Filed pursuant to Rule 424(b)(3)

Registration Statement No. 333-252703

 

Prospectus Supplement No. 1

(To Prospectus dated March 30, 2021)

 

 

AerSale Corporation

 

 

 

 

 

This prospectus supplement updates, amends and supplements the prospectus dated March 30, 2021 (the “Prospectus”), which forms a part of our Registration Statement on Form S-1 (Registration No. 333-252703). Capitalized terms used in this prospectus supplement and not otherwise defined herein have the meanings specified in the Prospectus.

 

This prospectus supplement is being filed to update, amend and supplement the information included in the Prospectus with the information contained in our Quarterly Report on Form 10-Q filed with the SEC on May 10, 2021, which is set forth below.

 

This prospectus supplement is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus, which is to be delivered with this prospectus supplement, and is qualified by reference thereto, except to the extent that the information in this prospectus supplement updates or supersedes the information contained in the Prospectus. Please keep this prospectus supplement with your Prospectus for future reference.

 

AerSale Corporation’s common stock and warrants are quoted on the Nasdaq Global Select Market under the symbols “ASLE” and “ASLEW,” respectively. On May 10, 2021, the closing prices of our common stock and warrants were $12.00 and $2.47, respectively.

 

 

 

INVESTING IN OUR SECURITIES INVOLVES CERTAIN RISKS. SEE “RISK FACTORS” BEGINNING ON PAGE 7 OF THE PROSPECTUS.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

The date of this prospectus supplement is May 10, 2021.

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________.

Commission file number 001-38801

AerSale Corporation

(Exact name of registrant as specified in its charter)

Delaware

    

84-3976002

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

121 Alhambra Plaza Suite 1700

Coral Gables, FL

33134

(Address of Principal Executive Offices)

(Zip Code)

(305) 764-3200

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common stock, $0.0001 par value per share

ASLE

The Nasdaq Global Market

Redeemable warrants, each warrant exercisable for one share of Common Stock at an exercise price of $11.50

ASLEW

The Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of Registrant’s common stock outstanding as of May 4, 2021 was 42,949,261.


TABLE OF CONTENTS

Page

Forward-Looking Statements

i

PART I – FINANCIAL INFORMATION

1

Item 1.

Financial Statements

1

Condensed Consolidated Balance Sheets (Unaudited)

1

Condensed Consolidated Statements of Operations (Unaudited)

2

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

3

Condensed Consolidated Statements of Cash Flows (Unaudited)

4

Notes to the Condensed Consolidated Financial Statements (Unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

PART II – OTHER INFORMATION

27

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

28

Signatures

30


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report, including statements relating to the benefits of the Business Combination (as defined herein), the future financial performance of the post-combination company following the Business Combination, the impact of the COVID-19 pandemic on our business, changes in the market for our services, changes in applicable laws or regulations; our ability to launch new services and products or to profitably expand into new markets, and the possibility that we may be adversely affected by other economic, business and/or competitive factors. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the impact of the COVID-19 pandemic on our business; factors that adversely impact the commercial aviation industry; fluctuation of market values for our aviation products; our inability to repossess Flight Equipment (as defined herein) when a lessee defaults and the cost of remarketing and releasing such repossessed Flight Equipment; compliance with significant government regulations; the success at our MOR (as defined herein) facilities is dependent on continued outsourcing by airlines; a shortage of skilled personnel or work stoppages; inability to obtain certain components and raw materials from suppliers; competitive pressures; risks associated with operating internationally; the value of liens on our flight equipment; ownership rights over an engine affixed to an aircraft; risks associated with business acquisitions;  continued availability of financing; restrictive and financial covenants in our existing debt; product and other liability claims; risks associated with suppling equipment and services to the U.S. government; cyber or other security threats or other disruptions; compliance with environmental requirements; payment of capital expenditures; our lack of ownership of certain intellectual property that is important to our business; dependence on our facilities; damage to our reputation by improper conduct of employees, agents, and others; limitations on employee compensation as a result of the CARES Act; the loss of certain key employees; insolvency of any of our customers; exposure to intellectual property litigation; and the factors described under the section titled “Risk Factors” in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 16, 2021 (together with our amended Annual Report on Form 10-K filed with the SEC on May 4, 2021, the “Annual Report”).

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Unless otherwise stated or the context otherwise requires, references in this Quarterly Report to the “Company,” “AerSale,” “we,” “us,” “our” and similar terms refer to AerSale Corporation (f/k/a Monocle Holdings, Inc.) and its consolidated subsidiaries.

i


PART I – FINANCIAL INFORMATION

ITEM 1          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

    

March 31, 

    

December 31, 

2021

2020

Assets

(Unaudited)

Current assets:

Cash and cash equivalents

$

19,609

$

29,317

Accounts receivable, net of allowance for doubtful accounts of $1,442 and $1,652 as of March 31, 2021 and December 31, 2020

 

48,510

 

50,215

Inventory:

Aircraft, airframes, engines, and parts, net

 

99,299

 

85,192

Advance vendor payments

 

10,719

 

6,205

Due from related party

 

 

474

Deposits, prepaid expenses, and other current assets

 

5,609

 

7,560

Total current assets

 

183,746

 

178,963

Fixed assets:

 

Aircraft and engines held for lease, net

 

82,332

 

86,844

Property and equipment, net

 

7,771

 

7,839

Inventory:

 

Aircraft, airframes, engines, and parts

 

65,943

 

55,463

Deferred income taxes

 

5,992

 

5,708

Deferred financing costs, net

 

1,268

 

367

Deferred customer incentives and other assets, net

 

271

 

271

Due from related party

 

5,421

 

5,450

Goodwill

 

19,860

 

19,860

Other intangible assets, net

 

27,839

 

28,364

Total assets

$

400,443

$

389,129

Current liabilities:

 

  

Accounts payable

$

19,221

$

16,364

Accrued expenses

 

8,207

 

8,576

Income tax payable

 

1,329

 

1,324

Lessee and customer purchase deposits

 

1,480

 

2,820

Deferred revenue

 

818

 

2,595

Total current liabilities

 

31,055

 

31,679

Long-term lease deposits

 

2,485

 

1,145

Maintenance deposit payments and other liabilities

 

3,744

 

3,664

Warrant liability

1,410

1,186

Total liabilities

38,694

37,674

Commitments and contingencies

 

  

Stockholders’ equity:

 

  

Common stock, $0.0001 par value. Authorized 200,000,000 shares; issued and outstanding 42,949,261 and 41,046,216 shares

 

4

 

4

Additional paid-in capital

 

292,869

 

292,593

Retained earnings

 

68,876

 

58,858

Total equity

 

361,749

 

351,455

Total liabilities and stockholders’ equity

$

400,443

$

389,129

1


AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

    

Three Months Ended March 31, 

    

2021

    

2020

Revenue:

Products

$

25,126

$

18,031

Leasing

 

6,256

 

15,782

Services

 

27,053

 

23,322

Total net revenue

 

58,435

 

57,135

Cost of sales and operating expenses:

Cost of products

 

13,806

 

13,439

Cost of leasing

 

2,767

 

7,432

Cost of services

 

22,027

 

20,978

Total cost of sales

 

38,600

 

41,849

Gross profit

 

19,835

 

15,286

Selling, general, and administrative expenses

 

13,310

 

13,201

Payroll support program proceeds

 

(6,363)

 

Transaction costs

 

 

231

Income from operations

 

12,888

 

1,854

Other income (expenses):

 

 

Interest expense, net

 

(258)

 

(536)

Other income (expenses), net

 

94

 

57

Change in fair value of warrant liability

(224)

Total other expenses

 

(388)

 

(479)

Income from operations before income tax provision

 

12,500

 

1,375

Income tax expense

 

(2,482)

 

(316)

Net income

$

10,018

$

1,059

Earnings per share - basic

$

0.24

$

28.61

Earnings per share - diluted

$

0.23

$

28.61

2


AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

For the three months ended March 31, 2021 and 2020

(in thousands, except per share data)

(Unaudited)

Total

Common stock

Additional

Retained

stockholders’

    

Amount

    

Shares

    

paid-in capital

    

earnings

    

 equity

Balance at December 31, 2019

$

1

 

5,285,054

$

243,221

$

50,764

$

293,986

Net income

1,059

1,059

Balance at March 31, 2020

$

1

5,285,054

$

243,221

$

51,823

$

295,045

Balance at December 31, 2020

$

4

41,046,216

$

292,593

$

58,858

$

351,455

Issuance of Earn-Out shares

1,855,634

(269)

(269)

Shares issued upon exercise of warrants

47,411

545

545

Net income

 

 

 

10,018

 

10,018

Balance at March 31, 2021

$

4

42,949,261

$

292,869

$

68,876

$

361,749

3


AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands, except per share data)

(Unaudited)

    

Three Months Ended March 31, 

2021

    

2020

Cash flows from operating activities:

Net income

$

10,018

$

1,059

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization

 

3,487

 

7,937

Amortization of debt issuance costs

 

150

 

202

Inventory reserve

 

74

 

421

Provision for doubtful accounts

 

(144)

 

114

Deferred income taxes

 

(284)

 

Change in fair value of warrant liability

224

Decreases (increases) in operating assets and liabilities, net of acquisition:

 

 

  

Accounts receivable

 

1,713

 

12,321

Inventory

 

(27,020)

 

(1,511)

Deposits, prepaid expenses, and other current assets

 

2,590

 

5,015

Deferred customer incentives and other assets

 

 

320

Advance vendor payments

 

(4,514)

 

580

Accounts payable

 

2,857

 

849

Income tax payable

5

313

Accrued expenses

 

(1,420)

 

(414)

Deferred revenue

 

(1,777)

 

(5,913)

Lessee and customer purchase deposits

 

 

406

Other liabilities

 

80

 

(262)

Net cash (used in) provided by operating activities

 

(13,961)

 

21,437

Cash flows from investing activities:

 

  

 

  

Business acquisition

 

 

(16,976)

Proceeds from sale of assets

 

4,420

 

Acquisition of aircraft and engines held for lease, including capitalized cost

 

 

(293)

Purchase of property and equipment

 

(443)

 

(914)

Net cash provided by (used in) investing activities

 

3,977

 

(18,183)

Cash flows from financing activities:

 

  

 

  

Repayments of 8% Senior Secured Notes

 

 

(1,448)

Proceeds from revolving credit facility

 

 

79,500

Repayments of revolving credit facility

 

 

(19,096)

Cash paid for employee taxes on withholding shares

(269)

Proceeds from exercise of warrants

545

Net cash provided by financing activities

 

276

 

58,956

(Decrease) increase in cash and cash equivalents

 

(9,708)

 

62,210

Cash and cash equivalents, beginning of period

 

29,317

 

17,505

Cash and cash equivalents, end of period

$

19,609

$

79,715

Supplemental disclosure of cash activities

 

 

Income taxes, net

98

46

Interest

167

344

Supplemental disclosure of noncash investing activities

Reclassification of aircraft and aircraft engines inventory from equipment held for lease, net.

(2,061)

(1,111)

4


AERSALE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

NOTE A — DESCRIPTION OF THE BUSINESS

Organization

Monocle Acquisition Corporation (“Monocle”) was initially formed on August 20, 2018 for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses.

On December 22, 2020, (the “Closing Date”), Monocle consummated the previously announced business combination pursuant to that certain Amended and Restated Agreement and Plan of Merger, dated September 8, 2020 (the “Merger Agreement”) by and among Monocle, AerSale Corporation (f/k/a Monocle Holdings Inc.), a Delaware corporation (the “Company”), AerSale Aviation, Inc. (f/k/a AerSale Corp.), a Delaware corporation (“AerSale Aviation”), Monocle Merger Sub 1 Inc., a Delaware corporation (“Merger Sub 1”), Monocle Merger Sub 2 LLC, a Delaware limited liability company (“Merger Sub 2”), and Leonard Green & Partners, L.P., a Delaware limited partnership, solely in its capacity as the initial Holder Representative (as defined in the Merger Agreement). The transactions contemplated by the Merger Agreement are referred to herein as the “Merger” or the “Business Combination” and in connection therewith, Monocle merged with and into us, whereby we survived the merger and became the successor issuer to Monocle by operation of Rule 12g-3 under the Exchange Act.

Upon the consummation of the Merger: (a) Merger Sub 1 was merged with and into Monocle, with Monocle surviving the merger as a wholly-owned direct subsidiary of the Company (the “First Merger”), and (b) Merger Sub 2 was merged with and into AerSale Aviation, with AerSale Aviation surviving the merger as a wholly-owned indirect subsidiary of the Company (the “Second Merger”). In connection with the closing of the Business Combination (the “Closing”), AerSale Aviation changed its name from “AerSale Corp.” to “AerSale Aviation, Inc.” and the Company changed its name from “Monocle Holdings Inc.” to “AerSale Corporation.” Immediately following the Merger, the Company contributed all of its ownership in Monocle to AerSale Aviation which will continue as a wholly owned subsidiary of the Company.

The Company’s corporate headquarters are based in Miami, Florida, with additional offices, hangars, and warehouses globally.

Revision of Prior Period Financial Statements

During the quarter ended March 31, 2021, the Company identified and corrected immaterial errors that affected certain of its previously issued consolidated financial statements. These errors related to the misapplication of generally accepted accounting principles in the United States in connection with the classification of the Company’s private warrants as equity. The SEC released a Public Statement on April 12, 2021 noting that when one or more features common to warrants in SPAC transactions is included in a warrant, the warrant “should be classified as a liability measured at fair value, with changes in fair value each period reported in earnings.” Following review of the SEC’s statement, the Company concluded that our private warrants do not meet the conditions to be classified as equity and instead, the private warrants meet the definition of a derivative under Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging.” This requires the Company to record the private warrants as a liability measured at fair value on the Company’s Condensed Consolidated Balance Sheets with the changes in fair value each period reported in earnings. As a result, the Company recorded $0.2 million of expense in the three months ended March 31, 2021, reflected as change in fair value of warrant liability. Accordingly, the Company is revising its December 31, 2020 financial statements by recognizing the private warrants as a liability upon the consummation of the Business Combination on December 22, 2020 in the amount of $1.2 million with a corresponding reduction to additional paid-in capital and retained earnings of $0.8 million and $0.4 million, respectively.

5


The Company determined the impact of the error related to the accounting treatment of private warrants had an immaterial impact with respect to the Company’s condensed consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020. However, in order to correctly present the immaterial errors noted above, previously issued comparative financial statements have been revised during the quarter ended March 31, 2021.

New Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842), which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. In July 2018, FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements.” Although early adoption is permitted, we plan to adopt Topic 842 during the first quarter of 2022, on a modified retrospective basis. We are currently evaluating the impact this guidance will have on our consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”), “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In November 2018, FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments — Credit Losses,” which amends the scope and transition requirements of ASU 2016-13. Topic 326 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Topic 326 will become effective for the Company beginning January 1, 2023, with early adoption permitted, on a modified retrospective basis. We are currently evaluating the impact this guidance will have on our consolidated financial statements and related disclosures.

NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared from the books and records of the Company in accordance with Accounting Principles Generally Accepted in the United States (“U.S. GAAP”) for interim financial information and Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (“SEC”), which permits reduced disclosures for interim periods. Although these interim consolidated financial statements do not include all of the information and footnotes required for complete annual consolidated financial statements, management believes all adjustments, consisting only of normal recurring adjustments, and disclosures necessary for a fair presentation of the accompanying condensed consolidated balance sheets, statements of operations, stockholders’ equity, and cash flows have been made. Unaudited interim results of operations and cash flows are not necessarily indicative of the results that may be expected for the full year. Unaudited interim condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements and footnotes included in Part II, Item 8 of the Annual Report, wherein a more complete discussion of significant accounting policies and certain other information can be found.

6


Revenue Recognition

Products — Used Serviceable Material Sales (“USM”)

Revenues from sales of USM are measured based on consideration specified within customer contracts, and excludes any sales commissions and taxes collected and remitted to government agencies. We recognize revenue when performance obligations are satisfied by transferring control of a product or service to a customer. The parts are sold at a fixed price with no right of return. In determining the performance obligation, management has identified the promise in the contract to be the shipment of the spare parts to the customer. Title passes to the buyer when the goods are shipped, the buyer is responsible for any loss in transit and the Company has a legal right to payment for the spare parts once shipped. We generally sell our USM products under standard 30-day payment terms, subject to certain exceptions. Customers neither have the right to return products nor do they have the right to extended financing. The Company has determined that physical acceptance of the spare parts to be a formality in accordance with ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”).

Spare parts revenue is based on a set price for a set number of parts as defined in the purchase order. The performance obligation is completed once the parts have shipped and as a result, all of the transaction price is allocated to that performance obligation. The Company has determined that it is appropriate to recognize spare parts sales at a point in time (i.e., the date the parts are shipped) in accordance with ASC 606.

Products — Whole Asset Sales

Revenues from whole asset sales are measured based on consideration specified in the contract with the customer. The Company and customer enter into an agreement which outlines the place and date of sale, purchase price, condition of the whole asset, bill of sale and the assignment of rights and warranties from the Company to the customer. The Company believes the whole asset holds standalone value to the customer as it is not dependent on any other services for functionality purposes and therefore is distinct within the context of the contract and as described in ASC 606-10. Accordingly, the Company has identified the transfer of the whole asset as the performance obligation. The transaction price is set at a fixed dollar amount per fixed quantity (number of whole assets) and is explicitly stated in each contract. Whole asset sales revenue is based on a set price for a set number of assets, which is allocated to the performance obligation discussed above, in its entirety. The Company has determined the date of transfer to the customer is the date the customer obtains control over the asset and would cause the revenue recognition. Payment is required in full upon a customer’s acceptance of the whole asset on the date of the transfer.

