Sky Harbour Group Corp 10-K

ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information (a) Market Information The Company’s Class A Common Stock and Public Warrants are listed on the NYSE American under the symbols “SKYH” and “SKYH WS,” respectively. As of March 18, 2024, there were seven holders of record of Class A Common Stock and two holders of record of Warrants. However, because many of the shares of Class A Common Stock and the Warrants are held by brokers and other institutions on behalf of stockholders, the Company believes there are substantially more beneficial holders of Class A Common Stock and Warrants than record holders. (b) Dividends We have not paid any cash dividends on our Common Stock to date and do not intend to pay cash dividends in the foreseeable future. We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business. The payment of cash dividends in the future will be at the discretion of our Board and will depend on our financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our Board deems relevant. Further, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection with any indebtedness that we incur. (c) Securities Authorized for Issuance Under Equity Compensation Plans The following table summarizes the securities authorized for issuance under our equity compensation plans at December 31, 2023: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by security holders 930,705 - 4,155,538 Total 930,705 - 4,155,538 (d) Recent Sales of Unregistered Securities , Use of Proceeds from Registered Public Offering During the year ended December 31, 2023, there were no unregistered sales of our securities that were not reported in a Current Report on Form 8-K or Quarterly Report on Form 10-Q. (e) Purchases of Equity Securities by the Issuer and Affiliated Purchasers There were no repurchases of our equity securities during the three months ended December 31, 2023. ITEM 6. [RESERVED] 33 Table of Contents ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company ’ s financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto which are included in “ Item 8. Financial Statements and Supplementary Data ” of this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “ Special Note Regarding Forward-Looking Statements, ” “ Item 1A. Risk Factors ” and elsewhere in this Report. Overview and Background We are an aviation infrastructure development company building the first nationwide network of home basing 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 home basing hangar campuses feature exclusive private hangars and a full suite of dedicated services specifically optimized for home-based, versus transient, aircraft. The physical footprint of the U.S. business aviation fleet grew by almost 28 million square feet in the ten years preceding the beginning of the COVID-19 pandemic, with hangar supply lagging dramatically, especially in key growth markets. As the fleet of private jets in the United States continues to grow, with recent new aircraft deliveries exceeding retirements, demand for hangar space is at a premium in part because new jets require more square footage of hangar space and the pace of new hangar construction has lagged behind the demand. The cumulative square footage of the business aircraft fleet in the United States increased 50% between 2010 and 2021. Moreover, over that same period, there was an 81% increase in the square footage of larger private jets – those with greater than a 24-foot tail height. A recent study conducted by a business aircraft manufacturer forecasted that business aircraft will only continue to grow in the next ten years, with up to 8,500 new business jet deliveries worth over $275 billion expected to be delivered between 2024 and 2033, further supported by data from the major business aviation manufacturers that suggest the current order backlog for new business aviation aircraft is over $49 billion. These larger footprint aircraft do not fit in much of the existing hangar infrastructure and impose stacking challenges and constraints in the traditional shared or community hangars operated by FBOs. The addition of winglets (the vertical extensions on aircraft wingtips) on most modern business jets inhibits wing-over-wing storage. Aircraft hangars are in high demand and short supply, with some airports compiling waiting lists that can exceed several years. We believe our scalable, real estate-centric business model is uniquely optimized to capture this market opportunity and address the increased imbalance between the supply and demand for private jet storage. We intend to capitalize on the existing hangar supply constraints at major U.S. airports by targeting high-end tenants in markets where there is a shortage of private and FBO hangar space, or where such hangars are or are becoming obsolete. We expect to realize economies of scale in construction through a 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. Unlike a service company, our revenues are mostly derived from long-term rental agreements, offering stability and forward visibility of revenues and cash flows. This allows the Company to fund its development through the public bond market, providing capital efficiency and mitigating refinance risk. For a more complete description of our operations, including our home basing hangar campus development projects, refer to Item 1 — Business . 