ysac20220331b

ysac20220331b_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 001-39648

Sky Harbour Group Corporation

(Exact name of registrant as specified in its Charter)

Delaware	85-2732947
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

136 Tower Road, Suite 205
Westchester County Airport White Plains, NY (Address of principal executive offices)	10604 (Zip Code)

(212) 554-5990 Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of Class	Trading Symbols	Name of Exchange on Which Registered
Class A common stock, par value $0.0001 per share	SKYH	NYSE American LLC
Warrants, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50 per share	SKYH WS	NYSE American LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. (See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act).

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 9, 2022, 14,937,581 shares of Class A common stock, par value $0.0001 per share, and 42,192,250 shares of Class B common stock, par value $0.0001 per share, were issued and outstanding, respectively.

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SKY HARBOUR GROUP CORPORATION

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II. OTHER INFORMATION		26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	26
	Exhibit Index	26
	Signatures	29

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ITEM 1.

FINANCIAL STATEMENTS

SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	March 31, 2022 (unaudited)			December 31, 2021 (audited)
Assets
Cash	$	48,610		$	6,805
Restricted cash		18,036			197,130
Restricted investments		166,560			-
Prepaid expenses and other assets		3,807			3,142
Cost of construction		39,435			25,034
Constructed assets, net		14,365			14,500
Right-of-use assets		56,555			56,867
Long-lived assets, net		405			409
Total assets	$	347,773		$	303,887

Liabilities and equity
Accounts payable, accrued expenses and other liabilities	$	12,071		$	10,959
Operating lease liabilities		61,516			61,289
Bonds payable, net of debt issuance costs and premiums		160,756			160,679
Warrants liability		21,924			-
Total liabilities		256,267			232,927

Redeemable Sky Series B Preferred Units		-			54,029

Stockholders’ equity
Preferred stock; $0.0001 par value; 10,000,000 shares authorized as of March 31, 2022; none issued and outstanding		-			-
Class A common stock, $0.0001 par value; 200,000,000 shares authorized as of March 31, 2022; 14,937,581 shares issued and outstanding as of March 31, 2022		1			-
Class B common stock, $0.0001 par value; 50,000,000 shares authorized as of March 31, 2022; 42,192,250 shares issued and outstanding as of March 31, 2022		4			-
Additional paid-in capital		28,681			-
Accumulated deficit		(15,763	)		-
Total Sky Harbour Group Corporation stockholders’ equity		12,923			-

Members’ equity		-			16,931
Non-controlling interests		78,583			-
Total equity		91,506			16,931

Total liabilities and equity	$	347,773		$	303,887

See accompanying Notes to Unaudited Consolidated Financial Statements

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SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
Revenue:
Rental revenue	$	397		$	390
Total revenue		397			390

Expenses:
Operating		1,145			995
Depreciation		145			141
General and administrative		4,683			591
Total Expenses		5,973			1,727

Other Expenses:
Interest expense, net of capitalized interest		-			459
Unrealized loss on warrants		13,938			-
Loss on extinguishment of note payable to related party		-			250
Total Other Expenses		13,938			709

Net loss	$	(19,514	)	$	(2,046	)

Net loss attributable to non-controlling interests		(3,751	)		-
Net loss attributable to Sky Harbour Group Corporation shareholders	$	(15,763	)	$	(2,046	)

Loss per share
Basic	$	(1.44	)		-
Diluted	$	(1.44	)		-
Weighted average shares
Basic		10,954			-
Diluted		10,954			-

See accompanying Notes to Unaudited Consolidated Financial Statements

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SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(Unaudited)

	Redeemable Sky Series B Preferred Units					Class A Common Stock				Class B Common Stock				Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Equity			Members Equity			Non-Controlling Interests			Total Equity
	Shares		Amount			Shares		Amount		Shares		Amount
Balance at December 31, 2021		-	$	54,029			-	$	-		-	$	-	$	-	$	-			-		$	16,931		$	-		$	16,931
Incentive compensation prior to recapitalization		-		-			-		-		-		-		-		-			-			23			-			23
Net loss prior to recapitalization		-		-			-		-		-		-		-		-			-			(1,247	)		-			(1,247	)
Yellowstone Transaction and recapitalization, See Note 3		-		(54,029	)		14,937,581		1		42,192,250		4		28,681		-			28,686			(15,707	)		81,024			94,003
Incentive compensation following recapitalization		-		-			-		-		-		-		-		-			-			-			63			63
Net loss following recapitalization		-		-			-		-		-		-		-		(15,763	)		(15,763	)		-			(2,504	)		(18,267	)
Balance at March 31, 2022		-	$	-			14,937,581	$	1		42,192,250	$	4	$	28,681	$	(15,763	)	$	12,923		$	-		$	78,583		$	91,506

