HARBOR DIVERSIFIED, INC. [HRBR] Filings

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

10-Q 1 d530573d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

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

For the quarterly period ended June 30, 2023

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

For the transition period from

Commission File Number

001-34584

HARBOR DIVERSIFIED, INC.

(Exact name of registrant as specified in its charter)


Delaware		13-3697002
(State of incorporation)		(I.R.S. Employer Identification No.)

W6390 Challenger Drive, Suite 203 Appleton, WI		54914-9120
(Address of principal executive offices)		(Zip Code)

(920)

749-4188

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

As of August 7, 2023, the registrant had 43,692,630 shares of common stock, $0.01 par value per share, outstanding, and 4,000,000 shares of Series C Convertible Redeemable Preferred Stock, $0.01 par value per share, outstanding, which are immediately convertible into an additional 16,500,000 shares of common stock. The registrant does not have any class of securities registered pursuant to Section 12(b) or Section 12(g) of the Exchange Act.

HARBOR DIVERSIFIED, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED JUNE 30, 2023

TABLE OF CONTENTS


	Page
Cautionary Note Regarding Forward-Looking Statements		(i)
Part I. Financial Information		1
Item 1. Financial Statements		1
Condensed Consolidated Balance Sheets		1
Condensed Consolidated Statements of Operations		2
Condensed Consolidated Statements of Stockholders’ Equity		3
Condensed Consolidated Statements of Cash Flows		5
Condensed Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3. Quantitative and Qualitative Disclosures about Market Risk		31
Item 4. Controls and Procedures		31
Part II. Other Information		32
Item 1. Legal Proceedings		32
Item 1A. Risk Factors		32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 3. Defaults Upon Senior Securities		45
Item 4. Mine Safety Disclosure		45
Item 5. Other Information		45
Item 6. Exhibits		46
Signatures		47

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the three months ended June 30, 2023 (this “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements are subject to considerable risks and uncertainties. Forward-looking statements relate to matters such as our industry, business plans and strategies, material contracts, key relationships, consumer behavior, flight schedules and completed flight activity, revenues, expenses, margins, profitability, tax liability, capital expenditures, liquidity, capital resources, outcome of legal proceedings, and other business and operating information. Forward-looking statements include all statements that are not statements of historical facts, and can be identified by words such as “anticipate,” “approximately,” “assume,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and similar terms and phrases in this Quarterly Report. All of our forward-looking statements include assumptions underlying or relating to such statements that may cause actual results to differ materially from those that we are currently expecting and are subject to considerable risks and uncertainties, including without limitation:

•

the supply of qualified pilots and mechanics to the airline industry, attrition, and the increasing costs associated with hiring, training and retaining qualified pilots and mechanics;

•

the dependence of the business of our subsidiary, Air Wisconsin Airlines LLC (“Air Wisconsin”), on a capacity purchase agreement (the “American capacity purchase agreement”) with American Airlines, Inc. (“American”), since all Air Wisconsin’s aircraft have been withdrawn from the capacity purchase agreement (the “United capacity purchase agreement”) with United Airlines, Inc. (“United”), which agreement expired in early June 2023;

•

the possibility that Air Wisconsin receives an unfavorable result from the arbitration initiated by United in October 2022 related to certain amounts owed to Air Wisconsin pursuant to the United capacity purchase agreement or that United prevails on its claim that Air Wisconsin wrongfully terminated the agreement;

•

any acceleration of debt under Air Wisconsin’s credit agreements;

•

aircraft and engine maintenance costs;

•

the amounts Air Wisconsin is paid or reimbursed under the American capacity purchase agreement or any future agreement may be less than the costs incurred, particularly as labor costs increase in response to pilot and mechanic shortages;

•

the possibility that American could provide Air Wisconsin with inefficient flight schedules, or American could change the expected utilization of Air Wisconsin’s aircraft under the American capacity purchase agreement;

•

the extent to which Air Wisconsin’s current growth opportunities and strategic operating plan are restricted based on factors impacting the airline industry;

•

the significant portion of Air Wisconsin’s workforce that is represented by labor unions and the terms of its collective bargaining agreements;

•

Air Wisconsin’s reliance on only one aircraft type, aircraft manufacturer and engine manufacturer, and the potential issuance of operating restrictions on this aircraft or engine type or occurrence of any aviation incident involving either this aircraft or engine type;

•

Air Wisconsin’s ability to obtain additional financing on acceptable terms and when required;

•

developments associated with fluctuations in the economy, including increased inflation, which may negatively impact our costs, create additional wage pressures, and impact the financial stability of Air Wisconsin’s major airline partner;

•

the impact of losing key personnel or inability to attract additional qualified personnel;

•

the negative impact of information technology security breaches and other such infrastructure disruptions on Air Wisconsin’s operations; and

•

the duration and spread of infectious diseases, and the related impact on the business, results of operations, financial condition and liquidity of Air Wisconsin and American in particular, and the airline industry in general.

The forward-looking statements contained in this Quarterly Report are based on management’s current plans, estimates and expectations in light of information currently available to us, and they are subject to uncertainty and changes in circumstances. Actual results may differ materially from our expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control, as well as the other factors described in the section entitled “Risk Factors” within this Quarterly Report and in the other reports we file with the Securities and Exchange Commission (“SEC”).

(i)

Additional factors or events that could cause our actual results to differ may also emerge from time to time, and it is not possible for us to predict all of them. Should one or more of these risks or uncertainties materialize, or should any of our assumptions or estimates prove to be incorrect, our actual results may be different from, and potentially materially worse than, what we may have expressed or implied by these forward-looking statements. Comparisons of results for any current or prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Investors should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this Quarterly Report speaks only as of the date hereof. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by applicable securities laws. We qualify all of our forward-looking statements by these disclaimers.

(ii)

Harbor Diversified, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (in thousands, except shares and par value)

Part I. Financial Information

Item 1. Financial Statements


	June 30, 2023			December 31, 2022
	(unaudited)
Assets
Current Assets
Cash and cash equivalents	$	15,831		$	33,333
Restricted cash		812			849
Marketable securities		141,453			153,827
Accounts receivable, net		45,074			40,341
Notes receivable		21,093			19,452
Spare parts and supplies, net		5,184			4,579
Contract costs		114			143
Contract assets, net		173			—
Prepaid expenses and other		2,749			3,732

Total Current Assets		232,483			256,256

Property and Equipment
Flight property and equipment		265,459			263,970
Ground property and equipment		8,287			8,055
Less accumulated depreciation and amortization		(183,329	)		(169,766	)

Net Property and Equipment		90,417			102,259

Other Assets
Operating lease right-of-use asset		11,113			13,480
Intangibles		5,300			5,300
Long-term investments		4,275			4,275
Long-term contract costs		639			—
Other		1,146			1,077

Total Other Assets		22,473			24,132

Total Assets	$	345,373		$	382,647

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	21,016		$	20,165
Accrued payroll and employee benefits		13,184			12,989
Current portion of operating lease liability		4,199			5,091
Other accrued expenses		102			137
Contract liabilities		—			1,985
Deferred revenues		—			16,561
Current portion of long-term debt (stated principal amount of $3,500 at June 30, 2023 and December 31, 2022)		5,444			9,154

Total Current Liabilities		43,945			66,082

Other Long-Term Liabilities
Long-term debt (stated principal amount of $45,100 at June 30, 2023 and $48,600 December 31, 2022)		47,596			52,068
Long-term promissory note		4,275			4,275
Deferred tax liability		7,990			7,990
Long-term operating lease liability		4,500			5,849
Long-term contract liabilities, net		2,840			—
Other		1,737			1,977

Total Long-Term Liabilities		68,938			72,159

Total Liabilities		112,883			138,241
Commitments and Contingencies (Note 8)
Mezzanine Equity (Note 10)
Series C Convertible Redeemable Preferred Stock, $0.01 par value per share, 4,000,000 shares authorized, issued and outstanding at June 30, 2023 and December 31, 2022		13,200			13,200
Stockholders’ Equity
Common Stock, $0.01 par value per share, 100,000,000 shares authorized, 55,481,140 shares issued at June 30, 2023 and December 31, 2022, 43,830,036 shares outstanding at June 30, 2023 and 45,219,737 shares outstanding at December 31, 2022		555			555
Additional paid-in capital		285,111			285,668
Retained deficit		(48,321	)		(40,034	)
Treasury stock		(18,055	)		(14,983	)

Total Stockholders’ Equity		219,290			231,206

Total Liabilities and Stockholders’ Equity	$	345,373		$	382,647

See accompanying condensed notes to unaudited condensed consolidated financial statements.

