The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2020
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Monocle Acquisition Corporation (the “Company”)
was incorporated in Delaware on August 20, 2018. The Company was formed for the purpose of effecting a merger, share exchange,
asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses
(the “Business Combination”).
Although the Company is not limited to
a particular industry or geographic region for purposes of consummating a Business Combination, the Company intends to focus on
businesses in the aerospace and defense, industrial, and technology and telecommunication sectors. The Company is an early stage
and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth
companies.
As of June 30, 2020, the Company had
not commenced any operations. All activity through June 30, 2020 relates to the Company’s formation, the initial public
offering (“Initial Public Offering”), which is described below, identifying a target company for a Business Combination
and activities in connection with the proposed acquisition of AerSale Corp. (see Note 6). The Company will not generate any operating
revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income
in the form of interest income on marketable securities held after the Initial Public Offering.
The Company’s subsidiaries are comprised
of Monocle Holdings Inc., a wholly owned subsidiary of the Company and a Delaware corporation (“NewCo”), Monocle Parent LLC, a wholly owned subsidiary of NewCo and a
Delaware limited liability company ("Parent"), Monocle
Merger Sub 1 Inc., a wholly owned subsidiary of NewCo and a Delaware corporation (“Merger Sub 1”) and Monocle
Merger Sub 2 LLC., a wholly owned subsidiary of Parent and a Delaware limited liability company (“Merger Sub 2”).
The registration statement for the Company’s
Initial Public Offering was declared effective on February 6, 2019. On February 11, 2019, the Company consummated the
Initial Public Offering of 17,250,000 units (“Units” and, with respect to the shares of common stock included in the
Units sold, the “Public Shares”), which includes the full exercise by the underwriters of their over-allotment option
in the amount of 2,250,000 Units, at $10.00 per Unit, generating gross proceeds of $172,500,000, which is described in Note 3.
Simultaneously with the closing of the
Initial Public Offering, the Company consummated the sale of an aggregate of 717,500 Units (the “Private Units”) at
a price of $10.00 per Private Unit in a private placement to the Company’s sponsor, Monocle Partners, LLC, a Delaware limited
liability company (the “Sponsor”), and Cowen Investments II LLC (“Cowen” and, together with the Sponsor,
the “Founders”), generating gross proceeds of $7,175,000, which is described in Note 4.
Transaction costs amounted to $4,014,101,
consisting of $3,450,000 of underwriting fees and $564,101 of other offering costs. In addition, As of June 30, 2020, cash
of $149,321 was held outside of the Trust Account (as defined below) and is available for working capital purposes.
Following the closing of the Initial Public
Offering on February 11, 2019, an amount of $174,225,000 ($10.10 per Unit) from the net proceeds of the sale of the Units
in the Initial Public Offering and the sale of the Private Units was placed in a trust account (“Trust Account”) which
has been invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company
Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment
company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act, as
determined by the Company, until the earlier of: (i) the consummation of a Business Combination or (ii) the distribution
of the Trust Account to its stockholders, as described below.
The Company’s management has broad
discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private
Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination.
The Company’s initial Business Combination must be with one or more target businesses that together have a fair market value
of at least 80% of the assets held in the Trust Account (excluding taxes payable on income earned on the Trust Account) at the
time of the agreement to enter into a Business Combination. The Company will only complete a Business Combination if the post-transaction
company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest
in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. There
is no assurance that the Company will be able to complete a Business Combination successfully.
The Company will provide its holders of
the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their
Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to
approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder
approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public
stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account
($10.10 per Public Share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released
to the Company to pay its franchise and income tax obligations). There will be no redemption rights upon the completion of a Business
Combination with respect to the Company’s warrants.
MONOCLE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2020
(Unaudited)
The Company will proceed with a Business
Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and,
if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination. If a
stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal
reasons, the Company will, pursuant to its Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of
the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing
a Business Combination. If, however, stockholder approval of the transactions is required by law, or the Company decides to obtain
stockholder approval for business or legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation
pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection
with a Business Combination, the Company’s Founders, executive officers and directors (the “initial stockholders”)
have agreed to vote their Founder Shares (as defined in Note 5), Private Shares (as defined in Note 4) and any Public Shares purchased
during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each public stockholder
may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.
