % of the Sky Common Units and the prior holders of Sky Common Units (the “LLC Interests”) owned approximately 73.8 % of the Sky Common Units and control the Company through their ownership of the Company's Class B Common Stock, $ 0.0001 par value (“Class B Common Stock”).

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

2 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

The Financial Statements should be read in conjunction with the audited consolidated financial statements and the notes contained in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2021, as well as the financial statements of Sky for the year ended December 31, 2021 file by the Company on its Current Reports on Form 8 -K/A on March 28, 2022, which includes additional disclosures and a summary of the Company's significant accounting policies.

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

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

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

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

$ 89 previously classified within general and administrative expenses on the consolidated statement of operations for the three months ended March 31, 2022, has been reclassified to operating expenses.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Use of Estimates

6 unchanged sentences

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.

In March 2020, the World Health Organization declared coronavirus 2019 (“COVID- 19”

) a global pandemic.

The outbreak of COVID- 19 caused severe disruptions in the global economy and has 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 to-date, 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

8 unchanged sentences

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.

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

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

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

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

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

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

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.

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.

There are no realized gains or losses on investments for the periods presented.

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

Cost of Construction

6 unchanged sentences

Interest, net of 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 principally of developed airplane 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.

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

Other long-lived assets

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

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

Maintenance and repair expenses are charged to expense as incurred.

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

Impairment of long-lived assets

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

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

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

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

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

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

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

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

13 unchanged sentences

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 statement of operations.

Fair Value of Financial Instruments

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

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

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

Level 1 –

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

Level 2 –

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

and Level 3 –

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

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

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

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

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

Equity issuance costs

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

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

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

Revenue recognition

4 unchanged sentences

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

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

As of March 31, 2023 and December 31, 2022 , the deferred rent receivable included in prepaid expenses and other assets was $ 120 and $ 83 , respectively.

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

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

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

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

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

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

Operating Expenses

For the three and nine months ended September 

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

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

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

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

Advertising Costs

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

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

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

2021, respectively.

There were no material adjustments to rental revenue for uncollectible tenant rental payments in either of the three and nine months ended March 31, 2023 or 2022 .

For the three months ended March 31, 2023 

the Company derived approximately 45 % of its revenue from three tenants, including 20 % from a single tenant.

For the three months ended March 31, 2022, the Company derived approximately 90 % of its revenue from two tenants.

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

12 unchanged sentences

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

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

The Company recorded income tax expense of $ 0 and the effective tax rate was 0.0 % for the three months ended March 31, 2023  and March 31, 2022.

The effective income tax rate for the 

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

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

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 nine months ended September 30, 2022 :

Yellowstone Transaction

Cash - Yellowstone trust and cash, net of redemptions

three months ended March 31, 2023  and March 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.

Recently Adopted Accounting Pronouncements

Credit Losses (Topic 326 )

In June 2016, the FASB issued ASU No.

2016 - 13, Financial Instruments - Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments (“ASU 2016 - 13”

Subsequent to the issuance of ASU 2016 - 13, the FASB clarified the guidance through several ASUs.

The collective new guidance (ASC 326 ) generally requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used and establishes additional disclosures related to credit risks.

The Company adopted this guidance using the modified retrospective method in the first quarter of fiscal year 2023.

The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

Investments and Restricted 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 utilizing Level 1 inputs as determined based upon quoted market prices.

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.

Unrealized losses on certain of the Company's investments and restricted investments are primarily attributable to changes in interest rates.

The Company does not believe the unrealized losses represent impairments because the unrealized losses are due to general market factors.

The Company has not recognized an allowance for expected credit losses related to its investments or restricted investments as the Company has not identified any unrealized losses attributable to credit factors during the three months ended March 31, 2023.

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

As of March 31, 2023, 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 fair value of the Company’s restricted investments is estimated utilizing Level 1 inputs including prices for U.S.

Treasury securities with comparable maturities on active markets.

The following tables are summaries of the amortized cost, unrealized gains, unrealized losses, and fair value by investment type as of March 31, 2023 and December 31, 2022:

March 31, 2023

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

Investments, available for sale:

Treasuries  

$ 18,330  

Cash - BOC PIPE investment

$ ( 3 )  

transaction costs and advisory fees

Net proceeds from the Yellowstone Transaction

$ 18,405  

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

Total investments  

$ 18,330  

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

Net adjustment to total equity from the Yellowstone Transaction

$ ( 3 )  

Transaction costs and advisory fees of approximately $ 12.7 million includes $ 14.7 million of total transaction costs incurred at or around closing of the Yellowstone Transaction, $ 0.6 million of transaction costs paid prior to December 31, 2021, less $ 2.6 million of costs for insurance that was recorded within prepaid expenses and other assets on the Closing Date.