Leasing Revenues

The Company leases flight equipment under operating leases that contain monthly base rent and reports rental income straight line over the life of the lease as it is earned. Additionally, the Company’s leases provide for supplemental rent, which is calculated based on actual hours or cycles of utilization and, for certain components, based on the amount of time until maintenance of that component is required. In certain leases, the Company records supplemental rent paid by the lessees as maintenance deposit payment liabilities in recognition of the Company’s contractual commitment to reimburse qualifying maintenance. Reimbursements to the lessees upon receipt of evidence of qualifying maintenance work are charged against the existing maintenance deposit payments liabilities. In leases where the Company is responsible for performing certain repairs or replacement of aircraft components or engines, supplemental rent is recorded as revenue in the period earned. In the event of premature lease termination or lessee default on the lease terms, revenue recognition will be discontinued when outstanding balances are beyond the customers’ deposits held. Payment terms for leased flight equipment are due upon receipt.

7


Service Revenues

Service revenues are recognized as performance obligations are fulfilled and the benefits are transferred to the customer. At contract inception, we evaluate if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations. In some cases, our service contract with the customer is considered one performance obligation as it includes factors such as the good or service being provided is significantly integrated with other promises in the contract, the service provided significantly modifies or customizes the other good or service or the goods or services are highly interdependent or interrelated with each other. If the contract has more than one performance obligation, the Company determines the standalone price of each distinct good or service underlying each performance obligation and allocates the transaction price based on their relative standalone selling prices. The transaction price of a contract, which can include both fixed and variable amounts, is allocated to each performance obligation identified. Some contracts contain variable consideration, which could include incremental fees or penalty provisions related to performance. Variable consideration that can be reasonably estimated based on current assumptions and historical information is included in the transaction price at the inception of the contract but limited to the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Variable consideration that cannot be reasonably estimated is recorded when known.

For most service contracts, performance obligations are satisfied over time as work progresses based on transfer of control of products and services to our customers. We receive payments from our customers based on billing schedules or contract terms.

For performance obligations that are satisfied over time, we measure progress in a manner that depicts the performance of transferring control to the customer. As such, we utilize the input method of cost-to-cost to recognize revenue over time as this depicts when control of the promised goods or services are transferred to the customer. Revenue is recognized based on the relationship of actual costs incurred to date to the estimated total cost at completion of the performance obligation. We are required to make certain judgments and estimates, including estimated revenues and costs, as well as inflation and the overall profitability of the arrangement. Key assumptions involved include future labor costs and efficiencies, overhead costs and ultimate timing of product delivery. Differences may occur between the judgments and estimates made by management and actual program results. Under most of our Maintenance, Repair and Overhaul (“MRO”) contracts, if the contract is terminated for convenience, we are entitled to payment for items delivered, fair compensation for work performed, the costs of settling and paying other claims and a reasonable profit on the costs incurred or committed.

Changes in estimates and assumptions related to our arrangements accounted for using the input method based on labor hours are recorded using the cumulative catchup method of accounting. These changes are primarily adjustments to the estimated profitability for our long term programs where we provide MRO services.

We have elected to use certain practical expedients permitted under ASC 606. Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost, are included in cost of sales in our condensed consolidated statements of operations and are not considered a performance obligation to our customers. Our reported sales on our condensed consolidated statements of operations are net of any sales or related non income taxes. We also utilize the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value we are providing to the customer.

8


Payroll Support Programs

The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020 and is intended to assist the economy by issuing a relief package to preserve jobs in industries adversely impacted by the COVID-19 outbreak. On June 8, 2020, the Company entered into an agreement with the U.S. Department of the Treasury to receive $16.4 million in emergency relief through the CARES Act Payroll Support Program to be paid in installments. The proceeds of the grant are recorded within accrued expenses when received and are recognized as payroll support program proceeds in the condensed consolidated statement of operations over the periods that the funds are intended to compensate. During the three months ended March 31, 2021, we received the remaining balance of $3.7 million in grant proceeds under the CARES Act Payroll Support Program and this amount has been recognized as payroll support program proceeds in the condensed consolidated statement of operations.

As part of the Payroll Support Program Extension Law, we entered into a new agreement with the U.S. Department of the Treasury on March 4, 2021 for the receipt of relief funds of $5.5 million. During the three months ended March 31, 2021, we received $5.5 million in grant proceeds under the Payroll Support Program Extension Law of which $2.7 million was recognized as payroll support program proceeds in the condensed consolidated statement of operations. The total unrecognized amount of collected proceeds from payroll support programs as of March 31, 2021 is $2.9 million.

Pursuant to the American Rescue Plan Act of 2021 (“ARP”), we entered into a new agreement with the U.S. Department of the Treasury on April 16, 2021 for the receipt of relief funds of an additional $5.5 million. In connection with the financial assistance we have received under the Payroll Support Program, we are required to comply with certain provisions of the CARES Act, including the requirement that funds provided pursuant to the Payroll Support Program be used exclusively for the continuation of payment of employee wages, salaries and benefits and the requirement against involuntary terminations, furloughs and reductions in employee pay rates and benefits from the signing date of the Payroll Support Program agreement through September 30, 2021. In addition, we are subject to provisions prohibiting the repurchase of common stock and the payment of common stock dividends through September 30, 2022, as well as limitations on the payment of certain employee compensation through April 1, 2023. These restrictions may affect our operations and if we do not comply with these provisions, we may be required to reimburse up to 100% of any previously received relief funds.

NOTE C — SIGNIFICANT RISKS AND UNCERTAINTIES

Impact of Coronavirus (COVID-19)

COVID-19 has been declared a global health pandemic by the World Health Organization. In early March 2020, as AerSale began to see the impacts to its customers, the Company took decisive actions to position itself for the short-term impacts of COVID-19, while allowing the Company the flexibility to quickly pursue the opportunities that would follow. The Company cancelled approximately $20 million of feedstock opportunities under negotiation, as it evaluated the impacts of COVID-19 on asset valuations. The Company also reexamined its structure and executed measures in 2020 to adjust the business through strategic headcount reductions and suspension of various other initiatives, resulting in reduced costs of over $20 million on an annualized basis.

While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has already had an adverse effect on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown.

NOTE D — REVENUE

The timing of revenue recognition, customer billings and cash collections results in a contract asset or contract liability at the end of each reporting period. Contract assets consist of unbilled receivables or costs incurred where revenue recognized over time exceeds the amounts billed to customers. Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of performance obligations on the contract. These amounts are recorded as contract liabilities until such performance obligations are satisfied. Contract assets and contract liabilities are determined on a contract by contract basis.

9


Contract assets are as follows (in thousands):

    

March 31, 2021

    

December 31, 2020

    

Change

Contract assets

$

24,485

$

20,431

$

4,054

Contract assets are reported within accounts receivable on our condensed consolidated balance sheets. Changes in contract assets primarily results from the timing difference between our performance of services. Contract liabilities are reported as deferred revenue on our condensed consolidated balance sheets and amounted to $2.6 million as of December 31, 2020, of which $2.3 million was related to contract liabilities for services performed. For the three months ended March 31, 2021, we recognized as revenue $1.8 million of our contract liabilities for services performed as the timing between customer payments and our performance of the services is generally no longer than six months.

Disaggregation of Revenue

The Company reports revenue by segment. The following tables present revenue by segment, as well as a reconciliation to total revenue for the three months ended March 31, 2021 and 2020 (in thousands):

    

2021

Asset Management

    

    

    

 Solutions

    

Tech Ops

    

Total Revenues

USM

$

9,225

$

1,143

$

10,368

Whole Asset Sales

 

13,771

 

 

13,771

Engineered Solutions

 

 

987

 

987

Total Products

 

22,996

 

2,130

 

25,126

Leasing

 

6,256

 

 

6,256

Services

 

 

27,053

 

27,053

Total Revenues

$

29,252

$

29,183

$

58,435

    

2020

Asset Management

    

 Solutions

    

Tech Ops

    

Total Revenues

USM

$

15,049

$

1,324

$

16,373

Engineered Solutions

 

 

1,658

 

1,658

Total Products

 

15,049

 

2,982

 

18,031

Leasing

 

15,782

 

 

15,782

Services

 

 

23,322

 

23,322

Total Revenues

$

30,831

$

26,304

$

57,135

NOTE E — INVENTORY

Following are the major classes of inventory as of March 31, 2021 and December 31, 2020 (in thousands):

    

2021

    

2020

USM

$

62,877

$

63,277

Whole Assets

79,679

56,767

Work in Process

22,686

20,611

165,242

140,655

Less Short Term

 

(99,299)

 

(85,192)

Long Term

$

65,943

$

55,463

The Company evaluated the inventory’s net realizable value as of March 31, 2021 and 2020 and determined no adjustment was required.