Notwithstanding the foregoing, if the Company
seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the
Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person
with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to
more than an aggregate of 15% or more of the Public Shares, without the prior consent of the Company.
The initial stockholders have agreed (a) to
waive their redemption rights with respect to their Founder Shares, Private Shares and Public Shares held by them in connection
with the completion of a Business Combination and (b) not to propose an amendment to the Certificate of Incorporation that
would affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does
not complete a Business Combination, unless the Company provides the public stockholders with the opportunity to redeem their Public
Shares in conjunction with any such amendment.
The Company will have until November 11,
2020 to complete a Business Combination. However, if the Company anticipates that it may not be able to consummate a Business Combination
by November 11, 2020, the Company may, but is not obligated to, extend the period of time to consummate a Business Combination
by three months (for a total of 24 months to complete a Business Combination) (the “Combination Period”). In order
to extend the time available for the Company to consummate a Business Combination, the Sponsor or its affiliate or designees must
deposit into the Trust Account $1,725,000 ($0.10 per Public Share), on or prior to the date of the deadline, for the extension.
If the Company is unable to complete a
Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding
up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a
per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned
on the funds held in the Trust Account and not previously released to the Company to pay franchise and income taxes (less up to
$100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will
completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions,
if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the
approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject
in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other
applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which
will expire worthless if the Company fails to complete a Business Combination within the Combination Period. In the event of such
liquidation, it is possible the per share value of the residual assets remaining available for distribution (including the Trust
Account assets) will be less than the offering price per Unit in the Initial Public Offering. Based on the value of the Trust Account
at June 30, 2020, the redemption value, after payment of accrued income taxes and other expenses, is greater than $10.10 per
share.
The initial stockholders have agreed to
waive their liquidation rights with respect to the Founder Shares and Private Shares if the Company fails to complete a Business
Combination within the Combination Period. However, if the Founders, executive officers and directors acquire Public Shares in
or after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if
the Company fails to complete a Business Combination within the Combination Period.
In order to protect the amounts held in
the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party (other than
the Company’s independent registered public accounting firm) for services rendered or products sold to the Company, or a
prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amounts in the
Trust Account to below (i) $10.10 per share or (ii) such lesser amount per Public Share held in the Trust Account as
of the date of the liquidation of the Trust Account due to reductions in the value of the trust asset. This liability will not
apply with respect to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account
or to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that
an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any
liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify
the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except the Company’s
independent registered public accounting firm), prospective target businesses or other entities with which the Company does business,
execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
MONOCLE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2020
(Unaudited)
Liquidity and Going Concern
As of June 30, 2020, the Company had
a cash balance of approximately $149,000, which excludes interest income of approximately $2,848,000 from the Company’s investments
in the Trust Account which is available to the Company for tax obligations, and current liabilities of approximately $721,000. Through June 30, 2020, the Company has withdrawn
approximately $1,124,000 of interest income from the Trust Account to pay its income and franchise taxes, of which approximately
$360,000 was withdrawn during the six months ended June 30, 2020.
Until the consummation of a Business Combination,
the Company will be using funds held outside of the Trust Account for paying existing accounts payable, identifying and evaluating
prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the
offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of
prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the Business
Combination.
If the Company’s estimates of the
costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than
the actual amount necessary to do so, the Company may have insufficient funds available to operate its business prior to a Business
Combination. Moreover, the Company may need to obtain additional financing either to complete a Business Combination or because
it becomes obligated to redeem a significant number of its Public Shares upon completion of a Business Combination, in which case
the Company may issue additional securities or incur debt in connection with such Business Combination.
If the Company is unable to raise additional
capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited
to, suspending the pursuit of a potential transaction. The Company cannot provide any assurance that new financing will be available
to it on commercially acceptable terms, if at all.
In addition, in connection with the Company’s
assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards
Update 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going
Concern,” management has determined that the liquidity condition and date for mandatory liquidation raise substantial doubt
about the Company’s ability to continue as a going concern through November 11, 2020, the scheduled liquidation date
of the Company. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded
assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8
of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in
accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial
reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial
position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation
of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended
December 31, 2019 as filed with the SEC on March 2, 2020, which contains the audited financial statements and notes thereto.
