What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-14 · 323 added, 260 removed, 1052 unchanged (36% of the section changed)

3 unchanged sentences

(in thousands, except share data)

June 30, 2023

September 30, 2023

December 31, 2022

43 unchanged sentences

$ 0.0001 par value;

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

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

none issued and outstanding

1 unchanged sentence

200,000,000 shares authorized;

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

15,252,574 and 14,962,831 shares issued and outstanding as of September 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 June 30, 2023 and December 31, 2022, respectively

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

Additional paid-in capital

20 unchanged sentences

Three Months Ended

Six months ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Nine months ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

Rental revenue

1 unchanged sentence

$ 5,337  

$ 1,236  

Total revenue

1 unchanged sentence

General and administrative

10,838  

12,136  

Total expenses

7 unchanged sentences

Interest expense

Unrealized (gain) loss on warrants

Unrealized gain on warrants

( 1,597 )  

( 1,452 )  

Other (income) expense

( 37 )  

3 unchanged sentences

( 1,452 )  

Net income (loss)

( 1,999 )  

5 unchanged sentences

( 6,788 )  

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

Net loss attributable to Sky Harbour Group Corporation shareholders

$ ( 189 )  

$ ( 613 )  

Earnings (loss) per share

$ ( 5,606 )  

Loss per share

$ ( 0.01 )  

3 unchanged sentences

$ ( 0.04 )  

$ ( 0.37 )  

Weighted average shares

12 unchanged sentences

Three Months Ended

Six Months Ended  

June 30, 2023

June 30, 2022

June 30, 2023  

June 30, 2022  

Net income (loss)

$ 10,263  

Nine Months Ended  

September 30, 2023

September 30, 2022

September 30, 2023  

September 30, 2022  

$ ( 12,394 )  

2 unchanged sentences

( 147 )  

Total comprehensive income (loss)

$ 10,179  

Total comprehensive loss

$ ( 11,873 )  

39 unchanged sentences

Exercise of warrants

( 225 )  

Other comprehensive income

Net income (loss)

( 2,412 )  

7 unchanged sentences

$ 89,256  

Share-based compensation

Vesting of restricted stock units

19,363  

Other comprehensive income

( 189 )  

( 1,810 )  

Balance at September 30, 2023

15,252,574  

42,046,356  

$ 31,139  

$ ( 8,791 )  

$ 22,651  

$ 65,363  

$ 88,014  

Redeemable Series B

10 unchanged sentences

( 1,247 )  

Yellowstone Transaction and recapitalization, See Note 3

Yellowstone Transaction and recapitalization

( 54,029 )  

20 unchanged sentences

Share-based compensation

Sky incentive compensation

Other comprehensive income (loss)

15 unchanged sentences

$ 101,930  

Share-based compensation

Issuance of initial commitment shares

25,000  

Exercise of warrants

Other comprehensive income (loss)

( 147 )  

( 613 )  

( 2,479 )  

Balance at September 30, 2022

14,962,831  

42,192,250  

$ 29,254  

$ ( 3,711 )  

$ ( 231 )  

$ 25,317  

$ 73,872  

$ 99,189  

See accompanying Notes to Unaudited Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Six months ended

June 30, 2023

June 30, 2022

Nine months ended

September 30, 2023

September 30, 2022

Cash flows from operating activities:

10 unchanged sentences

Prepaid expenses and other assets

( 1,743 )  

Right-of-use asset initial direct costs

1 unchanged sentence

Accounts payable, accrued expenses and other liabilities

( 1,367 )  

Net cash used in operating activities

5 unchanged sentences

( 40,043 )  

Investment in notes receivable

Investment in notes receivable, net

( 2,040 )  

9 unchanged sentences

48,466  

Net cash used in investing activities

( 13,059 )  

Net cash provided by (used in) investing activities

Cash flows from financing activities:

6 unchanged sentences

( 513 )  

Refund of debt issuance costs

Payments for equity issuance costs

13 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

September 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 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”).

