What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-08 compared with 2023-03-07 · 203 added, 261 removed, 779 unchanged (37% of the section changed)

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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, 2022 and 2021, 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, 2022, and the related notes (collectively referred to as 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, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Change in accounting principle

As discussed in Note B to the financial statements, the Company has changed its method of accounting for leases on January 1, 2022, due to the adoption of ASC 842, “Leases”.

Basis for opinion

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Consolidated Balance Sheets

(in thousands, except share and per share data)

(in thousands, except share and par value data)

Current assets:

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 1,074 and $ 1,692 as of December 31, 2022 and December 31, 2021

Accounts receivable, net of allowance for credit losses of $ 978 and $ 1,074 as of December 31, 2023 and December 31, 2022

Income tax receivable

Aircraft, airframes, engines, and parts, net

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Accrued expenses

Income tax payable

Lessee and customer purchase deposits

Current operating lease liabilities

Current portion of long-term debt

Deferred revenue

Total current liabilities

Revolving credit facility

Long-term debt

Long-term lease deposits

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Maintenance deposit payments and other liabilities

Deferred income taxes, net

Warrant liability

Total liabilities

Commitments and contingencies

Stockholders’ equity:

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Authorized 200,000,000 shares;

issued and outstanding 51,189,461 and 51,673,099 shares as of December 31, 2022 and 2021, respectively

issued and outstanding 52,954,430 and 51,189,461 shares as of December 31, 2023 and December 31, 2022

Additional paid-in capital

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Payroll support program proceeds

Transaction costs recovered

Income from operations

(Loss) income from operations

Other income (expenses):

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Total other income (expenses)

Income before income tax provision

Income tax expense

Earnings per share - basic

Earnings per share - diluted

(Loss) income before income tax provision

Income tax benefit (expense)

Net (loss) income

(Loss) earnings per share:

Weighted average shares outstanding:

The accompanying notes are an integral part of these consolidated financial statements.

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AerSale Corporation Stockholders

(in thousands, except share and per share data)

(in thousands, except share data)

Treasury Stock,

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Balance at December 31, 2020

Effect of reverse merger, net of closing costs of $ 10,742

Share-based compensation

Balance at December 31, 2020

Issuance of Earn-Out shares

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Balance at December 31, 2022

Shares issued under the 2020 Employee Stock Purchase Plan

Shares issued under the 2020 Equity Incentive Plan

Shares surrendered for tax withholdings on equity awards

Share-based compensation

Balance at December 31, 2023

The accompanying notes are an integral part of these consolidated financial statements.

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Cash flows from operating activities:

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

Net (loss) income

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

Depreciation and amortization

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Impairment of aircraft held for lease

Provision for doubtful accounts

Provision for credit losses

Deferred income taxes

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Accounts receivable

Income tax receivable

Deposits, prepaid expenses, and other current assets

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Cash flows from investing activities:

Business acquisition

Proceeds from sale of assets

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Purchase of property and equipment

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Cash flows from financing activities:

Repayments of 8% Senior Secured Notes

Proceeds from Revolving Credit Facility

Repayments of Revolving Credit Facility

Proceeds from long-term debt

Proceeds from Revolving Credit Agreement

Repayments of Revolving Credit Agreement

Payments of debt issuance costs

Purchase of treasury stock

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Proceeds from the issuance of Employee Stock Purchase Plan shares

Proceeds from Merger

Net cash (used in) provided by financing activities

Increase in cash and cash equivalents

Net cash provided by (used in) financing activities

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

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Supplemental disclosure of cash activities

Income taxes paid

Income tax payments, net

Interest paid

Supplemental disclosure of noncash investing activities

Reclassification of aircraft and aircraft engines inventory (from) to aircraft and engine held for lease, net

Reclassification of aircraft and aircraft engines inventory to (from) aircraft and engine held for lease, net

Reclassification of customer purchase deposits to sale of assets

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In turn, the vast majority of assets that we acquire are ultimately disassembled into parts once the remaining green time has been utilized.

Through its TechOps segment, 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.

