Sky Harbour Group Corp

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023

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

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

As a result of the closing of the Yellowstone Transaction, and collectively with the other transaction described in the Equity Purchase Agreement, the Company was reorganized as an umbrella partnership-C corporation, or “Up-C”, structure in which substantially all of the operating assets of the Company are held by Sky and SHG’s only substantive assets are its equity interests in Sky (the “Common Units”). As of the Closing Date, SHG owned approximately 26.1% of the common units of Sky (the “Sky Common Units”), and the prior holders of Sky’s Existing Common Units (the “LLC Interests”) owned approximately 73.9% of the Sky Common Units and control the Company through their ownership of the Class B Common Stock, $0.0001 par value (“Class B Common Stock”) of the Company. As of* December 31,*2023, the Company and the LLC Interests owned approximately 36.5% and 63.5% of Sky Common Units, respectively. See Notes2 and3 for additional discussion related to the Yellowstone Transaction.

Basis of Presentation

The accompanying consolidated financial statements and the related notes (the “Financial Statements”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission. These Financial Statements include the accounts of the Company and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

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

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

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

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

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

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

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

Thus, the financial statements included in this Report reflect (i) the historical operating results of Sky prior to the Yellowstone Transaction; (ii) the combined results of Sky and SHG from the date of the Yellowstone Transaction; and (iii) the net assets of SHG (formerly YAC) were stated at historical cost, withno goodwill or other intangible assets recorded.

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Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include assumptions used within impairment analyses, estimated useful lives of depreciable assets and amortizable costs, estimates of inputs utilized in determining the fair value of financial instruments such as warrants, estimates and assumptions related to right-of-use assets and operating lease liabilities, and estimates and assumptions used in the determination of the fair value of assets acquired and liabilities assumed in business combinations. Actual results could differ materially from those estimates.

Risks and Uncertainties

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

Liquidity and Capital Resources

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

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

Significant Accounting Policies

Basis of Consolidation

SHG is deemed to have a controlling interest of Sky through its appointment as the Managing Member of Sky, in which SHG has control over the affairs and decision-making of Sky. The interests in Skynot owned by the Company are presented as non-controlling interests. Sky’s ownership percentage in each of its consolidated subsidiaries is 100%, unless otherwise disclosed.

Cash and Restricted Cash

The Company’s cash is held at a major commercial bank, which cash balance* mayat times exceed the Federal Deposit Insurance Corporation limit. To date, the Company hasnot* experienced any losses on its cash deposits. The Company monitors the relative credit standing of financial institutions with whom the Company transacts and limits the amount of credit exposure with anyone entity.

Pursuant to the Company’s bond offering described in Note10 — Bonds Payable, Loans Payable, and Interest, various restricted trust bank accounts were established at a major financial institution. Such trust bank accounts are included in Restricted cash and Restricted investments on the consolidated balance sheet as of* December 31,2023 and December 31,*2022.

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Investments

Investments of the Company's cash in various U.S. Treasury securities have been classified as available-for-sale and are carried at estimated fair value utilizing Level1 inputs as determined based upon quoted market prices.

Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive income (loss). The Company periodically evaluates whether declines in fair values of its available-for-sale securities below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company's ability and intent to hold the available-for-sale security until a forecasted recovery occurs or its contractual maturity. Additionally, the Company assesses whether it has plans to sell the security or it is more likely thannot it will be required to sell any available-for-sale securities before recovery of its amortized cost basis. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in other (income) expenses. The costs of investments sold is based on the specific-identification method.

Restricted Investments Held-to-Maturity

Pursuant to provisions within the Master Indenture of the Series2021 Bonds, as defined in Note10 — Bonds Payable, Loans Payable, and Interest, the Company invests the funds held in the restricted trust bank accounts in various U.S. Treasury securities. Therefore, such investments are reported as “Restricted investments” in the accompanying consolidated balance sheets. The fair value of the Company’s restricted investments is estimated utilizing Level1 inputs including prices for U.S. Treasury securities with comparable maturities on active markets.

Unrealized losses on certain of the Company's investments and restricted investments are primarily attributable to changes in interest rates. The Company doesnot believe the unrealized losses represent impairments because the unrealized losses are due to general market factors. The Company hasnot recognized an allowance for expected credit losses related to its investments or restricted investments as the Company hasnot identified any unrealized losses attributable to credit factors during the years ended* December 31, 2023and December 31, 2022.The Company has the ability and intent to hold these restricted investments until maturity, and as a result, the Company wouldnot* expect the value of these investments to decline significantly due to a sudden change in market interest rates. The held-to-maturity restricted investments are carried on the consolidated balance sheet at amortized cost.

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. Activities associated with internally manufactured hangar buildings, including materials, direct manufacturing labor, and manufacturing overhead directly identifiable with such activities are allocated to our construction projects and capitalized. The Company allocates a portion of its internal salaries to both capitalized cost of construction and to general and administrative expense based on the percentage of time certain employees worked in the related areas. Interest, net of the amortization of debt issuance costs and premiums, and net of interest income earned on bond proceeds, is also capitalized until the capital project is completed.

Constructed assets, net

Constructed assets on the consolidated balance sheets consists of developed aircraft 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.

Other long-lived assets

Long-lived assets on the consolidated balance sheets consists principally of land, buildings, machinery and equipment, ground support equipment, software, and computer equipment. 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 3 to 20 years, based on the estimated useful life of the assets.

Impairment of long-lived assets

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

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Leases

The Company accounts for leases under Accounting Standards Codification (“ASC”) Topic842, Leases. The Company determines whether a contract contains a lease at the inception of the contract. ASC Topic842 requires lessees to recognize lease liabilities and right-of-use (“ROU”) assets for all operating leases with terms of more than12 months on the consolidated balance sheets. The Company has made an accounting policy election tonot recognize leases with an initial term of12 months or less on 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.

The Company has lease agreements with lease and non-lease components; the Company has elected the accounting policy tonot separate lease and non-lease components for all underlying asset classes. The Company hasnot 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 as a component of operating expenses in the consolidated statements of operations.

All of the Company’s ground leases at airports are classified as operating leases under ASC Topic842. Management has determined that it is reasonably certain that the Company will exercise its options to renew the leases, and therefore the renewal options are included in the lease term and the resulting ROU asset and operating lease liability balances. As the Company’s lease agreements donot provide a readily determinable implicit rate, nor is the rate available to the Company from its lessors, the Company uses its incremental borrowing rate to determine the present value of the lease payments.

