Business Context and Reporting Period
The filing is a Form 10-Q for the quarter and six months ended June 30, 2019, filed August 8, 2019. Although the request identifies Aersale Corp, the provided filing is for Monocle Acquisition Corporation, a Delaware blank-check company and emerging growth company. Monocle had not commenced operating activities and was seeking a business combination, with an intended focus on aerospace and defense, industrial, technology, and telecommunications businesses.
The company completed its initial public offering on February 11, 2019, selling 17,250,000 units at $10.00 per unit, and concurrently sold 717,500 private units. Substantially all proceeds were placed in a trust account for a future business combination.
Financial Metrics
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 |
|---|---|---|
| Operating costs | $162,884 | $246,826 |
| Interest income | $1,053,042 | $1,596,310 |
| Income before taxes | $890,158 | $1,349,484 |
| Income tax provision | $210,638 | $313,906 |
| Net income | $679,520 | $1,035,578 |
| Net income per redeemable share | $0.05 | $0.07 |
| Net income (loss) per non-redeemable share | $(0.02) | $(0.03) |
- No operating revenue was generated; reported income primarily reflected interest earned on trust-account investments.
- Cash and cash equivalents were $1.17 million at June 30, 2019, compared with $41,093 at December 31, 2018.
- Trust-account cash and marketable securities were $175.41 million at June 30, 2019.
- Common stock subject to possible redemption was classified as temporary equity at $171.72 million, representing 17,002,081 shares at $10.10 per share.
- Total stockholders’ equity was $5.00 million. Current liabilities were $115,406, and the company had no outstanding promissory note at June 30, 2019.
- Net cash used in operating activities was $700,365. Net cash used in investing activities was $173.81 million, primarily reflecting the trust-account deposit. Net cash provided by financing activities was $175.64 million.
- The filing does not present conventional operating margins because the company had no operating revenue. Interest income exceeded operating costs, producing positive net income.
Material Changes Versus the Prior Comparable Period
- Compared with December 31, 2018, assets increased from $417,500 to $176.84 million, primarily due to the IPO and establishment of the trust account.
- Cash increased from $41,093 to $1.17 million, while deferred offering costs and the related-party promissory note were eliminated after the IPO.
- The company moved from an accumulated deficit of $451 to retained earnings of $1.04 million at June 30, 2019.
- There is no prior-year quarterly operating comparison in the provided statements; the company was formed in August 2018 and had not begun operations.
- The company incurred $4.01 million of IPO transaction costs, including $3.45 million of underwriting fees and $564,101 of other offering costs.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects to continue incurring costs while identifying, evaluating, and negotiating a business combination. No operating revenue is expected before a business combination is completed.
- The company must complete a business combination by November 11, 2020, subject to a possible three-month extension if the sponsor or its affiliates deposit $1.725 million into the trust account.
- If no business combination is completed within the applicable period, the company must cease operations, redeem public shares using the trust account, and liquidate. Public warrants may expire worthless.
- Public shareholders may redeem their shares in connection with a business combination. Additional equity or debt financing may be required, and any additional issuance could dilute existing investors.
- The company had a contingent $6.04 million cash fee payable to IPO underwriters upon completion of a business combination. No amount had been recorded at June 30, 2019.
- Legal fees related to a successful business combination were contingent and not determinable from the filing. No fee would be payable if no business combination occurred.
- The company paid an affiliate of the sponsor $10,000 per month for office space and administrative services; expense was $30,000 for the quarter and $50,000 for the six months.
- The sponsor agreed, subject to stated limitations, to indemnify the trust account against certain third-party claims that reduce its balance below $10.10 per public share.
- Management reported no material market or interest-rate risk because trust-account assets were invested in short-term U.S. government securities and qualifying money-market funds.
- No legal proceedings, off-balance-sheet arrangements, or material changes to previously disclosed risk factors were reported. Management concluded that disclosure controls were effective.
Important Facts for Investors to Verify
- Verify the issuer identity: the supplied filing is for Monocle Acquisition Corporation, not Aersale Corp.
- Reconcile the six-month net income figure: the financial statements report $1,035,578, while one MD&A paragraph states $1,034,578.
- Confirm the status and terms of any proposed business combination, including the November 11, 2020 deadline and possible extension.
- Review trust-account protections, redemption mechanics, sponsor indemnification limitations, and the consequences of liquidation.
- Assess potential dilution from founder shares, private units, warrants, working-capital loans, and any financing used to complete a business combination.
- Evaluate the $6.04 million contingent underwriting fee and undetermined contingent legal fees when estimating transaction costs.
- Confirm that trust-account investments, accrued taxes, withdrawals, and redeemable-share balances reconcile to the reported $175.41 million trust-account balance.