Through its TechOps segment, the Company also operates six Federal Aviation Administration (“FAA”) Title 14 Code of Federal Regulations Part 145 Certified Repair Facilities (the MROs) located in Goodyear, Arizona, Millington, Tennessee, Roswell and Albuquerque, New Mexico, as well as two facilities in Miami, Florida.

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.

Leveraging its robust engineering team, TechOps also provide highly specialized technical support to our MRO facilities, as well as developing advanced technical repairs, modifications and products marketed as Engineering Solutions.

This business unit includes the design, manufacture, and installation of new products, systems, and services that can enhance aircraft performance, safety, and service life.

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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 S, the Company also consolidates variable interest entities when required under accounting principles generally accepted in the United States (“U.S.

All significant intercompany balances and transactions are eliminated upon consolidation.

The Merger was accounted for as a reverse recapitalization (“Reverse Recapitalization”) in accordance with U.S.

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 the 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.

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.

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (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.

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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 ASC Topic 810, Consolidation.

As explained in Note S, 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 deconsolidated the VIE.

Prior to August 31, 2018, transactions between the Company and AerLine and its subsidiaries were eliminated upon consolidation.

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.

Cash and Cash Equivalents

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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 $ 0.6 million and $ 0.8 million at December 31, 2022 and 2021, respectively.

Contingent rents, also referred to as supplemental rent, which are unbilled, are also included in accounts receivable.

The Company sells to a variety of customers worldwide.

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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):

A rollforward of the allowance for credit losses is as follows (in thousands):

Balance at beginning of year

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The Company filed an insurance claim and recorded an insurance receivable of $ 2.5 million, offsetting the impairment loss, which was recorded in accounts receivable in the Company’s Consolidated Balance Sheet as of December 31, 2021.

In accordance with U.S.

In accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”), the probable amount of the insurance recovery, limited to the amount of the loss recognized, was recorded as the insurance receivable.

Effective November 30, 2022, a final settlement

was reached and insurance proceeds net of expenses of $ 4.2 million were received, of which $ 1.7 million was classified as other income on the Consolidated Statement of Operations.

Effective November 30, 2022, a final settlement was reached and insurance proceeds net of expenses of $ 4.2 million were received, of which $ 1.7 million was classified as other income, net on the Consolidated Statement of Operations.

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.

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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.

The Company evaluates this ratio periodically, and if necessary, updates sales value 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.

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Inventory reserves

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.

Expenditures required for the repair of engine and airframe parts are capitalized as inventory and are expensed as cost of products when associated parts are sold.

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 aircraft and engines held for lease, net.

This transaction is a noncash item and if it occurs, is reflected in the schedule of supplemental cash flows.

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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 activities section of the Consolidated Statements of Cash Flows.

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 activities 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.

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Impairment charges are presented under “unrealized loss on investment” within the Consolidated Statements of Operations.

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.

In accordance with Accounting Standards Codification (“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.

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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, 2022 and 2021 on the goodwill for the Asset Management Solutions and TechOps segments, and updated through December 31, 2022 and 2021, respectively, concluding that the fair value of each reporting unit exceeded their carrying values, and thus no impairment was recorded.

Customer Relationships and Other Intangible Assets

The Company performed a quantitative impairment analysis as of October 1, 2023 and a qualitative impairment analysis as of October 1, 2022 on the goodwill for the Asset Management Solutions and TechOps segments (see Note P – Business Segments for a discussion about our business segments), and updated through December 31, 2023 and 2022, respectively, concluding that the fair value of each reporting unit exceeded their carrying values, and thus no impairment was recorded.

Other Intangible Assets

Intangibles arising from business combinations, including customer relationships and FAA certificates are initially recorded at fair market value.

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Revenue Recognition

Products — Used Serviceable Material (“USM”) Sales

Products Revenue — 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.

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The Company has determined that it is appropriate to recognize spare parts sales at a point in time (i.e., the date the parts are shipped) in accordance with ASC 606.

Products — Whole Asset Sales

Products Revenue — Whole Asset Sales

Revenues from whole asset sales are measured based on consideration specified in the contract with the customer.

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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

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, resulting in the recognition of revenue.