The financial information as of December 31, 2019 is derived from the audited financial statements presented in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2019. The interim results for the three and six months ended
June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for
any future interim periods.
Principles of Consolidation
The accompanying condensed consolidated
financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
MONOCLE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2020
(Unaudited)
Emerging Growth Company
The Company is an “emerging growth
company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups
Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that
are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required
to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute
payments not previously approved.
Further, Section 102(b)(1) of
the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards
until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not
have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt
out of such extended transition period which means that when a standard is issued or revised and it has different application dates
for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time
private companies adopt the new or revised standard. This may make comparison of the Company’s condensed consolidated financial
statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted
out of using the extended transition period difficult or impossible because of the potential differences in accounting standards
used.
Use of Estimates
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 disclosure of contingent assets and liabilities at the date of the financial statements.
Making estimates requires management to
exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or
set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate,
could change in the near term due to one or more future events. Accordingly, the actual results could differ significantly from
those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased
to be cash equivalents. Cash equivalents consist of money market accounts.
Common Stock Subject to Possible Redemption
The Company accounts for its common stock
subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480
“Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability
instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption
rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely
within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’
equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s
control and subject to occurrence of uncertain future events. Accordingly, at June 30, 2020 and December 31, 2019, common
stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of the
Company’s condensed consolidated balance sheets.
Offering Costs
Offering costs consist of legal, accounting,
underwriting fees and other costs incurred through the balance sheet date that are directly related to the Initial Public Offering.
Offering costs amounting to $4,014,101 were charged to stockholders’ equity upon the completion of the Initial Public Offering.
Income Taxes
The Company follows the asset and liability
method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included
the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected
to be realized. As of June 30, 2020 and December 31, 2019, the Company had a deferred tax asset of approximately $408,000
and $294,000, respectively, which had a full valuation allowance recorded against it of approximately $408,000 and $294,000, respectively.
MONOCLE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2020
(Unaudited)
The Company’s currently taxable income
primarily consists of interest income on the Trust Account. The Company’s general and administrative costs are generally
considered start-up costs and are not currently deductible. During the three and six months ended June 30, 2020, the Company
recorded income tax expense of approximately $28,000 and $149,000, and for the three and six months ended June 30, 2019, the
Company recorded income tax expense of approximately $211,000 and $314,000, respectively, primarily related to interest income
earned on the Trust Account. The Company’s effective tax rate for the three and six months ended June 30, 2020 was approximately
(16.4)% and 91.5%, and for the three and six months ended June 30, 2019 was approximately 23.7% and 23.3%, respectively, which
differs from the expected income tax rate due to the start-up costs (discussed above) which are not currently deductible.
ASC 740 prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken
in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination
by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax
expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2020 and
December 31, 2019. The Company is currently not aware of any issues under review that could result in significant payments,
accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities
since inception.
Net Income (Loss) Per Common Share
Net income (loss) per common share is
computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. The
Company has not considered the effect of warrants sold in the Initial Public Offering and private placement to purchase
17,967,500 shares of common stock in the calculation of diluted income (loss) per non-redeemable share, since the exercise of
the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive
under the treasury stock method.
The Company’s statements of
operations include a presentation of income (loss) per share for common shares subject to possible redemption in a manner
similar to the two-class method of income per share. Net income per common share, basic and diluted, for redeemable common
stock is calculated by dividing the interest income earned on the Trust Account (net of applicable franchise and income taxes
of approximately $78,000 and $249,000 for the three and six months ended June 30, 2020, respectively, and $101,500 and
$313,900 for the three and six months ended June 30, 2019, respectively), by the weighted average number of redeemable
common stock outstanding for the period or since original issuance. Net loss per common share, basic and diluted for
non-redeemable common stock is calculated by dividing the net income (loss), less income attributable to redeemable common
stock, by the weighted average number of non-redeemable common stock outstanding for the period. Non-redeemable common stock
includes the Founder Shares and the Private Shares as these shares do not have any redemption features and do not participate
in the income earned on the Trust Account.