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

$ 18,405  

redemption of Yellowstone Common Stock

( 12,061,041 )

Common stock of Yellowstone, net of redemptions

Restricted investments, held-to-maturity:

Treasuries  

74,594  

Shares held by Sponsor

( 1,219 )  

Conversion of Sky Series B units to Class A Common Stock

73,493  

Shares issued in BOC PIPE investment

Total restricted investments  

$ 74,594  

Class A Common Stock outstanding after the Yellowstone Transaction

$ ( 1,219 )  

Class B Common Stock issued to LLC Interests

$ 73,493  

Total shares of common stock following the Yellowstone Transaction

December 31, 2022

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

Investments, available for sale:

Treasuries  

$ 24,997  

Tax Receivable Agreement

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

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

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

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

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

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

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

$ ( 167 )  

$ 24,895  

Total investments  

$ 24,997  

$ ( 167 )  

$ 24,895  

Restricted investments, held-to-maturity:

Treasuries  

114,648  

( 1,991 )  

112,956  

Total restricted investments  

$ 114,648  

$ ( 1,991 )  

$ 112,956  

The following table sets forth the maturity profile of the Company's investments and restricted investments as of March 31, 2023:

Restricted Investments

Due within one year

Due on year through five years

Cost of Construction and Constructed Assets

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

The Company’s portfolio as of March 31, 2023 includes the following completed and in-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;

Nashville International Airport (“BNA”), Nashville, TN;

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

2 unchanged sentences

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

September 30, 2022

March 31, 2023

December 31, 2022

Constructed assets, net of accumulated depreciation:

Buildings, SGR (Phase I)

Buildings, SGR (Phase I), BNA, and OPF (Phase I)

$ 80,123  

5 unchanged sentences

Cost of construction:

OPF (Phase II), APA, DVT, and ADS

$ 17,568  

$ 48,242  

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

Depreciation expense for the 

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

three months ended March 31, 2023 and 2022 totaled $ 392 and $ 135 , respectively.

Long-lived Assets

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

September 30, 2022

March 31, 2023

December 31, 2022

Ground support equipment

$ 1,034  

Other equipment and fixtures

Purchase deposits and construction in progress

Accumulated depreciation

( 153 )  

$ 1,296  

$ 1,150  

Depreciation expense for the 

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

Depreciation expense for the three months ended September 

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

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

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

In connection with this evaluation, the Company determined that previously capitalized software costs associated with the abandoned development were not recoverable and recognized an impairment loss of $ 248 during the nine months ended September 

three months ended March 31, 2023 and 2022 totaled $ 58 and $ 10 , respectively. As of March 31, 2023 and December 31, 2022, equipment included approximately $ 87 and $ 650 , respectively, of purchase deposits towards ground support equipment which are not being depreciated as the assets have not been placed into service.

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, of which $ 2.0 million was loaned to the vendor during the three and nine months ended September 30, 2022.

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

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.

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 was exercised on May 12, 2023, see “

Note 16  

 Subsequent Events ”.

The Vendor Purchase Option does 

not  confer any voting rights to the Company prior to its exercise.

As of March 31, 2023, and 

December 31, 2022, 

the Company had loaned a total of $ 3.5 million and $ 2.2  million, respectively, 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:

September 30, 2022

March 31, 2023

December 31, 2022

8 unchanged sentences

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

Nine months ended

September 30, 2022

September 30, 2021

Three months ended

March 31, 2023

March 31, 2022

Accrued costs of construction, including capitalized interest

1 unchanged sentence

$ 6,256  

Accrued debt issuance costs

Accrued costs of long-lived assets

Accrued equity issuance costs

Debt issuance costs and premium amortized to cost of construction

Net gain on extinguishment of related party notes

Settlement of related party note payable by issuing equity

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

Nine months ended

September 30, 2022

September 30, 2021

Three months ended

March 31, 2023

March 31, 2022

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

$ 2,876  

$ 25,847  

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

( 12,189 )  

The following table summarizes interest paid:

Nine months ended

September 30, 2022

September 30, 2021

Three months ended

March 31, 2023

March 31, 2022

Interest paid

$ 3,470  

$ 2,063  

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:

Nine months ended

September 30, 2022

September 30, 2021

Three months ended

March 31, 2023

March 31, 2022

Cash, beginning of year

$ 2,174  

$ 6,805  

Restricted cash, beginning of year

39,222  

197,130  

Cash and restricted cash, beginning of year

$ 41,396  

$ 203,935  

Cash, end of period

$ 2,853  

$ 48,610  

Restricted cash, end of period

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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’s lease population does not include any residual value guarantees.

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 three and nine month periods ended September 30, 2022 and 2021 .

These variable payments were not material in amount for both of the three month periods ended March 31, 2023 and 2022 .

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

On June 28, 2022, the Company commenced an operating lease for a ground lease located at ADS (“ADS Lease”).

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

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

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 lease at ADS (the "ADS Lease").

The land associated with the ADS Expansion Parcels is expected to become available for possession 

no  later than 

June 2023 

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.

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

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

Nine months ended

September 30,

Three months ended

Cash paid for amounts included in measurement of lease liabilities:

Operating cash flows from operating leases as lessee

$ 1,384  

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

Weighted Average Remaining Lease Term

September 30, 2022

March 31, 2023

December 31, 2022

2 unchanged sentences

Operating leases as lessee

4.62 %  

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

September 30, 2022  were as follows: 

March 31, 2023  were as follows: 

Year Ending December 31,

2 unchanged sentences

$ 1,592  

196,645  

Total lease payments

9 unchanged sentences

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.