10


The Company recorded inventory scrap loss reserves of $0.1 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively, each of which was included in cost of products in the accompanying condensed consolidated statements of operations.

NOTE F — INTANGIBLE ASSETS

In accordance with ASC 350, Intangibles — Goodwill and Other, goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. We review and evaluate our goodwill and indefinite life intangible assets for potential impairment at a minimum annually or more frequently if circumstances indicate that impairment is possible.

We determined the fair value of assets acquired and liabilities assumed using a variety of methods. An income approach based on discounted cash flows was used to determine the values of our trademarks, certifications, customer relationships and FAA certificates. The assumptions we used to estimate the fair value of our reporting units are based on historical performance, as well as forecasts used in our current business plan and require considerable management judgment

The Company’s goodwill and intangible assets as defined by ASC 350 is related to our subsidiaries, AerSale Component Solutions (d/b/a AerSale Landing Gear Solutions) (“ALGS”), Avborne Component Solutions (d/b/a AerSale Component Solutions) (“ACS”), and the most recently acquired Aircraft Composite Technologies (“ACT”), which are included in the TechOps segment, as well as Qwest, which is included under the Asset Management Solutions segment.

Goodwill and other intangibles as of March 31, 2021 and December 31, 2020 are (in thousands):

    

2021

    

2020

Qwest:

FAA Certifications

$

724

$

724

Goodwill

 

13,416

 

13,416

ALGS:

 

  

 

FAA Certifications

 

710

 

710

Goodwill

 

379

 

379

ACS:

 

  

 

Trademarks

 

600

 

600

FAA Certifications

 

7,300

 

7,300

Goodwill

 

63

 

63

ACT:

 

  

 

Trademarks

 

200

 

200

FAA Certifications

 

796

 

796

Goodwill

 

6,002

 

6,002

Total intangible assets with indefinite lives

$

30,190

$

30,190

As a result of the COVID-19 pandemic and its impact on the aviation industry, the Company performed a qualitative impairment analysis as of March 31, 2020 on the indefinite lived intangible assets and concluded there was no impairment. Additionally, the Company performed an impairment analysis on the goodwill for both the Asset Management Solutions and TechOps segment and concluded that goodwill was not impaired as of March 31, 2020.

11


Intangible assets with definite useful lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets with definite lives as of March 31, 2021 and December 31, 2020 are as follows (in thousands):

    

Useful Life

    

    

 In Years

2021

2020

Qwest:

Customer relationships

10

$

7,843

$

8,083

ALGS:

  

 

  

 

Customer relationships

10

 

85

 

90

ACS:

  

 

  

 

Customer relationships

10

 

1,610

 

1,663

ACT:

  

 

 

Customer relationships

10

 

7,971

 

8,198

Total intangible assets with definite lives

$

17,509

$

18,034

Total amortization expense amounted to $0.5 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively. Accumulated amortization amounted to $3.5 million and $3.0 million as of March 31, 2021 and December 31, 2020, respectively.

Other intangible assets are reviewed at least annually or more frequently if any event or change in circumstance indicates that an impairment may have occurred. As a result of the COVID-19 pandemic and its impact on the aviation industry, the Company performed an impairment analysis as of March 31, 2020 on the definite-lived intangible assets and concluded there was no impairment.

There was no goodwill activity for the three months ended March 31, 2021. For the three-month period ended March 31, 2020, goodwill increased by $6.0 million.

NOTE G — PROPERTY AND EQUIPMENT, NET

Property and equipment, net, as of March 31, 2021 and December 31, 2020 consist of the following (in thousands):

    

Useful Life

    

    

 In Years

2021

2020

Tooling and equipment

 

7 - 15

$

13,636

$

13,465

Furniture and other equipment

 

5

 

7,567

 

7,379

Computer software

 

5

 

2,378

 

2,378

Leasehold improvements

 

3 - 6

 

3,397

 

3,314

Equipment under capital lease

 

5

 

197

 

197

 

27,175

 

26,733

Less accumulated depreciation

 

(19,404)

 

(18,894)

$

7,771

$

7,839

Depreciation expense, which includes amortization of equipment under capital lease, amounted to $0.5 million and $0.6 million for the three months ended March 31, 2021 and 2020, respectively.

As a result of the COVID-19 pandemic and its impact on the aviation industry, the Company performed an impairment analysis as of March 31, 2020 on the property, plant and equipment and concluded there was no impairment.

12


NOTE H — LEASE RENTAL REVENUES AND AIRCRAFT AND ENGINES HELD FOR LEASE

Aircraft and engines held for operating leases, net, as of March 31, 2021 and December 31, 2020 consists of the following (in thousands):

    

2021

    

2020

Aircraft and engines held for operating leases

$

221,456

$

228,942

Less accumulated depreciation

 

(139,124)

 

(142,098)

$

82,332

$

86,844

Total depreciation expense amounted to $2.5 million and $7.1 million for the three months ended March 31, 2021 and 2020, respectively, and is included in cost of leasing in the condensed consolidated statements of operations.

Supplemental rents recognized as revenue totaled $1.1 million and $5.5 million for the three months ended March 31, 2021 and 2020, respectively.

The Company’s current operating lease agreements for flight equipment on lease expire over the next month to three years. The amounts in the following table are based upon the assumption that flight equipment under operating leases will remain on lease for the length of time specified by the respective lease agreements. Minimum future annual lease rentals contracted to be received under existing operating leases of flight equipment at were as follows (in thousands):

Year ending December 31:

    

Remainder of 2021

$

12,741

2022

 

10,021

2023

 

2,231

Total minimum lease payments

$

24,993

NOTE I — ACCRUED EXPENSES

The following is a summary of the components of accrued expenses as of March 31, 2021 and December 31, 2020 (in thousands):

    

2021

    

2020

Accrued compensation and related benefits

$

3,947

$

6,624

Accrued legal fees

 

61

 

18

Commission fee accrual

 

79

 

103

Accrued federal, state and local taxes and fees

 

89

 

130

Deferred payroll support program proceeds

2,877

Other

 

1,154

 

1,701

$

8,207

$

8,576

NOTE J – WARRANT LIABILITY

Monocle issued certain public warrants in 2018 which, upon the Closing, were converted into AerSale warrants. Each of the Company’s warrants entitles the registered holder to purchase one share of the Company’s common stock at a price of $11.50 per share. The warrants will expire at 5:00 p.m., New York City time, on the fifth anniversary of the completion of the Merger, or earlier upon redemption or liquidation. Warrants to purchase a total of 17,952,589 shares of the Company’s common stock were outstanding as of March 31, 2021, of which 750,000 warrants were issued to founders in a private placement (the “Private Warrants”) and subject to a twelve- month lock-up period from the date of the Merger. The remaining are public warrants and are exercisable immediately.

13


The Private Warrants include provisions that affect the settlement amount. Such variables are outside of those used to determine the fair value of a fixed-for-fixed instrument, and as such, the warrants do not meet the criteria for equity treatment under guidance contained in ASC Topic 815, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock.” The Company classifies the Private Warrants as a liability at their fair value subject to re-measurement at each balance sheet date and adjusted at each reporting period until exercised or expired, and any change in fair value is recognized in the Company's condensed consolidated statement of operations. The fair value of the private warrants is determined using the market price of the public warrants adjusted for their lack of liquidity.

NOTE K — EARNINGS PER SHARE

The computation of basic and diluted earnings per share (“EPS”) is based on the weighted average number of common shares outstanding during each period.

The following table provides a reconciliation of the computation for basic and diluted earnings per share for the three months ended March 31, 2021 and 2020, respectively (in thousands, except share and per share data):

    

2021

    

2020

Net income

$

10,018

$

1,059

Reversal of loss on change in value of warrant liability

 

224

 

Net income attributable to common shareholders for EPS - diluted

$

10,242

$

1,059

Weighted-average number of shares outstanding - basic

 

42,212,134

 

37,010

Additional shares from assumed stock-settled restricted stock units

115,959

Additional shares from assumed exercise of warrants

1,869,098

Weighted-average number of shares outstanding - diluted

44,197,191

37,010

Earnings per share – basic:

$

0.24

$

28.61

Earnings per share – diluted:

$

0.23

$

28.61

NOTE L — BUSINESS SEGMENTS

Consistent with how our chief operating decision maker (Chairman and Chief Executive Officer) evaluates performance and utilizes gross profit as a profitability measure, we report our activities in two business segments:

Asset Management Solutions — comprised of activities to extract value from strategic asset acquisitions through leasing, trading, or disassembling for product sales
Tech Ops — comprised of MRO activities; and product sales of internally developed engineered solutions and other serviceable products.