Table of Contents

Harbor Diversified, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (in thousands, except per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(unaudited)						(unaudited)
Operating Revenues
Contract revenues	$	50,970		$	77,923		$	110,007		$	144,891
Contract services and other		102			7			197			14

Total Operating Revenues		51,072			77,930			110,204			144,905

Operating Expenses
Payroll and related costs		29,953			27,694			59,721			54,295
Aircraft fuel and oil		221			34			323			85
Aircraft maintenance, materials and repairs		17,869			16,336			37,218			30,837
Other rents		1,474			1,657			3,068			3,270
Depreciation, amortization and obsolescence		6,370			6,674			12,727			13,318
Purchased services, legal and other		7,532			3,514			11,974			7,279

Total Operating Expenses		63,419			55,909			125,031			109,084

(Loss) Income from Operations		(12,347	)		22,021			(14,827	)		35,821

Other Income (Expense)
Interest income		1,429			1,382			2,795			2,166
Interest expense		(11	)		—			(12	)		—
(Loss) gain on marketable securities		(795	)		(3,602	)		945			(6,025	)
Gain on extinguishment of debt		70			—			70			—
Other, net		(1	)		(3	)		(14	)		(3	)

Total Other Income (Expense)		692			(2,223	)		3,784			(3,862	)

Net (Loss) Income Before Taxes		(11,655	)		19,798			(11,043	)		31,959
Income Tax (Benefit) Expense		(2,486	)		4,717			(2,756	)		7,615

Net (Loss) Income		(9,169	)		15,081			(8,287	)		24,344
Preferred stock dividends		305			198			557			396

Net (loss) income available to common stockholders	$	(9,474	)	$	14,883		$	(8,844	)	$	23,948

Basic (Loss) Earnings per share	$	(0.21	)	$	0.32		$	(0.20	)	$	0.51
Diluted (Loss) Earnings per share	$	(0.21	)	$	0.24		$	(0.20	)	$	0.38
Weighted average common shares:
Basic		44,277			46,519			44,626			47,075
Diluted		44,277			63,019			44,626			63,773

See accompanying condensed notes to unaudited condensed consolidated financial statements.

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Harbor Diversified, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (in thousands)


	Mezzanine Equity - Series C Convertible Redeemable Preferred Stock				Common Stock
	Shares		Amount		Shares			Treasury Stock		Amount		Additional Paid-In Capital			Retained Deficit			Cost of Treasury Stock			Total Stockholders’ Equity
Balance, December 31, 2022		4,000	$	13,200		45,220			10,261	$	555	$	285,668		$	(40,034	)	$	(14,983	)	$	231,206
Net loss		—		—		—			—		—		—			(8,287	)		—			(8,287	)
Preferred stock dividends		—		—		—			—		—		(557	)		—			—			(557	)
Treasury stock purchases		—		—		(1,390	)		1,390		—		—			—			(3,072	)		(3,072	)

Balance, June 30, 2023 (unaudited)		4,000	$	13,200		43,830			11,651	$	555	$	285,111		$	(48,321	)	$	(18,055	)	$	219,290


	Mezzanine Equity - Series C Convertible Redeemable Preferred Stock				Common Stock
	Shares		Amount		Shares			Treasury Stock		Amount		Additional Paid-In Capital			Retained Deficit			Cost of Treasury Stock			Total Stockholders’ Equity
Balance, March 31, 2023		4,000	$	13,200		44,750			10,731	$	555	$	285,416		$	(39,152	)	$	(15,963	)	$	230,856
Net loss		—		—		—			—		—		—			(9,169	)		—			(9,169	)
Preferred stock dividends		—		—		—			—		—		(305	)		—			—			(305	)
Treasury stock purchases		—		—		(920	)		920		—		—			—			(2,092	)		(2,092	)

Balance, June 30, 2023 (unaudited)		4,000	$	13,200		43,830			11,651	$	555	$	285,111		$	(48,321	)	$	(18,055	)	$	219,290

Table of Contents

Harbor Diversified, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (in thousands)

	Mezzanine Equity - Series C Convertible Redeemable Preferred Stock					Common Stock
		Shares		Amount			Shares			Treasury Stock		Amount		Additional Paid-In Capital			Retained Deficit			Cost of Treasury Stock			Total Stockholders’ Equity
Balance, December 31, 2021			4,000	$	13,200			53,316			2,165	$	555	$	287,429		$	(79,144	)	$	(3,280	)	$	205,560
Net income			—		—			—			—		—		—			24,344			—			24,344
Dividends			—		—			—			—		—		(396	)		—			—			(396	)
Cancellation of stock option			—		—			—			—		—		(969	)		—			—			(969	)
Treasury stock purchases			—		—			(7,300	)		7,300		—		—			—			(9,934	)		(9,934	)

Balance, June 30, 2022 (unaudited)			4,000	$	13,200			46,016			9,465	$	555	$	286,064		$	(54,800	)	$	(13,214	)	$	218,605


	Mezzanine Equity - Series C Convertible Redeemable Preferred Stock				Common Stock
	Shares		Amount		Shares			Treasury Stock		Amount		Additional Paid-In Capital			Retained Deficit			Cost of Treasury Stock			Total Stockholders’ Equity
Balance, March 31, 2022		4,000	$	13,200		47,054			8,427	$	555	$	286,262		$	(69,881	)	$	(10,762	)	$	206,174
Net income		—		—		—			—		—		—			15,081			—			15,081
Dividends		—		—		—			—		—		(198	)		—			—			(198	)
Treasury stock purchases		—		—		(1,038	)		1,038		—		—			—			(2,452	)		(2,452	)

Balance, June 30, 2022 (unaudited)		4,000	$	13,200		46,016			9,465	$	555	$	286,064		$	(54,800	)	$	(13,214	)	$	218,605

See accompanying condensed notes to unaudited condensed consolidated financial statements.

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Harbor Diversified, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (in thousands)


	Six Months Ended June 30,
	2023			2022

	(unaudited)
Cash Flows from Operating Activities
Net (loss) income	$	(8,287	)	$	24,344
Adjustments to reconcile net (loss) income to net cash (used) in/provided by operating activities:
Depreciation, amortization and obsolescence allowance		12,727			13,318
Amortization of contract costs		(1,461	)		(2,383	)
Amortization of engine overhauls		1,515			1,305
Deferred income taxes		—			(118	)
Loss on disposition of property and equipment		208			38
(Gain) loss on marketable securities		(945	)		6,025
Gain on extinguishment of debt		(70	)		—
Changes in operating assets and liabilities:
Accounts receivable		(4,733	)		(16,697	)
Notes receivable		(1,641	)		(7,609	)
Spare parts and supplies		(605	)		(159	)
Prepaid expenses and other		139			4,623
Operating lease right-of-use asset		126			54
Accounts payable		851			(1,486	)
Accrued payroll and employee benefits		195			(1,728	)
Other accrued expenses		(35	)		24
Long-term deferred revenue		—			(9,046	)
Contract liabilities		2,143			(2,080	)
Deferred revenues		(16,561	)		(8,292	)
Income taxes payable		—			3,487
Other long-term liabilities		(240	)		(60	)

Net Cash (Used) in/Provided by Operating Activities		(16,674	)		3,560

Cash Flows from Investing Activities
Additions to property and equipment		(2,453	)		(3,732	)
Proceeds on disposition of property and equipment		10			7
Purchase of marketable securities		(1,681	)		(958	)
Sale of marketable securities		15,000			—

Net Cash Provided by/(Used) in Investing Activities		10,876			(4,683	)

Cash Flows from Financing Activities
Repayment of long-term debt		(8,112	)		(1,190	)
Dividends paid on preferred stock		(557	)		(396	)
Cancellation of stock option		—			(969	)
Repurchased stock		(3,072	)		(9,934	)

Net Cash Used in Financing Activities		(11,741	)		(12,489	)

Decrease in Cash, Cash Equivalents and Restricted Cash		(17,539	)		(13,612	)
Cash, Cash Equivalents and Restricted Cash, beginning of period		34,182			38,619

Cash, Cash Equivalents and Restricted Cash, end of period	$	16,643		$	25,007

See accompanying condensed notes to unaudited condensed consolidated financial statements.

See Note 11 for supplemental cash flow information.

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Harbor Diversified, Inc. and Subsidiaries

Condensed Notes to Condensed Consolidated Financial Statements (in thousands, except shares and per share amounts)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of Harbor Diversified, Inc. (“Harbor”) and its subsidiaries (collectively, the “Company”).

Harbor

is a non-operating holding company

that is the parent of a consolidated group of subsidiaries, including AWAC Aviation, Inc. (“AWAC”), which is the sole member of Air Wisconsin Airlines LLC (“Air Wisconsin”), which is a regional air carrier. Harbor is also the direct parent of three other subsidiaries: (1) Lotus Aviation Leasing, LLC (“Lotus”), which leases flight equipment to Air Wisconsin, (2) Air Wisconsin Funding LLC, which provides flight equipment financing to Air Wisconsin, and (3) Harbor Therapeutics, Inc., which

is a non-operating entity with

no material assets.

The condensed consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly in all material respects the financial condition and results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. All of the dollar and share amounts set forth in these condensed notes to condensed consolidated financial statements are presented in thousands except per share and par value amounts.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in Harbor’s Annual Report on Form

10-K

for the year ended December 31, 2022, which was filed with the SEC on April 3, 2023 (“2022 Annual Report”). As a result of numerous factors, including those discussed throughout this Quarterly Report, the results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for any other reporting period.

Description of Operations

The Company has principal lines of business focused on (1) providing regional air services through Air Wisconsin (airline business), (2) acquiring flight equipment for the purpose of leasing the equipment to Air Wisconsin, and (3) providing flight equipment financing to Air Wisconsin. Additionally, Air Wisconsin is continuing to explore aircraft leasing opportunities.