2 unchanged sentences

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

September 30, 2022 :

March 31, 2023 :

Year Ending December 31,

1 unchanged sentence

2023 (remainder of year)

$ 4,105  

Total lease payments

14,566  

Less rent concessions to be applied at Company’s discretion

$ 14,352  

Bonds payable, Loans payable and interest

Bonds 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”

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

SHC 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”).

6 unchanged sentences

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

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

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.

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

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

6 unchanged sentences

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

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

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

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

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

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

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

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

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

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

September 30, 2022

March 22, 2023 ,  SHC elected to modify the scope of the Series 

2021  Bonds pursuant to the terms of the Master Indenture, in order to reallocate a portion of the proceeds of the Series 

2021  Bonds to its project site located at ADS (the “ADS Project”) .

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  Bonds, (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  Bonds.

As of March 31, 2023 

and December 31, 2022, the fair value of the Company’s Series 2021 - 1 Bonds was approximately $ 125.4 million and $ 119.5 million, respectively.

As of March 31, 2023, the fair value of the Company's bonds is estimated utilizing Level 3 inputs, including unobservable inputs reflecting assumptions about the inputs used in pricing the Series 2021 - 1 Bonds, including using current borrowing rates and trading for debt instruments with similar terms, as there were no trades of the Series 2021 - 1 Bonds during the three months ended March 31, 2023.

As of December 31, 2022, the fair value of the Company’s bonds is estimated utilizing Level 

2  inputs including prices for the bonds on inactive markets.

The following table summarizes the Company’s Bonds payable as of March 31, 2023 and December 31, 2022 :

March 31, 2023

December 31, 2022

13 unchanged sentences

$ 162,210  

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

Loans payable

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

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

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

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

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

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

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

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

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

The following table sets forth the details of interest expense:

Three months ended

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

$ 1,735  

March 31, 2023

March 31, 2022

$ 1,735  

4 unchanged sentences

( 1,788 )  

( 566 )  

( 5,433 )  

Interest expense

$ 1,160  

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

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

SHG's legal predecessor, Yellowstone Acquisition Company (“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”) as part of Yellowstone’s initial public offering. Yellowstone.

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

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

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

As of March 31, 2023 , 6,799,189 and 7,719,779 Public and Private Warrants remain outstanding, respectively.

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

3 unchanged sentences

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

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

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

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

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

The closing price of the Public Warrants was $ 0.49 and $ 0.20 per warrant on March 31, 2023 and December 31, 2022, respectively.

The aggregate fair value of the Warrants was approximately $ 7.1 million and $ 2.9 million as of March 31, 2023 and December 31, 2022, respectively.

The Company recorded unrealized losses of approximately $ 4.2  million and $ 13.9 million during the three months ended March 31, 2023 and the three months ended March 31, 2022, respectively.

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

Common Equity

As of March 31, 2023 , there were 15,108,725  and 42,046,356 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.

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

Forward Purchase Agreement

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

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

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

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

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

Common Stock Purchase Agreement

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

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

March 31, 2023, the Company has not directed B.

Riley to purchase any Class A Common Stock pursuant to the Stock Purchase Agreement.

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 September 30, 2022 and represents the Sky Common Units held by holders other than SHG.

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

ownership in Sky is presented as non-controlling interests within the Equity section of the consolidated balance sheet as of March 31, 2023 and represents the Sky Common Units held by holders other than SHG.

The holders of LLC Interests may 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 September 30, 2022 , the LLC interests owned approximately 73.9 % of the Sky Common Units outstanding.

As of March 31, 2023 , the LLC interests owned approximately 73.8 % of the Sky Common Units outstanding.

Equity Compensation

Restricted Stock Units (“RSUs”)

In May 2022, the Company granted time-based RSUs to certain employees under the Company’s 2022 Incentive Award Plan.

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

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

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

In February 2023, the Company granted time-based RSUs to certain employees under the Company’s 2022 Incentive Award Plan.

545,522 of time-based awards were granted at a grant date fair value of $ 5.75 , which will vest ratably over a four -year period beginning on the first anniversary of the grant date and ending on February 13, 2027.

During the three months ended March 31, 2023 and March 31, 2022, 

the Company recognized stock compensation expense of $ 393 and $ 0 , respectively associated with all RSU awards.

As of March 31, 2023, there are approximately 1,183,022  non-vested RSUs outstanding with a weighted average grant date fair value of $ 6.76 . The unrecognized compensation costs associated with all unvested RSUs at March 31, 2023 

was approximately $ 6.8 million that is expected to be recognized over a weighted-average future period of 3.5 years.

Sky Incentive Units

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

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

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

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

The Sky Incentive Units are classified as equity instruments.