The Asset Management Solutions segment provides short-term and long-term leasing solutions of aircraft and jet engines to passenger and cargo operators worldwide. Assets considered to be at or near the end of their useful lives, supplied by our leasing portfolio or acquisitions, are analyzed for return maximization to assess whether they will be traded as whole assets or disassembled and sold as individual spare parts and components.

14


The Tech Ops segment consists of aftermarket support and services businesses that provide maintenance support for aircraft and aircraft components, and sale of engineered solutions. Our MRO business also engages in longer term projects such as aircraft modifications, cargo conversions of wide-body aircraft, and aircraft storage. The segment also includes MRO of landing gear, thrust reversers, and other components. Cost of sales consists principally of the cost of product, direct labor, and overhead. Our engineered solutions revenues consist of sales of products internally developed as permitted by Supplemental Type Certificates issued by the FAA. These products are proprietary in nature and function as non-original equipment manufacturer solutions to airworthiness directives and other technical challenges for operators. In order to develop these products, we engage in research and development activities. Periodically, our Tech Ops division will engage in the repair and sale of used serviceable materials through their ability to overhaul existing inventory.

The accounting policies for the segments are the same as those described in Note B to our consolidated financial statements included in our annual report. Gross Profit is calculated by subtracting cost of sales from sales. The assets and certain expenses related to corporate activities are not allocated to the segments. Our reportable segments are aligned principally around the differences in products and services. The segment reporting excludes the allocation of selling, general and administrative expenses, interest expense and income tax expense.

Selected financial information for each segment for the three months ended March 31, 2021 and 2020 is as follows (in thousands):

    

2021

    

2020

Revenues

 

Asset Management Solutions

 

Aircraft

$

10,452

$

14,238

Engine

 

18,800

 

16,593

 

29,252

 

30,831

Tech Ops

 

 

MRO Services

 

27,053

 

23,322

Product Sales

 

2,130

 

2,982

 

29,183

 

26,304

$

58,435

$

57,135

2021

2020

Gross Profit

 

 

Asset Management Solutions

 

 

Aircraft

$

4,463

$

3,662

Engine

 

9,124

 

8,105

 

13,587

 

11,767

Tech Ops

 

 

MRO Services

 

5,026

 

2,344

Product Sales

 

1,222

 

1,175

 

6,248

 

3,519

$

19,835

$

15,286

15


The following table reconciles segment gross profit to net income for the three months ended March 31, 2021 and 2020 (in thousands):

    

2021

    

2020

Segment gross profit

$

19,835

$

15,286

Selling, general and administrative expenses

 

(13,310)

 

(13,201)

Payroll support program proceeds

 

6,363

 

Transaction costs

 

 

(231)

Interest expense, net

 

(258)

 

(536)

Other income, net

 

94

 

57

Change in fair value of warrant liability

(224)

Income tax expense

 

(2,482)

 

(316)

Net income

$

10,018

$

1,059

Intersegment sales includes amounts invoiced by a segment for work performed for another segment. Amounts are based on actual work performed or products sold and agreed-upon pricing which is intended to be reflective of the arm’s length value of the contribution made by the supplying business segment. All intersegment transactions have been eliminated upon consolidation. Intersegment revenue for the three months ended March 31, 2021 and 2020, is as follows (in thousands):

    

2021

    

2020

Asset Management Solutions

$

1,447

$

269

Tech Ops

 

2,158

 

920

Total intersegment revenues

$

3,605

$

1,189

NOTE M— COMMITMENTS AND CONTINGENCIES

Litigation

The Company could be involved in litigation incidental to the operation of the business. The Company intends to vigorously defend all matters in which the Company is named as defendant and, for insurable losses, maintain significant levels of insurance to protect against adverse judgments, claims or assessments that may affect the Company. Although the adequacy of existing insurance coverage of the outcome of any legal proceedings cannot be predicted with certainty, based on the current information available, the Company does not believe the ultimate liability associated with known claims or litigation, if any, in which the Company is involved will materially affect the Company’s condensed consolidated financial condition or results of operations.

Lease Commitments

The Company leases office space, warehouses, hangars, computers and equipment in connection with its operations under various operating leases, many of which contain escalation clauses.

16


Future minimum lease payments under non-cancelable operating leases (with initial lease terms in excess of one year) are (in thousands):

Year ending December 31:

    

    

Remainder of 2021

$

3,665

2022

 

3,591

2023

 

2,755

2024

 

2,308

2025

 

1,811

2026

 

1,846

Thereafter

 

2,601

Total minimum lease payments

$

18,577

Expenses incurred under the operating lease agreements was $1.6 million and $1.5 million for the three months ended March 31, 2021 and 2020, respectively. Operating lease expense is recognized on a straight-line basis over the term of the lease, including any option periods, as appropriate. The same lease term is used for lease classification, the amortization period of related leasehold improvements, and the estimation of future lease commitments.

Purchase Commitments

As of March 31, 2021, the Company has purchase commitments for the acquisition of Flight Equipment in the amount of $22.4 million to be fulfilled during the remainder of 2021, of which a 10% deposit has been paid.

NOTE N — BUSINESS COMBINATION

On January 7, 2020 the Company acquired all of the outstanding shares of Aircraft Component Technologies, Inc. (ACT), a Florida corporation located in Miami, Florida, for $17.0 million in cash. The results of ACT operations have been included in the condensed consolidated financial statements since the acquisition date. All assets and liabilities of ACT were recorded at their fair market value, and to the extent that the purchase cost exceeded the fair market value of the net assets, that excess was recorded as goodwill, all of which is deductible for federal income tax purposes. The goodwill is attributable to the general reputation of the business and the collective experience of ACT’s management and employees. This business operates as part of our TechOps segment. ACT’s revenues and income from operations from January 7, 2020 through March 31, 2020 were $2.1 million and $0.7 million, respectively. The purchase price for ACT was allocated as follows (in thousands):

    

Acquisition 

Date 

Fair Values

Accounts receivable

$

1,442

Deposits, prepaid expenses, and other current assets

 

22

Property and equipment

 

381

Other intangible assets

 

10,096

Goodwill

 

6,002

Accounts payable

 

(134)

Accrued expenses

 

(833)

Total purchase price

$

16,976

17


The intangible assets included above consist of the following (in thousands):

    

Fair Value

Trademark and trade name (indefinite lived)

$

200

    

Fair Value

FAA part 145 certificate (indefinite lived)

$

796

    

Useful Life In 

    

Years

Fair Value

Customer relationships

 

10

$

9,100

The acquisition of ACT did not have a material pro forma impact on the consolidated results of operations for the three months ended March 31, 2020.

NOTE O — STOCKHOLDERS’ EQUITY

The Consolidated Statements of Stockholders’ Equity reflect the Reverse Recapitalization as defined in Item 8, Note B of the Annual Report. As AerSale Aviation was deemed the accounting acquirer in the Reverse Recapitalization with Monocle, all periods prior to the consummation date reflect the balances and activity of AerSale Aviation. The share activity (preferred stock and common stock) and per share amounts in the Consolidated Statements of Stockholders’ Equity as of December 31, 2019, from the previously reported audited consolidated financial statements of AerSale Aviation, were retroactively adjusted using the recapitalization exchange ratio of 74.0%.

Common Stock

Prior to the Merger, holders of AerSale Aviation’s common stock were entitled to one vote per share, and to receive dividends and, upon liquidation or dissolution, were entitled to receive all assets available for distribution to stockholders. The holders had no preemptive or other subscription rights and there were no redemption or sinking fund provisions with respect to such shares. Common stock was subordinated to the preferred stock with respect to dividend rights and rights upon liquidation, winding up, and dissolution of the Company.

Upon the consummation of the Merger, holders of AerSale Aviation’s common stock received shares of the Company’s common stock at $10.00 per share as merger consideration. The Company’s common stock consist of $0.0001 par value, 200,000,000 shares authorized, of which 42,949,261 shares were issued and outstanding as of March 31, 2021.

Earn-Out Shares

Upon consummation of the Merger, the pre-closing holders of AerSale Aviation’s common stock and the holders of in-the-money SARs received a contingent right to receive up to 3,000,000 additional shares of the Company’s common stock. Additionally, certain pre-closing holders of AerSale Aviation’s common stock received a contingent right to receive 746,876 shares of the Company’s common stock. Effective February 8, 2020, the contingency event related to the Minimum Target Earn-Out Shares was met and 1,855,634 shares were issued.

We determined the Earn-Out Shares to be classified as equity under ASC Topic 815, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock” as the contingent right is indexed to the Company’s stock and accordingly, the accrual of the Earn-Out shares as of March 31, 2021 had no impact on our consolidated financial statements.

18


Unvested Founder Shares

Upon the Merger, certain pre-closing holders of AerSale Corporation’s common stock agreed to defer the vesting of an aggregate of 700,000 shares (the “Unvested Founder Shares”), half of which will vest at such time as the Minimum Target (as defined in the Merger Agreement) and the other half of which will vest at the Maximum Target (as defined in the Merger Agreement). Effective February 8, 2021, the contingency event related to the Minimum Target was met and half of the Unvested Founder Shares vested.

