UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2022
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
_____
to
____
Commission File No. 001-39704
EVE HOLDING, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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85-2549808
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1400 General Aviation Drive,
Melbourne, FL
32935
(Address of Principal Executive Offices, including zip
code)
(321) 751-5050
(Registrant’s telephone number, including area code)
N/A
(Former name
and
address, if changed since last report)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Trading
symbol(s)
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Name of each exchange
on which registered
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Common Stock, par value $0.001 per share
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EVEX
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The New York Stock Exchange
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Warrants, each whole warrant exercisable for one share of Common
Stock
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EVEXW
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The New York Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes
☒
No
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, anon-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large
accelerated filer
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Accelerated
filer
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Non-accelerated
filer
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☒
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Smaller
reporting company
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Emerging growth
company
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☒
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If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by
check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes ☐
No
☒
As of December
23, 2022, there were
266,371,485 shares of common stock, $0.001 par value,
issued and outstanding.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements other than statements of historical facts
contained in this Quarterly Report on Form 10-Q, including
statements regarding our future results of operations or financial
condition, business strategy and plans, and objectives of
management for future operations, are forward-looking statements.
In some cases, you can identify forward-looking statements because
they contain words such as “anticipate,” “believe,” “contemplate,”
“continue,” “could,” “estimate,” “expect,” “hope,” “intend,” “may,”
“might,” “objective,” “ongoing,” “plan,” “potential,” “predict,”
“project,” “should,” “target,” “will,” or “would” or similar terms
or expressions or the negative thereof. These forward-looking
statements include, but are not limited to, statements concerning
the following:
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our ability to raise financing in
the future;
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our success in retaining or
recruiting, or changes required in, our officers, key employees or
directors;
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the impact of the regulatory
environment and complexities with compliance related to such
environment;
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factors relating to our publicly
traded securities and our business, operations and financial
performance, including:
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the impact of the COVID-19
pandemic;
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our ability to maintain an effective
system of internal controls over financial reporting;
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our ability to grow market share in
our existing markets or any new markets we may enter;
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our ability to respond to general
economic conditions;
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the impact of foreign currency,
interest rate, exchange rate and commodity price
fluctuations;
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our ability to manage our growth
effectively;
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our ability to achieve and maintain
profitability in the future;
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our ability to access sources of
capital to finance operations and growth; and
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the success of our strategic
relationships with third parties.
The
list above is not intended to be an exhaustive list of all of our
forward-looking statements. Our forward-looking statements are
based on information available as of the date of this Quarterly
Report on Form 10-Q and current expectations, forecasts and
assumptions, and involve a number of judgments, risks and
uncertainties. While we believe these expectations, forecasts,
assumptions and judgments are reasonable, our forward-looking
statements are only predictions and involve known and unknown risks
and uncertainties, many of which are beyond our control. Our
business, prospects, financial condition, operating results and the
price of our common stock may be affected by a number of factors,
whether currently known or unknown, including but not limited to
those discussed in this Quarterly Report in Part I., Item 1.
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and the section titled “Risk Factors” in our
Form S-1/A filed with the Securities and Exchange Commission on
August 25, 2022. Any one or more of these factors could, directly
or indirectly, cause our actual results, performance or
achievements to differ materially from any future results,
performance or achievements expressed or implied by these
forward-looking statements. Accordingly, forward-looking statements
should not be relied upon as representing our views as of any
subsequent date, and we do not undertake any obligation to update
forward-looking statements to reflect events or circumstances after
the date they were made, whether as a result of new information,
future events or otherwise, except as may be required under
applicable securities laws.
As a
result of a number of known and unknown risks and uncertainties,
our actual results or performance may be materially different from
those expressed or implied by these forward-looking statements. You
should not place undue reliance on these forward-looking
statements.
Unless
the context otherwise requires, references in this Quarterly Report
on Form 10-Q to the “Company,” "Eve" “Eve Holding,” “we,” “us” and
“our” refer to Eve Holding, Inc.
Eve Holding,
Inc.
(FORMERLY EVE
UAM, LLC)
(in US Dollars)
1. Organization
and Nature of Business
The Company and Nature of Business
Eve Holding, Inc. (together with its subsidiaries, as applicable,
“Eve”, the “Company”, “we”, “us” or “our”), a Delaware corporation,
is an aerospace company with operations in Melbourne, Florida and
Brazil. The Company is a former blank check company incorporated on
November 19, 2020 under the name Zanite Acquisition Corp.
(“Zanite”) as a Delaware corporation and formed for the purpose of
effecting a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or similar business combination with
one or more businesses.
Eve is dedicated to accelerating the urban air mobility ("UAM")
ecosystem. Benefitting from a startup mindset and with a singular
focus, Eve is taking a holistic approach to progressing the UAM
ecosystem, with an advanced
electrical vertical take-off and landing (“eVTOL”) project,
a comprehensive global services and support network and a unique
air traffic management solution.
Business Combination
On December 21, 2021, Zanite entered into a Business Combination
Agreement (the “Business Combination Agreement”) with Embraer S.A.,
a Brazilian corporation (sociedade anônima) (“ERJ”), Embraer
Aircraft Holding, Inc., a Delaware corporation (“EAH”) wholly owned
by ERJ, and EVE UAM, LLC, a Delaware limited liability company
(“Eve Sub”), a former subsidiary of EAH, that was formed for
purposes of conducting the UAM Business (as defined in the Business
Combination Agreement).
On May 9, 2022, in accordance with the Business Combination
Agreement, the closing (the "Closing") of the transactions
contemplated by the Business Combination Agreement (the “Business
Combination”) occurred, pursuant to which Zanite issued 220,000,000
shares of Class A common stock to EAH in exchange for the transfer
by EAH to Zanite of all of the issued and outstanding limited
liability company interests of Eve Sub (the “Equity Exchange”). As
a result of the Business Combination, Eve is now a wholly-owned
subsidiary of Zanite, which has changed its name to “Eve Holding,
Inc.”
On December 21, 2021, December 24, 2021, March 9, 2022, March 16,
2022 and April 4, 2022, in connection with the Business
Combination, Zanite entered into subscription agreements or
amendments thereto (as amended from time to time, the “Subscription
Agreements”) with certain investors, including certain strategic
investors and/or investors with existing relationships with ERJ
(the “Strategic Investors”), Zanite Sponsor LLC, a Delaware limited
liability company (the “Sponsor”), and EAH (collectively, the “PIPE
Investors”), pursuant to which, and on the terms and subject to the
conditions of which, Zanite agreed to issue and sell to the PIPE
Investors in private placements to close immediately prior to the
Closing, an aggregate of 35,730,000 shares of Class A common stock
at a purchase price of $10.00
per share, for an aggregate purchase price of $357,300,000, which
included the commitment of the Sponsor to purchase 2,500,000 shares
of Class A common stock for a purchase price of $25,000,000 and the
commitment of EAH to purchase 18,500,000 shares of Class A common
stock for a purchase price of $185,000,000 (the “PIPE Investment”).
The PIPE Investment was consummated substantially concurrently with
the Closing.
Upon Closing, all shares of Zanite Class A and Class B common stock
were converted into, on a one-for-one basis,
shares of common stock of Eve Holding.
Both ERJ and Zanite's sponsors incurred costs in connection with
the business combination ("Transaction Costs”). The Transaction
Costs that were determined to be directly attributable and
incremental to the Company and incurred related to the Business
Combination were deferred and recorded as other assets in the
balance sheet until the Closing. Such costs were subsequently
recorded either as an expense of the Business Combination or a
reduction of cash contributed with a corresponding reduction of
additional paid-in capital if they were attributable to one or
multiple sub-transactions of the Business
Combination.
Accounting Treatment of the Business
Combination
The Business Combination was accounted for as a reverse
recapitalization, equivalent to the issuance of shares by Eve Sub
for the net monetary assets of Zanite accompanied by a
recapitalization. Accordingly, the consolidated assets, liabilities
and results of operations of Eve Sub (or the "UAM Business", as
applicable) became the historical financial statements of the
Company, and the assets, liabilities and results of operations of
Zanite were consolidated with Eve Sub beginning on the Closing
date. For accounting purposes, the financial statements of the
Company represent a continuation of the financial statements of Eve
Sub. The net assets of Zanite were recorded at historical costs,
with no goodwill or other intangible assets recorded. Operations
prior to the transaction are presented as those of Eve Sub (or the
"UAM Business", as applicable) in future reports of the
Company.
The financial statements
included in this report reflect (i) the historical operating
results of Eve Sub prior to the Business Combination; (ii) the
combined results of
Eve Sub and Zanite following the Closing;
(iii) the assets and liabilities of Eve Sub at their historical
cost; and (iv) the Company’s equity structure for all periods
presented.
EAH did not lose control over Eve Sub as a result of the Closing
because EAH held approximately 90% of Eve’s shares immediately
after the Closing. Therefore, the transaction did not result in a
change in control that would otherwise necessitate business
combination accounting.
Transaction costs incurred during
the period from the first quarter of 2021 to the second quarter of
2022 related to the transaction with Zanite (Transaction Costs)
were reviewed to conclude if they were direct and incremental to
the Business Combination and which entity was the primary
beneficiary. Direct and incremental costs were deferred to the
extent permitted by the accounting standards by the primary
beneficiary entity. Transaction Costs not considered to be direct
and incremental were expensed by the primary beneficiary
entity.
COVID-19
Pandemic
The World Health Organization declared a global emergency on
January 30, 2020 with respect to the outbreak of a novel strain of
coronavirus, or COVID-19 pandemic. There are many
uncertainties regarding the continuing
global COVID-19 pandemic, the full impact of which
continues to evolve as of the date hereof. Eve is closely
monitoring the COVID-19 pandemic situation and its
impacts on its employees, operations, the global economy, the
supply and the demand for its products and services, including the
UAM Business.
The full magnitude that the pandemic will have on the Company’s
financial condition, liquidity, and future results of operations
remains uncertain. Management is actively monitoring the situation
on its operations, suppliers, industry, and
workforce.
3.
Summary of
Significant Accounting
Policies
Basis of Presentation
Prior to the separation from
ERJ, Eve Sub has historically operated as part of ERJ and not as a
standalone company. The audited combined financial statements as of
and for the year ended December 31, 2021,
and for
periods prior to December 31, 2021,
have been derived from ERJ and
EAH historical accounting records and are presented on a carve-out
basis. As of January 1, 2022, Eve Sub began accounting for its
financial activities as an independent
entity.
The balances of Eve Soluções de
Mobilidade Aérea Urbana Ltda.
("Eve Brazil"), a
direct wholly-owned subsidiary of Eve, that were recorded in a
foreign currency, were converted/translated into its functional
currency, the US dollar, before being presented on the consolidated
financial statements.
ERJ started
charging the UAM business related R&D and G&A expenses to
Eve through the Master Service Agreement (the "MSA") and Shared
Service Agreement (the "SSA"). Therefore, there was no need to
continue carving out expenses from ERJ and
EAH.
All intercompany
transactions’ balances between Eve Sub, and Eve Brazil (collectively, the "Eve
Entities") were eliminated.
Until the Closing date, the unaudited condensed consolidated
financial statements of Eve Sub reflect the assets, liabilities,
and expenses that management determined to be specifically
attributable to Eve Sub, as well as allocations of certain
corporate level assets, liabilities and expenses, deemed necessary
to fairly present the financial position, results of operations and
cash flows of Eve, as discussed further below. Management believes
that the assumptions used as basis for the allocations of expenses,
direct and indirect, as well as assets and liabilities in the
unaudited condensed consolidated financial statements are
reasonable. However, these allocations may not be indicative of the
actual amounts that would have been recorded had Eve operated as an
independent, publicly traded company for the periods
presented.
Prior to May 9, 2022, as a part of ERJ, Eve Sub was dependent upon
ERJ for all of its working capital and financing requirements, as
ERJ uses a centralized approach to cash management and financing
its operations. Accordingly, cash and cash equivalents, debt or
related interest expense have not been allocated to Eve its the
unaudited condensed consolidated financial statements. Financing
transactions related to Eve were accounted for as a component of
Net Parent Investment in the unaudited consolidated balance sheets
and as a financing activity on the accompanying unaudited condensed
consolidated statements of cash flows.
The accompanying financial statements are presented in U.S. dollars
and have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”)
and pursuant to the accounting and disclosure rules and regulations
of the SEC.
Change
in carve-out methodology
The carve-out methodology was used since Eve Sub’s inception in
2017 until the Closing date. Thus, after May 9, 2022, no carve-out
amounts were included in Eve’s financial statements.
As of the Closing, ERJ concluded that all the assets and
liabilities of Eve Sub were contributed by ERJ. No other assets or
liabilities are evaluated to be attributable to Eve Sub,
eliminating the necessity to allocate a portion of ERJ’s assets and
liabilities to Eve on a carve-out basis. Thus, Management deemed it
to be more appropriate to adopt a legal entity approach as of
January 1, 2022, rather than a management approach.
The management approach takes into consideration the assets that
are being transferred to determine the most appropriate financial
statement presentation. A management approach may also be
appropriate when a parent entity needs to prepare financial
statements for the sale of a legal entity, but prior to
divestiture, certain significant operations of the legal entity are
contributed to the parent in a common control transaction. On the
other hand, the legal entity approach is often appropriate in
circumstances when the transaction structure is aligned with the
legal entity structure of the divested entity. One example would be
when shares of a legal entity or a consolidated group of legal
entities are divested. If the legal entity approach is deemed
appropriate, all historical results of the legal entity, including
those that are not ultimately transferred, should be presented in
the historical financial statements through the date of
transfer.
On December 14,
2021, the Company signed with ERJ the MSA and the SSA, through
which ERJ charges Eve Sub for a significant part of the expenses
Eve Sub was previously carving out. As previously explained, only a
minor portion of Eve’s expenses, comprised of general overhead
expenses, were allocated to Eve in order to better present its
results in a stand-alone basis. For additional discussion of the
MSA and SSA, refer to Note 5
Related Party Transactions.
Since the financial activities from the MSA and SSA signature
date to December 31, 2021 were immaterial, Management chose
to continue with the management approach for all of the year ended
December 31, 2021 and to use the legal entity approach beginning
January 1, 2022. Management continued to use the legal
entity approach until the Business Combination was
consummated on May 9, 2022 (i.e. after this date no
carve-out amounts were added to Eve's financial
statements). The
Company has recorded the impacts of the balance sheet adjustment
(i.e. separation-related adjustment) for the change in methodology
as adjustments to the January 1, 2022 beginning balance sheet and
not as a period activity attributable to the nine-month
period ended September 30,
2022. The January 1, 2022 beginning balance sheet
adjustments from the December 31, 2021 balances were as
follows:
Separation-related adjustments
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As of December 31, |
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Separation-Related
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As of January 1, |
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2021 |
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Adjustment |
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2022 |
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Assets |
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Current: |
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Cash and equivalents |
$ |
14,376,523 |
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$
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(8 |
) |
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$ |
14,376,515 |
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Related party receivables |
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220,000 |
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- |
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220,000 |
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Other current assets |
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6,274,397 |
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(8,567 |
) |
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6,265,830 |
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Total current assets |
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20,870,920 |
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(8,575 |
) |
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20,862,345 |
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Capitalized software, net |
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699,753 |
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(699,753 |
) |
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- |
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Total assets |
$ |
21,570,673 |
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$ |
(708,328 |
) |
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$ |
20,862,345 |
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Liabilities and Net Parent Equity |
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Current: |
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Accounts payable
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877,641 |
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(718,232 |
) |
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159,409 |
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Related party payables
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8,642,340
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1,110,032
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9,752,372
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Derivative financial instruments |
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32,226 |
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(32,226 |
) |
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- |
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Other payables
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616,156 |
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(94,361 |
) |
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521,795 |
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Total current liabilities |
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10,168,363 |
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265,213 |
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10,433,576 |
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Other noncurrent payables |
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702,921 |
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(297,921 |
) |
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405,000 |
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10,871,284 |
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(32,708 |
) |
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10,838,576 |
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Net parent equity |
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Net parent investment |
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10,731,615 |
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(707,846 |
) |
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10,023,769 |
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Accumulated other comprehensive income/ (loss) |
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(32,226 |
) |
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32,226 |
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- |
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Total net parent equity |
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10,699,389 |
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(675,620 |
) |
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10,023,769 |
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Total liabilities and net parent equity |
$ |
21,570,673 |
|
|
$ |
(708,328 |
) |
|
$ |
20,862,345 |
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Management considers the legal
entity approach to be the most meaningful representation of Eve’s
standalone carve-out financial
statements.
The change in the carve-out approach impacted the unaudited
condensed consolidated statements of cash flow until May 9, 2022.
Amounts that were previously presented as Transfer from Parent are
now presented as a noncash item contributed by the
Parent.
For periods ended as of or prior to December 31, 2021, the
unaudited condensed consolidated financial information includes
both direct and indirect expenses. The historical direct expenses
consist primarily of personnel-related
costs (including salaries, labor taxes, profit sharing program,
benefits, short
and long-term
incentive) of
research and development employees directly involved in UAM activities,
research expenses, facilities depreciation and
others. The indirect expenses consist of personnel-related
costs (including salaries, labor
taxes, profit sharing program, benefits, short and long
term incentive) allocated
to Eve and
general and administrative overhead, including expenses for
information systems, accounting, other financial services (such as
treasury, audit and purchasing), human resources, legal, and
facilities, allocated as per headcount of employees exclusively
involved in UAM activities
compared to the total headcount of all ERJ employees or using an
expense input comparing the total R&D expenses of Eve against
the total R&D expenses of
ERJ’s market accelerator and disruptive business innovation
company, EmbraerX. Eve has
calculated its income tax amounts using a separate return
methodology and it has presented these amounts as if it were a
separate taxpayer from ERJ and EAH.
For periods ended as of or prior to December 31, 2021, the
unaudited condensed consolidated balance sheets of Eve
also include other
assets, capitalized
software,
accounts payable and
other payables that were allocated on a specific identification
basis. Derivative instruments used to hedge the salaries for
employees directly involved in UAM activities
were allocated by comparing the salaries of these employees in
Brazilian reais (“BRL” or “R$”) against the total employees’
salaries of ERJ in
BRL, and for employees not directly involved in UAM activities
the expense input approach using R&D metrics, noted above, was
used to allocate the Derivatives instruments. Incentive payments received
in advance, which were related
to service
arrangements to
process employee payroll were allocated
based on a headcount proportion basis.
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 statements with another public company which is not 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.
Functional and
reporting
currency
Management has concluded that the US dollar ("USD") is the
functional and reporting currency of Eve. Therefore, the condensed
consolidated financial statements that were derived from Eve
entities’ financial statements are presented in USD.
The foreign currency gains and losses are related to transactions
with suppliers recognized in the functional currency, USD, but
settled in BRL. The impacts were recognized in “Financial and foreign exchange gain/ (loss),
net” within the consolidated statements of
operations.
Use of Estimates
The preparation of condensed consolidated financial statements in
accordance with U.S. GAAP requires the Company’s management to make
estimates and judgments that affected the reported amounts of
assets and liabilities and allocations of expenses. These judgments
were based on the historical experience, management’s evaluation of
trends in the industry and other factors that were deemed relevant
at that time. The estimates and assumptions were reviewed on a
regular basis and the changes to accounting estimates were
recognized in the period in which the estimates were revised. The
Company’s management recognize that the actual results could be
materially different from the estimates. Until December 31, 2021,
under the management approach, the significant
estimates inherent in the preparation of the unaudited condensed
consolidated financial statements include, but are not limited to,
useful lives of capitalized software, net, accrued liabilities,
income taxes including deferred tax assets and liabilities. Under
the legal entity approach, the significant estimates
include, but are not limited
to the New Warrants measurement, the allocation of expenses paid
ERJ and EAH, fair value measurement and income
taxes.
Cash and Cash Equivalents
Cash and cash equivalents include bank deposits and highly liquid
short-term investments, usually maturing within 90 days of the
investment date, readily convertible into a known amount of cash
and subject to an insignificant risk of change in value.
Financial Investments
Our financial investments
consist in time deposits (investment available in USD, in which a
determined amount is invested for a period of time with a fixed
interest rate) with maturity dates over 90 days.
Fair Value Measurements
Eve applies
the provisions of Accounting Standards Codification (“ASC”)
820,
Fair Value Measurement,
which sets out a framework for measuring fair value and required
disclosures about fair value measurements. The provisions of ASC
820 relate to financial assets and liabilities as well as other
assets and liabilities carried at fair value on a recurring and
nonrecurring basis. The standard clarifies that fair value is an
exit price, representing the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a market-based
measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. As
a basis for considering such assumptions, the standard establishes
a three-tier value hierarchy, which prioritizes the inputs used in
measuring fair value as follows:
Level - 1
-
Unadjusted quoted prices in active markets for identical assets or
liabilities accessible to the reporting entity at the measurement
date.
Level - 2
-
Other than quoted prices included in Level 1 inputs that are
observable for the asset or liability, either directly or
indirectly, for substantially the full term of the asset or
liability.
Level
- 3
-
Unobservable inputs for the asset or liability used to measure fair
value to the extent that observable inputs are not available,
thereby allowing for situations in which there is little, if any,
market activity for the asset or liability at the measurement
date.
The
carrying amounts of the
Company’s
other assets,
related party receivables and payables, accounts
payables
and other payables,
except for the
long-term incentive plan, advances from customers and the
derivative financial instruments,
approximate fair value due to the short-term nature of these
instruments.
The
fair value of the
liabilities related to the long-term
incentive plan
included in
other
payables was
determined
using the Level
1
inputs.
The fair value of the
derivative
instruments,
accounted for based on hedge accounting (see below),
was
determined
using the Level 2 or Level 3 inputs.
The fair value of the warrants was determined using Level
1 input
except for certain warrants whose fair value was estimated based on
Level 2 inputs.
Hedge accounting
Until December 31, 2021, the Company accounted for certain
derivative instruments under the cash flow hedge accounting
methodology to hedge against the payroll cash flow volatility
attributable to a risk of foreign exchange rate fluctuation
associated with highly probable forecast transactions that will
affect income or loss for the year. Effective January 1, 2022, no
hedge transactions were observed since the derivative contracts
were not transferred to Eve.
The Company recognizes all derivative instruments as either assets
or liabilities in the balance sheet at their respective fair
values. For derivatives designated in hedging relationships changes
in the fair value are recognized in Accumulated Other Comprehensive
Loss (“AOCI”), to the extent the derivative is effective at
offsetting the changes in cash flows being hedged until the hedged
item affects earnings. The cash flow impact of the derivative
instruments is included in our combined statement of cash flows in
net cash used in operating activities.
The Company only enters into derivative contracts that it intends
to designate as a hedge of a forecasted transaction or the
variability of cash flows to be received or paid related to a
recognized asset or liability (cash flow hedge). For all hedging
relationships, Eve formally documents the hedging relationship and
its risk-management objective and strategy for undertaking the
hedge, the hedging instrument, the hedged transaction, the nature
of the risk being hedged, how the hedging instrument’s
effectiveness in offsetting the hedged risk will be assessed
prospectively and retrospectively, and a description of the method
used to measure ineffectiveness. The Company also formally
assesses, both at the inception of the hedging relationship and on
an ongoing basis, whether the derivatives that are used in hedging
relationships are highly effective in offsetting changes in cash
flows of hedged transactions. For derivative instruments that are
designated and qualify as part of a cash flow hedging relationship,
the effective portion of the gain or loss on the derivative is
reported as a component of other comprehensive loss and
reclassified into earnings in the same period or periods during
which the hedged transaction affects earnings. Gains and losses on
the derivative representing either hedge ineffectiveness or hedge
components excluded from the assessment of effectiveness are
recognized in current earnings.
Eve discontinues hedge accounting prospectively when it determines
that the derivative is no longer effective in offsetting cash flows
attributable to the hedged risk, the derivative expires or is sold,
terminated, or exercised, the cash flow hedge is designated because
a forecasted transaction is not probable of occurring, or
management determines to remove the designation of the cash flow
hedge. Additionally, when it is probable that a forecasted
transaction will not occur, Eve recognizes immediately in earnings
gains and losses that were accumulated in other comprehensive loss
related to the hedging relationship.
In all situations in which hedge accounting is discontinued and the
derivative remains outstanding, Eve continues
to carry the derivative at its fair value on the balance sheet and
recognizes any subsequent changes in its fair value in
earnings.
Capitalized software, net
Eve had capitalized software until December 31, 2021,
consisting of
software licenses that were recorded at cost, net of accumulated
amortization, and if applicable, impairment charges. Software
licenses are amortized over their useful lives which is
approximately 5 years
on a straight-line basis. Eve reviews
intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable.
Long-term
incentive plan
Until December 31, 2021, Eve carved-out certain amounts related to
the ERJ long-term incentive plan ("LTIP"). The LTIP plan
has the objective of retaining and attracting qualified personnel
who will make an effective contribution to Eve’s
future performance.
The plan is a cash-settled
phantom shares plan, in which the amounts attributed to the
services provided by the participants are converted into virtual
share units based on the market value of
ERJ’s shares. At the end of the acquisition period the
participant receives the quantity of virtual shares converted
into
BRL,
at the shares’ current market value. Eve
recognizes the obligation during the acquisition period (quantity
of virtual shares proportional to the period) in the same group as
the participant’s normal remuneration. This obligation is presented
within the line-item entitled
“Other
payable,” and
the fair value is calculated based on the market price of the
shares and recorded as
“General and administrative” expenses in
the unaudited condensed
consolidated statements
of
operations.
As of June 30, 2022, Eve has assumed obligations under the LTIP
towards certain employees transferred from ERJ to Eve.
Eve has its own remuneration plan, the 2022 Stock Incentive Plan,
which grants
its employees, management and, officers restricted stock units
(RSUs) of our common stock. We recognize stock-based compensation
expense in accordance with the provisions of ASC 718,
Compensation
- Stock Compensation.
ASC 718 requires the measurement and recognition of compensation
expense for all stock-based compensation awards made to employees,
management, and non-employees to be based on the grant date fair
values of the awards. Forfeitures of stock-based compensation
granted to employees are recognized when the forfeitures
occur.
We estimate the fair value of share options with market conditions
using the Monte
Carlo simulation option-pricing model. The fair value of the
RSU's without market conditions equals Eve's share price on
the grant-date. The fair value of awards are recognized as expense
over the requisite service period on a straight-line
basis. Determining
the grant date fair value of the awards using the
Monte Carlo option-pricing models requires management to
make assumptions and judgments, including but not limited to the
following:
Stock
price – for all
RSUs, the underlying stock price is based on the closing price as
of the grant date;
Vesting period
— The estimate
of the expected term of performance conditions is determined based
on management’s best estimate of when the milestones will be
achieved. As of May 9, 2022, milestones of certain tranches had
already been met, thus, no estimation was necessary.
Also, there are RSUs which becomes vested by the time certain
market conditions are achieved (e.g., Eve reaches certain market
capitalization established on RSUs contracts).
Expected
volatility
—
Since Eve’s stock has only been publicly traded on NYSE since May
2022, there is insufficient historical data on the volatility of
Eve's common stock. Therefore, the expected volatility was
estimated considering the average volatility of comparable publicly
listed companies’
stocks
and the expected volatility implied on the Company's public
warrants traded on NYSE.
Risk-free interest
rate — The risk-free interest
rate used to value awards is based on the United States Treasury
yield in effect at the time of grant for a period consistent with
the expected term of the award.
Dividend yield
— We have
never declared or paid any cash dividends and do not presently plan
to pay cash dividends in the foreseeable future.
Forfeiture rate —
We have elected to account for forfeitures as they occur and will
record stock-based compensation expense assuming all option holders
will complete the requisite service period. If a grantee forfeits
an award because he fails to complete the requisite service period,
we will reverse stock-based compensation expense previously
recognized in the period the award is
forfeited.
As of
September 30, 2022, Eve has granted six tranches of its 2022
Stock Incentive Plan (Granted Tranches). Four of the Granted
Tranches have performance conditions only, one has service
conditions only and one has market and service
conditions.
For awards with market conditions
below are the following assumptions used in the fair value
measurement:
|
|
May
9,
|
|
|
|
2022
|
|
|
|
(as restated)
|
|
|
Share Price (SO)
- US$ |
$ |
11.32 |
|
|
Maturity Date |
|
05/09/27 |
|
|
Time (T) - Years |
|
4.98 |
|
|
Strike Price (X) |
$
|
- |
|
|
Risk-free Rate (r) |
|
2.95 |
% |
|
Volatility (σ) |
|
47.17 |
% |
|
Dividend Yield (q) |
|
0.00 |
% |
|
RSU Value (US$) |
$ |
17.01 |
|
Research and Development (R&D)
R&D efforts are focused on design and development of our eVTOL,
UATM and Service and Support projects to achieve manufacturing and
commercial stage. Under U.S. GAAP, R&D costs are expensed as
incurred and are primarily comprised of personnel-related costs
(including salaries, labor taxes, profit sharing program, benefits,
short and long-term incentive) for employees focused on R&D
activities, supplies and materials costs. Until December 31, 2021
most of these expenses were carved-out from ERJ. Effective January
1, 2022, ERJ started charging Eve Sub for most of such costs under
the MSA (see Note
5 for more details about the MSA).
Selling, General and Administrative
Until December 31, 2021, general and administrative expenses
primarily consisted of allocated expenses from ERJ and EAH of
personnel-related costs (including salaries, labor taxes, profit
sharing program, benefits, short- and long-term incentives),
information systems, accounting, other financial services (such as
treasury, audit and purchasing), human resources, legal,
facilities, and other corporate expenses. Prior to December
31, 2021, such expenses were allocated to the UAM Business
based on the most relevant allocation method for the services
provided, primarily based on headcount of employees exclusively
involved in the UAM Business’ activities compared to the total
headcount of all ERJ employees as these measures reflect the
historical utilization levels.
Effective January 1, 2022, all selling, general and administrative
expenses were incurred by Eve entities.
Selling expenses consist of personnel expenses, including salaries,
benefits, contractor and travel expenses aiming the UAM business
development and to support our commercialization
efforts.
Expenses related to the Transaction Costs contributed by ERJ and
EAH were also recognized as selling, general and administrative
expenses.
New
Warrants expenses
Eve issued or agreed to issue New Warrants to potential customers,
financiers and suppliers. See more details in Note 11. The New
Warrants were recognized by Eve at their respective fair
values
as an operating expense (since Eve has no current revenue or
binding contracts in place). The recognized expenses for these
warrants amounted to $17,424,230 and $104,776,230 for the three and
nine months ended September 30, 2022. No subsequent
remeasurement is required
since they are equity classified.
Income Taxes
The deferred income taxes are generally recognized, based on
enacted tax rates, when assets and liabilities have different
values for financial statement and tax purposes.
Eve
has calculated its income tax amounts using a separate return
methodology.
Under this method, Eve assumes
it will file separate returns with tax authorities, thereby
reporting its taxable income or loss and paying the applicable tax
to or receiving the appropriate refund from
EAH.
As a result,
Eve’s
deferred tax balances and effective tax rate as a stand-alone
entity will likely differ significantly from those recognized in
historical periods. A
valuation allowance is appropriate if it is more likely than not
all or a portion of deferred tax assets will not be
realized. The calculation of income taxes on a separate
return basis requires a considerable amount of judgment and use of
both estimates and allocations.
The tax loss carryforwards and valuation allowances reflected in
the unaudited condensed consolidated financial statements are based
on a hypothetical stand-alone income tax return basis and may not
exist in the
ERJ
consolidated financial statements.
Eve
accounts for uncertain income tax positions recognized in the
unaudited condensed
consolidated financial
statements by applying a two-step process to determine the amount
of tax benefit to be recognized. First, the tax position must be
evaluated to determine the likelihood that it will be sustained
upon external examination by the taxing authorities. If the tax
position is deemed more-likely-than-not to be sustained, the tax
position is then assessed to determine the amount of benefit
to
be
recognized
in the unaudited condensed consolidated
financial statements. The amount of the benefit that may be
recognized is the largest amount that has a greater than 50%
likelihood of being realized upon ultimate settlement. The
provision for income taxes includes the effects of any resulting
tax reserves, or unrecognized tax benefits, that are considered
appropriate as well as the related net interest and
penalties.
Segments
Operating segment information is presented in a manner consistent
with the internal reports provided to the Chief Operating Decision
Makers (“CODMs”). The CODMs, who are responsible for allocating
resources among and assessing the performance of the operating
segments and for making strategic decisions, are Eve’s Co-Chief
Executive Officers. Given Eve’s pre-revenue operating
stage, it currently has no concentration exposure to products,
services or customers. Eve has determined that it currently
operates in three different operating and reportable segments as
the CODMs assess the operation results by the different R&D
projects, as follows:
eVTOL:
the aircraft is in the preliminary design stage of development.
This vehicle
is expected to have vertical lift and horizontal propulsion
electric motors.
Eve’s eVTOL
has been in
an
incubation stage for
over
4 years. The certification is proposed to be first with ANAC
(the
National Civil Aviation Agency
of
Brazil) and in parallel with
the U.S.
Federal Aviation Administration.
UATM: the segment will provide traffic management services to
vehicles operating in the UAM Operating Environment (“UOE”).
UATM will be a system of systems focused on improving the
efficiency and safety of UAM operations. UATM systems will
focus
on
existing and emerging operators of both the vehicles (fleet
operators) and ground infrastructure (vertiport/heliport
operators).
Service and Support: a
full suite of eVTOL service and support capabilities, including
material services, maintenance, technical support, training, ground
handling and data services. Our services will be offered on an
agnostic basis – supporting both our eVTOL and those produced by
third-parties. We expect to leverage the global support network of
ERJ to deploy our eVTOL services in an efficient, cost-effective
and scalable manner.
The CODMs receive information related to the operating results
based on the directly attributable cost by each R&D project. As
Eve Sub was operated within the ERJ corporate infrastructure, the
indirect costs were not included in the information analyzed by the
CODMs. Assets information by segment is not presented to the CODMs.
The information provided to the CODMs is as
follows:
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
|
Segments
|
|
2022 |
|
|
2021
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
(as restated) |
|
|
|
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