34 Table of Contents Recent Developments On October 11, 2023, we entered into a ground lease agreement (the “PWK Lease”) with PWK. The term of the PWK Lease will be 50 years and is divided into two parcels, together allowing for the development of a hangar campus on up to 25 acres of land at PWK. On November 1, 2023, we entered into a Securities Purchase Agreement (the “Private Placement Purchase Agreement”) with certain investors (collectively, the “Investors”), pursuant to which we sold and issued to the Investors at an initial closing an aggregate of 6,586,154 shares (the “Initial PIPE Shares”) of our Class A Common Stock and accompanying warrants to purchase up to 1,141,600 shares of Class A Common Stock (the “Initial PIPE Warrants”), for an aggregate purchase price of $42.8 million (the "Initial Financing"). On November 29, 2023 (the “Second Closing Date”), pursuant to the terms of the Private Placement Purchase Agreement, we sold and issued to the Investors an aggregate of 2,307,692 shares of our Class A Common Stock (the “Additional PIPE Shares” and, together with the Initial PIPE Shares, the “PIPE Shares”) and accompanying warrants to purchase an aggregate of 400,000 shares of Class A Common Stock (the “Additional PIPE Warrants” and, together with the Initial PIPE Warrants, the “PIPE Warrants”) for an aggregate purchase price of $15.0 million. Together with the Initial Financing, the aggregate PIPE financing through the Private Placement Purchase Agreement totaled approximately $57.8 million. On December 13, 2023, we entered into a ground lease agreement (the “BDL Lease”) at BDL with the Connecticut Airport Authority (“CAA”). The BDL Lease covers a parcel containing approximately 8 acres of land at BDL. The initial term of the BDL Lease will be 30 years with options exercisable by the Company to extend the BDL Lease an additional 20 years. On December 13, 2023, we entered into a ground lease agreement at POU with the County of Dutchess, New York (the “POU Lease”). The POU Lease covers two parcels containing approximately 7 acres of land at POU. In December 2023 and March 2024, the Company updated its forecasted construction expenditures and timelines as a result of an independent peer review of the hangar buildings designed for our DVT Phase I and APA Phase I development projects. See “ Factor s That May Influence Future Results of Operations — Construction Material Costs and Labor ” for more information. On March 23, 2024, the Company, through a wholly-owned subsidiary of the Company, entered into a ground lease agreement (the “SJC Lease”) at San Jose Mineta International Airport (“SJC”) with the City of San Jose. The SJC Lease covers approximately 7 acres of property. The initial term of the SJC Lease will be 20 years from May 1, 2024, and contains a mutual option to extend the SJC Lease an additional 5 years following the expiration of the initial term. On March 27, 2024, the Company, through a wholly-owned subsidiary of the Company, entered into a ground lease agreement (the “ORL Lease”) at Orlando Executive Airport (“ORL”) with the Greater Orlando Aviation Authority (“GOAA”). The ORL Lease covers a parcel containing approximately 20 acres of land at ORL. The initial term of the ORL Lease will be 30 years from expiration of construction period. Factors That May Influence Future Results of Operations Revenues Our revenues are derived from rents we earn pursuant to the lease agreements we enter into with our tenants. Our ability to expand through new ground leases and tenant leases at airports is integral to our long-term business strategy and requires that we identify and consummate suitable new ground leases or investment opportunities in real estate properties for our portfolio that meet our investment criteria and are compatible with our growth strategy. Our ability to enter into new ground leases and tenant leases on favorable terms, or at all, may be adversely affected by a number of factors. We believe that the business environment of the industry segments in which our tenants operate is generally positive for tenants. 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 year ended December 31, 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 us 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. See “ Risk Factor s— Risks Related to our Business and Operations ” for more information about the risks related to our tenants and our lease payments. Operating Expense One of our largest expenses are the lease payments payable under our ground leases. For the years ended December 31, 2023 and 2022, our operating expense related to ground leases was $4.0 million and $3.7 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. If airport landlords increase the per acre cost of the ground lease of our target campuses, the operating margins at potential target developments may be impacted negatively. Interest Expense Economic conditions and actions by policymaking bodies are contributing to rising interest rates, which, along with increases in our borrowing levels, could increase our future borrowing costs. We expect to issue additional debt to finance future site developments and higher interest rates would impact our overall economic performance. In addition, we