Payment is required in full upon customers’ acceptance of the whole asset on the date of the transfer, unless the Company extends credit terms to customers it deems creditworthy.

Leasing Revenue

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.

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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.

Services Revenue

Services revenue is 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.

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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.

We are required to make certain judgments and estimates, including estimated revenue and cost of sales, 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.

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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.

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.

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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.

Basic (loss) earnings per share is computed by dividing net (loss) earnings attributable to the Company’s common stockholders by the weighted average number of common shares outstanding during the periods.

Diluted (loss) earnings 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 are accounted for under the asset and liability method.

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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.

Reclassification

The Company reclassified $ 13.2 million of contract assets from accounts receivable to deposits, prepaid expenses, and other current assets in the Consolidated Balance Sheet as of December 31, 2021.

This reclassification had no impact on net income or cash flows from operating activities.

New Accounting Pronouncements Adopted

On December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 FASB 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 “CARES Act” below in this 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.

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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, 2022.

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.

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.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

Based on our review of our key material contracts through December 31, 2023, ASU 2021-01 does not have a material impact to our consolidated financial statements.

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.

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Targeted Improvements.

Topic 842 became effective for the Company for the annual period beginning on January 1, 2022, the impact was recorded retroactively at the beginning of the period of adoption through a cumulative-effect adjustment.

Topic 842 became effective for the Company for the annual period beginning on January 1, 2022, and the impact was recorded retroactively at the beginning of the period of adoption through a cumulative-effect adjustment.

We elected 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.

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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 standard was adopted and applied prospectively by the Company as of January 1, 2022, but the adoption and application did not have an impact on the Company's financial statements and disclosures, including interim periods.

New Accounting Pronouncements Not Yet Adopted

On June 2016, the FASB issued ASU No.

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2018-19, Codification Improvements to Topic 326:

Financial Instruments — Credit Losses, which amends the scope and transition requirements of ASU 2016-13.

Financial Instruments — Credit Losses.

2018-19 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.

In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Topic 405-50):

Disclosure of Supplier Finance Program Obligations.

This ASU requires that a buyer in a supplier finance program disclose

sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude.

This ASU is expected to improve financial reporting by requiring new disclosures about the programs, thereby allowing financial statement users to better consider the effect of the programs on an entity’s working capital, liquidity, and cash flows.

This ASU is effective for fiscal years beginning after December 15, 2022, except for the amendment on roll forward information which is effective for fiscal years beginning after December 15, 2023.

The Company is evaluating the effect of adopting this new accounting guidance but does not expect it to have a material impact on the Company's financial statements or disclosures.

ASU 2016-13 became effective for the Company beginning January 1, 2023, and was adopted on a modified retrospective approach.

This ASU did not have a material impact on our consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, the amendments in the ASU are intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss.

In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements.

The purpose of the amendments is to enable “investors to better understand an entity’s overall performance” and assess “potential future cash flows.” The amendments in ASU 2023-07 are effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Management is currently evaluating the impact of this guidance on our financial statements.

There have been no other accounting pronouncements issued but not yet adopted by us which are expected to have a material impact on our consolidated financial statements.

The Company sought 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.

The Company sought financial assistance under the CARES Act.

Certain of the Company’s subsidiaries 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.

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No relief funds were received during 2023.

In connection with the financial assistance the Company has received under the Payroll Support Program, it was required to comply with certain provisions of the CARES Act, some of which have expired as of December 31, 2022, 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;

In connection with the financial assistance the Company received under the Payroll Support Program, it was required to comply with certain provisions of the CARES Act, all of which have expired as of December 31, 2023, including the requirement that funds provided pursuant to the Payroll Support Program be used exclusively for the continuation of payment of employee wages, salaries and benefits;

and the requirement against involuntary terminations and furloughs and reductions in employee pay rates and benefits from the signing date of the Payroll Support Program agreement through September 30, 2021.

The agreement required 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 actively limited on the payment of certain employee compensation through April 1, 2023.

These restrictions may affect the 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.

As of December 31, 2022, we have been in compliance with all of the provisions of the CARES Act.

