What changed in this filing

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Item 1. Financial Statements

2023-08-14 compared with 2023-05-12 · 430 added, 229 removed, 882 unchanged (43% of the section changed)

3 unchanged sentences

(in thousands, except share data)

March 31, 2023

June 30, 2023

December 31, 2022

22 unchanged sentences

$ 335,314  

$ 331,204  

Liabilities and equity

5 unchanged sentences

53,531  

Loans payable and finance lease liabilities

10,972  

Bonds payable, net of debt issuance costs and premiums

9 unchanged sentences

$ 0.0001 par value;

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

10,000,000 shares authorized as of June 30, 2023;

none issued and outstanding

1 unchanged sentence

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

15,233,211 and 14,962,831 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Class B common stock, $ 0.0001 par value;

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

42,046,356 and 42,192,250 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

20 unchanged sentences

Three Months Ended

March 31, 2023

March 31, 2022

Six months ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Rental revenue

$ 1,728  

$ 2,835  

Total revenue

Loss on impairment of long-lived assets

General and administrative

Total expenses

11,765  

11,508  

Operating loss

( 4,246 )  

( 5,127 )  

( 8,930 )  

Other (income) expense:

Unrealized loss on warrants

Interest expense

Unrealized (gain) loss on warrants

( 2,613 )  

( 15,390 )  

Other (income) expense

( 81 )  

( 215 )  

Total other (income) expense

1 unchanged sentence

( 15,390 )  

Net income (loss)

( 1,634 )  

10,263  

( 10,394 )  

Net loss attributable to non-controlling interests

( 2,412 )  

Net loss attributable to Sky Harbour Group Corporation shareholders

( 2,402 )  

Loss per share

( 4,978 )  

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

$ 12,665  

$ ( 5,416 )  

Earnings (loss) per share

$ 0.05  

$ 0.85  

$ ( 0.36 )  

$ ( 0.06 )  

$ ( 0.09 )  

$ ( 0.36 )  

Weighted average shares

3 unchanged sentences

12,957  

29,686  

29,466  

15,076  

12,957  

See accompanying Notes to Unaudited Consolidated Financial Statements

3 unchanged sentences

Three Months Ended

March 31, 2023

March 31, 2022

Six Months Ended  

June 30, 2023

June 30, 2022

June 30, 2023  

June 30, 2022  

Net income (loss)

$ 10,263  

Other comprehensive loss, before related income taxes:

Unrealized gains on available-for-sale securities

Total comprehensive loss

$ ( 10,394 )  

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

Unrealized gain (loss) on available-for-sale securities

( 84 )  

Total comprehensive income (loss)

$ 10,179  

$ ( 10,077 )  

See accompanying Notes to Unaudited Consolidated Financial Statements

34 unchanged sentences

$ 90,269  

Share-based compensation

Vesting of restricted stock units

124,261  

Exercise of warrants

( 225 )  

Other comprehensive income

( 2,412 )  

Balance at June 30, 2023

15,233,211  

42,046,131  

$ 30,639  

$ ( 8,602 )  

$ 22,155  

$ 67,101  

$ 89,256  

Redeemable Series B

10 unchanged sentences

( 1,247 )  

Yellowstone Transaction and recapitalization

Yellowstone Transaction and recapitalization, See Note 3

( 54,029 )  

19 unchanged sentences

$ 91,506  

Share-based compensation

Sky incentive compensation

Other comprehensive income (loss)

( 84 )  

Net income (loss)

12,665  

( 2,402 )  

10,263  

Balance at June 30, 2022

14,937,581  

42,192,250  

$ 28,841  

$ ( 3,098 )  

$ ( 84 )  

$ 25,664  

$ 76,266  

$ 101,930  

See accompanying Notes to Unaudited Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Three months ended

March 31, 2023

March 31, 2022

Six months ended

June 30, 2023

June 30, 2022

Cash flows from operating activities:

$ ( 10,394 )  

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

1 unchanged sentence

Straight-line rent adjustments, net

( 114 )  