The airline business is operated entirely through Air Wisconsin, which is an independent regional air carrier. For the three months ended June 30, 2023, Air Wisconsin was engaged in the business of providing scheduled passenger service for United Airlines, Inc. (“United”) under a capacity purchase agreement (“United capacity purchase agreement”) which was entered into in February 2017 and which terminated in early June 2023. Since March 1, 2023, Air Wisconsin has also provided scheduled passenger service for American Airlines, Inc. (“American”) under a capacity purchase agreement (“American capacity purchase agreement”), pursuant to which Air Wisconsin agreed to provide up to 60

CRJ-200

regional jet aircraft for regional airline services for American. The American capacity purchase agreement also provides that the parties may discuss the possibility of adding

CRJ-700

regional jets to Air Wisconsin’s fleet for the purpose of providing regional airline services under the agreement, but neither party is currently under any obligation with respect to these aircraft.

American became Air Wisconsin’s sole airline partner when all its aircraft were removed from United’s flying operations in early June. As of June 30, 2023, Air Wisconsin had 32 aircraft in service for American under the American capacity purchase agreement.

For additional information, refer to Note 3,

Capacity Purchase Agreements with United and American

Table of Contents

Contract Revenues

For the three months ended June 30, 2023, approximately 47.1% of the Company’s operating revenues were derived from operations associated with the United capacity purchase agreement and approximately 52.7% of the Company’s operating revenues were derived from operations associated with the American capacity purchase agreement.

In performing an analysis of the United capacity purchase agreement and the American capacity purchase agreement within the framework of Accounting Standards Update (“ASU”)

No. 2016-02,

Leases (“Topic 842”)

and Financial Accounting Standards Board (“FASB”) ASU No. 606,

Revenue from Contracts with Customers (“Topic 606”)

, the Company determined that a portion of the payments it receives under the capacity purchase agreements that is designed to reimburse Air Wisconsin for use of a certain number of aircraft, which is referred to as “right of use,” is considered lease revenue. All other revenue received by Air Wisconsin under the capacity purchase agreements is considered

non-lease

revenue. After consideration of the lease and

non-lease

components, within the context of Topic 842, the Company determined the

non-lease

component to be the predominant component of each capacity purchase agreement and elected a practical expedient to not separate the lease and

non-lease

components. Therefore, all compensation received by Air Wisconsin pursuant to the United capacity purchase agreement and the American capacity purchase agreement has been accounted for under Topic 606.

The Company has recognized revenue under each capacity purchase agreement over time as services are provided. Under each agreement, Air Wisconsin is entitled to receive a fixed rate for each departure and block hour (measured from takeoff to landing, including taxi time), and a fixed amount per covered aircraft per day (subject to Air Wisconsin’s ability to meet certain block hour utilization thresholds), in each case subject to annual increases during the term of the agreement. Air Wisconsin’s performance obligation is met and revenue is recognized over time, which is then reflected in contract revenues. Each agreement also provides for the reimbursement to Air Wisconsin of certain direct operating expenses, such as certain insurance premiums and property taxes.

Prior to the termination of the United capacity purchase agreement in early June 2023, United made provisional cash payments to Air Wisconsin during each month of service based on projected flight schedules. These provisional cash payments were then subsequently reconciled with United based on actual completed flight activity. As of the date of this filing, these payments were reconciled through April 2023. Subject to final reconciliation of the provisional cash payments for the periods after April 2023, as of June 30, 2023, United owed Air Wisconsin approximately $

29,896

, which is recorded in accounts receivable, net of amounts owed to United, on the

condensed

consolidated balance sheets. United is disputing that it owes $

30,149

. For additional information, refer to Note 3,

Capacity Purchase Agreements with United and American

and Note 8,

Commitments and Contingencies

American makes provisional cash payments to Air Wisconsin during each month of service based on projected flight schedules. These provisional cash payments are subsequently reconciled with American based on actual completed flight activity. As of the date of this filing, the payments through June 2023 have been reconciled. As of June 30, 2023, American owed Air Wisconsin approximately $

2,575, which is recorded in accounts receivable, net, on the

condensed

consolidated balance sheets.

Prior to the termination of the United capacity purchase agreement in early June 2023, Air Wisconsin was eligible to receive incentive payments, or was required to pay penalties, upon the achievement of, or failure to achieve, certain performance criteria primarily based on flight completion,

on-time

performance, and customer satisfaction ratings. The incentives were defined in the agreement, and performance was measured on a monthly basis. At the end of each month during the term of the agreement, Air Wisconsin calculated the incentives achieved, or penalties payable, during that period and recognized revenue accordingly, subject to the variable constraint guidance under Topic 606. Although, as of the date of this filing, the final reconciliations had not been completed for periods after April 2023, after considering operational performance related to expected incentive and penalty payments, Air Wisconsin has received, or is likely to receive, net payments of $216 and $1,243 for the three and six months ended June 30, 2023, respectively, as compared to $2,530 and $3,307 for the three and six months ended June 30, 2022, respectively. As of June 30, 2023, Air Wisconsin recorded $457 as part of accounts receivable, net, on the

condensed

consolidated balance sheets related to net incentive amounts. As of December 31, 2022, Air Wisconsin recorded $2,307 as part of accounts receivable, net, on the

condensed

consolidated balance sheets related to net incentive amounts.

Commencing in September 2023, Air Wisconsin will be eligible under the American capacity purchase agreement to receive bonus payments, or may be required to pay rebates, upon the achievement of, or failure to achieve, certain performance criteria primarily based on flight completion,

on-time

performance, and customer satisfaction ratings. The bonus and rebate amounts are defined in the agreement, and performance will be measured on a monthly or quarterly basis. At the end of each month or quarter, Air Wisconsin will calculate the bonus amounts achieved, or rebates payable, during that period and recognize revenue accordingly, subject to the variable constraint guidance under Topic 606.

Under the United capacity purchase agreement, Air Wisconsin was entitled to receive a fixed amount per aircraft per day for each month during the term of the agreement. In accordance with GAAP, the Company recognized revenue related to the fixed payments on a proportional basis taking into account the number of flights actually completed in that period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the agreement. Air Wisconsin deferred fixed revenues between April 2020 and June 2021 due to the significant decrease in its completed flights as a result of the

COVID-19

pandemic. Beginning in July 2021, due to an increase in completed flights and based on projected future completed flight activity, Air Wisconsin began reversing this deferral of fixed revenues, and it continued to do so until the termination of the agreement in early June 2023. Accordingly, during the three and six months ended June 30, 2023, Air Wisconsin recognized $5,841 and $16,561 of fixed revenues that were previously deferred, respectively, compared to a recognition of $12,632 and $17,368 of fixed revenues in the three and six months ended June 30, 2022, respectively. As of June 30, 2023 and December 31, 2022, deferred fixed revenues in the amount of $0 and $16,561, respectively, were recorded as part of deferred revenues on the

condensed

consolidated balance sheets.

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Under the United capacity purchase agreement, Air Wisconsin also recognized decreased

non-refundable

upfront fee revenues and increased fulfillment costs, both of which were amortized over the remaining term of the United capacity purchase agreement in proportion to the number of flights completed in the period relative to the number of flights expected to be completed in subsequent periods. During the three and six months ended June 30, 2023, Air Wisconsin recorded $410 and $1,335 of revenue from upfront fees, respectively, and $44 and $143 of fulfillment costs, respectively, compared to $1,316 and $2,383 in revenue from upfront fees, respectively, and $141 and $256 of fulfillment costs for the three and six months ended June 30, 2022, respectively. As of June 30, 2023 and December 31, 2022, deferred upfront fee revenue in the amount of $0 and $410, respectively, is recorded as part of contract liabilities on the

condensed

consolidated balance sheets.

Under the American capacity purchase agreement, Air Wisconsin is entitled to receive a fixed amount per aircraft per day for each month during the term of the agreement based on a formula which takes into account pilot availability for any given month. Air Wisconsin will recognize this revenue related to the specific flight activity for the month in which the flights occur.

Under the American capacity purchase agreement, Air Wisconsin is also entitled to be reimbursed for certain startup costs

(non-refundable

upfront fee revenue), such as livery changes to the aircraft, to prepare the aircraft for American flight services. Through June 30, 2023, Air Wisconsin had incurred $3,792 in reimbursable costs, and it estimates that it will incur an additional $817 in reimbursable costs over the term of the American capacity purchase agreement. In accordance with GAAP, the Company will recognize revenue related to the total estimated

non-refundable

upfront fee revenue of $4,609 on a proportional basis taking into account the number of flights actually completed in the period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the agreement. Accordingly, during the three and six months ended June 30, 2023, Air Wisconsin recognized $115 and $125 of

non-refundable

upfront fee revenues, respectively, compared to a recognition of $0 of

non-refundable

upfront fee revenues in the three and six months ended June 30, 2022. As of June 30, 2023 and December 31, 2022, Air Wisconsin deferred $3,666, and $0, respectively, in

non-refundable

upfront fee revenues under the American capacity purchase agreement. Air Wisconsin’s deferred revenues related to the

non-refundable

upfront fee revenues under the American capacity purchase agreement will adjust over the remaining contract term, based on the actual expenses incurred that will be reimbursed and recognized based on the number of flights actually completed in the period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the agreement. As of June 30, 2023 and December 31, 2022, deferred

non-refundable

upfront fee revenues in the amount of $460 and $0, respectively, were netted as part of short-term contract assets, and $3,206 and $0, respectively, were recorded as part of long-term contract liabilities on the

condensed

consolidated balance sheets.

