UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to ____
Commission File No.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices, including zip code)
(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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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
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
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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Emerging growth company |
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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
As of August 03, 2022, there were
EVE Holding, Inc.
(Formerly EVE UAM, LLC)
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:
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 July 29, 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.
| June 30, | December 31, | |||||||
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2021 |
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Other current assets |
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Total current assets |
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Capitalized software, net |
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Total assets |
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Liabilities and Stockholders' equity |
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Current: |
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Accounts payable |
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Other payables |
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Total current liabilities |
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Total liabilities |
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STOCKHOLDERS' EQUITY |
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Total liabilities and stockholders' equity |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-1 |
EVE Holding, Inc.
(FORMERLY EVE UAM, LLC)
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Three Months Ended June 30, |
Six Months Ended June 30, | |||||||||||||
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2021 |
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Operating expenses |
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Research and development |
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Loss from operations |
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Financial and foreign exchange gain/(loss), net |
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Loss before income taxes |
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Net loss |
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| Weighted-average number of shares outstanding – basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-2 |
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Three Months Ended June 30, |
Six Months Ended June 30, | |||||||||||||
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2021 |
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Net loss |
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Derivative financial instruments - cash flow hedge |
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Total comprehensive loss |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 |
| Common Stock | ||||||||||||||||||||||||||||||||||||
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Net parent investment |
Additional paid-in capital |
Restricted stock units |
Public Warrants |
Accumulated deficit |
Accumulated other comprehensive loss |
Total Stockholders' equity |
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| Balance as of December 31, 2021 | $ | $ | $ | $ | - | $ | - | $ | ( |
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| Separation-related adjustment | - | - | ( |
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| Balance as of January 1, 2022 | $ | $ | $ | $ | - | $ | - | $ | ( |
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| Net loss | - | - | - |
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| Other comprehensive loss | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Contributions from Parent | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Capital contribution | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | $ | $ | ( |
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| Net loss | - | - | - | - | ( |
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| Reclassification of net parent company investment |
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| Reclassification of Public Warrants from liability to equity | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Issuance of common stock upon reverse recapitalization, net of fees | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Issuance of common stock under the 2022 Stock Incentive Plan | - | ( |
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| Issuance of common stock upon exercise of warrants held by PIPE investor | - | ( |
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| Contributions from Parent | - |
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| Balance as of June 30, 2022 | $ | $ | $ | $ |
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| F-4 |
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Common Stock |
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Shares |
Amount |
Net parent investment |
Additional paid-in capital |
Accumulated deficit | Accumulated other comprehensive loss |
Total Stockholders' equity |
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Balance as of December 31, 2020 |
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| Retroactive application of recapitalization | ( |
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| Balance as of January 1, 2021 | $ | $ | $ | $ | ( |
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Net loss |
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Other comprehensive loss |
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Contributions from Parent |
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Balance as of March 31, 2021 |
$ | $ | $ | $ | ( |
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Net loss |
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Other comprehensive loss |
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Contributions from Parent |
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Balance as of June 30, 2021 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-5 |
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Six Months Ended June 30, |
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2022 |
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2021 |
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Cash flows from operating activities: |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Amortization of capitalized software |
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Long-term incentive plan expense |
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Carve-out expenses (noncash, contributed from Parent)(i) |
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Changes in operating assets and liabilities: |
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Other assets |
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Related party receivable |
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Accounts payable |
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Other payables |
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Net cash used in operating activities |
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Cash flows from financing activities: |
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Transfer from Parent |
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Cash and cash equivalents at the beginning of the period |
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Cash and cash equivalents at the end of the period |
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$ |
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Supplemental disclosure of other noncash investing and financing activities |
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Additions to capitalized software transferred by Parent |
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(i) More details on Note 2.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-6 |
EVE Holding, Inc.
(FORMERLY EVE UAM, LLC)
1. Organization and Nature of Business
The Company and Nature of Business
Eve Holding, Inc. (“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 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
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
Upon Closing, all shares of Zanite Class A and Class B common stock were converted into, on a 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 Business Combination were deferred and recorded as other assets in the balance sheet until the Closing. Such costs amounted to $
Accounting Treatment of the Business Combination
The Business Combination was accounted for as a reverse recapitalization, equivalent to the issuance of shares by Eve for the net monetary assets of Zanite accompanied by a recapitalization. Accordingly, the consolidated assets, liabilities and results of operations of Eve (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 beginning on the Closing date. For accounting purposes, the financial statements of the Company represent a continuation of the financial statements of Eve. 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 (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 prior to the Business Combination; (ii) the combined results of Eve and Zanite following the Closing ; (iii) the assets and liabilities of Eve at their historical cost; and (iv) the Company’s equity structure for all periods presented.
EAH did not lose control over Eve as a result of the Closing because EAH held approximately
| F-7 |
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.
2. Summary of Significant Accounting Policies
Basis of Presentation
Prior to the separation from ERJ, Eve has historically operated as part of ERJ and not as a standalone company. The audited consolidated financial statements for the periods ended 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 began accounting for its financial activities as an independent entity. The unaudited condensed consolidated financial statements for the three and six-month periods ended June 30, 2022, consists of Eve’s accounting data, and, in a minor portion, certain EAH’s general and administrative expenses that still had to be carved out. The balances of Eve Soluções de Mobilidade Aérea Urbana Ltda. ("Eve Brazil"), an indirect wholly owned subsidiary of Eve, that were recorded in foreign currency and were converted/translated into its functional currency, the US dollar, before being presented on the consolidated financial statements. ERJ started charging the UAM related R&D and G&A expenses to Eve through the Master Service Agreement (MSA) and Shared Service Agreement (SSA). Therefore, there was no need to continue carving out most of the expenses from ERJ and EAH. Until the Closing date, the EAH’s incurred cost, which was attributed to the UAM Business and represents its cost of doing business, was carved out due to restrictions for EAH to charge Eve under the Master Service Agreement and the Shared Service Agreement. All intercompany transactions’ balances between Eve Holding, EVE UAM, LLC "Eve US" and Eve Brazil (collective, the "Eve Entities") were eliminated.
Until the Closing date, these unaudited condensed consolidated financial statements of Eve reflect the assets, liabilities, and expenses that management determined to be specifically attributable to Eve, 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 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 in 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.
The carve-out methodology was used since Eve’s inception 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 were contributed by ERJ. No other assets or liabilities are evaluated to be attributable to Eve or that would be transferred to Eve upon the completion of the Business Combination, 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.
| F-8 |
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 for a significant part of the expenses Eve was previously carving out. As previously explained, only a minor portion of Eve’s expenses, comprised of general overhead expenses, was allocated to Eve in order to better present its results in a stand-alone basis. With respect to the MSA and SSA, refer to Note 4 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 SPAC transaction 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 six-month period ended June 30, 2022. The January 1, 2022 beginning balance sheet adjustments from the December 31, 2021 balances were as follows:
Separation-related adjustments
| | As of December 31, | Separation-Related | As of January 1, | ||||||||
| | 2021 | Adjustment | 2022 | ||||||||
| Assets | | | |||||||||
| Current: | |||||||||||
| Cash and equivalents | $ | $ |
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| Other current assets | ( |
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| Total current assets | ( |
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| Total assets | ( |
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| Total current liabilities | |||||||||||
| Other noncurrent payables | ( |
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| ( |
) | ||||||||||
| Net parent equity | |||||||||||
| Net parent investment | ( |
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| Accumulated other comprehensive income/ (loss) | ( |
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| Total net parent equity | ( |
) | |||||||||
| Total liabilities and net parent equity | $ | $ | ( |
) | $ |
Therefore, 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.
| F-9 |
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 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 combined 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 combined statements of operations.
Use of Estimates
The preparation of condensed combined 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 combined 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, fair value measurement and income taxes.
| F-10 |
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 date over 90 days.
Fair Value Measurements
Eve applies the provisions of Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, 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 receivable and payable, accounts payables and other payables, except for the long-term incentive plan and the warrants, 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 was determined using the Level 2 or Level 3 inputs. The fair value of financial investments and the warrants were determined using Level 2 and Level 3 inputs, respectively.
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, the 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.
| F-11 |
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
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, non-employees 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. We estimate the fair value of share options using the Monte Carlo option-pricing model. The value of the award is recognized as expense over the requisite service period on a straight-line basis. Determining the grant date fair value of the awards using the Black-Scholes and Monte Carlo option-pricing models requires management to make assumptions and judgments, including but not limited to the following:
Vesting period — The estimate of the expected vesting period of performance conditions is determined based on management’s best estimate of when the milestones will be achieved. As of May 9, 2022, certain milestones had already been met, thus, no estimation was necessary.
Expected volatility — Since we were a private entity without sufficient historical data on the volatility of our common stock, the expected volatility used is based on the implied volatility of company’s public traded warrants.
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.
| F-12 |
| Input | May 9, 2022 | ||
| Risk-free interest rate | % | ||
| Expected term (years) | |||
| Expected volatility | % | ||
| Exercise price | $ | ||
| Dividend yield | % | ||
| Expected stock price at De-SPAC | $ | ||
| Probability-weighted average of additional shares to be issued for the forward contract | $ |
As of June 30, 2022, the Company has granted management
Out of the granted RSUs,
Research and Development
R&D efforts are focused on design and development of our eVTOL and UATM projects to achieve manufacturing and commercial stage. Under U.S. GAAP, R&D c