Sky Harbour Group Corp 8-K/A, filed Mar 28, 2022
Sky Harbour Group Corp (SKYH)
About this 8-K/A
Sky Harbour Group Corp filed this 8-K/A on March 28, 2022, reporting on events of January 25, 2022.
Items reported
- Item 9.01: Financial statements and exhibits
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(State or other jurisdiction
of incorporation)
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(Commission
File Number)
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(IRS Employer
Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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one share of Class A common stock
at an exercise price of $11.50 per share |
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(a)
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Financial statements of businesses acquired.
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(b)
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Pro forma financial information.
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(d)
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Exhibits. The Exhibit Index set forth below is incorporated herein by reference.
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Exhibit Number
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Exhibit Title
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99.1
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99.2
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99.3
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SKY HARBOUR GROUP CORPORATION
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By:
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/s/ Tal Keinan
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Name:
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Tal Keinan
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Title:
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Chief Executive Officer
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Exhibit 99.1
SKY HARBOUR LLC AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
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Page Number |
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Report of Independent Registered Public Accounting Firm |
2 |
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Consolidated Balance Sheets as of December 31, 2021 and 2020 |
3 |
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Consolidated Statements of Operations for the years ended December 31, 2021 and 2020 |
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Consolidated Statements of Changes in Members’ Equity (Deficit) for the years ended December 31, 2021 and 2020 |
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Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 |
6 |
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Notes to Consolidated Financial Statements |
7 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
Sky Harbour LLC
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Sky Harbour LLC and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in members’ equity (deficit), and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of their operations and their cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ EisnerAmper LLP
We have served as the Company’s auditor since 2021.
EISNERAMPER LLP
New York, New York
March 28, 2022
SKY HARBOUR LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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December 31, 2021 |
December 31, 2020 |
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Assets |
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Cash |
$ | 6,804,707 | $ | - | ||||
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Restricted cash |
197,130,166 | 71,738 | ||||||
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Prepaid expenses and other assets |
3,141,557 | 201,574 | ||||||
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Cost of construction |
25,033,733 | 3,404,879 | ||||||
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Constructed assets, net |
14,499,682 | 15,000,428 | ||||||
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Right-of-use assets |
56,867,432 | 33,025,131 | ||||||
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Long-lived assets, net |
409,467 | 316,683 | ||||||
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Total assets |
$ | 303,886,744 | $ | 52,020,433 | ||||
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Liabilities and members' equity (deficit) |
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Accounts payable, accrued expenses and other liabilities |
$ | 10,958,719 | $ | 1,040,438 | ||||
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Loans payable to related parties |
- | 11,212,454 | ||||||
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Operating lease liabilities |
61,289,035 | 34,814,015 | ||||||
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Loans payable, net of debt issuance costs |
- | 11,462,104 | ||||||
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Bonds payable, net of debt issuance costs and premiums |
160,679,392 | - | ||||||
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Total liabilities |
232,927,146 | 58,529,011 | ||||||
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Redeemable Series B Preferred Units |
54,028,860 | - | ||||||
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Members' equity (deficit) |
16,930,738 | (6,508,578 | ) | |||||
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Total liabilities and members' equity (deficit) |
$ | 303,886,744 | $ | 52,020,433 | ||||
See accompanying Notes to Consolidated Financial Statements.
SKY HARBOUR LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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Year-ended December 31, 2021 |
Year-ended December 31, 2020 |
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Revenues: |
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Rental revenue |
$ | 1,577,919 | $ | 685,596 | ||||
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Total revenue |
1,577,919 | 685,596 | ||||||
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Expenses: |
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Operating |
4,276,856 | 1,941,282 | ||||||
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Depreciation |
569,914 | 47,024 | ||||||
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General and administrative |
8,930,319 | 837,336 | ||||||
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Total expenses |
13,777,089 | 2,825,642 | ||||||
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Other Expenses: |
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Interest expense, net of capitalized interest |
1,160,298 | 395,698 | ||||||
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Loss on extinguishment of loan payable to related party |
250,000 | - | ||||||
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Total other expenses |
1,410,298 | 395,698 | ||||||
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Net loss |
$ | (13,609,468 | ) | $ | (2,535,744 | ) | ||
See accompanying Notes to Consolidated Financial Statements.
SKY HARBOUR LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY (DEFICIT)
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Year ended December 31, 2021 |
Year ended December 31, 2020 |
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Balance, January 1 |
$ | (6,508,578 | ) | $ | (3,972,834 | ) | ||
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Series A Preferred Units issued |
31,250,000 | - | ||||||
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Syndication costs – Series A Preferred Units |
(325,363 | ) | - | |||||
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Warrants issued in connection with Redeemable Series B Preferred Units |
289,736 | - | ||||||
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Syndication costs - Warrants |
(3,609 | ) | - | |||||
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Incentive compensation |
216,827 | - | ||||||
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Gain on extinguishment of related party loan, net of repurchase of membership interests |
5,621,193 | - | ||||||
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Net loss |
(13,609,468 | ) | (2,535,744 | ) | ||||
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Balance, December 31 |
$ | 16,930,738 | $ | (6,508,578 | ) | |||
See accompanying Notes to Consolidated Financial Statements.
SKY HARBOUR LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Year ended December 31, 2021 |
Year ended December 31, 2020 |
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Cash flows from operating activities: |
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Net loss |
$ | (13,609,468 | ) | $ | (2,535,744 | ) | ||
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
1,009,174 | 93,462 | ||||||
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Deferred rent receivable |
(99,924 | ) | 2,827 | |||||
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Loss on extinguishment of related party loan payable |
250,000 | - | ||||||
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Incentive compensation |
216,827 | - | ||||||
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Non-cash lease expense |
2,632,718 | 1,334,582 | ||||||
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Changes in operating assets and liabilities: |
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Prepaid expenses and other assets |
(316,127 | ) | (26,618 | ) | ||||
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Accounts payable, accrued expenses and other liabilities |
3,301,964 | 90,074 | ||||||
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Net cash used in operating activities |
(6,614,836 | ) | (1,041,417 | ) | ||||
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Cash flows from investing activities: |
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Purchases of long-lived assets |
(161,952 | ) | (152,159 | ) | ||||
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Payments for cost of construction |
(15,832,404 | ) | (11,744,897 | ) | ||||
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Cash used in investing activities |
(15,994,356 | ) | (11,897,056 | ) | ||||
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Cash flows from financing activities: |
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Issuance of Series A Preferred Units |
30,000,000 | - | ||||||
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Issuance of Redeemable Series B Preferred Units and Warrants |
55,000,000 | - | ||||||
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Payments for syndication costs |
(1,633,383 | ) | (24,632 | ) | ||||
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Proceeds of Bonds payable |
166,589,436 | - | ||||||
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Payments for debt issuance costs – Loans payable |
(68,690 | ) | (1,723,066 | ) | ||||
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Payments for debt issuance costs – Bonds payable |
(6,002,330 | ) | - | |||||
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Payment of loan payable and unit redemption of membership interest |
(5,221,412 | ) | - | |||||
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Payments of loans payable |
(13,831,529 | ) | - | |||||
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Proceeds of loans payable |
1,010,084 | 9,747,012 | ||||||
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Proceeds of loans payable to related parties |
630,151 | 3,992,334 | ||||||
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Net cash provided by financing activities |
226,472,327 | 11,991,648 | ||||||
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Net increase (decrease) in cash and restricted cash |
203,863,135 | (946,825 | ) | |||||
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Cash and restricted cash, beginning of year |
71,738 | 1,018,563 | ||||||
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Cash and restricted cash, end of year |
$ | 203,934,873 | $ | 71,738 | ||||
See accompanying Notes to Consolidated Financial Statements.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
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Organization and Business Operations |
Sky Harbour LLC and its consolidated subsidiaries are collectively referred to herein as the “Company”. The Company was formed as a private limited liability company under the laws of Delaware on October 19, 2017. Any references to “we” or “our” is referring to the Company.
The Company is an aviation infrastructure development company building a nationwide network of Home-Basing Solutions (“HBS”) for business aircraft. The Company develops, leases and manages general aviation hangars across the United States. The Company’s HBS campuses feature exclusive private hangars and a suite of dedicated services specifically designed for home-based aircraft.
Our portfolio as of December 31, 2021 is as follows:
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Sugar Land Regional Airport (“SGR”), Sugar Land, TX (Houston area); |
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Miami-Opa Locka Executive Airport (“OPF”), Opa-Locka, FL (Miami area); |
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Nashville International Airport ("BNA"), Nashville, TN; |
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Centennial Airport (“APA”), Englewood, CO (Denver area); and |
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Phoenix Deer Valley Airport (“DVT”), Phoenix, AZ. |
On October 15, 2021, the Company entered into a binding letter of intent with the Town of Addison for a ground lease of approximately 6 acres on the Northeast side of the primary runway at Addison Airport in Addison, Texas. The anticipated lease term is 40 years with no additional options, which is the maximum allowable term permitted by the Town of Addison.
Yellowstone Merger
On August 1, 2021, the Company entered into a business combination agreement (the “Yellowstone Merger”) with Yellowstone Acquisition Company (“Yellowstone”), a publicly-traded special purpose acquisition company sponsored by Boston Omaha Corporation (“BOMN”). Pursuant to the terms of the Yellowstone Merger, through a series of transactions, the Company completed the business combination on January 25, 2022 (the “Closing Date”).
On the Closing Date, Yellowstone changed its name to Sky Harbour Group Corporation (“SHG”) and the Company restructured its capitalization, issuing 14,937,581 common units of the Company to SHG, which was equal to the number of outstanding shares of Class A Common Stock immediately after giving effect to the Yellowstone Merger (taking into account the redemption of Yellowstone Class A Common Stock and the Class A Common Stock issued under the BOC PIPE (as defined below)). Existing Common Units of the Company (other than the existing incentive common units), existing Series A preferred units and the existing Series B preferred units (see Note 9, Equity and Redeemable Equity) were reclassified into Common Units of the Company. The Yellowstone Merger effected certain adjustments to the number of Incentive Units to reflect the new capital structure. As a result of the Yellowstone Merger, SHG was appointed as the managing member of the Company (the “Managing Member”). In addition, the Common Units issued to BOC YAC Funding LLC (“BOC YAC”) in respect of its Series B preferred units were converted into 5,500,000 shares of SHG Class A Common Stock and holders of the Company’s Common Units received one share of SHG Class B common stock for each Common Unit.
As consideration for the issuance of 14,937,581 of the Company’s Common Units to SHG, Yellowstone the amount held in the Yellowstone trust account after (i) deducting $123,068,515 required to fund the redemption of SHG Class A Common Stock held by eligible stockholders who properly elected to have their shares redeemed as of the Closing Date, (ii) taking into account the $45,000,000 purchase of SHG Class A Common Stock by Boston Omaha (the “BOC PIPE”) and (iii) deducting $21,164,160 consisting of deferred underwriting commissions of Yellowstone, transaction expenses, the BOC Yellowstone LLC promissory note repayment and the payment to a counterparty in connection with a forward purchase transaction. As a result of the Yellowstone Merger, holders of the Existing Common Units (the “Existing Equityholders”) of the Company have a 73.9% economic interest in the Company through their respective Common Units and have a 73.9% voting interest in SHG through the shares of SHG Class B common stock issued as part of the Yellowstone Merger as of the Closing Date. As of March 7, 2022, the counterparty to the forward purchase transaction had sold all SHG Class A shares covered by the agreement in open-market transactions, and as a result $6,734,602 was remitted to the Company, free of any restrictions, resulting in total consideration of $46,262,048 contributed to the Company, net of deductions.
As a result of the Yellowstone Merger, SHG is organized as an “Up-C” structure in which substantially all of the operating assets of the Company’s business are held by the Company, and the SHG’s only substantive assets are its equity interests in the Company.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Notwithstanding the legal form of the Yellowstone Merger pursuant to the terms therein, the Yellowstone Merger is accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Under this method of accounting, SHG is treated as the acquired company for financial reporting purposes, and the Company is treated as the accounting acquirer. In accordance with this accounting method, the Yellowstone Merger is treated as the equivalent of the Company issuing stock for the net assets of SHG, accompanied by a recapitalization. The net assets of SHG will be stated at historical cost, with no goodwill or other intangible assets recorded, and operations prior to the Yellowstone Merger will be those of the Company. The Company has been deemed the accounting acquirer for purposes of the Yellowstone Merger based on an evaluation of the following facts and circumstances:
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The Existing Equityholders of the Company hold a majority voting interest in SHG; |
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The Existing Equityholders of the Company have the ability to nominate and elect the majority of SHG’s Board of Directors; |
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The Company’s existing senior management team comprises the senior management of SHG; |
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The Company’s operations comprise the ongoing operations of SHG; and |
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The Company’s assets were larger in relative size compared to Yellowstone’s assets prior to the Yellowstone Merger. |
Liquidity
As a result of ongoing construction project and business development activities, including the lease up of available hangar space, the Company has incurred recurring losses and negative cash flows from operating activities since its inception, including net losses of $13,609,468 and $2,535,744 for the years ended December 31, 2021, and 2020, respectively. The Company expects to continue to invest in such activities and generate operating losses in the near future.
The Company has construction commitments that are due over the upcoming 12 months as noted in Note 14, Commitments and Contingencies, as well as lease commitments as noted in Note 6, Leases, and bond interest due over the same period as noted in Note 7, Bonds Payable. The Company obtained long-term financing through bond and equity offerings to fund its commitments (see Note 7, Bonds Payable, and Note 9, Equity), and believes its liquidity is sufficient to allow continued operations for more than one year after the date the financial statements are available to be issued.
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Basis of Presentation and Significant Accounting Policies |
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with GAAP, and such consolidated financial statements are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred. These consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior year 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 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 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.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Risks and Uncertainties
The Company’s operations have been limited to-date. For most of its history, the Company was engaged mainly in securing land and constructing aviation hangars. The major risk 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.
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, vaccinations for COVID-19 have begun to be 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.
Significant 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. 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 costs on the loans and bonds used to fund the capital projects (see Note 12, Interest) are also capitalized until the capital project is completed.