2020 Equity Incentive Plan

The Company maintains a 2020 Equity Incentive Plan (the “2020 Plan”) and has registered 4,200,000 shares of common stock issuable under the Plan. The 2020 Plan authorizes discretionary grants of incentive stock options to employees of the Company and its qualifying subsidiaries. The 2020 Plan also authorizes discretionary grants of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents or other equity or cash-based awards to employees and consultants of the Company and its subsidiaries and to members of the Board of Directors of the Company. To the extent that an award under the 2020 Plan expires, is cancelled, forfeited, terminated, settled in cash or is otherwise settled without issuance of the full number of shares to which it relates, will become or again be available for awards under the 2020 Plan. The 2020 Plan is administered by the Company's Compensation Committee. The Compensation Committee has complete, full and final authority to: designate participants; determine the types of awards to be granted; determine the terms of awards; interpret and administer the 2020 Plans and any agreements and awards thereunder.

Restricted stock unit activity under the 2020 Plan for the three months ended March 31, 2021 was as follows

Weighted Average

Weighted Average

    

Amount

    

Grant Date Fair Value

    

Contractual Life

Outstanding at December 31, 2020

$

$

$

Granted

 

1,634,000

 

10.00

 

2.96

Outstanding March 31, 2021

$

1,634,000

$

10.00

$

2.96

The Company’s restricted stock units include 1,595,000 performance-based awards that have vesting provisions subject to both time vesting and the achievement of certain business milestones, while the remaining 39,000 awards vest over a period ranging from one to three years. As of March 31, 2021, no expense has been recognized for these performance-based awards given that the milestone achievements for these awards have not yet been deemed probable for accounting purposes.

2020 Employee Stock Purchase Plan

The Company also maintains a 2020 Employee Stock Purchase Plan (the “ESPP”) and has registered 500,000 shares of common stock issuable under the ESPP. The Company has not issued shares pursuant to the ESPP as of March 31, 2021.

19


ITEM 2    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. You should read the following management’s discussion and analysis together with the financial statements and related notes included Part II, Item 7 of AerSale’s Annual Report on Form 10-K for the year ended December 31, 2020 (the 2020 Form 10-K). This discussion contains forward-looking statements amount our business, operations and industry that involve risks and uncertainties, such as statements regarding AerSale’s plans, objectives, expectations and intentions. Our future results and financial condition may differ materially from those currently anticipated because of the factors described in the section titled “Risk Factors” in the Annual Report. 

Monocle Acquisition Corporation (“Monocle”) was initially formed on August 20, 2018 for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses.

On December 22, 2020, (the “Closing Date”), Monocle consummated the previously announced business combination pursuant to that certain Amended and Restated Agreement and Plan of Merger, dated September 8, 2020 (the “Merger Agreement”) by and among Monocle, AerSale Corporation (f/k/a Monocle Holdings Inc.), a Delaware corporation (the “Company”), AerSale Aviation, Inc. (f/k/a AerSale Corp.), a Delaware corporation (“AerSale Aviation”), Monocle Merger Sub 1 Inc., a Delaware corporation (“Merger Sub 1”), Monocle Merger Sub 2 LLC, a Delaware limited liability company (“Merger Sub 2”), and Leonard Green & Partners, L.P., a Delaware limited partnership, solely in its capacity as the initial Holder Representative (as defined in the Merger Agreement). The transactions contemplated by the Merger Agreement are referred to herein as the “Merger” or the “Business Combination” and in connection therewith, Monocle merged with and into us, whereby we survived the merger and became the successor issuer to Monocle by operation of Rule 12g-3 under the Exchange Act.

Upon the consummation of the Merger: (a) Merger Sub 1 was merged with and into Monocle, with Monocle surviving the merger as a wholly-owned direct subsidiary of the Company (the “First Merger”), and (b) Merger Sub 2 was merged with and into AerSale Aviation, with AerSale Aviation surviving the merger as a wholly-owned indirect subsidiary of the Company (the “Second Merger”). In connection with the closing of the Business Combination (the “Closing”), AerSale Aviation changed its name from “AerSale Corp.” to “AerSale Aviation, Inc.” and the Company changed its name from “Monocle Holdings Inc.” to “AerSale Corporation”. Immediately following the Merger, the Company contributed all of its ownership in Monocle to AerSale Aviation which will continue as a wholly owned subsidiary of the Company.

The Company

We operate as a platform for serving the commercial aviation aftermarket sector. Our top executives have on average over 30 years of experience in aircraft and engine (“Flight Equipment”) management, sales and maintenance services, and are supported by an experienced management team. We have established a global footprint focused on providing products and services that maximize the value of Flight Equipment in the middle to end of its operating life cycle.

We are a worldwide provider of aftermarket commercial aircraft, engines, and their parts to passenger and cargo airlines, leasing companies, original equipment manufacturers (“OEM”), government and defense contractors, and maintenance, repair and overhaul (“MRO”) service providers. We report our activities in two business segments: Asset Management Solutions, comprised of activities that extract value from strategic asset acquisitions either as whole assets or by disassembling for used serviceable material (“USM”); and TechOps, comprised of MRO activities for aircraft and their components, and sales of internally developed engineered solutions products.

20


We focus on mid-life Flight Equipment and monetize them through its Asset Management Solutions segment. Asset Management Solutions’ activities include monetization of assets through the lease or sale of whole assets, or through disassembly activities in support of our USM-related activities. Our monetizing services have been developed to maximize returns on mid-life Flight Equipment throughout their operating life, in conjunction with realizing the highest residual value of Flight Equipment at its retirement. We accomplish this by utilizing its deep market and technical knowledge related to the management of Flight Equipment sales, leasing and MRO services. To extract value from the remaining flight time on whole assets, we provide flexible short-term (generally less than five years) leasing solutions of Flight Equipment to passenger and cargo operators across the globe. Once the value from the Flight Equipment’s flight time has been extracted, Flight Equipment is considered to be at or near the end of its useful life and is analyzed for return maximization as either whole asset sales or disassembled for sale as USM parts. Revenues from this segment are segregated between Aircraft and Engine depending on the asset type that generated the revenue. Lease revenues and the related depreciation from aircraft and engines installed on those aircrafts is recognized under the Aircraft category. Revenues from sales of whole aircraft and related cost of sales are allocated between the Aircraft and Engine categories based on the allocated cost basis of the asset sold.

Our TechOps segment provides internal and third-party aviation services, including internally developed engineered solutions, full heavy aircraft maintenance and modification, component MRO, as well as end-of-life disassembly services. Our MRO business also engages in longer-term projects such as aircraft modifications, cargo/tanker conversions of aircraft, and aircraft storage. The TechOps segment also includes MRO services for landing gear, thrust reversers, hydraulic systems, and other aircraft components.

We utilize these capabilities to support its customers’ Flight Equipment, as well as to maintain and improve our owned Flight Equipment, which is subsequently sold or leased to our customers. These processes require a high degree of expertise on each individual aircraft or component that is being serviced. Our knowledge of these processes allows us to assist customers to comply with applicable regulatory and OEM requirements. A significant amount of skilled labor is required to support this process, which the Company has accumulated through its diversified offerings.

In addition to our aircraft and USM parts offerings, we develop Engineered Solutions consisting of Supplemental Type Certificates (“STCs”) that can be installed on existing Flight Equipment to improve performance, comply with regulatory requirements, or improve safety. An example of these solutions is the AerSafe® product line, which we have designed and obtained Federal Aviation Administration (“FAA”) approval to sell as a solution for compliance with the FAA’s fuel tank flammability regulations. These products are proprietary in nature and function as non-OEM solutions to regulatory requirements and other technical challenges, often at reduced delivery time and cost for operators. In order to develop these products, we engage in research and development activities.

Impact of COVID-19

COVID-19 has been declared a global health pandemic by the World Health Organization. Early in March 2020, as we began to see the impacts to its customers, the Company took decisive actions to position itself for the short-term impacts of COVID-19, while allowing the Company the flexibility to quickly pursue the opportunities that would follow. The Company cancelled approximately $20.0 million of feedstock opportunities under negotiation, as it evaluated the impacts of COVID-19 on asset valuations. The Company also reexamined its structure and executed measures in 2020 to adjust the business through strategic headcount reductions and suspension of various other initiatives to reduce costs by over $20.0 million on an annualized basis.

While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has already had an adverse effect on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown.

21


Critical Accounting Policies and Estimates

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires our 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 Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. See Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of the Annual Report for a discussion of our critical accounting policies and use of estimates. There have been no significant changes to the application of our critical accounting policies during fiscal 2021.

Recent Accounting Pronouncements

The most recent adopted and to be adopted accounting pronouncements are described in Note A to our condensed consolidated financial statements as well as in Item 8, Note B of the Annual Report.