As noted above, Air Wisconsin incurred certain startup costs (fulfillment costs) prior to the start of flying operations for American on March 1, 2023. These costs included changes to the livery, fuel costs, and certain training expenses. The total fulfillment costs incurred were $774. These costs will be amortized on a proportional basis taking into account the number of flights actually completed in the period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the agreement. For the three and six months ended June 30, 2023, Air Wisconsin recorded $19 and $21, respectively, and $0 for the three and six months ended June 30, 2022 for amortization expense related to fulfillment costs. As of June 30, 2023 and December 31, 2022, fulfillment costs of $114 and $0, respectively, are recorded as part of short-term contract costs, and $639 and $0, respectively, are recorded as part of long-term contract costs on the

condensed

consolidated balance sheets.

Under the American capacity purchase agreement, Air Wisconsin will also receive a monthly support fee and be reimbursed for heavy maintenance expenses based on the fixed covered per aircraft per day rate over the term of the agreement. In addition, Amendment No. 1 to the American capacity purchase agreement provided for a

one-time

payment to assist with increased costs related to pilot compensation. In accordance with GAAP, the Company recognizes revenue related to the monthly support fee, heavy maintenance revenue, and

one-time

pilot compensation assistance payment on a proportional basis taking into account the number of flights actually completed in the period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the agreement. Accordingly, during the three and six months ended June 30, 2023, Air Wisconsin recognized $1,147 and $1,260,

respectively, of revenue related to the one-time assistance payment, the estimated monthly support fee and the heavy maintenance revenues, compared to $

for the three and six months ended June 30, 2022. As of June 30, 2023 and December 31, 2022, revenues related to the monthly support fee and anticipated heavy maintenance reimbursements in the amounts of $

633 and $0, respectively, were recorded as part of short-term contract assets, and $366 and $0, respectively, were netted in long-term contract liabilities on the

condensed

consolidated balance sheets. Air Wisconsin’s contract liabilities related to the

one-time

assistance payment and estimated monthly support fee and heavy maintenance revenues under the American capacity purchase agreement will adjust over the remaining contract term, based on the actual reimbursement of the monthly support fee and heavy maintenance revenues and on the number of flights actually completed in each reporting period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the agreement.

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As part of the October 2020 amendment to the United capacity purchase agreement (“CPA Amendment”), United made a cash settlement payment of $670 and issued a note receivable to Air Wisconsin in the amount of $11,048, of which $4,410 was deferred as of December 31, 2020, with the remaining portion recognized in proportion to the number of flights completed in subsequent periods through the end of the wind-down period. In October 2021, in accordance with the CPA Amendment, Air Wisconsin received $294 from United for the opening of a crew base, of which $73 was deferred as of December 31, 2021, with the remaining portion recognized in proportion to the number of flights completed in subsequent periods through the end of the wind-down period. For the three and six months ended June 30, 2023, Air Wisconsin recorded $199 and $649 of revenue related to these items, respectively, compared to $640 and $1,159 of revenue related to these items for the three and six months ended June 30, 2022, respectively. As of June 30, 2023, there was no deferred CPA Amendment revenue recorded as part of contract liabilities on the

condensed

consolidated balance sheets.

The timing of the recognition under the American capacity purchase agreement of

non-refundable

upfront fee revenue, fulfillment costs, monthly support fee revenues, heavy check maintenance revenues and

one-time

support fee revenues in future periods is subject to considerable uncertainty due to a number of factors, including the estimated revenue amounts to be received and the number of flights actually completed in the period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the agreement. The amount of revenues recognized for the three and six months ended June 30, 2023, that were related to the United capacity purchase agreement and previously recorded as contract liabilities was $609 and $1,985, respectively. During the three and six months ended June 30, 2023, there were no revenues recognized that were previously recorded as contract liabilities related to the American capacity purchase agreement.

The CPA Amendment provided, among other things, for the payment or accrual of certain amounts by United to Air Wisconsin based on certain scheduling benchmarks. In conjunction with the significant reduction in departures and block hours resulting from the

COVID-19

pandemic in 2020, and consistent with the terms of the CPA Amendment, management determined that, from an accounting perspective, a new performance obligation was created by United, requiring Air Wisconsin to stand ready to deliver flight services. Air Wisconsin determined, using the expected cost plus a margin method, that the United “stand ready” rate represented the relative stand-alone selling price of the performance obligation. The stan

d ready

performance obligation was recognized over time on a straight-line basis based on the number of unscheduled block hours below a minimum threshold at the stand ready rate as determined in a manner consistent with the CPA Amendment. For the three and six months ended June 30, 2023, Air Wisconsin recorded $0 and $1,641, respectively, in revenue related to this performance obligation compared to $4,099 and $7,608

for the three and six months ended
June 30, 2022, respectively. Under the CPA Amendment, United was required to accrue this amount and, upon request by Air Wisconsin, deliver a note evidencing this amount each quarter. Therefore, this amount is recorded in notes receivable on the condensed consolidated balance sheets. The notes receivable contain a significant financing component and any interest income is separately reported on the condensed consolidated statements of operations. United has disputed that it owes these amounts in respect of certain quarters and has refused to deliver notes for those quarters. On November 4, 2022, United prepaid to Air Wisconsin $

50,126

to satisfy all of the outstanding, undisputed notes receivable, including all accrued interest, pursuant to the CPA Amendment in respect of the period from the second quarter of 2020 through the third quarter 2021 and the $

11,048 note receivable described above. The unpaid disputed notes came due on February 28, 2023. As of June 30, 2023, the principal amount of the unpaid disputed notes totaled $21,093. Prior to February 28, 2023, the unpaid disputed notes bore interest at the rate of 4.5% per annum. After February 28, 2023, the notes bear interest at the default interest rate of 12% per annum. As of June 30, 2023, interest receivable on the disputed notes, calculated at the

pre-default

contractual rate without any default interest, totaled $790 and is recorded in accounts receivable, net, on the

condensed

consolidated balance sheets. For additional information, refer to Note 8,

Commitments and Contingencies

Other Revenues

Other revenues primarily consist of the sales of parts to other airlines and aircraft lease payments. These other revenues are immaterial in all periods presented. The transaction price for these other revenues generally is fair market value.

Cash and Cash Equivalents

Money market funds and investments and deposits with an original maturity of three months or less when acquired are considered cash and cash equivalents.

Restricted Cash

As of June 30, 2023 and December 31, 2022, the Company had a restricted cash balance of $812 and $849, respectively. A portion of the balance secures a credit facility for the issuance of letters of credit guaranteeing the performance of Air Wisconsin’s obligations under certain lease agreements, airport agreements and insurance policies. The remaining portion is cash held for the repurchase of shares under Harbor’s stock repurchase program. For additional information, refer to Note 8,

Commitments and Contingencies

and Note 13,

Stock Repurchase Program

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Marketable Securities

The Company’s equity security investments, consisting of exchange-traded funds and mutual funds, are recorded at fair value based on quoted market prices (Level 1) in marketable securities on the condensed consolidated balance sheets, in accordance with the guidance in ASC Topic 321

Investments-

Equity Securities

with the change in fair value during the period included on the condensed consolidated statements of operations. As of June 30, 2023 and December 31, 2022, the fair value of the Company’s marketable securities was $

141,453 and $153,827, respectively. For additional information, refer to

Fair Value of Financial Instruments

in this Note 1.

The calculation of net unrealized gains and losses that relate to marketable securities held as of June 30, 2023 is as follows:


	Three Months Ended June 30, 2023			Six Months Ended June 30, 2023
Net (losses) gains recognized during the period on equity securities	$	(795	)	$	945
Less: Net losses recognized during the period on equity securities sold during the period		(82	)		(82	)

Unrealized (losses) gains recognized during the period on equity securities held as of the end of the period	$	(713	)	$	1,027

The calculation of net unrealized gains and losses that relate to marketable securities held as of June 30, 2022 is as follows:


	Three Months Ended June 30, 2022			Six Months Ended June 30, 2022
Net losses recognized during the period on equity securities	$	(3,602	)	$	(6,025	)
Less: Net gains (losses) recognized during the period on equity securities sold during the period		—			—

Unrealized losses recognized during the period on equity securities held as of the end of the period	$	(3,602	)	$	(6,025	)

Property and Equipment

Property and equipment are stated at cost and depreciated over their useful lives to their estimated residual values using the straight-line method as follows:


Assets	Depreciable Life		Current Residual Value
Aircraft		7 years	$	50
Spare engines		7 years	$	25
Rotable parts		7 years		10	%
Ground equipment		up to 10 years		0	%
Office equipment		up to 10 years		0	%
Leasehold improvements		Shorter of asset or lease life		0	%

The table below sets forth the original cost of the Company’s fixed assets and accumulated depreciation or amortization as of the dates presented:


	June 30, 2023				December 31, 2022
Assets	Original Cost		Accumulated Depreciation/ Amortization		Original Cost		Accumulated Depreciation/ Amortization
Aircraft	$	70,676	$	45,244	$	70,089	$	40,544
Spare engines		164,706		112,719		163,708		103,834
Rotable parts		27,207		18,345		27,936		18,655
Ground equipment		2,738		2,163		2,718		2,063
Office equipment		4,515		4,296		4,519		4,218
Leasehold improvements		1,034		562		818		452

Total	$	270,876	$	183,329	$	269,788	$	169,766

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The amounts in the table exclude construction in process of $2,870 and $2,237 at June 30, 2023 and December 31, 2022, respectively. Construction in process primarily relates to the cost of parts that are not capitalized until the parts are placed into service.