The Company has operating 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 operating lease liability balances since they arenot fixed or in-substance fixed payments. These variable payments werenot material in amount for both of the years ended* December 31,*2023 and2022. Some of the leases contain covenants that require the Company to construct the hangar facilities on the leased grounds within a certain period and spend a set minimum dollar amount. Forone of the leases, the shortfall (if any) must be paid to the lessor. See Note17 — Commitments and Contingencies.

Warrants liability

The Company accounts for the warrants assumed in the Yellowstone Transaction and the warrants sold and issued in connection with the Private Placement Purchase Agreement (as defined in Note12** —Equity and Redeemable Equity) in accordance with the guidance contained in ASC Topic815, “Derivatives and Hedging” (“ASC815”), under which warrants that donot meet the criteria for equity classification and must be recorded as derivative liabilities. Accordingly, the Company classifies the warrants as liabilities carried at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the warrants are exercised or expire, and any change in fair value is recognized as an unrealized gain or loss in the consolidated statements of operations.

Fair Value of Financial Instruments

ASC Topic820, 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 Topic820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value intothree levels: Level1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities; Level2 – quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that arenot active or other inputs that are observable or can be corroborated by observable market data; and Level3 – unobservable inputs that are supported by little orno market activity and that are significant to the fair value of the assets and liabilities. The fair value hierarchy gives the highest priority to Level1 inputs and the lowest priority to Level3 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 Level2 and3 inputs in determining the fair value of financial and non-financial assets and liabilities. Accordingly, fair value estimates* maybe different than the amounts that may*ultimately be realized upon sale or disposition of these assets or settlement of these liabilities.

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Business Combinations

The Company accounts for business combinations using the acquisition method of accounting under ASC Topic805, Business Combinations, whereby the total purchase price is allocated to tangible and intangible assets acquired and liabilities assumed based on respective estimated fair values. The initial valuations are derived from estimated fair value assessments and assumptions used by managements. The excess of the acquisition price over those estimated fair values, if any, is recorded as goodwill. Transaction-related expenses and restructuring costs, if any, are expensed as incurred.

Revenue recognition

The Company leases the hangar facilities that it constructs tothird parties. The Company determines whether a contract contains a lease at the inception of the contract. The lease agreements are either on a month-to-month basis or have a defined term and* mayhave options to extend the term. Some of the leases contain options to terminate the lease by either party with given notice. The Company expects to continue to derive benefit from the underlying assets after the end of the lease term through further leasing arrangements. The underlying assets are the leasehold interest that the Company has in connection with its ground leases. There areno* options given to the lessee to purchase the underlying assets.

Rental revenue is recognized in accordance with ASC842 and includes fixed payments of cash rents, which represents revenue each tenant pays in accordance with the terms of its respective lease and is recognized on a straight-line basis over the term of the lease. Rental revenue and the corresponding rent and other receivables are recorded net of any concessions and uncollectible tenant receivables for all periods presented. The Company evaluates the collectability of tenant receivables for payments required under the lease agreements. If the Company determines that collectability isnot probable, the Company recognizes any difference between revenue amounts recognized to date under ASC842 and payments that have been collected from the lessee, including any additional rent or lease termination fees, as a current period adjustment to rental revenue.

Variable lease payments consist of tenant reimbursements for common area maintenance, utilities, and operating expenses of the property, and various other fees, including fees associated with the delivery of aircraft fuel, late fees, and lease termination fees. Variable lease payments are charged based on the terms and conditions included in the respective tenant leases and are recognized in the same period as the expenses are incurred. For the years ended* December 31, 2023and December 31, 2022,rental revenue includes $1,565 and $156 of variable lease payments, respectively. Variable lease revenue recognized during the year ended December 31,*2023 included a negotiated lease termination fee received from a tenant oftwo hangars at OPF whereby the Company agreed to release the tenant from its lease obligations in exchange for approximately 8.5 months of additional rent.

As of* December 31, 2023and December 31, 2022,the deferred rent receivable included in prepaid expenses and other assets was $367 and $83, respectively. Rent received in advance represents tenant payments received prior to the contractual due date, and is included in accounts payable, accrued expenses, and other liabilities in the consolidated balance sheet. Rent received in advance consisted of $241 and $95 as of December 31, 2023and December 31, 2022,*respectively.

For the year ended* December 31, 2023and2022*, the Company derived 30% and 78% of its revenue fromtwo tenants, respectively.

Advertising Costs

The Company expenses the cost of advertising and marketing as incurred. Advertising and marketing costs recognized as general and administrative expenses totaled $279 for the year ended* December 31,2023, and $340 for the year ended December 31,*2022.

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Income Taxes

SHG is classified as a corporation for Federal income tax purposes and is subject to U.S. Federal and state income taxes. SHG includes in income, for U.S. Federal income tax purposes, its allocable portion of income from the “pass-through” entities in which it holds an interest, including Sky. The “pass-through” entities, arenot subject to U.S. Federal and certain state income taxes at the entity level, and instead, the tax liabilities with respect to taxable income are passed through to the members, including SHG. As a result, prior to the Yellowstone Transaction, Sky wasnot subject to U.S. Federal and certain state income taxes at the entity level.

The Company follows the asset and liability method of accounting for income taxes. This method gives consideration to the future tax consequences associated with the differences between the financial accounting and tax basis of the assets and liabilities as well as the ultimate realization of any deferred tax asset resulting from such differences, as well as from net operating losses and other tax-basis carryforwards. Valuation allowances are recorded to reduce deferred tax assets when it is more likely thannot that a tax benefit willnot be realized. When a valuation allowance is increased or decreased, a corresponding tax expense or benefit is recorded.

Amounts payable under the Tax Receivable Agreement, as defined in Note3 — Yellowstone Transaction, are accrued by a charge to income when it is probable that a liability has been incurred and the amount is estimable.

Recently Adopted Accounting Pronouncements

Credit Losses (Topic326*)*

In* June 2016,the FASB issued ASUNo.* 2016-13, Financial Instruments - Credit Losses (Topic326*): Measurement of Credit Losses on Financial Instruments* (“ASU2016-13”). Subsequent to the issuance of ASU2016-13, the FASB clarified the guidance through several ASUs. The collective new guidance (ASC326) generally requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used and establishes additional disclosures related to credit risks. The Company adopted this guidance using the modified retrospective method in thefirst quarter of fiscal year2023. The adoption didnot have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

Segment Reporting (Topic280*)*

In* November**2023,* the FASB issued ASUNo. 2023-07, Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures*, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The disclosure requirements included in ASUNo. 2023-07 are required for all public entities, including entities with a single reportable segment. ASUNo. 2023-07 is effective for fiscal years beginning after* December 15,2023, and interim periods within fiscal years beginning after December 15, 2024,*and early adoption is permitted. The guidance is required to be applied on a retrospective basis. We are currently evaluating the impact of the standard on our consolidated financial statement disclosures.