In addition, the Company was limited on the payment of certain employee compensation through April 1, 2023.

Since inception, 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)

Since the first quarter of 2020, there has been a worldwide impact from the COVID-19 pandemic, causing significant volatility in financial and other markets.

The commercial aviation industry, including our operations, has been particularly and adversely impacted by the COVID 19 pandemic.

The extent to which COVID-19 or any other pandemics, epidemics and similar outbreaks, especially of infectious diseases, may impact our results depends on future developments that cannot be predicted with certainty, including the resurgence of COVID-19 and its variants.

The spread of COVID 19 and any other pandemics along with related travel restrictions and operational issues may also have a long-lasting impact in the demand for air travel and result in lower demand from civil aviation customers for our products.

If the COVID 19 pandemic or similar outbreaks lead to decreased worldwide commercial activity, it could eventually adversely affect the demand for airline cargo services.

Reduced numbers of aircraft flying or flight hours negatively impacts the demand for many of our products and services, and any prolonged reduction could materially and adversely affect our business, operating results, financial condition, and liquidity.

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.

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Actual results could differ from those estimates.

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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 business practices, difficulty in repossessing Flight Equipment when a lessee defaults, cultural considerations, restriction on fund transfers, and exposure to U.S.

Foreign Corrupt Practices Act and other anti-bribery laws.

Moreover, COVID-19 or other prolonged pandemics, epidemics and similar outbreaks, or the threat thereof, could result in worker absences, lower productivity, voluntary closure of our offices and facilities, travel restrictions for our employees and other disruptions to our business.

Any of these could have a material adverse effect on our business, financial condition or results of operations.

The Company periodically reviews the carrying values of accounts receivable, inventory, goodwill, intangible assets, and long-lived assets;

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Financial instruments that potentially subject the Company to credit risk principally consist of cash and cash equivalents and accounts receivable.

During the year ended December 31, 2022, one customer accounted for 19 % of total revenue, which was related to nonrecurring transactions that were collected during the year.

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 customer made up more than 10% of our trade receivable balance as of December 31, 2022 and 2021.

During the year ended December 31, 2023, two customers accounted for 25 % of total revenue.

During the years ended December 31, 2022 and 2021, one customer accounted for 19 % and 14 % of total revenue, respectively, which was related to nonrecurring transactions with different customers that was collected during the respective years.

One customer made up 20 % of our trade receivable balance as of December 31, 2023.

No customer made up more than 10% of our trade receivable balance as of December 31, 2022.

The Company maintains cash and cash equivalent balances with high-quality financial institutions, which at times exceed the Federal Deposit Insurance Corporation insurance limits.

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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” or “AerSale AeroStructures - Miami”),

which are included in the TechOps segment, as well as Qwest, which is included under the Asset Management Solutions segment.

The Company’s goodwill and intangible assets as defined by ASC 350 are related to its acquired 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” or “AerSale AeroStructures - Miami”), which are included in the TechOps segment, as well as Qwest Air Parts (“Qwest”), which is included under the Asset Management Solutions segment.

Goodwill and other intangibles consisted of the following (in thousands):

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The Company performed its annual quantitative impairment analysis as of July 1, 2023 and 2022 on the indefinite lived intangible assets and concluded there were no impairments.

The Company performed a qualitative impairment analysis as of October 1, 2022 and 2021 on the goodwill for the Asset Management Solutions and TechOps segment, and concluded there was no impairment.

Intangible assets with definite useful lives are amortized on a straight-line basis over their estimated useful lives.

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Accumulated amortization amounted to $ 9.3 and $ 7.2 million as of December 31, 2023 and December 31, 2022, respectively.

Goodwill activity for the years ended December 31, 2022 and 2021 consisted of the following (in thousands):

Goodwill as of December 31, 2020

Goodwill as of December 31, 2021

Goodwill as of December 31, 2022

There has been no goodwill activity for the years ended December 31, 2023 and 2022.

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.

No triggering events have been identified for the periods reported.