Equity-based compensation

Loss on impairment of long-lived assets

Non-cash operating lease expense

Unrealized loss on warrants

Unrealized loss (gain) on warrants

Changes in operating assets and liabilities:

Prepaid expenses and other assets

( 1,743 )  

Right-of-use asset initial direct costs

( 26 )  

Accounts payable, accrued expenses and other liabilities

( 1,367 )  

Net cash used in operating activities

( 9,103 )  

Cash flows from investing activities:

Purchases of long-lived assets

( 209 )  

Payments for cost of construction

Issuance of notes receivable

( 21,155 )  

Investment in notes receivable

( 2,037 )  

Net cash provided by acquisition of business

Purchases of available for sale investments

( 3,393 )  

Purchases of held-to-maturity investments

( 52,998 )  

Proceeds from available for sale investments

11,483  

Proceeds from held-to-maturity investments

Net cash provided by (used in) investing activities

53,457  

28,468  

Net cash used in investing activities

( 13,059 )  

Cash flows from financing activities:

Proceeds from issuance of BOC PIPE

45,000  

Proceeds from Yellowstone trust

15,691  

Proceeds from exercise of warrants

Principal payments for loans payable and finance leases

( 48 )  

Payments for equity issuance costs

Net cash provided by financing activities

Net increase (decrease) in cash and restricted cash

Net cash (used in) provided by financing activities

( 45 )  

51,869  

Net decrease in cash and restricted cash

( 22,207 )  

Cash and restricted cash, beginning of year

41,396  

203,935  

Cash and restricted cash, end of period

$ 19,189  

$ 42,188  

See accompanying Notes to Unaudited Consolidated Financial Statements

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

June 30, 2023

(in thousands, except share data)

3 unchanged sentences

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”).

As of June 30, 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

6 unchanged sentences

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.

$ 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’

$ 88 and $ 178  previously classified within general and administrative expenses on the consolidated statement of operations for the three and six months ended June 30, 2022, have been reclassified to operating expenses.

This reclassification had no effect on total expenses, net income (loss), earnings (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.

1 unchanged sentence

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

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

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

Actual results could differ materially from those estimates.

19 unchanged sentences

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

Activities associated with internally manufactured hangar buildings, including materials, direct manufacturing labor, and manufacturing overhead directly identifiable with such activities are allocated to our construction projects and capitalized.

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

Interest, 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.

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. 

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

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

As of June 30, 2023 and December 31, 2022 , the deferred rent receivable included in prepaid expenses and other assets was $ 218 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 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.

There were no material adjustments to rental revenue for uncollectible tenant rental payments in either of the three and six months ended June 30, 2023 or 2022 .

For the three and six months ended June 30, 2023 

there were two tenants that individually accounted for more than 10% of the Company's revenue. The Company derived approximately 29 % and 30 % of its revenue from these two  tenants for the three and six months ended June 30, 2023, respectively.

For the three and six months ended June 30, 2022, the Company derived approximately 88 % and 89 % of its revenue from two tenants, respectively.

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 months ended March 31, 2023  and March 31, 2022.

The Company recorded income tax expense of $ 0 and the effective tax rate was 0.0 % for the three and six months ended June 30, 2023  and June 30, 2022.

The effective income tax rate for the 

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.

three and six months ended June 30, 2023  and June 30, 2022 differs from the federal statutory rate of 21 % primarily due to a full valuation allowance against net deferred tax assets as it is more likely than not that the deferred tax assets will not be realized.

Recently Adopted Accounting Pronouncements

16 unchanged sentences

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.

As of June 30, 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

The following tables are summaries of the amortized cost, unrealized gains, unrealized losses, and fair value by investment type as of June 30, 2023 and December 31, 2022:

June 30, 2023

Amortized Cost

6 unchanged sentences

$ 17,122  

$ 18,405  

Total investments  

1 unchanged sentence

$ 17,122  

$ 18,405  

Restricted investments, held-to-maturity:

30 unchanged sentences

$ 112,956  

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

The following table sets forth the maturity profile of the Company's investments and restricted investments as of June 30, 2023:

Restricted Investments

Due within one year

Due on year through five years

$ 17,122  

$ 97,418  

Due one year through five years

16,753  

$ 17,122  

$ 114,171  

Cost of Construction and Constructed Assets

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

The Company’s portfolio as of June 30, 2023 includes the following completed and in-development projects:

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

5 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

11 unchanged sentences

$ 48,242  

Depreciation expense for the three months ended June 30, 2023 and 2022 totaled $ 448 and $ 139 , respectively.

