Form 10-Q Summary
Filing discrepancy: The request identifies Aersale Corp, but the supplied filing is for Monocle Acquisition Corporation, a Delaware special purpose acquisition company. The summary below reflects the supplied filing.
Business Context and Reporting Period
The filing covers the three and nine months ended September 30, 2019, and was filed November 12, 2019. Monocle was formed on August 20, 2018, to pursue a merger, acquisition, or similar business combination, with an intended focus on aerospace and defense, industrial, technology, and telecommunications businesses. As of September 30, 2019, it had not commenced operations or generated operating revenue.
On February 11, 2019, Monocle completed an initial public offering of 17,250,000 units at $10.00 per unit and a private placement of 717,500 units for $7.175 million. Substantially all proceeds were placed in a trust account pending a business combination.
Financial Metrics
| Metric | Three months ended September 30, 2019 | Nine months ended September 30, 2019 |
|---|---|---|
| Operating costs | $666,612 | $913,438 |
| Interest income | $973,838 | $2,570,148 |
| Income before taxes | $307,226 | $1,656,710 |
| Income tax expense | $194,939 | $508,845 |
| Net income | $112,287 | $1,147,865 |
| Net income per redeemable share | $0.04 | $0.11 |
| Net loss per non-redeemable share | $(0.12) | $(0.15) |
- Cash and cash equivalents: $787,088 at September 30, 2019, compared with $41,093 at December 31, 2018.
- Trust account: $176.211 million, consisting principally of U.S. Treasury bills and government money market funds.
- Operating cash flow: $(1.258) million for the nine months ended September 30, 2019.
- Investing cash flow: $(173.641) million, primarily reflecting the funding of the trust account.
- Financing cash flow: $175.645 million from the IPO, private placement, and related financing activity, net of repayments and offering costs.
- Debt: No long-term debt or working capital loans were outstanding at September 30, 2019. A related-party promissory note was repaid upon completion of the IPO.
- Redeemable shares: 17,013,199 shares were classified as common stock subject to possible redemption at $10.10 per share, totaling $171.833 million.
- Liquidity: Cash outside the trust account was available for working capital; trust account funds were generally restricted to a business combination, shareholder redemptions, or permitted tax payments.
Material Changes Versus Prior Comparable Period
- The company transitioned from a pre-IPO formation-stage entity with $451 of cumulative operating costs through September 30, 2018, to a post-IPO SPAC holding approximately $176.2 million in trust assets.
- Net income was $1.148 million for the first nine months of 2019, compared with a $451 net loss for the comparable 2018 inception period. The improvement was driven entirely by interest income on trust account investments.
- Operating costs increased to $913,438 for the first nine months of 2019 from $451 in the comparable 2018 period, reflecting public-company, transaction, and business-combination search expenses.
- Stockholders’ equity increased to $5.000 million from $24,549 at December 31, 2018, while redeemable common stock became a $171.833 million temporary-equity/liability-classified balance.
Guidance, Outlook, Risks, and Unusual Items
- Management expects to continue incurring costs while identifying, evaluating, and negotiating a business combination. No operating revenue is expected before completion of an initial business combination.
- The company must complete a business combination by November 11, 2020, subject to a possible three-month extension if the sponsor deposits $1.725 million into the trust account. Failure to complete a transaction would require liquidation and redemption of public shares.
- The liquidation requirement raises substantial doubt about the company’s ability to continue as a going concern. Public warrants would expire worthless if the company liquidates.
- A business combination must generally involve a target or targets with aggregate fair market value of at least 80% of the trust account assets, excluding taxes payable, and must leave the company with at least $5,000,001 of net tangible assets.
- Potential additional equity or debt financing could dilute existing holders, subordinate common stockholders, increase leverage, or affect the company’s ability to complete a transaction.
- The company has a $10,000-per-month administrative services agreement with an affiliate of the sponsor. Fees incurred were $30,000 for the quarter and $80,000 for the nine-month period.
- A contingent $6.038 million business-combination marketing fee is payable to the IPO underwriters upon completion of a business combination; no amount had been recorded at September 30, 2019.
- Contingent legal fees related to a potential business combination were not determinable and had not been recorded.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. No legal proceedings were reported.
Important Facts for Investors to Verify
- Confirm that the filing belongs to Monocle Acquisition Corporation rather than Aersale Corp.
- Verify the status and terms of any proposed business combination, including the November 11, 2020 deadline and potential extension.
- Reconcile trust account assets, accrued taxes, permitted withdrawals, redemption value, and the sponsor’s trust-account indemnification obligations.
- Assess dilution from 17,013,199 redeemable public shares, founder and private shares, and approximately 17,967,500 outstanding warrants.
- Review the $6.038 million contingent marketing fee and other transaction-related fees that would become payable upon a business combination.
- Consider the disclosed going-concern uncertainty and the possibility that public warrants could expire worthless if no transaction is completed.