	Redeemable Series B Preferred Units				Class A Common Stock				Class B Common Stock				Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity		Members Equity			Non-Controlling Interests		Total Equity (Deficit)
	Shares		Amount		Shares		Amount		Shares		Amount
Balance at December 31, 2020		-	$	-		-	$	-		-	$	-	$	-	$	-		-	$	(6,509	)	$	-	$	(6,509	)
Gain on extinguishment of related party loan, net of repurchase of membership interests		-		-		-		-		-		-		-		-		-		5,621			-		5,621
Conversion of SH I loan to equity		-		-		-		-		-		-		-		-		-		1,250			-		1,250
Issuance of Sky Series A Preferred Units, net of equity issuance costs		-		-		-		-		-		-		-		-		-		29,683			-		29,683
Net loss		-		-		-		-		-		-		-		-		-		(2,046	)		-		(2,046	)
Balance at March 31, 2021		-	$	-		-	$	-		-	$	-	$	-	$	-	$	-	$	27,999		$	-	$	27,999

See accompanying Notes to Unaudited Consolidated Financial Statements

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SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three months ended
	March 31, 2022			March 31, 2021
Cash flows from operating activities:
Net loss	$	(19,514	)	$	(2,046	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		145			297
Straight-line rent adjustments, net		12			(72	)
Loss on extinguishment of related party loan payable		-			250
Incentive compensation		86			-
Non-cash operating lease expense		539			706
Unrealized loss on warrants		13,938			-
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(3,500	)		(906	)
Accounts payable, accrued expenses and other liabilities		(1,870	)		499
Net cash used in operating activities	$	(10,164	)	$	(1,272	)

Cash flows from investing activities:
Purchases of long-lived assets		(6	)		(10	)
Payments for cost of construction		(12,428	)		(1,263	)
Purchases of held-to-maturity investments		(166,560	)		-
Cash used in investing activities	$	(178,994	)	$	(1,273	)

Cash flows from financing activities:
Proceeds from issuance of Sky Series A Preferred Units		-			30,000
Proceeds from issuance of BOC PIPE		45,000			-
Proceeds from Yellowstone trust		15,691			-
Payments for equity issuance costs		(8,822	)		(251	)
Payments for debt issuance costs		-			(69	)
Payment of loan payable and redemption of Sky membership interest		-			(5,221	)
Proceeds of loans payable		-			774
Proceeds of loans payable to related parties		-			630
Net cash provided by financing activities	$	51,869		$	25,863

Net increase (decrease) in cash and restricted cash		(137,289	)		23,318

Cash and restricted cash, beginning of year		203,935			72

Cash and restricted cash, end of period	$	66,646		$	23,390

See accompanying Notes to Unaudited Consolidated Financial Statements

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SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

1.	Organization and Business Operations

Sky Harbour Group Corporation (“SHG”) is a holding company organized under the laws of the State of Delaware and, through its main operating subsidiary, Sky Harbour LLC and its subsidiaries (collectively, “Sky”), is an aviation infrastructure development company that develops, leases and manages general aviation hangars for business aircraft across the United States. Sky Harbour Group Corporation and its consolidated subsidiaries are collectively referred to as the “Company.”

On January 25, 2022 (the “Closing Date”), our predecessor, Yellowstone Acquisition Company (“Yellowstone”), a special purpose acquisition company incorporated in Delaware on August 25, 2020, consummated the business combination (the “Yellowstone Transaction”) contemplated by the Equity Purchase Agreement, dated as of August 1, 2021 (the “Equity Purchase Agreement”), with Sky, a Delaware limited liability company.