Air Wisconsin’s capitalized engine maintenance costs are amortized over their estimated useful life measured in remaining engine cycles to the next scheduled shop visit. Lotus’ engine maintenance costs are expensed.

Depreciation expense in the three and six months ended June 30, 2023 was $6,307 and $12,562, respectively, compared to $6,218 and $12,433

for the three and six months ended June 30, 2022, respectively, and is included in depreciation, amortization, and obsolescence in the accompanying condensed consolidated statements of operations.

Impairment of Long-Lived Assets and Indefinite-Lived Intangible Assets

The Company evaluates long-lived assets and indefinite-lived intangible assets for potential impairment and records impairment losses when events and circumstances indicate the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. Impairment losses are measured by comparing the fair value of the assets to their carrying amounts. In determining the need to record impairment charges, the Company is required to make certain estimates and assumptions regarding such things as the current fair market value of the assets and future net cash flows to be generated by the assets.

If there are subsequent changes to these estimates or assumptions, or if actual results differ from these estimates or assumptions, such changes could impact the financial statements in the future. The Company conducted a qualitative impairment assessment of its long-lived assets and indefinite-lived intangible assets and determined that no quantitative impairment tests were required to be performed as of June 30, 2023 and June 30, 2022. Air Wisconsin in the future may include aircraft other than the

CRJ-200

as part of its flying operations. Such an event would likely lead Air Wisconsin to conduct qualitative tests for impairment of the

CRJ-200

fleet and related assets.

Income Taxes

The Company utilizes the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities, as measured by the current applicable tax rates. Deferred tax expense represents the result of changes in deferred tax assets and liabilities.

As required by the uncertain tax position guidance, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would

more-likely-than-not

sustain the position following an audit. For tax positions meeting the

more-likely-than-not

threshold, the amount recognized in the condensed consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company has applied the uncertain tax position guidance to all tax positions for which the statute of limitations remains open.

The Company is subject to federal, state and local income taxes in the United States. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require the application of significant judgment. The Company is no longer subject to U.S. federal income tax examinations for the years prior to 2019. With a few exceptions, the Company is no longer subject to state or local income tax examinations for years prior to 2018. As of June 30, 2023, the Company had no outstanding tax examinations.

Concentration of Credit Risk and Customer Risk

Financial instruments that potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents that are held by financial institutions in the United States and accounts receivable. The Company at times has had bank deposits in excess of the Federal Deposit Insurance Corporation insurance limit. The Company maintains its cash accounts with high credit quality financial institutions and, accordingly, the Company believes it has minimal credit risk with respect to these financial institutions. As of June 30, 2023, in addition to cash and cash equivalents of $15,831, the Company had $812 in restricted cash, which relates to a credit facility used for the issuance of cash collateralized letters of credit supporting Air Wisconsin’s obligations under certain lease agreements, airport agreements and insurance policies, as well as cash held for the repurchase of shares under Harbor’s stock repurchase program. Restricted cash includes amounts escrowed in an interest-bearing account that secures the credit facility. Since a significant portion of Air Wisconsin’s revenues are derived from United and American, a significant portion of the accounts receivable balance is derived from United and American as well. For the three and six months ended June 30, 2023, United and American made up $30,686 and $2,575 of the total accounts receivable balance of $45,074, respectively. As of December 31, 2022, United made up $29,770 of the total accounts receivable balance of $40,341.

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Significant customers are those which represent more than 10% of the Company’s total revenue or net accounts receivable balance at each respective balance sheet date. Approximately 47.1% and 72.9% of the Company’s consolidated revenues for the three and six months ended June 30, 2023, respectively, and 99.9 % for both the three and six months ended June 30, 2022, and a substantial portion of accounts receivable and notes receivable at the end of the three and six months ended June 30, 2022 were derived from the United capacity purchase agreement.

Air Wisconsin entered into the American capacity purchase agreement in August 2022 and commenced flying operations for American in March 2023. Approximately 52.7% and 26.9% of the Company’s consolidated revenues for the three and six months ended June 30, 2023, respectively were from the American capacity purchase agreement. American became Air Wisconsin’s sole airline partner when all of Air Wisconsin’s aircraft were removed from United’s flying operations in early June. Going forward, substantially all of the Company’s revenues and accounts receivable will be derived from the American capacity purchase agreement.

Neither United’s nor American’s obligations to pay Air Wisconsin the amounts required to be paid under the applicable capacity purchase agreement are collateralized.

For additional information, refer to Note 3,

Capacity Purchase Agreements with United and American

Estimates and Assumptions

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, restricted cash, marketable securities, accounts receivable, long-term investments, accounts payable, and long-term debt. The Company believes the carrying amounts of these financial instruments, with the exception of marketable securities, are a reasonable estimate of their fair value because of the short-term nature of such instruments, or, in the case of long-term debt, because of fixed interest rates on such debt. Marketable securities are reported at fair value based on quoted market prices. Long-term investments are

held-to-maturity

debt securities and are reported at amortized cost.

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (that is, an exit price). Fair Value Measurement (“Topic 820”) establishes a three-tier fair value hierarchy, which prioritizes inputs used in fair value. The tiers are as follows:

Level 1 - Quoted market prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable.

Level 3 - Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use.

The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates these determinations each reporting period, and it is possible that an asset or liability may be classified differently from year to year.

The tables below set forth the Company’s classification of marketable securities and long-term investments as of the dates presented:


	June 30, 2023
	Total		Level 1		Level 2		Level 3
Marketable securities – exchange-traded funds	$	111,030	$	111,030	$	—	$	—
Marketable securities – mutual funds		30,423		30,423		—		—
Long-term investments – bonds (see Note 6)		4,275		—		4,275		—

Total	$	145,728	$	141,453	$	4,275	$	—

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	December 31, 2022
	Total		Level 1		Level 2		Level 3
Marketable securities – exchange-traded funds	$	109,178	$	109,178	$	—	$	—
Marketable securities – mutual funds		44,649		44,649		—		—
Long-term investments – bonds (see Note 6)		4,275		—		4,275		—

Total	$	158,102	$	153,827	$	4,275	$	—

Reclassification

Certain non-operating income amounts were previously recorded in other, net, on the condensed consolidated statements of operations in the amounts of $

694 and $904 for the three and six months ended June 30, 2022, respectively, have been reclassified to interest income to conform to the presentation for the three and six months ended June 30, 2023, with no effect on net income. The reclassification relates to certain income received on the investment in marketable securities.

Recently Adopted Accounting Pronouncement

On January 1, 2023 the Company adopted ASU

2016-13,

Financial Instruments-Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments

(“ASU

2016-13”).

ASU

2016-13

introduces a new accounting model known as Current Expected Credit Losses (“CECL”). CECL requires earlier recognition of credit losses, while also providing transparency about credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models in current GAAP, which generally require that a loss be incurred before it is recognized. The new standard will also apply to receivables arising from revenue transactions such as contract assets and accounts receivable. There are other provisions in the standard affecting how impairments of other financial assets may be recorded and presented, as well as expanded disclosures. The Company determined that amounts in dispute with United do not fall within the standard. The Company further determined that its receivables are primarily the result of its relationship with United and American, or insurance related receivables. These receivables are payable by credit-worthy companies and any resulting adjustment related to the adoption of CECL was determined to be immaterial. Therefore, the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements. Further, no adjustment was made to opening retained earnings as a result of the adoption of the accounting standard using the modified retrospective method. The Company does continue to maintain an allowance for expected credit losses primarily related to employee receivables. The allowance for expected credit losses was $

13 and $18, as of June 30, 2023 and December 31, 2022, respectively. The Company will continue to monitor its financial instruments for expected credit losses under the newly adopted standard.

2. Liquidity

The Company’s ability to meet its liquidity needs is dependent upon its cash, cash equivalents and marketable securities balances and its ability to generate cash flows from operations in the future in amounts sufficient to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company currently believes its available working capital and anticipated cash flows from operations will be sufficient to meet the Company’s liquidity requirements for at least the next 12 months from the date of this filing. However, there can be no assurance that the Company will be able to generate sufficient cash flows from operations, or that additional funds will be available, to meet its future liquidity needs, particularly if Air Wisconsin receives an adverse determination in the arbitration with United.

Reduced Block Hours

Since the beginning of the

COVID-19

pandemic, Air Wisconsin has experienced significantly reduced block hours relative to historical levels, both as a result of the pandemic and the prevailing industry-wide pilot shortage. Although the disruption in passenger demand due to the pandemic has largely subsided, the pilot shortage is expected to continue for the foreseeable future and is currently the leading factor preventing Air Wisconsin from consistently achieving block hours in line with

pre-pandemic

levels.