Depreciation expense for the 

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

six months ended June 30, 2023 and 2022 totaled $ 839 and $ 274 , respectively.

Long-lived Assets

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

March 31, 2023

June 30, 2023

December 31, 2022

1 unchanged sentence

$ 1,034  

Machinery and equipment

Land and buildings

Other equipment and fixtures

Purchase deposits and construction in progress

12,296  

Accumulated depreciation

2 unchanged sentences

$ 1,150  

Depreciation expense for the three months ended June 30, 2023 and 2022 totaled $ 83 and $ 15 , respectively.

Depreciation expense for the 

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.

six months ended June 30, 2023 and 2022 totaled $ 141 and $ 25 respectively. As of June 30, 2023 and December 31, 2022, long-lived assets included approximately $ 102 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

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.

Rapidbuilt Acquisition

On May 12, 2023 ( the “Option Exercise Date”), Sky exercised its option to acquire a 51 % equity interest in Overflow Ltd., a Texas limited partnership (“Overflow”), and its wholly-owned operating 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 a supplier arrangement 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.

The Company had pre-existing relationships with Rapidbuilt through a vendor agreement entered into in July 2022 to acquire construction materials related to the Company's development projects (the "Rapidbuilt Vendor Agreement") and a revolving line of credit loan and security agreement (the "Rapidbuilt Loan Agreement") to fund the working capital requirement of Rapidbuilt.

These pre-existing relationships were effectively settled in the acquisition and the net receivable balance of $ 44 is included within the consideration transferred.

No gain or loss was recognized in the effective settlement of the Rapidbuilt Vendor Agreement and the Rapidbuilt Loan Agreement.

The total cash purchase consideration was nominal.

The Company accounted for the acquisition using the acquisition method of accounting, whereby the total purchase price was allocated to assets acquired and liabilities assumed based on respective estimated fair values.

The estimated fair values of the acquired assets and assume liabilities are based on preliminary calculations and subject to further refinement and may require adjustments to arrive at the final purchase price accounting.

The Company expects the final purchase price allocation to be completed in a period of time that will not exceed one year from the Option Exercise Date.

There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocation.

The following tables summarize the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed for the Rapidbuilt Acquisition:

Restricted Cash  

Long-lived assets

10,821  

Total assets  

12,614  

Accounts payable, accrued expenses and other liabilities  

Loans payable and finance lease liabilities

11,020  

Total liabilities  

12,570  

Total fair value of net assets acquired  

Effective settlement of net receivable from Rapidbuilt  

Total consideration transferred

Substantially all of Overflow and Rapidbuilt's activities relate to the manufacturing of pre-engineering hangar structures for Sky's hangar development projects.

As such, the pro-forma effect of this acquisition on revenues and earnings was not material.

The transaction costs associated with the acquisition were immaterial for the three and six months ended June 30, 2023.

Accounts payable, accrued expenses and other liabilities

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

March 31, 2023

June 30, 2023

December 31, 2022

8 unchanged sentences

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

Three months ended

March 31, 2023

March 31, 2022

Six months ended

June 30, 2023

June 30, 2022

Accrued costs of construction, including capitalized interest

5 unchanged sentences

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

Three months ended

March 31, 2023

March 31, 2022

Six months ended

June 30, 2023

June 30, 2022

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

$ 1,368  

$ 2,838  

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

$ ( 206 )  

The following table summarizes interest paid:

Three months ended

March 31, 2023

March 31, 2022

Six months ended

June 30, 2023

June 30, 2022

Interest paid

2 unchanged sentences

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:

Three months ended

March 31, 2023

March 31, 2022

Six months ended

June 30, 2023

June 30, 2022

Cash, beginning of year

16 unchanged sentences

$ 42,188  

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

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

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

3 unchanged sentences

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

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

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

6 unchanged sentences

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 

The land associated with the ADS Expansion Parcels became available for possession in June 2023 for one parcel, and is expected to become available for possession in July 2024 

for the other. The lease term for the ADS Expansion Parcels will be 

2 unchanged sentences

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.