As a result of the closing of the Yellowstone Transaction, and collectively with the other transaction described in the Equity Purchase Agreement, the Company was reorganized as an umbrella partnership-C corporation, or “Up-C”, structure in which substantially all of the operating assets of the Company are held by Sky and SHG’s only substantive assets are its equity interests in Sky (the “Common Units”). As of the Closing Date, SHG owned approximately 26.1% of the common units of Sky (the “Sky Common Units”), and the prior holders of Sky’s Existing Common Units (the “LLC Interests”) owned approximately 73.9% of the Sky Common Units and control the Company through their ownership of the Class B Common Stock, $0.0001 par value (“Class B Common Stock”) of the Company. As of March 31, 2022, the Company and the LLC Interests owned approximately 26.1% and 73.9% of Sky Common Units, respectively. See Notes 2 and 3 for additional discussion related to the Yellowstone Transaction.

2.	Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements and the related notes (the “Financial Statements”) have been prepared in conformity with the U.S. Securities and Exchange Commission (the “SEC”) requirements for quarterly reports on Form 10-Q, and consequently exclude certain disclosures normally included in audited consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).These Financial Statements include the accounts of the Company and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Financial Statements should be read in conjunction with the audited consolidated financial statements and the notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as well as the financial statements of Sky for the year ended December 31, 2021 file by the Company on its Current Reports on Form 8-K/A on March 28, 2022, which includes additional disclosures and a summary of our significant accounting policies. In the Company’s opinion, these Financial Statements include all adjustments, consisting of normal recurring items, considered necessary by management to fairly state the Company’s results of operation, financial position, and cash flows. Certain prior year amounts have been reclassified to conform to the current year’s presentation. Except for per share data, all dollar amounts are in thousands unless otherwise noted.

Notwithstanding the legal form of the Yellowstone Transaction pursuant to the terms therein, the Yellowstone Transaction was accounted for as a reverse recapitalization in accordance with GAAP (the “Reverse Recapitalization”). Under this method of accounting, SHG was treated as the acquired company for financial reporting purposes, and Sky was treated as the accounting acquirer. In accordance with this accounting method, the Yellowstone Transaction was treated as the equivalent of Sky issuing stock for the net assets of Yellowstone, accompanied by a recapitalization.

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

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

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

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

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

Thus, the financial statements included in this quarterly report for the three months ended March 31, 2022 reflect (i) the historical operating results of Sky prior to the Yellowstone Transaction; (ii) the combined results of Sky and SHG from the date of the Yellowstone Transaction; and (iii) the net assets of SH (formerly Yellowstone) were stated at historical cost, with no goodwill or other intangible assets recorded.

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 the estimates of collectability of tenant lease payments, assumptions used within impairment analyses, estimated useful lives of depreciable assets and amortizable costs, estimates of inputs utilized in determining incentive compensation expense and financial instruments such as warrants, and estimates and assumptions related to right-of-use assets and operating lease liabilities. Actual results could differ materially from those estimates.

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Risks and Uncertainties

The Company’s operations have been limited to-date. For most of its history, the Company was engaged in securing access to land through ground leases, and developing and constructing aviation hangars. The major risks faced by the Company is its future ability to obtain additional tenants for the facilities that it constructs, and to contract with such tenants for rental income in an amount that is sufficient to meet the Company’s financial obligations, including increasing construction costs.

In March 2020, the World Health Organization declared coronavirus 2019 (“COVID-19”) a global pandemic. The outbreak of COVID-19 caused severe disruptions in the global economy and has adversely impacted businesses and financial markets. During 2020, the Company experienced delays in construction due to COVID-19 mandates such as physical distancing, supply chain issues, and subcontractor availability. In 2020, there was a significant slowdown in the aviation sector in general due to decreased travel which has since eased, particularly in private aviation. During 2021 and 2022 to-date, vaccinations for COVID-19 have become widely distributed among the general population which has resulted in loosened restrictions previously mandated. However, the potential emergence of vaccine-resistant variants of COVID-19 could result in restrictions being mandated again or affect the timing of loosened restrictions. The Company’s management is not able, at this time, to determine what, if any, the ultimate impact COVID-19 will have on its future financial condition, results of operations and cash flows.