Constructed assets, net
Constructed assets on the consolidated balance sheets consists principally of developed airplane hangar buildings, and are carried at cost less accumulated depreciation. Once a capital project is complete, the Company begins to depreciate the constructed asset on a straight-line basis over the lesser of the life of the asset or the remaining term of the related ground lease, including expected renewal terms. Constructed assets, net, as of December 31, 2021 and 2020 consists of the Sugar Land Phase I project, which is being depreciated over 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 Analysis
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.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Basis of Consolidation
The Company’s ownership percentage in each of its consolidated subsidiaries is 100% and it presently consolidates all of its subsidiaries under the voting interest method.
There are no variable interest entities (“VIEs”) in which the Company is considered to be the primary beneficiary. Entities are considered to be the primary beneficiary if they have both of the following characteristics: (i) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance, and (ii) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. Judgment with respect to the level of influence or control of an entity involves the consideration of various factors including the form of ownership interest, representation in the entity’s governance, the size of the entity’s investment, estimates of future cash flows, the ability to participate in policy making decisions and the rights of the other investors to participate in the decision-making process and to replace the Company as manager and/or liquidate the joint venture, if applicable.
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 7, Bonds Payable, various restricted trust bank accounts were established with the bond proceeds. Such trust bank accounts are included in Restricted cash on the consolidated balance sheet as of December 31, 2021. As of December 31, 2020, under the Company’s previous loan agreements described in Note 8, Loans Payable, the Company maintained certain cash management and collection bank accounts pursuant to an Account Control Agreement with the lender. Under this agreement, the bank accounts and the funds deposited therein served as security/collateral for the loans. When the loans were repaid in August and September 2021, the funds in those accounts were released. Restricted cash also includes security deposits held on behalf of the Company’s tenants.
Debt Issuance Costs Related to Bonds and Loans Payable
Debt issuance costs related to bonds payable and loans payable consist of fees and direct costs incurred in obtaining such financing. The debt issuance costs associated with the bonds payable are amortized using the effective interest method over the life of the bonds. Debt issuance costs that were associated with the previous loans payable were amortized on a straight-line basis, which approximated the effective interest method, over the terms of the related debt agreements. The unamortized portion of debt issuance costs is included as a reduction of bonds payable or loans payable, respectively, on the consolidated balance sheets. In the case of both the bonds and loans payable, amortization of debt issuance costs is capitalized into cost of construction on the consolidated balance sheets. Once the related asset is completed and placed in service, the related amortization of debt issuance costs is no longer capitalized and is expensed as interest expense in the consolidated statements of operations over the related period. Upon the early extinguishment of bonds or loans payable, any unamortized costs related to such bonds or loans payable would be written off as a component of “gain or loss on early extinguishment of debt” in the consolidated statements of operations.
Syndication costs
The Company accounts for syndication, or equity issuance costs, as an asset within prepaid expenses and other assets on the consolidated balance sheets until the related equity financing is obtained, and then reclassifies such costs as a reduction in equity. As of December 31, 2021 and 2020, the Company has $2,695,591 and $174,956, respectively, of syndication costs included within prepaid and other assets.
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 right-of-use (“ROU”) assets for all leases with terms of more than 12 months on the consolidated balance sheets. The Company has made an accounting policy election that will keep leases with an initial term of 12 months or less off the Company’s 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 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.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
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.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). ASC Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities; Level 2 – quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data; and Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of financial and non-financial assets and liabilities. Accordingly, fair value estimates may be different than the amounts that may ultimately be realized upon sale or disposition of these assets or settlement of these liabilities. See Note 11, Financial Instruments.
Revenue Recognition
The Company leases hangar facilities that it constructs to third parties. 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. 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 6, Leases) 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 December 31, 2021 and December 31, 2020, the deferred rent receivable included in prepaid expenses and other assets was $102,751 and $2,827, respectively.
The Company evaluates the collectability of tenant receivables for payments required under the lease agreements. If the Company determines that collectability is not probable, the Company recognizes any difference between revenue amounts recognized to date under ASC 842 and payments that have been collected from the lessee, including security deposit amounts held, as a current period adjustment to rental revenue. There were no adjustments to rental revenue for uncollectible tenant rental payments in either of the years ended December 31, 2021 or 2020.
For the year ended December 31, 2021, the Company derived approximately 89% of its revenue from two tenants, each of which have ongoing leases with the Company which expire in December 2023 and November 2025, respectively. For the year ended December 31, 2020, the Company derived 90% of its revenue from two tenants, one of which had a month-to-month arrangement which terminated during 2020 and another tenant which has an ongoing lease which expires in December 2023 (see Note 6, Leases).
Operating Expenses
For the year ended December 31, 2021, operating expense within the consolidated statements of operations includes operating lease expense of $3,747,427 and other expenses, such as insurance, property tax and utilities, totaling $529,429. For the year ended December 31, 2020, operating expense includes operating lease expense of $1,781,116 and other expenses totaling $160,168. General and administrative expenses on the consolidated statements of operations also includes $51,228 and $0 of operating lease expense for the years ended December 31, 2021 and December 31, 2020, respectively.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Income Taxes
As a limited liability company, the Company is not subject to an entity-level income tax but rather is treated as a flow-through entity for tax purposes, with its items of income, gain, deduction, loss and credit being reported on its members’ income tax returns. The Company accounts for any interest and penalties related to uncertain tax positions as distributions to its members.
Advertising Costs
The Company expenses the cost of advertising and marketing as incurred. Advertising and marketing costs charged to general and administrative expenses totaled $291,523 and $84,909 for the years ended December 31, 2021 and 2020, respectively.
Recently Issued Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, which adds ASC Topic 848, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. In January 2021, the FASB issued ASU 2021-01 to clarify that certain optional expedients and exceptions apply to modifications of derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and for calculating price alignment interest. ASU 2020-04 is effective beginning on March 12, 2020 and may be applied prospectively to such transactions through December 31, 2022 and ASU 2021-01 is effective beginning on January 7, 2021 and may be applied retrospectively or prospectively to such transactions through December 31, 2022. The Company will apply ASU 2020-04 and 2021-01 prospectively as and when we enter into transactions to which these guidance standards apply.
In April 2020, the FASB staff issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 global pandemic. Under existing lease guidance, the entity would have to determine, on a lease-by-lease basis, if a lease concession was the result of a new arrangement reached with the tenant, which would be accounted for under the lease modification framework, or if a lease concession was under the enforceable rights and obligations that existed in the original lease, which would be accounted for outside the lease modification framework. The Lease Modification Q&A provides entities with the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease. This election is only available when total cash flows resulting from the modified lease are substantially similar to the cash flows in the original lease. The Company’s leases did not have any lease modifications executed as a result of COVID-19. Accordingly, the Lease Modification Q&A did not have an impact on the Company’s consolidated financial statements.
|
3. |
Cost of Construction and Constructed Assets |
|
December 31, 2021 |
December 31, 2020 |
|||||||
|
Constructed assets, net of accumulated depreciation: |
||||||||
|
Buildings, SGR (Phase I) |
$ | 15,078,604 | $ | 15,040,716 | ||||
|
Accumulated depreciation |
(578,922 | ) | (40,288 | ) | ||||
| $ | 14,499,682 | $ | 15,000,428 | |||||
|
Cost of Construction: |
||||||||
|
OPF; BNA; APA; DVT; SGR (Phase II) |
$ | 25,033,733 | $ | 3,404,879 | ||||
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
The SGR Phase I project was completed in December 2020. Depreciation expense for the years ended December 31, 2021 and 2020 totaled $538,634 and $40,288, respectively.
|
4. |
Long-lived assets |
Long-lived assets, net, consists of the following:
|
December 31, 2021 |
December 31, 2020 |
|||||||
|
Equipment |
$ | 199,985 | $ | 92,939 | ||||
|
Software |
247,498 | 230,480 | ||||||
| 447,483 | 323,419 | |||||||
|
Accumulated depreciation |
(38,016 | ) | (6,736 | ) | ||||
| $ | 409,467 | $ | 316,683 | |||||
Depreciation expense for the years ended December 31, 2021 and 2020 totaled $31,280 and $6,736, respectively.
|
5. |
Supplemental Balance Sheet and Cash Flow Information |
Accounts payable, accrued expenses and other liabilities
Accounts payable, accrued expenses and other liabilities, consists of the following:
|
December 31, 2021 |
December 31, 2020 |
|||||||
|
Costs of construction |
$ | 3,449,691 | $ | 728,523 | ||||
|
Employee compensation and benefits |
2,496,709 | - | ||||||
|
Interest |
2,062,915 | 43,084 | ||||||
|
Transaction costs |
2,048,421 | 219,014 | ||||||
|
Other |
900,983 | 49,817 | ||||||
| $ | 10,958,719 | $ | 1,040,438 | |||||
Supplemental Cash Flow Information
The following table summarizes non-cash investing and financing activities:
|
December 31, 2021 |
December 31, 2020 |
|||||||
|
Accrued costs of construction, including interest |
$ | 5,512,606 | $ | 728,523 | ||||
|
Accrued debt issuance costs |
- | 68,690 | ||||||
|
Accrued syndication costs |
2,048,421 | 150,324 | ||||||
|
Debt issuance costs amortized to cost of construction |
1,012,367 | 1,342,617 | ||||||
|
Net gain on extinguishment of related party notes |
5,371,193 | - | ||||||
|
Settlement of related party note payable by issuing equity |
1,250,000 | - | ||||||
The following table summarizes non-cash activities associated with the Company’s operating leases:
|
December 31, 2021 |
December 31, 2020 |
|||||||
|
Right-of-use assets obtained in exchange for operating lease liabilities |
$ | 25,847,546 | $ | 13,542,815 | ||||
|
Non-cash decrease of right-of-use assets due to change in leased area |
(733,159 | ) | - | |||||
|
Non-cash decrease of operating lease liabilities due to change in leased area |
(786,684 | ) | - | |||||
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
The following table summarizes interest paid for the twelve months then ended:
|
December 31, 2021 |
December 31, 2020 |
|||||||
|
Interest paid |
$ | 795,357 | $ | 1,517,145 | ||||
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:
|
December 31, 2021 |
December 31, 2020 |
|||||||
|
Cash, beginning of year |
$ | - | $ | 1,018,563 | ||||
|
Restricted cash, beginning of year |
71,738 | - | ||||||
|
Cash and restricted cash, beginning of year |
$ | 71,738 | $ | 1,018,563 | ||||
|
Cash, end of year |
6,804,707 | - | ||||||
|
Restricted cash, end of year |
197,130,166 | 71,738 | ||||||
|
Cash and restricted cash, end of year |
$ | 203,934,873 | $ | 71,738 | ||||
|
6. |
Leases |
The Company’s ground leases at SGR, OPF, and BNA have terms ranging between 30 to 50 years, including options for the Company to extend the terms. These leases expire between 2049 and 2070, which include all lease extension options available to the Company. These three ground leases were in effect at both December 31, 2021 and December 31, 2020. On February 9, 2021, the ground lease at BNA was amended based on the results of a customary land survey, resulting in the square-feet covered by the lease to be revised from 713,272 to 687,136. As a result of the change in leased area, the Company derecognized approximately $380,382 and $400,286 of right-of-use asset and lease liabilities, respectively, during the year ended December 31, 2021.
The Company’s ground lease at OPF was entered into in May 2019 through its wholly owned subsidiary, Sky Harbour Opa Locka Airport LLC (“SHOLA”), with AA Acquisitions LLC (“AA”), the master ground lessee of Miami Dade County (“MDC”), the ultimate landowner. On March 2, 2022, the Company, through a wholly-owned subsidiary outside the Obligated Group, entered into an agreement for the Company to purchase AA’s underlying ground lease for approximately $8.5 million and lease the OPF property directly from MDC. The transaction will also require the Company to pay approximately $1.0 million in transfer fees to MDC and is expected to close in early April 2022. After such closing, SHOLA will continue to be obligated under the existing sublease but to an affiliate within the Company. The transaction would extend the term of the lease at OPF for the Company for an additional 10 years.
On January 1, 2021, the Company commenced an operating lease for a ground lease located at APA (“APA Lease”), with an initial lease term of 41 years (or up to 76 years including extension options). The APA Lease covered approximately 501,857 square-feet of land (Phase I), with an option to lease an additional parcel of approximately 371,763 square feet of land (Phase II) that must be exercised, at the Company’s option, within three-years of the lease’s commencement date. On August 19, 2021, the APA Lease was amended based on the results of a customary land survey, resulting in the square-feet covered by the lease to be revised to 508,462 and 348,302 for Phase I and Phase II, respectively. As a result of the change in leased area, the Company derecognized approximately $352,776 and $386,398 of right-of-use asset and lease liabilities, respectively, during the year ended December 31, 2021.
On May 4, 2021, the Company commenced an operating lease for a ground lease located at DVT (“DVT Lease”), with a lease term of 40 years. The DVT Lease covers approximately 384,474 square feet of land (Phase I), with an option to lease an additional parcel of approximately 288,152 square feet of land (Phase II) that must be exercised, at the Company’s option, within four-years of the lease’s commencement date.
The Company has leases for office space that commenced on February 1, 2020, February 1, 2021 and July 1, 2021. The term of the lease that commenced on February 1, 2020 is for two years and there are no renewal or extension options included in the lease. Each of the leases that commenced during 2021 has a one-year term with an additional one-year extension option included in the lease. The Company has also entered into a vehicle lease which commenced during 2021.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
The Company’s leases are classified as operating leases under ASC Topic 842 and the Company is not party to any agreements that have been classified as a finance lease. Management has determined that it is reasonably certain that the Company will exercise its options to renew the leases, and therefore the renewal options are included in the lease term and the resulting ROU asset and lease liability balances. In order to calculate the ROU asset and lease liability for a particular lease, ASC Topic 842 requires that a lessee apply a discount rate equal to the rate implicit in the lease whenever that rate is readily determinable. The Company’s lease agreements do not provide a readily determinable implicit rate, nor is the rate available to the Company from its lessors. Therefore, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value. For leases with terms greater than 12 months, the Company records the related ROU assets and lease liabilities at the present value of lease payments over the lease terms. The Company was not party to any leases which have a term of 12 months or less.