As of September 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

5 unchanged sentences

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

Certain 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.

$ 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.

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

Use of Estimates

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

Such estimates include assumptions used within impairment analyses, estimated useful lives of depreciable assets and amortizable costs, estimates of inputs utilized in determining incentive compensation expense and financial instruments such as warrants, 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.

Such estimates include assumptions used within impairment analyses, estimated useful lives of depreciable assets and amortizable costs, estimates of inputs utilized in determining the fair value of 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.

1 unchanged sentence

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

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

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

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

Liquidity and Capital Resources

6 unchanged sentences

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

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

Sky’s ownership percentage in each of its consolidated subsidiaries is 100 %, unless otherwise disclosed.

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

8 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.

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.

3 unchanged sentences

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

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

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

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

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

Warrants liability

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

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 SHG's legal predecessor, Yellowstone Acquisition Company (“Yellowstone”), and Sky.

The Company accounts for the warrants assumed in the Yellowstone Transaction (see Note 9  — 

Warrants ) in accordance with the guidance contained in ASC Topic 815, “Derivatives and Hedging”

(“ASC 815”

7 unchanged sentences

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

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

As of June 30, 2023 and December 31, 2022 , the deferred rent receivable included in prepaid expenses and other assets was $ 218 and $ 83 , respectively.

Rental revenue is recognized in accordance with ASC Topic 842, Leases (see Note 7 — 

Leases ) and includes 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.

Rental revenue and the corresponding rent and other receivables are recorded net of any concessions and uncollectible tenant receivables for all periods presented.

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 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.

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 any additional rent or lease termination fees, as a current period adjustment to rental revenue.

Variable lease payments consist of tenant reimbursements for common area maintenance, utilities, and operating expenses of the property, and various other fees, including fees associated with the delivery of aircraft fuel, late fees, and lease termination fees.

Variable lease payments are charged based on the terms and conditions included in the respective tenant leases and are recognized in the same period as the expenses are incurred.

For the three and nine months ended September 30, 2023, rental revenue includes $ 920 and $ 1,224 of variable lease payments, respectively.

Variable lease revenue recognized during the three and nine months ended September 30, 2023 included a negotiated lease termination fee received from a tenant of two hangars at OPF (as defined in Note 4 —

Cost of Construction and Constructed Assets ) whereby the Company agreed to release the tenant from its lease obligations in exchange for approximately 8.5 months of additional rent.

For the three and nine months ended September 30, 2022, rental revenue includes $ 28 and $ 96 of variable lease payments, respectively.

As of September 30, 2023 and December 31, 2022 , the deferred rent receivable included in prepaid expenses and other assets was $ 304 and $ 83 , respectively.

Rent received in advance represents tenant payments received prior to the contractual due date, and is included in accounts payable, accrued expenses, and other liabilities.

Rent received in advance consisted of $ 175 and $ 95  as of September 30, 2023 and December 31, 2022 , respectively.

For the three and nine months ended September 30, 2023 

there were two  tenants that individually accounted for more than 10% of the Company's revenue. The Company derived approximately 46 % and 38 % of its revenue from two  tenants for the three and nine months ended September 30, 2023, respectively.

For the three and nine months ended September 30, 2022, the Company derived approximately 82 % and 87 % 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 and six months ended June 30, 2023  and June 30, 2022.

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

The effective income tax rate for the 

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.

three and nine months ended September 30, 2023  and 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 due to the cumulative losses sustained by the Company to date.

Recently Adopted Accounting Pronouncements

10 unchanged sentences

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.

Pursuant to provisions within the Master Indenture of the Series 2021 Bonds, as defined in Note 8 — 

Bonds payable, loans payable, and interest , the Company invests the funds held in the restricted trust bank accounts in various U.S.

Treasury securities.

3 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 and six months ended June 30, 2023.

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

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.