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

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

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

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

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

Fair value of total equity

$ 62,287,970  

Term (in years)

Risk-free interest rate

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

Sky Incentive

Weighted-average grant

date fair value

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

$ 318.44  

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

2,807,750  

$ 0.45  

Sky units outstanding as of September 30, 2022

2,807,750  

$ 0.45  

Vested Units outstanding as of September 30, 2022

1,054,293  

$ 0.45  

Non-vested Units outstanding as of September 30, 2022

1,753,457  

$ 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 $ 85 and $ 256 for the three and 

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

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

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

The Company recognized equity-based compensation expense relating to awarded equity units of Sky (the “Sky Incentive Units”) of $ 85 and $ 86 for the 

three months ended March 31, 2023 , and March 31, 2022, respectively, which is recorded within General and Administrative Expenses within the statement of operations, and as a component of the non-controlling interest in the consolidated statement of changes in stockholders’

As of March 31, 2023 , there was $ 0.6 million of total unrecognized compensation expense that is expected to be recognized over a weighted-average future period of 2.1 years.

Earnings (loss) per Share

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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 three and nine months ended September 

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

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

Three Months Ended  

Nine Months Ended  

September 30, 2022  

$ ( 3,092 )  

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. 

Three Months Ended

March 31, 2023  

March 31, 2022  

Net loss attributable to non-controlling interests

( 2,479 )  

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

$ ( 613 )  

Basic and diluted weighted average shares outstanding

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Basic and diluted

$ ( 0.04 )  

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

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

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

nine months ended September 

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

due to the Company's net loss position.

Financial Instruments

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

September 30, 2022

Carrying Value

Cash and cash equivalents

Restricted cash

17,164  

29,765  

Restricted investments

145,322  

142,836  

$ 192,981  

$ 190,495  

Bonds payable

$ 162,156  

$ 131,151  

Warrants liability

$ 167,238  

$ 136,233  

$ 2,380  

$ 133,853  

December 31, 2021

Carrying Value

Cash and cash equivalents

$ 6,805  

Restricted cash

197,130  

$ 203,935  

Potentially dilutive shares excluded from the weighted-average shares used to calculate the diluted net loss per common share due the the Company's net loss position were as follows:

Three Months Ended

March 31, 2023  

March 31, 2022  

Shares subject to unvested restricted stock units

1,183,022  

Bonds payable

Shares issuable upon the exercise of Warrants

14,518,968  

14,519,218  

Shares issuable upon the exchange of Class B Common Stock  

42,046,356  

42,192,250  

Shares issuable upon the exercise and exchange of Sky Incentive Units  

2,807,750  

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

Treasury securities with comparable maturities on active markets.

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

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

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

Related Party Transactions

Loans payable to Related parties

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

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

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

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

The gain was recognized as a deemed contribution to stockholders’

equity on the consolidated balance sheet.

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

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

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 the Sky to SH Investment Fund I LLC.

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

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

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

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

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

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

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

For the three months ended March 31, 2023  and March 31, 2022, 

the Company recognized $ 62 and $ 29  of expense, respectively, within General and administrative expense under the terms of this agreement. The related liability is included in Accounts payable, accrued expenses and other liabilities on the consolidated balance sheet as of March 31, 2023 .

For the three months ended March 31, 2023 and March 31, 2022, the Company paid $ 88 and $ 20 respectively, for consulting services, to a company that employed the chief financial officer until prior to July 1, 2021.

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.

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.

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

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

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.

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

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 project and the BNA project.

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

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

There is no termination penalty under the BNA construction contract.

Accumulated Other Comprehensive Loss

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

The Company 

terminate any of the contracts or suspend construction without cause.

There are 

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

Accumulated Other Comprehensive Income (Loss)

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

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Balance as of December 31, 2022

Other comprehensive loss

Balance as of September 30, 2022

$ ( 102 )  

Other comprehensive income before reclassifications  

Amounts reclassified to other (income) expense

( 46 )  

Balance as of March 31, 2023

Subsequent Events

Rapidbuilt Acquisition

On May 12, 2023 ( the “Option Exercise Date”), Sky exercised the Vendor Purchase Option and acquired a 

51 % equity interest in Overflow Ltd., a Texas limited partnership (“Overflow”), and its wholly-owned subsidiary, Rapidbuilt, Inc., a Texas corporation (“Rapidbuilt”), for nominal consideration (the “Rapidbuilt Acquisition”).

As a result of the Rapidbuilt Acquisition, Weatherford Steel Buildings Holdings LLC, a Delaware limited liability company and wholly-owned subsidiary of Sky (“WSBH”), owns a 50 % limited partnership interest in Overflow, and Weatherford Steel Buildings GP LLC, a Delaware limited liability company and wholly-owned subsidiary of Sky (“WSB GP”), owns a 1 % general partnership interest in Overflow. 

Rapidbuilt is a manufacturer of pre-engineered steel buildings that previously entered into the Vendor Agreement with Sky.

Rapidbuilt and Sky’s strategic partnership has resulted in a standard set of proprietary prototype hangar designs, which are intended to deliver high-quality business aviation facilities, lower construction costs, minimize development risk, expedite permit issuance, and facilitate the implementation of refinements across Sky’s portfolio. 