are subject to credit spreads demanded by fixed income investors. As a non-rated issuer, increases in general of credit spreads in the market, or for us, may result in a higher cost of borrowing in the future. We intend to access the bond market on an opportunistic basis. In addition, we may hedge against rising benchmark interest rates by entering into hedging strategies with high quality counterparties. General and Administrative Expenses The general and administrative expenses reflected in our statement of operations are reflective of the professional, legal and consulting fees, payroll costs, and other general and administrative expenses, including those necessary to support our business as a public company such as expenses associated with corporate governance, SEC reporting, and other compliance matters. While we expect that our general and administrative expenses will rise in some measure as our portfolio of campuses grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies, economies of scale, insourcing of job functions, and cost control measures. 35 Table of Contents Construction Material Costs and Labor When constructing our home basing 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 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 hangar campuses to absorb these increased costs and/or delays, if at all. In May 2023, we acquired a controlling interest in a metal building and hangar door manufacturer, that we expect will ultimately result in an increase in quality and a reduction in the overall cost of the metal building and hangar door components at future home basing 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 in the future. In December 2023, we engaged several structural engineering firms to perform an independent peer review of the hangar buildings designed for our DVT Phase I and APA Phase I development projects. The independent peer reviews determined a significant design defect existed within our prototype hangar building designs that will require retrofitting to both meet and exceed our standards and the respective local building codes. The anticipated retrofitting efforts are also expected to be applied to ADS Phase I, and we project that the aggregate additional cost of such retrofits could total $26 to $28 million and require an additional three to five months of construction time for each project impacted. We intend to continue to aggressively take action to mitigate 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. Given the planned design enhancements at our APA Phase I, DVT Phase I, and ADS Phase I development projects, we anticipate that our total construction costs for these projects to each be greater than our original estimates, and outside of the scope of the guaranteed maximum price construction contracts. We intend to fund the increase in estimated costs by contributing additional corporate cash holdings to SHC, thereby restricting the use of the cash to the project scope of the Series 2021 Bonds. No assurance can be given that our cost mitigation strategies will be successful, the costs of our ongoing and future 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. Current Capital Requirements and Future Expenditures for Expansion We previously funded SHC with over $200 million to fund the two phases at our initial five ground leased airport locations. We maintain the ability to include up to $50 million in new projects outside the original five locations to be funded with a portion of the existing proceeds held by the trustee as long as certain approvals and supplemental consultant reports are provided showing that such new project would result in better coverage of debt service than previously contemplated projects. We exercised this ability utilizing approximately $26 million of the $50 million available and received the requisite approvals and reports in March 2023 with respect to our ADS Phase I development project. We previously raised equity capital, along with potential future debt and further equity issuances, including the Private Placement Purchase Agreement entered into on November 1, 2023, see Note 12 — Equity and Redeemable Equity 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 at least 100,000 rentable square feet and is expected to cost approximately $55 million per campus, with 60% or more to be funded with additional private activity bonds or other indebtedness. All future hangar campus projects are discretionary and require us to identify the appropriate airports with the target hangar demand economics, secure required ground leases and permits, and complete future construction at such sites. The cumulative 20 airport site business plan is estimated to cost approximately $1.2 billion, with approximately 65% to 75% anticipated from long-term private activity bonds and the balance with equity or equity linked financing. Our ability to raise additional equity and/or debt financing will be subject to a number of risks, including our ability to obtain financing upon reasonable terms, if at all, costs of construction, delays in constructing new facilities, operating results, and other risk factors. In the event that we are unable to obtain additional financing, we may be required to raise additional equity capital, creating additional dilution to existing