Business Context and Reporting Period
This Form 10-Q was filed by Monocle Acquisition Corporation, not AerSale Corp, for the quarter and nine months ended September 30, 2020. Monocle was a special purpose acquisition company formed to pursue a business combination and had not commenced operating activities or generated operating revenue.
On September 8, 2020, Monocle entered into an amended merger agreement to combine with AerSale Corp. The proposed transaction would create a new public company, with aggregate consideration of approximately $315 million, or up to approximately $317 million in specified circumstances, funded through cash and equity.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | Comparable 2019 Period |
|---|---|---|---|
| Operating costs | $226,480 | $871,767 | $666,612 / $913,438 |
| Interest income | $16,021 | $823,942 | $973,838 / $2,570,148 |
| Net income (loss) | $(203,323) | $(189,532) | $112,287 / $1,147,865 |
| Cash flow from operations | Not separately presented for the quarter | $(769,230) | $(1,258,080) |
| Cash and cash equivalents | $96,288 at September 30, 2020 | $319,399 at December 31, 2019 | |
| Trust Account investments | $177,053,371 at September 30, 2020 | $176,625,548 at December 31, 2019 |
Monocle had no operating revenue, gross profit, or meaningful operating margin. Its results primarily reflected public-company, transaction-related, and administrative costs offset by interest income earned on Treasury-related investments in the Trust Account.
Total liabilities were $827,106 at September 30, 2020, including accounts payable and accrued expenses of $677,106 and a $150,000 related-party promissory note. The filing does not report long-term debt. Common stock subject to possible redemption was $171,459,418, and stockholders’ equity was $5,000,008.
Material Changes Versus the Prior Comparable Period
- Third-quarter net results declined from $112,287 of income in 2019 to a $203,323 loss in 2020.
- Nine-month results declined from $1,147,865 of income in 2019 to a $189,532 loss in 2020.
- Interest income decreased substantially, from $973,838 to $16,021 for the quarter and from $2,570,148 to $823,942 for the nine-month period.
- Quarterly operating costs decreased from $666,612 to $226,480, while nine-month operating costs decreased modestly from $913,438 to $871,767.
- Cash outside the Trust Account declined from $319,399 at December 31, 2019 to $96,288 at September 30, 2020, while Trust Account investments increased to $177.1 million.
- Monocle entered into $150,000 of convertible, unsecured, non-interest-bearing related-party promissory notes during 2020. Up to $1.5 million could be converted into post-combination units at the option of the lenders.
Transaction, Outlook, Risks, and Unusual Items
The proposed AerSale transaction would involve exchanging Monocle shares and warrants for securities of the new public company. AerSale stockholders could receive cash and shares, with contingent rights for up to 3,000,000 additional shares and, for certain electing holders, up to 646,875 additional shares. The transaction remained subject to conditions including stockholder approval and could require additional equity or debt financing.
Monocle was required to complete a business combination by November 11, 2020, unless the deadline was extended. The sponsor could extend the deadline to February 11, 2021 by depositing $1,725,000 into the Trust Account, although the sponsor was not obligated to do so. On October 14, 2020, Monocle filed a definitive proxy statement seeking approval to extend the deadline to February 11, 2021.
Management disclosed substantial doubt about Monocle’s ability to continue as a going concern through the scheduled liquidation date because of its limited cash outside the Trust Account and the mandatory liquidation provisions. If no business combination or extension occurred, Monocle would cease operations, redeem public shares using the Trust Account, and liquidate; warrants could expire worthless.
COVID-19 was identified as a material uncertainty affecting the transaction process and the commercial aviation industry, including AerSale. The filing states that the specific financial impact was not determinable at September 30, 2020. Other risks include potential shareholder redemptions, financing availability, dilution from new equity or convertible securities, negative interest rates in the Trust Account, and failure to complete the proposed transaction.
Monocle was obligated to pay an affiliate of its sponsor $10,000 per month for administrative services. It also expected to pay underwriters a contingent fee of $6,037,500 upon completion of a business combination, plus undetermined legal fees. These contingent fees had not been recorded at September 30, 2020.
Investor Verification Items
- Verify the issuer identity: the provided filing is for Monocle Acquisition Corporation, while the request identifies AerSale Corp.
- Confirm whether the AerSale business combination closed, was extended, amended, or terminated after the September 30, 2020 reporting date.
- Review the definitive proxy statement and merger agreement for transaction consideration, redemption mechanics, financing requirements, dilution, and contingent share issuances.
- Verify the outcome of the November 11, 2020 liquidation deadline and whether the sponsor funded any extension payment.
- Assess the effect of public-share redemptions and any additional equity or debt financing on the new public company’s capitalization.
- Review AerSale’s separate financial statements and operating results; this filing primarily reports Monocle’s SPAC-level financial activity and does not provide a clear set of AerSale operating metrics.