The Company’s lease population does not include any residual value guarantees, and therefore none were considered in the calculation of the ROU and lease liability balances. The Company has leases that contain variable payments, most commonly in the form of common area maintenance and operating expense charges, which are based on actual costs incurred. These variable payments were excluded from the calculation of the ROU asset and lease liability balances since they are not fixed or in-substance fixed payments. These variable payments were immaterial for both the years ended December 31, 2021 and 2020. 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. See Note 14, Commitments and Contingencies.
Tenant leases
The Company leases the hangar facilities that it constructs to third-party tenants. These leases have been classified as operating leases. The Company does not have any leases classified as sales-type or direct financing leases. Lease agreements with tenants are either on a month-to-month basis or have a defined term with an option to extend the term. The defined term leases vary in length from one to five years with options to renew for additional term(s) given to the lessee. 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 Company determines whether a contract contains a lease at the inception of the contract. The Company expects to continue to derive benefit from the underlying assets after the end of the lease term through further leasing arrangements. The underlying assets are the leasehold interest that the Company has in connection with its ground leases. There are no residual value guarantees. The Company mitigates risk related to the residual value of the assets by negotiating and attempting to secure future tenants through letters of intent prior to the current lease term’s termination and/or the substantial completion of the promised hangar facilities.
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. The leases did not have any initial direct costs. The leases do not contain any restrictions or covenants to incur additional financial obligations by the lessee.
Supplemental consolidated cash flow information
Supplemental consolidated cash flow information related to the Company’s leases was as follows:
|
Year-ended December 31, 2021 |
Year-ended December 31, 2020 |
|||||||
|
Cash paid for amounts included in measurement of lease liabilities: |
||||||||
|
Operating cash flows from operating leases as lessee |
$ | 1,187,847 | $ | 446,534 | ||||
Supplemental consolidated balance sheet information
Supplemental consolidated balance sheet information related to the Company’s leases was as follows:
|
Weighted Average Remaining Lease Term |
December 31, 2021 |
December 31, 2020 |
||||||
|
Operating leases as lessee |
54.39 years |
46.48 years |
||||||
|
Weighted Average Discount Rate |
||||||||
|
Operating leases as lessee |
4.40 | % | 4.24 | % | ||||
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Lease commitments
The Company’s future minimum lease payments required under leases as of December 31, 2021 were as follows:
|
Year Ending December 31, |
Operating Leases |
|||
|
2022 |
$ | 2,031,193 | ||
|
2023 |
2,389,784 | |||
|
2024 |
2,427,720 | |||
|
2025 |
2,462,337 | |||
|
2026 |
2,521,865 | |||
|
Thereafter |
216,532,960 | |||
|
Total lease payments |
228,365,859 | |||
|
Less imputed interest |
(167,076,824 | ) | ||
|
Total |
$ | 61,289,035 | ||
Lease income
Tenant leases to which the Company is the lessor require the following non-cancelable future minimum lease payments from tenants as of December 31, 2021:
|
Year Ending December 31, |
Operating Leases |
|||
|
2022 |
$ | 1,355,410 | ||
|
2023 |
1,391,432 | |||
|
2024 |
600,898 | |||
|
2025 |
565,928 | |||
|
2026 |
- | |||
|
Thereafter |
- | |||
|
Total lease payments |
3,913,668 | |||
|
Less rent concessions to be applied at Company’s discretion |
(214,000 | ) | ||
|
Total |
$ | 3,699,668 | ||
7. Bonds Payable
On May 20, 2021, the Company formed a new wholly-owned subsidiary, Sky Harbour Capital LLC, as a parent corporation to its wholly-owned subsidiaries that operate each of the aircraft hangar development sites under its ground leases. Sky Harbour Capital LLC and these subsidiaries form an Obligated Group (the “Obligated Group” or the “Borrowers”) under a bond issuance that closed on September 14, 2021 (the “Series 2021 Bonds”). The members of the Obligated Group are jointly and severally liable under the Series 2021 Bonds. The Company and its other subsidiaries are not members of the Obligated Group and have no obligation to repay the bonds.
The Series 2021 Bonds are payable pursuant to a loan agreement dated September 1, 2021 between the Public Finance Authority (of Wisconsin) and the Borrowers. The payments by the Borrowers under the loan agreement are secured by a Senior Master Indenture Promissory Note, Series 2021-1 issued by the Obligated Group under an indenture (the “Master Indenture”). The obligations of the Borrowers are collateralized by certain leasehold and subleasehold deeds of trust or mortgages on the Borrowers’ interests in the development sites and facilities being constructed at each airport where the Borrowers hold ground leases. In addition, the Borrowers have assigned, pledged and granted a first priority security interest in all funds held under the Master Indenture and all right, title and interest in the gross revenues of the Borrowers. Furthermore, the Company, Sky Harbour Holdings LLC and Sky Harbour Capital LLC have each pledged as collateral its respective ownership interest in any of the Borrowers.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
The bond trustee established various restricted bank accounts which were initially funded with the bond proceeds. The bond trustee will continue to control the Borrowers’ cash receipts and disbursements under a Trust Agreement. Such restricted funds are available to fund the construction expenditures of the two phases of OPF, BNA, DVT, and APA, and SGR Phase II, and, with certain approvals and supplemental reports, up to $50,000,000 at other airport sites, in addition to certain operating expenses such as ground lease expense. These accounts also include funds to pay debt service through the end of construction at each site and various reserve funds such as a ramp-up reserve, debt service reserve and a maintenance reserve fund. Such trust bank accounts total approximately $196.7 million and are included in Restricted Cash on the consolidated balance sheet as of December 31, 2021.
The Borrowers have agreed to use all commercially reasonable efforts to jointly maintain a Debt Service Coverage Ratio (as defined in the agreement) of 1.25 for each applicable test period; provided, however, that the failure to maintain this ratio will not be considered an event of default so long as the Obligated Group takes all commercially reasonable action for correcting such deficiency. The measurement of the Debt Service Coverage Ratio will commence with the period ending December 31, 2024. If the Debt Service Coverage Ratio as of the end of any fiscal quarter is less than 1.0, the parent companies of the Borrowers will make contributions to the borrowers or otherwise cause the Debt Service Coverage Ratio to be at least 1.0 within 10 business days of the test date. If the Debt Service Coverage Ratio as of the end of any fiscal quarter is less than 1.25, Sky Harbour Capital LLC must deliver to the trustees, within 120 days, an independent consultant’s report and a specific plan designed to achieve a Debt Service Coverage Ratio of 1.25 in the following fiscal year.
The Series 2021 Bonds have principal amounts, interest rates, and maturity dates as follow: $21,085,000 bearing interest at 4.00%, due July 1, 2036; $30,435,000 bearing interest at 4.00%, due July 1, 2041; and $114,820,000 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 the Company received bond proceeds that were $249,436 above its face value. The bond premium is being amortized as a reduction of interest expense over the life of the bond. Interest is payable on each January 1 and July 1, commencing January 1, 2022. Principal repayments due under the Series 2021 Bonds are paid annually, commencing July 1, 2032.
The bonds maturing on July 1, 2036 are subject to optional early redemption, at the option of Sky Harbour Capital LLC, on or after July 1, 2028, in whole or in part, at a redemption price equal to the principal amount plus interest accrued to the redemption date. The bonds maturing on July 1, 2041 and July 1, 2054 are subject to optional early redemption, at the option of Sky Harbour Capital LLC, on or after July 1, 2031, in whole or in part, at a redemption price equal to the principal amount plus interest accrued to the redemption date. An extraordinary optional redemption is permitted in the event of damage or destruction of any of the underlying assets.
The Series 2021 Bonds are mandatorily redeemable upon the occurrence of certain events. Upon the sale of an asset by any Borrower, the applicable portion of the Series 2021 Bonds is subject to special mandatory redemption at prices specified in the agreement. Upon the occurrence of a determination of taxability in which the interest income of any of the bonds does not qualify as being excludable from the gross income of the holder (with limited exclusions), the Series 2021 Bonds are subject to mandatory redemption within 60 days, at a redemption price equal to the principal amount plus accrued interest. Upon the termination of any ground lease of a Borrower, and unless certain other certifications can be made, the Series 2021 Bonds are subject to redemption in an amount and at a redemption price as specified in the agreement. In lieu of redemption, the Bonds may be purchased by any of the Borrowers or by any party designated by Sky Harbour Capital LLC.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
The following table summarizes the Company’s Bonds payable as of December 31, 2021:
|
December 31, 2021 |
||||
|
Bonds payable: |
||||
|
Series 2021 Bonds Principal |
$ | 166,340,000 | ||
|
Premium on bonds |
249,436 | |||
|
Bond proceeds |
166,589,436 | |||
|
Debt issuance costs |
(6,002,330 | ) | ||
|
Accumulated amortization of debt issuance costs and bond premium |
92,286 | |||
|
Total Bonds payable, net |
$ | 160,679,392 | ||
In connection with the issuance of the Bonds Payable, the Company recognized debt issuance costs totaling $6,002,330 which are being amortized into interest using the Effective Interest method over the life of the bonds. Interest that is incurred at the stated interest rate of the bonds, as well as the amortization of bond premium and amortization of debt issuance costs are capitalized and added to the Cost of Construction on the consolidated balance sheet. See Note 12, Interest. Amortization of bond premium decreased capitalized interest by $4,408, and amortization of debt issuance costs increased capitalized interest by $96,694 for the year ended December 31, 2021.
8. Loans Payable
In connection with two of its development projects, the Company had two secured construction loans that were outstanding during the entire year ended December 31, 2020 and for the period January 1, 2021 through the loans’ respective payoff dates of August 11, 2021 and September 3, 2021.
The Company closed on a construction loan on August 28, 2019 for up to $16,693,460 for the development of the SGR project (the “SGR Loan”). The loan bore interest at LIBOR (subject to a minimum of 2.2%) plus 6%, plus pay-in-kind (“PIK”) interest of 2% which was added to the principal amount. The SGR Loan was repaid on September 3, 2021, including all accrued and PIK interest.
On January 23, 2020, the Company closed on a construction loan for up to $45,960,267 for the development of the OPF project (the “OPF Loan”). The loan bore interest at LIBOR (subject to a minimum of 1.669%) plus 6%, plus PIK interest of 2% which was added to the principal amount. An amendment to the loan on March 12, 2021 increased the interest rate to LIBOR plus 800 basis points, plus PIK interest of 2% that was added to the principal amount. The OPF Loan was repaid on August 11, 2021, including all accrued and PIK interest.
The following table summarizes the Company’s Loans payable as of December 31, 2020:
|
December 31, 2020 |
||||
|
Loans payable: |
||||
|
Sugar Land Loan |
$ | 8,743,659 | ||
|
Opa Locka Loan |
4,077,785 | |||
|
Subtotal |
12,821,444 | |||
|
Debt issuance costs, net of accumulated amortization |
(1,359,340 | ) | ||
|
Total loans payable, net |
$ | 11,462,104 | ||
Accumulated amortization of debt issuance costs related to loans payable totaled $1,581,926 as of December 31, 2020.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
9. Equity and Redeemable Equity
The Company and its members entered into a Limited Liability Company Agreement on February 12, 2018. The LLC agreement was subsequently amended and restated on March 12, 2021 (the “A&R Operating Agreement”), which was amended and restated on September 14, 2021 (the “Second A&R Operating Agreement”). On January 25, 2022, in connection with the Yellowstone Merger, the Company, its members, and SHG entered into amended and restated agreement (the “Third A&R Operating Agreement”). The Company is classified as a partnership for federal and state income tax purposes.
March 2021 Recapitalization and Series A Investment
Prior to March 12, 2021, the Company had one class of LLC membership interests. The membership interests were held by two parties: the former majority member with a membership interest of 50.1% and the former minority member with a membership interest of 49.9%.
On March 12, 2021, there was a change in the ownership of membership units such that the former majority member no longer held an interest in the Company pursuant to a Redemption Agreement, and additional members invested in the Company pursuant to a Unit Purchase Agreement. Pursuant to the Unit Purchase Agreement, the Company’s former minority member (the “Founder”) received Founder Units and the new investors purchased Series A Preferred Units. The Series A Preferred Units were issued at $1,000 per unit and the Series A Preferred unitholders were issued a total of $31,250,000 in equity. Pursuant to a Convertible Note and Exchange Agreement dated March 12, 2021, proceeds from the issuance of Series A Preferred Units were used to fully satisfy outstanding note payable between the Company and a related party as described in Note 13, Related Party Transactions.
Yellowstone Agreement and Redeemable Series B Investment
On August 1, 2021, the Company entered into the Yellowstone Merger agreement with Yellowstone. In conjunction with the agreement, BOMN agreed to invest $55,000,000 of equity in the form of new Series B Preferred Units through its affiliate BOC YAC Funding LLC (“BOC YAC”), subject to the issuance of at least $80,000,000 of bonds by the Company.
On September 14, 2021, the Company issued $166,340,000 face amount of bonds (see Note 6, Bonds Payable), and since the condition was met, the Company issued 8,049 Series B Preferred Units together with Warrants, as described below, to BOC YAC in exchange for the $55,000,000. The Company entered into Second A&R Operating Agreement to include Series B Preferred Units, among other changes.
The Yellowstone Merger was completed on January 25, 2022. The Company, SHG, and the Existing Equityholders (members) of the Company subsequently entered into the Third A&R Operating Agreement, which among other things, (i) restructured the capitalization of the Company, and (ii) appointed SHG as the managing member of the Company. See Note 1, Organization and Business.
Units
The interests of the members in distributions, allocation of income and loss, and other amounts, as specified in the Second A&R Operating Agreement, are generally represented by their units of membership interests in the Company. Under the Second A&R Operating Agreement, there were two classes of units: capital units (which are comprised of Preferred Units, Founder Units, and Common Units) and Incentive Units. As of December 31, 2021, there were 31,250 Series A Preferred Units, 8,049 Series B Preferred Units, and 27,035 Founder Units authorized, issued and outstanding. A portion of the Series B Preferred Units have been designated as a subclass called BOC YAC Units.