stockholders. There can be no assurance that we would be successful in raising such additional equity capital on favorable terms, if at all. Even if we can obtain such additional equity financing if needed, there can be no assurance that we would be successful in raising such additional financing on favorable terms, if at all. 36 Table of Contents Critical Accounting Policies and Estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management 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 financial statements, and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies: Cost of Construction Cost of construction on the consolidated balance sheets is carried at cost. The cost of acquiring an asset includes the costs necessary to bring a capital project to the condition necessary for its intended use. Costs are capitalized once the construction of a specific capital project is probable. Construction labor and other direct costs of construction are capitalized. Professional fees for engineering, procurement, consulting, and other soft costs that are directly identifiable with the project and are considered an incremental direct cost are capitalized. We allocate a portion of our 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 costs on the debt used to fund the capital projects are also capitalized until the capital project is completed. Once a capital project is complete, the cost of the capital project is reclassified to Constructed Assets on the accompanying balance sheet and we begin 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. Leases We account for leases under Accounting Standards Codification (“ASC”) Topic 842, Leases. We determine whether a contract contains a lease at the inception of the contract. ASC Topic 842 requires lessees to recognize operating lease liabilities and right-of-use (“ROU”) assets for all leases with terms of more than 12 months on the consolidated balance sheets. We have made an accounting policy election that will keep leases with an initial term of 12 months or less off our consolidated balance sheets and will result in recognizing those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. When management determines that it is reasonably certain that we will exercise our options to renew the leases, the renewal terms are included in the lease term and the resulting ROU asset and operating lease liability balances. We have elected to not capitalize any interest cost that is implicit within our operating leases into cost of construction on the consolidated balance sheet, but instead, we expense our ground lease cost in the consolidated statements of operations. We have lease agreements with lease and non-lease components; we have elected the accounting policy to not separate lease and non-lease components for all underlying asset classes. Revenue Recognition The Company leases the hangar facilities that it constructs to third parties. The Company determines whether a contract contains a lease at the inception of the contract. The lease agreements are either on a month-to-month basis or have a defined term and may have options to extend the term. Some of the leases contain options to terminate the lease by either party with given notice. The Company expects to continue to derive benefit from the underlying assets after the end of the lease term through further leasing arrangements. The underlying assets are the leasehold interest that the Company has in connection with its ground leases. There are no options given to the lessee to purchase the underlying assets. Rental revenue is recognized in accordance with ASC 842 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 any additional rent or lease termination fees, as a current period adjustment to rental revenue. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include assumptions used within impairment analyses, estimated useful lives of depreciable assets and amortizable costs, estimates of inputs utilized in determining incentive compensation expense and equity instruments such as warrants, estimates and assumptions related to right-of-use assets and operating lease liabilities. Actual results could differ materially from those estimates. Recent Accounting Pronouncements See “ Note 2 — Basis of Presentation and Significant Accounting Policies ” in the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements including the expected dates of adoption and effects on results of operations and financial condition. 37 Table of Contents Results of Operations Year ended December 31, 2023 Compared to the Year ended December 31, 2022 The following table sets forth a summary of our consolidated results of operations for the periods indicated below and the changes between the periods (in thousands). Year ended December 31, 2023 December 31, 2022 Change Revenue: Rental revenue $ 7,575 $ 1,845 $ 5,730 Total revenue 7,575 1,845 5,730 Expenses: Operating 7,168 5,046 2,122 Depreciation 2,278 695 1,583 Loss on impairment of long-lived assets - 248 (248 ) General and administrative 15,122 14,714 408 Total expenses 24,568 20,703 3,865 Operating loss (16,993 ) (18,858 ) 1,865 Other (income) expense: Interest expense, net of capitalized interest 541 - 541 Other (income) expense (737 ) (98 ) (639 ) Unrealized (gain) loss on warrants 8,644 (5,082 ) 13,726 Total other (income) expense 8,448 (5,180 ) 13,628 Net loss $ (25,441 ) $ (13,678 ) $ (11,763 ) Revenues Revenues for the year ended December 31, 2023 were approximately $7.6 million, compared to approximately $1.8 million for the year ended December 31, 2022. The approximately $5.7 million, or 311%, increase was primarily the result of tenant leases commencing at our OPF and BNA hangar campuses during the year ended December 31, 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 year ended December 31, 2022. Operating Expenses Operating expenses increased approximately $2.1 million, or 42%, from approximately $5.0 million for the year ended December 31, 2022, to approximately $7.2 million for the year ended December 31, 2023. The increase is primarily reflective of the cumulative impact of 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 hangar campus personnel increased by approximately $0.6 million, primarily driven by headcount increases at our BNA and OPF hangar campuses. Other operating expenses increased approximately $1.3 million, primarily driven by increased insurance, property taxes, and utilities associated with operations at our OPF, BNA, and SGR hangar campuses. Ground lease expense increased approximately $0.2 million, primarily due to new ground leases signed at PWK, BDL, and POU during the three months ended December 31, 2023. Depreciation Expense Depreciation increased approximately $1.6 million, or 228%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase primarily 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, long-lived assets recognized as part of the Rapidbuilt Acquisition, and the placement of additional ground support equipment into service throughout 2022 and 2023. General and Administrative Expenses For the years ended December 31, 2023 and 2022, general and administrative expenses were approximately $15.1 million and approximately $14.7 million, respectively. The approximately $0.4 million increase was primarily driven by an approximately $2.6 million increase in salaries, wages, and benefits, which reflects an increase in full-time and contracted employees and the impact of an increase in expense recognized in connection with our equity compensation program. The increase was partially offset by an approximately $1.4 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 year ended December 31, 2023, and our efforts to internalize job functions, and an approximately $0.8 million decrease in other administrative expenses, primarily due to decreased corporate insurance premiums. Other (Income) Expenses Other (income) expenses for the year ended December 31, 2023 was approximately $8.4 million of expense as compared to approximately $5.2 million of income for the year ended December 31, 2022. The shift from income to expense was primarily due to an approximately $13.7 million variance related to the mark-to-market of the outstanding warrants at December 31, 2023 as compared to December 31, 2022. These warrants consist of Public Warrants and Private Warrants initially issued by YAC as part of its initial public offering, and PIPE Warrants issued in November 2023 in connection with the Private Placement Purchase Agreement. The variance was also partially attributable to an approximately $0.5 million increase in interest expense due to the assumption of additional indebtedness as part of the Rapidbuilt Acquisition. 38 Table of Contents Liquidity and Capital Resources Overview Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund the construction of new assets, fund working capital and other general business needs. 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 hangar campus development projects (see “— Construction Material Costs and Labor ”), funding for operations, and paying accrued expenses. We believe that we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional private activity bonds and other debt and the issuance of additional equity securities. For example, as described further below in November 2023 we completed a $57.8 million PIPE, and we may seek to opportunistically raise additional private capital again in the future. Furthermore, we are now eligible to file a registration statement on Form S-3 and plan to do so. We believe that we will be able to utilize such a registration statement to efficiently access capital. However, we cannot assure you that we will have access to these sources of capital or that, even if such sources of capital are available, that these sources of capital will be available on favorable terms. Our ability to incur additional debt will depend on multiple factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that are or may be imposed by future lenders. Our ability to access the equity and debt capital markets will depend on multiple factors as well, including general market conditions for real estate companies, our degree of leverage, the trading price of our common stock and debt and market perceptions about our Company. Our cash deposits may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and the majority are maintained with a major financial institution with reputable credit. Our restricted cash is held in trust at a major financial institution pursuant to the Series 2021 Bonds indenture. We monitor the relative credit standing of financial institutions with