NOTE G - PROPERTY AND EQUIPMENT, NET

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Equipment under capital lease

Flight equipment held for R&D

Less accumulated depreciation

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December 31, 2022

Aircraft and engines held for operating leases

Aircraft and engines held for lease

Less accumulated depreciation

The Company recorded an impairment of leased assets in the amount of $ 0.9 million, $ 0 and $ 3.0 million for the years ended December 31, 2022, 2021 and 2020, respectively, and is included in cost of leasing in the Consolidated Statements of Operations.

The Company did no t record an impairment of leased assets during the years ended December 31, 2023 and 2021, respectively.

The Company recorded an impairment $ 0.9 million for the year ended December 31, 2022, 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):

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Contingent rental fees

The Company’s current operating lease agreements for Flight Equipment on lease expire over the next month to two 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, 2022 were as follows (in thousands):

Year ending December 31:

Total minimum lease payments

The Company’s current operating lease agreements for Flight Equipment on lease expire over the next two to nine months .

The minimum future lease rentals contracted to be received under these existing operating leases of Flight Equipment at December 31, 2023 are $ 5.1 million, all expected to be received in 2024.

These amounts 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.

NOTE I - FAIR VALUE MEASUREMENTS

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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.

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.

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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.

Borrowings under the Revolving Credit Agreement (as defined in Note L – Financing Arrangements) 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 Agreement are carried at historical cost and adjusted for principal payments.

Borrowings under the Equipment Loan (as defined in Note L – Financing Arrangements) approximate fair value due to the variable interest rate on the loan and its origination during the year ended December 31, 2023.

The Company’s borrowings under the Equipment Loan are carried at historical cost and adjusted for principal payments.

NOTE J - ACCRUED EXPENSES

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NOTE K - WARRANT LIABILITY

Warrants to purchase a total of 623,834 and 835,014 shares of the Company’s common stock were outstanding as of December 31, 2022 and 2021, respectively.

Warrants to purchase a total of 623,834 shares of the Company’s common stock were outstanding as of December 31, 2023 and 2022, respectively.

750,000 warrants were issued to founders in a private placement (the “Private Warrants”), and 17,250,000 warrants were public warrants (the “Public Warrants”) that were exercisable immediately following the Closing.

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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 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.

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 as of December 31, 2021 was determined using the market price of the Company’s public warrants adjusted for their lack of liquidity.

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As a result, the Black-Scholes option pricing model was adopted to determine the fair value of the Private Warrants.

The following table represents the assumptions for the Black-Scholes option-pricing model used in determining the fair value of the Private Warrants as of December 31, 2022:

The following table represents the assumptions for the Black-Scholes option-pricing model used in determining the fair value of the Private Warrants as of December 31, 2023 and 2022:

December 31, 2023

December 31, 2022

Risk-free interest rate

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NOTE L - FINANCING ARRANGEMENTS

The Company did no t have any outstanding debt obligations as of December 31, 2022 and 2021.

Outstanding debt obligations as of December 31, 2023 and 2022 consisted of the following (in thousands):

$ 180.0 million Wells Fargo Senior Secured Revolving Credit Facility

$ 10.0 million Synovus Property and Equipment Revolving Term Loan

Less current portion

Total long-term portion

At December 31, 2023 and 2022, total deferred financing costs were $ 1.5 and $ 0.5 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.

Amortized debt issuance costs are 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):

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On July 20, 2018, AerSale Inc.

and other subsidiary borrowers signatory thereto entered in a secured amended and restated Revolving Credit Agreement (as amended to date, the “Amended and Restated Credit Agreement”).

The Amended and Restated Credit Agreement provides for a $ 110.0 million aggregate amount of revolver commitments subject to borrowing base limitations and a maturity date of July 20, 2021.

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.

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, 2022 and 2021, there was no outstanding balance under the Amended and Restated Credit Agreement and at December 31, 2022 the Company had $ 106.8 million of availability.

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.

The obligations of the Borrowers under the Amended and Restated Credit Agreement are guaranteed by the Company, and other subsidiaries of AerSale, Inc.

and other subsidiary borrowers entered in a secured amended and restated Revolving Credit Agreement (as amended, the “Revolving Credit Agreement”).