Guaranty Agreement and Overflow Loan Amendment

In connection with the Rapidbuilt Acquisition, Sky and Vista Bank (the “Lender”) entered into a consent, waiver, and second amendment (the “Loan Amendment”) and a guaranty agreement (the “Guaranty Agreement”) associated with the senior loan agreement between Overflow and Rapidbuilt (collectively, the “Borrowers”), and the Lender (the “Overflow Loan”).

Pursuant to the Loan Amendment, (i) the Lender consented to the change in control with respect to the Borrowers;

(ii) the Lender waived any pre-existing events of default on the part of the Borrowers;

(iii) the Lender agreed to release certain borrowed funds held in reserve, subject to specified terms and conditions;

and (iv) the Borrowers agreed to certain reserve enhancement obligations, including the ability to repay principal early at the sole discretion of the Borrowers.

Pursuant to the Guaranty Agreement, all of the Borrowers’

obligations under the Overflow Loan will be guaranteed by Sky.

The Overflow Loan was originated in December 2020 between the Borrowers and the Lender and has approximately $ 10.0 million outstanding as of the Option Exercise Date.

The Overflow Loan accrues interest at a per annum rate equal to 3.00 % above the three -month secured overnight financing rate published for first day of each calendar quarter by the Federal Reserve Bank of New York.

Interest is payable on a monthly basis, and the Borrowers agreed to make certain reserve enhancement payments on January 1, April 1, July 1, and October 1 

of each calendar year.

The maturity date of the Overflow Loan is December 1, 2025.

The Overflow Loan is secured by the (i) accounts, (ii) intellectual property, (iii) equipment, (iv) inventory, (v) vehicles, and (vi) property of the Borrowers, and contains customary affirmative and negative covenants. 

MANAGEMENT ’

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The following analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”), as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities Exchange Commission (the “SEC”) on March 24, 2023 (the “Form 10-K”), which is accessible on the SEC’s website at www.sec.gov.

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

Cautionary Note Regarding Forward-Looking Statements

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Overview and Background

Sky Harbour is a real estate and infrastructure company providing Home Basing Solutions (“HBS”) for business aircraft.

HBSs are campuses composed of 10-20 (typical) large business aviation hangars, aircraft ramp, automobile parking, office and auxiliary space, with dedicated aviation line services.

Sky Harbour develops its HBS campuses on a greenfield basis at key airports across the United States, leases individual hangars to aircraft tenants on a long-term basis and operates its facilities autonomously.

As of 2022, SKYH is the only publicly traded developer of business aviation infrastructure in the United States.

The physical footprint of the US business aviation fleet grew by almost 28,000,000 square feet in the ten years preceding the Covid-19 pandemic, with hangar supply lagging dramatically, especially in key growth markets.

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

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

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

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

Sky Harbour realizes economies of scale in construction through a proprietary prototype hangar design replicated at HBS campuses across the United States.

We are an aviation infrastructure development company building the first nationwide network of HBS hangar campuses for business aircraft.

We develop, lease, and manage general aviation hangars across the United States, targeting airfields in markets with significant aircraft populations and high hangar demand.

Our HBS hangar campuses feature exclusive private hangars and a full suite of dedicated services specifically optimized for home-based, versus transient, aircraft.

The physical footprint of the U.S.

business aviation fleet grew by almost 28 million square feet in the ten years preceding the beginning of the COVID-19 pandemic, with hangar supply lagging dramatically, especially in key growth markets.

As the fleet of private jets in the United States continues to grow, with recent new aircraft deliveries exceeding retirements, demand for hangar space is at a premium in part because new jets require more square footage of hangar space and the pace of new hangar construction has lagged behind the demand.

The cumulative square footage of the business aircraft fleet in the United States increased 50% between 2010 and 2021.

Moreover, over that same period, there was an 81% increase in the square footage of larger private jets –

those with greater than a 24-foot tail height.

A recent study conducted by a business aircraft manufacturer forecasted that business aircraft will only continue to grow in the next ten years, with up to 8,500 new business jet deliveries worth almost $275 billion expected to be delivered between 2023 and 2032, further supported by data from the major business aviation manufacturers that suggest the current order backlog for new business aviation aircraft is almost $47 billion.

These larger footprint aircraft do not fit in much of the existing hangar infrastructure and impose stacking challenges and constraints in the traditional shared or community hangars operated by FBOs. The addition of winglets (the vertical extensions on aircraft wingtips) on most modern business jets inhibits wing-over-wing storage.

Aircraft hangars are in high demand and short supply, with some airports compiling waiting lists that can exceed several years.

We believe our scalable, real estate-centric business model is uniquely optimized to capture this market opportunity and address the increased imbalance between the supply and demand for private jet storage.

We intend to capitalize on the existing hangar supply constraints at major U.S.

airports by targeting high-end tenants in markets where there is a shortage of private and FBO hangar space, or where such hangars are or are becoming obsolete.

We realize economies of scale in construction through a proprietary prototype hangar design replicated at HBS hangar campuses across the United States.