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

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

Three months ended

Six months ended

Cash paid for amounts included in measurement of lease liabilities:

Operating cash flows from operating leases as lessee

$ 1,022  

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

Weighted Average Remaining Lease Term

March 31, 2023

June 30, 2023

December 31, 2022

4 unchanged sentences

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

March 31, 2023  were as follows: 

Year Ending December 31,

June 30, 2023  were as follows: 

Year Ending December 31,  

Operating Leases

Finance Leases  

2023 (remainder of year)

$ 1,592  

Thereafter  

199,870  

Total lease payments

210,275  

1 unchanged sentence

( 155,395 ) 

$ 54,880  

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

2 unchanged sentences

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

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

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

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

4 unchanged sentences

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

March 31, 2023 :

June 30, 2023 :

Year Ending December 31,

34 unchanged sentences

2021  Bonds.

As of March 31, 2023 

As of June 30, 2023 

and December 31, 2022, the fair value of the Company’s Series 2021 - 1 Bonds was approximately $ 122.6 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 

As of June 30, 2023 and 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

The following table summarizes the Company’s Bonds payable as of June 30, 2023 and December 31, 2022 :

June 30, 2023

December 31, 2022

13 unchanged sentences

$ 162,210  

Rapidbuilt Loan and Guaranty Agreement

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 “Rapidbuilt Borrowers”), and the Lender (the “Rapidbuilt Loan”).

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

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

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

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

Pursuant to the Guaranty Agreement, all of the Rapidbuilt Borrowers’

obligations under the Rapidbuilt Loan will be guaranteed by Sky.

The Rapidbuilt Loan was originated in December 2020 between the Borrowers and the Lender and had approximately $ 10.3 million outstanding as of the Option Exercise Date.

The Rapidbuilt 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.

The weighted-average interest rate was 8.19 % for the three months ended June 30, 2023.

Interest is payable on a monthly basis, and the Rapidbuilt 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 Rapidbuilt Loan is December 1, 2025.

The Rapidbuilt Loan is secured by the accounts, intellectual property, equipment, inventory, vehicles, and (property of the Rapidbuilt Borrowers, and contains customary affirmative and negative covenants.

The following table sets forth the details of interest expense:

Three months ended

March 31, 2023

March 31, 2022

Six months ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

$ 1,817  

$ 1,735  

$ 3,552  

$ 3,470  

Amortization of bond premium and debt issuance costs

2 unchanged sentences

( 1,788 )  

( 1,811 )  

( 3,576 )  

Interest expense

3 unchanged sentences

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.

As of June 30, 2023 , 6,798,964 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.

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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 $ 0.49 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.

The closing price of the Public Warrants was $ 0.31 and $ 0.20 per warrant on June 30, 2023 and December 31, 2022, respectively.

The aggregate fair value of the Warrants was approximately $ 4.5 million and $ 2.9 million as of June 30, 2023 and December 31, 2022, respectively.

The Company recorded unrealized gains of approximately $ 2.6 million and $ 15.4 million during the three months ended June 30, 2023 and June 30, 2022, respectively.

The Company recorded an unrealized loss of approximately $ 1.6 million and an unrealized gain of approximately $ 1.5 million during the six months ended June 30, 2023 and June 30, 2022, respectively.

Equity and Redeemable Equity

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.

As of June 30, 2023 , there were 15,233,211  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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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.

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

June 30, 2023, the Company has not directed B.

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

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The LLC Interests’

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.

ownership in Sky is presented as non-controlling interests within the Equity section of the consolidated balance sheet as of June 30, 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 March 31, 2023 , the LLC interests owned approximately 73.8 % of the Sky Common Units outstanding.