The following table reflects the calculation
of basic and diluted net income (loss) per common share (in dollars, except per share amounts):
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Redeemable Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: Earnings allocable to Redeemable Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
$
|
185,100
|
|
|
$
|
1,053,042
|
|
|
$
|
807,921
|
|
|
$
|
1,596,310
|
|
Income and Franchise Tax
|
|
$
|
(78,392
|
)
|
|
$
|
(260,638
|
)
|
|
$
|
(248,843
|
)
|
|
$
|
(415,424
|
)
|
Net Earnings
|
|
$
|
106,708
|
|
|
$
|
792,404
|
|
|
$
|
559,078
|
|
|
$
|
1,180,886
|
|
Denominator: Weighted Average Redeemable Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Common Stock, Basic and Diluted
|
|
|
17,250,000
|
|
|
|
17,250,000
|
|
|
|
17,250,000
|
|
|
|
17,250,000
|
|
Earnings/Basic and Diluted Redeemable Common Stock
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
0.07
|
|
Non-Redeemable Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: Net (Loss) Income minus Redeemable Net Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) income
|
|
$
|
(201,934
|
)
|
|
$
|
679,520
|
|
|
$
|
13,791
|
|
|
$
|
1,035,578
|
|
Redeemable Net Earnings
|
|
$
|
(106,708
|
)
|
|
$
|
(792,404
|
)
|
|
$
|
(559,078
|
)
|
|
$
|
(1,180,886
|
)
|
Non-Redeemable Net Loss
|
|
$
|
(308,642
|
)
|
|
$
|
(112,884
|
)
|
|
$
|
(545,287
|
)
|
|
$
|
(145,308
|
)
|
Denominator: Weighted Average Non-Redeemable Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Redeemable Common Stock, Basic and Diluted (1)
|
|
|
5,030,000
|
|
|
|
5,030,000
|
|
|
|
5,030,000
|
|
|
|
4,863,508
|
|
Loss/Basic and Diluted Non-Redeemable Common Stock
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.03
|
)
|
Note: As of June 30, 2020 and
2019, basic and diluted shares are the same as there are no non-redeemable securities that are dilutive to the
Company’s common stockholders.
|
(1)
|
The weighted average non-redeemable common stock for the three and six months ended June 30, 2020 and 2019 includes the effect of 717,500 Private Units, which were issued in conjunction with the Initial Public Offering on February 11, 2019.
|
MONOCLE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2020
(Unaudited)
Concentration of credit risk
Financial instruments that potentially
subject the Company to concentration of credit risk consist of a cash account in a financial institution which, at times may exceed
the Federal depository insurance coverage of $250,000. At June 30, 2020 and December 31, 2019, the Company had not experienced
losses on this account and management believes the Company is not exposed to significant risks on such account.
Fair value of financial instruments
The fair value of the Company’s assets
and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurement,” approximates the carrying
amounts represented in the accompanying condensed consolidated balance sheets, primarily due to their short-term nature.
Recently issued accounting standards
Management does not believe that any recently
issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s
condensed consolidated financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering,
the Company sold 17,250,000 Units at a purchase price of $10.00 per Unit, which includes the full exercise by the underwriters
of their over-allotment option in the amount of 2,250,000 Units at $10.00 per Unit. Each Unit consists of one share of common stock
and one redeemable warrant (“Public Warrant”). Each Public Warrant entitles the holder to purchase one share of common
stock at a price of $11.50 per share, subject to adjustment (see Note 7).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the
Initial Public Offering, the Sponsor and Cowen purchased an aggregate of 717,500 Private Units at a price of $10.00 per
Private Unit, for an aggregate purchase price of $7,175,000. The Sponsor purchased 591,334 Private Units and Cowen purchased 126,166
Private Units. Each Private Unit consists of one share of common stock (“Private Share”) and one warrant (each, a “Private
Warrant”). Each Private Warrant is exercisable to purchase one share of common stock at a price of $11.50 per share.
A portion of the proceeds from the Private Units were added to the proceeds from the Initial Public Offering held in the Trust
Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the
Private Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law), and the
Private Units and all underlying securities will expire worthless.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In September 2018, the Founders purchased
5,750,000 shares (the “Founder Shares”) of the Company’s common stock for an aggregate price of $25,000.