The Revolving Credit Agreement provided for a $ 110.0 million aggregate amount of revolver commitments subject to borrowing base limitations and a maturity date of July 20, 2021.

The Revolving Credit Agreement included a $ 10 million sub facility for letters of credit and for borrowings on same-day notice referred to as “swingline loans”.

Extensions of credit under the Revolving Credit Agreement are available for working capital and general corporate purposes.

On March 9, 2023, we amended the Revolving Credit Agreement to replace the benchmark rate from LIBOR to Secured Overnight Financing Rate (“SOFR”).

On July 25, 2023, the Revolving Credit Agreement was amended to increase the maximum commitments thereunder to $ 180.0 million aggregate amount, expandable to $ 200.0 million, subject to conditions and the availability of lender commitments and borrowing base limitations, and the maturity date was extended to July 24, 2028.

As of December 31, 2023, the outstanding balance under the Revolving Credit Agreement was $ 29.0 million and at December 31, 2023 the Company had $ 131.0 million of availability, subject to borrowing base limitations.

As of December 31, 2022, there was no outstanding balance under the Revolving Credit Agreement.

The obligations of AerSale, Inc.

under the Revolving 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, 2022 and 2021 was 9.50 % and 5.25 %, respectively.

The Company’s 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, 2022 and 2021.

The interest rate applicable to loans outstanding on the Revolving Credit Agreement is a floating rate of interest per annum of SOFR plus a margin of 2.75 %.

The interest rate as of December 31, 2023 was 7.69 %.

The interest rate applicable to loans outstanding on the Revolving Credit Agreement prior to March 9, 2023, was a floating rate of interest per annum of LIBOR plus a margin of 3.5 %.

The interest rate as of December 31, 2022 was 9.50 %.

Interest expense on the Revolving Credit Agreement was as follows (in thousands):

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Interest expense

The Company’s ability to borrow on the Revolving Credit Agreement is subject to ongoing compliance by the Company and the borrowers with various customary affirmative and negative covenants.

The Revolving 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, 2023 and 2022.

$ 10.0 million Synovus Property and Equipment Revolving Term Loan

On June 30, 2023, the Company entered into a Property and Equipment Revolving Term Loan (“Equipment Loan”) with a total advance commitment of $ 10.0 million for the purpose of financing capital expenditures on property and equipment.

Once the total advance commitment is reached or commencing on June 30, 2024, whichever comes first, this facility will become a term loan with a maturity date of June 30, 2027.

This loan is collateralized by the property and equipment it finances and requires interest only payment until converted to a term loan, at which point, principal and interest payments will be required.

The Equipment Loan bears interest at a rate per annum equal to one-month SOFR plus 3.50 %, which will be adjusted monthly.

The effective rate on this facility as of December 31, 2023 was 8.84 %.

Interest expense on the Equipment Loan for the year ended December 31, 2023 was $ 0.4 million.

Maturities of the Equipment Loan as of December 31, 2023 are as follows (in thousands):

Year ending December 31:

Total payments

The Equipment Loan is subject to ongoing compliance by the Company in the form of various customary affirmative and negative covenants, as well as certain financial covenants.

The Company was in compliance with these covenants as of December 31, 2023.

NOTE M - INCOME TAXES

Income tax expense consists of (in thousands):

Income tax (benefit) expense consists of (in thousands):

Year Ended December 31, 2023:

Total income tax expense

Total income tax (benefit) expense

Year Ended December 31, 2022:

Total income tax expense

Total income tax expense (benefit)

Year Ended December 31, 2021:

Total income tax expense

Total income tax expense (benefit)

Tax Rate Reconciliation

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FDII deduction

Total income tax expense

Stock-based compensation

Total income tax (benefit) expense

Significant Components of Deferred Taxes

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Start up costs

Intangible assets

Stock compensation

Stock-based compensation

Outside basis difference

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Deferred tax liabilities:

Section 481(a) adjustments

Right-of-use assets

Intangible assets

Deferred insurance proceeds

Total deferred tax liabilities

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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.

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 an investment acquired in 2022 will not be realized.