As of June 30, 2023 , the LLC interests owned approximately 73.8 % of the Sky Common Units outstanding.

The former majority shareholder's ownership in Overflow is presented as a non-controlling interest within the Equity section of the consolidated balance sheet.

As of June 30, 2023, the former majority shareholder owned approximately 49 % of the partnership interests in Overflow.

Equity Compensation

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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 

During the three and six months ended June 30, 2023, the Company recognized stock compensation expense of $ 499  and $ 892 , respectively associated with all RSU awards, which is recorded within General and Administrative Expenses within the statement of operations.

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

As of June 30, 2023, there are approximately 1,004,938 non-vested RSUs outstanding with a weighted average grant date fair value of $ 6.61 . The unrecognized compensation costs associated with all unvested RSUs at June 30, 2023 

was approximately $ 6.3 million that is expected to be recognized over a weighted-average future period of 3.2 years.

Sky Incentive Units

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.

The Company recognized equity-based compensation expense relating to awarded equity units of Sky (the “Sky Incentive Units”) of $ 81 and $ 166 for the three and 

six months ended June 30, 2023 , respectively, and $ 85 and $ 171 for the three and six months ended June 30, 2022, respectively, which is recorded within General and Administrative Expenses within the statement of operations, and as a component of the non-controlling interest in the consolidated statement of changes in stockholders’

As of June 30, 2023 , there was $ 0.5 million of total unrecognized compensation expense that is expected to be recognized over a weighted-average future period of 1.8 years.

Earnings (loss) per Share

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Three Months Ended

March 31, 2023  

March 31, 2022  

Six Months Ended

June 30, 2023  

June 30, 2022  

June 30, 2023  

June 30, 2022  

Net income (loss)

$ 10,263  

Net (loss) attributable to non-controlling interests

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

Basic and diluted weighted average shares outstanding

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

12,665  

Unrealized gain on warrants  

( 2,613 ) 

Loss per share of Class A Common Stock –

Basic and diluted

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:

( 15,390 )  

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

$ ( 1,835 ) 

$ ( 2,725 )  

$ ( 5,416 )  

Basic weighted average shares of Class A Common Stock outstanding

15,167  

14,938  

15,076  

12,957  

Effect of dilutive warrants  

14,519  

Effect of dilutive restricted stock  

Diluted weighted average shares outstanding  

29,686  

29,466  

15,076  

12,957  

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

$ 0.05  

$ 0.85  

$ ( 0.36 ) 

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

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

Three Months Ended

March 31, 2023  

March 31, 2022  

Six Months Ended

June 30, 2023  

June 30, 2022  

June 30, 2023  

June 30, 2022  

Shares subject to unvested restricted stock units

1,004,938  

651,514  

1,004,938  

661,000  

Shares issuable upon the exercise of Warrants

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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  

42,046,356  

42,192,250  

Shares issuable upon the exercise and exchange of Sky Incentive Units

2,807,750  

Related Party Transactions

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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 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.

For the three and six months ended June 30, 2023, 

the Company recognized $ 54 and $ 116 of expense, respectively, within General and administrative expense under the terms of this agreement.

For the three and six months ended June 30, 2022, the Company recognized $ 53 and $ 84 of expense, respectively, associated with this agreement.

The related liability is included in Accounts payable, accrued expenses and other liabilities on the consolidated balance sheet as of June 30, 2023 .

For the three and six months ended June 30, 2023, the Company recognized $ 8  and $ 95  of expense, respectively, for consulting services, to a company that employed the chief financial officer until prior to July 1, 2021.

The Company recognized $ 25 and $ 45 of expense during the three and six months ended June 30, 2022 to the same company.

Commitments and Contingencies

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

Unrealized loss on

Unrealized gain (loss) on

Available-for-sale

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( 102 )  

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”).

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

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. 

Balance as of June 30, 2023

MANAGEMENT ’

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Overview and Background

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

We are an aviation infrastructure development company building the first nationwide network of 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.

Our 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.

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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.

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

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

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

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

The table below presents certain information with respect to our portfolio as of June 30, 2023.