The Sponsor and Cowen purchased 5,390,625 and 359,375 Founder Shares, respectively.
In November 2018, the Sponsor transferred
to the Company’s independent directors an aggregate of 45,000 Founder Shares for an aggregate purchase price of $195.
On November 19, 2018, the Sponsor and Cowen forfeited to the Company, for no consideration, 1,437,500 Founder Shares, of which
the Sponsor forfeited 1,347,656 Founder Shares and Cowen forfeited 89,844 Founder Shares. As a result, the Founders now hold 4,312,500
Founder Shares, of which the Sponsor owns 3,997,969 Founder Shares and Cowen owns 269,531 Founder Shares. The Founder Shares included
an aggregate of up to 562,500 shares subject to forfeiture to the extent that the underwriters’ over-allotment option was
not exercised in full or in part, so that the initial stockholders would own 20% of the Company’s issued and outstanding
shares of common stock after the Initial Public Offering (assuming the initial stockholders did not purchase any Public Shares
in the Initial Public Offering and excluding the Private Units). As a result of the underwriters’ election to fully exercise
their over-allotment option, 562,500 Founder Shares are no longer subject to forfeiture.
MONOCLE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2020
(Unaudited)
The initial stockholders have agreed, subject
to limited exceptions, not to transfer, assign or sell any of their Founder Shares until one year after the completion of the Company’s
Business Combination. Notwithstanding the foregoing, (1) if the reported last sale price of the Company’s common stock
equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like)
for any 20 trading days within any 30-trading day period commencing at least 150 days after the Company’s Business Combination,
or (2) if the Company consummates a liquidation, merger, stock exchange or other similar transaction after the Company’s
Business Combination which results in all of the Company’s stockholders having the right to exchange their shares of common
stock for cash, securities or other property, then such securities will be released from these restrictions.
Promissory Note – Related Party
The Company issued an unsecured
promissory note (the “IPO Promissory Note”) to the Sponsor, pursuant to which the Company borrowed an aggregate
principal amount of $200,000. The IPO Promissory Note was non-interest bearing and payable on the earlier of June 30,
2019 or the completion of the Initial Public Offering. The IPO Promissory Note was repaid upon the consummation of the
Initial Public Offering on February 11, 2019.
Related Party Loans
In order to finance transaction costs in
connection with a Business Combination, the Founders or an affiliate of the Founders, or certain of the Company’s officers
and director may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If
the Company completes a Business Combination, the Company will repay the Working Capital Loans out of the proceeds of the Trust
Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust
Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust
Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital
Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements
exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination
or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into units of the
post-Business Combination entity at a price of $10.00 per unit. The units would be identical to the Private Units.
On June 24, 2020, the Company
entered into convertible unsecured promissory notes with the Founders pursuant to which the Founders agreed to loan the
Company up to an aggregate principal amount of $1,500,000 (the “Promissory Notes”). The Promissory Notes are
non-interest bearing and due on the date on which the Company consummates a Business Combination. If the Company does not
consummate a Business Combination, the Company may use a portion of any funds held outside the Trust Account to repay the
Promissory Notes; however, no proceeds from the Trust Account may be used for such repayment. If such funds are insufficient
to repay the Promissory Notes, the unpaid amounts would be forgiven. Up to $1,500,000 of the Promissory Notes may be
converted into units of the post-combination entity at a price of $10.00 per unit at the option of the Founders. The units
would be identical to the Private Units. As of June 30, 2020, the outstanding balance under the Promissory Notes
amounted to an aggregate of $150,000. As of December 31, 2019, no amounts were outstanding under the Convertible Promissory
Notes.
Related Party Extension Loans
As discussed in Note 1, the Company may
extend the period of time to consummate a Business Combination by an additional three months (for a total of 24 months to
complete a Business Combination). In order to extend the time available for the Company to consummate a Business Combination, the
Sponsor or its affiliates or designees must deposit into the Trust Account $1,725,000 ($0.10 per Public Share), on or prior to
the date of the applicable deadline. Any such payments would be made in the form of a non-interest bearing, unsecured promissory
note. If the Company does not complete a Business Combination, the Company will not repay such loans unless there are funds available
outside the Trust Account to do so. The loans would either be repaid upon consummation of a Business Combination or, at the lender’s
discretion, may be converted, in whole or in part, into units of the post-Business Combination entity at a price of $10.00 per
unit. The units would be identical to the Private Units. The Sponsor and its affiliates or designees are not obligated to fund
the Trust Account to extend the time for the Company to complete a Business Combination. There are no related party extension loans
outstanding as of June 30, 2020 and December 31, 2019.