Income Taxes (Topic740*)*

In* December 2023,the FASB issued ASUNo.* 2023-09, Income Taxes (Topic740*): Improvements to Income Tax Disclosures*. The amendments in this update apply to all entities that are subject to Topic740,** Income Taxes. The standard requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The amendments in this update are effective for annual periods beginning after* December 15, 2024.*The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of this updated standard on its disclosures to the consolidated financial statements.

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As contemplated by the Equity Purchase Agreement, on the Closing Date, the following occurred:

• YAC changed its name to Sky Harbour Group Corporation.

• All outstanding shares of stock held by the Sponsor were converted into shares of Class A Common Stock of the Company.

• Sky restructured its capitalization and issued to the Company 14,937,581 Sky Common Units, which was equal to the number of outstanding shares of Class A Common Stock immediately after giving effect to the Equity Purchase Agreement. The number of outstanding shares after the Equity Purchase Agreement reflected the redemption of Class A Common Stock (by former holders of the special purpose acquisition company shares that elected to redeem such shares) and the Class A Common Stock issued as a result of the BOC PIPE investment (the “BOC PIPE”), the reclassification of the existing Sky Common Units (other than the Sky Incentive Units), existing Sky Series A preferred units (the “Series A Preferred Units”) and Series B preferred units (the “Series B Preferred Units”) into Sky Common Units.

• Certain adjustments were affected to the number of Sky Incentive Units to reflect the new capital structure.

• SHG was appointed as the managing member of Sky under the Third Amended and Restated Operating Agreement (the “A&R Operating Agreement”).

• The Sky Common Units issued to the Sponsor in respect of Sky’s Series B Preferred Units were converted into 5,500,000 shares of Class A Common Stock of the Company.

• The LLC Interests receivedone share of Class B Common Stock for each Sky Common Unit that they held, and as consideration for the issuance of 14,937,581 Sky Common Units by Sky to the Company, YAC contributed to Sky the net amount held in the YAC trust account after deducting the amount required 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 and the amount of various transaction costs.

• The YAC Warrants that were issued and outstanding immediately prior to the Closing Date became SHG Warrants.

The following table reconciles the elements of the Yellowstone Transaction to the consolidated statements of changes in equity for the year ended* December 31, 2022:*

The following table reconciles the number of shares of SHG Common Stock immediately following the consummation of the Yellowstone Transaction:

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Tax Receivable Agreement

On the Closing Date, in connection with the completion of the Yellowstone Transaction and as contemplated by the Equity Purchase Agreement, the Company, Sky, the LLC Interests, and the TRA Holder Representative, entered into a tax receivable agreement (the “Tax Receivable Agreement”). Pursuant to the Tax Receivable Agreement, the Company will generally be required to pay the LLC Interests 85% of the amount of savings, if any, in U.S. federal, state, local, and foreign taxes that are based on, or measured with respect to, net income or profits, and any interest related thereto that the Company realizes, or is deemed to realize, as a result of certain tax attributes, including:

• existing tax basis in certain assets of Sky and certain of its direct or indirect subsidiaries, including assets that will eventually be subject to depreciation or amortization, once placed in service, attributable to Sky Common Units acquired by the Company from a TRA Holder, as determined at the time of the relevant acquisition;

• tax basis adjustments resulting from taxable exchanges of Sky Common Units (including any such adjustments resulting from certain payments made by the Company under the Tax Receivable Agreement) acquired by the Company from a TRA Holder pursuant to the terms of the A&R Operating Agreement; and

• tax deductions in respect of portions of certain payments made under the Tax Receivable Agreement (each of the foregoing, collectively, the “Tax Attributes”).

As of* December 31,*2023, no transactions occurred that would result in a cash tax savings benefit that would trigger the recording of a liability under the terms of the Tax Receivable Agreement.

On* May 12, 2023 (*the “Option Exercise Date”), Sky exercised its option to acquire a 51% equity interest in Overflow Ltd., a Texas limited partnership (“Overflow”), and its wholly-owned operating subsidiary, Rapidbuilt, Inc., a Texas corporation (“Rapidbuilt”), for nominal consideration (the “Rapidbuilt Acquisition”). As a result of the Rapidbuilt Acquisition, Weatherford Steel Buildings Holdings LLC, a Delaware limited liability company and wholly-owned subsidiary of Sky (“WSBH”), owns a 50% limited partnership interest in Overflow, and Weatherford Steel Buildings GP LLC, a Delaware limited liability company and wholly-owned subsidiary of Sky (“WSB GP”), owns a 1% general partnership interest in Overflow.

Rapidbuilt is a manufacturer of pre-engineered steel buildings that previously entered into a supplier arrangement with Sky. Rapidbuilt and Sky’s strategic partnership has resulted in a standard set of proprietary prototype hangar designs, which are intended to deliver high-quality business aviation facilities, lower construction costs, minimize development risk, expedite permit issuance, and facilitate the implementation of refinements across Sky’s portfolio. The Company had pre-existing relationships with Rapidbuilt through a vendor agreement entered into in* July 2022*to acquire construction materials related to the Company's development projects (the "Rapidbuilt Vendor Agreement") and a revolving line of credit loan and security agreement (the "Rapidbuilt Loan Agreement") to fund the working capital requirement of Rapidbuilt. These pre-existing relationships were effectively settled in the acquisition and the net receivable balance of $44 is included within the consideration transferred.No gain or loss was recognized in the effective settlement of the Rapidbuilt Vendor Agreement and the Rapidbuilt Loan Agreement.

The total cash purchase consideration was nominal. The Company accounted for the acquisition using the acquisition method of accounting, whereby the total purchase price was allocated to assets acquired and liabilities assumed based on respective estimated fair values. The estimated fair values of the acquired assets and assume liabilities are based on preliminary calculations and subject to further refinement and* mayrequire adjustments to arrive at the final purchase price accounting. The Company expects the final purchase price allocation to be completed in a period of time that willnot* exceedone year from the Option Exercise Date. There can beno assurance that such finalization willnot result in material changes from the preliminary purchase price allocation.

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

Following the Rapidbuilt Acquisition, substantially all of Overflow and Rapidbuilt's activities relate to the manufacturing of pre-engineering hangar structures for Sky's hangar development projects. As such, the pro-forma effect of this acquisition on revenues and earnings wasnot material. The transaction costs associated with the acquisition were immaterial for the year ended* December 31, 2023.*

.