Results of Operations

Three month ended March 31, 2021 and 2020

Sales and gross profit for our two business segments for the three months ended in March 31, 2021 and 2020 were as follows:

Three Months Ended March 31,

 

(in thousands, except percentages)

    

2021

    

2020

    

Percent Change

 

Revenue

  

  

  

 

Asset Management Solutions

 

  

 

  

 

  

Aircraft

$

10,452

$

14,238

 

(26.6)

%

Engines

 

18,800

 

16,593

 

13.3

%

$

29,252

$

30,831

 

(5.1)

%

TechOps

 

  

 

  

 

  

MRO

$

27,053

$

23,322

 

16.0

%

Product Sales

 

2,130

 

2,982

 

(28.6)

%

$

29,183

$

26,304

 

10.9

%

$

58,435

$

57,135

 

2.3

%

Three Months Ended March 31,

 

(in thousands, except percentages)

    

2021

    

2020

    

Percent Change

 

Gross Profit

  

 

  

  

Asset Management Solutions

  

 

  

  

Aircraft

$

4,463

$

3,662

21.9

%

Engines

 

9,124

 

8,105

12.6

%

$

13,587

$

11,767

15.5

%

TechOps

 

  

 

  

  

MRO

$

5,026

$

2,344

114.4

%

Product Sales

 

1,222

 

1,175

4.0

%

$

6,248

$

3,519

77.6

%

$

19,835

$

15,286

29.8

%

Total revenues increased $1.3 million or 2.3% to $58.4 million for the three months ended March 31, 2021, from $57.1 million for the three months ended March 31, 2020, driven by a decrease of $1.6 million, or 5.1%, within Asset Management Solutions, partially offset by an increase of $2.9 million, or 10.9%, within TechOps.

22


Asset Management Solutions

Sales in the Asset Management Solutions segment decreased $1.6 million or 5.1%, to $29.3 million for the three months ended March 31, 2021, from $30.8 million for the three months ended March 31, 2020. This was primarily due to a $3.8 million, or 26.6%, decrease in revenues from Aircraft, partially offset by a $2.2 million, or 13.3%, increase in revenues from Engines. The decrease in Aircraft revenues is primarily attributable to decreased activity in the B747 product line as a result of lower leasing activity in the amount of $3.2 million. The increase in Engines revenues is primarily attributable to increased activity in the PW4000 product line as a result of higher trading volume, resulting in an increase of $8.2 million, partially offset by lower leasing and USM sales in the CF6-80, V2500, and CFM56 product lines totaling $6.3 million. The reductions in leasing and USM sales are attributable to the global decrease in demand for flight hours in response to the COVID-19 pandemic.

Cost of sales in Asset Management Solutions segment decreased $3.4 million or 17.8%, to $15.7 million for the three months ended March 31, 2021, compared to $19.1 million for the three months ended March 31, 2020. The decrease in cost of sales was primarily driven by the sales decrease discussed above. Gross profit in the Asset Management Solutions segment increased $1.8 million or 15.5%, to $13.6 million for the three months ended March 31, 2021, from $11.8 million for the three months ended March 31, 2020. The margin increase is mainly attributable to higher margins generated on flight equipment sales.

Aircraft gross profit margins increased to 42.7% for the three months ended March 31, 2021, from 25.7% for the three months ended March 31, 2020 due to higher margins generated by flight equipment sales as noted above. Engines gross profit margins was 48.5% for the three months ended March 31, 2021, a decrease from 48.8% for the three months ended March 31, 2020, which was primarily the result of lower leasing revenues driven by lower asset utilization by many of our customers.

TechOps

Our revenue from TechOps increased by $2.9 million or 10.9%, to $29.2 million for the three months ended March 31, 2021, compared to $26.3 million for the three months ended March 31, 2020. The increase was primarily driven by increased demand for maintenance and storage programs, including preservation work, as a result of the increase in fleet groundings due to reduced passenger flight volume related to COVID-19.

Cost of sales in TechOps increased $0.1 million or 0.7%, to $22.9 million for the three months ended March 31, 2021, from $22.8 million for the three months ended March 31, 2020, which is directly related to improved margins. Gross profit in TechOps increased $2.7 million or 77.6%, to $6.2 million for the three months ended March 31, 2021, compared to $3.5 million for the three months ended March 31, 2020. The increase in gross profit is primarily attributable to increased contributions from maintenance and storage programs. Gross profit margin increased to 21.4% for the three months ended March 31, 2021 compared to 13.4% for the three months ended March 31, 2020, and was largely attributable to an overall change in the product mix of the segment as a result of the COVID-19 pandemic.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $0.1 million, or 0.8% to $13.3 million for the three months ended March 31, 2021, as compared to $13.2 million for the three months ended March 31, 2020. The increase was mostly related to additional headcount in TechOps and public company costs, which was partially offset by cost saving initiatives implemented in response to the COVID-19 pandemic.

23


Payroll Support Program Proceeds

The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020 and is intended to assist the economy by issuing a relief package to preserve jobs in industries adversely impacted by the COVID-19 outbreak. On June 8, 2020, the Company entered into an agreement with the U.S. Department of the Treasury to receive $16.4 million in emergency relief through the CARES Act Payroll Support Program to be paid in installments. The proceeds of the grant are recorded within accrued expenses when received and are recognized as payroll support program proceeds in the statement of operations over the periods that the funds are intended to compensate. During the three months ended March 31, 2021, we received the remaining balance of $3.7 million in grant proceeds under the CARES Act Payroll Support Program and this amount has been recognized as payroll support program proceeds in the statement of operations.

As part of the Payroll Support Program Extension Law, we entered into a new agreement with the U.S. Department of the Treasury on March 4, 2021 for the receipt of relief funds of $5.5 million. During the three months ended March 31, 2021, we received $5.5 million in grant proceeds under the Payroll Support Program Extension Law of which $2.7 million was recognized as payroll support program proceeds. The total unrecognized amount of collected proceeds from payroll support programs as of March 31, 2021 is $2.9 million.

As part of the American Rescue Plan Act of 2021 (“ARP”), we entered into a new agreement with the U.S. Department of the Treasury on April 16, 2021 for the receipt of relief funds of an additional $5.5 million. In connection with the financial assistance we have received under the Payroll Support Program, we are required to comply with certain provisions of the CARES Act and ARP, including the requirement that funds provided pursuant to the Payroll Support Program be used exclusively for the continuation of payment of employee wages, salaries and benefits and the requirement against involuntary terminations and furloughs and reductions in employee pay rates and benefits from the signing date of the Payroll Support Program agreement through September 30, 2021. In addition, we are subject to provisions prohibiting the repurchase of common stock and the payment of common stock dividends through September 30, 2022, as well as limitations on the payment of certain employee compensation through April 1, 2023. These restrictions may affect our operations and if we do not comply with these provisions, we may be required to reimburse up to 100% of any previously received relief funds.

Transaction Costs Incurred

Transaction costs for the three months ended March 31, 2020, were $0.2 million. No transactions costs were incurred for the three months ended March 31, 2021.

Interest Expense

Interest expense decreased to $0.3 million for the three months ended March 31, 2021, as compared to $0.5 million for the three months ended March 31, 2020, and was primarily related to unused balance fees on the Revolving Credit Agreement.

Income Taxes

The effective tax rate from continuing operations for the three months ended March 31, 2021 was 19.9% compared to 23.0% for the three months ended March 31, 2020.

Financial Position, Liquidity and Capital Resources

As of March 31, 2021, we had $19.6 million of cash and cash equivalents. AerSale finances its growth through cash flows generated from operations and borrowings secured by AerSale’s assets. There were no borrowings during the three months ended March 31, 2021, compared to cash derived from borrowings of $79.5 million for the three months ended March 31, 2020. For the three months ended March 31, 2021 and 2020, $0 and $20.5 million, respectively, was used to pay down related debt. As of March 31, 2021, we had no outstanding debt balance.

24


Cash Flows— three months ended March 31, 2021 compared to three months ended March 31, 2020

Cash Flows from Operating Activities

Net cash used in operating activities was $14.0 million for the three months ended March 31, 2021, compared to cash provided from operating activities of $21.4 million for the same period in 2020. The decrease of $35.4 million was primarily attributable to the timing of inventory purchases, which was mostly driven by the acquisition of Flight Equipment, as well as lower collections of trade receivables.

Cash Flows from Investing Activities

Net cash provided by investing activities was $4.0 million for the three months ended March 31, 2021, compared to cash used of $18.2 million in the same period for 2020. Cash provided from investing activities during the three months ended March 31, 2021 is primarily related to the sale of flight equipment totaling $4.4 million, compared to cash used to acquire the ACT business unit during the three months ended March 31, 2020.