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

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Rentable Square

% of Total 

Square Footage

March 31, 2023

% of Total Rentable

Square Footage

June 30, 2023

December 2020

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In Development

September 2023

November 2024

December 2023

February 2025

In Construction

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Predevelopment

November 2023

February 2025

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Recent Developments

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

For the six months ended June 30, 2023 and 2022, our operating lease expense for ground leases was $1.8 million and $1.9 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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Construction Material Costs and Labor

When constructing our HBS hangar 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 hangar campus and the time it is completed.

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.

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

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

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

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. 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.

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

In May 2023, we acquired a controlling interest in Rapidbuilt, a metal building and hangar door manufacturer, that we expect will ultimately result in a reduction in the overall cost of the metal building and hangar door components at all future hangar campus development projects.

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.

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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.

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 hangar campuses.

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

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

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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.

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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, and estimates and assumptions used in the determination of the fair value of assets acquired and liabilities assumed in the business combination.

Actual results could differ materially from those estimates.

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Results of Operations

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

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 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

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

Rental revenue

Total revenue

Loss on impairment of long-lived assets

General and administrative

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Other (income) expense:

Unrealized loss on warrants

Other (income) expense

Interest expense

Unrealized gain on warrants

Total other (income) expense

Net income (loss)

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.

Revenues for the three months ended June 30, 2023 were approximately $1.7 million, compared to approximately $0.4 million for the three months ended June 30, 2022.

The $1.3 million, or 322%, increase was primarily the result of additional tenant leases commencing at our OPF hangar campus during the three months ended June 30, 2023, as well as the cumulative impact of certain additional tenant leases in place at our SGR, BNA, and OPF hangar campuses as compared to the three months ended June 30, 2022.

Operating Expenses

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.

Operating expenses increased approximately $0.5 million, or 44%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 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.

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Depreciation Expense

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.

Depreciation increased approximately $0.4 million, or 245%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022.

The increase reflects a full quarter of depreciation associated with our OPF and BNA hangar campuses, which opened during the three months ended March 31, 2023, and the three months ended December 31, 2022, respectively.

The increase was also partially driven by the placement of additional ground support equipment into service throughout 2022 and 2023.

General and Administrative Expenses

For the three months ended June 30, 2023, and 2022, general and administrative expenses were approximately $3.7 million and $3.9 million, respectively.

The approximately $0.2 million decrease was primarily due to an approximately $0.4 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 June 30, 2022, and our efforts to internalize job functions.

Other administrative expenses decreased approximately $0.2 million primarily due to decreased corporate insurance premiums.

These decreases were offset by an approximately $0.4 million increase in salaries, wages, and other benefits, primarily driven by an increase in expense recognized associated with our equity compensation program.

Other (Income) Expense

Other (income) expenses decreased from approximately $15.4 million of income to approximately $2.6 million of expense for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

This decrease was primarily due to a $12.8 million difference in the mark-to-market adjustment of the outstanding warrants at June 30, 2023 as compared to June 30, 2022.

Results of Operations

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 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). 

Six months ended

June 30, 2023

June 30, 2022

Rental revenue

Total revenue

Loss on impairment of long-lived assets

General and administrative

Total expenses

Operating loss

Other (income) expense:

Interest expense

Unrealized (gain) loss on warrants

Total other (income) expense

Revenues for the six months ended June 30, 2023 were approximately $2.8 million, compared to approximately $0.8 million for the six months ended June 30, 2022.

The $2.0 million, or 252%, increase was primarily the result of tenant leases commencing at our OPF and BNA hangar campuses during the six months ended June 30, 2023, as well as the cumulative impact of certain additional tenant leases in place at our SGR and BNA hangar campuses as compared to the six months ended June 30, 2022.

Operating Expenses

Operating expenses increased approximately $1.1 million, or 44%, for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022.

The increase reflects higher operating costs associated with the commencement of operations at our BNA and OPF hangar campuses, which opened 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 $0.4 million, primarily driven by headcount increases at our BNA and OPF hangar campuses.