The Preferred Units, the Founder Units and the Common Units are capital units that carry the right to cast one vote per unit on any matter to be approved by the members. The Incentive Units do not carry any voting rights.
Transfers of the Company’s units are restricted. Holders of Founder Units or Incentive Units have granted to the Company and Preferred Unit holders a right of first refusal to purchase all or any portion of their units that such holder proposes to transfer to another party. In certain instances, each member is subject to “drag-along” rights by which the member must sell shares if such sale is approved by the majority of holders of Founder Units and Series A and Series B Preferred Units and the Board of Managers.
The Second A&R Operating Agreement afforded certain protective provisions to the holders of Series A Preferred Units, Series B Preferred Units and Founder Units, respectively, that prevented the Board of Managers and Company from taking certain significant actions without having obtained the affirmative vote or written consent of the other members.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Series A Preferred Units
The Series A Preferred Unitholders were entitled to a preferred return that is defined as to each unit, an amount equal to the sum of (1) the Series A original issuance price (defined as $1,000 per unit) plus (2) a 6% per annum cumulative preferred return with respect to such Series A Preferred Unit investment. The unrecognized preferred return on Series A Preferred Units as of December 31, 2021 was $1,490,208.
Redeemable Series B Preferred Units
The Series B Preferred Unitholders were entitled to a preferred return that is defined as to each unit, an amount equal to the sum of (1) the Series B original issuance price (defined as $6,149.52 per unit or $6,832.80 for BOC YAC Units) plus (2) a 7% per annum cumulative preferred return with respect to such Series B Preferred Unit. With respect to the BOC YAC Units, the 7% per annum preferred return in excess of the original issuance price did not accrue unless the Yellowstone business combination agreement was terminated for any reason, and in that case, the 7% preferred cumulative return would have retroactive accrual to the date of issuance of the units. The unrecognized preferred return on Series B Preferred Units, including the BOC YAC Units, as of December 31, 2021 was $1,144,306.
Both the Series A and Series B Preferred Unit holders had the right to convert any or all of their Units into Common Units at a conversion price specified in the Second A&R Operating Agreement. Upon execution of the Third A&R Operating Agreement in connection with the Yellowstone Merger on January 25, 2022, the Series A Preferred Units and Founder Units automatically converted into Common Units of the Company and the Series B Preferred Units converted into to SHG Class A common stock at the same IPO price as the public investors of SHG.
The Series B Preferred Units contained redemption rights for both the Company and for the holders of the Series B Preferred Units under certain circumstances. Because the Series B Preferred Units were redeemable in cash by the Company in the future, they were classified as Temporary Equity, between the Liabilities and Equity sections of the consolidated balance sheet as of December 31, 2021. They are carried at their issuance price and not reflected at redemption value in the consolidated balance sheet because no Series B Preferred Units were redeemed between December 31, 2021 and January 25, 2022, the date such Units were automatically converted to SHG Class A stock equal to the original $55,000,000 investment at the conversion price of $10 per share.
Incentive Units
Incentive Units may be issued subject to vesting, forfeiture and repurchase pursuant to separate agreements, the provisions of which may be determined, altered or waived in the sole discretion of the Board of Managers. Each Incentive Unit is intended to be a “profits interest” within the meaning of Internal Revenue Service Revenue Procedures 93-27 and 2001-43, and the terms of the Incentive Units, including the right to participate in distributions may be subject to limitations and such other requirements as the Board of Managers may determine are necessary or appropriate for such interests to so qualify as profits interests.
The Second A&R Operating Agreement set a maximum number of Incentive Units permitted to be issued and outstanding of 7,573.76 units. The Third A&R Operating Agreement automatically converted such Incentive Units into Incentive Equity Units of the Company based on a defined unit conversion ratio. See Note 10, Incentive compensation.
Warrants
On September 14, 2021, the Company issued Lead Investor Warrants to BOC YAC to purchase 804.9 Common Units. The Lead Investor Warrants were classified as equity instruments and recorded at relative grant date fair value in Members’ equity on the consolidated balance sheet as of December 31, 2021. Upon the consummation of the Yellowstone Merger on January 25, 2022, the Lead Investor Warrants were automatically cancelled.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
The Lead Investor Warrants were valued as of the grant date using the Black-Scholes option pricing model and the estimated probability of different outcomes. The key inputs to the valuation model are exercise price, value of the underlying common unit, term, risk-free interest rate, and volatility. The warrants are classified as Level 3 in the fair value hierarchy. The key assumptions used in the valuation of the Company’s warrants for the different outcomes were:
|
Value of underlying common unit |
$ | 6,196.40 | ||
|
Term (in years) |
0.5 – 10.0 years |
|||
|
Risk-free interest rate |
0.05% –1.28 | % | ||
|
Volatility |
21.1% –29.3 | % | ||
The Board of Managers
Under the Second A&R Operating Agreement, the Board of Managers had the right and authority to manage the business and affairs of the Company and various other rights and authority as specified. Upon consummation of the Yellowstone Merger, the Third A&R Operating Agreement appointed SHG as the Managing Member of the Company.
Distributions
Under the Second A&R Operating Agreement, the Board of Managers determined the amount of any Proceeds Available for Distribution, which was defined as cash amounts received by the Company (excluding proceeds from capital contributions and capital transaction proceeds) after deduction for payments of operating expenses, other cash expenditures, and any amounts set aside for reserves. In addition to these distributions, there may have been distributions as a result of Capital Transactions, as defined in the agreement. There have been no distributions from the Company to date. Upon consummation of the Yellowstone Merger and execution of the Third A&R Operating Agreement, distributions will be made to the Members as determined by SHG, the managing member, utilizing an amended distribution schedule as defined in the agreement.
Liquidation
Upon dissolution, winding up and liquidation of the Company, the assets of the Company would be applied and distributed first to pay all creditors as required by law and then to the members in the same order as described above for other distributions.
Syndication Costs
As of December 31, 2020, the Company had capitalized $174,956 of syndication, or equity issuance costs, which was included within prepaid expenses and other assets. Upon obtaining Series A equity financing in March of 2021, the Company reclassified this amount to members’ equity and had also incurred additional amounts of $150,407, such that $325,363 of syndication costs are included as a reduction of members’ equity as of December 31, 2021 in connection with the Series A Preferred Units. The Company also allocated syndication costs totaling $685,013 between the Redeemable Series B Preferred Units and the Lead Investor Warrants which were issued in the same transaction, based on the relative fair value of each instrument. This resulted in $681,404 of syndication costs relating to the issuance of Series B equity being recorded as a reduction to Redeemable Series B Preferred Units on the consolidated balance sheet as of December 31, 2021, and $3,609 of syndication costs allocated to the Lead Investor Warrants being recorded as a reduction of members’ equity as of December 31, 2021. The Company has incurred $2,695,591 of syndication costs in connection with the Yellowstone Merger, which are recorded as an asset within prepaid expenses and other assets on the consolidated balance sheet as of December 31, 2021 until the related Yellowstone Merger was consummated in January 2022, at which time such costs were reclassified as a reduction in equity.
10. Incentive Compensation
The Company granted 3,951 Incentive Units to employees during the year ended December 31, 2021. Such Incentive Units have a Distribution Threshold of $66,000,000 which was established at the date of grant. The holders of these units have been granted vesting terms ranging from equal monthly installments over the 24 months following the grant date to 25% vesting after one year with the remaining 75% vesting equally over the following 36-month period. Of the units granted, 3,622 units are eligible for catch-up distributions entitling the holder to priority distributions of 100% of all Proceeds Available for Distribution and Capital Transaction proceeds (after cumulative distributions have exceeded the Distribution Threshold), until each holder of such Catch-Up units has received the maximum amount of catch-up distributions that is specified in his or her individual Incentive Unit grant agreement. The Incentive Units are subject to forfeiture if the employee is terminated for cause or voluntarily ends their employment with the Company. The vesting of the Incentive Units is accelerated if the employee is terminated without cause or in the event of a capital transaction as defined in the Second A&R Operating Agreement. In connection with the Yellowstone Merger and the execution of the Third A&R Operating Agreement, the existing Incentive Units outstanding were adjusted based on a defined unit conversion ratio to reflect the new capital structure and remain Incentive Units of the Company. These Incentive Units may be exchanged for Common Units of the Company at the holder’s discretion upon vesting. All of the Company’s incentive awards are classified as equity instruments.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
The Incentive Units were valued (as of the date of grant) using the Option-Pricing Method described in the AICPA Accounting and Valuation Guide entitled Valuation of Privately Held Company Equity Securities Issued as Compensation. The Option-Pricing Method treats profit units (such as the Company’s Incentive Units) and the capital units (the Company’s Preferred Units and the Founder Units) as call options on the total equity value of the Company, with exercise (or strike) prices based on the incremental equity required to repay liquidation preferences for the various holders of the Company’s securities. The values of the options associated with each strike price are calculated using the Black-Scholes option pricing model based on the grant date. The Incentive Units are classified as Level 3 in the fair value hierarchy. The key inputs and assumptions used in the valuation of the Company’s Incentive Units were:
|
Equity value |
$ | 62,287,970 | ||
|
Term (in years) |
5 | |||
|
Risk-free interest rate |
0.84 | % | ||
|
Volatility |
57 | % |
Below is a summary of activity related to the Incentive Units for the year ended December 31, 2021:
|
Units |
Weighted-average grant date fair value |
|||||||
|
Units outstanding as of December 31, 2020 |
- | |||||||
|
Granted |
3,951 | $ | 318.44 | |||||
|
Forfeitures |
- | - | ||||||
|
Units outstanding as of December 31, 2021 |
3,951 | $ | 318.44 | |||||
|
Vested Units outstanding as of December 31, 2021 |
96 | $ | 324.20 | |||||
|
Non-vested Units outstanding as of December 31, 2021 |
3,855 | $ | 318.30 | |||||
The Company has elected a policy to recognize equity-based compensation expense on a straight-line basis over the requisite service period and has elected to account for forfeitures of Incentive Units if and when they occur. The Company recorded equity-based compensation expense relating to Incentive Units of $216,827 for the year ended December 31, 2021. As of December 31, 2021, there was $1,041,333 of total unrecognized compensation expense that is expected to be recognized over a weighted-average future period of 3.2 years.
11. Fair Value Measurements
As of December 31, 2021, the fair value of the Company’s Series 2021-1 Bonds was approximately $173,000,000 as compared to their carrying value of $160,679,392. The fair value of the Company’s bonds is estimated utilizing Level 2 inputs including inactive prices for the bonds on inactive markets.
As of December 31, 2020, the carrying value of the Company’s Loans payable approximated their fair values due to the loans’ variable interest rates and the unrelated, third-party lender. The fair value of debt is estimated on a Level 2 basis as provided by ASC Topic 820, using a discounted cash flow analysis based on the borrowing rates currently available to the Company for loans with similar terms and maturities, discounting the future contractual interest and principal payments.
As stated in Note 8, Loans Payable, the terms of the Company’s loans required the Company to enter into an Interest Rate Protection Agreement (“Interest Rate Cap”) with a counterparty for each of its loans, and to assign such agreements and any payments payable thereunder to the lender. Under GAAP, derivative agreements such as these would be measured at fair value on a recurring basis in the consolidated balance sheets, using a variant of the Black-Scholes option pricing model commonly known as the Black model or the Black-76 model. The key inputs to the valuation model are notional amount, time to maturity, forward rates, and volatility. The interest rate protection agreements are classified as Level 2 in the fair value hierarchy. Changes in fair value of these instruments were reported in the consolidated statements of operations. During the year ended December 31, 2021, the loans were fully repaid and the related Interest Rate Caps were terminated at no cost. As of December 31, 2020, the fair values of the Interest Rate Cap agreements were not significant.
The carrying values of all other financial instruments on the consolidated balance sheets, including cash and restricted cash, approximate their fair values due to the short-term nature of these instruments.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
12. Interest
Interest, including amortization of debt issuance costs, for the year ended December 31, 2021 totaled $4,569,470, of which $3,409,172 was capitalized in Cost of construction on the consolidated balance sheet during the year ended December 31, 2021. Interest, including amortization of debt issuance costs, for the year ended December 31, 2020 totaled $2,979,340, of which $2,583,642 was capitalized in Cost of construction on the consolidated balance sheet during the year ended December 31, 2020. Interest which is not capitalized is recorded as an expense and is included as Interest expense on the consolidated statements of operations.
The following table sets forth the details of interest expense:
|
Year-Ended December 31, 2021 |
Year-Ended December 31, 2020 |
|||||||
|
Interest |
$ | 3,113,387 | $ | 1,590,285 | ||||
|
Amortization of bond premium and debt issuance costs |
1,456,083 | 1,389,055 | ||||||
|
Total interest incurred |
4,569,470 | 2,979,340 | ||||||
|
Less: capitalized interest |
(3,409,172 | ) | (2,583,642 | ) | ||||
|
Interest expense |
$ | 1,160,298 | $ | 395,698 | ||||
13. Related Party Transactions
Loans payable to Related parties
Prior to obtaining the secured loans described in Note 8, Loans Payable, the Company’s activities were funded through a loan payable to a company owned by its former majority member. The loan payable dated February 12, 2018 was between the Company and HMFO LLC, a related party. The loan payable had a maturity date of February 28, 2021 and was due in one balloon payment on such date. The loan payable to HMFO LLC bore interest at an annual rate of 5.50% and all interest was paid-in-kind (“PIK”). Interest was payable along with the outstanding balance, upon maturity. Certain administrative services provided by HMFO LLC were added to the loan balance. Interest incurred on the loan payable to HMFO LLC for the years ended December 31, 2021 and 2020 totaled $115,275 and $472,274, respectively. The balance due under the loan payable to HMFO LLC was $0 as of December 31, 2021 and $10,727,301 as of December 31, 2020, including accrued interest of $837,992.
