AerSale Corp 10-K

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA AERSALE CORPORATION Index to the Consolidated Financial Statements ​ ​ Page Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) 43 Consolidated Balance Sheets as of December 31, 2021 and 2020 44 Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019 45 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021, 2020 and 2019 46 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 47 Notes to Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019 48-80 ​ ​ 42 Table of Contents Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders AerSale Corporation Opinion on the financial statements We have audited the accompanying consolidated balance sheets of AerSale Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. ​ Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ ​ ​ /s/ GRANT THORNTON LLP ​ ​ ​ ​ ​ We have served as the Company’s auditor since 2017 ​ ​ ​ Fort Lauderdale, Florida ​ March 15, 2022 ​ ​ ​ ​ ​ 43 Table of Contents AERSALE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2021 ​ 2020 ​ ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 130,188 ​ $ 29,317 Accounts receivable, net of allowance for doubtful accounts of $ 1,692 and $ 1,652 as of December 31, 2021 and December 31, 2020 ​ 42,571 ​ 50,215 Inventory: ​ ​ ​ ​ ​ ​ Aircraft, airframes, engines, and parts, net ​ 81,759 ​ 85,192 Advance vendor payments ​ 14,287 ​ 6,205 Due from related party ​ - ​ 474 Deposits, prepaid expenses, and other current assets ​ 2,724 ​ 7,560 Total current assets ​ 271,529 ​ 178,963 Fixed assets: ​ ​ ​ ​ ​ Aircraft and engines held for lease, net ​ 73,364 ​ 86,844 Property and equipment, net ​ 7,350 ​ 7,839 Inventory: ​ ​ ​ ​ ​ Aircraft, airframes, engines, and parts, net ​ 77,534 ​ 55,463 Deferred income taxes ​ 10,013 ​ 5,708 Deferred financing costs, net ​ 999 ​ 367 Deferred customer incentives and other assets, net ​ 598 ​ 271 Due from related party ​ - ​ 5,450 Goodwill ​ 19,860 ​ 19,860 Other intangible assets, net ​ 26,238 ​ 28,364 Total assets ​ $ 487,485 ​ $ 389,129 ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ Accounts payable ​ $ 19,967 ​ $ 16,364 Accrued expenses ​ 8,424 ​ 8,576 Income tax payable ​ 3,443 ​ 1,324 Lessee and customer purchase deposits ​ 33,212 ​ 2,820 Deferred revenue ​ 2,860 ​ 2,595 Total current liabilities ​ 67,906 ​ 31,679 ​ ​ ​ ​ ​ ​ ​ Long-term lease deposits ​ 2,053 ​ 1,145 Maintenance deposit payments and other liabilities ​ 3,403 ​ 3,664 Deferred income taxes, net ​ ​ 1,113 ​ ​ — Warrant liability ​ ​ 4,131 ​ ​ 1,186 Total liabilities ​ ​ 78,606 ​ ​ 37,674 Commitments and contingencies ​ ​ ​ ​ Stockholders’ equity: ​ ​ ​ ​ Common stock, $ 0.0001 par value. Authorized 200,000,000 shares; issued and outstanding 51,673,099 and 41,046,216 shares ​ 5 ​ 4 Additional paid-in capital ​ 313,901 ​ 292,593 Retained earnings ​ 94,973 ​ 58,858 Total stockholders' equity ​ 408,879 ​ 351,455 Total liabilities and stockholders’ equity ​ $ 487,485 ​ $ 389,129 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 44 Table of Contents AERSALE CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years ended December 31, ​ 2021 2020 2019 Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ $ 209,881 ​ $ 49,390 ​ $ 170,566 Leasing ​ 30,657 ​ 55,649 ​ 64,246 Services ​ 99,899 ​ 103,899 ​ 69,389 Total revenue ​ 340,437 ​ 208,938 ​ 304,201 Cost of sales and operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of products ​ 139,475 ​ 49,890 ​ 131,671 Cost of leasing ​ 9,804 ​ 24,244 ​ 29,217 Cost of services ​ 71,766 ​ 82,015 ​ 58,264 Total cost of sales ​ 221,045 ​ 156,149 ​ 219,152 Gross profit ​ 119,392 ​ 52,789 ​ 85,049 Selling, general, and administrative expenses ​ 77,498 ​ 55,635 ​ 59,814 Payroll support program proceeds ​ ( 14,768 ) ​ ( 12,693 ) ​ - Transaction costs (recovered) incurred ​ - ​ ( 1,436 ) ​ 3,177 Income from operations ​ 56,662 ​ 11,283 ​ 22,058 Other income (expenses): ​ ​ ​ ​ ​ ​ Interest expense, net ​ ( 980 ) ​ ( 1,645 ) ​ ( 3,006 ) Other income, net ​ 458 ​ 494 ​ 611 Unrealized loss on investment ​ ​ ( 5,421 ) ​ ​ - ​ ​ - Change in fair value of warrant liability ​ ​ ( 2,945 ) ​ ​ ( 388 ) ​ ​ — Total other expenses ​ ( 8,888 ) ​ ( 1,539 ) ​ ( 2,395 ) Income before income tax provision ​ 47,774 ​ 9,744 ​ 19,663 Income tax expense ​ ( 11,659 ) ​ ( 1,650 ) ​ ( 4,164 ) Net income ​ ​ 36,115 ​ ​ 8,094 ​ ​ 15,499 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends attributable to preferred stockholders ​ ​ - ​ ​ - ​ ​ 34,633 Net income (loss) attributable to AerSale Corporation common stockholders ​ ​ 36,115 ​ ​ 8,094 ​ ​ ( 19,134 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings (Loss) per share - basic ​ $ 0.84 ​ $ 7.85 ​ $ ( 516.98 ) Earnings (Loss) per share - diluted ​ $ 0.76 ​ $ 7.39 ​ $ ( 516.98 ) ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ ​ 45 Table of Contents AERSALE CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity Years ended December 31, 2021, 2020, and 2019 AerSale Corporation Stockholders (in thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Total ​ ​ ​ ​ Common stock ​ paid-in ​ Retained ​ stockholders’ ​ ​ Amount Shares capital earnings equity Balance at December 31, 2018 ​ ​ $ 1 5,285,054 ​ $ 243,221 ​ $ 34,549 ​ $ 277,770 ​ Cumulative effect of adjustment upon adoption of ASC 606 on January 1, 2019 ​ ​ - - ​ - ​ 716 ​ ​ 716 ​ Net income ​ ​ - - ​ - ​ 15,499 ​ ​ 15,499 ​ Balance at December 31, 2019 ​ ​ $ 1 5,285,054 ​ $ 243,221 ​ $ 50,764 ​ $ 293,985 ​ Effect of reverse merger, net of closing costs of $ 10,742 ​ ​ ​ 4 ​ 35,656,859 ​ ​ 48,330 ​ ​ - ​ ​ 48,334 ​ Stock-based compensation ​ ​ ​ - ​ 104,303 ​ ​ 1,042 ​ ​ - ​ ​ 1,042 ​ Net income ​ ​ ​ - ​ - ​ ​ - ​ ​ 8,094 ​ ​ 8,094 ​ Balance at December 31, 2020 ​ ​ $ 4 41,046,216 ​ $ 292,593 ​ $ 58,858 ​ $ 351,455 ​ Issuance of Earn-Out shares ​ ​ ​ - ​ 3,709,803 ​ ​ ( 694 ) ​ ​ - ​ ​ ( 694 ) ​ Shares issued upon exercise of warrants ​ ​ ​ - ​ 807,114 ​ ​ 9,282 ​ ​ - ​ ​ 9,282 ​ Shares issued for cashless redemption of public warrants ​ ​ ​ 1 ​ 6,079,966 ​ ​ ( 1 ) ​ ​ - ​ ​ - ​ Stock-based compensation ​ ​ ​ - ​ 30,000 ​ ​ 12,721 ​ ​ - ​ ​ 12,721 ​ Net income ​ ​ ​ - ​ - ​ ​ - ​ ​ 36,115 ​ ​ 36,115 ​ Balance at December 31, 2021 ​ ​ $ 5 51,673,099 ​ $ 313,901 ​ $ 94,973 ​ $ 408,879 ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 46 Table of Contents AERSALE CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years ended December 31, ​ ​ 2021 2020 2019 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 36,115 ​ $ 8,094 ​ $ 15,499 Adjustments to reconcile net income to net cash provided by (used in) operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 12,998 ​ 24,223 ​ 30,081 Amortization of debt issuance costs ​ 494 ​ 740 ​ 802 Inventory reserve ​ 6,942 ​ 13,651 ​ 5,557 Impairment of aircraft held for lease ​ ​ - ​ ​ 3,036 ​ ​ - Provision for doubtful accounts ​ 212 ​ 212 ​ 55 Deferred income taxes ​ ( 3,192 ) ​ 22 ​ 2,462 Change in fair value of warrant liability ​ ​ 2,945 ​ ​ 388 ​ ​ - Stock-based compensation ​ ​ 12,721 ​ ​ 1,042 ​ ​ - Unrealized loss on investment ​ ​ 5,421 ​ ​ - ​ ​ - Changes in operating assets and liabilities, net of acquisition: ​ ​ ​ ​ ​ Accounts receivable ​ 3,868 ​ ( 2,587 ) ​ ( 21,535 ) Inventory ​ ( 35,672 ) ​ ( 55,275 ) ​ 3,421 Deposits, prepaid expenses, and other current assets ​ 5,475 ​ 3,374 ​ ( 2,849 ) Deferred customer incentives and other assets ​ ( 333 ) ​ 56 ​ 23 Advance vendor payments ​ ( 8,090 ) ​ ( 2,958 ) ​ ( 251 ) Accounts payable ​ 3,603 ​ ( 801 ) ​ 3,772 Income tax payable ​ ​ 2,157 ​ ​ 1,324 ​ ​ - Accrued expenses ​ ( 1,280 ) ​ ( 1,697 ) ​ 3,161 Deferred revenue ​ 265 ​ ( 5,894 ) ​ 1,748 Lessee and customer purchase deposits ​ 34,690 ​ 1,776 ​ 2,823 Other liabilities ​ ( 260 ) ​ ( 957 ) ​ 687 Net cash provided by (used in) operating activities ​ 79,079 ​ ( 12,231 ) ​ 45,456 Cash flows from investing activities: ​ ​ ​ Business acquisition ​ - ​ ( 16,976 ) ​ ( 26,081 ) Proceeds from sale of assets ​ 17,095 ​ 3,100 ​ 2,115 Acquisition of aircraft and engines held for lease, including capitalized cost ​ ( 2,383 ) ​ ( 5,128 ) ​ ( 36,479 ) Purchase of property and equipment ​ ( 1,508 ) ​ ( 2,137 ) ​ ( 1,648 ) Net cash provided by (used in) investing activities ​ 13,204 ​ ( 21,141 ) ​ ( 62,093 ) Cash flows from financing activities: ​ ​ ​ Repayments of 8% Senior Secured Notes ​ - ​ ( 3,424 ) ​ ( 5,512 ) Proceeds from Revolving Credit Facility ​ - ​ 96,726 ​ 77,704 Repayments of Revolving Credit Facility ​ - ​ ( 96,726 ) ​ ( 77,704 ) Cash paid for employee taxes on withholding shares ​ ​ ( 694 ) ​ ​ - ​ ​ - Proceeds from exercise of warrants ​ ​ 9,282 ​ ​ - ​ ​ - Proceeds from Merger ​ ​ - ​ ​ 48,608 ​ ​ - Net cash provided by (used in) financing activities ​ 8,588 ​ 45,184 ​ ( 5,512 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from discontinued operations: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash provided by operating activities ​ ​ - ​ ​ - ​ ​ 18,050 Net cash provided by discontinued operations ​ ​ - ​ ​ - ​ ​ 18,050 Increase (decrease) in cash and cash equivalents ​ 100,871 ​ 11,812 ​ ( 4,099 ) Cash and cash equivalents, beginning of period ​ 29,317 ​ 17,505 ​ 21,604 Cash and cash equivalents, end of period ​ $ 130,188 ​ $ 29,317 ​ $ 17,505 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash activities ​ ​ ​ ​ ​ ​ Income taxes ​ ​ 8,340 ​ ​ 2,650 ​ ​ 8,529 Interest ​ ​ 595 ​ ​ 855 ​ ​ 2,296 Supplemental disclosure of noncash investing activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Reclassification of aircraft and aircraft engines inventory to (from) equipment held for lease, net ​ ​ ( 7,002 ) ​ ​ 6,228 ​ ​ ( 22,468 ) Reclassification of amounts due from related party to investments ​ ​ 5,421 ​ ​ - ​ ​ - ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 47 Table of Contents AERSALE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 continued 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. Description of the Business The Company is a worldwide provider of aftermarket commercial aircraft, engines, and their parts to airlines, leasing companies, manufacturers of original equipment, government and defense contractors, and repair and overhaul service providers. We focus on mid-life assets and monetize them through our Asset Management Solutions segment. Asset Management Solutions activities include monetization of the assets through leasing or sale of whole asset components, or through teardown activities in support of our Used Serviceable Material (“USM”) activities. Our monetizing services have been developed to maximize returns on mid-life commercial aircraft and engines (“Flight Equipment”) throughout their operating life, in conjunction with realizing the highest residual value of Flight Equipment at their retirement. We do this by utilizing our deep market and technical knowledge in management of Flight Equipment sales, leasing and Maintenance, Repair, and Overhaul (“MRO”) activities. Beyond providing asset management services on our own Flight Equipment, we additionally provide asset management services to third-party clients complementing their infrastructure to optimize their Flight Equipment investments. While our offering to customers includes leasing of mid-life aircraft and engines, this service is offered in the context of a broader strategy to extract the maximum value from those assets. Frequently, we will offer a lease of an asset for the time period before its next scheduled overhaul (“green time”) on a short term or “spot” lease, with the intent of disassembling the asset at the conclusion of the lease. In turn, the vast majority of assets that we acquire are ultimately disassembled into parts once the remaining green time has been utilized. 