Administrative Services Agreement
The Company entered into an agreement
whereby, commencing on February 7, 2019 through the earlier of the Company’s consummation of a Business Combination
and its liquidation, to pay an affiliate of the Sponsor a total of $10,000 per month for office space and general and administrative
services. For the three months ended June 30, 2020 and 2019, the Company incurred and paid $30,000 in fees for these services.
For the six months ended June 30, 2020 and 2019, the Company incurred and paid $60,000 and $50,000 in fees for these services,
respectively.
MONOCLE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2020
(Unaudited)
NOTE 6. COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
Management continues to evaluate the impact
of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative
effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact
is not readily determinable as of the date of these condensed consolidated financial statements. The condensed consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Registration Rights
Pursuant to a registration rights
agreement entered into on February 6, 2019, the holders of the Founder Shares, Private Units (including underlying
securities) and securities that may be issued upon conversion of Working Capital Loans (including underlying securities) are entitled to registration rights requiring the Company to register such
securities for resale. The holders of these securities are entitled to make up to three demands, excluding short form
demands, that the Company register such securities. In addition, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to the completion of a Business Combination.
Notwithstanding the foregoing, Cowen may not exercise its demand and “piggyback” registration rights after five
(5) and seven (7) years, respectively, after the effective date of the registration statement and may not exercise
its demand rights on more than one occasion. The Company will bear the expenses incurred in connection with the filing of any
such registration statements.
Service Provider Agreements
From time to time, the Company has entered
into and may enter into agreements with various services providers and advisors, including investment banks, to help the Company
identify targets, negotiate terms of potential Business Combinations, consummate a Business Combination and/or provide other services.
In connection with these agreements, the Company may be required to pay such service providers and advisors fees in connection
with their services to the extent that certain conditions, including the closing of a potential Business Combination, are met.
If a Business Combination does not occur, the Company would not expect to be required to pay these contingent fees. There can be
no assurance that the Company will complete a Business Combination.
Business Combination Marketing Agreement
The Company engaged the underwriters as
advisors in connection with its Business Combination to assist the Company in holding meetings with its stockholders to discuss
the potential Business Combination and the target business’s attributes, introduce the Company to potential investors that
are interested in purchasing the Company’s securities in connection with the potential Business Combination, assist the Company
in obtaining stockholder approval for the Business Combination and assist the Company with its press releases and public filings
in connection with the Business Combination. The Company will pay the underwriters a cash fee for such services upon the consummation
of a Business Combination in an amount equal to $6,037,500. No amounts have been recorded as of June 30, 2020 and December 31,
2019 in conjunction with this agreement.
Legal Matters
The Company has engaged a law firm to assist
the Company with its legal matters in identifying, negotiating, and consummating a Business Combination, as well as assisting with
other legal matters. In the event of a successful Business Combination, the amount of fees to be paid will be agreed upon between
the Company and the law firm in light of all the facts and circumstances at that point in time. If a Business Combination does
not occur, the Company will not be required to pay this contingent fee. Management is unable to determine the amount of the legal
fees to be paid at this time. There can be no assurance that the Company will complete a Business Combination.
Merger Agreement
On
December 8, 2019, the Company, NewCo, Merger Sub 1 and Merger Sub 2 entered into an Agreement and Plan of Merger (the
“Merger Agreement”) with AerSale Corp., a Delaware corporation (“AerSale”), and solely in its
capacity as the initial Holder Representative, Leonard Green & Partners, L.P., a Delaware limited partnership
(“Leonard Green”). On August 13, 2020, the parties entered into Amendment No. 1 to the Agreement and Plan of
Merger (“Amendment No. 1”). The Merger Agreement and Amendment No. 1 are described below. Notwithstanding that
description, the Company, AerSale and Leonard Green have engaged in discussions regarding revising the terms of the Merger
Agreement and related transaction documents. The Company can give no assurance that an agreement with respect to a revised
transaction will be reached.