As of September 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 June 30, 2023 and December 31, 2022:

June 30, 2023

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

September 30, 2023

Amortized Cost

41 unchanged sentences

$ 112,956  

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

The following table sets forth the maturity profile of the Company's investments and restricted investments as of September 

Restricted Investments

7 unchanged sentences

Cost of Construction and Constructed Assets

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

The Company’s portfolio as of September 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:

June 30, 2023

September 30, 2023

December 31, 2022

Constructed assets, net of accumulated depreciation:

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

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

$ 80,611  

5 unchanged sentences

Cost of construction:

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

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

$ 48,153  

$ 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 September 30, 2023 and 2022 totaled $ 449 and $ 135 , respectively.

Depreciation expense for the 

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

nine months ended September 30, 2023 and 2022 totaled $ 1,289 and $ 409 , respectively.

Long-lived Assets

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

June 30, 2023

September 30, 2023

December 31, 2022

2 unchanged sentences

Machinery and equipment

Land and buildings

Other equipment and fixtures

5 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 September 30, 2023 and 2022 totaled $ 221 and $ 13 , respectively.

Depreciation expense for the 

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.

nine months ended September 30, 2023 and 2022 totaled $ 361 and $ 38 respectively.

Capitalized depreciation of long-lived assets included in cost of construction totaled $ 59 and $ 178 for the three and nine months ended September 30, 2023, respectively.

As of September 30, 2023 and December 31, 2022, long-lived assets included approximately $ 435 and $ 650 , respectively, of purchase deposits towards long-lived assets which are not being depreciated as the assets have not been placed into service.

Supplemental Balance Sheet and Cash Flow Information

28 unchanged sentences

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.

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

Accounts payable, accrued expenses and other liabilities

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

June 30, 2023

September 30, 2023

December 31, 2022

8 unchanged sentences

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

Six months ended

June 30, 2023

June 30, 2022

Nine months ended

September 30, 2023

September 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:

Six months ended

June 30, 2023

June 30, 2022

Nine months ended

September 30, 2023

September 30, 2022

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

4 unchanged sentences

The following table summarizes interest paid:

Six months ended

June 30, 2023

June 30, 2022

Nine months ended

September 30, 2023

September 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:

Six months ended

June 30, 2023

June 30, 2022

Nine months ended

September 30, 2023

September 30, 2022

Cash, beginning of year

22 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 the three and six month periods ended June 30, 2023 and 2022 .

These variable payments were not material in amount for the three and nine month periods ended September 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.

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

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

See Note 14 — 

Commitments and Contingencies .

The Company’s ground leases have remaining terms ranging between 25  to 73  years, including options for the Company to extend the terms.

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

10 unchanged sentences

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

Six months ended

Nine months ended

September 30,

Cash paid for amounts included in measurement of lease liabilities:

1 unchanged sentence

$ 1,504  

$ 1,384  

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

Weighted Average Remaining Lease Term

June 30, 2023

September 30, 2023

December 31, 2022

4 unchanged sentences

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

June 30, 2023  were as follows: 

September 30, 2023  were as follows: 

Year Ending December 31,  

13 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 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.

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

The defined term leases vary in length from one to ten years with options to renew for additional term(s) given to the lessee. There are no options given to the lessee to purchase the underlying assets.

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 

June 30, 2023 :

September 30, 2023 :

Year Ending December 31,

6 unchanged sentences

$ 22,156  

Bonds payable and interest

Bonds payable, loans payable, and interest

Bonds payable

25 unchanged sentences

2021  Bonds.

As of June 30, 2023 

As of September 30, 2023 

and December 31, 2022, the fair value of the Company’s Series 2021 - 1 Bonds was approximately $ 117.3 million and $ 119.5 million, respectively.