On March 12, 2021, pursuant to a Redemption Agreement between the Company and the former majority member, the loan payable from the Company to HMFO LLC was cancelled and all of the membership interests held by the former majority member were redeemed in exchange for a sum of $5,071,412, plus a Reimbursement and Indemnity Agreement from the Company and the Founder. The Company recorded a gain on extinguishment of this related party loan payable of $5,621,193, net of related expenses of $150,000 and net of redemption of membership interests. The gain was recognized as a deemed contribution to members’ equity on the consolidated balance sheet. The former majority member remained a Guarantor under the Company’s loans payable and also as a tenant under the Company’s Master Lease for the Sugar Land Loan, but was held harmless for these liabilities under the Reimbursement and Indemnity Agreement.
Beginning in November 2020, the Company entered into a note payable with a related party, SH Investment Fund I LLC, a company controlled by the Founder and CEO. The note payable bore interest at 8% per annum and had a maturity date of November 24, 2021. Amounts payable under the note were drawn by requesting “advances” from the lender, up to $1,000,000, and could be used by the Company only for certain types of expenditures that were approved in advance by the lender. The note payable had a balance of $485,153 as of December 31, 2020. On March 12, 2021, the Company issued 1,250 Series A Preferred Units in full satisfaction of the note payable by the Company to SH Investment Fund I LLC. The fair value of the 1,250 units was $1,250,000 and exceeded the carrying value of the $1,000,000 note payable at the time of extinguishment; thereby resulting in a loss on extinguishment of related party debt of $250,000 which was recorded as a charge in the consolidated statement of operations.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Services
For the year ended December 31, 2020, the Company utilized administrative services provided by HMFO LLC. The amounts charged for such services totaled $0 for the year ended December 31, 2021 and $2,720,576 for the year ended December 31, 2020. Furthermore, HMFO LLC also made cash advances to the Company of $314,331 during the year ended December 31, 2020. These amounts were payable to HMFO LLC as of December 31, 2020 and included within Loans payable to related parties on the consolidated balance sheet.
In addition, during the years ended December 31, 2021 and 2020, the Company paid $86,700 and $24,800, respectively, for services rendered by employees of a company affiliated with the Founder and CEO.
For the years ended December 31, 2021 and 2020, the Company paid a total of $900,000 and $0, respectively, to the Founder for his service in the capacity of Chief Executive Officer.
For the years ended December 31, 2021 and 2020, the Company paid $141,726 and $8,767 respectively, for consulting services, to a company that employed the chief financial officer until prior to July 1, 2021. In September 2021, the Company paid $1,665,894 to this company as a one-time closing fee for serving as the structuring advisor for the Series 2021 Bond issuance under a consulting contract in effect since January 1, 2021 (See Note 7, Bonds Payable). This structuring advisor fee represents 1% of the proceeds of the Series 2021 Bonds and is included in debt issuance costs.
On September 20, 2021, the Company entered into a non-exclusive agreement with Echo Echo, LLC, a related party to the Founder, for the use of a Beechcraft Baron G58 aircraft. The effective date of the agreement was September 8, 2021 and the agreement automatically renews annually. The agreement can be terminated without penalty if either party provides 35 days written notice, or if the aircraft is sold or otherwise disposed of. The Company will be charged $675 per flight hour of use along with all direct operating costs. Additionally, the Company will also incur the pro rata share of maintenance, overhead and insurance costs of the aircraft. For the year ended December 31, 2021, the Company recognized $133,242 of expense within General and administrative expense under the terms of this agreement, which is payable to Echo Echo, LLC as of December 31, 2021 and presented within Accounts payable, accrued expenses and other liabilities.
Defined Contribution Retirement Plan
Certain of the Company’s employees participate in a defined contribution 401(K) retirement plan. The plan was sponsored by a related party through March 2021. In May 2021, a new plan was created which is sponsored by the Company. The Company does not provide a matching contribution to the plan, and thus, there was no expense for either of the years ended December 31, 2021 or 2020.
14. Commitments and Contingencies
In addition to the lease payment commitments discussed in Note 6, 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.
With respect to the Company’s SGR Phase II project, the Company is subject to requirements that define (i) a minimum improvement amount of $2,000,000 and (ii) that related construction commence by October 2022 and be completed 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.
The Company is subject to minimum improvement amounts for both phases of its construction projects at OPF. The minimum improvement amount OPF Phase I is $8,500,000, which must be met by July 31, 2022. The minimum improvement amount for OPF Phase II is $6,000,000 and must be met by July 2023. As of December 31, 2021, the Company has exceeded its minimum improvement amount related to the OPF Phase I project. If the Company were to not meet its improvement amount for the OPF Phase II project, it would be considered an event of default for the parcel associated with such project, and the landlord has the option to terminate the lease for the parcel.
The Company has committed to spend $17,000,000 in capital improvements on the BNA construction project by July 2, 2023, which is 24-months from the building permit date. If this amount is not expended, the shortfall would become due and payable within 60 days as additional rent under the lease agreement.
SKY HARBOUR LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
The APA Lease requires the Company to improve the property in accordance with a development plan included in the lease and to complete such improvements within 24-months of the issuance of permitting documents. The APA Phase I project is still in the permitting phase.
The DVT Lease requires improvements to be made for Phase I (estimated cost of improvements of $15,300,000) and for Phase II, if such option is exercised (estimated cost of improvements of $14,600,000), within 12-months after receiving permitting documents for each Phase, but in no event later than May 2026. The Company is still in the permitting phase of its DVT Phase I project.
The Company has contracts for construction of the Opa Locka project and the Nashville project. The Company may terminate either of the contracts or suspend construction without cause; however, the Company would be subject to paying a penalty under the Opa Locka construction contract of 50% of the unrealized fee which remains to be earned as of the termination date. There is no termination penalty under the Nashville construction contract.
15. Subsequent Events
The Company has evaluated all subsequent events through March 28, 2022, which is the date the consolidated financial statements were available to be issued.
On January 25, 2022, the Company completed the Yellowstone Merger. See Note 1, Organization and Business, and Note 9, Equity and Redeemable Equity.
On March 2, 2022, the Company entered into an agreement for the Company to purchase the sublessee’s interest in the underlying ground lease at OPF. See Note 6, Leases.
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results of operations and financial condition could differ materially from those expected or implied in these forward-looking statements as a result of certain factors, including those set forth under the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections and elsewhere in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed by Sky Harbour Group Corporation. The following discussion and analysis should be read in conjunction with Sky Harbour LLC’s consolidated historical financial statements and related notes thereto as of and for the years ended December 31, 2021 and 2020. Unless otherwise stated or the context clearly indicates otherwise, the terms the “Company,” “we,” “us” and “our” refer to Sky Harbour, LLC.
Overview and Background
We are an aviation infrastructure company building the first nationwide network of Home-Basing Solutions, which we refer to as “HBS,” for business aircraft. We develop, lease, and operate business aviation hangars across the United States, targeting airfields in the largest markets with significant hangar supply and demand imbalances. Our HBS hangar campuses feature exclusive private hangars and a full suite of dedicated services specially designed for home-based aircraft.
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 the new jets require larger square footage of hangar space, and the pace of new hangar construction has lagged behind the demand. The larger footprint aircraft impose stacking challenges and constraints in the traditional shared or community hangars operated by fixed-base operators (“FBO”). The addition of winglets (the vertical extensions on aircraft wingtips) on most modern business jets effectively eliminates wing-over-wing storage. Aircraft hangars are in high demand and short supply, with some airports compiling waiting lists that can exceed several years.
Our scalable business strategy addresses the increased imbalance between the supply and demand of private jet storage, including the lack of hangar facilities able to accommodate larger aircraft, by growing our portfolio of HBS campuses at key airports across the United States. We target airports with excess demand for private hangar space, typically near metropolitan areas, which include both established and growing markets. We intend to capitalize on the existing hangar supply constraints, particularly for high-end tenants, where the current FBO hangar space may become obsolete and generally above capacity at major United States airports.
The table below presents certain information with respect to our portfolio as of December 31, 2021.
| ● |
Sugar Land Regional Airport (“SGR”), Sugar Land, TX (Houston area); |
| ● |
Miami-Opa Locka Executive Airport (“OPF”), Opa-Locka, FL (Miami area); |
| ● |
Nashville International Airport ("BNA"), Nashville, TN; |
| ● |
Centennial Airport (“APA”), Englewood, CO (Denver area); and |
| ● |
Phoenix Deer Valley Airport (“DVT”), Phoenix, AZ. |
|
Facility |
Status |
Scheduled Construction Start |
Scheduled Completion Date |
Estimated Total Construction Cost1 ($mm) |
Hangars |
Square Footage |
||
|
SGR Phase I |
Complete |
Complete |
Complete |
$15.1 |
7 |
66,080 |
||
|
SGR Phase II |
Predevelopment |
April 2023 |
July 2024 |
8.7 |
6 |
56,580 |
||
|
OPF Phase I |
In Construction |
August 2021 |
November 2022 |
33.2 |
12 |
160,488 |
||
|
OPF Phase II |
Predevelopment |
August 2022 |
November 2023 |
20.9 |
7 |
99,400 |
||
|
BNA Phase II |
In Construction |
July 2021 |
October 2022 |
26.8 |
10 |
149,602 |
||
|
DVT Phase I |
In Design |
April 2022 |
October 2023 |
20.8 |
8 |
113,600 |
||
|
DVT Phase II |
Predevelopment |
May 2023 |
August 2024 |
19.3 |
10 |
105,000 |
||
|
APA Phase I |
In Bidding |
May 2022 |
August 2023 |
26.4 |
9 |
131,000 |
||
|
APA Phase II |
Predevelopment |
August 2023 |
November 2024 |
21.2 |
9 |
102,210 |
||
|
Total |
$192.4 |
78 |
983,960 |
Note 1: The Estimated Total Construction Cost includes estimated direct construction expenditures associated with each facility. For completed facilities, this amount includes direct construction expenditures and other amounts (e.g., capitalized labor and interest) that are included in the capitalized cost under accounting principles generally accepted in the United States of America (“GAAP”).
Segment Reporting
We currently have only one operating segment: development and rental of aircraft hangars.
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. 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 “—Risks Related to our Business and Operations” within the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 of Sky Harbour Group Corporation (“SHG”) for more information about the risks related to our tenants and our lease payments.
Ground Lease Expense
One of our largest expenses is the lease payments under our ground leases. For the years ended December 31, 2021 and 2020, our operating lease expense for ground leases was $3,747,427 and $1,781,116, 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
We expect that future changes in interest rates will impact our overall operating performance, by, among other things, changing our future borrowing costs. We expect to issue additional private activity bonds (see Private Activity Bonds, below) to finance future site developments and higher interest rates would increase our borrowing costs. 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
We do not expect the general and administrative expenses reflected in our historical statement of operations or those reflected in our unaudited pro forma statement of operations to be reflective of our expected professional, legal and consulting fees, payroll costs and other general and administrative expenses. As a public company, we estimate our annual general and administrative expenses will grow to approximately $15 million, which amount includes, among other things, $5 million for legal, insurance, accounting and other expenses related to corporate governance, SEC reporting and other compliance matters. In addition, 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 and economies of scale.
Current Capital Requirements and Future Expenditures for Expansion
We have funded our wholly owned subsidiary Sky Harbour Capital LLC (“SHC”) with over $200 million to fund the two phases at each of our five ground leased airport locations. These construction funds and reserves are held at the bondholder trustee.
We maintain the ability to include up to $50 million in new projects outside the original five locations to be funded with a portion of the existing bond proceeds held by the trustee as long as certain approvals and supplemental consultant reports are provided showing that such new project would result in better coverage of debt service than the status quo.
We consummated a business combination agreement with Yellowstone Acquisition Company (the “Yellowstone Merger”) on January 25, 2022, to raise additional equity capital to, along with potential future bond issuances, fund additional airport campuses and reach up to 20 airport campuses by 2025. On average, each new future campus is composed of an average of 15 hangars and is expected to cost approximately $40 million per campus, with 70% or more to be funded with additional public activity bonds (the “PABs”). All these future hangar campus projects are discretionary and require us to identify the appropriate airports with the target hangar demand economics, secure required ground leases and permits, and complete future construction at such sites. We do not commit to capital projects without having first secured the funds to fund them.
The cumulative 20 airport site business plan is estimated to cost approximately $930 million, with approximately 75% anticipated from long term private activity bonds and the balance with equity or equity linked financing. The equity portion of this business plan has been partially funded upon the closing of the Yellowstone Merger, which included an additional $45 million equity investment from Boston Omaha (the “BOC PIPE”). 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 SHG 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.
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 loans and bonds 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 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 lease liability balances.
We also have tenant leases and account for those leases in accordance with the lessor guidance under ASC Topic 842.
We have lease agreements with lease and non-lease components; we have elected the accounting policy to not separate lease and non-lease components for all underlying asset classes.
We have elected to not capitalize any interest cost that is implicit within our operating leases into cost of construction on the consolidated balance sheet, but instead, we expense our ground lease cost in the consolidated statements of operations.
Revenue Recognition
We lease hangar facilities that we construct to third parties. 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. There are no options given to the lessee to purchase the underlying assets. Rental revenue is recognized in accordance with ASC Topic 842, Leases, 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.
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.
For the year ended December 31, 2021, we derived approximately 89% of our revenue from two tenants, each of which have ongoing leases with us that expire in December 2023 and November 2025, respectively. For the year ended December 31, 2020, we derived 90% of its revenue from two tenants, one of which had a month-to-month arrangement which terminated during 2020 and another tenant which has an ongoing lease which expires in December 2023.
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 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.
