SKY HARBOUR GROUP CORPORATION
TABLE OF CONTENTS
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| PART I | 7 | |
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| Item 1. | Business | 7 |
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| Item 1A. | Risk Factors | 14 |
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| Item 1B. | Unresolved Staff Comments | 30 |
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| Item 1C. | Cybersecurity | 30 |
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| Item 2. | Properties | 31 |
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| Item 3. | Legal Proceedings | 31 |
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| Item 4. | Mine Safety Disclosures | 31 |
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| PART II | 32 | |
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| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 32 |
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| Item 6. | Selected Financial Data | 32 |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 33 |
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| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 42 |
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| Item 8. | Financial Statements and Supplementary Data | 43 |
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| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosures | 75 |
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| Item 9A. | Controls and Procedures | 75 |
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| Item 9B. | Other Information | 75 |
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| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 75 |
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| PART III | 76 | |
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| Item 10. | Directors, Executive Officers and Corporate Governance | 76 |
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| Item 11. | Executive Compensation | 76 |
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| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 76 |
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| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 76 |
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| Item 14. | Principal Accounting Fees and Services | 76 |
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| PART IV | 77 | |
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| Item 15. | Exhibits, and Financial Statement Schedules | 77 |
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CERTAIN TERMS
Unless otherwise stated in this Annual Report on Form 10-K (this "Report"), or the context otherwise requires, references to:
| ● | “A&R Operating Agreement” refers to that certain Third Amended and Restated Operating Agreement of Sky Harbour LLC. |
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| ● | “Board of Directors” or “Board” refers to our board of directors. |
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| ● | “Bylaws” are to our Bylaws. |
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| ● | “Class A Common Stock” means the shares of class A common stock, par value $0.0001 per share, of the Company. |
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| ● | “Class B Common Stock” means the shares of class B common stock, par value $0.0001 per share, of the Company. |
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| ● | “Common Stock” refers collectively to Class A Common Stock and Class B Common Stock. |
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| ● | “Existing Sky Equityholders” refers to Tal Keinan, Due West Partners LLC and Center Sky Harbour LLC. |
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| ● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended. |
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| ● | “Private Placement Warrants” refers to the warrants sold by the Company to the Sponsor in its initial public offering. |
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| ● | “Public Warrants” refers to the warrants sold by the Company as part of the units in its initial public offering. |
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| ● | “Securities Act” refers to the Securities Act of 1933, as amended. |
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| ● | “Series 2021 Bonds” refers to a series of bonds that were issued in September 2021 through the Public Finance Authority (Wisconsin) with a principal amount of $166.3 million. |
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| ● | “Sky” refers to Sky Harbour LLC, a Delaware limited liability corporation. |
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| ● | “Sky Common Unit” means a unit of ownership interest in Sky which entitles the holder thereof to the distributions, allocations, and other rights under the A&R Operating Agreement. |
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| ● | “Sponsor” refers to BOC Yellowstone LLC. |
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| ● | “Subsidiaries” refers to Subsidiaries as defined in the Tax Receivable Agreement. |
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| ● | “Warrants” refers to the Private Placement Warrants and Public Warrants. |
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| ● | “Warrant Agreement” refers to that certain Warrant Agreement, dated as of September 13, 2019, between Continental Stock Transfer & Trust Company and the Company. |
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| ● | “Yellowstone Transaction” refers to the transactions contemplated by that certain Equity Purchase Agreement, dated as of August 1, 2021, by and among Yellowstone Acquisition Company and Sky Harbour LLC. |
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Additionally, references in this Report to the “Company,” the “registrant,” “we,” “us” and “our” in this Report refer to Sky Harbour Group Corporation (formerly known as Yellowstone Acquisition Company), and references to our “management” or our “management team” refer to our officers and directors.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “might,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to:
| ● | expectations regarding the Company’s strategies and future financial performance, including the Company’s future business plans or objectives, prospective performance and commercial opportunities and competitors, services, pricing, marketing plans, operating expenses, market trends, revenues, liquidity, cash flows and uses of cash, capital expenditures, and the Company’s ability to invest in growth initiatives; |
| ● | the effects of general macroeconomic conditions, including inflation, interest rate volatility, changes in trade policies (including with respect to imposed and proposed tariffs), and a prolonged recession in the national economy; |
| ● | our limited operating history makes it difficult to predict future revenues and operating results; |
| ● | financial projections may not prove to be reflective of actual financial results; |
| ● | our ability to implement our construction costs mitigation strategies; |
| ● | changes in applicable laws or regulations; |
| ● | the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; |
| ● | our financial performance; and |
| ● | other risk factors included under "Risk Factors" in this Report. |
The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under “Risk Factors” may not be exhaustive.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.