Pursuant to the Merger Agreement, (a) Merger
Sub 1 will be merged with and into the Company, with the Company surviving the merger as a wholly-owned direct subsidiary of NewCo
(the “First Merger”), and (b) Merger Sub 2 will be merged with and into AerSale, with AerSale surviving the merger
as a wholly-owned indirect subsidiary of NewCo (the “Second Merger”). The First Merger, the Second Merger and the other
transactions contemplated in the Merger Agreement are referred to as the “AerSale Business Combination.” In connection
with the AerSale Business Combination, the Company and AerSale will become direct or indirect wholly owned subsidiaries of NewCo,
the new public company after the closing of the AerSale Business Combination (the “Closing”).
MONOCLE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2020
(Unaudited)
Under the Merger Agreement and pursuant
to the First Merger, (i) all of the issued and outstanding shares of common stock of the Company (“Monocle Common Stock”),
will be exchanged on a one-for-one basis for shares of common stock of NewCo, par value $0.0001 per share (“NewCo Common
Stock”), (ii) each outstanding and unexercised warrant to purchase Monocle Common Stock will be exchanged on a one-for-one
basis for a warrant to purchase NewCo Common Stock, in the same form and on the same terms and conditions as such warrants to purchase
Monocle Common Stock, and (iii) each issued and outstanding shares of common stock of Merger Sub 1 will be canceled and converted
into and become, on a one-for-one basis, a share of Monocle Common Stock.
Under the Merger Agreement and pursuant
to the Second Merger, the holders of issued and outstanding shares of capital stock of AerSale and AerSale in-the-money stock appreciation
rights (“SARs”) will receive aggregate consideration equal to $400 million, consisting of (i) $250 million payable
in cash and (ii) 15,000,000 shares of NewCo Common Stock, valued at $10 per share (i.e., $150 million in the aggregate).
Under certain circumstances, the cash consideration payable at Closing may be reduced to not less than $200 million in exchange
for the issuance of up to $50 million of 5.00% Series A Convertible Preferred Stock of NewCo, par value $0.0001 per share
to the AerSale stockholders and holders of SARs.
Holders of AerSale common stock, par value
$0.01 per share, and SARs will also receive as consideration a contingent right to receive up to 2,500,000 additional shares of
NewCo Common Stock in the aggregate, half of which will be issued at such time as the NewCo Common Stock price is greater than
$12.50 per share for any period of twenty (20) trading days out of thirty (30) consecutive trading days on or prior to the fifth
anniversary of the date of the Closing (the “Closing Date”) and the other half of which will be issued at such time
as the NewCo Common Stock price is greater than $14.00 per share for any period of twenty (20) trading days out of thirty (30)
consecutive trading days on or prior to the fifth anniversary of the Closing Date (collectively, the “Earnout Shares”).
The Earnout Shares will also be issued upon the occurrence of a Liquidity Event (as defined in the Merger Agreement), solely to
the extent the Liquidity Event Consideration (as defined in the Merger Agreement) is greater than $12.50, in which case half of
the Earnout Shares will be issued, or $14.00, in which case the other half of the Earnout Shares will also be issued. Earnout Shares
that have not been issued on or prior to the fifth anniversary of the Closing Date will be cancelled.
Under Amendment No. 1, the Termination Date (as defined in the Merger Agreement) was extended to September 30, 2020.
The AerSale Business Combination will be
consummated subject to the deliverables and provisions as further described in the Merger Agreement.
In connection with the proposed AerSale
Business Combination, NewCo filed a registration statement on Form S-4 (File No. 333-235766) (the “S-4 Registration
Statement”) with the SEC on December 31, 2019, which includes a preliminary proxy statement/prospectus of the Company.
In
connection with the proposed AerSale Business Combination, the Company entered into (i) a debt commitment letter (the “Debt
Commitment Letter”) with NewCo, Wells Fargo Bank, N.A. and PNC Bank, N.A., dated December 8, 2019, and (ii) a commitment
letter (the “FILO Commitment Letter”) with NewCo and Veritas Capital Credit Funding, L.P., dated January 26, 2020.