Results of Operations
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
The following table sets forth a summary of our consolidated results of operations for the year-end periods indicated below and the changes between the periods.
|
Year ended December 31, 2021 |
Year ended December 31, 2020 |
Change |
||||||||||
|
Revenue: |
||||||||||||
|
Rental revenue |
$ | 1,577,919 | $ | 685,596 | $ | 892,323 | ||||||
|
Total revenue |
1,577,919 | 685,596 | 892,323 | |||||||||
|
Expenses: |
||||||||||||
|
Operating |
4,276,856 | 1,941,282 | 2,335,574 | |||||||||
|
Depreciation |
569,914 | 47,024 | 522,890 | |||||||||
|
General and administrative |
8,930,319 | 837,336 | 8,092,983 | |||||||||
|
Total expenses |
13,777,089 | 2,825,642 | 10,951,447 | |||||||||
|
Other expenses: |
||||||||||||
|
Interest expense, net of capitalized interest |
1,160,298 | 395,698 | 764,600 | |||||||||
|
Loss on extinguishment of note payable to related party |
250,000 | - | 250,000 | |||||||||
|
Total other expenses |
1,410,298 | 395,698 | 1,014,600 | |||||||||
|
Net loss |
$ | (13,609,468 | ) | $ | (2,535,744 | ) | $ | (11,073,724 | ) | |||
Revenues
Revenues for the years ended December 31, 2021, and 2020 were $1,577,919, compared to $685,596, respectively. The 130% increase primarily resulted from completion of our hangar campus at SGR in December 2020, a new lease with our tenant at BNA, as well as existing monthly rental of open ramp space at OPF.
Operating Expenses
Operating expenses increased 120% from $1,941,282 to $4,276,856 for the year ended December 31, 2021 as compared to the year ended December 31, 2020. The increase was primarily due to additional operating lease expense, particularly the ground leases at APA and DVT which commenced during 2021, as well as other expenses such as insurance, property tax and utilities.
Depreciation Expense
Depreciation increased from $47,024 to $569,914, for the year ended December 31, 2021 as compared to the year ended December 31, 2020, reflecting the completion and placement in service of the SGR Phase I project in December 2020.
General and Administrative Expenses
For the years ended December 31, 2021 and 2020, general and administrative expenses were $8,930,319, compared to $837,336, respectively. The increase was primarily due to a $4,905,728 increase in salaries, wages, and benefits, driven by an increase in full-time and contracted employees, as well as incentive compensation programs instituted to attract and retain talented human capital. Professional fees increased $2,527,918 due to an increase in legal, accounting, and consulting costs as compared to the prior year. Marketing and other pursuit costs increased $375,201 year-over-year, primarily driven by our growth strategy in securing airport site acquisitions and potential tenants.
Interest and Other Expenses
Interest and other expenses increased from $395,698 to $1,410,298 for the year ended December 31, 2021 as compared to the year ended December 31, 2020, due to an increase in loans payable principal balance prior to repayment in August and September 2021, respectively, and the related constructed asset (SGR Phase I) being completed and placed into service in December 2020.
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 source of cash include the issuance of equity and debt securities. Our long-term liquidity requirements include lease payments under our ground leases with airport authorities, repaying principal and interest on outstanding borrowings, funding our operations and paying accrued expenses.
We believe that following the Yellowstone Merger in January 2022, as a publicly traded company, we will have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity securities. However, as a new public company, we cannot assure you that we will have access to these sources of capital or that, even if such sources of capital are available, that these sources of capital will be available on favorable terms. 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 market perceptions about our company.
Equity Financing
On August 1, 2021, we entered into the Yellowstone Merger agreement. In conjunction with the agreement, Boston Omaha (“BOMN”) agreed to invest $55,000,000 of equity in the form of new Series B Preferred Units through its affiliate BOC YAC Funding LLC (“BOC YAC”). On September 14, 2021, the Company issued $166,340,000 face amount of bonds (see Private Activity Bonds, below), and the Company issued Series B Preferred Units to BOC YAC in exchange for the $55,000,000.
On January 25, 2022 (the “Closing Date”) we completed the Yellowstone Merger. On the Closing Date, Yellowstone changed its name to Sky Harbour Group Corporation (“SHG”) and we restructured our capitalization, issuing our common units to SHG. As a result of the Yellowstone Merger, the Common Units we issued to BOC YAC in respect of its Series B preferred units were converted into 5,500,000 shares of SHG Class A Common Stock and holders of our Common Units received one share of SHG Class B common stock for each Common Unit. As consideration for the issuance of our Common Units to SHG, Yellowstone contributed approximately $39 million of net proceeds to us, consisting primarily of the BOC PIPE, and the amount held in the Yellowstone trust account, net of redemptions and transaction costs. In March 2022, we received approximately $7 million in incremental proceeds from the counterparty of a forward purchase transaction we entered into on the Closing Date.
Private Activity Bonds
On September 14, 2021, SHC completed an issuance through the Public Finance Authority (Wisconsin) of $166,340,000 of Senior Special Facility Revenue Bonds (Aviation Facilities Project), Series 2021 (the “PABs”). The PABs are comprised of three maturities: $21,085,000 bearing interest at 4.00%, due July 1, 2036; $30,435,000 bearing interest at 4.00%, due July 1, 2041; and $114,820,000 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 $249,436 above its face value. The net proceeds from the issuance of the PABs 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, and the DVT 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 PABs.
Debt Covenants
The PABs 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 PABs 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 PABs.
Covenants in the PABs 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 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.
Lease Commitments
The table below sets forth certain information with respect to our future minimum lease payments required under operating leases as of December 31, 2021:
|
Amount Due |
||||
|
2022 |
$ | 2,031,193 | ||
|
2023 |
2,389,784 | |||
|
2024 |
2,427,720 | |||
|
2025 |
2,462,337 | |||
|
2026 |
2,521,865 | |||
|
Thereafter |
216,532,960 | |||
|
Total lease payments |
228,365,859 | |||
|
Less imputed interest |
(167,076,824 | ) | ||
|
Total |
$ | 61,289,035 | ||
|
Contractual Obligations |
The following table sets forth our contractual obligations as of December 31, 2021 (dollars in thousands):
|
Less than 1 Year |
More than 1 year and less than 3 |
More than 3 years and less than 5 |
More than 5 Years |
Total |
||||||||||||||||
|
Principal Payments of Long-Term Indebtedness |
$ | - | $ | - | $ | - | $ | 166,340 | $ | 166,340 | ||||||||||
|
Interest Payments on Long-Term Indebtedness |
5,533 | 13,881 | 13,881 | 132,950 | 166,245 | |||||||||||||||
|
Lease Commitments |
2,031 | 4,818 | 4,984 | 216,533 | 228,366 | |||||||||||||||
|
Total |
$ | 7,564 | $ | 18,699 | $ | 18,865 | $ | 515,823 | $ | 560,951 | ||||||||||
Interest payments on the Series 2021 PABs is held in reserve as restricted cash for the first three years.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements.
Cash Flows
Historical Cash Flows
The following table summarizes our sources and uses of cash for the years ended December 31, 2021 and 2020:
|
Year ended December 31, 2021 |
Year ended December 31, 2020 |
|||||||
|
Cash and restricted cash at beginning of year |
$ | 71,738 | $ | 1,018,563 | ||||
|
Net cash used in operating activities |
(6,614,836 |
) |
(1,041,417 | ) | ||||
|
Cash used in investing activities |
(15,994,356 |
) |
(11,897,056 | ) | ||||
|
Net cash provided by financing activities |
226,472,327 | 11,991,648 | ||||||
|
Cash and restricted cash at end of year |
$ | 203,934,873 | $ | 71,738 | ||||
Operating Activities— Net cash used in operating activities was $6,614,836 for the year ended December 31, 2021, as compared to cash used in operating activities of $1,041,417 for the same period in 2020. The $5,600,419 increase in cash used in operating activities was primarily attributable to the $13,609,468 net loss as a result of general and administrative expenses incurred in the expansion of our business, which represented an $11,073,724 increase in net loss. The net loss was offset by a $5,473,505 decrease driven by a $2,922,381 change in operating assets and liabilities and a $2,577,924 change in adjustments to reconcile net loss to net cash used in operating activities.
Investing Activities— Cash used in investing activities was $15,994,356 for the year ended December 31, 2021, as compared to cash used in investing activities of $11,897,056 for the same period in 2020. The increase of $4,097,300 in cash used in investing activities was driven primarily by a $4,087,507 increase in payments for costs of construction due to the Company’s ongoing construction projects at OPF and BNA.
Financing Activities— Net cash provided by financing activities was $226,472,327 for the year ended December 31, 2021, as compared to net cash provided by financing activities of $11,991,648 for the same period in 2020. The $214,480,679 increase in net cash provided by financing activities was primarily driven by $166,589,436 of proceeds from the issuance of the Series 2021 PABs, $55,000,000 of proceeds from the issuance of Series B Preferred Units, and $30,000,000 of proceeds from the issuance of Series A Preferred Units, offset primarily by the $13,831,529 repayment of loans payable and payments of $6,002,330 of debt issuance costs related to the PABs.
Quantitative and Qualitative Disclosures about Market Risks
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business and investment objectives, we expect that the primary market risk to which we will be exposed is interest rate risk. Following the issuance of the PABs, all of our indebtedness is now fixed rate debt. However, we may enter into variable rate debt agreements in the future, in which case we intend to hedge against rising benchmark interest rates by entering into hedging strategies with high quality counterparties.
Exhibit 99.3
Unaudited ProForma Condensed Combined Financial Information
Unless otherwise indicated, defined terms included below shall have the same meaning as terms defined and included elsewhere in the Current Report on Form 8-K/A (the “Form 8-K/A”) filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2022.
Introduction
The following unaudited proforma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X. For each of the periods presented, the unaudited proforma condensed combined financial information reflects the combination of historical financial information of Sky Harbour LLC (“Sky”) and Sky Harbour Group Corporation, f/k/a Yellowstone Acquisition Company, (“YAC”), and gives effect to (1) YAC’s initial public offering which was completed on October 26, 2020 (“IPO”), concurrent private placement of warrants to purchase its Class A common stock and payment of offering expenses and (2) the Business Combination, $45,000,000 BOC PIPE, the payment of transaction costs associated with the Business Combination and the cash settlement of certain obligations in accordance with YAC’s initial public offering (for purposes of this section, collectively, the “Transactions”). For purposes of this section, Sky and YAC are collectively referred to as the “Companies,” and the Companies, subsequent to the Business Combination, are referred to herein as the “Combined Company.”
The unaudited proforma condensed combined financial information has been presented to provide relevant information necessary for an understanding of the Combined Company subsequent to completion of the Transactions. The unaudited proforma condensed combined balance sheet, which has been presented for the Combined Company as of December 31, 2021, gives effect to the Transactions as if they were consummated on December 31, 2021. The unaudited proforma condensed combined statement of operations, which has been presented for the year ended December 31, 2021, gives proforma effect to the Transactions as if they had occurred on January 1, 2021. The unaudited proforma condensed combined balance sheet does not purport to represent, and is not necessarily indicative of, what the actual financial condition of the Combined Company would have been had the Transactions taken place on December 31, 2021, nor is it indicative of the financial condition of the Combined Company as of any future date. The unaudited proforma condensed combined statement of operations does not purport to represent, and is not necessarily indicative of, what the actual results of operations of the Combined Company would have been had the Transactions taken place on January 1, 2021, nor is it necessarily indicative of the results of operations of the Combined Company for any future period.
The unaudited proforma condensed combined financial information was derived from, and should be read in conjunction with, the following historical financial statements and notes thereto, which are included in the following filings and incorporated herein by reference:
|
● |
The audited historical condensed consolidated financial statements of Sky as of and for the years ended December 31, 2021 and 2020; included as exhibit 99.1 within the Current Report on Form 8-K/A filed with the SEC on March 28, 2022 and |
|
● |
The audited historical condensed financial statements of YAC as of and for the year ended December 31, 2021, and the audited historical financial statements of YAC for the period from August 25, 2020 (inception) through December 31, 2020, as included within Sky Harbour Group Corporation’s Form 10-K filed with the SEC on March 28, 2022. |
The unaudited proforma condensed combined financial information should also be read together with the sections incorporated by reference into this Form 8-K, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as other information included and incorporated herein by reference into this Form 8-K.
Description of the Transactions
YAC was formed as a blank check company incorporated as a Delaware corporation for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. YAC completed its IPO of 12,500,000 units at an offering price of $10.00 per unit on October 26, 2020. Simultaneously with the closing of the IPO, YAC completed a private placement of 7,500,000 warrants issued to the Sponsor, generating total proceeds of $7,500,000. On December 1, 2020, the underwriters' over-allotment option was partially exercised resulting in the purchase of an additional 1,098,898 Units, generating additional gross proceeds to YAC of $10,988,980 and incurring offering costs of approximately $700,000 (including $600,000 in underwriting fees). In connection with the IPO, including the underwriters’ partial exercise of the over-allotment option, the number of shares of Class B Common Stock was decreased to 3,399,724 shares to maintain the Sponsor’s 20% ownership. Also in connection with the partial exercise of the underwriters' overallotment option, the Sponsor purchased private placement warrants at a price of $1.00 per whole warrant to purchase an additional 219,779 shares of YAC Class A Common Stock at a price of $11.50 per share. Therefore, in connection with the partial exercise of the underwriters' overallotment option, an additional $11,208,760 in proceeds from the exercise of the over-allotment and the sale of additional private placement warrants were placed in the Trust Account, resulting in total funds held in the Trust Account of $138,716,226, inclusive of earned interest on investments held in the trust account at that time. The Trust Account was located in the United States at JP Morgan Chase Bank, N.A. with Continental Stock Transfer & Trust Company acting as trustee. The funds were invested in U.S. government securities with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended, which invest only in direct U.S. government treasury obligations.
On January 25, 2022, YAC consummated the Business Combination with Sky, pursuant to the Business Combination Agreement among the parties dated as of August 1, 2021, as amended. With YAC being the legal acquirer of Sky, consideration for the Business Combination consisted of shares of YAC’s Class B Common Stock wherein each holder of Sky Common Units received one share of Class B Common Stock for each Sky Common Unit. However, for financial reporting purposes, Sky is deemed the accounting acquirer and YAC the acquired company. See “Accounting for the Business Combination” below.