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

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

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

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

The BNA, OPF Phase I, and SGR projects are being depreciated over a weighted-average useful life of approximately 47.0 years. Depreciation expense for the year ended* December 31,*2023 and2022 totaled $1,737 and $633, respectively.

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

Long-lived assets are being depreciated over a weighted-average use life of approximately 11.2 years. Depreciation expense for the year ended* December 31,2023 and2022 totaled $541 and $61, respectively. Capitalized depreciation of long-lived assets included in cost of construction totaled $331 and $0 for the years ended December 31, 2023and December 31, 2022,respectively.As of December 31,2023 and December 31,*2022, long-lived assets included approximately $362 and $650, respectively, of purchase deposits towards long-lived assets which arenot being depreciated as the assets havenot been placed into service.

In* June 2022,the Company evaluated the development progress related to its smart hangar app. This evaluation included the decision to abandon previous software development efforts and the transition of development efforts to a newthird*-party development company. In connection with this evaluation, the Company determined that previously capitalized software costs associated with the abandoned development werenot recoverable and recognized an impairment loss of $248 during the year ended* December 31, 2022.*

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Accounts payable, accrued expenses and other liabilities

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

Supplemental Cash Flow Information

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

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

The following table summarizes interest paid:

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:

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Lessee

The table below summarizes operating lease expense for the years ended* December 31, 2023and December 31, 2022*recorded in the captions within our consolidated statement of operations:

The Company’s ground leases have remaining terms ranging between 26 to 73 years, including options for the Company to extend the terms. These leases expire between2049 and2097, which include all lease extension options available to the Company. Certain of the Company's ground leases contain options to lease additional parcels of land at the Company's option within a specified period of time. In addition to the Company’s ground leases, the company has operating leases for office space and ground support vehicles, and finance leases for vehicles supporting operations at Rapidbuilt.

The Company’s ground lease at OPF was entered into in* May 2019through its wholly owned subsidiary, Sky Harbour Opa Locka Airport LLC (“SHOLA”), with AA Acquisitions LLC (“AA”). AA is the master ground lessee of Miami Dade County (“MDC”), the ultimate landowner. On April 29, 2022,the Company, through a wholly-owned subsidiary outside the Obligated Group (as defined in Note10* — Bonds Payable, Loans Payable, and Interest), purchased AA’s underlying interest in the ground lease for approximately $8.5 million and now leases the OPF property directly from MDC (the “OPF Lease Transaction”). The OPF Lease Transaction also required the Company to pay approximately $1.0 million in assignment fees to MDC, which, along with the $8.5 million purchase price, were recognized as initial direct costs and presented as a component of right-of-use assets. Following the OPF Lease Transaction, SHOLA continues to be obligated under the existing sublease but to an affiliate within the Company. The OPF Lease Transaction extends the term of the lease at OPF for the Company to approximately 57 years. The Company has accounted for the OPF Lease Transaction as a lease modification requiring remeasurement and remeasured the right-of-use asset and operating lease liability utilizing the Company’s incremental borrowing rate as of the date of remeasurement. As a result of the remeasurement, non-cash subtractions to the right-of-use asset and operating lease liability of $12,289 were recorded during* April**2022.*

In* January**2023,* the Company executed a lease amendment with the Town of Addison, Texas, to addtwo additional parcels of land (the "ADS Expansion Parcels") to the existing lease at ADS (the "ADS Lease"). The land associated with the ADS Expansion Parcels became available for possession in* June 2023forone* parcel, and is expected to become available for possession in* July 2024for the other. The lease term for the ADS Expansion Parcels will be 40 years from the completion of construction for each respective parcel, and will effectively extend the term of the existing ADS Lease to be co-terminus with the ADS Expansion Parcels. The ADS Lease and the ADS Expansion Parcels containno* additional extension options as the lease term is the maximum allowable term permitted by the Town of Addison.

In* October**2023,* the Company, through a wholly-owned subsidiary of the Company, entered into a ground lease agreement (the "PWK Lease") with PWK. The PWK Lease is divided intotwo parcels, with thefirst parcel containing approximately15 acres of land ("PWK Phase I"). Under the terms of the PWK Lease, it is the intent of PWK to grant the Company asecond parcel containing approximately10 acres of land ("PWK Phase II"). The grant of the PWK Phase II land is at the sole discretion of PWK following the Company's completion of its development project at PWK Phase I. The term of the PWK Lease will be 50 years from the acceptance of the PWK Phase I parcel following customary due diligence and completion of a land survey, with lease payments commencing following the completion of construction. The PWK Lease containsno additional extension options exercisable by the Company or PWK.

The Company was subject to requirements in its ground lease at SGR with respect to the Company's contemplated SGR Phase II project that defined (i) a minimum improvement amount of $2.0 million and (ii) that related construction commence by* October 2023,unless otherwise waived or amended. In October 2023,the Company allowed the ground lease associated with the parcels designated for the SGR Phase II project to automatically terminate. The Company didnot* incur any lease termination penalties, nor had it capitalized any historical costs associated with the contemplated SGR Phase II project.

In* December 2023,the Company, through a wholly-owned subsidiary of the Company, entered into a ground lease agreement (the “BDL Lease”) at BDL with the Connecticut Airport Authority (“CAA”). The BDL Lease covers a parcel containing approximately8* acres of land at BDL. The initial term of the BDL Lease will be 30 years from the earlier of the date of completion of construction or* June 30, 2026,with lease payments commencing contemporaneously with the term. The BDL Lease contains options exercisable by the Company to extend the BDL Lease an additional20* years following the expiration of the initial term. The BDL Lease contains customary milestones by which the Company must submit site design plans and financing plans.

In* December 2023,the Company, through a wholly-owned subsidiary of the Company, entered into a ground lease agreement at POU with the County of Dutchess, New York (the “POU Lease”). The POU Lease coverstwo parcels containing approximately7* acres of land at POU. The initial term of the POU Lease will be 15 years from the date of completion of construction, with lease payments commencing upon the earlier of completion of construction or* December 2025.The POU Lease contains language permitting the Company to extend the POU Lease an additional25* years at any point following the execution of the POU Lease, subject to Dutchess County legislative approval. The Company intends to seek the25-year extension in thefirst half of2024. The POU Lease contains a customary due diligence period in which the Company holds the right to terminate the POU Lease within270 days of its execution, as well as customary deadlines by which the Company must submit site design plans and commence construction.