Other operating expenses increased approximately $0.7 million, primarily driven by increased insurance, property taxes, and utilities associated with operations at our OPF, BNA, and SGR hangar campuses. 

Depreciation Expense

Depreciation increased approximately $0.7 million, or 227%, for the six months ended June 30, 2023, as compared to the six months ended June 30, 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 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.

For the six months ended June 30, 2023, and 2022, general and administrative expenses were approximately $7.3 million and $8.5 million, respectively.

The approximately $1.2 million decrease was primarily due to an approximately $1.3 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 six months ended June 30, 2022, and our efforts to internalize job functions.

Other administrative expenses decreased approximately $0.2 million primarily due to decreased corporate insurance premiums.

These decreases were offset by an approximately $0.2 million increase in salaries, wages, and other benefits, primarily driven by an increase in expense recognized associated with our equity compensation program.

Other (Income) Expense

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.

Other (income) expenses decreased from approximately $1.5 million of income to approximately $1.5 million of expense for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

This decrease was primarily due to a $3.0 million difference in the mark-to-market adjustment of the outstanding warrants at June 30, 2023 as compared to June 30, 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 ”), funding for operations, and paying accrued expenses. 

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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

Treasury securities as of June 30, 2023.

The following table summarizes our cash and cash equivalents, restricted cash, investments, and restricted investments as of June 30, 2023 and December 31, 2022 (in thousands):

June 30, 2023

December 31, 2022

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

As of June 30, 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 March 31, 2023 (in thousands):

The table below sets forth certain information with respect to our future minimum lease payments required under leases as of June 30, 2023 (in thousands):

Year Ending December 31,

Operating Leases

Finance Leases

2023 (remainder of year)

 199,870

Total lease payments

 210,275

Less imputed interest

Contractual Obligations

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

Principal Payments of Long-Term Indebtedness

The following table sets forth our contractual obligations as of June 30, 2023 (in thousands):

Principal payments on bonds payable

Contractual payments on other long-term indebtedness

Interest payments on long-term indebtedness

Lease commitments

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

Funds to meet 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

We do not maintain any off-balance sheet arrangements.

Historical Cash Flows

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

The following table summarizes our sources and uses of cash for the six months ended June 30, 2023 and 2022 (in thousands):

Six months ended

June 30, 2023

June 30, 2022

Cash and restricted cash at beginning of period

Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Cash used in investing activities

Net cash provided by (used in) financing activities

Cash and restricted cash at end of period

3 unchanged sentences

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.

 Net cash used in operating activities was approximately $9.1 million for the six months ended June 30, 2023, as compared to cash used in operating activities of approximately $24.3 million for the same period in 2022.

The $15.2 million decrease in cash used in operating activities was primarily attributable to a $12.4 million favorable change in the Company's working capital position, which was primarily driven by $9.6 million of initial direct costs associated with the purchase of our former landlord's leasehold interest at our OPF campus during the six months ended June 30, 2022.

The decrease was also partially attributable to a reduction in corporate insurance premiums paid during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. The decrease was also partially attributable to a $2.8 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 six months ended June 30, 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.

Our primary investing activities have consisted of payments related to the cost of construction at our various 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.

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

 Cash used in investing activities was approximately $13.1 million for the six months ended June 30, 2023, as compared to cash used in investing activities of approximately $189.3 million for the same period in 2022.

The decrease of approximately $176.2 million in cash used in investing activities was driven primarily by the approximately $166.6 million purchase of held-to-maturity U.S.

Treasury securities during the six months ended June 30, 2022, as compared held-to-maturity U.S.

Treasury purchase activity of approximately $53.0 million during the six months ended June 30, 2023.

The Company received proceeds of approximately $53.3 million associated with its held-to-maturity investments during the six months ended June 30, 2023 as compared to $28.5 million during the six months ended June 30, 2023.

The decrease was also attributable to a decrease of approximately $26.6 million in available-for-sale U.S.

Treasury purchases.

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.

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 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.

Net cash provided used in financing activities was less than $0.1 million for the six months ended June 30, 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 six months ended June 30, 2022 and not recurring during the six months ended June 30, 2023.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

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