The following activities are reflected in the unaudited proforma condensed combined financial statements below (either in the historical results or through proforma adjustments):
|
● |
In connection with the IPO (and related transactions): |
|
o |
The initial investment by the Sponsor of 3,399,724 of YAC Class B shares for $25,000; |
|
o |
The issuance by YAC of 13,598,898 units at an offering price of $10.00 per unit and receipt of proceeds therefrom; |
|
o |
The issuance by YAC of 7,719,779 private placement warrants to the Sponsor and receipt of proceeds therefrom; |
|
o |
A total of $138,708,760 of net proceeds from the IPO and the private placement placed in the Trust Account; |
|
o |
The payment of offering expenses. |
|
● |
In connection with the Closing: |
|
o |
A $45,000,000 BOC PIPE investment and the related issuance of 4,500,000 shares of Class A common stock by YAC to Boston Omaha; |
|
o |
The payment of legal fees, underwriting commissions, and other costs incurred by YAC in connection with the IPO; |
|
o |
The repayment of a $1,000,000 working capital loan made by the Sponsor; |
|
o |
The payment of transaction costs incurred by both Sky and YAC; |
|
o |
The redemption of 12,061,041 shares of Class A common stock held by YAC’s public stockholders; |
|
o |
The conversion of YAC’s Sponsor Stock to shares of Class A common stock on a one-for-one basis; |
|
o |
The conversion of BOC YAC’s Series B Preferred Units to shares of Class A common stock on a one-for-one basis; |
|
o |
YAC’s contribution of all of its assets to Sky, including but not limited to, (A) the proceeds from the Trust Account (net of proceeds used to fund the redemption of the Class A common stock held by eligible stockholders who properly elected to have their shares redeemed as of the Closing Date), plus (B) $45,000,000 proceeds from the BOC PIPE, plus any cash held by YAC in any working capital or similar account, less (D) the deferred underwriting commission from the IPO and other transaction expenses of YAC; |
|
o |
Execution of the Third A&R Operating Agreement; and |
|
o |
Execution of the Tax Receivable Agreement. |
Following the closing, the Combined Company is organized as an “Up-C” structure in which substantially all of the operating assets of Sky’s business are held by Sky and it continues to operate through the subsidiaries of Sky. Upon the closing, YAC was renamed Sky Harbour Group Corporation (“SHG”), and SHG’s only assets are its equity interests in Sky. SHG is the sole managing member of Sky in accordance with the terms of the A&R Operating Agreement.
Accounting for the Business Combination
Notwithstanding the legal form of the Business Combination pursuant to the Business Combination Agreement, the Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, YAC 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 Business Combination was treated as the equivalent of Sky issuing equity for the net assets of YAC, accompanied by a recapitalization. The net assets of YAC were stated at historical cost, with no goodwill or other intangible assets recorded, and operations prior to the Business Combination will be those of Sky. Sky has been deemed the accounting acquirer for purposes of the Business Combination based on an evaluation of the following facts and circumstances:
|
• |
The Existing Sky Equityholders hold a majority voting interest in the Combined Company ; |
|
• |
The Existing Sky Equityholders have the ability to nominate and elect the majority of the Combined Company’s Board of Directors; |
|
• |
Sky’s existing senior management team comprise the senior management of the Combined Company; |
|
• |
Sky’s operations comprise the ongoing operations of the Combined Company; and |
|
• |
Sky’s assets are larger in relative size compared to YAC’s assets. |
The Existing Sky Equityholders hold a corresponding share of Class B common stock for each Sky common unit they hold. Each Sky common unit can be redeemed for a share of Class A common stock of SHG and a corresponding share of Class B common stock of SHG will be cancelled. The Class B common stock held by the Existing Sky Equityholders entitles the holders thereof to one vote on all matters which stockholders are generally entitled to vote but have no economic rights. The corresponding economic rights associated with Sky common units held by Existing Sky Equityholders are presented as non-controlling interests in the Combined Company’s financial statements.
Basis of Proforma Presentation
In accordance with Article 11 of Regulation S-X, proforma adjustments to the historical combined financial information of Sky and YAC only give effect to events that are both factually supportable and directly attributable to the Transactions. In addition, for purposes of preparation of the unaudited proforma condensed combined statement of operations, adjustments have only been made to give effect to events that are expected to have a continuing impact on the results of the Combined Company following the Business Combination. The unaudited proforma condensed combined financial information does not give effect to any synergies, operating efficiencies, or other benefits that may result from consummation of the Transactions. Sky and YAC have not had any historical relationship prior to the Business Combination. Therefore, preparation of the accompanying proforma financial information did not require any adjustments related to such historical transactions.
Pursuant to YAC’s charter prior to the Business Combination, YAC’s public stockholders were offered the opportunity to redeem their shares of Class A common stock for cash upon consummation of the Business Combination, irrespective of whether they voted for or against the Business Combination. If a public stockholder properly exercised its right to redemption of its shares, YAC redeemed each share for cash equal to the public stockholder’s pro rata portion of the Trust Account, calculated as of two business days prior to the consummation of the Business Combination.
The unaudited pro forma condensed combined financial information has been prepared to reflect the redemption of 12,061,041 shares of Class A common stock for $123,068,515.
After the redemption of the shares of Class A common stock, SHG’s controlling economic ownership percentage in Sky was 26.1%.
There are no pro forma adjustments related to the outstanding public warrants and private placement warrants issued in connection with the IPO that are classified as warrant liability in YAC’s historical balance sheet, as such securities continue to be outstanding and classified as a liability after the Closing Date.
The following table provides a proforma summary of the shares of the Combined Company’s common stock that would be outstanding if the Transactions had occurred on December 31, 2021.:
|
Shares |
% |
|||||
|
Stockholder |
||||||
|
Existing Sky Equityholders |
42,192,250(1 | ) | 73.85 | % | ||
|
YAC's Public Stockholders |
1,537,857(2 | ) | 2.69 | % | ||
|
BOC YAC Initial Investment |
5,500,000(3 | ) | 9.63 | % | ||
|
BOC PIPE Investment |
4,500,000(4 | ) | 7.88 | % | ||
|
YAC Sponsors |
3,193,474(5 | ) | 5.59 | % | ||
|
Others |
206,250(6 | ) | 0.36 | % | ||
|
TOTAL |
57,129,831 | 100.00 | % | |||
|
(1) |
Represents the shares of Class B common stock issued to SHG Corporation to consummate the Business Combination. |
|
(2) |
Represents the shares held by YAC’s public stockholders after the redemption of 12,061,041 shares of Class A common stock. |
|
(3) |
Represents the shares of Class A common stock held by BOC YAC as the holder of Series B Preferred Units of Sky upon the one-for-one conversion of the Series B Preferred Units into Class A common stock immediately prior to the consummation of the Business Combination. |
|
(4) |
Represents the shares that were issued to Boston Omaha in consideration of the $45,000,000 BOC PIPE investment. |
|
(5) |
Represents the shares of Class B common stock held by the initial stockholders of YAC upon the one-for-one conversion of the founder shares into Class A common stock immediately prior to the consummation of the Business Combination. |
|
(6) |
Represents 206,250 class A common stock held by BOC Yellowstone II LLC. |
The Combined Company is organized in an “Up-C” structure. It was necessary to consider the income tax impacts and any related proforma adjustments associated with the Transactions. No tax liability is deemed to have been triggered upon consummation of the Business Combination, including related to the Tax Receivable Agreement. The proforma condensed combined provision for income taxes does not necessarily reflect the amounts that would have resulted had Sky and YAC filed ncome tax returns in the current structure for the periods presented.
The unaudited proforma condensed combined financial information has been presented for illustrative purposes only. The proforma adjustments represent estimates based on information available as of the date of the unaudited proforma condensed combined financial information and are subject to change as additional information becomes available. Assumptions and estimates underlying the proforma adjustments set forth in the unaudited proforma condensed combined financial information are described in the accompanying notes. The actual financial position and results of operations of the Combined Company subsequent to the Transactions may differ significantly from the proforma amounts reflected herein.
|
PROFORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 2021 (UNAUDITED) |
||||||||||||||||||
|
HISTORICAL |
||||||||||||||||||
|
Sky Harbour |
YAC |
Proforma Adjustments |
Proforma Combined |
|||||||||||||||
|
Assets |
||||||||||||||||||
|
Cash and cash equivalents |
$ | 6,804,707 | $ | 114,626 | $ | 46,262,048 |
(A) |
$ | 53,181,381 | |||||||||
|
Restricted cash |
197,130,166 | - | - | 197,130,166 | ||||||||||||||
|
Prepaid expenses and other assets |
3,141,557 | 239,660 | (47,236 | ) |
(F) |
3,333,981 | ||||||||||||
|
Cost of construction |
25,033,733 | - | - | 25,033,733 | ||||||||||||||
|
Constructed assets, net |
14,499,682 | - | - | 14,499,682 | ||||||||||||||
|
Right-of-use assets |
56,867,432 | - | - | 56,867,432 | ||||||||||||||
|
Investments held in Trust |
- | 138,760,121 | (138,760,121 | ) |
(C) |
- | ||||||||||||
|
Long-lived assets, net |
409,467 | - | - | 409,467 | ||||||||||||||
|
Total Assets |
$ | 303,886,744 | $ | 139,114,407 | $ | (92,545,309 | ) | $ | 350,455,842 | |||||||||
|
Liabilities |
||||||||||||||||||
|
Accounts payable, accrued expenses and other liabilities |
$ | 10,958,719 | $ | 1,174,980 | $ | (2,912,893 | ) |
(F) |
$ | 9,220,806 | ||||||||
|
Note payable to Sponsor |
- | 1,000,000 | (1,000,000 | ) |
(D) |
- | ||||||||||||
|
Operating lease liabilities |
61,289,035 | - | - | 61,289,035 | ||||||||||||||
|
Warrants liability |
- | 11,908,671 | - | 11,908,671 | ||||||||||||||
|
Bonds payable, net of deferred financing costs |
160,679,392 | - | - | 160,679,392 | ||||||||||||||
|
Deferred underwriting fee payable |
- | 4,759,615 | (4,759,615 | ) |
(E) |
- | ||||||||||||
|
Total liabilities |
232,927,146 | 18,843,266 | (8,672,508 | ) | 243,097,904 | |||||||||||||
|
Series B Preferred Units subject to possible redemption |
54,028,860 | - | (54,028,860 | ) |
(H) |
- | ||||||||||||
|
Class A common stock subject to possible redemption |
- | 138,708,760 | (138,708,760 | ) |
(H) |
- | ||||||||||||
|
Stockholders’/Members' Equity: |
||||||||||||||||||
|
Non-controlling interest |
- | - | 79,287,351 |
(H) |
79,287,351(J) |
|||||||||||||
|
Members' equity |
16,930,738 | - | (16,930,738 | ) |
(H) |
- | ||||||||||||
|
Preferred stock |
- | - | - |
(H) |
- | |||||||||||||
|
Class A common stock |
- | - | 1,494 |
(H) |
1,494(J) |
|||||||||||||
|
Class B common stock |
- | 340 | (340 | ) |
(H) |
- | ||||||||||||
|
Additional paid-in capital |
- | - | 28,069,093 |
(H) |
28,069,093(J) |
|||||||||||||
|
Accumulated deficit |
- | (18,437,959 | ) | 18,437,959 |
(H) |
- | ||||||||||||
|
Total Stockholders’/Members' Equity |
16,930,738 | (18,437,619 | ) | 108,864,819 | 107,357,938 | |||||||||||||
|
Total Liabilities, Redeemable Securities and Stockholders'/Members' Equity |
$ | 303,886,744 | $ | 139,114,407 | $ | (92,545,309 | ) | $ | 350,455,842 | |||||||||
See the accompanying notes to the unaudited proforma condensed combined financial statements.
|
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED) |
||||||||||||||||||
|
HISTORICAL |
||||||||||||||||||
|
Sky Harbour |
YAC |
Proforma Adjustments |
Proforma Combined |
|||||||||||||||
|
Revenue |
$ | 1,577,919 | $ | - | $ | - | $ | 1,577,919 | ||||||||||
|
Expenses |
||||||||||||||||||
|
Operating expenses |
4,276,856 | - | - | 4,276,856 | ||||||||||||||
|
General and administrative |
8,930,319 | 3,185,293 | (745,753 | ) |
(aa) |
11,369,859 | ||||||||||||
|
Depreciation |
569,914 | - | - | 569,914 | ||||||||||||||
|
Total expenses |
13,777,089 | 3,185,293 | (745,753 | ) | 16,216,629 | |||||||||||||
|
Operating loss |
(12,199,170 | ) | (3,185,293 | ) | 745,753 | (14,638,710 | ) | |||||||||||
|
Other expense (income) |
||||||||||||||||||
|
Unrealized loss on investments held in Trust |
- | (1,619 | ) | 1,619 |
(bb) |
- | ||||||||||||
|
Interest expense (income), including amortization of deferred financing costs |
1,160,298 | (35,423 | ) | - | 1,124,875 | |||||||||||||
|
Change in fair value of warrant liability-(gain) loss |
- | (6,095,170 | ) | - | (6,095,170 | ) | ||||||||||||
|
Loss on extinguishment of note payable to related party |
250,000 | - | - | 250,000 | ||||||||||||||
|
Total other expense (income), net |
1,410,298 | (6,132,212 | ) | 1,619 | (4,720,295 | ) | ||||||||||||
|
Net (loss) income |
(13,609,468 | ) | 2,946,919 | 744,134 | (9,918,415 | ) | ||||||||||||
|
Net loss attributable to non-controlling interests |
- | - | (7,325,074 | ) |
(cc) |
(7,325,074 | ) | |||||||||||
|
Net loss attributable to controlling interests |
$ | (13,609,468 | ) | $ | 2,946,919 | $ | 8,069,208 | $ | (2,593,341 | ) | ||||||||
|
Pro forma net loss per share information: |
||||||||||||||||||
|
Weighted average shares outstanding |
14,937,581 |
(dd) |
||||||||||||||||
|
Basic and diluted net loss per share |
$ | (0.17 | ) |
(dd) |
||||||||||||||
See the accompanying notes to the unaudited proforma condensed combined financial statements.