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

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

The Company’s future minimum lease payments required under leases as of* December 31,*2023 were as follows:

Lessor

Tenant leases to which the Company is the lessor require the following non-cancelable future minimum lease payments from tenants as of* December 31,*2023:

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Bonds payable

On* May 20, 2021,Sky 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 itsfirst* six ground leases. Sky Harbour Capital LLC and these subsidiaries form an Obligated Group (the “Obligated Group” or the “Borrowers”) under a series of bonds that were issued in* September 2021with a principal amount of $166.3 million (the “Series2021* Bonds”). The members of the Obligated Group are jointly and severally liable under the Series2021 Bonds. SHG and its other subsidiaries arenot members of the Obligated Group and haveno obligation to repay the bonds.

The Series2021 Bonds are payable pursuant to a loan agreement dated* September 1, 2021between 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, Series2021*-1 issued by the Obligated Group under an indenture (the “Master Indenture”). The obligations of the Borrowers are collateralized by certain leasehold and sub-leasehold 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 afirst 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, Sky, Sky Harbour Holdings LLC and Sky Harbour Capital LLC have each pledged as collateral its respective ownership interest in any of the Borrowers.

The bond trustee established various restricted bank accounts which were initially funded with the bond proceeds and cash on hand. 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 thetwo phases of OPF, BNA, DVT, APA, and ADS Phase I, with certain approvals and supplemental reports, up to $25 million 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 $98.8 million, of which $10.6 million and $88.2 million and included in Restricted cash and Restricted investments, respectively, on the consolidated balance sheet as of* December 31,*2023.

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 willnot 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 than1.0,* the parent companies of the Borrowers will make contributions to the borrowers or otherwise cause the Debt Service Coverage Ratio to be at least1.0 within10 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, within120 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 Series2021 Bonds have principal amounts, interest rates, and maturity dates as follow: $21.1 million bearing interest at 4.00%, due* July 1, 2036;$30.4 million bearing interest at 4.00%, due July 1, 2041;and $114.8 million bearing interest at 4.25%, due July 1, 2054.The Series2021* Bond that has a maturity date of* July 1, 2036was issued at a premium, and the Company received bond proceeds that were $0.2 million 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 1and July 1,commencing January 1, 2022.Principal repayments due under the Series2021* Bonds are paid annually, commencing* July 1, 2032.*

The bonds maturing on* July 1, 2036are 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, 2041and July 1, 2054are 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 Series2021 Bonds are mandatorily redeemable upon the occurrence of certain events. Upon the sale of an asset by any Borrower, the applicable portion of the Series2021 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 doesnot qualify as being excludable from the gross income of the holder (with limited exclusions), the Series2021 Bonds are subject to mandatory redemption within60 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 Series2021 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.

As of* December 31, 2023and December 31, 2022,the fair value of the Company's Series2021* Bonds was approximately $116.5 million and $119.5 million, respectively. The fair value of the Company's bonds is estimated utilizing Level2 inputs including prices for the bonds on inactive markets.

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

In connection with the issuance of the Bonds Payable, the Company originally recognized debt issuance costs totaling $6 million 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. During the year ended* December 31, 2022,*the Company received a refund of approximately $1.2 million of debt issuance costs associated with the issuance of the Bonds Payable, and recognized the refund as a reduction of debt issuance costs.

Vista Loan and Guaranty Agreement

In connection with the Rapidbuilt Acquisition, Sky and Vista Bank (the “Lender”) entered into a consent, waiver, andsecond amendment (the “Loan Amendment”) and a guaranty agreement (the “Guaranty Agreement”) associated with the senior loan agreement between Overflow and Rapidbuilt (collectively, the “Rapidbuilt Borrowers”), and the Lender (the “Vista Loan”). Pursuant to the Loan Amendment, (i) the Lender consented to the change in control with respect to the Rapidbuilt Borrowers; (ii) the Lender waived any pre-existing events of default on the part of the Rapidbuilt Borrowers; (iii) the Lender agreed to release certain borrowed funds held in reserve, subject to specified terms and conditions; and (iv) the Rapidbuilt Borrowers agreed to certain reserve enhancement obligations, including the ability to repay principal early at the sole discretion of the Rapidbuilt Borrowers. Pursuant to the Guaranty Agreement, all of the Rapidbuilt Borrowers’ obligations under the Vista Loan will be guaranteed by Sky.

The Vista Loan was originated in* December 2020between the Borrowers and the Lender and had approximately $10.3 million outstanding as of the Option Exercise Date. The Vista Loan accrues interest at a per annum rate equal to 3.00% above thethree*-month secured overnight financing rate published forfirst day of each calendar quarter by the Federal Reserve Bank of New York. Interest is payable on a monthly basis, and the Rapidbuilt Borrowers agreed to make certain reserve enhancement payments on* January 1,** April 1,** July 1,and October 1of each calendar year. The maturity date of the Vista Loan is December 1, 2025.*The Vista Loan is secured by the accounts, intellectual property, equipment, inventory, vehicles, and property of the Rapidbuilt Borrowers, and contains customary affirmative and negative covenants.

Loans Payable and Finance Leases

The following table summarizes the Company's loans payable and finance lease liabilities as of* December 31, 2023and December 31, 2022:*

Interest

The following table sets forth the details of interest expense:

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As part of Yellowstone’s initial public offering, Yellowstone issued tothird-party investors 6,799,439 warrants which entitled the holder to purchaseone share of Class A Common Stock at an exercise price of $11.50 per share (the “Public Warrants”). In addition,7,719,779 private placement warrants were sold to the Sponsor. Each Private Warrant allows the Sponsor to purchaseone share of Class A Common Stock at an exercise price of $11.50 per share. Following the Yellowstone Transaction, the Public Warrants and Private Warrants remain outstanding under the same terms and conditions to purchase shares of the Company’s Class A Common Stock. The terms of the Private Warrants are identical to those of the Public Warrants, except for that so long as the Private Warrants are held by the Sponsor or its permitted transferees, they* may*be exercised on a cashless basis.

In connection with the Private Placement Purchase Agreement, the Company issued tothird-party investors 1,541,600 PIPE Warrants (together with the Public Warrants and the Private Warrants, the “Warrants”). The PIPE Warrants are similar in form and substance to the Company’s Public Warrants.

The Warrants contain an exercise price of $11.50 per share and expire on* January 25, 2027.The Company determined the fair value of its Public Warrants and PIPE Warrants based on the publicly listed trading price as of the valuation date. Accordingly, these warrants are classified as Level1* financial instruments. As the terms of the Private Warrants are identical to those of the Public Warrants, the Company determined the fair value of its Private Warrants based on the publicly listed trading price of the Public Warrants as of the valuation date and have classified the Private Warrants as Level2 financial instruments.