As of June 30, 2023 and December 31, 2022, the fair value of the Company’s bonds is estimated utilizing Level 

As of September 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 June 30, 2023 and December 31, 2022 :

June 30, 2023

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

September 30, 2023

December 31, 2022

9 unchanged sentences

( 4,753 )  

Accumulated amortization of debt issuance costs and bond premium

Accumulated amortization of debt issuance costs and accretion of bond premium

Total Bonds payable, net

11 unchanged sentences

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.

The weighted-average interest rate was 8.53 % and 8.44 % for the three and nine months ended September 30, 2023, respectively.

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 

4 unchanged sentences

Three months ended

Six months ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Nine months ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

$ 1,969  

2 unchanged sentences

$ 5,205  

Amortization of bond premium and debt issuance costs

Accretion of bond premium and amortization of debt issuance costs

Total interest incurred

4 unchanged sentences

Interest expense

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.

SHG's legal predecessor, 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”).

1 unchanged sentence

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

As of June 30, 2023 , 6,798,964 and 7,719,779 Public and Private Warrants remain outstanding, respectively.

As of September 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.

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 $ 0.31 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.

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

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

The Company recognized unrealized gains of approximately $ 1.6 million and $ 1.5 million during the three months ended September 30, 2023 and 2022, respectively.

The Company did not recognize an unrealized gain or loss during the nine months ended September 30, 2023.

The Company recognized an unrealized gain of approximately $ 2.9 million during the nine months ended September 30, 2022.

Equity and Redeemable Equity

Common Equity

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.

As of September 30, 2023 , there were 15,252,574  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.

4 unchanged sentences

Common Stock Purchase Agreement

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

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

Riley Stock Purchase Agreement”) with B.

Riley Principal Capital II, LLC (“B.

Riley”).

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

Pursuant to the B.

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

Riley Stock Purchase Agreement, to direct B.

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

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

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

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

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

Riley Stock Purchase Agreement.

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

Riley under the Stock Purchase Agreement.

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

Riley under the B.

Riley Stock Purchase Agreement.

In consideration for entering into the B.

Riley Stock Purchase Agreement and concurrently with the execution of the B.

Riley Stock Purchase Agreement, the Company issued to B.

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

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

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

As of September 

30, 2023, the Company has not directed B.

Riley to purchase any Class A Common Stock pursuant to the B.

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

As of September 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.

As of September 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 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.

During the three and nine months ended September 30, 2023, the Company recognized stock compensation expense of approximately $ 0.5 million and $ 1.4 million, respectively associated with all RSU awards, which is recorded within General and Administrative Expenses within the statement of operations.

During the three and nine  months ended September 30, 2022, the Company recognized stock compensation expense of $ 0.3 million and $ 0.5 million, respectively.

As of September 30, 2023, there are approximately 956,869 non-vested RSUs outstanding with a weighted average grant date fair value of $ 6.53 . The unrecognized compensation costs associated with all unvested RSUs at September 30, 2023 

was approximately $ 5.8  million that is expected to be recognized over a weighted-average future period of 3.0 years.

Sky Incentive Units

The Company recognized equity-based compensation expense relating to awarded equity units of Sky (the “Sky Incentive Units”) of $ 72 and $ 238 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.

nine months ended September 30, 2023 , respectively, and $ 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’

As of September 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 1.6 years.

Earnings (loss) per Share

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

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

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

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Three Months Ended

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

12,665  

Unrealized gain on warrants  

( 2,613 ) 

( 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  

Nine Months Ended

September 30, 2023  

September 30, 2022  

September 30, 2023  

September 30, 2022  

$ ( 3,092 )  

Net loss attributable to non-controlling interests

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

( 613 )  

Based and diluted weighted average shares of Class A Common Stock outstanding  

15,245  

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

14,949  

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13,628  

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:

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 Company's net loss position were as follows (in thousands):

Three Months Ended

Six Months Ended

June 30, 2023  

June 30, 2022  

June 30, 2023  

June 30, 2022  

Nine Months Ended

September 30, 2023  

September 30 , 2022  

September 30 , 2023  

September 30, 2022  

Shares subject to unvested restricted stock units

1,004,938  

651,514  

Shares issuable upon the exercise of Warrants

14,519  

Shares issuable upon the exercise of Warrants

14,519  

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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 and six months ended June 30, 2023, 

For the three and nine months ended September 30, 2023, 

the Company recognized $ 41 and $ 157 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.