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At December 31, 2023 and December 31, 2022, the Company had net operating losses available for carry-forward for Federal income tax purposes of approximately $ 7.8 million and $ 0.4 million, respectively.

These net operating loss carryforwards will expire on various dates through 2034.

These net operating loss carryforwards acquired prior to 2023 will expire on various dates through 2034.

Utilization of the net operating loss carryforwards as of December 31, 2023 are subject to annual limitation under Sec.

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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.

ASC 740 also provides guidance on measurement, derecognition,

classification, interest and penalties, accounting in interim periods, and disclosure and transition.

As of December 31, 2023 and 2022, there was no reserve for uncertain tax positions.

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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):

Net (loss) income

change in FV of warrants

Income (loss) attributable to common shareholders for EPS

Weighted-average number of shares outstanding - basic

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Additional shares from assumed exercise of Private Warrants

Additional shares from assumed stock-settled restricted stock units

NOTE O - STOCKHOLDERS’ EQUITY

The Consolidated Statements of Stockholders’ Equity reflect the Reverse Recapitalization as defined in Note B 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, 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 ranked senior to common stock.

The preferred stock had an initial liquidation preference equal to its $ 1,000 per share purchase price, and accrued dividends at an annual rate of 8.65 %.

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.

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 52,954,430 and 51,189,461 shares were issued and outstanding as of December 31, 2023 and 2022, respectively.

Effective November 8, 2022, the Board of Directors approved the repurchase, directly from the selling stockholders, 1,500,000 shares of the Company’s common stock, par value $ 0.0001 per share, at a price of $ 14.8025 per share for a total of $ 22,203,750 .

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.

Effective November 8, 2022, the Board of Directors approved the repurchase, directly from selling stockholders, 1,500,000 shares of the Company’s common stock, par value $ 0.0001 per share, at a price of $ 14.8025 per share for a total of $ 22,203,750 .

Earn-Out Shares

Upon consummation of the Merger, the pre-closing holders of AerSale Aviation’s common stock and the holders of in-the-money SARs received a contingent right to receive up to 3,000,000 additional shares of the Company’s common stock.

Additionally, certain pre-closing holders of AerSale Aviation’s common stock received a contingent right to receive 746,876 shares of the Company’s common stock, in the aggregate (the ‘‘Earn-out Shares’’), subject to the following:

Upon consummation of the Merger, the pre-closing holders of AerSale Aviation’s common stock and the holders of in-the-money stock appreciation rights (“SARs”) received a contingent right to receive up to 3,000,000 additional shares of the Company’s common stock.

Additionally, certain pre-closing holders of AerSale Aviation’s common stock received

a contingent right to receive 746,876 shares of the Company’s common stock, 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”);

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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.

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.

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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, 2022 was as follows:

Approximately 2,996,618 shares of common stock remain available for future grants.

Restricted stock unit activity under the 2020 Plan for the year ended December 31, 2023 and 2022 was as follows:

Weighted Average

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Outstanding at December 31, 2022

( 1,192,355 )

Outstanding December 31, 2023

Weighted Average

Remaining Contractual

Grant Date Fair Value

Outstanding at December 31, 2021

Outstanding December 31, 2022

(1) Includes 1,063,333 performance units that vested at the 200 % vesting target effective December 22, 2023, for which 526,888 shares of common stock underlying vested RSUs were withheld to cover tax obligations.

The shares withheld are again available for issuance under the plan.

(2) Includes 531,667 performance units that vested at the 200 % vesting target effective December 22, 2022, for which 167,007 shares of common stock underlying vested RSUs were withheld to cover tax obligations.

The shares withheld are again available for issuance under the plan.

The Company’s restricted stock units include 10,403 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 521,996 awards vest over a period ranging from one to three years .

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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.

For the year ended December 31, 2022 the Company issued 46,726 shares pursuant to the ESPP and 453,274 shares remain available for future issuance.

For the years ended December 31, 2023 and 2022, the Company issued 45,755 and 46,726 shares, respectively, pursuant to the ESPP and approximately 407,519 shares remain available for future issuance.