In addition, Air Wisconsin’s block hours have been temporarily reduced as a result of the transition from flying for United to flying for American. Before any Air Wisconsin aircraft was available to operate flights for American, that aircraft had to be removed from service under the United capacity purchase agreement, painted to meet the livery requirements of the American capacity purchase agreement and otherwise modified to meet such requirements. During the period from the withdrawal of an aircraft from service under the United capacity purchase agreement until it is placed into service under the American capacity purchase agreement, that aircraft did not generate revenues from either United or American. As of June 30, 2023, Air Wisconsin had 32 aircraft in service for American under the American capacity purchase agreement.

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For additional information, refer to Part I, Item 1, “

Business

—

American Capacity Purchase Agreement

” within the 2022 Annual Report.

3. Capacity Purchase Agreements with United and American

In February 2017, Air Wisconsin entered into the United capacity purchase agreement. That agreement terminated and Air Wisconsin ceased flying for United in early June 2023. Although the agreement has terminated, a dispute continues to exist under the agreement. Air Wisconsin has claimed that United owes it certain amounts under the capacity purchase agreement. United has denied that it owes those amounts and has claimed that Air Wisconsin improperly terminated the agreement and that Air Wisconsin owes it certain amounts for the alleged wrongful termination. In October 2022, United initiated arbitration under the agreement. An arbitration hearing commenced in July 2023 before three arbitrators. Air Wisconsin expects the arbitrators will issue their decision and award in the fourth quarter of 2023. Since the arbitration decision has not yet been issued, Air Wisconsin cannot reasonably estimate the likely outcome of the arbitration including any potential award of the disputed amounts. Air Wisconsin, however, maintains that it has a strong position, that it was entitled to terminate the agreement and that it is entitled to the disputed amounts, including the amounts recorded in the condensed consolidated balance sheets, under the terms of the agreement. For additional information, refer to Note 1,

Summary of Significant Accounting Policies—Contract Revenues

and Note 8,

Commitments and Contingencies.

In August 2022, Air Wisconsin entered into the American capacity purchase agreement, pursuant to which Air Wisconsin agreed to provide up to 60

CRJ-200

regional jet aircraft for regional airline services for American. Air Wisconsin commenced flying operations for American in March

2023.

American became Air Wisconsin’s sole airline partner when the last remaining aircraft covered by the United capacity purchase agreement were removed from United’s flying operations in early June. In February 2023, American and Air Wisconsin entered into Amendment No. 1 to the American capacity purchase agreement which revised compensation rates for 2023 through 2027 and obligated American to make a payment to assist Air Wisconsin with current pilot compensation.

4. Property and Equipment

As of June 30, 2023, Air Wisconsin owned 64

CRJ-200

regional jets.

5. Income Taxes

The Company’s effective tax rate for the three months ended June 30, 2023 was 21.3%, which varied from the federal statutory rate of 21.0% primarily due to the impact of the increase of the valuation allowance on federal and state deferred tax assets that are capital in nature due to the unrealized losses on marketable securities during the quarter, state income taxes, and permanent differences between financial statement and taxable income.

The Company’s effective tax rate for the six months ended June 30, 2023 was 25.0%, which varied from the federal statutory rate of 21.0% primarily due to the impact of the partial reversal of the valuation allowance on federal and state deferred tax assets that are capital in nature due to the unrealized gains on marketable securities during the period, state income taxes, and permanent differences between financial statement and taxable income.

The Company’s effective tax rate for the three and six months ended June 30, 2022 was 23.8%, which varied from the federal statutory rate of 21.0% primarily due to the impact of state income taxes and permanent differences between financial statement and taxable income.

6. Debt

Long-Term Debt

Long-term debt consists of the following (with interest rates, as of the dates presented):


	June 30, 2023		December 31, 2022
Aircraft Notes, due December 31, 2025 (4.0%)	$	53,040	$	61,222
Less: current maturities		5,444		9,154

Long-term debt	$	47,596	$	52,068

In June 2023, Air Wisconsin prepaid approximately $3,500 of the principal amount outstanding under the Notes due December 31, 2025. The prepayment resulted in a $70 gain on extinguishment of debt due to the decrease in previously expected future interest that was capitalized.

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Maturities of long-term debt for the periods subsequent to June 30, 2023, are as follows:


Fiscal Year	Amount
July 2023 through December 2023	$	972
2024		8,874
2025		43,194

Total	$	53,040

The debt agreements include certain covenants. At June 30, 2023 and December 31, 2022, Air Wisconsin was in compliance with all of the covenants in its debt agreements.

As of June 30, 2023, all of the Company’s long-term debt was subject to fixed interest rates.

For additional information, refer to Note 6,

Debt,

in the audited consolidated financial statements within the 2022 Annual Report.

Long-Term Promissory Note

In July 2003, Air Wisconsin financed a hangar through the issuance of $4,275 City of Milwaukee, Wisconsin variable rate Industrial Development Bonds. The bonds mature November 1, 2033. Prior to May 1, 2006, the bonds were secured by a guaranteed investment contract, which was collateralized with cash, and interest was payable semiannually on each May 1 and November 1. In May 2006, Air Wisconsin acquired the bonds using the cash collateral. The bonds are reported as long-term investments on the

condensed

consolidated balance sheets. The hangar is accounted for as a

right-of-use

asset with a value of $2,431 and $2,547 as of June 30, 2023 and December 31, 2022, respectively.

7. Lease Obligations

The Company reviewed all contracts and service agreements in effect for the three months ended June 30, 2023 for criteria meeting the definition of a lease within the frameworks of Topic 842 and Topic 606. Those that were determined to be a lease may contain both a lease and a

non-lease

component. In those instances, the Company elected to account for such components as a single lease component.

The Company’s operating lease activities are recorded in operating lease

right-of-use

assets, current portion of operating lease liability, and long-term operating lease liability on the

condensed

consolidated balance sheets. Air Wisconsin has operating leases with terms greater than

months for training simulators and facility space including office space and maintenance facilities. The remaining lease terms for training simulators and facility space vary from two months to 10.5 years. For leases of 12 months or less, the Company elected a short-term lease practical expedient for all leases, regardless of the underlying class of asset, that allows the lessee to not recognize a lease

right-of-use

asset or lease liability. As a result, the Company recognized lease payments for short-term leases as an expense on a straight-line basis over the lease term. For leases with durations longer than 12 months, the Company recorded the related operating lease

right-of-use

asset and operating lease liability at the present value of the lease payments over the lease term. The Company used Air Wisconsin’s incremental borrowing rate to discount the lease payments based on information available at lease inception. Air Wisconsin’s operating leases with lease rates that are variable based on operating costs, use of the facilities, or other variable factors were excluded from the Company’s

right-of-use

assets and operating lease liabilities in accordance with the applicable accounting guidance. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.

Certain leases contain an option to extend or terminate the lease agreement. The Company evaluates each option prior to its expiration and may or may not exercise such option depending on conditions present at the time. At the inception of the lease, if it is reasonably certain that the Company will exercise an option to extend or terminate a lease, the Company considers the option in determining the classification and measurement of the lease. The Company expects that in the normal course of business operating leases that expire will be renewed or replaced by other leases.

As of June 30, 2023, the Company’s

right-of-use

assets were $11,113, the Company’s current maturities of operating lease liabilities were $4,199, and the Company’s long-term lease liabilities were $4,500. During the six months ended June 30, 2023, the Company paid $2,832 in operating lease payments, which are reflected as a reduction to operating cash flows.

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The table below presents operating lease related terms and discount rates as of:


	June 30, 2023
Weighted-average remaining lease term		2.72 years
Weighted-average discount rate		5.92%

Components of lease costs were as follows for the periods presented:


	Three Months Ended June 30,					Six Months Ended June 30,

	2023			2022		2023			2022
Operating lease costs	$	1,489		$	1,472	$	2,958		$	2,946
Short-term lease costs		61			125		126			229
Variable lease costs		(76	)		60		(16	)		95

Total Lease Costs	$	1,474		$	1,657	$	3,068		$	3,270

Certain leases are subject to

non-cancellable

lease terms or may include variable rate increases tied to the consumer price index. One of our leases also provides that Air Wisconsin reimburse the lessor for Air Wisconsin’s

pro-rata

share of taxes and other operating expenses applicable to the leased property. During the second quarter of 2023, Air Wisconsin received a temporary rent concession due to construction at a leased facility, which is being recorded as negative variable rent. Rent expense recorded under all operating leases, inclusive of engine leases, was $1,474 and $1,657 in the three months ended June 30, 2023 and June 30, 2022, respectively. Rent expense recorded under all operating leases, inclusive of engine leases, was $3,068 and $3,270 for the six months ended June 30, 2023 and June 30, 2022, respectively.