48 Table of Contents The Company also operates six Federal Aviation Administration (“FAA”) Title 14 Code of Federal Regulations Part 145 Certified Repair Facilities (the MROs) located in Miami, Florida, Goodyear, Arizona, Memphis, Tennessee, as well as in Roswell and Albuquerque, New Mexico. These facilities provide the Company flexibility and control to quickly prepare Company aircraft, engines, and inventory for market, as their selective refurbishment is frequently required to meet customers’ unique demand. In addition to maintaining the Company’s fleet of aircraft, the MROs provide external customer support for maintaining their aircraft with general maintenance, preservation, lease return work, repair services, and long-term storage programs. 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 consolidated financial statements since the acquisition date. See Note T for further details. On June 10, 2019, the Company acquired a USM distributor and certified repair facility, Qwest Air Parts, LLC (“Qwest”), a Florida limited liability company located in Memphis, Tennessee, for $ 26.1 million in cash. The results of Qwest operations have been included in the consolidated financial statements since the acquisition date. See Note T for further details. ​ NOTE B -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. As discussed in more detail in Note R, the Company also consolidates variable interest entities when required under accounting principles generally accepted in the United States (“U.S. GAAP”). All significant intercompany balances and transactions are eliminated upon consolidation. The Merger has been accounted for as a reverse recapitalization (“Reverse Recapitalization”) in accordance with U.S. GAAP. This determination was principally based on AerSale Aviation’s business comprising the ongoing operations of the Company following the Merger, with its senior management continuing to comprise the management of the Company and its stockholders having majority of the voting power of the Company. For accounting purposes, Monocle is considered the “acquired” company and AerSale Aviation is considered the “acquirer.” Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of AerSale Aviation issuing stock for the net assets of Monocle, accompanied by a recapitalization. The consolidated assets, liabilities, and results of operations for all periods prior to the Reverse Recapitalization only reflect the historical consolidated financial statements of AerSale Aviation. Subsequent to the Reverse Recapitalization, the consolidated financial statements reflect the results of the combined entity. The shares and corresponding capital amounts and earnings per share available to common stockholders, prior to the Merger, have been retroactively restated as shares reflecting the exchange ratio in the Merger. 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 U.S. GAAP in connection with the classification of the Company’s private warrants as equity. The Securities and Exchange Commission (“SEC”) released a Public Statement on April 12, 2021 noting that when certain features common to warrants in SPAC transactions are 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 Consolidated Balance Sheets with the changes in fair value each period reported in earnings. As a result, 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. Additionally, the Company is revising its basic and diluted earnings per share for the year ended December 31, 2020 to $ 7.85 and $ 7.39 , respectively. 49 Table of Contents Emerging Growth Company The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statement with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. Variable Interest Entities (“VIE”) An entity is referred to as a VIE if it meets the criteria outlined in Accounting Standards Codification (“ASC”) Topic 810, Consolidation. As explained in Note R, the Company had previously determined that AerLine Holdings, Inc. (“AerLine”) was a VIE that the Company was required to consolidate. Effective August 31, 2018, the Company determined that AerLine ceased to meet the criteria for VIE consolidation under U.S. GAAP and therefore has deconsolidated the VIE. Prior to August 31, 2018, transactions between the Company and AerLine and its subsidiaries were eliminated upon consolidation. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company’s cash equivalents are held primarily in interest-bearing accounts. Foreign Currency The Company has determined that the functional currency for its foreign subsidiaries is the U.S. dollar. The primary economic environment in which the entities generate or expend cash is in U.S. dollars as evidenced by the cash flows in or out from revenues, operating expenses, investing, and financings. Only general office expenses and payroll transactions are denominated in local currency. Accounts Receivable Accounts receivable include amounts receivable from customers for aircraft and engine parts sales, aircraft and engine basic and supplemental rents, and aircraft services. Contingent rents, also referred to as supplemental rent, and consumption of consignment inventory related to aircraft and engine parts that were earned or consumed, but unbilled, are also included in accounts receivable and totaled $ 0.8 and $ 0.6 million at December 31, 2021 and 2020, respectively. 50 Table of Contents The Company sells to a variety of customers worldwide. For certain transactions and customers not requiring payment in full prior to shipment of goods, the Company extends credit based on an evaluation of the customers’ financial condition. The Company monitors exposure to credit losses and maintains an allowance for doubtful accounts for estimated losses in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses, current market conditions, customers’ financial condition, amount of receivables in dispute, current receivables aging, and current payment patterns. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. A rollforward of the allowance for doubtful accounts is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 Balance at beginning of year $ 1,652 ​ $ 1,545 Provision ​ 212 ​ 212 Write-offs ​ ( 172 ) ​ ( 105 ) Balance at end of year ​ $ 1,692 ​ $ 1,652 ​ On June 9, 2014, an aircraft leased to Air Indus suffered significant damage as the result of a terrorist attack. At that time, the Company recorded an impairment to the asset of $ 2.5 million to adjust the carrying amount to the estimated residual value of   $ 1.1 million. An insurance claim was filed and the insurance company is negotiating the final settlement owed to the Company. The Company has recorded an insurance receivable of $ 2.5 million, offsetting the impairment loss, which has been recorded in accounts receivable. In accordance with U.S. GAAP, the probable amount of the insurance recovery, limited to the amount of the loss recognized, was recorded as the insurance receivable. The Company believes that recovery of this insurance receivable is probable and is working with the insurer on settling the claim by negotiating the final settlement to the Company. Inventory Inventory, which consists of complete aircraft and engines held for sale, as well as related parts, is valued at the Lower of Cost or Market (“LCM”) value. For purchases of whole aircraft and engines for sale or lease, cost is determined using the specific identification method whereby total cost is the cost paid, including certain capitalizable asset acquisition costs, to acquire such assets as a whole. Additionally, the Company purchases certain whole aircraft and engines to disassemble and supply its engine and airframe parts inventory. For aircraft and engine parts that originate from such dismantled aircraft and engines, cost is determined using a ratio calculated based on the relationship of the cost of the dismantled aircraft or engine at the time of purchase to the total estimated sales value of the dismantled aircraft or engine at the time of purchase. At the time of sale, this ratio is applied to the sale price of each individual airframe and/or engine part to determine its allocated cost. At the time of sale, the sum of an individual part’s allocated cost and actual repair or overhaul costs incurred represent the total cost for such part. Inventory not expected to be sold within the operating cycle is classified as noncurrent inventory on the Consolidated Balance Sheets. The Company evaluates this ratio periodically, and if necessary, updates sales estimates and makes prospective adjustments to this ratio on a product line basis. Any amounts identified with an estimated sales value lower than the carrying value is reduced to the estimated sales value at the time of the review. The Company recorded additional inventory reserves due to this LCM valuation, which is reflected as a component of cost of products in the Consolidated Statements of Operations. These additional inventory reserves were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 2020 Inventory reserves ​ $ 6,416 ​ $ 13,064 ​ Expenditures required for the repair of engine and airframe parts are capitalized as inventory and are expensed as cost of sales when associated parts are sold. 51 Table of Contents The Company periodically evaluates its complete aircraft and engines in inventory and Flight Equipment held for lease to determine if events or market circumstances indicate that the assets’ most likely disposition has changed. Should conditions prevail at the time of the Company’s Consolidated Balance Sheets that would suggest a more likely use as an asset held for lease rather than sale or disassembly for parts inventory or vice versa, it will be reclassified at its then-current book value between inventory and Flight Equipment held for lease. This transaction is a noncash item and if it occurs, is reflected in the schedule of supplemental cash flows. The carrying value of inventory is reviewed regularly, giving consideration to factors such as its physical condition, sales patterns, and expected future demand to estimate the amount necessary to write down our slow-moving, obsolete, or damaged inventory. Such inventory may be held for periods beyond one year. The Company recorded inventory scrap losses which are reflected as a component of cost of products in the accompanying Consolidated Statements of Operations. These scrap losses are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2021 ​ 2020 Scrap loss reserves ​ $ 526 ​ $ 587 ​ Flight Equipment Held for Lease Flight Equipment held for lease is stated at cost, less accumulated depreciation. Certain internal and external professional fees, major improvements, modifications, and maintenance incurred in connection with the acquisition of Flight Equipment that are required to get the Flight Equipment ready for initial service are capitalized and depreciated over the remaining life of the Flight Equipment, and are reported in the investing section of the Consolidated Statements of Cash Flows. Subsequent to placing Flight Equipment into service, the cost of maintenance and improvements to Flight Equipment is normally expensed unless the improvements materially increase the long-term value of the Flight Equipment or extend the useful life of the Flight Equipment. The capitalized cost is depreciated over the lesser of the remaining useful life of the Flight Equipment or the estimated useful life of the capitalized improvements. Aircraft airframe components are depreciated over the assets’ useful life using the straight-line method to the estimated residual value based on the total remaining life before disassembly or outright scrap metal value. Aircraft airframe useful lives range from 2 to 10 years . Engines are depreciated using the straight-line method to the estimated residual value based on the total life remaining before disassembly. To arrive at the total engine life remaining before disassembly, the remaining life of the engine’s life-limited parts, the estimated utilization, and condition, as well as the aircraft fleet supported by the engine model are considered. Upon completion of its estimated service life as a leased asset, Flight Equipment is reclassified to inventory at its carrying value. The Company discontinues the depreciation of Flight Equipment when it is held as inventory for ultimate parts sales. Differences between estimates of useful lives and residual values and actual experience may result in future impairments of aircraft or engines and/or additional gains or losses upon disposal. The Company reviews residual values of aircraft and engines periodically based on knowledge of current residual values and residual value trends to determine if they are appropriate and records adjustments as necessary. Cash flows related to the purchase and sale of Flight Equipment are presented as operating activities when the predominant source of cash flows related to the asset is from the ultimate parts sales of the assets. If the predominant source of cash flows related to the asset is expected to be from leasing of the asset, the cash flows are presented as investing activities. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation. Depreciation is recognized over the estimated useful lives of the respective assets on a straight-line basis, ranging from 3 to 15 years . Leasehold improvements are amortized on a straight-line basis over the shorter of the terms of the respective leases and the estimated useful lives of the respective assets. Property and equipment held under capital leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Repairs and maintenance expenditures are expensed as incurred, unless such expenses extend the useful life of the asset, in which case they are capitalized. 52 Table of Contents Investments Equity investments with readily determinable fair values are measured at fair value. Equity investments without readily determinable fair values are measured at cost and adjusted for impairments or observable price changes. We perform a qualitative assessment on an annual basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Impairment charges are presented under “Unrealized loss on investment” within the Consolidated Statements of Operations. Goodwill In accordance with ASC 350, “Intangibles — Goodwill and Other,” goodwill is tested at least annually for impairment, or when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that its fair value exceeds the carrying value. A quantitative assessment involves determining the fair value of each reporting unit using market participant assumptions. An entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. Our annual assessment date for goodwill is October 1st. For purposes of reviewing impairment and the recoverability of goodwill, we must make various assumptions regarding estimated future cash flows and other factors in determining the fair values of the reporting unit, including market multiples, discount rates, etc. The Company performed a qualitative impairment analysis as of October 1, 2021 on the goodwill for the Asset Management Solutions and TechOps segments, and updated through December 31, 2021, concluding that the fair value of each reporting unit exceeded their carrying values, and thus no impairment was recorded. As a result of the COVID-19 pandemic and its impact on the aviation industry, AerSale performed a qualitative impairment analysis as of June 30, 2020. The Company also performed a quantitative impairment analysis as of October 1, 2020 on the goodwill for the Asset Management Solutions and TechOps segments, and concluded the fair value of each reporting unit exceeded their carrying values, and thus no impairment charges were recorded. Customer Relationships and Other Intangible Assets Intangibles arising from business combinations, including customer relationships and FAA certificates are initially recorded at fair market value. Customer relationships are amortized over ten years . Straight-line amortization is utilized. Where there are no legal, regulatory, contractual, or other factors that would reasonably limit the useful life of an intangible assets, that asset is classified as indefinite lived and such intangible assets are not amortized. Other intangible assets with indefinite lives are assessed for impairment annually, or more frequently when events or circumstances indicate there may be an impairment. These assets are carried at the estimated fair value at the time of acquisition. Our annual assessment date for indefinite lived intangible assets is July 1st. The Company performed a quantitative impairment analysis as of July 1, 2021 and 2020 on the indefinite lived intangible assets and concluded there were no impairments. Other intangible assets are reviewed for impairment if any event or change in circumstance indicates that an impairment may have occurred. As a result of COVID-19 pandemic, the Company performed a quantitative impairment analysis on the definite-lived intangible assets as of June 30, 2020 and concluded there was no impairment. The Company annually reviews the estimated lives and methods used to amortize other intangible assets. The actual amounts of amortization expense may differ materially from our estimates, depending on the results of our annual review. 53 Table of Contents Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events and circumstances include, but are not limited to, prolonged industry downturns, a significant decline in the Company’s market value, and significant reductions in the Company's projected cash flows. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. As a result of COVID-19 pandemic, t he Company performed an impairment analysis on the property, plant and equipment as of June 30, 2020 and concluded there was no impairment. Obligations and Instruments Potentially Settled in the Company’s Common Stock In connection with any obligations and instruments potentially to be settled in the Company’s stock, including the Company's earn-out shares, the Company accounts for the instruments in accordance with ASC Topic 815, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock.” This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company’s stock. Under this pronouncement, contracts are initially classified as equity or as either assets or liabilities, depending on the situation. All contracts are initially measured at fair value and subsequently accounted for based on the then current classification. Contracts initially classified as equity do not recognize subsequent changes in fair value as long as the contracts continue to be classified as equity. For contracts classified as assets or liabilities, the Company reports changes in fair value in earnings and records these changes in the financial statements as long as the contracts remain classified as assets or liabilities. If contracts classified as assets or liabilities are ultimately settled in shares, any previously reported gains or losses on those contracts continue to be included in earnings. The classification of a contract is reassessed at each balance sheet date. Revenue Recognition Products — Used Serviceable Material (“USM”) Sales Revenues from sales of USM are measured based on consideration specified in a contract with a customer, and excludes any sales commissions and taxes collected and remitted to government agencies. We recognize revenue when we satisfy a performance obligation by transferring control over 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, and 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 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. Additionally, there is no impact to the timing and amounts of revenue recognized for spare parts sales related to the implementation of 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 54 Table of Contents 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 customers’ acceptance of the whole asset on the date of the transfer. As such, there is no impact to the timing and amounts of revenue recognized for whole asset sales related to the implementation of ASC 606. 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. Flight Equipment leases are billed in accordance with the lease agreement and invoices are due upon receipt. 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, our performance obligations are satisfied over time as work progresses or at a point in time based on transfer of control of products and services to our customers. We receive payments from our customers based on billing schedules or other terms as written in our contracts. For our 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 MRO contracts, if the contract is 55 Table of Contents terminated for convenience, we are entitled to payment for items delivered and 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 and are included in cost of sales in our Consolidated Statements of Operations, and are not considered a performance obligation to our customers. Our reported sales on our 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. Maintenance and Repair Costs The cost of maintenance, repairs, and re-leasing of Flight Equipment that does not extend the useful life of Flight Equipment is expensed as incurred. Costs incurred for planned major maintenance activities that materially increase the long-term value of the Flight Equipment or extend the useful life of the Flight Equipment are capitalized and depreciated over the lesser of the remaining useful life of the Flight Equipment or the estimated useful life of the capitalized improvements. Pursuant to certain of the Company’s aircraft leases, the lessee is responsible for performing required maintenance and repairs on the leased asset, and is required to make monthly maintenance reserve payments to the Company, in arrears following the usage month. Upon the lessee’s presentation of invoices evidencing the completion of qualifying maintenance, the Company will reimburse the lessee for the cost of the maintenance, up to the amount of the maintenance reserve payments that have been received by the Company. Unless otherwise provided in the contract, the Company records such maintenance reserve payments paid by the lessees as maintenance deposit payment liabilities in the accompanying Consolidated Balance Sheets to record the Company’s contractual commitment to reimburse such qualifying maintenance. Reimbursements to the lessees upon receipt of evidence for qualifying maintenance work are charged against the existing maintenance deposit payment liabilities. For other lease contracts (primarily engine lease contracts) where the terms of the lease are designed specifically to allow the Company to directly manage the occurrence, timing, and associated cost of qualifying maintenance work on the Flight Equipment, maintenance reserve payments collected during the lease are recognized as lease revenue in the period earned. Any amounts of maintenance reserve payments remaining at the end of a lease contract are recognized as lease revenue or applied against outstanding accounts receivable at lease termination. Share Based Compensation The Company accounts for share-based compensation to employees in accordance with ASC 718, “Compensation—Stock Compensation.” Under ASC 718, the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and, for those awards subject only to service conditions, the Company recognizes the costs on a straight-line basis over the requisite service period for the entire award the employee is required to provide service in exchange for the award, which generally is the vesting period. For