whom we transact and limit the amount of credit exposure with any one entity. Our portfolio of investments and restricted investments is composed entirely of U.S. Treasury securities as of December 31, 2023. The following table summarizes our cash and cash equivalents, restricted cash, investments, and restricted investments as of December 31, 2023 and 2022 (in thousands): December 31, 2023 December 31, 2022 Cash and cash equivalents $ 60,257 $ 2,174 Restricted cash 12,009 39,222 Investments 11,866 24,895 Restricted investments 88,213 114,648 Total cash, restricted cash, investments, and restricted investments $ 172,345 $ 180,939 Private Placement and Securities Purchase Agreement On November 1, 2023, we entered into the Private Placement Purchase Agreement with certain Investors, pursuant to which we (i) sold and issued to the Investors on November 2, 2023 an aggregate of 6,586,154 PIPE Shares and accompanying PIPE Warrants to purchase up to 1,141,600 shares of Class A Common Stock, for an aggregate purchase price of $42.8 million, and (ii) sold and issued to the Investors on November 29, 2023 an aggregate of 2,307,692 PIPE Shares and accompanying PIPE Warrants to purchase up to an aggregate of 400,000 shares of Class A Common Stock for an aggregate purchase price of $15.0 million. The aggregate PIPE financing through the Private Placement Purchase Agreement totaled approximately $57.8 million. See “Note 12 — Equity and Redeemable Equity ” in the Notes to Consolidated Financial Statements for additional information regarding the Private Placement Purchase Agreement. Common Stock Purchase Agreement On August 18, 2022, we entered into a Common Stock Purchase Agreement (the “Stock Purchase Agreement”) with B. Riley Principal Capital II, LLC (“B. Riley”). Pursuant to the Stock Purchase Agreement, 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 Stock Purchase Agreement, over a period of 36 months subject to certain limitations and conditions contained in the 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 Stock Purchase Agreement. As consideration for B. Riley’s commitment to purchase shares of our Class A Common Stock, we have issued 25,000 shares of our Class A Common Stock to B. Riley as initial commitment shares and may issue up to an aggregate of 75,000 shares of our Class A Common Stock to B. Riley as additional commitment shares if certain conditions are met. As of December 31, 2023, we have sold no shares of our Class A Common Stock to B. Riley pursuant to the Stock Purchase Agreement. See “ Note 12 — Equity and Redeemable Equity ” in the Notes to Consolidated Financial Statements for additional information regarding the Stock Purchase Agreement. Equity Financing On the Closing Date, we completed the Yellowstone Transaction, YAC changed its name to Sky Harbour Group Corporation, and Sky restructured its capitalization, issuing its Sky Common Units to the Company. As a result of the Yellowstone Transaction, the Sky Common Units that Sky issued to BOC YAC in respect of its Series B Preferred Units were converted into 5,500,000 shares of the Company’s Class A Common Stock and holders of Sky Common Units received one share of the Company’s Class B Common Stock for each Common Unit. As consideration for the issuance of Sky Common Units to the Company, YAC contributed approximately $48 million of net proceeds to us, consisting primarily of the BOC PIPE, and the amount held in the YAC trust account, net of redemptions and transaction costs. 39 Table of Contents Private Activity Bonds On September 14, 2021, SHC completed an issuance through the Public Finance Authority (Wisconsin) of $166.3 million of Series 2021 PABs. The Series 2021 Bonds are comprised of three maturities: $21.1 million bearing interest at 4.00%, due July 1, 2036; $30.4 million bearing interest at 4.00%, due July 1, 2041; and $114.8 million bearing interest at 4.25%, due July 1, 2054. The Series 2021 Bond that has a maturity date of July 1, 2036 was issued at a premium, and Sky received bond proceeds that were $0.2 million above its face value. The net proceeds from the issuance of the Series 2021 Bonds proceeds are being used to (a) finance or refinance the construction of various aviation facilities consisting of general aviation aircraft hangars and storage facilities located and to be located on the SGR site, the OPF site, the BNA site, the APA site, the DVT site, and following our March 2023 election to reallocate a portion of the net proceeds, the ADS site; (b) fund debt service and other operating expenses such as ground lease expense during the initial construction period; (c) fund deposits to the Debt Service Reserve Fund; and (d) pay certain costs of issuance related to the Series 2021 Bonds. Debt Covenants The Series 2021 Bonds contain financial and non-financial covenants, including a debt service coverage ratio, a restricted payments test and limitations on the sale, lease, or distribution of assets. To the extent that SHC does not comply with these covenants, an event of default or cross-default may occur under one or more agreements, and we or our subsidiaries may be restricted in our ability to pay dividends, issue new debt or access our leased facilities. The Series 2021 Bonds are collateralized on a joint and several basis with the property and revenues