Sky Harbour Group Corp. / Yellowstone Acquisition Company — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; filed by Yellowstone Acquisition Company, the SPAC that later announced a proposed combination with Sky Harbour LLC. This is not an operating-period report for Sky Harbour’s aviation-hangar business. Yellowstone reported that it had not generated operating revenue.
Financial position and results
- Revenue and profit: No operating revenue. Net income was $1.59 million for Q2 and $6.02 million for the six months. The six-month result included a $6.53 million noncash gain from a reduction in the fair value of warrant liabilities; therefore, reported income does not reflect operating earnings.
- Expenses and per-share results: Six-month professional and other expenses were $250,904; franchise taxes were $128,197; and general and administrative costs were $147,623. Basic and diluted net income per share was $0.09 for Q2 and $0.35 for the six months for both Class A and Class B shares.
- Cash flow: Cash used in operating activities was $372,953 for the six months. Cash declined by $386,189, from $1.12 million at year-end 2020 to $736,005 at June 30. Investing activity was a net cash use of $13,236, principally reflecting purchases and sales of trust investments.
- Assets and liquidity: Total assets were $139.78 million, including $138.73 million in trust-account investments and $736,005 in operating cash. Management said available working capital was expected to cover needs through a business combination or one year from the filing. Trust funds are generally reserved for a combination or public-share redemptions, rather than ordinary operating expenses.
- Liabilities and capital: Total liabilities were $16.44 million, including $11.47 million of warrant liabilities and a $4.76 million deferred underwriting fee payable upon completion of a business combination. The filing reports no borrowings or interest paid. Class A shares subject to possible redemption were $138.71 million; stockholders’ equity was negative $15.37 million.
- Margins: Not meaningful because the company had no operating revenue.
Changes versus prior period
- The balance sheet shows cash falling from $1.12 million at December 31, 2020 to $736,005 at June 30, 2021; trust investments were nearly unchanged at $138.73 million.
- Warrant liabilities decreased from $18.00 million at year-end to $11.47 million, generating the $6.53 million six-month noncash gain. The filing does not provide comparative prior-year-quarter operating results, so a year-over-year earnings comparison is not available.
Combination plans, risks and unusual items
- On August 2, 2021, after quarter-end, Yellowstone announced a business combination agreement with Sky Harbour LLC, a developer, lessor and manager of business-aviation hangars. The transaction was subject to shareholder approval, customary closing conditions and at least $80 million of private-activity-bond financing for Sky Harbour.
- The proposed transaction described approximately $777 million of pro forma equity market value. Yellowstone said combined-company gross proceeds could be up to $238 million assuming no public-share redemptions, excluding any PIPE proceeds. The plan also included a proposed $100 million PIPE, a $55 million Boston Omaha investment subject to conditions, and a backstop of up to $45 million if needed to satisfy a $150 million minimum-cash-and-securities condition. These are transaction expectations, not completed or guaranteed financing.
- Proceeds were expected to fund completion of four initial hangar campuses and expansion of Sky Harbour’s existing operating location. Yellowstone’s deadline to complete a business combination was January 2022; failure to do so would generally require redemption of public shares and liquidation.
- Management noted that COVID-19 could adversely affect the company’s financial position, operations or target search, but said the impact could not then be determined. The trust investments were short-term U.S. government securities or qualifying money-market funds; management reported no material market or interest-rate risk.
- Control weakness: Disclosure controls were concluded to be ineffective because of a material weakness in accounting for complex Class A share and warrant terms. The weakness had resulted in a restatement of 2020 financial statements and could lead to further material misstatement. No material change in internal control was reported during the quarter.
- The filing reported no legal proceedings. Sponsor-related expense reimbursements were uncapped; possible working-capital loans from the sponsor or insiders had no written agreements or determined terms.
Important facts for investors to verify
- Whether the Sky Harbour transaction closed, and whether the required bond financing, PIPE, Boston Omaha investment and minimum-cash condition were satisfied.
- Actual public-share redemptions and resulting cash available to the combined company; the stated proceeds assume no redemptions and include conditional financing components.
- Remediation of the material weakness and whether subsequent filings identify further accounting errors or restatements.
- Sky Harbour’s operating performance, project costs, leasing demand and funding needs; this 10-Q does not provide Sky Harbour’s operating financial results.
- Potential dilution from warrants, sponsor founder shares and any securities issued in connection with financing or the business combination.