Business context and reporting period
Zanite Acquisition Corp. filed this unaudited Form 10-Q for the quarter ended March 31, 2022. It was a blank-check company pursuing a business combination and had not begun operating activities or generated operating revenue. The proposed transaction would acquire Eve UAM, LLC, a wholly owned Embraer subsidiary, and rename the combined company Eve Holding, Inc.; this filing is from Zanite, not Eve Holding.
Key financial metrics
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Operating revenue | None | None |
| Net income | $5.40 million | $11.75 million in Q1 2021 |
| General and administrative expense | $1.58 million | $0.38 million in Q1 2021 |
| Cash from operating activities | $(0.60) million | $(0.47) million in Q1 2021 |
| Cash outside trust | $24,678 | $475,339 at December 31, 2021 |
| Trust investments | $236.95 million | $236.93 million at December 31, 2021 |
| Total liabilities | $30.53 million | $36.37 million at December 31, 2021 |
| Related-party promissory note | $150,000 outstanding | None at December 31, 2021 |
Net income was driven primarily by a $6.95 million gain from the decrease in fair value of warrant liabilities, plus $21,121 of trust interest; it is not an indicator of operating profitability. The warrant liabilities were $16.62 million. Current liabilities were $5.86 million and management reported a working-capital deficit of approximately $5.75 million. Public shares subject to possible redemption were presented outside permanent equity at $236.90 million. The filing does not provide a meaningful operating margin; there was no operating revenue.
Material changes versus the prior comparable period
- Net income fell by about 54% year over year, as the fair-value gain on derivative liabilities was lower ($6.95 million versus $12.12 million).
- General and administrative expenses rose to $1.58 million from $377,151.
- Operating cash use increased to $600,661 from $468,462.
- Cash outside the trust declined by $450,661 during the quarter. Accounts payable and accrued expenses rose to $5.71 million from $4.74 million at year-end.
Transaction, outlook, and risks
- The December 2021 merger agreement provided for 220 million newly issued shares valued at $10 per share as consideration for Eve. As of March 16, 2022, PIPE subscriptions totaled 34.73 million shares for $347.3 million; an April 4 amendment increased the stated total to 35.73 million shares for $357.3 million.
- Strategic warrant agreements contemplated warrants for up to 35.65 million shares across the described agreements, with exercise prices including $0.01, $11.50, and $15.00; some issuances depended on closing or business milestones. These potential securities may dilute holders.
- The company had until May 19, 2022 to complete a business combination. Management expected to close the proposed transaction before that date, but gave no assurance of completion. Failure to close or obtain financing could require liquidation; management said this raised substantial doubt about the company’s ability to continue as a going concern through the deadline.
- Available operating cash was limited. The Sponsor had provided a non-interest-bearing facility of up to $2 million, of which $150,000 was drawn. Management noted that additional financing might be needed, including if redemptions were significant.
- Other transaction-related costs included an $8.05 million deferred underwriting fee payable only if a combination closed, $300,000 of contingent due-diligence fees, and investment-banking fees tied to PIPE proceeds. A separate advisory agreement provided for a $5 million contingent fee under its terms.
- The company reported no legal proceedings and no material changes to previously disclosed risk factors. COVID-19 could adversely affect its search or financial position, but the specific impact was not determinable. Disclosure controls were assessed as effective; no material internal-control changes were reported.
Important facts for investors to verify
- Whether the proposed Eve combination closed by the May 19, 2022 deadline, and the final transaction terms, redemptions, and financing proceeds.
- The conditions and timing for PIPE subscriptions and strategic warrants, including milestone triggers, price protections, and resulting dilution.
- How the company funded expenses given $24,678 of cash outside trust, its working-capital deficit, and the Sponsor note.
- The final amounts and treatment of contingent transaction fees and the deferred underwriting fee.
- That reported earnings were substantially attributable to non-cash warrant fair-value changes rather than revenue or operating cash generation.