This allows for centralized procurement, straightforward permitting processes, efficient development processes, and the best hangar in business aviation.

Unlike a service company, Sky Harbour revenues are mostly derived from long-term rental agreements, offering stability and forward visibility of revenues and cash flows.

This allows Sky Harbour to fund its development through the public bond market, providing capital efficiency and mitigating refinance risk.

Unlike a service company, our revenues are mostly derived from long-term rental agreements, offering stability and forward visibility of revenues and cash flows.

This allows the Company to fund its development through the public bond market, providing capital efficiency and mitigating refinance risk.

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

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

The table below presents certain information with respect to our portfolio as of March 31, 2023.

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

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Addison Airport ("ADS"), Addison, TX (Dallas area).

PROPERTIES IN OPERATION

Completion Date

Rentable Square

% of Total 

Square Footage

March 31, 2023

December 2020

BNA Phase I & II

November 2022

February 2023

Total/Weighted Average

PROPERTIES IN DEVELOPMENT

Estimated Total

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Predevelopment

In Construction

November 2022

Predevelopment

December 2024

In Construction

In Development

September 2023

November 2024

In Construction

November 2022

February 2024

Predevelopment

November 2024

In Construction

December 2022

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February 2025

In Development

November 2024

Predevelopment

ADS Phase III

Predevelopment

$217.4 - 254.8

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

For completed facilities, this amount includes direct construction expenditures and other amounts (e.g., capitalized labor and interest) that are included in the capitalized cost under GAAP.

Recent Developments

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

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

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

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

On January 19, 2023, we amended our existing ground lease agreement with the Town of Addison, TX to include additional parcels of land that will effectively double the land available for development at our ADS HBS hangar campus project.

On February 1, 2023, we substantially completed the construction of our OPF Phase I development project.

In connection with the substantial completion of the OPF Phase I hangar campus, tenant leases for certain of our constructed hangars commenced starting in February 2023.

On March 22, 2023, we satisfied the requirements within the Series 2021 Bonds indenture to fund construction costs associated with our ADS Phase I development project with proceeds received from our Series 2021 PABs.

Note 8 —

Bonds payable and interest ” in the Notes to Consolidated Financial Statements for additional information regarding the modification of the scope of our Series 2021 Bonds.

The approval and exercise of such rights will allow approximately $26 million of proceeds to be used to fund the ADS Phase I development project, and is projected to improve our debt service coverage associated with the Series 2021 Bonds.

On May 12, 2023, we completed the Rapidbuilt Acquisition.

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

Factors That May Influence Future Results of Operations

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

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

For the three months ended March 31, 2023 and 2022, our operating lease expense for ground leases was $0.9 million and $1.0 million, respectively.

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

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

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

We expect to issue additional debt to finance future site developments and higher interest rates would impact our overall economic performance.

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

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Construction Material Costs and Labor

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

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

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

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

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

In addition, the majority of our materials are supplied to us by our contractors and is included in the price of our contract with such contractors.

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

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

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

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

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

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

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

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

Typically, the price changes that most significantly influence our operations are price increases in steel, concrete, and labor. We believe that recent inflationary pressures and market conditions will lead to continued increases in construction costs as well as market rental rates for hangars within our HBS hangar campus development projects.

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

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

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

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

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

At our SGR Phase I and BNA Phase II development projects, our total construction costs were lower than both our original pricing estimate and the project’s contracted guaranteed maximum price.

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

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Current Capital Requirements and Future Expenditures for Expansion

We previously funded our wholly owned subsidiary Sky Harbour Capital LLC (“SHC”) with over $200 million to fund the two phases at each of our five ground leased airport locations.

We previously funded SHC with over $200 million to fund the two phases at each of our five ground leased airport locations.

These construction funds and reserves are held at the bondholder trustee.

We maintain the ability to include up to $50 million in new projects outside the original five locations to be funded with a portion of the existing bond proceeds held by the trustee as long as certain approvals and supplemental consultant reports are provided showing that such new project would result in better coverage of debt service than previously contemplated projects.

We consummated the Yellowstone Transaction on January 25, 2022, to raise additional equity capital to, along with potential future bond and further equity issuances, begin to fund additional airport campuses and reach up to 20 airport campuses over the next several years.

On average, each new future campus is composed of an average of 10-20 hangars and is expected to cost approximately $40 million per campus, with 60% or more to be funded with additional public activity bonds (the “PABs”).

We maintain the ability to include up to $50 million in new projects outside the original five locations to be funded with a portion of the existing proceeds held by the trustee as long as certain approvals and supplemental consultant reports are provided showing that such new project would result in better coverage of debt service than previously contemplated projects.

We exercised this ability utilizing approximately $26 million of the $50 million available and received the requisite approvals and reports in March 2023 with respect to our ADS Phase I development project.

We previously raised equity capital to, along with potential future debt and further equity issuances, begin to fund additional airport campuses and reach up to 20 airport campuses over the next several years.

On average, each future campus is anticipated to be composed of an average of 10-20 hangars and is expected to cost approximately $55 million per campus, with 60% or more to be funded with additional public activity bonds.

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

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

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

The cumulative 20 airport site business plan is estimated to cost approximately $1.2 billion, with approximately 65% to 75% anticipated from long-term private activity bonds and the balance with equity or equity linked financing.

Our ability to raise additional equity and/or debt financing will be subject to a number of risks, including our ability to obtain financing upon reasonable terms, if at all, costs of construction, delays in constructing new facilities, operating results, and other risk factors. In the event that we are unable to obtain additional financing, we may be required to raise additional equity capital, creating additional dilution to existing stockholders.

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We have identified the following as our critical accounting policies:

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 equity instruments such as warrants, estimates and assumptions related to right-of-use assets and operating lease liabilities.

Actual results could differ materially from those estimates.

Cost of Construction

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We have made an accounting policy election that will keep leases with an initial term of 12 months or less off our 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.

We also have tenant leases and account for those leases in accordance with the lessor guidance under ASC Topic 842.

When management determines that it is reasonably certain that we will exercise our options to renew the leases, the renewal terms are included in the lease term and the resulting ROU asset and operating lease liability balances. We have elected to not capitalize any interest cost that is implicit within our operating leases into cost of construction on the consolidated balance sheet, but instead, we expense our ground lease cost in the consolidated statements of operations. 

We have lease agreements with lease and non-lease components;

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

We have elected to not capitalize any interest cost that is implicit within our operating leases into cost of construction on the consolidated balance sheet, but instead, we expense our ground lease cost in the consolidated statements of operations. 

Revenue Recognition

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Use of Estimates

Actual results could differ materially from those estimates.

Recent Accounting Pronouncements

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Results of Operations

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

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

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

Three months ended

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Rental revenue

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Total expenses

Operating loss

Other (income) expense:

Interest expense, net of capitalized interest

Unrealized (gain) loss on warrants

Unrealized loss on warrants

Other (income) expense

Total other (income) expense

Net income (loss)

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

Revenues for the three months ended March 31, 2023 were approximately $1.1 million, compared to approximately $0.4 million for the three months ended March 31, 2022.

The $0.7 million, or 179%, increase was primarily the result of tenant leases commencing at our OPF hangar campus during the three months ended March 31, 2023, as well as the impact of certain additional tenant leases in place at our SGR and BNA hangar campuses as compared to the three months ended March 31, 2022.

Operating Expenses

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

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

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

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

Operating expenses increased approximately $0.6 million, or 45%, for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.

The increase reflects higher operating costs associated with the commencement of operations at our BNA and OPF hangar campuses during the three months ended December 31, 2022 and March 31, 2023, respectively.

Salaries, wages, and benefits associated with our campus personnel increased by approximately $0.2 million, primarily driven by headcount increases at our BNA and OPF hangar campuses.

Other operating expenses increased approximately $0.4 million, primarily driven by increased insurance, property taxes, and utilities associated with operations at our OPF, BNA, and SGR hangar campuses. 

Depreciation Expense

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

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

Depreciation increased approximately $0.3 million, or 208%, for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.

The increase reflects the opening of our OPF hangar campus during the three months ended March 31, 2023, the opening of our BNA hangar campus during the three months ended December 31, 2022 and the placement of additional ground support equipment into service throughout 2022 and 2023.

General and Administrative Expenses

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

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

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

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

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

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

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

Results of Operations

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

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

Nine months ended

September 30, 2022

September 30, 2021

Rental revenue

Total revenue

Loss on impairment of long-lived assets

General and administrative

Total expenses

For the three months ended March 31, 2023, and 2022, general and administrative expenses were approximately $3.5 million and $4.6 million, respectively.

The approximately $1.1 million decrease was primarily due to an approximately $0.8 million decrease in professional fees, which was primarily driven by decreased in legal and accounting related costs due non-recurring transaction costs incurred during the three months ended March 31, 2022, and our efforts to internalize job functions.

Marketing and other pursuit costs decreased approximately $0.1 million year-over-year, driven by a reduction in third-party consulting fees, offset by higher travel costs associated with securing airport site acquisitions and potential tenants.

Other administrative expenses decreased approximately $0.1 million primarily due to decreased corporate insurance premiums.

Other (Income) Expense

Interest expense, net of capitalized interest

Unrealized (gain) loss on warrants

Loss on extinguishment of note payable to related party

Total other (income) expense

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

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

Operating Expenses

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

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

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

Depreciation Expense

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

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

General and Administrative Expenses

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

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

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

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

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

Other (Income) Expenses

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

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

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

Other (income) expenses decreased from approximately $13.9 million of expense to approximately $4.1 million of expense for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

This decrease was primarily due to a $9.7 million difference in the mark-to-market adjustment of the outstanding warrants at March 31, 2023 as compared to March 31, 2022.

Liquidity and Capital Resources

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

Our long-term liquidity requirements include lease payments under our ground leases with airport authorities, repaying principal and interest on outstanding borrowings, funding the construction costs of our HBS campuses (see 

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

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

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

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

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

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

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

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

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

September 30, 2022

Our cash deposits may exceed the amount of insurance provided on such deposits.

Generally, these deposits may be redeemed upon demand and the majority are maintained with a major financial institution with reputable credit.

Our restricted cash is held in trust at a major financial institution pursuant to the Series 2021 Bonds indenture.

We monitor the relative credit standing of financial institutions with whom we transact and limit the amount of credit exposure with any one entity.

Our portfolio of investments and restricted investments is composed entirely of U.S.

Treasury securities as of March 31, 2023.

The following table summarizes our cash and cash equivalents, restricted cash, investments, and restricted investments as of March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023

December 31, 2022

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Equity Financing

On January 25, 2022 we completed the Yellowstone Transaction.

On January 25, 2022 (the "Closing Date") we completed the transactions (the "Yellowstone Transaction") contemplated by the Equity Purchase Agreement, dated as of August 1, 2021 (the “Equity Purchase Agreement”), between Yellowstone and Sky.

On the Closing Date, Yellowstone changed its name to Sky Harbour Group Corporation, and Sky restructured its capitalization, issuing its Sky Common Units to the Company.

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

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

As of March 31, 2023, we were in compliance with all debt covenants.

Lease Commitments

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

The table below sets forth certain information with respect to our future minimum lease payments required under operating leases as of March 31, 2023 (in thousands):

2023 (remainder of year)

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Contractual Obligations

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

The following table sets forth our contractual obligations as of March 31, 2023 (in thousands):

Principal Payments of Long-Term Indebtedness

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Lease Commitments

Interest payments for the first three years on the Series 2021 PABs are held in reserve as restricted cash and restricted investments.

Interest payments for the next three years on the Series 2021 PABs are held in reserve as restricted cash and restricted investments.

Off-Balance Sheet Arrangements

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Historical Cash Flows

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

Nine months ended

September 30, 2022

September 30, 2021

The following table summarizes our sources and uses of cash for the three months ended March 31, 2023 and 2022 (in thousands):

Three months ended

March 31, 2023

March 31, 2022

Cash and restricted cash at beginning of period

Net cash used in operating activities

Cash used in investing activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Cash and restricted cash at end of period

Operating Activities —

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

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

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

Investing Activities —

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

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

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

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

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

Financing Activities —

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

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

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

Operating Activities

Cash provided by operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business.

Included in net cash provided by operations are certain non-recurring legal, accounting, and consulting costs incurred for up to four quarters as a result of becoming a public company. Our working capital consists primarily of cash, receivables from tenants, prepaid expenses, accounts payable, accrued compensation, accrued other expenses, and lease liabilities.

The timing of collection of our tenant receivables, and the timing of spending commitments and payments of our accounts payable, accrued expenses, accrued payroll and related benefits, all affect these account balances.

 Net cash used in operating activities was approximately $4.6 million for the three months ended March 31, 2023, as compared to cash used in operating activities of approximately $10.2 million for the same period in 2022.

The $5.6 million decrease in cash used in operating activities was primarily attributable to a $4.0 million favorable change in the Company's working capital position, which was partially driven by a reduction in corporate insurance premiums paid during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The decrease was also partially attributable to a $1.6 million decrease in net loss, net of non-cash adjustments. The decrease in net loss was primarily driven by non-recurring general and administrative expenses incurred in the expansion of our business, including transaction-related expenses incurred during the three months ended March 31, 2022.

Investing Activities

Our primary investing activities have consisted of payments related to the cost of construction at our various HBS hangar campus development projects and investment in U.S.

Treasury Securities.

As our business expands, we expect to continue to invest in our current and anticipated future portfolio of HBS development projects.

 Cash provided by investing activities was approximately $36.3 million for the three months ended March 31, 2023, as compared to cash used in investing activities of approximately $179.0 million for the same period in 2022.

The increase of approximately $215.3 million in cash provided by investing activities was driven primarily by the approximately $166.6 million purchase of held-to-maturity U.S.

Treasury securities during the three months ended March 31, 2022, as compared to no purchase activity and approximately $40.0 million of proceeds received during the three months ended March 31, 2023.

The increase was also attributable to a $3.5 million decrease in payments for costs of construction due to the Company’s ongoing construction projects at OPF, APA, DVT, and ADS, and proceeds of approximately $6.7 million received related to certain of the Company's available for sale investments during the three months ended March 31, 2023.

Financing Activities

Our primary financing activities have consisted of capital raised to fund the growth of our business and proceeds from debt obligations incurred to finance our HBS hangar campus development projects.

We expect to raise additional equity capital and issue additional indebtedness as our business grows.

Net cash provided by financing activities was $0 for the three months ended March 31, 2023, as compared to net cash provided by financing activities of approximately $51.9 million for the same period in 2022.

The approximately $51.9 million decrease in net cash provided by financing activities was primarily driven by $45.0 million of proceeds received from the issuance of the BOC PIPE and approximately $6.9 million of net proceeds from the Yellowstone trust account, both occurring during the three months ended March 31, 2022 and not recurring during the three months ended March 31, 2023.

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

What changed 10-Q

Item 1. Financial Statements