NOTE P - BUSINESS SEGMENTS

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The Asset Management Solutions segment provides short-term and long-term leasing solutions of Flight Equipment 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.

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 sold 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.

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Payroll support program proceeds

Transaction costs

Interest income (expense), net

Interest (expense) income, net

Other income, net

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Change in fair value of warrant liability

Income before income tax provision

(Loss) income before income tax provision

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):

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Total long-lived assets

For the year ended December 31, 2022, the Company had one customer from which revenues generated exceeded 10 % of total sales.

Total sales to this customer amounted to $ 77.2 million, which was included in the Asset Management Solutions segment.

For the year ended December 31, 2023, the Company had two customers from which revenues generated exceeded 10 % of total sales.

Total sales to these two customers amounted to $ 82.2 million, of which $ 35.7 million was included in TechOps segment and $ 46.5 million was included in the Asset Management Solutions segment.

As of December 31, 2022, the Company had one customer from which revenues generated exceeded 10 % of total sales.

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The Company evaluates whether a contractual arrangement that provides it with control over the use of an asset is a lease.

The ROU asset and related lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the term of the lease.

The ROU asset and related operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the term of the lease.

The implicit rate of our lease arrangements is not readily determinable nor is it disclosed by our lessors;

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Variable lease payments that depend on an index or rate are included in the determination of ROU asset and lease liabilities using the index or rate at the lease commencement date, whereas variable lease payments that do not depend on an index or rate are recorded as lease expense in the period incurred.

Lease costs are recognized over the term of the lease on a straight-line basis unless another systematic basis is more representative of the pattern in which the Company expects to consume the asset’s future economic benefits.

Lease expense is recognized over the term of the lease on a straight-line basis unless another systematic basis is more representative of the pattern in which the Company expects to consume the asset’s future economic benefits.

ROU assets are evaluated for impairment in a manner consistent with the treatment of other long-lived assets.

The Company made an accounting policy election to not recognize lease assets or liabilities for leases with a term of 12 months or less.

The components of lease expense for the year ended December 31, 2022 is as follows (in thousands):

The components of lease expense for the years ended December 31, 2023 and 2022 were as follows (in thousands):

Year Ended December 31,

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Operating lease liabilities - non-current

Future minimum lease payments under non-cancelable operating leases (with initial lease terms in excess of one year) as of December 31, 2021 (in thousands):

Maturities of our operating lease payments as of December 31, 2022, are as follows (in thousands):

Year ending December 31:

Total minimum lease payments

Total undiscounted payments

imputed interest

Present value of minimum lease payments

Operating lease liabilities - current

Operating lease liabilities - non-current

Our weighted-average remaining lease term and weighted-average discount rate are as follows:

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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,

bonus, and fringe benefits.

Additionally, under certain termination conditions, such contracts provide for severance payments under the Company’s Severance Plan, including payment of base salary, bonus, and fringe benefits.

The contracts include certain noncompete clauses commencing upon the employee’s separation from the Company.

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.

The Company intends to vigorously defend all matters in which the Company is named as a defendant, and, for insurable losses, maintain significant levels of insurance to protect against adverse judgments, claims or assessments that may affect the Company.

claims or litigation, if any, in which the Company is involved will materially affect the Company’s consolidated financial condition or results of operations.

NOTE S - RELATED-PARTY TRANSACTIONS

The Company determined that 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 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 its sale to the investee.

The primary interest held by AerLine was 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 as of December 31, 2021.

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.

On November 10, 2021, AerLine, a former consolidated VIE, transferred its ownership in equity investments to the Company in settlement of amounts owed to the Company.

As a result, the Company’s $ 5.4 million balance due from AerLine was reclassified to Investment on the Company’s Consolidated Balance Sheet.

Based on the financial deterioration of the undelaying company in which the Company held an equity investment, 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 unrealized loss on investment for the year ended December 31, 2021.

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Nondiscretionary contributions

NOTE U - BUSINESS COMBINATIONS

Reverse Merger

As described in Note B - 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 all issued in 2021.

The Merger has been accounted for as a Reverse Recapitalization in accordance with U.S.

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 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.

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data