Liquidity and Capital Resources

As a result of ongoing construction projects and business development activities, including the development of aircraft hangars and the leasing of available hangar space, the Company has incurred recurring losses and negative cash flows from operating activities since its inception. The Company expects to continue to invest in such activities and generate operating losses in the near future.

The Company obtained long-term financing through bond and equity offerings to fund its construction, lease, and operational commitments, and believes its liquidity is sufficient to allow continued operations for more than one year after the date these financial statements are issued.

Significant Accounting Policies

Basis of Consolidation

SHG is deemed to have a controlling interest of Sky through its appointment as the Managing Member of Sky, in which SHG has control over the affairs and decision-making of Sky. The interests in Sky not owned by the Company are presented as non-controlling interests. Sky’s ownership percentage in each of its consolidated subsidiaries is 100%. There are no unconsolidated variable interest entities (“VIEs”) in which Sky is considered to be the primary beneficiary.

Cash and Restricted Cash

The Company’s cash is held at a major commercial bank, which cash balance may at times exceed the Federal Deposit Insurance Corporation limit. To date, the Company has not experienced any losses on its cash deposits.

Pursuant to the Company’s bond offering described in Note 8, various restricted trust bank accounts were established. Such trust bank accounts are included in Restricted cash and Restricted investments on the consolidated balance sheet as of March 31, 2022 and December 31, 2021.

Restricted Investments Held-to-Maturity

Pursuant to provisions within the Master Indenture of the Series 2021 Bonds, as defined in Note 8, the Company invests the funds held in the restricted trust bank accounts in various U.S. Treasury securities. Therefore, such investments are reported as “Restricted investments” in the accompanying consolidated balance sheets.

The Company has the ability and intent to hold these restricted investments until maturity, and as a result, the Company would not expect the value of these investments to decline significantly due to a sudden change in market interest rates. The held-to-maturity restricted investments are carried on the consolidated balance sheet at amortized cost. Such investments amounted to $166,560 on March 31, 2022, of which $95,398 will mature in one year or less, and $71,162 will mature in one through five years.

Cost of Construction

Cost of construction on the consolidated balance sheets is carried at cost. The cost of acquiring an asset includes the costs necessary to bring a capital project to the condition necessary for its intended use. Costs are capitalized once the construction of a specific capital project is probable. Construction labor and other direct costs of construction are capitalized. Professional fees for engineering, procurement, consulting, and other soft costs that are directly identifiable with the project and are considered an incremental direct cost are capitalized. The Company allocates a portion of its internal salaries to both capitalized cost of construction and to general and administrative expense based on the percentage of time certain employees worked in the related areas. Interest, 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.

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Constructed assets, net

Constructed assets on the consolidated balance sheets consists principally of developed airplane hangar buildings, and are carried at cost less accumulated depreciation. Once a capital project is complete, the Company begins to depreciate the constructed asset on a straight-line basis over the lesser of the life of the asset or the remaining term of the related ground lease, including expected renewal terms. Constructed assets, net, as of March 31, 2022 and December 31, 2021 consists of the Sugar Land Phase I project, which is being depreciated over approximately 28 years.

Other long-lived assets

Long-lived assets on the consolidated balance sheets consists principally of equipment and software. Long-lived assets are carried at cost less accumulated depreciation. Maintenance and repair expenses are charged to expense as incurred. Depreciation is recognized on a straight-line basis over 5 years, the estimated useful life of the assets.

Impairment of long-lived assets

The Company’s assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment analyses are based on, in part, the Company’s current plans, intended holding periods and available market information at the time the analyses are prepared. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value. Estimates of fair value are determined using discounted cash flow models, which consider, among other things, anticipated holding periods, current market conditions and utilize unobservable quantitative inputs, including appropriate capitalization and discount rates. If the estimates of the projected future cash flows, anticipated holding periods, or market conditions change, evaluation of impairment losses may be different and such differences could be material to the consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and other factors that could differ materially from actual results. Through March 31, 2022, the Company has not experienced any impairment losses.

Leases

The Company accounts for leases under Accounting Standards Codification (“ASC”) Topic 842, Leases. The Company determines whether a contract contains a lease at the inception of the contract. ASC Topic 842 requires lessees to recognize lease liabilities and ri

SEC Form 10-Q filed by Sky Harbour Group Corporation