of all SHC subsidiaries and their assets financed or to be financed from the proceeds of the Series 2021 Bonds. Covenants in the Series 2021 Bonds require SHC to maintain a debt service coverage ratio (as defined in the relevant documents) of at least 1.25 for each applicable test period, commencing with the quarter ending December 31, 2024. The Series 2021 Bonds 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 December 31, 2023, we were in compliance with all debt covenants. Lease Commitments The table below sets forth certain information with respect to our future minimum lease payments required under operating and finance leases as of December 31, 2023 (in thousands): Year Ending December 31, Operating Leases Finance Leases 2024 $ 2,080 $ 29 2025 2,323 24 2026 3,296 17 2027 3,727 2 2028 3,634 - Thereafter 249,683 - Total lease payments 264,743 72 Less imputed interest (195,306 ) (5 ) Total $ 69,437 $ 67 Contractual Obligations The following table sets forth our contractual obligations as of December 31, 2023 (in thousands): 2024 2025-2026 2027-2028 Thereafter Total Principal Payments of bonds payable $ - $ - $ - $ 166,340 $ 166,340 Interest Payments on bonds payable 6,941 13,881 13,881 114,968 149,671 Contractual payments on other long-term indebtedness 2,484 7,981 95 - 10,560 Lease commitments 2,109 5,660 7,363 249,683 264,815 Total $ 11,534 $ 27,522 $ 21,339 $ 530,991 $ 591,386 Off-Balance Sheet Arrangements We do not maintain any off-balance sheet arrangements. 40 Table of Contents Cash Flows Historical Cash Flows The following table summarizes our sources and uses of cash for the years ended December 31, 2023 and 2022 (in thousands): Year ended December 31, 2023 December 31, 2022 Cash and restricted cash at beginning of period $ 41,396 $ 203,935 Net cash used in operating activities (7,735 ) (27,491 ) Net cash used in investing activities (16,268 ) (187,838 ) Net cash provided by financing activities 54,873 52,790 Cash and restricted cash at end of period $ 72,266 $ 41,396 Operating Activities Cash provided by operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business. Included in net cash 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 $7.7 million for the year ended December 31, 2023, as compared to $27.5 million of net cash used in operating activities for the same period in 2022. The approximately $19.8 million decrease in net cash used in operating activities was primarily attributable to a $15.5 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 OPF during the year ended December 31, 2022. The decrease was also partially attributable to a $4.3 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 year ended December 31, 2023. Investing Activities Our primary investing activities have consisted of payments related to the cost of construction at our various home basing 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 home basing hangar campus development projects. Net cash used in investing activities was approximately $16.3 million for the year ended December 31, 2023, compared to net cash used in investing activities of approximately $187.8 million for the same period in 2022. The decrease of $171.5 million of net cash used in investing activities was driven primarily by an increase of approximately $193.4 of proceeds received from the Company's held-to-maturity investments during the year ended December 31, 2023 as compared to the year ended December 31, 2022. The decrease was also attributable to a decrease of approximately $21.8 million of held-to-maturity U.S. Treasury purchases. The decrease in net cash used in investing activities attributable to our net held-to-maturity U.S. Treasury investments was offset by an increase of approximately $25.5 million of available for sale U.S. Treasury investment purchases and a decrease of approximately $10.9 million of proceeds received from such investments during the year ended December 31, 2023 as compared to the same period in 2022. In addition, the decrease was offset by an approximately $10.4 million increase in capital expenditures during the year ended December 31, 2023 as compared to the year ended December 31, 2022. 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 home basing 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 $54.8 million for the year ended December 31, 2023, compared to $52.8 million for the same period in 2022. The approximately $2.0 million increase in net cash provided by financing activities was primarily driven by the equity financing completed during the year ended December 31, 2023, as compared to the year ended December 31, 2022. During the year ended December 31, 2023, the Company received $57.8 million of proceeds during the fourth quarter due to the issuance of Class A Common Stock and Warrants in connection with the Private Placement Purchase Agreement. During the year ended December 31, 2022, the Company received $45.0 million of proceeds from the issuance of the BOC PIPE and $15.7 million of gross proceeds from the YAC trust account, both occurring in the first quarter. The proceeds received during the first calendar quarter of 2022 were offset by the payment of approximately $9.2 million of equity issuance costs during the same period. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item. 41 Table of Contents