As of* December 31,2023,6,798,974 and 7,719,779 Public and Private Warrants remain outstanding, respectively. As of December 31, 2023,*the aggregate number of PIPE Warrants outstanding was 1,541,600.

The closing price of the Warrants was $0.75 and $0.20 per warrant on* December 31,2023 and December 31, 2022,respectively. The aggregate fair value of the Warrants was approximately $12.0 million and $2.9 million as of December 31,2023 and December 31, 2022,respectively. During the year ended December 31,2023, the Company recorded an unrealized loss of approximately $8.6 million. During the year ended December 31, 2022,*the Company recorded an unrealized gain of approximately $5.1 million.

Prior to the Yellowstone Transaction

Sky and its members initially entered into a Limited Liability Company Agreement on* February 12, 2018.This LLC agreement was subsequently amended and restated on March 12, 2021 (the “First A&R Operating Agreement”), which was again amended and restated on September 14, 2021 (the “Second A&R Operating Agreement”). On January 25, 2022,*in connection with the Yellowstone Transaction, Sky, its members, and SHG entered into the A&R Operating Agreement.

On* August 1, 2021,Sky entered into the Equity Purchase Agreement with Yellowstone. In conjunction with the Equity Purchase Agreement, Boston Omaha Corporation agreed to invest $55.0 million of equity in the form of Redeemable Series B Preferred Units through its affiliate BOC YAC Funding LLC (“BOC YAC”). On September 14, 2021,Sky issued 8,049 Series B Preferred Units to BOC YAC in exchange for the $55.0 million. The Series B Preferred Units contained redemption rights for both Sky and for the holders of the Series B Preferred Units under certain circumstances. Because the Series B Preferred Units were redeemable in cash, they were previously classified as Temporary Equity, between the Liabilities and Equity sections of the consolidated balance sheet. They were carried at their net issuance price andnot* reflected at redemption value in the consolidated balance sheet becauseno Series B Preferred Units were redeemed between* December 31, 2021and January 25, 2022,*the date such Units were automatically converted to the Company’s Class A Common Stock equal to the original $55.0 million investment at the conversion price of $10 per share.

Recapitalization

Prior to the Closing Date, there were 31,250 Series A Preferred Units,8,049 Series B Preferred Units, and 27,035 Founder Units authorized, issued and outstanding. As a result of the Reverse Recapitalization on the Closing Date, the Series A Preferred Units and Founder Units converted into 42,192,250 Sky Common Units and the LLC Interests received 42,192,250 shares of SHG’s Class B Common Stock. The Series B Preferred Units converted to 5,500,000 shares of SHG’s Class A Common Stock, and Sky issued 14,937,581 Sky Common Units to SHG, which was equivalent to the total number of shares of the SHG’s Class A Common Stock outstanding on the Closing Date.

As of* December 31,*2023, there were 24,165,523 and 42,046,356 shares of Class A Common Stock and Class B Common Stock outstanding, respectively. Holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters submitted to the stockholders for their vote or approval, except as required by applicable law. Holders of Class A Common Stock and Class B Common Stock are entitled toone vote per share on all matters submitted to the stockholders for their vote or approval.

The holders of Class A Common Stock are entitled to receive dividends, as and if declared by the Company’s Board of Directors out of legally available funds. With respect to stock dividends, holders of Class A Common Stock must receive Class A Common Stock. The holders of Class B Common Stock donot have any right to receive dividends other than stock dividends consisting of shares of Class B Common Stock, as applicable, in each case paid proportionally with respect to each outstanding share of Class B Common Stock.

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Forward Purchase Agreement

On* January 17, 2022,the Company entered into a forward purchase agreement (the “Forward Purchase Agreement”) with ACM ARRT VII E LLC (the “Counterparty”), pursuant to which the Counterparty had the right, butnot* the obligation, to purchase up to 7,000,000 shares of Class A Common Stock from shareholders who had redeemed shares, or indicated an interest in redeeming shares, prior to the closing of the Yellowstone Transaction. The Counterparty purchased 664,909 such shares and, immediately following the Closing Date, pursuant to the agreement, the Company paid to the Counterparty a forward price of approximately $6.7 million. The Counterparty also had the right to sell such shares to others during an 18-month term, terminating the Company’s forward purchase obligations, and repaying to the Company a portion of the forward price, in amounts corresponding to the number of shares sold. On* March 7, 2022,*the Counterparty notified the Company that it had sold the 664,909 shares covered by the agreement. As a result, a total of approximately $6.7 million was remitted to the Company by the Counterparty.

Common Stock Purchase Agreement

On* August 18, 2022,the Company entered into a Common Stock Purchase Agreement (the “Stock Purchase Agreement”) with B. Riley Principal Capital II, LLC (“B. Riley”). Pursuant to the Stock Purchase Agreement, subject to the conditions and limitations set forth therein, the Company has the right, butnot* the obligation, from time to time at the Company's sole discretion over a36-month term of the Stock Purchase Agreement, to direct B. Riley to purchase up to 10 million shares of the Company's Class A Common Stock in the aggregate.

Under the Stock Purchase Agreement, on any trading day selected by the Company, the Company has the right, in its sole discretion, to present B. Riley with a purchase notice (each, a "VWAP Purchase Notice"), directing B. Riley (as principal) to purchase a specified amount of sharesnot to exceed the lesser of (i)one million shares of Common Stock and (ii)20% of the total aggregate number (or volume) of shares of Class A Common Stock traded on the NYSE American at a price(the "VWAP Purchase Price") equal to the product of 0.97 and the VWAP of the Company's Class A Common Stock on the applicable date for each VWAP Purchase Notice, subject to certain limitations contained in the Stock Purchase Agreement. Sales of Class A Common Stock pursuant to the Stock Purchase Agreement, and the timing of any such sales, are solely at the discretion of the Company, and the Company is underno obligation to sell any securities to B. Riley under the Stock Purchase Agreement.

In consideration for entering into the Stock Purchase Agreement and concurrently with the execution of the Stock Purchase Agreement, the Company issued to B. Riley 25,000 shares of Class A Common Stock as initial commitment shares and will issue up to an aggregate of 75,000 shares of its Class A Common Stock as additional commitment shares if certain conditions and milestones are met. The Company recognized expense associated with the issuance of such commitment shares of $112 during the year ended* December 31, 2022based on the fair value of the Company's Class A Common Stock on the date of issuance. As of December 31, 2023,the Company hasnot* directed B. Riley to purchase any Class A Common Stock pursuant to the B. Riley Purchase Agreement.