Notes to Unaudited Proforma Condensed Combined Financial Information
NOTE 1 – BASIS OF PROFORMA PRESENTATION
The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, YAC was treated as the acquired company for financial reporting purposes, and Sky was treated as the accounting acquirer. The Business Combination was treated as the equivalent of Sky issuing stock for the net assets of YAC, accompanied by a recapitalization. The net assets of YAC are stated at historical cost, with no goodwill or intangible assets recorded. Operations prior to the Business Combination are those of Sky.
The unaudited proforma condensed combined statement of operations for the year ended December 31, 2021 give proforma effect to the Transactions as if they had occurred on January 1, 2021. The unaudited proforma condensed combined balance sheet as of December 31, 2021 assumes that the Transactions were completed on December 31, 2021, excluding the IPO (which was completed on October 26, 2020).
The unaudited proforma condensed combined financial information was derived from, and should be read in conjunction with, the following historical financial statements and notes thereto, which are included in the Proxy Statement and incorporated herein by reference:
|
● |
The audited historical consolidated financial statements of Sky as of and for the yearended December 31, 2021; and |
|
● |
The audited historical condensed financial statements of YAC as of and for the year ended December 31, 2021. |
Management has made significant estimates and assumptions in its determination of the proforma adjustments. The proforma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the proforma adjustments, and it is possible the differences may be material. Management believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Transactions based on information available to management as of the date of the unaudited proforma condensed combined financial information, and the proforma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited proforma condensed combined financial information.
NOTE 2 – ADJUSTMENTS TO UNAUDITED PROFORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 2021
The unaudited proforma condensed combined balance sheet as of December 31, 2021 includes the following adjustments:
|
A |
– Represents the aggregate impact of the following proforma adjustments to cash to give effect to the Transactions: |
|
Cash inflow from the BOC PIPE |
$ | 45,000,000 |
(B) |
||
|
Cash inflow from YAC’s Trust Account |
138,760,121 |
(C) |
|||
|
Repayment of Working Capital Loan to YAC Sponsor |
(1,000,000 | ) |
(D) |
||
|
Payment of YAC’s deferred IPO fees |
(4,759,615 | ) |
(E) |
||
|
Payment of transaction costs of the Business Combination |
(8,669,943 | ) |
(F) |
||
|
Redemption of YAC’s publicly traded shares |
(123,068,515 | ) |
(G) |
||
|
Net Proforma Adjustment to Cash |
$ | 46,262,048 |
(A) |
|
B |
– Represents $45,000,000 BOC PIPE investment. |
|
C |
– Represents cash equivalents that were released from the Trust Account and relieved of restrictions regarding use upon consummation of the Business Combination. |
|
D |
– Represents the Working Capital Loan from YAC’s Sponsor of $1,000,000 that was repaid in cash upon the Business Combination. |
|
E |
– Represents cash that was used to pay underwriting fees incurred by YAC in connection with the IPO, for which payment was deferred until consummation of the Business Combination. |
|
F |
– Represents cash that was used to pay transaction and advisory fees incurred in connection with the Business Combination, net of amounts already paid as of December 31, 2021. The adjustment to Prepaid expenses and other assets of $47,236 on the proforma condensed combined balance sheet represents the removal of prepaid transaction costs of $2,695,591, net of prepaid Directors’ and Officers’ insurance premiums of $2,648,355 paid in connection with the Business Combination which will be amortized into expense over the subsequent periods covered by the policy. The adjustment to Accounts payable, accrued expenses and other liabilities of $2,912,893 on the proforma condensed combined balance sheet represents the removal of transaction costs that were accrued in the historical balance sheets and paid on the Closing Date, net of other transaction costs that were not paid on the Closing Date and will be paid in the future. |
|
G |
– Reflects the impact on cash available to the Combined Company upon the redemption of 12,061,041 shares of Class A common stock using cash released from the Trust Account. |
|
H |
– Represents the net impact of the following proforma adjustments related to the Transactions on the capital accounts of the Combined Company: |
|
|
Par Value (1) |
Total |
||||||||||||||||||||||||||||||||||
|
|
Members' Equity |
Class A |
Founder |
Additional |
Accumulated |
Non-controlling |
Stockholders'/ |
Series B Preferred Units subject to possible redemption |
Class A subject to |
|||||||||||||||||||||||||||
|
Historical Sky Harbour |
$ | 16,930,738 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 16,930,738 | $ | 54,028,860 | $ | - | ||||||||||||||||||
|
Historical YAC |
- | - | 340 | - | (18,437,959 | ) | - | (18,437,619 | ) | - | 138,708,760 | |||||||||||||||||||||||||
|
Total historical balance |
16,930,738 | - | 340 | - | (18,437,959 | ) | - | (1,506,881 | ) | 54,028,860 | 138,708,760 | |||||||||||||||||||||||||
|
Sky Harbour rollover equity (2) |
(16,930,738 | ) | - | - | - | - | 16,930,738 | - | - | - | ||||||||||||||||||||||||||
|
Conversion of YAC's founder shares to Class A common shares (3) |
- | 340 | (340 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||
|
Reclassification of Class A common stock subject to possible redemption |
- | 1,360 | - | 138,707,400 | - | - | 138,708,760 | - | (138,708,760 | ) | ||||||||||||||||||||||||||
|
BOC PIPE Investment (4) |
- | 450 | - | 44,999,550 | - | - | 45,000,000 | - | - | |||||||||||||||||||||||||||
|
Pro forma adjustments for share issuance and conversion transactions |
(16,930,738 | ) | 2,150 | (340 | ) | 183,706,950 | - | 16,930,738 | 183,708,760 | - | (138,708,760 | ) | ||||||||||||||||||||||||
|
Transaction fees incurred by YAC |
- | - | - | (1,178,732 | ) | 745,753 | - | (432,979 | ) | - | - | |||||||||||||||||||||||||
|
Transaction fees incurred by Sky Harbour |
- | - | - | (5,371,307 | ) | - | - | (5,371,307 | ) | - | - | |||||||||||||||||||||||||
|
Elimination of YAC's historical accumulated deficit |
- | - | - | (17,692,206 | ) | 17,692,206 | - | - | - | - | ||||||||||||||||||||||||||
|
Conversion of Series B Preferred Units to Class A common stock (5) |
- | 550 | - | 54,028,310 | - | - | 54,028,860 | (54,028,860 | ) | - | ||||||||||||||||||||||||||
|
Redemption of Class A common stock (6) |
- | (1,206 | ) | - | (123,067,309 | ) | - | - | (123,068,515 | ) | - | - | ||||||||||||||||||||||||
|
Allocate amount to non-controlling interest (7) |
- | - | - | (62,356,613 | ) | - | 62,356,613 | - | - | - | ||||||||||||||||||||||||||
|
Total pro forma adjustments to equity |
(16,930,738 | ) | 1,494 | (340 | ) | 28,069,093 | 18,437,959 | 79,287,351 | 108,864,819 | (54,028,860 | ) | (138,708,760 | ) | |||||||||||||||||||||||
|
Total pro forma balance |
$ | - | $ | 1,494 | $ | - | $ | 28,069,093 | $ | - | $ | 79,287,351 | $ | 107,357,938 | $ | - | $ | - | ||||||||||||||||||
|
(1) |
Represents the par value of YAC’s common stock prior to the Business Combination and the par value of the Combined Company’s common stock subsequent to the Business Combination. |
|
(2) |
Shares of Class B common stock were issued to consummate the Business Combination. |
|
(3) |
YAC’s issued and outstanding founder units converted into shares of Class A common stock on a one-for-one basis immediately prior to consummation of the Business Combination. |
|
(4) |
The BOC PIPE investors were issued 4,500,000 shares of Class A common stock in exchange for the $45,000,000 investment. |
|
(5) |
The Preferred Series B Units of Sky were converted into 5,500,000 shares of Class A common stock on a one-for-one basis immediately prior to consummation of the Business Combination. |
|
(6) |
Represents the redemption of 12,061,041 shares of Class A common stock in exchange for cash held in the Trust Account. |
|
(7) |
Represents an adjustment to revise non-controlling interests to the post-Business Combination ownership percentage in Sky of 73.9%. |
I–Issued and outstanding shares for each class of common stock and preferred stock as of December 31, 2021 on a historical basis and on a proforma basis are as follows:
|
|
Historical |
Proforma |
||||||||||||||
|
|
Issued |
Outstanding |
Issued |
Outstanding |
||||||||||||
|
Preferred Stock |
- | - | - | - | ||||||||||||
|
Common Stock - Class A |
||||||||||||||||
|
YAC's Class A stockholders(1) |
13,598,898 | 13,598,898 | 1,537,857 | 1,537,857 | ||||||||||||
|
BOC PIPE Investment (2) |
- | - | 4,500,000 | 4,500,000 | ||||||||||||
|
BOC YAC's converted Series B Preferred Units (3) |
- | - | 5,500,000 | 5,500,000 | ||||||||||||
|
YAC's converted founder shares (4) |
- | - | 3,193,474 | 3,193,474 | ||||||||||||
|
BOC Yellowstone II LLC (5) |
206,250 | 206,250 | ||||||||||||||
|
Total Common Stock - Class A |
13,598,898 | 13,598,898 | 14,937,581 | 14,937,581 | ||||||||||||
|
Common stock - Class B |
||||||||||||||||
|
YAC's founder shares (4) |
3,399,724 | 3,399,724 | - | - | ||||||||||||
|
Existing Sky Equityholders' rollover equity (6) |
- | - | 42,192,250 | 42,192,250 | ||||||||||||
|
Total Common Stock - Class B |
3,399,724 | 3,399,724 | 42,192,250 | 42,192,250 | ||||||||||||
|
Total Common Stock |
16,998,622 | 16,998,622 | 57,129,831 | 57,129,831 | ||||||||||||
|
(1) |
Represents the shares held by YAC’s public stockholders giving effect to the redemption of 12,061,041 shares of Class A common stock. The historical issued and outstanding shares were recorded in temporary equity because they were subject to possible redemption. |
|
(2) |
Represents the shares that were issued to Boston Omaha in consideration of the $45,000,000 BOC PIPE investment. |
|
(3) |
Represents the shares of Class A common stock held by BOC YAC as the holder of Series B Preferred Units of Sky upon the one-for-one conversion of the Series B Preferred Units into Class A common stock immediately prior to the consummation of the Business Combination. |
|
(4) |
Represents the shares of Class B common stock held by the initial stockholders of YAC upon the one-for-one conversion of the founder shares into Class A common stock immediately prior to the consummation of the Business Combination. |
|
(5) |
Represents 206,250 class A common stock held by BOC Yellowstone II LLC. |
|
(6) |
Represents the shares of Class B common stock issued to consummate the Business Combination. |
NOTE 3 – ADJUSTMENTS TO UNAUDITED PROFORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS FOR THE YEARENDED DECEMBER 31, 2021
The unaudited proforma condensed combined statements of operations for the years ended December 31, 2021 and 2020 include the following adjustments:
|
aa |
– Represents the reversal of certain expenses incurred by YAC during the year ended and accrued as of December 31, 2021 but paid on the Closing Date and included in equity issuance costs. |
|
bb |
– Represents the elimination of gains or losses on the Investments held in Trust. |
|
cc |
– Represents an adjustment to attribute net loss to non-controlling interests based on its 73.9% post-Business Combination ownership percentage in Sky. |
|
dd |
– Represents the proforma weighted average shares of common stock outstanding and proforma loss per share calculated after giving effect to the Transactions, as follows: |
|
For the Year ended December 31, 2021 |
||||
|
Numerator |
||||
|
Pro forma net loss attributable to controlling interests |
$ | (2,593,341 | ) | |
|
Denominator |
||||
|
YAC Class A stockholders (1) |
1,537,857 | |||
|
YAC's converted founder shares (2) |
3,193,474 | |||
|
BOC YAC Initial Investment (3) |
5,500,000 | |||
|
BOC PIPE Investment (4) |
4,500,000 | |||
|
Others (5) |
206,250 | |||
|
Basic and diluted weighted average shares outstanding |
14,937,581 | |||
|
Loss per share |
||||
|
Basic and diluted (6) |
$ | (0.17 | ) | |
|
(1) |
Represents the shares of Class A common stock held by YAC’s public stockholders after the redemption of 12,061,041 shares of Class A common stock. As the Transactions are assumed to have occurred as of January 1, 2021 for purposes of preparing the proforma condensed combined statements of operations, the weighted average shares outstanding reflect the net amount of 1,537,857 shares of common stock as outstanding for the entire 12-month period of 2021. |
|
(2) |
Represents the shares of YAC Class B common stock held by the initial stockholders of YAC upon the one-for-one conversion of the founder shares into Class A common stock immediately prior to the consummation of the Business Combination. Consistent with the assumption related to the Transactions, this conversion is assumed to have occurred on January 1, 2021 and, accordingly, these shares are assumed to have been outstanding shares of common stock for the entire 12-month periods of 2021. |
|
(3) |
Represents the shares of Class A common stock held by BOC YAC as the holders of Series B Preferred Units of Sky upon the one-for-one conversion of the Series B Preferred Units into Class A common stock immediately prior to the consummation of the Business Combination. Consistent with the assumption related to the Transactions, this conversion is assumed to have occurred on January 1, 2021 and, accordingly, these shares are assumed to have been outstanding shares of common stock for the entire 12-month periods of 2021. |
|
(4) |
Represents the shares that were issued in consideration of the BOC PIPE investment. Consistent with the assumption related to the Transactions, the BOC PIPE investment is assumed to have occurred on January 1, 2021 and, accordingly, these shares are assumed to have been outstanding shares of common stock for the entire 12-month periods of 2021. |
|
(5) |
Represents 206,250 class A common stock held by BOC Yellowstone II LLC. |
|
(6) |
Potentially dilutive shares have been deemed to be anti-dilutive due to the net loss position and, accordingly, have been excluded from the calculation of diluted loss per share. Potentially dilutive shares that have been excluded from the determination of diluted loss per share include 14,519,228 outstanding warrants issued in connection with the IPO. |