Business Context and Reporting Period
This Form 10-Q was filed by Monocle Acquisition Corporation, not AerSale Corp, for the quarter ended March 31, 2020. Monocle was a shell company and special purpose acquisition company formed to complete a business combination, with an intended focus on aerospace and defense, industrial, and technology and telecommunications businesses. The filing identifies AerSale Corp. as the proposed acquisition target.
The company had not commenced operating activities and had generated no operating revenue. Its activities consisted primarily of organizational matters, maintaining the trust account, evaluating acquisition candidates, and pursuing the proposed AerSale business combination.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Operating revenue | $0 | $0 | No change |
| Operating costs | $286,645 | $83,942 | Up $202,703 |
| Interest income | $622,821 | $543,268 | Up $79,553 |
| Income before taxes | $336,176 | $459,326 | Down $123,150 |
| Income tax expense | $120,451 | $103,268 | Up $17,183 |
| Net income | $215,725 | $356,058 | Down $140,333 |
| Net income per redeemable share | $0.03 | $0.02 | Up $0.01 |
| Net loss per non-redeemable share | $(0.05) | $(0.01) | Loss increased |
| Net cash used in operating activities | $(382,653) | $(183,022) | Use increased $199,631 |
Operating margins are not meaningful because the company had no operating revenue. Net income was generated solely because interest income exceeded operating costs and taxes.
At March 31, 2020, cash and cash equivalents were $138,464, compared with $319,399 at December 31, 2019. Cash and marketable securities in the trust account totaled $177.0 million, compared with $176.6 million at year-end. The company withdrew approximately $201,718 from the trust account during the quarter to pay franchise and income taxes.
Total liabilities were $454,561, consisting of accounts payable and accrued expenses. The filing reports no outstanding debt, working capital loans, or off-balance-sheet arrangements. Common stock subject to possible redemption was $171.9 million, representing 17,016,305 shares at $10.10 per share. Stockholders’ equity was approximately $5.0 million.
Material Changes Versus the Prior Comparable Period
- Operating costs increased approximately 241% year over year, primarily reflecting higher public-company, transaction, and acquisition-related expenses.
- Interest income increased approximately 15%, reflecting the larger trust-account balance and investment earnings.
- Net income declined approximately 39% because the increase in interest income was more than offset by higher operating costs and taxes.
- Operating cash use more than doubled to $382,653.
- Cash outside the trust account declined by approximately $181,000 during the quarter, leaving limited working capital available for ongoing transaction expenses.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
On December 8, 2019, Monocle entered into a merger agreement with AerSale. The proposed transaction contemplated aggregate consideration of $400 million, consisting of $250 million in cash, subject to potential adjustment, and 15 million shares of NewCo common stock valued at $150 million. AerSale holders could also receive up to 2.5 million earnout shares based on future share-price thresholds.
The proposed transaction was subject to stockholder approval and other customary closing conditions. Financing commitments included a proposed $150 million senior secured asset-based revolving credit facility and a commitment for up to $75 million of senior secured first-in/last-out financing. Funding remained subject to customary conditions and was not debt outstanding at March 31, 2020.
Monocle was required to complete a business combination by November 11, 2020, with a possible three-month extension to February 11, 2021 if the sponsor deposited $1,725,000 into the trust account. If no transaction was completed, the company would liquidate, redeem public shares using the trust account, and public warrants could expire worthless.
Management concluded that the limited liquidity outside the trust account and the mandatory liquidation date raised substantial doubt about the company’s ability to continue as a going concern through November 11, 2020. The filing states that the financial statements contain no adjustments for a possible liquidation.
COVID-19 was identified as a significant uncertainty. Management stated that the pandemic could delay or prevent the AerSale transaction, restrict travel and meetings, disrupt financing and service providers, and adversely affect the commercial aviation industry and AerSale’s operations. The specific financial impact was not determinable as of the reporting date.
The company had a contingent obligation to pay the IPO underwriters $6,037,500 upon completion of a business combination. Legal fees associated with the transaction were also contingent and not determinable from the filing.
Management reported effective disclosure controls and procedures and no material change in internal control over financial reporting during the quarter. No legal proceedings or defaults were reported.
Important Facts for Investors to Verify
- Verify the issuer identity: the supplied filing is Monocle Acquisition Corporation’s 10-Q, although the request metadata identifies AerSale Corp.
- Verify whether the AerSale merger was ultimately completed, terminated, or modified, including the cash, equity, earnout, and financing terms.
- Assess the substantial-doubt going-concern disclosure and the company’s limited $138,464 of cash outside the trust account.
- Confirm the applicable business-combination deadline and whether the sponsor funded any extension.
- Review the effects of COVID-19 on AerSale, the transaction timetable, aviation demand, financing availability, and closing conditions.
- Evaluate potential dilution from the 15 million transaction shares, up to 2.5 million earnout shares, founder shares, preferred stock, and approximately 18 million warrants.
- Confirm the treatment and availability of the $177.0 million trust account, including redemption rights and taxes payable.