Private Placement and Securities Purchase Agreement

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

The closing of the Initial Financing occurred on* November 2, 2023 (the “Initial Closing Date”), and the closing of the Additional Financing occurred on November 9, 2023 (*the “Second Closing Date”). Together with the Initial Closing Date, the aggregate PIPE financing through the Price Placement Purchase Agreement totaled $57,810,000.

The Private Placement Purchase Agreement includes certain covenants, including a limitation on the Company’s use of the net proceeds from the Financing, certain customary standstill restrictions for a period of90 days following the Initial Closing Date and a restriction on paying any extraordinary dividend to the extent it would result in the issuance of a number of shares of Class A Common Stock upon exercise of the PIPE Warrants (without regard to any limitations on exercise of the PIPE Warrants) in excess of the number of shares of Class A Common Stock permissible by the NYSE American LLC to be issued without stockholder approval. In addition, pursuant to the Private Placement Purchase Agreement, the Company granted to the Lead Investor certain participation rights with respect to certain future equity and debt offerings by the Company until theeighteen-month anniversary of the Initial Closing Date. In addition, the Investors entered in to asix month customary lock-up agreement beginning on the Initial Closing Date.

Non-controlling interests

The LLC Interests’ ownership in Sky is presented as non-controlling interests within the Equity section of the consolidated balance sheet as of* December 31,2023 and represents the Sky Common Units held by holders other than SHG. The holders of LLC Interests mayexchange Sky Common Units along with an equal number of Class B Common Shares, for Class A Common Shares on the Company. The LLC Interests donot* have the option to redeem their Sky Common Units for cash or a variable number of Class A Common Shares, nor does SHG have the option to settle a redemption in such a manner. As of* December 31,*2023, the LLC interests owned approximately 63.5% of the Sky Common Units outstanding.

The former majority shareholder's ownership in Overflow is presented as a non-controlling interest within the Equity section of the consolidated balance sheet. As of* December 31, 2023,*the former majority shareholder owned approximately 49% of the partnership interests in Overflow.

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Restricted Stock Units (“RSUs”)

On* January 25, 2022,the Company's2022* Incentive Award Plan (the*“2022* Incentive Award Plan”) became effective following approval by the Company's shareholders. The2022 Incentive Award Plan provides for grants of stock-based compensation awards, including without limitation, non-qualified stock options, incentive stock options, stock appreciation rights, or SARs, restricted stock awards, restricted stock unit awards, incentive unit awards other stock or cash based awards and dividend equivalent awards. Employees, officers, and consultants of the Company or any parent or affiliate, including Sky, or any non-employee director of the Company’s Board of Directors are eligible to receive awards under the2022 Incentive Award Plan. An aggregate of 5.2 million shares of Class A Common Stock are issuable pursuant to the2022 Incentive Award Plan.

On an annual basis, the Company grants RSUs which have time-based conditions and are classified as equity awards. During the year ended* December 31, 2023,the Company granted 545,522 time-based RSUs to certain employees under the Company’s2022* Incentive Award Plan at a weighted average grant date fair value of $5.75. The RSUs will vest ratably over afour-year period beginning on thefirst anniversary of the grant date and ending onfourth anniversary. All RSUs were valued at their fair market value, which is the closing price of the Company's stock on the date of the grant.

The following tables presents a summary of RSU activity for the year ended* December 31, 2023:*

During the years ended* December 31,2023, and December 31, 2022,the Company recognized stock compensation expense of $1,816 and $764, respectively, associated with the RSUs. The unrecognized compensation costs associated with all unvested RSUs at December 31,*2023 was $5,070 that is expected to be recognized over a weighted-average future period of 2.7 years.

Sky Incentive Units

In* May 2021,Sky granted 3,951 Sky Incentive Units to certain employees. In connection with the Yellowstone Transaction and the execution of the Third A&R Operating Agreement, the number of existing Sky Incentive Units outstanding was adjusted based on a defined unit conversion ratio to reflect the new capital structure (see Note12* — Equity and Redeemable Equity) and remain Sky Incentive Units, resulting in 2,807,750 outstanding Sky Incentive Units. These Incentive Units* maybe exchanged for Sky Common Units at the holder’s discretion upon vesting. There wereno* changes to the terms or conditions of the Sky Incentive Units effected by the Yellowstone Transaction. The Sky Incentive Units are classified as equity instruments.

The Sky Incentive Units were valued as of the date of grant using the Option-Pricing Method described in the AICPA Accounting and Valuation Guide entitledValuation of Privately Held Company Equity Securities Issued as Compensation.The Option-Pricing Method treated profit units (such as Sky Incentive Units) and the capital units outstanding at the time of the valuation (Sky’s Series A Preferred Units, Series B Preferred Units, and the Founder Units) as call options on the total equity value of Sky, with exercise (or strike) prices based on the incremental equity required to repay liquidation preferences for the various holders of Sky interests. The values of the options associated with each strike price were calculated using the Black-Scholes option pricing model based on the grant date. The Sky Incentive Units were classified as Level3 in the fair value hierarchy. The key inputs and assumptions used in the valuation of the Sky’s Incentive Units were:

Below is a summary of activity related to the Sky Incentive Units for the Year ended* December 31,*2023:

The Company recognized equity-based compensation expense on a straight-line basis over the requisite service period and has elected to account for forfeitures of Sky Incentive Units if and when they occur. The Company recorded equity-based compensation expense relating to Sky Incentive Units of $444 and $341 for the years ended* December 31, 2023,and December 31, 2022,respectively, which is recorded within General and Administrative Expenses within the statement of operations, and as a component of the non-controlling interest in the consolidated statement of changes in stockholders’ equity. As of December 31,*2023, there was $257 of total unrecognized compensation expense that is expected to be recognized over a weighted-average future period of 1.4 years.

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Effective Tax Rate Reconciliation

We are subject to taxation in all jurisdictions in which we operate that impose an income tax on our business activities. The components of the income tax expense for the years ended* December 31,and the tax effects of temporary differences that give rise to deferred taxes at December 31,*are as follows:

A reconciliation of the statutory federal income tax expense to the income tax expense (benefit) from continuing operations provided at* December 31,2023 and December 31,*2022 is as follows:

The Company recorded income tax expense of $0 and the effective tax rate was 0.0% for the years ended* December 31,2023 and2022. The effective income tax rate for the year ended December 31,*2023 differs from the federal statutory rate of 21% primarily due to a full valuation allowance against net deferred tax assets as it is more likely thannot that the deferred tax assets willnot be realized.

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Components of the Company’s deferred tax assets at* December 31,2023 and December 31,*2022 are as follows:

The realization of deferred tax assets, including net operating loss carryforwards ("NOLs"), is dependent on the generation of future taxable income sufficient to realize the tax deductions, carryforwards, and credits. Valuation allowances on deferred tax assets are recognized if it is determined that it is more likely thannot that the asset willnot be realized. For the year ended* December 31,*2023, we recorded a full valuation allowance due to historical losses before income taxes which reduced management's ability to rely on future expectations of income.

As of* December 31,2023, we have available federal tax operating loss carryforwards of approximately $14.4 million, including approximately $1.7 million generated by our legal predecessor prior to the Yellowstone Transaction. All federal tax operating loss carryforwards arose in tax years subsequent to2017. Tax operating loss carryovers arising in years after2017 * maybe carried forward indefinitely but are only available to offset80% of future taxable income. We have available state tax operating loss carryforwards of approximately $14.4 million, which are available to reduce future state taxable income and would begin to expire in tax year2040 in various amounts. Utilization of our net operating loss carryforwards* maybe subject to substantial annual limitations due to the ownership change limitations provided by Section382* of the Internal Revenue Code, as amended, and similar state provisions.

Uncertain Tax Positions

We believe that there areno tax positions taken or expected to be taken that would significantly increase or decrease unrecognized tax benefits within12 months of the reporting date.

The federal and state statutes of limitation for assessment of tax liability generally lapse withinthree years after the date the tax returns are filed. However, income tax attributes that are carried forward, such as net operating loss carryforwards,* maybe challenged and adjusted by taxing authorities at any time prior to the expiration of the statute of limitations for the tax year in which they are utilized. As of December 31,*2023, we donot have any open exams; however, all tax years, including those of our legal predecessor, are subject to examination by the Internal Revenue Service.

Basic earnings (loss) per share of Class A Common Stock is computed by dividing net income (loss) attributable to SHG by the weighted-average number of shares of Class A Common Stock outstanding during the period. Diluted net income (loss) per share of Class A Common Stock is computed by dividing net income (loss) attributable to SHG, adjusted for the assumed exchange of all potentially dilutive securities, by the weighted-average number of shares of Class A Common Stock outstanding adjusted to give effect to potentially dilutive shares using the treasury stock or if-converted method as appropriate. Shares of the Company’s Class B Common Stock donot participate in the earnings or losses of the Company and are thereforenot participating securities. As such, separate presentation of basic and diluted earnings per share of Class B Common Stock under thetwo-class method hasnot been presented.

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

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

During the years ended* December 31, 2023and December 31, 2022,*the Company reported reclassifications of $270 and $21, respectively, of unrealized gains on available-for-sale securities to net income as a component of other (income) expense.

In addition to the lease payment commitments discussed in Note9 —Leases, the ground leases to which the Company is a party contain covenants that require the Company to conduct construction of hangar facilities on the leased grounds within a certain period and in some cases, to spend a minimum dollar amount.

The APA Lease requires the Company to improve the property in accordance with a development plan included in the lease and to complete such improvements within 24-months of the issuance of permitting documents. Construction began on the APA Phase I project in* October 2022.*

The DVT Lease requires approximately $15.3 million and $14.6 million of improvements to be made for Phase I and for Phase II, if such option is exercised, respectively, within12-months after receiving permitting documents for each Phase, but inno event later than* May 2026.Construction began on the DVT Phase I project in December 2022.*

The Company has committed to spend $10.0 million in capital improvements on the ADS construction project. If this amount isnot expended, the Company is subject to a reduction of the term of the lease.

The PWK Lease contains a requirement that the Company must commence construction withinsix months of the issuance of permits and must complete construction within18 months of construction commencement. If the Company is unable to adhere to the prescribed timeline and unable to receive an extension from PWK, the PWK Lease is subject to termination.

The Company has contracts for construction of the APA Phase I, DVT Phase I, and ADS Phase I projects. The Company* may*terminate any of the contracts or suspend construction without cause. There areno termination penalties under the construction contracts.

On* September 20, 2021,the Company entered into a non-exclusive agreement with Echo Echo, LLC, a related party to the Founder and CEO, for the use of a Beechcraft BaronG58* aircraft. The effective date of the agreement was* September 8, 2021and the agreement automatically renews annually. The agreement can be terminated without penalty if either party provides35* days written notice, or if the aircraft is sold or otherwise disposed of. The Company is charged 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 years ended* December 31,2023, and December 31, 2022,the Company recognized $215 and $194 of expense, within general and administrative expense under the terms of this agreement. The related liability is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheet as of December 31,*2023.

For the year ended* December 31,2023, the Company paid $105 for consulting services to a company that employed the chief financial officer until prior to July 1, 2021and with which the Company had a pre-existing vendor relationship. The Company paid $108 during the year ended December 31,*2022 to the same company.

On* March 23, 2024,the Company, through a wholly-owned subsidiary of the Company, entered into a ground lease agreement (the “SJC Lease”) at San Jose Mineta International Airport (“SJC”) with the City of San Jose. The SJC Lease covers approximately7* acres of property that contains an approximately 38,000 square foot hangar, approximately 19,000 square feet of office space, and approximately 108,000 square feet of apron and ramp space. The property at SJC includes additional land on which the Company intends to develop approximately 28,000 square feet of additional hangar space. The initial term of the SJC Lease will be 20 years from* May 1, 2024,*and contains a mutual option to extend the SJC Lease an additional 5 years following the expiration of the initial term. The SJC Lease contains customary milestones by which the Company must complete additional construction.

On* March 27, 2024,the Company, through a wholly-owned subsidiary of the Company, entered into a ground lease agreement (the “ORL Lease”) at Orlando Executive Airport (“ORL”) with the Greater Orlando Aviation Authority (“GOAA”). The ORL Lease covers a parcel containing approximately 20 acres of land at ORL. The initial term of the ORL Lease will be 30 years from expiration of construction period, with lease payments commencing contemporaneously with the term. The ORL Lease contains options exercisable by the Company to extend the ORL Lease an additional 20 years based on the Company's total expenditures in subsequent phases at ORL. The ORL Lease requires that the Company construct $30 million of improvements in its initial phase of construction within24* months of the effective date of the lease. The ORL Lease contains other customary milestones by which the Company must commence and complete subsequent phases of construction.

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