You should read this summary together with the more detailed description of each risk factor contained in Item 1A “Risk Factors” in this Report and the other reports and documents filed or furnished by us with the SEC for a more detailed discussion of the principal risks (as well as certain other risks) that you should carefully consider before deciding to invest in our securities. Some of the factors that could materially and adversely affect our financial condition and the market price of shares of our securities or our prospects include, but are not limited to, the following.
Risks Relating to Our Business
| • | We have a limited operating history and could experience significant operating losses in the future. |
| • | Our business, and the aviation industry generally, are subject to downturns in the economy and disruption and volatility in the financial markets. |
| • | Our growth will depend in part upon our ability to enter into new ground leases at airports, and we may be unsuccessful in identifying and consummating attractive new ground leases or taking advantage of other investment opportunities, which would impede our growth and materially and adversely affect our business and results of operations. |
| • | Our ability to meet our obligations under our ground leases and our indebtedness is dependent on our ability to enter into and collect lease payments from tenants. |
| • | We have a substantial amount of indebtedness outstanding, which may expose us to the risk of default under our debt obligations and restrict our operations and our ability to grow our business and revenues. |
| • | Secured debt obligations, including those under the Series 2021 Bonds, expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject to mortgage debt. |
| • | Our growth will depend on our access to external sources of capital, and our ability to obtain financing or access capital markets may be limited. |
| • | Increases in market interest rates or unavailability of additional indebtedness may make it difficult for us to finance or refinance our debt, which could have a material adverse effect on our financial condition, results of operations and growth prospects. |
| • | An epidemic, pandemic, or similar public threat, and the measures that federal, state, and local governments and other authorities implement to address it could have a material adverse effect on our business and results of operations. |
| • | We may be required to record impairment charges to future earnings if our long-lived assets become impaired. |
| • | The industry in which we operate is subject to significant competition and our failure to effectively compete could have a material adverse effect on our business and results of operations. |
| • | The growth and success of our business is subject to our ability to market, attract, and retain tenants. |
| • | Our rental revenue in the past has been concentrated within a small number of tenants and the loss of or default by one or more significant tenants could have a material adverse effect on our business and results of operations. |
| • | Our capital projects are subject to uncertainties, including the possibility of delays, cost overruns, and inflation, which could have a material adverse effect on our business, results of operations and market reputation. |
| • | The production of our hangar buildings is subject to design and construction defects, product liability, and other claims that could be significant and costly, which may delay our construction projects and could have a material adverse effect on our business and results of operations. |
| • | Failure to adequately maintain our home basing hangar campuses or the integrity of our fuel supplies may have a material adverse impact on the revenue or market share of one or more of our home basing hangar campuses, resulting in a decline in operations of the business. |
| • | The growth and success of our business is dependent on the continued service of certain key employees and the ability to recruit and retain new employees. |
| • | We have identified material weaknesses in the past. We may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate any material weaknesses or if we otherwise fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected. |
| • | We conduct substantially all of our operations under ground leases, which grant significant rights to airport authorities as our direct or ultimate landlord. |
Risks Relating to Tax
| • | Our only principal asset is our interest in Sky, and accordingly we are dependent on distributions from Sky to pay dividends, taxes, other expenses, and make any payments required to be made under the Tax Receivable Agreement. |
| • | In certain cases, payments under the Tax Receivable Agreement may (i) exceed any actual tax benefits the Tax Group realizes or (ii) be accelerated. |
Risks Relating to Our Common Stock and Warrants
| • | The market price of Class A Common Stock and Public Warrants has been and may continue to be extremely volatile, which could cause purchasers of our securities to incur substantial losses. |
| • | We cannot predict the impact our dual class structure may have on the stock price of Class A Common Stock. |
| • | The outstanding Warrants are exercisable for shares of Class A Common Stock and common units in Sky may be redeemed for Class A Common Stock. The exercise of these outstanding Warrants will increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders. |
| • | You may experience future dilution as a result of future equity offerings. |
Risks Relating to Our Organization and Structure
| • | We are a “controlled company” within the meaning of the New York Stock Exchange listing standards and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements. You do not have the same protections afforded to stockholders of companies that are subject to such requirements. |
| • | The Existing Sky Equityholders control the direction of our business, and the concentrated ownership of Common Stock prevent you and other stockholders from influencing significant decisions. |