On May 31, 2020, each of the Debt Commitment Letter and the FILO Commitment Letter terminated in accordance with its terms. The
Company may seek other financing arrangements in connection with the proposed AerSale Business Combination, if such financing
is determined to be necessary or advisable.
NOTE 7. STOCKHOLDERS' EQUITY
Preferred Stock — The
Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $0.0001 per share with such
designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors.
At June 30, 2020 and December 31, 2019, there were no shares of preferred stock issued or outstanding.
Common Stock — The
Company is authorized to issue up to 200,000,000 shares of common stock with a par value of $0.0001 per share. Holders
of common stock are entitled to one vote for each share. At June 30, 2020 and December 31, 2019, there were 5,283,689
and 5,285,054 shares of common stock issued and outstanding, excluding 16,996,311 and 16,994,946 shares of common stock subject
to possible redemption, respectively.
Warrants — The Public
Warrants will become exercisable 30 days after the completion of a Business Combination provided that the Company has an effective
registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the Public Warrants
and a current prospectus relating to them is available. Notwithstanding the foregoing, if a registration statement covering the
issuance of the shares issuable upon exercise of the Public Warrants is not effective within 90 days from the closing of a Business
Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the
Company shall have failed to maintain an effective registration statement or a current prospectus, exercise warrants on a cashless
basis pursuant to an available exemption from registration under the Securities Act. If an exemption from registration is not available,
holders will not be able to exercise their warrants on a cashless basis. In no event will the Company be required to net cash settle
any warrant, or issue securities or other compensation in exchange for the warrants in the event that the Company is unable to
register or qualify the shares underlying the warrants under the Securities Act or applicable state securities laws. In addition,
any Private Warrants held by Cowen will not be exercisable more than five years from the effective date of the registration
statement. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption
or liquidation.
MONOCLE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2020
(Unaudited)
Once the warrants become exercisable, the Company may redeem
the Public Warrants:
|
●
|
in whole and not in part;
|
|
●
|
at a price of $0.01 per warrant;
|
|
●
|
upon a minimum of 30 days’ prior written notice of redemption; and
|
|
●
|
if, and only if, the reported last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
|
The Private Warrants are identical to the
Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Warrants and the common stock
issuable upon the exercise of the Private Warrants will not be transferable, assignable or salable until after the completion of
a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants will be exercisable on a cashless
basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants
are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by
the Company and exercisable by such holders on the same basis as the Public Warrants.
If the Company calls the Public Warrants
for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a
“cashless basis,” as described in the warrant agreement. The exercise price and number of shares of common stock issuable
upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization,
reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of common stock at a price below
its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable
to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account,
holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from
the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire
worthless.
NOTE 8 — FAIR VALUE MEASUREMENTS
At June 30, 2020 and December 31,
2019, assets held in the Trust Account were comprised of $177,073,484 and $176,625,548, respectively, in money market funds which
are invested in U.S. Treasury Securities. Through June 30, 2020, the Company has withdrawn $1,124,254 of interest earned on
the Trust Account to pay its franchise and income tax obligations, of which $359,985 was withdrawn during the six months ended
June 30, 2020.
The fair value of the Company’s financial
assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with
the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants
at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize
the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal
assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify
assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
|
Level 1:
|
Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
|
|
|
Level 2:
|
Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
|
|
|
|
|
Level 3:
|
Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
|
MONOCLE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2020
(Unaudited)
The following table presents information
about the Company’s assets that are measured at fair value on a recurring basis at June 30, 2020 and December 31,
2019 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description
|
|
Level
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities held in Trust Account – U.S. Treasury Securities Money Market Fund
|
|
|
1
|
|
|
$
|
177,073,484
|
|
|
$
|
176,625,548
|
|
NOTE 9 — SUBSEQUENT
EVENTS
The Company evaluated subsequent events
and transactions that occurred after the balance sheet date up to the date that the condensed consolidated financial statements
were issued. Based upon this review, the Company did not identify subsequent events that would have required adjustment or disclosure
in the condensed consolidated financial statements.