The following table summarizes the future minimum rental payments required under operating leases that had initial or remaining

non-cancelable

lease terms greater than

2 months as of June 30, 2023:


Fiscal Year	Amount
July 2023 through December 2023	$	2,826
2024		3,342
2025		2,609
2026		212
2027		75
Thereafter		358

Total lease payments		9,422

Less imputed interest		723
Total Lease Liabilities	$	8,699

8. Commitments and Contingencies

Legal Matters

From time to time, the Company is involved in various legal proceedings, regulatory matters, and other disputes or claims arising from or related to claims incident to the normal course of the Company’s business activities. Although the results of such legal proceedings and claims cannot be predicted with certainty, as of June 30, 2023, the Company believes that it is not currently a party to any legal proceedings, regulatory matters, or other disputes or claims for which a material loss was considered probable and for which the amount (or range) of loss was reasonably estimable. However, regardless of the merit of the claims raised, legal proceedings may have an adverse impact on the Company as a result of adverse determinations, defense and settlement costs, diversion of management’s time and resources, and other factors.

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Dispute with United

Although the United capacity purchase agreement terminated in early June 2023, a dispute continues to exist under that agreement. Air Wisconsin has claimed that United owes it certain amounts under the capacity purchase agreement. United has denied that it owes those amounts and has claimed that Air Wisconsin improperly terminated the agreement and that Air Wisconsin owes it certain amounts for the alleged wrongful termination. As of
June 30, 2023, the aggregate amount in dispute recorded in the

condensed

consolidated financial statements was approximately $52,032. In October 2022, United initiated arbitration under the agreement. An arbitration hearing commenced in July 2023 before three arbitrators. Air Wisconsin expects the arbitrators will issue their decision and award in the fourth quarter of 2023. Air Wisconsin cannot reasonably estimate the likely outcome of the arbitration including any potential award of the disputed amounts. Air Wisconsin, however, maintains that it has a strong position, that it was entitled to terminate the agreement and that it is entitled to the disputed amounts, including the amounts recorded in the

condensed

consolidated balance sheets, under the terms of the agreement. For additional information, refer to Note 1,

Summary of Significant Accounting Policies

–

Contract Revenues

, and Note 3,

Capacity Purchase Agreements with United and American

Treasury Payroll Support Program Audit

In April 2020, Air Wisconsin entered into a Payroll Support Program Agreement

(“PSP-1

Agreement”) with respect to payroll support (“Treasury Payroll Support”) from the U.S. Department of Treasury (“Treasury”) under a program (“Payroll Support Program”) provided by the Coronavirus Aid, Relief, and Economic Security Act, pursuant to which Air Wisconsin received approximately $42,185

(“PSP-1”).

In September 2020, the Treasury’s Office of Inspector General (“OIG”) commenced a routine audit in connection with Air Wisconsin’s receipt of funds under the

PSP-1

Agreement. The audit focused on, among other things, certain calculations used to determine the amount of Treasury Payroll Support Air Wisconsin was entitled to receive under the program. Air Wisconsin has disputed in good faith the Treasury’s interpretation of certain provisions of the application for Treasury Payroll Support and the

PSP-1

Agreement, as well as the Treasury’s guidance regarding the Payroll Support Program. Air Wisconsin received preliminary results from the OIG of the audit in June 2023. Those results are subject to Air Wisconsin’s opportunity to contest the findings and the OIG releasing its final determination. The OIG initially determined that Air Wisconsin overstated its awardable amount on its

PSP-1

application; however, Air Wisconsin does not believe this results in any amounts due back to the Treasury and the Treasury has not required Air Wisconsin to repay any

PSP-1

amounts. As part of Air Wisconsin’s application for a Payroll Support Program Agreement 2

(PSP-2

Agreement, and such award granted thereunder,

PSP-2),

Air Wisconsin was required to recertify its

PSP-1

application and amend portions of the application pursuant to further guidance by the Treasury. Air Wisconsin’s recertified

PSP-1

application resulted in a reduction to its

PSP-2

award to reconcile the difference between its initial

PSP-1

award and a recalculated award based on its

PSP-1

recertification. Based on the OIG’s audit results, Air Wisconsin believes the Treasury may have reduced its

PSP-2

award by more than it should have; however, Air Wisconsin does not reasonably believe it will be able to recover any underpayment from the Treasury.

Subsequent to the September 2020 audit, the Treasury entered into the

PSP-2

Agreement and a Payroll Support Program Agreement 3

(PSP-3

Agreement) with Air Wisconsin and has paid to Air Wisconsin the amounts to be paid under the

PSP-2

Agreement and the

PSP-3

Agreement.

Standby Letters of Credit

As of June 30, 2023, Air Wisconsin had six outstanding letters of credit in the aggregate amount of $372 to guarantee the performance of its obligations under certain lease agreements, airport agreements and insurance policies, and it maintained a credit facility with a borrowing capacity of $376 for the issuance of such letters of credit. A significant portion of Air Wisconsin’s restricted cash balance secures the credit facility.

Cash Obligations

The following table sets forth the Company’s cash obligations for the periods presented:


	Payment Due for Year Ending December 31,
	Total		2023 (July through December)		2024		2025		2026		2027		Thereafter
Aircraft Notes Principal	$	48,600	$	—	$	7,000	$	41,600	$	—	$	—	$	—
Aircraft Notes Interest		4,440		972		1,874		1,594		—		—		—
Operating Lease Obligations		9,422		2,826		3,342		2,609		212		75		358

Total	$	62,462	$	3,798	$	12,216	$	45,803	$	212	$	75	$	358

The principal amount of the Aircraft Notes is payable in semi-annual installments of $3,500,

and certain additional amounts may be payable based on excess cash. The amounts set forth in the table do not reflect any such additional excess cash payments. In June 2023, Air Wisconsin, prepaid the semi-annual installment due December 31, 2023. As of June 30, 2023, all of the Company’s long-term debt was subject to fixed interest rates. For additional information, refer to Note 6,

Debt

, in the audited consolidated financial statements, and the section entitled “

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Debt and Credit Facilities

”

within the 2022 Annual Report, and Note 14,

Subsequent Events

, in this Quarterly Report.

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9. Related-Party Transactions

Resource Holdings Associates (“Resource Holdings”) provides AWAC and Air Wisconsin with financial advisory and management services pursuant to an agreement entered into in January 2012. AWAC paid a total of $60 and $120 to Resource Holdings for the three and six months ended June 30, 2023 and June 30, 2022, plus the reimbursement of certain

out-of-pocket

expenses. In June 2021, the board of directors agreed to require Harbor to pay Resource Holdings an annual fee of $150, payable monthly, which amount is in addition to the amount paid to Resource Holdings by AWAC. Harbor paid an aggregate of $38 and $75 to Resource Holdings for the three and six months ended June 30, 2023 and June 30, 2022, respectively. For additional information, refer to the section entitled “

Certain Relationships and Related Transactions, and Director Independence

” within the 2022 Annual Report.

10. Earnings Per Share and Equity

Calculations of net (loss) income per common share for the periods presented were as follows:


	Three Months Ended June 30,					Six Months Ended June 30,

	2023			2022		2023			2022
Net (loss) income	$	(9,169	)	$	15,081	$	(8,287	)	$	24,344
Preferred stock dividends		305			198		557			396

Net (loss) income applicable to common stockholders	$	(9,474	)	$	14,883	$	(8,844	)	$	23,948

Weighted average common shares outstanding
Shares used in calculating basic earnings per share		44,277			46,519		44,626			47,075
Stock option		—			—		—			198
Series C Preferred		—			16,500		—			16,500

Shares used in calculating diluted earnings per share		44,277			63,019		44,626			63,773

(Loss) e arnings allocated to common stockholders per common share
Basic	$	(0.21	)	$	0.32	$	(0.20	)	$	0.51
Diluted	$	(0.21	)	$	0.24	$	(0.20	)	$	0.38

Basic earnings per share of common stock is computed by dividing the net loss or income applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share is computed by dividing loss or income by the weighted average number of shares outstanding assuming the conversion of the Series C Preferred into an aggregate of 16,500 shares of common stock under the

if-converted

method, and the exercise of a stock option granted in 2015 (2015 Option) into 198 shares of common stock under the treasury stock method for the six months ended June 30, 2022. In March 2022, Harbor entered into an agreement with the holder to cancel the 2015 Option in exchange for $969. The shares underlying the 2015 Option are included in computing diluted earnings per share under the treasury stock method for the portion of the reporting period during which it was outstanding. Further, during loss periods, the conversion of shares under the Series C Preferred or the 2015 Option (for the period it was outstanding) would be anti-dilutive and thus is not assumed for purposes of computing diluted earnings per share.

Series C Convertible Redeemable Preferred Stock

In January 2020, Harbor issued 4,000 shares of the Series C Preferred. The rights, preferences, privileges, qualifications, restrictions and limitations relating to the Series C Preferred are set forth in the Certificate of Designations, Preferences and Rights of Series C Convertible Redeemable Preferred Stock (“Certificate of Designations”), which Harbor filed with the Secretary of State of the State of Delaware.

The Series C Preferred accrues cumulative quarterly dividends at the rate per share of 6.0% of the Series C Issue Price per annum, which are cumulative and compound quarterly to the extent dividends have not been declared by the board of directors (“Preferential Dividends”). From and after December 31, 2023, upon the election of holders of a majority of the outstanding Series C Preferred, the rate of the Preferential Dividends shall be increased by an additional 1.0% per annum per share for each and every

six-month

period following such election (“Dividend Ratchet”). At the option of the board of directors, in lieu of paying the Preferential Dividends and the Conversion Cap Excess Dividends (as defined below) in cash, all or some of such dividends may be paid in additional shares of Series C Preferred (“PIK Dividends”).

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Each share of Series C Preferred was initially convertible at the election of the holders, at any time after issuance, into that number of shares of common stock determined by dividing the then applicable Series C Liquidation Amount (as defined below) by $0.80, subject to certain adjustments set forth in the Certificate of Designations (“Conversion Price”). The Conversion Price as of the date of this filing is $0.15091. The Conversion Price may be subject to further adjustment as described in the Certificate of Designations.

The conversion of Series C Preferred is subject to a limitation on the number of shares of the common stock that may be issued upon conversion of Series C Preferred equal to the sum of (a) 16,500, plus (b) the quotient of (i) the aggregate amount of all accrued and unpaid Preferential Dividends divided by (ii) $0.80, plus (c) the quotient of (i) the number of shares of Series C Preferred issued as PIK Dividends multiplied by the Series C Issue Price, divided by (ii) $0.80. Any outstanding shares of Series C Preferred that may not be converted into common stock pursuant to the limitation described herein (“Conversion Cap Excess Shares”), from and after December 31, 2022, in addition to the Preferential Dividends, shall accrue cumulative quarterly dividends in an amount per share equal to 0.5% of the Series C Liquidation Amount of each outstanding Conversion Cap Excess Share in the first quarter after December 31, 2022, and increasing an additional 0.5% of the Series C Liquidation Amount in each subsequent quarter (“Conversion Cap Excess Dividends”). As of June 30, 2023, 755 shares of the Series C Preferred were immediately convertible into 16,500 shares of common stock (representing 27.3% of the fully diluted shares of capital stock of Harbor), and the remaining 3,245 shares of the Series C Preferred are deemed Conversion Cap Excess Shares. Harbor may redeem all, but not less than all, of the Conversion Cap Excess Shares at any time upon notice to the holders for a cash payment in an amount equal to the Series C Liquidation Amount per share.

In the event of any liquidation, dissolution or winding up of Harbor or a sale of Harbor, the Series C Preferred shall be entitled to receive, prior and in preference to any distribution of any assets of Harbor to the common stock or other junior capital stock, an amount equal to the Series C Issue Price, plus an amount equal to all accrued but unpaid Preferential Dividends, Conversion Cap Excess Dividends and any other accrued but unpaid dividends (“Series C Liquidation Amount”).

On March 31, 2023 and June 30, 2023, the board of directors declared a Preferential Dividend of $198 and a Conversion Cap Excess Dividend of $54 and $107, respectively, on the Series C Preferred, which were paid on March 31, 2023 and June 30, 2023, respectively. On March 30, 2022 and June 30, 2022, the board of directors declared a dividend of $198 on the Series C Preferred, which was paid on March 31, 2022 and June 30, 2022, respectively.

Based on the applicable accounting guidance, Harbor is required to apply the

“if-converted”

method to the Series C Preferred to determine the weighted average number of shares outstanding for purposes of calculating the net income (loss) per share of common stock. However, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive.

Harbor accounts for its Series C Preferred in accordance with the guidance in ASC Topic 480,

Distinguishing Liabilities from Equity

. Based on the applicable accounting guidance, preferred stock that is conditionally redeemable is classified as temporary or “mezzanine” equity. Accordingly, the Series C Preferred, is presented at redemption value as mezzanine equity outside of the stockholders’ equity section of the

condensed

consolidated balance sheets.

11. Supplemental Cash Flow Information

Cash payments for interest for the six months ended June 30, 2023 and June 30, 2022 were $1,112 and $1,190, respectively. Cash payments for income taxes for the six months ended June 30, 2023 and June 30, 2022 were $46 and $1,981, respectively. Cash payments included in the measurement of lease liabilities related to operating leases were $2,832 and $2,960 for the six months ended June 30, 2023 and June 30, 2022, respectively.

The following table provides a reconciliation of all cash and cash equivalents and restricted cash reported on the condensed consolidated balance sheets that sum to the total of those same amounts shown on the condensed consolidated statements of cash flows:


	June 30, 2023		December 31, 2022
Cash and cash equivalents	$	15,831	$	33,333
Restricted cash		812		849

Total cash, cash equivalents, and restricted cash	$	16,643	$	34,182

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12. Intangible Assets

Intangible assets consist of the following indefinite-lived assets as of the dates presented:


	June 30, 2023		December 31, 2022
	Gross Carrying Amount		Gross Carrying Amount
Trade names and air carrier certificate	$	5,300	$	5,300

Total	$	5,300	$	5,300

13. Stock Repurchase Program

On March 30, 2021, the board of directors adopted a stock repurchase program pursuant to which Harbor was initially authorized to repurchase up to $1,000 of shares of its common stock during the first calendar month of the program, subject to an automatic increase of $1,000 per calendar month thereafter. Harbor is not obligated under the program to acquire any particular number or value of shares and can suspend or terminate the program at any time. In January 2023, a federal corporate stock repurchase excise tax of 1% took effect once share repurchases exceed $1,000. Harbor accrued an excise tax liability of $31

during the three-month period ended June 30, 2023, which is included in the cost of Treasury stock on the condensed consolidated statements of stockholders’ equity. Harbor acquired a total of

920 and 1,390 shares of its common stock pursuant to the stock repurchase program in the three and six months ended June 30, 2023, respectively, compared to 1,037 and 7,300 in the three and six months ended June 30, 2022, respectively. As of June 30, 2023 and December 31, 2022, total cash of $436 and $475, respectively, was held for the repurchase of shares under Harbor’s stock repurchase program. This amount is included in restricted cash.

For additional information, refer to Part II, Item 2, “

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

” within this Quarterly Report.

14. Subsequent Events

The Company evaluated its condensed consolidated financial statements included in this Quarterly Report for subsequent events through August 14, 2023, the date the condensed consolidated financial statements were available to be issued and determined that there were none, other than those discussed below.

The hearing on the arbitration initiated in October 2022 by United against Air Wisconsin commenced in July 2023, and Air Wisconsin expects that the arbitrators will issue their decision and award in the fourth quarter of 2023.

On August 4, 2023, Air Wisconsin received a notice of default and reservation of rights (“Notice”) related to certain credit agreements (“Aircraft Credit Agreements”) Air Wisconsin entered into with a senior lender and loan trustee. The Notice alleges a default under the Aircraft Credit Agreements relating to Air Wisconsin’s failure to pay certain amounts thereunder. The Company believes the alleged default is without merit and intends to contest the claims in the Notice, but if the Notice were correct, the total outstanding balance of

$48,600, as of June 30, 2023, would be due and payable. For

additional information, refer to Part II, Item 1A,

Risk Factors

within this Quarterly Report, and the section entitled “

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Debt and Credit Facilities – Aircraft Credit Agreements

” within the 2022 Annual Report.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and the related condensed notes included in this Quarterly Report, and with the audited consolidated financial statements, accompanying notes, and the other financial information included within our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 Annual Report”). The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied by the forward-looking statements below. Factors that could cause or contribute to those differences in our actual results include, but are not limited to, those discussed below and elsewhere within this Quarterly Report, particularly in the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.”

Overview

Harbor Diversified, Inc. (“Harbor”) is a non-operating holding company that is the parent of a consolidated group of subsidiaries, including AWAC Aviation, Inc. (“AWAC”), which is the sole member of Air Wisconsin Airlines LLC (“Air Wisconsin”), which is a regional air carrier. Harbor is also the direct parent of three other subsidiaries: (1) Lotus Aviation Leasing, LLC, which leases flight equipment to Air Wisconsin, (2) Air Wisconsin Funding LLC, which provides flight equipment financing to Air Wisconsin, and (3) Harbor Therapeutics, Inc., which is a non-operating entity with no material assets. Because Harbor consolidates Air Wisconsin for financial statement purposes, disclosures relating to activities of Air Wisconsin also apply to Harbor unless otherwise noted. When appropriate, Air Wisconsin is named specifically for its individual contractual obligations and related disclosures. Where reference is intended to include Harbor and its consolidated subsidiaries, they may be jointly referred to as the “Company,” “we,” “us,” or “our.” Where reference is intended to refer only to Harbor Diversified, Inc., it is referred to as “Harbor.”

United Capacity Purchase Agreement

During the three months ended June 30, 2023, Air Wisconsin provided regional airline services to United Airlines, Inc. (“United”) pursuant to a capacity purchase agreement (the “United capacity purchase agreement”) which was entered into in February 2017 and which terminated in early June 2023. Under that agreement Air Wisconsin operated as United Express, with a presence at both Chicago O’Hare and, until April 2023, Washington-Dulles international airports. Air Wisconsin used United’s logos, service marks, and aircraft paint schemes, United controlled route selection, pricing, seat inventories, marketing and scheduling, and United provided Air Wisconsin with ground support services and gate access. Prior to the commencement of services on March 1, 2023 under the American capacity purchase agreement described below, more than 99.9% of our operating revenues was derived from operations associated with the United capacity purchase agreement. For additional information, refer to Note 1, Summary of Significant Accounting Policies – Contract Revenues, and Note 3,