Cash Flows from Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2021 was $0.3 million, compared to cash provided of $59.0 million in the same period for 2020. The cash provided by financing activities for the three months ended March 31, 2021 is driven by proceeds from the exercise of warrants. The cash provided by financing activities for the three months ended March 31, 2020 is primarily driven by additional borrowing of $79.5 million, which were executed to increase our short-term liquidity, partially offset by $20.5 million in repayment of long-term debt from available cash.

Debt Obligations and Covenant Compliance

In July 2018, we amended and restated our revolving credit agreement (the “Revolving Credit Agreement”) to, among other things, provide a $110.0 million aggregate amount of revolver commitments subject to borrowing base limitations and extend, subject to certain conditions, the maturity date to July 20, 2021.

The Revolving Credit Agreement provided commitments for a $110.0 million revolving credit facility and includes a $10.0 million sub facility for letters of credit and for borrowings on same-day notice referred to as “swingline loans.” The maximum amount of such commitments available at any time for borrowings and letters of credit is determined according to a borrowing base calculation equal to the sum of eligible inventory and eligible accounts receivable reduced by the aggregate amount, if any, of trade payables of the loan parties, as defined in the Revolving Credit Agreement. Extensions of credit under the Revolving Credit Agreement are available for working capital and general corporate purposes.

Effective March 12, 2021, we amended our Revolving Credit Agreement to increase to $150.0 million aggregate amount of revolver commitments subject to borrowing base limitations and extend the maturity date to March 12, 2024, subject to certain conditions.

As of March 31, 2021, there was no outstanding balance under the Revolving Credit Agreement and we had $125.3 million of availability thereunder. We were in compliance with our debt covenants as of March 31, 2021.

25


Contractual Obligations

Repayments of our gross debt obligations primarily consist of scheduled installments due under our lease commitments and are funded by the use of unrestricted cash reserves and from cash flows from ongoing operations. The table below summarizes our contractual commitments at December 31, 2020:

Payment due by period (in thousands)

Less than

More than

Total

1 Year

1-3 Years

3-5 Years

5 Years

$150.0 million Senior Secured Revolving Credit Facility

    

$

    

$

    

$

    

$

    

$

Revolving Credit Facility - Interest

 

 

 

 

 

Operating Lease Commitments

 

19,857

 

4,945

 

8,655

 

6,257

 

Capital Lease Commitments

 

197

 

181

 

16

 

 

$

20,054

$

5,126

$

8,671

$

6,257

$

As of March 31, 2021, we has purchase commitments for the acquisition of Flight Equipment, specifically Boeing 757-200 passenger aircraft, in the amount of $22.4 million to be fulfilled during the remainder of calendar year 2021, of which a 10% deposit has been paid. The aircraft are stored at our heavy MRO facility located at the Roswell Air Center in New Mexico and are equipped with Rolls-Royce RB211-535 series engines.

We believe our equity base, internally generated funds, and existing availability under its debt facility are sufficient to maintain our level of operations, as well as the purchase commitments of $22.4 million noted above, through December 31, 2021. If an event occurs that would affect our ability to meet our capital requirements, our ability to continue to grow our asset base consistent with historical trends could be impaired and our future growth limited to that which can be funded from internally generated capital.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2021.

ITEM 3    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, we are subject to market risks. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and sales. Our exposure to market risk includes fluctuating interest rates and changes in foreign exchange rates.

Interest Rate Risk

We are exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates associated with borrowings under our Amended and Restated Credit Agreement, or the Credit Facility, which has variable interest rates tied to LIBOR. As of March 31, 2021, we had no outstanding variable rate borrowings under our Credit Facility. Therefore, a ten percent increase in the average interest rate affecting our variable rate debt outstanding as of March 31, 2021 would not have had a material impact on our interest expense, financial position or continuing operations.

Foreign Currency Exchange Risk

We primarily use the U.S. dollar as our functional currency in all markets in which we operate in order to reduce our foreign currency market risk. Only general office expense and payroll transactions are denominated in local currency. A hypothetical ten percent devaluation of the U.S. dollar against foreign currencies would not have had a material impact on our financial position or continuing operations as of and for the three months ended March 31, 2021.

26


ITEM 4    CONTROLS AND PROCEDURES

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act as of March 31, 2021.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II    OTHER INFORMATION

ITEM 1    LEGAL PROCEEDINGS

We are not subject to any material legal proceedings.

ITEM 1A    RISK FACTORS

There are no material changes in the information reported under Part I – Item 1A “Risk Factors” contained in the Annual Report.

ITEM 2    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Equity Securities

None.

Use of Proceeds

On February 7, 2019, Monocle consummated its initial public offering (the “Monocle IPO”) of 17,250,000 units, inclusive of 2,250,000 units sold to the underwriters upon the election to fully exercise their over-allotment option, at a price of $10.00 per unit, generating total gross proceeds of $172.5 million, pursuant to a registration statement on Form S-1 (File No. 333-228470). Each unit consisted of one share of Monocles’s common stock, par value $0.0001 per share (“Monocle Common Stock”), and one redeemable warrant of Monocle. Each warrant entitled the holder thereof to purchase one share of Monocle Common Stock for $11.50 per share, subject to adjustment.

Simultaneously with the consummation of the Monocle IPO and the full over-allotment option, Monocle also consummated a private placement (the “Monocle Private Placement”) of an aggregate of 717,500 private units to Monocle Partners, LLC and Cowen Investments II LLC at a price of $10.00 per private unit, generating total proceeds of $7,175,000. Such securities were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.

27


Monocle paid a total of $3,450,000 underwriting discounts and commissions and $564,101 for other costs and expenses related to the Monocle IPO. After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds from the Monocle IPO, including the full exercise of the underwriters’ over-allotment option, and the Monocle Private Placement were approximately $175,660,899, of which $174,225,000 was placed in a trust account.

After deducting payments to existing shareholders of $165.8 million in connection with their exercise of redemption rights and the payment of $10.2 million of expenses paid from the trust account, the remainder of the trust account is now held on our balance sheet to fund our operations and continued growth. There has been no material change in the expected use of net proceeds.

Issuer Purchases of Equity Securities

None.

ITEM 3    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4    MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5    OTHER INFORMATION

None.

ITEM 6    EXHIBITS

The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q.

Incorporated by Reference

Filed/

Exhibit
Number

    

Exhibit Description

    

Form

    

File No.

    

Exhibit

    

Filing
Date

    

Furnished

Herewith

2.1

Second Amended and Restated Agreement and Plan of Merger, dated September 8, 2020, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.

8-K

001-38801

2.1

09/08/2020

2.2

Amendment No. 1 to the Second Amended and Restated Agreement and Plan of Merger, dated December 16, 2020, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.

8-K

001-38801

10.5

12/17/2020

3.1

Amended and Restated Certificate of Incorporation of Monocle Holdings Inc., dated October 13, 2020.

S-4/A

333-235766

3.1

10/14/2020

28


Incorporated by Reference

Filed/

Exhibit
Number

    

Exhibit Description

    

Form

    

File No.

    

Exhibit

    

Filing
Date

    

Furnished

Herewith

3.2

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Monocle Holdings Inc., dated December 22, 2020.

8-K

001-38801

3.2

12/23/2020

3.3

Amended and Restated Bylaws of Monocle Holdings Inc., dated October 13, 2020. 

S-4/A

333-235766

3.2

10/14/2020

3.4

Amendment No. 1 to the Amended and Restated Bylaws of Monocle Holdings Inc., dated December 22, 2020.

8-K

001-38801

3.4

12/23/2020

4.1

Specimen Common Stock Certificate of Monocle Holdings Inc.

S-4/A

333-235766

4.2

02/14/2020

4.2

Specimen Warrant Certificate of Monocle Holdings Inc.

S-4/A

333-235766

4.3

02/14/2020

4.3

Warrant Agreement, dated February 6, 2019, between Monocle Acquisition Corporation and Continental Stock Transfer & Trust Company, as warrant agent.

8-K

001-38801

4.1

02/12/2019

10.1

Amendment No. 2 to Amended and Restated Credit Agreement, dated as of March 12, 2021, by and among AerSale Aviation Inc., the existing borrowers thereto, the lenders thereto, Wells Fargo Bank, National Association, as administrative agent and lender, AerSale Ireland 1 Limited, as new borrower and AerSale Corporation and Monocle Parent LLC, as guarantors.

10-K

001-38801

10.24

03/16/2021

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).

*

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).

*

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

**

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

**

101.INS

Inline XBRL Instance Document

*

101.SCH

Inline XBRL Taxonomy Extension Schema Document

*

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

*

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

*

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

*

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

*

104

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contined in Exhibits 101*)

*

29


SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AerSale Corporation

Date:

May 10, 2021

By:

/s/ Nicolas Finazzo

Nicolas Finazzo

Chairman, Chief Executive Officer, Division President, TechOps and Director

(Principal Executive Officer)

Date:

May 10, 2021

By:

/s/ Martin Garmendia

Martin Garmendia

Chief Financial Officer, Treasurer and Secretary

(Principal Financial and Accounting Officer)

30


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