awards with performance and service conditions, we begin recording share-based compensation when achieving the performance criteria is probable and we recognize the costs using the accelerated attribution method. The estimated number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amount will be recorded as a cumulative 56 Table of Contents adjustment in the period estimates are revised. Changes in the Company’s estimates and assumptions may cause us to realize material changes in share-based compensation expense in the future. The Company has issued share-based awards with performance-based vesting criteria. Achievement of the milestones must be probable before the Company begins recording share-based compensation expense. When the performance-based vesting criteria is considered probable, the Company begins to recognize compensation expense at that time. In the period that achievement of the performance-based criteria is deemed probable, US GAAP requires the immediate recognition of all previously unrecognized compensation since the original grant date. As a result, compensation expense recorded in the period that achievement is deemed probable could include a substantial amount of previously unrecorded compensation expense related to the prior periods. For any share-based awards where performance-based vesting criteria is no longer considered probable, previously recognized compensation cost would be reversed. The Company applies ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting,” which generally expands the scope of ASC 718, Compensation – Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees and supersedes the guidance in ASC 505-50, Equity-Based Payments to Non-employees, which previously included the accounting for nonemployee awards. Sales Taxes The Company’s policy is to present taxes collected from customers and remitted to governmental authorities on a net basis. The Company records the amounts collected as a current liability and relieves such liability upon remittance to the taxing authority without impacting revenue or expenses. Earnings Per Share Basic earnings (loss) per share is computed by dividing net earnings (loss) attributable to the Company’s common stockholders by the weighted average number of common shares outstanding during the periods. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and is calculated using the treasury stock method for stock options and unvested shares. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained on examination by the taxing authorities. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in the income tax provision. The VIE was not included in the consolidated tax return of the Company. See Note M for more information about income taxes. New Accounting Pronouncements Adopted On May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which provides guidance for revenue recognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, “Revenue Recognition”, and most industry specific guidance. We 57 Table of Contents adopted this ASU on January 1, 2019 using the modified retrospective method. Refer to Note D for the impact of this change. This ASU does not apply to revenues from leasing activity, which will fall under “Leases (Topic 842)”, noted below. On December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards. ASU 2019-12 removes certain exceptions from Topic 740, Income Taxes, including (i) the exception to the incremental approach for intra period tax allocation; (ii) the exception to accounting for basis differences when there are ownership changes in foreign investments; and (iii) the exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 also simplifies U.S. GAAP in several other areas of Topic 740 such as (i) franchise taxes and other taxes partially based on income; (ii) transactions with a government that result in a step up in the tax basis of goodwill; (iii) separate financial statements of entities not subject to tax; and (iv) enacted changes in tax laws in interim periods. ASU 2019-12 is effective for public entities for annual reporting periods and interim periods within those years beginning after December 15, 2020, and early adoption is permitted. The Company adopted ASU 2019-12 on its consolidated financial statements in 2020. In 2021, the Financial Accounting Standards Board issued ASU No. 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.” This ASU will require certain disclosures about the significant terms and conditions of material government assistance agreements in order to provide more consistent information to users of the financial statements. This standard is effective for annual reporting periods beginning after December 15, 2021, and early adoption is permitted. We determined that our material government assistance agreements are the payroll support program agreements under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and the program extensions, and we adopted the new standard in 2021. See Note B where we reflect the requirements of this new standard as it relates to the payroll support program. ​ On January 7, 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848). This new standard provides optional temporary guidance for entities transitioning away from London Interbank Offered Rate (“LIBOR”) to new reference interest rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions with Topic 848. These amendments do not apply to any contract modifications made after December 31, 2022, any new hedging relationships entered into after December 31, 2022, or to existing hedging relationships evaluated for effectiveness existing as of December 31, 2022, that apply certain optional practical expedients. This standard was effective immediately and may be applied (i) on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or (ii) on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The Company had no material LIBOR-related contract modifications during the year ended December 31, 2021. ​ On October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Asset and Contract Liabilities from Contracts with Customers which intends to simplify the accounting for acquired revenue contracts with customers in a business combination and to also remove inconsistencies in this topic related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. ASU No. 2021-08 allows an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in a similar manner to how they are recorded on the acquiree's financial statements at book value. This guidance is applicable to all business combinations occurring after the effective date and has been early adopted by the Company. ​ New Accounting Pronouncements Not Yet Adopted On February 2016, FASB issued “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.” Topic 842 will be effective for the Company for the annual period beginning on January 1, 2022, the impact of which will be recorded retroactively at the beginning of the period of adoption through a cumulative- 58 Table of Contents effect adjustment. We plan to elect the practical expedients, which permits us to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired leases and (iii) indirect costs for any existing leases. In addition, we have elected the practical expedients to not separate lease and non-lease components for both lessee and lessor relationships and to not apply the recognition requirements to leases with terms of less than 12 months. The preliminary impact of our adoption, assuming no changes in our leasing arrangements, is estimated to result in the recognition of operating lease right of use assets of approximately $13.8 million and lease liabilities of approximately $14.9 million on January 1, 2022. We are continuing our assessment, which may identify additional impacts that Topic 842 could have on our financial statements. On 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. ASU 2016-13 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. ASU 2016-13 will become effective for the Company beginning January 1, 2023, with early adoption permitted, on a modified retrospective approach. We are currently evaluating the impact this guidance will have on our consolidated financial statements and related disclosures. On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Under this standard, issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company is evaluating this new standard, but does not expect it to have a material impact on the Company's financial statements or disclosures. ​ CARES Act The Company has also taken steps to improve our liquidity, including seeking financial assistance under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Certain of the Company’s subsidiaries have received $ 16.4 million from the U.S. Treasury Department (“Treasury”) through the Payroll Support Program (“PSP1”) under the CARES Act, of which $ 12.7 million was received prior to December 31, 2020 and the remaining amount was received during the first quarter of 2021. As part of the Payroll Support Extension Law (“PSP Extension Law”), the Company entered into an agreement with the U.S. Department of the Treasury (“PSP2”) on March 4, 2021 for the receipt of relief funds of $ 5.5 million during 2021. Pursuant to the American Rescue Plan Act of 2021 (“ARP”), we entered into an agreement (“PSP3”) with the U.S. Department of the Treasury on April 16, 2021 and received relief funds of an additional $ 5.5 million, bringing the total to $ 14.7 million during 2021. In connection with the financial assistance the Company has received under the Payroll Support Program, it is 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; 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. The agreement requires the Company to issue a recall to any employee who was terminated or furloughed between October 1, 2020 and March 4, 2021 and enable such employee to return to employment. In addition, the Company is 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 the 59 Table of Contents Company’s operations and if the Company does not comply with these provisions, it may be required to reimburse up to 100% of any previously received relief funds. In particular, limitations on compensation may adversely impact our ability to attract and retain senior management or attract other key employees during this critical time. As of December 31, 2021, we have been in compliance with all of the provisions of the CARES Act. ​ 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. COVID-19 has impacted nearly all regions of the world, which has driven the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, the closing of borders, “shelter in place” orders and business closure. As a result, commercial airlines have experienced a decline in demand for air travel. The reduced number of aircraft in service and corresponding flying hours negatively impacts the demand for certain of AerSale’s services, and prolonged reduction could materially and adversely affect AerSale’s business, operating results, financial condition, and liquidity. An extended pandemic, or the threat thereof, could result in employee absenteeism leading to lower productivity in AerSale’s service locations, temporary closure of AerSale’s offices and facilities, travel restrictions for AerSale’s workforce and other voluntary actions that may result in business disruptions. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property and equipment, useful lives and residual values of Flight Equipment held for lease, allowances for doubtful accounts and sales returns, the income tax provision, impairment of long-lived assets, valuation of inventory, valuation and useful lives of intangibles, goodwill and contingencies. Risks and Uncertainties The Company is impacted by the general economic conditions of the commercial aviation industry. A decrease in passenger and/or air cargo traffic worldwide could result in strains on the Company’s lessees and cause them to default under their leases with the Company, which could negatively impact cash flows and results of operations. The value of Flight Equipment held for operating leases is subject to fluctuations in the values of commercial aircraft and engines worldwide. A material decrease in aircraft or engine values could have a downward impact on lease rentals and residual values and may require impairments to be taken on such assets. Additionally, impairment charges may be required to reduce the carrying value of inventory. The nature of the Company’s business is capital intensive and demands significant capital requirements. To meet the Company’s current purchase commitments and future aircraft and engine acquisitions, the Company may need to (i) access committed debt facilities, and/or (ii) secure additional financing, and/or (iii) use existing available cash balances. The Company is also subject to regulation by various governmental agencies with responsibilities over civil aviation. Increased regulations imposed by organizations such as the FAA may significantly affect industry operations. The Company conducts business in certain foreign countries, some of which are politically unstable or subject to military or civil conflicts. Consequently, the Company is subject to a variety of risks such as civil strife, political risk, import and export regulations, compliance with foreign laws, treaties, regulations, uncertainties arising from foreign local 60 Table of Contents business practices, cultural considerations, restriction on fund transfers, and exposure to U.S. Foreign Corrupt Practices Act and other anti-bribery laws. The Company periodically reviews the carrying values of trade receivables, inventory, goodwill, intangible assets, long-lived assets, the recoverable value of deferred tax assets, and the sufficiency of accruals and provisions, substantially all of which are sensitive to the above risks and uncertainties. Concentrations of Credit Risk Financial instruments that potentially subject the Company to credit risk principally consist of cash and cash equivalents and trade receivables. During the year ended December 31, 2021, one customer accounted for 14 % of total revenue, which was related to a nonrecurring transaction that was collected during the year. No such concentration existed for the year ended December 31, 2020. During the year ended December 31, 2019, a separate customer accounted for 17 % of total revenue, which was collected during the year. No customer made up more than 10% of our trade receivable balance as of December 31, 2021 and 2020. Cash The Company maintains cash and cash equivalents with high-quality financial institutions, which at times exceed the Federal Deposit Insurance Corporation insurance limits. While the Company monitors daily the cash balances in its operating accounts and adjusts the balances as appropriate, these balances could be impacted if one or more of the financial institutions with which the Company deposits fails or is subject to other adverse conditions in the financial or credit markets. To date, the Company has experienced no loss or lack of access to its invested cash or cash equivalents; however, no assurance can be provided that access to invested cash and cash equivalents will not be impacted by adverse conditions in the financial and credit markets. ​ NOTE D - Revenue We adopted ASC 606 on January 1, 2019 using the modified retrospective method. We elected to use the practical expedient allowing for the application of ASC 606 only to contracts that were not completed as of January 1, 2019 and the portfolio approach was used to assess the impact of ASC 606 on contracts with similar characteristics. We recognized the cumulative effect of initially applying ASC 606 as an increase of $ 0.7 million to the opening balance of retained earnings as of January 1, 2019. 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 our 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. The contract assets are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 December 31, 2020 Change Contract assets ​ $ 13,221 ​ $ 20,431 ​ $ ( 7,210 ) ​ Contract assets are reported within accounts receivable on our 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 Consolidated Balance Sheets and amounted to $ 2.6 million as of December 31, 2020, of which $ 2.2 million was related to contract liabilities for services to be performed. For the year ended December 31, 2021, we recognized as revenue the entire opening balance of our contract liabilities as the timing between customer payments and our performance of the services is a short period of time and generally no longer than six months. 61 Table of Contents Disaggregation of Revenue The Company reports revenue by segment. The following tables present revenue by segment, as well as a reconciliation to total revenue (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 ​ ​ Asset Management ​ ​ ​ ​ ​ Solutions TechOps Total Revenues USM ​ $ 44,409 ​ $ 4,884 ​ $ 49,293 Whole asset sales ​ 156,944 ​ - ​ 156,944 Engineered solutions ​ - ​ 3,644 ​ 3,644 Total products ​ 201,353 ​ 8,528 ​ 209,881 Leasing ​ 30,657 ​ - ​ 30,657 Services ​ - ​ 99,899 ​ 99,899 Total revenues ​ $ 232,010 ​ $ 108,427 ​ $ 340,437 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2020 ​ ​ Asset Management ​ ​ ​ ​ ​ ​ ​ Solutions TechOps Total Revenues USM ​ $ 39,959 ​ $ 2,364 ​ $ 42,323 Whole asset sales ​ ​ 3,103 ​ - ​ 3,103 Engineered solutions ​ - ​ 3,964 ​ 3,964 Total products ​ 43,062 ​ 6,328 ​ 49,390 Leasing ​ 55,649 ​ - ​ 55,649 Services ​ - ​ 103,899 ​ 103,899 Total revenues ​ $ 98,711 ​ $ 110,227 ​ $ 208,938 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2019 ​ ​ Asset Management ​ ​ ​ ​ ​ ​ ​ Solutions TechOps Total Revenues USM ​ $ 87,442 ​ $ 5,489 ​ $ 92,931 Whole asset sales ​ ​ 70,136 ​ ​ - ​ ​ 70,136 Engineered solutions ​ - ​ 7,499 ​ 7,499 Total products ​ 157,578 ​ 12,988 ​ 170,566 Leasing ​ 64,246 ​ - ​ 64,246 Services ​ - ​ 69,389 ​ 69,389 Total revenues ​ $ 221,824 ​ $ 82,377 ​ $ 304,201 ​ ​ NOTE E-INVENTORY Inventory consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 December 31, 2020 Used serviceable materials ​ $ 65,496 ​ $ 63,277 Work-in-process ​ ​ 12,462 ​ ​ 20,611 Whole assets ​ ​ 81,335 ​ ​ 56,767 ​ ​ $ 159,293 ​ ​ 140,655 Less short term ​ ( 81,759 ) ​ ( 85,192 ) Long term ​ $ 77,534 ​ $ 55,463 ​ ​ 62 Table of Contents 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. The Company reviews and evaluates its goodwill and indefinite life intangible assets for potential impairment at a minimum annually or more frequently if circumstances indicate that impairment is possible. The Company 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 are related to its subsidiaries, AerSale Component Solutions (d/b/a AerSale Landing Gear Solutions) (“ALGS”), Avborne Component Solutions (d/b/a AerSale Component Solutions) (“ACS”), and 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 consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 December 31, 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 Certificates ​ 796 ​ 796 Goodwill ​ 6,002 ​ 6,002 Total intangible assets with indefinite lives ​ $ 30,190 ​ $ 30,190 ​ The Company performed its annual quantitative impairment analysis as of July 1, 2021 on the indefinite lived intangible assets and concluded there was no impairments. The Company performed a qualitative impairment analysis as of October 1, 2021 on the goodwill for the Asset Management Solutions and TechOps segment, and concluded there was no impairment. ​ As a result of the COVID-19 pandemic and its impact on the aviation industry, AerSale performed a qualitative impairment analysis as of June 30, 2020 on the goodwill at the reporting unit level for the Asset Management Solutions and TechOps segments and concluded there was no impairment. Additionally, the Company performed a quantitative impairment analysis as of October 1, 2020 and concluded there was no impairment. 63 Table of Contents Intangible assets with definite useful lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets with definite lives are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Useful Life ​ ​ ​ ​ ​ ​ In Years ​ December 31, 2021 ​ December 31, 2020 Qwest: ​ ​ ​ ​ ​ ​ ​ ​ Customer relationships ​ 10 ​ $ 7,109 ​ $ 8,083 ALGS: ​ ​ ​ ​ ​ Customer relationships ​ 10 ​ 70 ​ 90 ACS: ​ ​ ​ ​ Customer relationships ​ 10 ​ 1,453 ​ 1,663 ACT: ​ ​ ​ ​ ​ Customer relationships ​ 10 ​ 7,276 ​ 8,198 Total intangible assets with definite lives ​ ​ ​ $ 15,908 ​ $ 18,034 ​ Amortization expense was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 2020 2019 Amortization expense ​ $ 2,132 ​ $ 2,108 ​ $ 794 ​ The estimated aggregate amount of amortization expense for intangible assets in each fiscal year from 2022 through 2026 is $ 2.1 million. Accumulated amortization amounted to $ 5.1 and $ 3.0 million as of December 31, 2021 and December 31, 2020, respectively. ​ Goodwill activity for the years ended December 31, 2021 and 2020 consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Asset ​ ​ ​ ​ Management ​ ​ ​ ​ ​ ​ ​ Solutions TechOps Total Goodwill as of December 31, 2019 ​ $ 13,416 $ 442 $ 13,858 Additions ​ ​ - ​ 6,002 ​ 6,002 Goodwill as of December 31, 2020 ​ $ 13,416 $ 6,444 $ 19,860 Additions ​ - ​ - ​ - Goodwill as of December 31, 2021 ​ $ 13,416 ​ $ 6,444 ​ $ 19,860 ​ 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. ​ NOTE G - PROPERTY AND EQUIPMENT, NET Property and equipment, net, consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Useful Life ​ ​ ​ ​ ​ ​ In Years ​ December 31, 2021 ​ December 31, 2020 Tooling and equipment 7 -  15 ​ $ 13,530 ​ $ 13,465 Furniture and other equipment 5 ​ 7,928 ​ 7,379 Computer software 5 ​ 1,998 ​ 2,378 Leasehold improvements 3  -  6 ​ 3,632 ​ 3,314 Equipment under capital lease 5 ​ 192 ​ 197 ​ ​ ​ ​ 27,280 ​ 26,733 Less accumulated depreciation ​ ​ ​ ( 19,930 ) ​ ( 18,894 ) ​ ​ ​ ​ $ 7,350 ​ $ 7,839 ​ 64 Table of Contents Depreciation expense, which includes amortization of equipment under capital lease, was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2021 ​ 2020 ​ 2019 Depreciation expense ​ $ 1,997 ​ $ 2,139 ​ $ 2,223 ​ ​ ​ NOTE H - AIRCRAFT AND ENGINES HELD FOR LEASE AND LEASE RENTAL Aircraft and engines held for operating leases, net, consists of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 December 31, 2020 Aircraft and engines held for operating leases ​ $ 197,397 ​ $ 228,942 Less accumulated depreciation ​ ( 124,033 ) ​ ( 142,098 ) ​ ​ $ 73,364 ​ $ 86,844 ​ The Company recorded an impairment of leased assets in the amount of $ 3.0 million for the year ended December 31, 2020 and is included in cost of leasing in the Consolidated Statements of Operations. Total depreciation expense included in cost of leasing in the Consolidated Statements of Operations is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 2020 2019 Depreciation expense ​ $ 8,869 ​ $ 19,976 ​ $ 27,064 ​ Contingent rental fees recognized as revenues related to supplemental rent were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 2020 2019 Contingent rental fees ​ $ 8,218 ​ $ 11,851 ​ $ 21,550 ​ 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 December 31, 2021 were as follows (in thousands): ​ ​ ​ ​ ​ Year ending December 31: ​ ​ 2022 ​ $ 22,575 2023 ​ 3,228 Total minimum lease payments ​ $ 25,803 ​ ​ ​ NOTE I - FAIR VALUE MEASUREMENTS Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows: ● Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. ● Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs. 65 Table of Contents ● Level 3: Unobservable inputs for which there is little or no market data and which require the Company to develop our own assumptions about how market participants price the asset or liability. The valuation techniques that may be used to measure fair value are as follows: ● Market approach–Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. ● Income approach–Uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts. ● Cost approach–Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). The Company would measure the fair value of certain assets and liabilities on a nonrecurring basis, when U.S. GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include intangible assets acquired in business combinations. The Company’s financial instruments, other than cash, consist principally of accounts receivable and accounts payable. The fair value of such approximates the carrying value of these financial instruments because of their short-term nature. Borrowings under the Revolving Credit Facility approximate fair value due to the variable interest rate on the facility and the recent amendment during the year. The Company’s borrowings under the Revolving Credit Facility are carried at historical cost and adjusted for principal payments. ​ NOTE J - ACCRUED EXPENSES The following is a summary of the components of accrued expenses (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 December 31, 2020 Accrued compensation and related benefits ​ $ 6,294 ​ $ 6,624 Accrued legal fees ​ 377 ​ 18 Commission fee accrual ​ 115 ​ 103 Accrued federal, state and local taxes and fees ​ 243 ​ 130 Other ​ 1,395 ​ 1,701 ​ ​ $ 8,424 ​ $ 8,576 ​ ​ ​ ​ NOTE K - WARRANT LIABILITY Warrants to purchase a total of 835,014 and 18,000,000 shares of the Company’s common stock were outstanding as of December 31, 2021 and 2020, respectively. 750,000 warrants were issued to founders in a private placement (the “Private Warrants”), subject to a twelve-month lock-up period from the date of the Merger, and 17,250,000 warrants were public warrants (the “Public Warrants”) that were exercisable immediately following the Closing. Each of the Company’s Public Warrants entitled the registered holder to purchase one share of the Company’s common stock at a price of $ 11.50 per share. On November 29, 2021, the Company provided notice to holders of all of the Public Warrants that the Company would be redeeming all of the Public Warrants for a redemption price of $ 0.01 per Public Warrant, and on December 29, 2021, such redemption was completed and the Public Warrants ceased trading on Nasdaq. Each of the Private Warrants entitles the registered holder to purchase one share of the Company’s common stock at a price of $ 11.50 per share, subject to adjustment. The Private 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, as applicable. 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 Private Warrants do not meet the criteria for equity treatment 66 Table of Contents 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 Consolidated Statements of Operations. The fair value of the Private Warrants was determined using the market price of the Public Warrants adjusted for their lack of liquidity. ​ ​ ​ NOTE L - FINANCING ARRANGEMENTS The Company did no t have any outstanding debt obligations as of December 31, 2021 and 2020. ​ At December 31, 2021 and 2020, total deferred financing costs were $ 1.0 and $ 0.4 million, respectively. Amortized debt issuance costs is recorded in interest expense through maturity of the related debt using the straight-line method, which approximates the effective interest method. Amortization expense was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 2020 2019 Amortization expense ​ $ 494 ​ $ 740 ​ $ 802 ​ $ 150.0 million Wells Fargo Senior Secured Revolving Credit Facility On April 11, 2011, AerSale, Inc. and other subsidiary borrowers signatory (collectively, “the Borrowers”) entered into a secured credit agreement (“Revolving Credit Agreement”) with Wells Fargo Bank, N.A. as administrative agent and lender, and the other lenders signatory thereto from time to time (collectively, “the Lenders”). On July 20, 2018, the Revolving Credit Agreement was restated and amended (as amended to date, the “Amended and Restated 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. Previous amendments predominantly accomplished maturity term extensions as well as modification to the syndicate of banks. On March 12, 2021, the Amended and Restated Credit Agreement was amended to, among other things, provide a $ 150.0 million aggregate amount of revolver commitments subject to borrowing base limitations and extend, subject to certain conditions, the maturity date to March 12, 2024. Previous amendments predominantly accomplished maturity term extensions as well as modification to the syndicate of banks. The Amended and Restated Credit Agreement includes a $ 10 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 Amended and Restated Credit Agreement. Extensions of credit under the Amended and Restated Credit Agreement are available for working capital and general corporate purposes. The commitments under the Amended and Restated Credit Agreement terminate on March 12, 2024, at which time all outstanding amounts on the Amended and Restated Credit Agreement will be due and payable. As of December 31, 2021, there was no outstanding balance under the Amended and Restated Credit Agreement and the Company had $ 113.9 million of availability. As of December 31, 2020, there was no outstanding balance under the Amended and Restated Credit Agreement and the Company had $ 83.7 million of availability. 67 Table of Contents The obligations of the Borrowers under the Amended and Restated Credit Agreement are guaranteed by the Company, and other subsidiaries of AerSale, Inc. may be designated as borrowers on a joint and several basis. Such obligations are also secured by substantially all of the assets of the Company. The interest rate applicable to loans outstanding on the Amended and Restated Credit Agreement is a floating rate of interest per annum of LIBOR plus a margin of 3.50 %. The interest rate as of December 31, 2021 and 2020 was 5.25 % and 5.75 %, respectively. In addition, a commitment fee applies to the unused portion of the commitments under the Amended and Restated Credit Agreement. The Borrowers’ ability to borrow on the Amended and Restated Credit Agreement is subject to ongoing compliance by the Company and the Borrowers with various customary affirmative and negative covenants. The Amended and Restated Credit Agreement requires the Company and Borrowers to meet certain financial and nonfinancial covenants. The Company was in compliance with these covenants as of December 31, 2021 and 2020. Interest expense on the Revolving Credit Agreement was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 2020 2019 Interest expense ​ $ 4 ​ $ 479 ​ $ 1,389 ​ ​ ​ ​ ​ ​ ​ NOTE M - INCOME TAXES Income tax expense consists of (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current Deferred Total Year ended December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. federal ​ $ 11,003 ​ $ ( 1,899 ) ​ $ 9,104 U.S. state ​ 1,780 ​ ( 402 ) ​ 1,378 Foreign ​ 2,068 ​ ( 891 ) ​ 1,177 Total income tax expense ​ $ 14,851 ​ $ ( 3,192 ) ​ $ 11,659 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current Deferred Total Year ended December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. federal ​ $ ( 451 ) ​ $ 271 ​ $ ( 180 ) U.S. state ​ 86 ​ 301 ​ 387 Foreign ​ 1,993 ​ ( 550 ) ​ 1,443 Total income tax expense ​ $ 1,628 ​ $ 22 ​ $ 1,650 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current Deferred Total Year ended December 31, 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. federal ​ $ 529 ​ $ 1,339 ​ $ 1,868 U.S. state ​ 1,170 ​ ( 541 ) ​ 629 Foreign ​ 3 ​ 1,664 ​ 1,667 Total income tax expense ​ $ 1,702 ​ $ 2,462 ​ $ 4,164 ​ 68 Table of Contents Tax Rate Reconciliation The provision for income taxes on pre-tax income differs from the amount computed by applying the U.S. federal statutory income tax rate of 21.0 % for the years ended December 31, 2021, 2020 and 2019 due to the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 Provision for income tax at the federal statutory rate ​ $ 10,033 ​ $ 2,128 ​ $ 4,130 State taxes ​ 1,357 ​ 204 ​ 678 Permanent differences ​ 755 ​ ( 748 ) ​ 48 Foreign taxes ​ - ​ - ​ ( 222 ) Change in valuation allowance  ​ 1,012 ​ 284 ​ - Executive compensation ​ ​ 1,934 ​ ​ - ​ ​ - Return to provision ​ ​ 659 ​ ​ - ​ ​ - FDII deduction ​ ​ ( 4,093 ) ​ ​ - ​ ​ - Other ​ 2 ​ ( 218 ) ​ ( 470 ) Total income tax expense ​ $ 11,659 ​ $ 1,650 ​ $ 4,164 ​ Significant Components of Deferred Taxes Deferred tax assets and liabilities reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of December 31, 2021 and 2020 are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 Deferred tax assets: ​ ​ ​ ​ Net operating losses ​ $ 102 ​ $ 424 Foreign tax credit carryforwards ​ 1,212 ​ 2,005 Inventory basis differences ​ 11,536 ​ 8,655 ​ ​ ​ ​ ​ ​ ​ Deferred rent ​ - ​ 83 Maintenance deposit payments ​ 625 ​ 605 Deferred revenue ​ 684 ​ 625 Allowance for doubtful accounts ​ 404 ​ 398 Start up costs ​ ​ 731 ​ ​ 973 Intangible assets ​ 149 ​ 410 Stock compensation ​ ​ 1,260 ​ ​ - Outside basis difference ​ ​ 1,296 ​ ​ - Accrued expenses ​ 774 ​ 1,070 Other ​ 343 ​ 112 Total deferred tax assets ​ $ 19,116 ​ 15,360 Deferred tax liabilities: ​ ​ ​ ​ Fixed assets ​ ( 7,471 ) ​ ( 6,981 ) Section 481(a) adjustments ​ ( 851 ) ​ ( 1,784 ) Deferred insurance proceeds ​ ( 598 ) ​ ( 603 ) Total deferred tax liabilities ​ ( 8,920 ) ​ ( 9,368 ) Valuation Allowances ​ ​ ( 1,296 ) ​ ​ ( 284 ) Deferred income taxes, net ​ $ 8,900 ​ $ 5,708 ​ The deferred tax assets are adjusted by a valuation allowance if, based on the weight of available evidence, it is more likely than not that a portion or all the deferred assets will not be realized. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. After considering all of the evidence, both positive and negative, it was determined that it is more likely than not, that the benefit from an outside basis difference of 69 Table of Contents an investment acquired during the year will not be realized. Accordingly, the Company has recorded a valuation allowance of $ 1.3 million on the deferred tax assets related to the outside basis difference as of December 31, 2021. At December 31, 2021 and December 31, 2020, the Company had net operating losses available for carry-forward for Federal income tax purposes of approximately $ 0.5 million and $ 0.5 million, respectively. These net operating loss carryforwards will expire on various dates through 2034. Utilization of the net operating loss carryforwards as of December 31, 2021 are subject to annual limitation under Sec. 382 of the Internal Revenue Code. A deferred tax asset has been recorded only for those carryforwards that the Company expects to utilize prior to expiration. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and in Ireland. Tax years beginning in 2018 through 2021 are open for examination by the U.S. Internal Revenue Service and tax years beginning in 2017 through 2021 are open for examination by various state taxing jurisdictions in which the Company is subject to tax. Tax years beginning in 2017 through 2021 are open for examination by the Irish taxing authorities. ASC 740, Income Taxes, provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. ASC 740 also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, and disclosure and transition. As of December 31, 2021 and 2020, there was no reserve for uncertain tax positions. ​ NOTE N - 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 computation of basic and diluted earnings per share is impacted by dividends for preferred stockholders. The following table provides a reconciliation of the computation for basic and diluted earnings per share for the years ended December 31, (in thousands, except share and per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 Net income ​ $ 36,115 ​ $ 8,094 ​ $ 15,499 Dividends attributable to preferred stockholders ​ - ​ - ​ ( 34,633 ) Income (loss) attributable to common shareholders for EPS ​ $ 36,115 ​ $ 8,094 ​ $ ( 19,134 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average number of shares outstanding - basic ​ 43,193,995 ​ 1,030,835 ​ 37,010 Additional shares from assumed exercise of warrants ​ ​ 3,070,762 ​ ​ 64,368 ​ ​ — Additional shares from assumed stock-settled restricted stock units ​ ​ 1,040,883 ​ ​ - ​ ​ — Additional shares issued under the Employee Stock Purchase Plan ​ ​ 4,460 ​ ​ - ​ ​ — Weighted-average number of shares outstanding - diluted ​ ​ 47,310,100 ​ ​ 1,095,203 ​ ​ 37,010 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings (loss) per share - basic: ​ $ 0.84 ​ $ 7.85 ​ $ ( 516.98 ) Earnings (loss) per share - diluted: ​ $ 0.76 ​ $ 7.39 ​ $ ( 516.98 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 70 Table of Contents NOTE O - STOCKHOLDERS’ EQUITY The Consolidated Statements of Stockholders’ Equity reflect the Reverse Recapitalization as defined in Note A as of December 22, 2020. 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 common stock and per share amounts in the Consolidated Statements of Stockholders’ Equity as of December 31, 2019 and 2018, and the Consolidated Statements of Operations for the period ended 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 %. 8.65 % Cumulative Preferred Shares The preferred stock was issued at a purchase price of $ 1,000 per share and ranks senior to common stock. The preferred stock has an initial liquidation preference equal to its $ 1,000 per share purchase price, and accrues dividends at an annual rate of 8.65 %. In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the Company, the holders of the preferred stock will be entitled to receive, out of assets available for distribution to our stockholders and before any distribution of assets to our common stockholders, an amount equal to the then-current liquidation preference, which includes accrued and unpaid dividends. For the year ended December 31, 2019 accrued dividends were $ 34.6 million. Effective July 31, 2020 and October 31, 2019, all holders of the issued and outstanding 8.65 % cumulative preferred shares agreed to waive $ 73.2 million and $ 150.2 million of liquidation preference, respectively. As of December 31, 2019, cumulative, the aggregate liquidation preference was $ 293.8 million. Upon the consummation of the Merger, the liquidation preference of the preferred stock was triggered. All outstanding principal of $ 200 million and cumulative unpaid dividends of $ 21.2 million were settled in cash of $ 13.1 million with the remaining balance converted to the Company’s common stock at $ 10.00 per share. 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 51,673,099 and 41,046,216 shares were issued and outstanding as of December 31, 2021 and 2020, respectively. Stock Appreciation Rights (“SARs”) Prior to the Merger, AerSale Aviation granted stock appreciation rights to certain of its executives. These awards entitled the holders to compensation in the Company’s stock from the date of grant to when the award is exercised. The awards were only exercisable upon a change in control and subject to the holder’s continuing employment. On December 22, 2020, the exercise feature was triggered, and the awards were exercised. The Company’s accounting policy is to reflect compensation expense when a change in control is deemed probable based on the grant date fair value of the award. As of the date of the Merger, the holder of in-the-money SARs were issued shares of the Company’s common stock valued at $ 1.0 million and cash, recognizing executive compensation in the amount of $ 1.4 million. 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 71 Table of Contents 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, in the aggregate (the ‘‘Earn-out Shares’’), subject to the following: Prior to the fifth anniversary of the Merger, if the closing price per share of the Company’s common stock is greater than $ 13.50 for any period of 20 trading days out of 30 consecutive trading days, the holders will be entitled to receive 50 % of the Earn-out Shares in the aggregate (“Minimum Target Earn-out Shares”); and Prior to the fifth anniversary of the Merger, if the closing price per share of the Company’s common stock is greater than $ 15.00 for any period of 20 trading days out of 30 consecutive trading days, the holders will be entitled to receive all of the remaining Earn-out Shares not yet issued in the aggregate. Notwithstanding the foregoing, if a liquidity event; generally consisting of a merger, reorganization or consolidation that results in any person or group owning more than 50 % of the voting power of the Company, the sale of all or substantially all of Company’s assets or a stockholder approved plan of complete liquidation or dissolution (“Liquidity Event”), is consummated prior to the fifth anniversary of the Merger, all Earn-out Shares that have not yet been issued shall be issued, subject to the following: If the Liquidity Event consideration is greater than $ 13.50 per share, all of the Minimum Target Earn-out Shares will be deemed issued and outstanding; and If the Liquidity Event consideration is greater than $ 15.00 per share, all of the remaining Earn-out Shares not yet issued will be deemed issued and outstanding. Effective February 8, 2021, the contingency event related to the Minimum Target Earn-out Shares was met and 1,855,634 shares were issued. Effective October 22, 2021, the contingency event related to the Maximum Target Earn-out Shares was met and 1,854,169 shares were issued. The remaining shares pursuant to the contingent rights were withheld to cover employee taxes. 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 December 31, 2021 and 2020 had no impact on our consolidated financial statements. 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). The Unvested Founder Shares will also vest upon the occurrence of a Liquidity Event on or prior to the fifth anniversary of the date of the Amended and Restated Founder Shares Agreement, solely to the extent the Liquidity Event Consideration (as defined in the Merger Agreement) is greater than $ 13.50 , in which case half of the Unvested Founder Shares which will vest, or $ 15.00 , in which case the other half of the Unvested Founder Shares will also vest. Pursuant to the Amended and Restated Founder Shares Agreement, the holders of the Unvested Founder Shares have retained the right to vote such Unvested Founder Shares prior to vesting. Unvested Founder Shares that have not vested on or prior to the fifth anniversary of the Closing Date will be forfeited. Effective February 8, 2021, the contingency event related to the Minimum Target was met and half of the Unvested Founder Shares vested. Effective October 22, 2021, the contingent event related to the Maximum Target was met and the other half of the Unvested Founder Shares vested. Public Warrants On November 29, 2021, the Company provided notice to holders of all of our 16,442,886 outstanding Public Warrants to purchase shares of our common stock that were issued under the warrant agreement as part of the units sold 72 Table of Contents in our initial public offering, that we would be redeeming all of the Public Warrants for a redemption price of $ 0.01 per Public Warrant on December 29, 2021 (the “Redemption”). In accordance with Section 3.3.1(b) of the warrant agreement, following delivery of notice of the Redemption, all of our Public Warrants could only be exercised on a cashless basis in lieu of being redeemed. On December 29, 2021, we completed the Redemption and the Public Warrants ceased trading on Nasdaq. A total of 16,357,872 Public Warrants were exercised on a cashless basis in lieu of being redeemed, resulting in net issuances of 6,079,966 shares of our common stock under such Public Warrants. The Private Warrants that are still held by the initial holders or their permitted transferees were not subject to the Redemption. Subsequent to December 31, 2021, a total of 85,014 unredeemed Public Warrants were redeemed for a redemption price of $ 0.01 per Public Warrant. 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 year ended December 31, 2021 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted Average ​ ​ ​ ​ ​ Weighted Average ​ Remaining Contractual ​ Amount Grant Date Fair Value Life (Years) Outstanding at December 31, 2020 ​ ​ — ​ $ — ​ ​ — Granted ​ 1,702,280 ​ 10.10 ​ ​ 1.98 Forfeited ​ ​ ( 2,980 ) ​ 12.46 ​ ​ 2.50 Issued ​ ​ ( 30,000 ) ​ ​ 10.00 ​ ​ 0.00 Outstanding December 31, 2021 ​ ​ 1,669,300 ​ $ 10.10 ​ ​ 2.02 ​ ​ ​ ​ ​ ​ ​ 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 performance milestones at 100% and 200% vesting targets, while the remaining 74,300 awards vest over a period ranging from one to three years . ​ For the restricted stock unit awards granted under the 2020 Plan containing both service and performance conditions, the Company recognizes compensation expense when the awards are considered probable of vesting. Restricted stock units are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employee have been established. The fair value of these awards is determined based on the closing price of the shares on the grant date. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment. ​ For the year ended December 31, 2021, the Company recognized share-based compensation expense for the performance-based awards of $ 12.1 million, given that the achievement of the performance milestones at the 200% vesting target have been deemed probable for accounting purposes. ​ 73 Table of Contents 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 December 31, 2021. Subsequent to December 31, 2021, the Company issued 11,988 shares pursuant to the ESPP. ​ ​ NOTE P - 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 ● TechOps - 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. The TechOps 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 TechOps 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. 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. 