For the three and nine months ended September 30, 2022, the Company recognized $ 50 and $ 134 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 September 30, 2023 .

For the three and nine months ended September 

30, 2023, the Company recognized $ 3  and $ 98 of expense, respectively, for consulting services, to a company that employed the chief financial officer until prior to July 1, 2021.

The Company recognized $ 40 and $ 85 of expense during the three and nine months ended September 30, 2022 to the same company.

Commitments and Contingencies

In addition to the lease payment commitments discussed in Note

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

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

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

7 — 

Leases , 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.

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.

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( 121 )  

Balance as of June 30, 2023

Balance as of September 30, 2023

Subsequent Events

PWK Ground Lease

On October 11, 2023, the Company entered into a ground lease agreement (the "PWK Lease") with Chicago Executive Airport ("PWK").

The PWK Lease is divided into two parcels, with the first parcel containing approximately 15 acres of land ("PWK Phase I").

Under the terms of the PWK Lease, it is the intent of PWK to grant the Company a second parcel containing approximately 10 acres of land ("PWK Phase II").

The grant of the PWK Phase II land is at the sole discretion of PWK following the Company's completion of its development project at PWK Phase I.

The term of the PWK Lease will be 50 years from the acceptance of the PWK Phase I parcel following customary due diligence and completion of a land survey, with lease payments commencing following the completion of construction.

The PWK Lease contains no additional extension options exercisable by the Company or PWK.

PWK is jointly owned by the Village of Wheeling and City of Prospect Heights, Illinois, and acts a primary reliever and general aviation airport within the Chicago metropolitan area.

The FAA reported nearly 100,000 total airport operations at PWK in 2021 and 2022, with steady growth forecasted each year thereafter.

SGR Phase II Lease Termination

The Company was subject to requirements in its ground lease at SGR with respect to the Company's contemplated SGR Phase II project that defined (i) a minimum improvement amount of $ 2.0 million and (ii) that related construction commence by October 2023, unless otherwise waived or amended.

In October 2023, the Company allowed the ground lease associated with the parcels designated for the SGR Phase II project to automatically terminate.

The Company did not incur any lease termination penalties, nor had it capitalized any historical costs associated with the contemplated SGR Phase II project. 

Private Placement and Securities Purchase Agreement

On November 1, 2023, the Company entered into a Securities Purchase Agreement (the “Private Placement Purchase Agreement”) with certain investors (collectively, the “Investors”), pursuant to which the Company (i) agreed to sell and issue to the Investors at an initial closing an aggregate of 6,586,154 shares (the “PIPE Shares”) of the Company’s Class A Common Stock and accompanying warrants to purchase up to 1,141,600 shares of Class A Common Stock (the “PIPE Warrants”), for an aggregate purchase price of $ 42.8 million (the "Initial Financing"), and (ii) agreed to sell and issue to the Investors at the second closing, if any, up to an aggregate of 2,307,692 PIPE Shares (the "Additional PIPE Shares") and accompanying PIPE Warrants to purchase up to an aggregate of 400,000  shares of Class A Common Stock (the "Additional PIPE Warrants") for an aggregate purchase price of up to $ 15.0 million (the "Additional Financing" and, together with the Initial Financing, the “Financing”).

The closing of the Initial Financing occurred on November 2, 2023 ( the “Initial Closing Date”).

The amount of Additional PIPE Shares and Additional PIPE Warrants, if any, to be issued in connection with the Additional Financing will be determined by Altai Capital Falcon LP (the “Lead Investor”) in its sole discretion, and the closing of the Additional Financing will occur, if at all, at the sole discretion of the Lead Investor, on or before November 30, 2023, subject to customary closing conditions.

The PIPE Warrants are similar in form and substance to the Company’s public warrants to purchase Class A Common Stock. The PIPE Warrants are exercisable at an exercise price of $ 11.50 per share, subject to adjustment as set forth therein.

The PIPE Warrants are fully exercisable and expire on January 25, 2027.

For further information regarding the terms of the PIPE Warrants, see the section entitled “Warrants”

in Exhibit 4.4 (Description of Securities) to our Form 

10 -K for the fiscal year ended December 

31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 

The Private Placement Purchase Agreement includes certain covenants, including a limitation on the Company’s use of the net proceeds from the Financing, certain customary standstill restrictions for a period of 90 days following the Initial Closing Date and a restriction on paying any extraordinary dividend to the extent it would result in the issuance of a number of shares of Class A Common Stock upon exercise of the PIPE Warrants (without regard to any limitations on exercise of the PIPE Warrants) in excess of the number of shares of Class A Common Stock permissible by the NYSE American LLC to be issued without stockholder approval.

In addition, pursuant to the Private Placement Purchase Agreement, the Company granted to the Lead Investor certain participation rights with respect to certain future equity and debt offerings by the Company until the eighteen -month anniversary of the Initial Closing Date.

In addition, the Investors entered in to a six month customary lock-up agreement beginning on the Initial Closing Date.

Registration Rights Agreement

On November 1, 2023, in connection with the execution of the Private Placement Purchase Agreement, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Investors.

Pursuant to the Registration Rights Agreement, certain holders of the Company’s securities are entitled to certain customary registration rights, and the Company is required to prepare and file a resale registration statement (the “Registration Statement”) with the SEC to register the resale of the PIPE Shares, the PIPE Warrants and 130 % of the shares of Class A Common Stock issuable upon exercise of the PIPE Warrants (collectively, the “PIPE Securities”), and to use its best efforts to cause the Registration Statement to be declared effective by the SEC by the earlier of (i) 180 days following the Initial Closing Date and (ii) the fifth business day after the date the Company is notified by the SEC that the Registration Statement will not be “reviewed”

or will not be subject to further review.

MANAGEMENT ’

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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.

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 approximately $278 billion expected to be delivered between 2024 and 2033, with larger private jet deliveries expected to increase approximately 15% in 2024.

These projections are 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.

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

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

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

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

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Square Footage

June 30, 2023

September 30, 2023

December 2020

BNA Phase I & II

November 2022

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Square Footage

Predevelopment

December 2024

In Development

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November 2022

February 2024

Predevelopment

November 2024

February 2025

In Construction

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Recent Developments

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 costs and duration of each development project.

On October 11, 2023, we entered into a ground lease agreement (the “PWK Lease”) with Chicago Executive Airport (“PWK”).

The term of the PWK Lease will be 50 years and is divided into two parcels, allowing for the development of a hangar campus on up to 25 acres of land at PWK.

Factors That May Influence Future Results of Operations

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However, our existing and potential tenants are subject to economic, regulatory and market conditions that may affect their level of operations and demand for hangar space, which could impact our results of operations.

For example, during the three months ended September 30, 2023, a tenant renting two hangars at OPF made the determination that it was necessary to change its business plans in the greater Miami market, which ultimately resulted in the negotiated settlement of the tenant’s lease with the Company and their exit from our OPF hangar campus.

Accordingly, we actively monitor certain key factors, including changes in those factors (fuel prices, new aircraft deliveries, hangar rental rates) that we believe may provide early indications of conditions that may affect the level of demand for new leases and our lease portfolio.

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

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.

For the nine months ended September 30, 2023 and 2022, our operating lease expense for ground leases was $2.8 million and $2.8 million, respectively.

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

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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 expect that over time 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.

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 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.

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

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 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.

We previously raised equity capital, along with potential future debt and further equity issuances, including the Private Placement Purchase Agreement entered into on November 1, 2023, see Note 16 — 

Subsequent Events 

in the Notes to Consolidated Financial Statements, to 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 private activity bonds.

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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.

Such estimates include assumptions used within impairment analyses, estimated useful lives of depreciable assets and amortizable costs, estimates of inputs utilized in determining the fair value of 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.

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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 any additional rent or lease termination fees, as a current period adjustment to rental revenue.

Recent Accounting Pronouncements

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Results of Operations

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

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

June 30, 2023

June 30, 2022

September 30, 2023

September 30, 2022

Rental revenue

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Net income (loss)

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.

Revenues for the three months ended September 30, 2023 were approximately $2.5 million, compared to approximately $0.4 million for the three months ended September 30, 2022.

The $2.1 million, or 481%, increase was primarily the result of 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 September 30, 2022, additional tenant leases commencing at our OPF and BNA hangar campuses during the three months ended September 30, 2023, and approximately $0.4 million of net non-recurring adjustments to revenue recognized during the three months ended September 30, 2023.

Operating Expenses

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.

Operating expenses increased approximately $0.4 million, or 36%, for the three months ended September 30, 2023, as compared to the three months ended September 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 $0.4 million, or 245%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022.

Depreciation increased approximately $0.5 million, or 352%, for the three months ended September 30, 2023, as compared to the three months ended September 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.

The increase was also partially driven by the placement of additional ground support equipment into service throughout 2022 and 2023 and a full quarter of depreciation related to Rapidbuilt, which was acquired during the three months ended June 30, 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.

For the three months ended September 30, 2023, and 2022, general and administrative expenses were approximately $3.6 million and $3.6 million, respectively.

The approximately 1% decrease was primarily due to a decrease of approximately $0.4 million related to other administrative expenses, largely driven by decreased corporate insurance premiums and an approximately $0.3 million decrease in professional fees, which was primarily driven by decreased in legal and accounting related costs and our efforts to internalize job functions.

These decreases were offset by an approximately $0.7 million increase in salaries, wages, and other benefits, driven by an increase in headcount and 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.

Other income decreased from approximately $1.5 million to approximately $1.4 million for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

This decrease was primarily due to an approximately $0.2 million increase in interest expense due to the Rapidbuilt acquisition, offset by a $0.1 million difference in the mark-to-market adjustment of the outstanding warrants at September 30, 2023 as compared to September 30, 2022.

Results of Operations

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 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

Nine months ended

September 30, 2023

September 30, 2022

Rental revenue

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Interest expense

Unrealized (gain) loss on warrants

Unrealized gain 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.

Revenues for the nine months ended September 30, 2023 were approximately $5.3 million, compared to approximately $1.2 million for the nine months ended September 30, 2022.

The $4.1 million, or 332%, increase was primarily the result of tenant leases commencing at our OPF and BNA hangar campuses during the nine months ended September 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 nine months ended September 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.

Operating expenses increased approximately $1.5 million, or 42%, for the nine months ended September 30, 2023, as compared to the nine months ended September 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.

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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.

Depreciation increased approximately $1.2 million, or 269%, for the nine months ended September 30, 2023, as compared to the nine months ended September 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 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.

For the nine months ended September 30, 2023, and 2022, general and administrative expenses were approximately $10.8 million and $12.1 million, respectively.

The approximately $1.3 million decrease was primarily due to an approximately $1.6 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 nine months ended September 30, 2022, and our efforts to internalize job functions.

Other administrative expenses decreased approximately $0.6 million primarily due to decreased corporate insurance premiums.

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Other (Income) Expense

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.

Other (income) expenses decreased from approximately $2.9 million of income to less than $0.1 million of expense for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

This decrease was primarily due to a $2.9 million difference in the mark-to-market adjustment of the outstanding warrants at September 30, 2023 as compared to September 30, 2022.

Liquidity and Capital Resources

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

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

Treasury securities as of September 30, 2023.

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

September 30, 2023

December 31, 2022

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Total cash, restricted cash, investments, and restricted investments

Common Stock Purchase Agreement

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

Private Placement and Securities Purchase Agreement

On November 1, 2023, the Company entered into the Private Placement Purchase Agreement with certain Investors, pursuant to which the Company (i) agreed to sell and issue to the Investors at an initial closing an aggregate of 6,586,154 shares of the Company’s Class A Common Stock and accompanying warrants to purchase up to 1,141,600 shares of Class A Common Stock, for an aggregate purchase price of $42.8 million (the "Initial Financing"), and (ii) agreed to sell and issue to the Investors at the second closing, if any, up to an aggregate of 2,307,692 PIPE Shares (the "Additional PIPE Shares") and accompanying PIPE Warrants to purchase up to an aggregate of 400,000 shares of Class A Common Stock (the "Additional PIPE Warrants") for an aggregate purchase price of up to $15.0 million (the "Additional Financing" and, together with the Initial Financing, the “Financing”).

Riley Stock Purchase Agreement

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

Riley Stock Purchase Agreement”) with B.

Riley Principal Capital, LLC (“B.

Riley”).

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

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

Pursuant to the B.

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

Riley up to 10 million shares of our Class A Common Stock at 97% of the volume weighted average price of our Class A Common Stock calculated in accordance with the B.

Riley Stock Purchase Agreement, over a period of 36 months subject to certain limitations and conditions contained in the B.

Riley Stock Purchase Agreement.

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

Riley under the Purchase Agreement.

Riley under the B.

Riley Stock Purchase Agreement.

As consideration for B.

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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 June 30, 2023, we were in compliance with all debt covenants.

As of September 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 leases as of June 30, 2023 (in thousands):

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

Year Ending December 31,

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Contractual Obligations

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

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

Principal payments on bonds payable

Interest payments on bonds payable

Contractual payments on other long-term indebtedness

Interest payments on long-term indebtedness

Lease commitments

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We do not maintain any off-balance sheet arrangements.

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

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

Nine months ended

September 30, 2023

September 30, 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) financing activities

Cash provided by (used in) investing activities

Net cash (used in) provided by financing activities

Cash and restricted cash at end of period

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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.

Included in net cash used in operating activities 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 $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.

 Net cash used in operating activities was approximately $6.3 million for the nine months ended September 30, 2023, as compared to cash used in operating activities of approximately $25.3 million for the same period in 2022.

The $19.0 million decrease in cash used in operating activities was primarily attributable to a $14.6 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 nine months ended September 30, 2022.

The decrease was also partially attributable to a reduction in corporate insurance premiums paid during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The decrease was also partially attributable to a $4.4 million decrease in net loss, net of non-cash adjustments. The decrease in net loss was primarily driven by an increase in revenue and a decrease in non-recurring general and administrative expenses incurred in the expansion of our business, including transaction-related expenses incurred during the nine months ended September 30, 2023.

Investing Activities

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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.

 Cash provided by investing activities was approximately $2.1 million for the nine months ended September 30, 2023, as compared to cash used in investing activities of approximately $213.5 million for the same period in 2022.

The decrease of approximately $215.7 million in cash used in investing activities was driven primarily by approximately $90.0 million and $14.0 increases in proceeds received from the Company's held-to-maturity and available for sale investments, respectively, during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2023.

The decrease was also attributable to a decreases of approximately $90.0 million and $24.6 million in held-to-maturity and available-for-sale U.S.

Treasury purchases, respectively. The impact of our U.S.

Treasury investment activities was offset by an approximately $4.4 million increase in capital expenditures.

Financing Activities

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

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.

Net cash used in financing activities was approximately $0.5 million for the nine months ended September 30, 2023, as compared to net cash provided by financing activities of approximately $52.8 million for the same period in 2022.

The approximately $53.3 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 nine months ended September 30, 2022 and not recurring during the nine months ended September 30, 2023.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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