74 Table of Contents Selected financial information for each segment is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 2020 2019 Revenues ​ ​ ​ ​ ​ ​ ​ Asset Management Solutions ​ ​ ​ ​ ​ ​ ​ Aircraft ​ $ 87,461 ​ $ 53,639 ​ $ 98,736 Engine ​ 144,549 ​ 45,072 ​ 123,088 ​ ​ $ 232,010 ​ $ 98,711 ​ $ 221,824 TechOps ​ ​ ​ ​ ​ ​ MRO services ​ $ 99,899 ​ $ 103,899 ​ $ 69,389 Product sales ​ 8,528 ​ 6,328 ​ 12,988 ​ ​ 108,427 ​ 110,227 ​ 82,377 Total ​ $ 340,437 ​ $ 208,938 ​ $ 304,201 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2021 2020 2019 Gross profit ​ ​ ​ ​ ​ ​ Asset Management Solutions ​ ​ ​ ​ ​ ​ Aircraft ​ $ 30,157 ​ $ 11,914 ​ $ 27,592 Engine ​ 59,389 ​ 17,383 ​ 40,113 ​ ​ $ 89,546 ​ $ 29,297 ​ $ 67,705 TechOps ​ ​ ​ ​ ​ ​ MRO services ​ $ 28,133 ​ $ 21,883 ​ $ 11,125 Product sales ​ 1,713 ​ 1,609 ​ 6,219 ​ ​ 29,846 ​ 23,492 ​ 17,344 Total ​ ​ 119,392 ​ ​ 52,789 ​ ​ 85,049 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 Total Assets ​ ​ Asset Management Solutions ​ $ 370,378 ​ $ 277,016 TechOps ​ ​ 112,742 ​ 108,622 Corporate ​ ​ 4,365 ​ 3,491 ​ ​ $ 487,485 ​ $ 389,129 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Depreciation and Amortization Expense ​ ​ ​ ​ Asset Management Solutions ​ $ 10,163 ​ $ 21,210 ​ $ 28,579 TechOps ​ ​ 2,506 ​ 2,600 ​ 1,301 Corporate ​ ​ 329 ​ 413 ​ 201 ​ ​ $ 12,998 ​ $ 24,223 ​ $ 30,081 Total Capital Expenditures ​ ​ ​ ​ ​ ​ ​ ​ ​ Asset Management Solutions ​ $ 2,383 ​ $ 5,128 ​ $ 36,479 TechOps ​ ​ 1,224 ​ 1,965 ​ 1,500 Corporate ​ ​ 284 ​ 172 ​ 149 ​ ​ $ 3,891 ​ $ 7,265 ​ $ 38,128 ​ 75 Table of Contents The following table reconciles segment gross profit to net income from continuing operations for the years ended December 31, (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 2019 Segment gross profit ​ $ 119,392 ​ $ 52,789 ​ $ 85,049 Selling, general and administrative expenses ​ ( 77,498 ) ​ ( 55,635 ) ​ ( 59,814 ) Payroll support program proceeds ​ 14,768 ​ 12,693 ​ - Transaction costs ​ - ​ 1,436 ​ ( 3,177 ) Interest expense, net ​ ( 980 ) ​ ( 1,645 ) ​ ( 3,006 ) Other income, net ​ 458 ​ 494 ​ 611 Unrealized loss on investment ​ ​ ( 5,421 ) ​ ​ - ​ ​ - Change in fair value of warrant liability ​ ​ ( 2,945 ) ​ ​ ( 388 ) ​ ​ - Income tax expense ​ ( 11,659 ) ​ ( 1,650 ) ​ ( 4,164 ) Net income ​ $ 36,115 ​ $ 8,094 ​ $ 15,499 ​ The following table presents revenues based on the customers’ geographic location and long-lived assets located in the United States, our country of domicile, for the years ended December 31, (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenues 2021 2020 2019 Domestic ​ $ 133,911 ​ $ 92,837 ​ $ 105,083 Foreign ​ 206,526 ​ 116,101 ​ 199,118 Total revenues ​ $ 340,437 ​ $ 208,938 ​ $ 304,201 ​ ​ ​ ​ ​ ​ ​ ​ Long-lived assets 2021 2020 Domestic ​ $ 102,452 ​ $ 108,796 Foreign ​ ​ 24,360 ​ 34,111 Total long-lived assets ​ $ 126,812 ​ $ 142,907 ​ As of December 31, 2021, the Company had one customer from which revenues generated exceeded 10 % of total sales. Total sales to this customer amounted to $ 46.2 million, which was included in the Asset Management Solutions segment. No such concentrations existed for the year ended December 31, 2020. 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 contribution made by the supplying business segment. All intersegment transactions have been eliminated upon consolidation. Intersegment revenue is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 2020 2019 Asset Management Solutions ​ $ 6,822 ​ $ 3,346 ​ $ 334 TechOps ​ 21,932 ​ 1,650 ​ 2,015 Total intersegment revenues ​ $ 28,754 ​ $ 4,996 ​ $ 2,349 ​ ​ NOTE Q - COMMITMENTS AND CONTINGENCIES Management Compensation Certain executive management entered into employment agreements with the Company. The contracts are for a period of three years , and the contracts provide that such management may earn discretionary bonuses, computed upon a sliding percentage scale of their base salaries, based on the overall financial performance of the Company and each individual’s contributions, subject to approval by the board of directors. Additionally, under certain termination conditions, such contracts provide for severance payments under the Company’s Severance Plan, including payment of base salary, 76 Table of Contents bonus, and fringe benefits. The contracts include certain noncompete clauses commencing upon the employee’s separation from the Company. 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 defendants, 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 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. Future minimum lease payments under non-cancelable operating leases (with initial lease terms in excess of one year) as of December 31, 2021 are (in thousands): ​ ​ ​ ​ ​ Year ending December 31: ​ ​ ​ 2022 ​ 4,064 2023 ​ 3,571 2024 ​ 3,103 2025 ​ 2,137 2026 ​ 1,851 Thereafter ​ 2,601 Total minimum lease payments ​ $ 17,327 ​ Expense charged to operations under the operating lease agreements was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2021 2020 2019 Rent expense ​ $ 6,040 ​ $ 6,294 ​ $ 5,597 ​ 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. ​ NOTE R - RELATED-PARTY TRANSACTIONS Prior to the Merger, the Company, in the normal course of its operations, engaged in transactions with certain of its stockholders or their affiliates. On a monthly basis, AerSale Aviation paid its majority stockholder a fee in exchange for advisory, investment banking, management, consulting, and financial planning services provided on an ongoing basis. Total management fees paid to or accrued for the majority stockholder for the year ended December 31, 2019 totaled $ 0.6 million. Management fees for the majority stockholder was suspended in 2020, as such, no management fees were incurred in 2020 or 2021. The Company determined that AerLine Holdings, Inc. ("AerLine") was a VIE that the Company was required to consolidate as it was deemed the primary and sole beneficiary. Effective August 31, 2018, AerLine sold the customer relationships of its operating company, XTRA Airways, in consideration for a 9.99 % interest in the buyer (“Buyer”), at which point AerLine ceased to meet the consolidation criteria as a VIE under U.S. GAAP and ceased operations. In a 77 Table of Contents separate transaction where the Buyer was acquired, the 9.99% interest held by AerLine in the Buyer rolled over to a larger holding company (“Investee”) in exchange for 3.85% of its membership interest. ​ In 2018, a portion of the balances due to the Company from AerLine was forgiven in exchange for the right to all proceeds received from AerLine related to the sale of its interest. The primary interest held by AerLine is the equity interest in the Investee. On November 10, 2021, AerLine transferred its ownership interest to the Company in settlement of amounts owed to the Company. As a result, the $5.4 million balance due from AerLine was reclassified to Investment on the Company’s Consolidated Balance Sheet. ​ There were no amounts due from AerLine as of December 31, 2021, and $ 5.9 million was due as of December, 31, 2020. The balance due from AerLine as of December 31, 2020, was presented in the Consolidated Balance Sheet as due from related party, of which $ 0.5 million is presented as a current asset, while $ 5.4 million was presented as a long term asset. ​ Based on the deterioration of the Investee’s financial condition noted by the Company in the fourth quarter of 2021, the Company recognized an unrealized loss on the investment of $5.4 million during the three month period ended December 31, 2021. This loss is reflected on the Consolidated Statement of Operations in the unrealized loss on investment line. ​ ​ ​ NOTE S - BENEFIT PLANS The Company sponsors an employee retirement savings plan that qualifies under Section 401(k) of the Internal Revenue Code. Participating employees may contribute, but not more than statutory limits. The Company makes nondiscretionary 3 % Safe Harbor contributions of participants’ eligible earnings who have completed the plan’s eligibility requirements. The contributions are made to the plan on behalf of the employees. Total nondiscretionary contributions to the plan were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 2020 2019 Nondiscretionary contributions $ 929 $ 753 $ 875 ​ ​ NOTE T - BUSINESS COMBINATIONS Reverse Merger As described in Note A - Organization and Principles of Consolidation and Basis of Presentation above, the Company consummated the Merger dated December 22, 2020 with AerSale Aviation and in connection therewith, Monocle merged with and into the Company, whereby the Company survived the Merger and became the successor issuer to Monocle by operation of Rule 12g-3 under the Securities Exchange Act of 1934, as amended. The Company directly acquired AerSale Aviation for aggregate consideration of $ 317.2 million, consisting of approximately $ 13.1 million in cash and 30,410,540 shares of Company Common Stock at $ 10.00 per share. As additional consideration, the pre-Merger holders of AerSale Aviation common stock and the holders of in-the-money SARs received a contingent right to receive up to 3,746,876 additional shares of the Company’s Common Stock, which were issued in 2021. The Merger has been accounted for as a Reverse Recapitalization in accordance with U.S. GAAP. For accounting purposes, Monocle is considered the “acquired” company and AerSale Aviation is considered the “acquirer.” The Company received cash proceeds in the amount of $ 48.6 million resulting from the Merger, which was recorded as additional paid in capital. ACT Acquisition 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 purpose of the acquisition was to improve the Company’s profitability by enhancing service in its TechOps segment. The results of ACT operations have 78 Table of Contents been included in the 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. ACT’s revenues and income from operations from January 7, 2020 through December 31, 2020 were $ 6.5 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 ​ 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 ​ Qwest Acquisition On June 10, 2019, the Company acquired all of the outstanding shares of a used serviceable material distributor and certified repair facility, Qwest Air Parts, Inc. (“Qwest”), a Florida corporation located in Memphis, Tennessee, for $ 26.1 million. The purpose of the acquisition was to improve the Company’s profitability by enhancing service in its Asset Management Solutions segment. The results of Qwest operations have been included in the Company’s consolidated financial statements since the acquisition date. All assets and liabilities of Qwest were revalued to their fair market value, and to the extent that the purchase cost exceeded the fair market value of the net assets, that excess was classified as goodwill. The goodwill is attributable to the general reputation of the business and the collective experience of Quest’s management and employees. The goodwill is not expected to be deductible for federal tax purposes. Qwest’s revenues and income from operations from June 10, 2019 through December 31, 2019 were $ 10.4 and $ 1.8 million, respectively. This 79 Table of Contents business mainly operates as part of the Company’s Asset Management Solutions segment. The purchase price for Qwest was allocated as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Acquisition Date ​ Fair Values Accounts receivable $ 2,714 Inventory ​ 3,289 Deposits, prepaid expenses, and other current assets ​ 218 Property and equipment ​ 567 Other intangible assets ​ 10,324 Goodwill ​ 13,402 Accounts payable ​ ​ ( 410 ) Accrued expenses ​ ​ ( 1,151 ) Deferred tax liability ​ ( 2,872 ) Total purchase price ​ $ 26,081 ​ The intangible assets included above consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ Fair Value FAA part 145 certificate (indefinite-lived) $ 724 ​ ​ ​ ​ ​ ​ ​ ​ ​ Useful Life In ​ ​ ​ ​ ​ Years ​ Fair Value Customer relationships 10 ​ $ 9,600 ​ ​ The following unaudited pro forma information presents our Consolidated Statements of Operations as if ACT and Qwest had been included in our consolidated results since January 1, 2019 (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 Revenues $ 324,871 Net income from continuing operations $ 21,497 Net revenue (loss) attributable to AerSale Corporation common shareholders $ ( 13,136 ) Earnings (loss) per share attributable to AerSale Corporation - basic $ ( 354.93 ) Earnings (loss) per share attributable to AerSale Corporation - diluted $ ( 354.93 ) ​ The unaudited pro forma financial information is presented for informational purposes only, and may not necessarily reflect the Company’s future results of operations or what the results of operations would have been had the Company owned and operated ACT and Qwest as of January 1, 2019. The pre-acquisition results of ACT did not have a material impact on the Consolidated Statements of Operations for the year ended December 31, 2020. ​ ​ ​ 80 Table of Contents ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ​