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Exam Code: CEMAP-1 Practice exam 2023 by Killexams.com team
CEMAP-1 Certificate in Mortgage Advice and Practice (CeMAP)

The purpose and structure of the UK financial services industry

The Financial Conduct Authoritys (FCAs) main aims, activities and relevant Conduct of Business rules

The house-buying process and parties involved

The different types of customers and mortgages

How to assess the affordability and suitability of different mortgage options and associated products



Purpose and structure of the UK financial services industry.

• Financial Conduct Authority (FCAs) main aims, activities and relevant Conduct of Business rules.

• The house-buying process and parties involved.

• The different types of customer and their need for different types of mortgage.

• Assessment of affordability and suitability of different mortgage options and associated products.



- understand the structure and regulation of the UK financial services industry, asset classes and the interaction between the types of financial services products and clients requirements

- understand the main asset classes and features of financial services products, and the main financial advice areas

- understand the process of giving financial advice, the basic legal concepts, and the basic UK tax and benefits system

- understand the impact of inflation, interest rate volatility and other socio-economic factors relating to personal financial plans

- Detail Assess area

- understand the role of oversight groups, the requirements of the regulator and other laws relating to the provision of advice

- understand the non-tax laws, regulations and codes of conduct features of the regulators Conduct of Business Rules and how they apply to clients

- understand the regulator approach to regulation and how the rules affect the control and structures of firms

- understand how anti-money laundering regulations apply 7

- understand the main features of rules for dealing with complaints and how the Data Protection Act affects the provision of financial advice

- Detail Assess area

- know the regulatory definition of different types of mortgages, Buy to Let mortgages, Consumer Buy to Let mortgages, second charges and equity release

- know the house-buying process, the key parties involved and their roles 2

- know the process and implications of buying property at auction 3

- know the common types of borrower and how their main mortgage related requirements may differ and what factors may disqualify people from borrowing

- understand the main requirements of the Mortgage Conduct of Business Rules and the legislation affecting mortgages

- understand the economic and regulatory context for giving mortgage advice 6 Unit 4

Detail Assess area

- understand the role of a Mortgage Adviser 1

- understand the purpose of additional security, including the role of guarantors 2

- understand the fees and charges involved in arranging a mortgage 3

- know the principal types of property defect that surveys can identify and understand their implications when seeking a mortgage

- understand the principal factors affecting the value of property 5

- understand the different forms of valuation and survey 6

- understand the need to obtain Local Authority planning consent for house development/extensions

Detail Assess area

- understand the key features of the different types of mortgage repayment options and their benefits and drawbacks for different types of borrower

- understand the key features of the different types of mortgage product and interest rate options

- understand the main features and functions of different forms of life assurance and other insurances

Detail Assess area

- understand the principles and procedures associated with raising additional money and the circumstances when further borrowing might be appropriate

- understand the principles, procedures and costs of transferring mortgages 2

- understand the principles of using mortgages within debt consolidation arrangements 3

- understand the implications for the borrower of the non-payment of mortgages, other breaches of the Mortgage Deed, non-payment of building insurance and the options available

- understand the legal rights and remedies available to lenders in respect of non-payment from borrowers

- understand the main provisions made by the State to assist consumers in difficulties over the repayment of mortgages

Detail Assess area

- analyse consumers circumstances and suitable mortgage solutions taking account of any existing arrangements

- apply suitable mortgage solutions to specific consumers circumstances 2

Certificate in Mortgage Advice and Practice (CeMAP)
Financial Certificate test
Killexams : Financial Certificate test - BingNews https://killexams.com/pass4sure/exam-detail/CEMAP-1 Search results Killexams : Financial Certificate test - BingNews https://killexams.com/pass4sure/exam-detail/CEMAP-1 https://killexams.com/exam_list/Financial Killexams : 8 Big Advisory Firms With Lots of CFPs

A growing number of firms across the U.S. wealth management industry see hiring and developing talent with the certified financial planner (CFP) designation as an important part of their competitive strategy, especially as their clients demand deeper and more personalized planning experiences.

The approach makes a lot of sense, experts agree, as many in the public and in the industry view the CFP mark as one of the most important credentials a professional can attain when it comes to proving and maintaining their knowledge of the most important financial planning skills.

Advisors say that studying for the test and obtaining the CFP designation is a great way to obtain comprehensive planning knowledge that can then be applied toward building a practice or serving clients, depending on which area of the financial services profession one operates in.

In this sense, the focus on getting more CFPs in the door should come as no surprise, nor should the expanding efforts of firms to encourage their staffers to pursue the designation.

In fact, in the view of Penny Pennington, managing partner at Edward Jones, getting more CFP talent into the firm’s many branches is an essential strategy for the future, so much so that the firm has declared the goal of becoming the advisory organization with the most CFPs under one brand in the United States.

“We managed to get 600 CFPs through the program last year,” Pennington recently told ThinkAdvisor. “We have more than that are registered this year, and our goal is to have more than 4,000 CFPs on board by the end of the year.”

Pennington says she is particularly proud of the racial and gender diversity of the firm’s CFP talent, and she counts herself among the group of industry leaders who see the CFP Board’s efforts to improve the diversity of certificants as a critical initiative for the advisor industry as a whole.

“We all know from the pace of demographic change in our country that the next two generations of investors are going to be so much more diverse, and the advisory industry must change to reflect that,” Pennington says.

See the slideshow for information about eight firms that responded to an informal survey from ThinkAdvisor with information about their CFP representation. Rather than providing an apples-to-apples comparison, the list instead demonstrates the broad and deepening interest in the CFP designation among leading advisory shops.

Mon, 21 Aug 2023 04:13:00 -0500 en text/html https://www.thinkadvisor.com/2023/08/21/8-big-advisory-firms-with-lots-of-cfps/
Killexams : 7 easy & lucrative ways to earn money online No result found, try new keyword!Most of us want to make extra money so that we can pay those bills that have been hanging over us like a sword or to run our house in a more smooth manner, or to cater to our shopping habits too. Wed, 23 Aug 2023 03:30:00 -0500 en-us text/html https://www.msn.com/ Killexams : CHF 10 MILLION IN FINANCIAL SUPPORT FOR SIKA’S INNOVATIVE CONCRETE RECYCLING TECHNOLOGY

Sika AG

CHF 10 MILLION IN FINANCIAL SUPPORT FOR SIKA’S INNOVATIVE CONCRETE RECYCLING TECHNOLOGY

Sika’s innovative reCO2ver® technology is now receiving targeted support as part of a climate protection program. The technology involves a novel concrete recycling process that allows old concrete to be entirely reused while facilitating the sequestration of CO2. To support the use of the technology, Switzerland’s Climate Cent Foundation is guaranteeing the purchase
of CO
2 certificates from the program for an initial amount of CHF 10 million.

Almost 40% of global CO2 emissions are attributable to the construction and building sector. Around 30 billion tons of concrete are produced each year, with demand continuing to increase. Although cement as a binding agent and concrete as a composite are important construction materials, producing them has an impact on climate change. According to estimates, the cement industry alone is responsible for more than 8% of global greenhouse gas emissions. With reCO2ver®, Sika has developed an innovative technology that is unique in the concrete sector and makes it possible to completely recycle concrete demolition waste. reCO2ver® is one of Sika’s many research and development activities focused on advancing the transformation of the construction industry toward greater sustainability.

17,000 TONS OF CO2 SEQUESTRATION IN WASTE CONCRETE BY END 2030
Sika’s reCO2ver® technology not only separates old concrete into the high-quality individual components of gravel, sand, and cement stone; it can also bind additional CO2 through a chemical process. Around 15 kilograms of CO2 per tons of concrete demolition waste can be stored over the long term. On top of this, the performance of the cement stone powder produced during this process is optimized using Sika additives. This allows it to be repurposed as a substitute for cement in concrete production. A pilot facility has been operating in Switzerland since October 2021, and the test phase has now been completed successfully.

In order to be able to document the climate-added-value benefits of the reCO2ver® facilities on a standardized basis, Sika is working with South Pole on the development of a climate protection program aligned with the requirements of the Federal Office for the Environment (FOEN). A significant milestone in the implementation and use of this technology for CO2 capture and storage has now been achieved: Switzerland’s Climate Cent Foundation is guaranteeing the purchase of CO2 certificates from the program for an initial amount of CHF 10 million by the end of 2030.

The implementation of the industrial facilities is a central pillar of the certified climate protection program. By the end of 2030, the aim is to have stored approximately 17,000 tons of CO2 in concrete demolition waste. This is roughly equivalent to the amount of CO2 emissions produced during the construction of 850 concrete single-family homes.

Philippe Jost, Head Construction Sika: “Thanks to our innovative strength and sustainable technologies, we enable our customers in the construction and automotive sectors to reduce their ecological footprint. This drives the transformation toward greater sustainability. We are delighted that the reCO2ver® technology is being recognized through targeted support, and we are convinced that we are delivering significant added value to the construction industry, the environment, and future generations.”

CONTACT
Dominik Slappnig
Corporate Communications &
Investor Relations
+41 58 436 68 21
slappnig.dominik@ch.sika.com

SIKA CORPORATE PROFILE
Sika is a specialty chemicals company with a globally leading position in the development and production of systems and products for bonding, sealing, damping, reinforcing, and protecting in the building sector and motor vehicle industry. Sika has subsidiaries in 103 countries, manufactures in over 400 factories, and develops innovative technologies for customers around the world that facilitate the sustainable transformation of the construction and transportation industries. With more than 33,000 employees, the company generated annual sales of CHF 10.5 billion in 2022.

The media release can be downloaded from the following link:
Media Release

Wed, 23 Aug 2023 17:05:00 -0500 en-US text/html https://finance.yahoo.com/news/chf-10-million-financial-support-050000882.html
Killexams : As MOC Debate Heats Up, Cardiology Societies Weigh In

It's no secret that many physicians question the value of Maintenance of Certification (MOC) requirements and are concerned about the amount of time, effort, and money the process takes. Now, they and at least two cardiology societies are starting to speak up.

MOC is an initiative from the American Board of Internal Medicine (ABIM) that requires an initial certification that costs thousands of dollars and must be repeated every 10 years. Annual MOC requirements involve tests that cost $220 for the first certificate a physician holds and about $120 for each subsequent one.

Interventional cardiologists (ICs) and other subspecialists have additional fees and requirements.

MOC 'Burdensome,' 'Costly,' 'Complex'

On July 21, hematologist-oncologist Aaron Goodman, MD, an associate professor at the University of California, San Diego, posted a petition on behalf of ABIM diplomates. It calls on ABIM to eliminate the MOC requirement because it is "burdensome," "costly," and "complex and time-consuming." 

As of August 22, the petition had garnered more than 18,000 signatures. 

Goodman recently debated ABIM President and Chief Executive Officer Richard J. Baron, MD, in a Healthcare Unfiltered podcast. Before the debate, host Chadi Nabhan, MD, MBA, tweeted that he could not find a single physician who would defend the MOC and recertification.

photo of Healthcare United Podcast
L to R: Aaron Goodman, MD; Richard Baron, MD; and Chadi Nabhan, MD, MBA, discuss MOC on the Healthcare Unfiltered podcast.

The debate touched on Topics such as fees, evidence of value, the certification test format, and the cost and requirements to maintain more than one board certification. Overall, Goodman made the analogy to giving a patient chemotherapy: Because there are harms, he better know that there are also benefits. He cited that the harms associated with MOC include "financial toxicity, time toxicity, and stress toxicity," with the latter being particularly toxic to him personally.

Though the podcast gave both participants ample opportunities to express their views, it's not clear that either participant persuaded the other.

Cardiologists who are unhappy with MOC are speaking up on X (formerly Twitter). IC Matthew Sample, MD, listed five things he's done to Strengthen his practice since IC graduation, for which he received no MOC points.

In response, internist Artem Minalyan, MD, asked, "Hypothetically, if Dr Baron required an IC procedure, I wonder if he would request you to get all your MOC points prior to consenting."

SCAI and HRS Weigh In

Some professional societies have responded to the ABIM's threat to revoke the certifications of cardiologists who don't participate in periodic MOC activities. 

The Society for Cardiovascular Angiography & Interventions (SCAI) published its "Position on ABIM Revocation of Certification for Not Participating in MOC." In it, SCAI states that ABIM diplomates who pass their exams and report procedural volumes as required should be "indisputably" recognized as "certified" for the relevant time frame (eg, 10 years), regardless of whether they participate in any other MOC activities.

SCAI President George D. Dangas, MD, PhD, told theheart.org | Medscape Cardiology that "Many of our members have expressed their frustration surrounding the confusion regarding their MOC requirements, including myself. We felt that this confusion could endanger the certified status of members, which would inevitably impact patient care, which is our greatest concern."

photo of
George D. Dangas, MD, PhD

The society has received an "overwhelmingly positive response" to its statement, he said. "Our hope is that ABIM will consider simpler, transparent regulations that are reflective of the feedback received from their constituents." 

In response to the COVID-19 pandemic, ABIM extended the deadline for diplomates whose certificate expired in 2020 or 2021 until the end of 2022; Dangas suggests that ABIM further extend the deadline to enroll in or renew your MOC to the end of 2024 and that ABIM should "develop a recertification program that can be explained in a single slide/page."

Other subspecialty groups are following SCAI's lead including the EP Advocacy Foundation, and the Heart Rhythm Society (HRS).

MOC Alternatives

The ABIM touts the value of MOC on its website, stating: "There is compelling evidence showing that MOC improves value of care without sacrificing quality and that board certified physicians command higher salaries."

Alternative options that are arguably less arduous are available.

In collaboration with ABIM, the American College of Cardiology (ACC) launched the ABIM/ACC Collaborative Maintenance Pathway (CMP) in 2019 as an alternative MOC assessment option. 

The CMP "focuses on one or a small group of Topics within cardiology each year, incorporating learning activities as well as a pre-/post-formative knowledge assessment," Janice Sibley, ACC's executive vice president of Education and Publishing told theheart.org | Medscape Cardiology. The program continues to evolve, she said. 

In 2022, she noted that the ACC increased the flexibility of the CMP by removing the 7-hour learning engagement requirement, allowing users to choose how much time to spend learning in the CMP program. They also extended the performance assessment windows from 7 to 9 days each, covering 2 weekends for each.

She said that to date, more than "6400 learners" are enrolled in the CMP program. 

Though the collaboration seems to make MOC less onerous, some cardiologists think it makes the ACC "complicit."

A certification program that is independent of the ABIM launched in 2015. The National Board of Physicians and Surgeons (NBPAS) is a nonprofit organization led by an advisory board of unpaid physicians (including Medscape's editor-in-chief, Eric Topol, MD). NBPAS seems to be gaining momentum and acceptance

Cardiologist Melissa Walton-Shirley, MD, recounted her recertification experience with the NBPAS late last year. She now maintains a "hybrid" certification with both ABIM and NBPAS. Though she wants to support the latter, she found that the alternative certification option still requires an initial ABIM certification and is not recognized in all states or by many insurers and hospitals.

Will MOC ever disappear? Sibley said that the ACC is always looking to Strengthen and enhance their offerings. "It is time to lead a change in the conversation from certification to continuous competency, from punitive to supportive options, from random knowledge testing to focused assessing knowledge gaps and lifelong learning. This will require innovation, technology, and new ways of thinking that offer cardiologists flexibility, relevance, and value and ultimately benefit the patients they serve."

Many physicians, including cardiologists, are hoping that the Goodman petition and further pressure from professional societies may finally translate into action.

Medscape LLC provides educational content including MOC. Medscape's editorial content, including news, features is developed independently of the educational content available on Medscape. 

Follow Marilynn Larkin on Twitter: @MarilynnL.

For more from the heart.org | Medscape Cardiology, follow us on Twitter and Facebook

Tue, 22 Aug 2023 08:55:00 -0500 en text/html https://www.medscape.com/viewarticle/moc-debate-heated-cardiology-societies-weigh-2023a1000jju
Killexams : Congressman French Hill Sees Urgency In Congress To Pass Crypto Legislation No result found, try new keyword!An exodus of American crypto companies offshore is creating momentum to finally pass needed legislation in congress. Wed, 23 Aug 2023 04:24:58 -0500 en-us text/html https://www.msn.com/ Killexams : How to protect your financial life from wildfires, extreme weather

Watching the horrific wildfires in Maui and the people running for their lives might have you wondering what you would do if your home were in imminent danger.

Could you quickly put your hands on important financial documents while fleeing to safety?

“When we were evacuating, it felt almost like a video game,” said a 15-year-old Maui resident who, along with family, had to elude a wildfire. “We were like: ‘Pack your bags. … Take your valuables. You might lose your home.’”

Climate change has put many people in the path of major natural disasters. Fires, floods, hurricanes and wind storms are devastating communities.

As of Tuesday, there had been 15 confirmed weather/climate disaster events in the United States this year with losses exceeding $1 billion each, according to the National Centers for Environmental Information. Damage from 2022 disasters totaled $165.1 billion.

Swift-moving wildfires, fanned by winds from Hurricane Dora, have killed dozens in Maui. Video and photos show burned homes and businesses. Lahaina, a popular tourist destination in western Maui, was hard hit.

Right now, displaced residents are focusing on their basic needs — shelter and food.

However, many may soon face a new challenge — recovering pay stubs, insurance papers, bank statements and any of the other financial records that are the bane of our modern-day existence. Many businesses have been destroyed, raising the possibility of lost work records, too.

The disaster in Hawaii is just the latest reminder to get our financial houses in order. Here’s what you should do.

Prepare for a quick evacuation

Get a safe that’s waterproof, fire-resistant and light enough to carry. Keep all your household’s important financial documents in this box, including your passport; insurance policies; extra checks; a copy of your driver’s license; your Social Security card (or at least write down the number); bank, investment and credit card account numbers; and key legal documents such as wills, marriage and birth certificates, and the titles to your home and vehicles.

You should include some cash or traveler’s checks. If the electricity goes out, as it has in many areas in Maui, ATMs may not work and you might not be able to use a credit or debit card to make purchases.

Keep the original receipts of major purchases in the safe, as proof of what you spent.

Back up important financial documents

In addition to keeping your paperwork in a safe, make photocopies of your documents and place them in a safe-deposit box or deliver them to a trusted relative or friend who does not live in the same area you do.

You can also back up your data to cloud-based services such as Google Drive or Apple’s iCloud. Be sure to consistently back up your data to the cloud.

Make a list of major household items

With your smartphone, take pictures of your big-screen televisions, computers, furniture, heirlooms, etc. You want proof of the expensive stuff you own.

You might also want to record a video of the items in your home. Record model and serial numbers. Then, of course, obtain it for safekeeping in the event you have to prove to an insurance company what items you lost in a disaster.

Assess your insurance needs

Part of your disaster plan should be determining whether you’re carrying the right amount of insurance.

Now is the time to evaluate whether you have enough coverage. Call your insurance agent. Will your policy replace the full value of your possessions?

Do you have life insurance?

Many people neglect to get disability insurance. If you were injured in a natural disaster, would you be able to live off your savings? Buy enough disability insurance to replace 60 to 70 percent of your income.

What if your home is flooded?

Homeowners and renters insurance do not typically cover flood damage; coverage must be purchased separately. Even if you’re not in a high-flood-risk area, you may still need supplemental coverage.

The National Flood Insurance Program, managed by the Federal Emergency Management Agency, helps you purchase flood insurance from an insurance company or agent. If you need help finding a provider, go to floodsmart.gov/find or call 877-336-2627.

Just one inch of floodwater can cause up to $25,000 in damage, according to the NFIP.

On average, flooding causes more than $5 billion in damage nationwide each year, according to the NFIP. Hurricane Ian alone resulted in more than 46,000 claims and $1.5 billion in policy coverage.

You have to plan ahead, because typically there is a 30-day waiting period for an NFIP policy to go into effect, unless the coverage is mandated.

For information on flood insurance, go to floodsmart.gov.

Homeowners with mortgages have to carry homeowners insurance, but renters often neglect to protect themselves.

If you are renting, get renters insurance — the insurance your landlord carries does not cover damage to your personal possessions.

Natural disasters are only getting worse with climate change. It’s wise to be prepared in case your home or community is hit.

B.O.M. — The best of Michelle Singletary on personal finance

If you have a personal finance question for Washington Post columnist Michelle Singletary, please call 1-855-ASK-POST (1-855-275-7678).

Recession-proof your life: The tsunami of economic news is leading consumers, investors and would-be homeowners alike to ask whether a recession is inevitable. Regardless of the answer, there are practical steps you can take to help shield yourself from a worst-case scenario.

Credit card debt: Carrying credit card debt is never good and you should ditch the habit. Here are seven ways to lower your credit card debt in light of the Fed continuing to raise interest rates.

Money moves for life: For a more sweeping overview of Michelle’s timeless money advice, see Michelle Singletary’s Money Milestones. The interactive package offers guidance for every life stage, whether you’re just starting out in your career to living an abundant life in retirement.

Test Yourself: Do you know where you stand financially? Take our quiz and read advice from Michelle.

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Thu, 10 Aug 2023 17:59:00 -0500 Michelle Singletary en text/html https://www.washingtonpost.com/business/2023/08/11/protect-financial-life-extreme-weather/
Killexams : Ask the Financial Doctor: What is the earnings test for Social Security benefits?

Q: My neighbor donated some books and videos to the library. Can my neighbor take a deduction on the Michigan tax return?

A: There is no tax credit or deduction for donations to a library on the Michigan tax return.

Q: Is there a maximum age at which I will be forced to file for my Social Security benefits?

A: No, the Social Security Administration will not compel you to take your benefits. Taking benefits ahead of full retirement age (FRA) will result in a permanent reduction, postponing benefits past your FRA will increase your benefits by 8% per year up to age 70. Waiting beyond age 70 makes no sense because you could lose some monthly benefits. If you forget to file upon turning 70, you can apply for retroactive benefits up to six months.

Q: Can my Social Security check be garnished by a creditor?

A: Private creditors cannot garnish Social Security checks but the federal government can. If you defaulted on a VA or student loan or you owe money to the IRS or Medicare or are required to pay child support, then the federal government can garnish part of your Social Security check. The garnishment is usually 15% but could be as high as 60% for child support.

Q: What is the definition of the primary insurance amount (PIA) that the Social Security Administration calculates?

A: The primary insurance amount (PIA) is the Social Security benefit that you would receive at your full retirement age (FRA). Your benefits are reduced if you receive benefits earlier and are increased by 8% per year up to age 70 if you start benefits after your FRA.

Q: I am applying for a mortgage and need my tax returns for the last two years. How do I get them from the Internal Revenue Service?

A: Copies of your tax returns are generally available for the current tax year and as far back as six years. The fee per tax year is $43. Complete and mail form 4506 to request a copy of your tax return. Most lenders will accept a tax return transcript. A tax return transcript shows most line items and is free. You can request a transcript online, by phone or mail.

Q: Can I borrow money from my IRA?

A: No, there is no such thing as an IRA loan.

Q: If I lose Social Security benefits due to the earnings test, are they permanently lost?

A: No, the Social Security benefits are not permanently lost. The withheld amount will be restored as a delayed retirement credit, which will increase your Social Security benefits once you reach full retirement age (FRA).

Q: What is the earnings test for Social Security benefits?

A: The earnings test determines how much of your Social Security benefits are reduced when you have wages. The reduction depends on your age. If you are under full retirement age (FRA) for all of 2023, you would forfeit $1 in benefits for every $2 earned over $21,240. For example, if you applied for Social Security at 62 and earned $40,000 this year, you would lose $9,380 in benefits ($40,000 – $21,240 = $18,760 ; $18,760/2 = $9,380). There is no earnings test for wages after you reached FRA.

Q: When are estimated taxes due?

A: The year is divided into four payment periods, or due dates. Those dates generally are April 15, June 15, Sept. 15 and Jan. 15 (next tax year). Form 1040ES provides the instructions, worksheets, schedules and payment vouchers. The easiest way to pay estimated taxes is electronically through the Electronic Federal Tax Payment System or EFTPS. You can also pay estimated taxes by check or money order using the payment voucher that comes with form 1040ES.

Q: My uncle passed away two years ago and I believe there is an unclaimed insurance policy covering my uncle. How do I check for the missing insurance policy? If it exists how do I make a claim?

A: If you know the name of the insurance company contact them. If you do not know the name contact the large insurance companies, AIG, John Hancock, MetLife, Nationwide and Prudential. Several insurance companies have online tools for finding lost policies. Use the site, missingmoney.com, to search for missing insurance policies. After a lost policy is found, you need to provide a death certificate and proper beneficiary proof to claim the insurance.

Q: I have a ROTH IRA valued at $166,000. My total contributions were $77,000 with the balance being investment earnings. Can I take out the $77,000 anytime without penalty?

A: Yes, your contributions can be taken anytime without penalty. The investment earnings would incur a 10% penalty and be taxable if withdrawn before 59½ or if the account is under five years old. There are some exceptions to the 10% penalty such as payment for education, paying for a first-time home purchase and if you become disabled. If you’ve met the five-year holding requirement, and you are older than 59½ you can withdraw money from a Roth IRA with no taxes or penalties.

Helpful telephone numbers for any tax concerns:

• IRS Help (800) 829-1040 • MI Help (517) 636-4486

• IRS Forms (800) 829-3676 • MI Forms (517) 636-4486

• IRS Refund Info. (800) 829-4477 • MI Refund Info. (517) 636-4486

Helpful websites:

• irs.gov

• michigan.gov/incometax

Richard Rysiewski, a Certified Financial Planner, welcomes all questions on tax and financial matters.  Please send to Richard Rysiewski, Financial Doctor, 3001 Hartford Lane, Shelby Twp., MI 48316.

Wed, 09 Aug 2023 23:18:00 -0500 Richard Rysiewski en-US text/html https://www.macombdaily.com/2023/08/10/ask-the-financial-doctor-what-is-the-earnings-test-for-social-security-benefits/
Killexams : Tax Regs Address Overwithholding With Qualified Derivatives Dealers Exemption

Section 871(m) treats payments under equity derivative contracts that reference U.S.-source dividends as if they are equivalent to U.S.-source dividends, potentially triggering a U.S. withholding tax.

Reg. section 1.871-15(q) interprets section 871(m) to exempt qualified derivatives dealers (QDDs) from tax and withholding requirements if overwithholding would occur. Published September 12, 2022, Notice 2022-37, 2022-37 IRB 234, delays the applicability date of some of the QDD provisions.

Dividend equivalents treated as U.S.-source dividend income are subject to a 30 percent U.S. tax when received by nonresident alien individuals and foreign corporations. The tax must be withheld by the dividend equivalent payer.

Final regs published in T.D. 9734 on September 18, 2015, generally became effective on that date. Those regs were revised and supplemented by final regs published January 24, 2017 (T.D. 9815), and December 17, 2019 (T.D. 9887).

The regs provide guidance to NRAs and foreign corporations holding financial products that provide for payments contingent upon, or determined by reference to, U.S.-source dividend payments. They also provide guidance to withholding agents responsible for withholding U.S. tax on dividend equivalent payments.

This article covers the guidance for QDDs in reg. section 1.871-15(q). Previous articles covered:

  • the delta calculation in paragraph (g) that determines whether a simple contract is a section 871(m) transaction (Tax Notes Int’l, July 3, 2023, p. 33);
  • the substantial equivalence test in paragraph (h) that determines whether a complex contract is a section 871(m) transaction (Tax Notes Int’l, July 10, 2023, p. 204);
  • the description of dividend equivalent payments and amounts in paragraphs (i) and (j) (Tax Notes Int’l, July 24, 2023, p. 415);
  • the definition of dividend equivalents (and exceptions) in subparagraphs (c)(1) and (2), and the antiabuse rule in paragraph (o) (Tax Notes Int’l, July 31, 2023, p. 557);
  • the exception to withholding in paragraph (l) for potential section 871(m) transactions that reference qualified indexes (Tax Notes Int’l, Aug. 7, 2023, p. 709); and
  • the requirements in paragraph (n) to combine transactions when testing whether they are subject to section 871(m) (Tax Notes Int’l, Aug. 14, 2023, p. 1066).

Section 871(m)nder section 871(a)(1), U.S.-source income of an NRA (other than capital gains) that is not connected with a U.S. business is subject to a 30 percent tax. This includes U.S.-source dividend income. Section 871(m)(1)-(7) addresses treatment under section 871(a) of dividend equivalents paid to an NRA. Reg. section 1.881-2(b)(3) directs taxpayers to section 871(m) and regs for rules applicable to dividend equivalents paid to foreign corporations.

The general rule in paragraph (m)(1) is that a dividend equivalent is treated as a U.S.-source dividend subject to the 30 percent tax. Paragraph (m)(2) generally defines a dividend equivalent as a payment contingent upon, or determined by reference to, a U.S.-source dividend. The descriptions in subparagraphs (m)(2)(A)-(C) are:

(A) any substitute dividend made under a securities lending or sale-repurchase transaction that is directly or indirectly contingent on, or determined by reference to, the payment of a dividend from U.S. sources;

(B) any payment made under a specified notional principal contract (NPC) that is directly or indirectly contingent on, or determined by reference to, the payment of a dividend from U.S. sources; and

(C) any other payment determined by the secretary to be substantially similar to a payment described in subparagraph (A) or (B).

The definition of specified NPC in paragraph (m)(3) is divided between payments made before and those made after the date that is two years after the March 18, 2010, enactment date of subsection (m) in the Hiring Incentives to Restore Employment Act.

Under the temporary definition in subparagraph (m)(3)(A) for payments made before March 18, 2012, a specified NPC has one of the following characteristics described in clauses (i)-(v):

(i) for entering into the contract, a long party transfers the underlying security to a short party;

(ii) for terminating the contract, a short party transfers the underlying security to a long party;

(iii) the underlying security is not readily tradable on an established securities market;

(iv) for entering into the contract, the underlying security is posted as collateral by a short party with a long party; or

(v) the contract is identified by the secretary as a specified NPC.

Under the definition in subparagraph (m)(3)(B) for payments made after March 18, 2012, all NPCs are specified NPCs unless the secretary determines that the contract does not have the potential for tax avoidance.

Subparagraph (m)(4)(A) defines long party as a party to the contract entitled to receive a payment that is contingent upon, or determined by reference to, the payment of a dividend from sources within the United States on the underlying security. Subparagraph (m)(4)(B) defines short party as a party to the contract that is not a long party.

Subparagraph (m)(4)(C) defines underlying security as the security requiring the dividend payment referred to in subparagraph (m)(2)(B). An index or fixed basket of securities is treated as a single security.

Under paragraph (m)(5), a payment includes a gross amount used in computing the net amount that is transferred to or from the taxpayer.

To prevent overwithholding on a chain of dividends or dividend equivalents, paragraph (m)(6) allows the secretary to reduce tax to the extent the taxpayer can establish that tax has been paid on another dividend equivalent in the chain, is not otherwise due, or is appropriate to address the role of financial intermediaries in the chain. This concern is addressed by the QDD provisions in reg. section 1.871-15(q)(1)-(5).

Paragraph (m)(7) describes coordination with withholding requirements under chapters 3 (sections 1441-1464) and 4 (sections 1471-1474). Each person that is a party to a contract or other arrangement that provides for the payment of a dividend equivalent is treated as having control of the payment.

The practical effect of section 871(m) is to change the source of a dividend equivalent payment from non-U.S. to U.S. The payment’s source is determined by the underlying U.S. security rather than the long party’s residence.

Reg. Section 1.871-15Reg. section 1.871-15(a)-(r) interprets section 871(m). The guidance includes:

  • 15 definitions (with two examples);
  • a general rule that treats dividend equivalents as U.S.-source dividends;
  • a definition of dividend equivalent, along with five exceptions;
  • a definition of specified NPC;
  • a definition of specified equity-linked instrument (ELI);
  • a description of substantially similar payments;
  • a calculation of delta (with two examples);
  • a test for substantial equivalence (with one example);
  • a description of dividend equivalent payments (with two examples);
  • the amount of a dividend equivalent;
  • a limit on treating corporate acquisitions as section 871(m) transactions;
  • treatment of derivatives that reference indexes;
  • treatment of derivatives held by partnerships;
  • treatment of combined transactions;
  • an antiabuse rule;
  • information reporting requirements (with one example);
  • a definition of QDD (with three examples); and
  • applicability dates.

Definitions

Subparagraphs (a)(1)-(15) provide definitions, some of which are particularly relevant to the application of the QDD rules in paragraph (q).

Subparagraph (a)(1) defines a broker by cross-reference to its meaning in section 6045(c), except that it does not include any corporation that is a broker solely because it regularly redeems its own shares.

Subparagraph (a)(4) defines an ELI as a financial transaction (other than a securities lending transaction, sale-repurchase transaction, or NPC) that references the fair market value of one or more underlying securities — for example, a futures contract, forward contract, option, debt instrument, or other contractual arrangement that references the FMV of one or more underlying securities.

Subparagraph (a)(5) defines an initial hedge as the number of underlying security shares that a short party would need to fully hedge an NPC or ELI (whether the NPC or ELI is a complex contract or simple a contract benchmark within the meaning of subparagraph (h)(2)) at the calculation time for the NPC or ELI, even if the short party does not, in fact, fully hedge the NPC or ELI.

Subparagraph (a)(7) defines an NPC by cross-reference to its meaning in reg. section 1.446-3(c).

Subparagraph (a)(9) provides a multifaceted definition of transaction parties. A long party is entitled to receive a dividend equivalent, and a short party is obligated to pay a dividend equivalent. A party includes a long or short party, an agent acting on behalf of a long or short party, and a transaction intermediary.

If a potential section 871(m) transaction references more than one underlying security, the long party and short party are determined separately for each underlying security. A person is both a long and a short party when it is:

  • entitled to receive a payment that references a dividend payment on an underlying security; and
  • obligated to make a payment that references a dividend payment on another underlying security.

Subparagraph (a)(12) defines a section 871(m) transaction as a securities lending transaction, sale-repurchase transaction, specified NPC, or specified ELI. A potential section 871(m) transaction is a securities lending or sale-repurchase transaction, NPC, or ELI that references one or more underlying securities.

Subparagraph (a)(14) distinguishes between simple and complex contracts. A simple contract is an NPC or ELI that, for each underlying security, allows all amounts to be paid or received on the maturity, exercise, or other payment date to be calculated by reference to a single, fixed number of shares.

This assumes that the number of shares can be ascertained at the calculation time of the contract and that there is a single maturity or exercise date for which all amounts (other than upfront or periodic payments) are required to be calculated for the underlying security. A complex contract is generally an NPC or ELI that is not a simple contract.

Subparagraph (a)(15) defines an underlying security as an interest in an entity if that interest could deliver rise to a U.S.-source dividend under reg. section 1.861-3. If a potential section 871(m) transaction references an interest in more than one entity or different interests in the same entity, each referenced interest is a separate underlying security.

General Rule

Paragraph (b) repeats the general rule in section 871(m)(1) that treats a dividend equivalent as a dividend from sources within the United States in applying:

  • section 871(a) (noneffectively connected income of NRAs);
  • section 881 (non-ECI of foreign corporations);
  • section 892 (income of foreign governments and international organizations);
  • section 894 (income affected by a treaty);
  • section 4948(a) (taxation and denial of exemptions for some foreign organizations); and
  • chapters 3 and 4 (withholding on foreign persons and some foreign accounts).

Dividend Equivalents

Subparagraph (c)(1) describes payments that are dividend equivalents, and subparagraph (c)(2) provides exceptions.

Subdivisions (c)(1)(i)-(iv) define a dividend equivalent as a payment that:

  • references a dividend from an underlying security under a securities lending or sale-repurchase transaction;
  • references a dividend from an underlying security under a specified NPC described in paragraph (d);
  • references a dividend from an underlying security under a specified ELI described in paragraph (e); or
  • is any other substantially similar payment as described in paragraph (f).

Specified NPCs and ELIs

Specified NPCs. Paragraph (d) defines specified NPCs. Subparagraph (d)(1) generally repeats the conditions in the temporary definition in section 871(m)(3)(A) and applies them to payments made after March 18, 2012, and before January 1, 2017.

Subparagraph (d)(2) applies to specified NPCs entered into on or after January 1, 2017, and treats simple and complex NPCs differently.

Under subdivision (d)(2)(i), a simple NPC that has a delta of 0.8 or greater in an underlying security at the calculation time is a specified NPC. Under subdivision (d)(2)(ii), a complex NPC that meets the substantial equivalence test in paragraph (h) at the calculation time is a specified NPC.

Specified ELIs. Paragraph (e) defines specified ELIs. Under subparagraph (e)(1), a simple ELI that has a delta of 0.8 or greater at the calculation time is a specified ELI. Under subparagraph (e)(2), a complex ELI that meets the substantial equivalence test in paragraph (h) at the calculation time is a specified ELI.

Delta and Substantial Equivalence

The delta calculation applies to determine whether simple NPCs and ELIs are specified. The substantial equivalence test applies to make this determination for complex NPCs and ELIs.

Delta. The delta calculation covered in subparagraphs (g)(1)-(5) determines whether a simple contract is a specified contract and therefore a section 871(m) transaction. The delta reveals the extent to which a derivative instrument traces its underlying security’s value. The higher a derivative’s delta, the more economically equivalent it is and the more closely its FMV tracks that of the underlying security. A delta-one derivative tracks the underlying security on a dollar-for-dollar basis.

A derivative instrument with a delta of 0.8 means that for every $1 the underlying security’s FMV varies, the derivative instrument’s FMV varies by $0.80. Simple contracts with a delta of at least 0.8 (and complex contracts meeting the substantial equivalence test) are replicating the economic benefits of holding U.S. securities and are subject to section 871(m).

Delta is the ratio of change in the FMV of an NPC or ELI to a small change in the FMV of the number of shares of the underlying security (as determined under subparagraph (j)(3)):

delta = change in FMV of NPC or ELI/change in FMV of underlying security sharesSubstantial Equivalence. The substantial equivalence test covered in subparagraphs (h)(1)-(7) applies to determine whether a complex contract is a specified contract and therefore a section 871(m) transaction. The test assesses whether a complex contract substantially replicates the economic performance of the underlying security by comparing at various testing prices for the security:

  • the differences between the expected changes in the FMV of the complex contract and its initial hedge; and
  • the differences between the expected changes in the FMV of a simple contract benchmark (as described in subparagraph (h)(2)) and its initial hedge.

The complex contract is a section 871(m) contract if, when the substantial equivalence test is applied at the calculation time for the complex contract, the expected change in the FMV of the complex contract and its initial hedge is equal to or less than the expected change in the FMV of the simple contract benchmark and its initial hedge.

Exceptions to Dividend Equivalents

Subdivisions (c)(2)(i)-(v) provide exceptions to dividend equivalent status for:

  • distributions not subject to tax under section 871(a) or 881;
  • dividend equivalents received by a long party on an instrument that gives rise to a dividend under section 305(b) or (c);
  • payments made under a due bill;
  • payments made under annuity, endowment, or life insurance contracts; and
  • payments made under employee compensation arrangements.

Paragraph (k) of the regs provides an exception for payments related to corporate acquisition transactions that, as part of a plan, obligate the long party to acquire underlying securities representing more than 50 percent of the issuer’s FMV.

Paragraph (l) provides that payments under contracts that reference qualified indexes are generally not subject to U.S. tax withholding under section 871(m). Qualified indexes are widely used passive indexes based on a diverse basket of publicly traded securities.

Combined Transactions

Paragraph (n) operates to combine potential section 871(m) transactions to determine whether they collectively meet the tests for being subject to section 871(m). The goal of these rules is to prevent taxpayers from splitting a section 871(m) transaction into component transactions to avoid dividend equivalent treatment.

QDDs

The QDD rules are intended to prevent multiple withholdings on the same dividend stream. For example, if a foreign corporation owns U.S. stock and enters into a short forward contract with another foreign corporation, it generally will be subject to withholding on dividends paid on the stock. It will also have to withhold on dividend equivalent payments under the forward contract. The withholding tax on the dividend equivalent payments is effectively a second withholding tax.

Foreign financial institutions and clearing houses can receive U.S.-source dividends and dividend equivalent payments without being subject to withholding tax if they certify to the withholding agent that they are receiving the payments as custodians and not beneficial owners and they have entered into a qualified intermediary agreement with the IRS under which they assume primary withholding responsibility.

However, absent the QDD rules, dealers cannot act as QIs if they received the payments as beneficial owners of a hedge to transactions in which they are short parties. The regs address potential overwithholding by expanding the QI regime in section 1441 regs to include QDDs.

Therefore, regs under sections 871 and 1441 govern dividends and dividend equivalents received by a QDD. This article covers the section 871 provisions.

Reg. section 1.871-15(q) addresses taxation of dividend and dividend equivalent payments made to a QDD.

The guidance in subparagraphs (q)(1)-(5) include:

  • a general description of a QDD’s tax liability on dividend equivalent payments;
  • a capacity presumption for transactions reflected in a QDD’s equity derivatives dealer book;
  • a definition of the “section 871(m) amount” for each dividend on each underlying security;
  • a description of the net delta exposure calculation; and
  • three examples.

Sections 881 and 1441. Section 881 generally taxes income of foreign corporations that is not connected to a U.S. business. Section 881(a)(1) imposes a 30 percent tax on U.S.-sourced interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income.

Section 1441 generally requires the payers of these types of income to deduct and withhold the 30 percent tax when the income recipient is an NRA. Section 1442 requires payers to comply with the section 1441 withholding requirements when the income recipient is a foreign corporation.

Reg. section 1.1441-1(e)(5) provides guidance on QIs and withholding certificates, agreements, and statements. Reg. section 1.1441-1(e)(6) provides guidance on QDDs and prescribes the circumstances in which a QI can act as a QDD.

Reg. section 1.1441-1(b)(4)(xxii) provides that a withholding agent making a payment to a QI acting as a QDD is not required to withhold on specific payments if the agent can associate the payment with a valid QI withholding certificate (as described in reg. section 1.1441(e)(3)(ii)). Withholding is not required on a payment:

  • made under a potential section 871(m) transaction that is not an underlying security;
  • of a dividend equivalent; or
  • of a dividend in 2017.

QDD Tax Liability. Under reg. section 1.871-15(q)(1), a QDD described in reg. section 1.1441-1(e)(6) that receives a dividend equivalent payment in its equity derivatives dealer capacity will not be liable for tax under section 881 on that payment, provided that the dealer complies with its obligations under the QI withholding agreement described in reg. section 1.1441-1(e)(5)-(6).

A QDD is liable for tax under section 881(a)(1) on its section 871(m) amount for each dividend on each underlying security. This tax liability is reduced (but not below zero) by the amount of tax paid by the QDD under section 881(a)(1) on dividends it receives on that underlying security on that same dividend in its capacity as an equity derivatives dealer.

Also, a QDD is liable for tax under section 881(a)(1) for all dividend equivalents not received in its equity derivatives dealer capacity. A QDD is also liable for tax under section 881(a)(1) for all dividends it receives, other than dividends received in 2017, in its equity derivatives dealer capacity.

Paragraph (q) does not apply to a QDD that is a foreign branch of a U.S. financial institution (within the meaning of reg. section 1.1471-5(e)).

Capacity Presumption. Under subparagraph (q)(2), in determining the QDD’s tax liability, transactions properly reflected in a QDD’s equity derivatives dealer book are presumed to be held by the dealer in its equity derivatives dealer capacity. To determine whether a dealer is acting in its equity derivatives dealer capacity, only the dealer’s activities as an equity derivatives dealer are taken into account.

A dividend or dividend equivalent is treated as received by a QDD not acting in its equity derivatives dealer capacity if received by a QDD acting as a proprietary trader.

Section 871(m) Amount. Under subparagraph (q)(3), for each dividend on each underlying security, the section 871(m) amount is the product of:

  • the QDD’s net delta exposure to the underlying security for the applicable dividend; and
  • the applicable dividend amount per share.

Net Delta Exposure. Under subdivisions (q)(4)(A)-(B), the net delta exposure to an underlying security is based on the aggregate number of shares of an underlying security to which the QDD has exposure because of positions in the security (including owning the security). The net delta exposure measured in the number of shares compares the long and short positions and equals:

  • the number of shares in the underlying security in which the QDD has positions with FMVs that move in the same direction as the security (the long positions); minus
  • the number of shares in which the QDD has positions with FMVs that move in the opposite direction from the security (the short positions).

The net delta exposure calculation only includes long positions and short positions that the QDD holds in its equity derivatives dealer capacity (as described in subparagraph (q)(2)). Any long positions or short positions that are treated as effectively connected with the QDD’s U.S. trade or business are excluded from the net delta exposure calculation.

The net delta exposure to an underlying security is determined at the end of the day on the date provided in subparagraph (j)(2) for the applicable dividend. This is the earlier of:

  • the record date of the dividend; and
  • the day before the ex-dividend date.

For example, if a specified NPC provides for a payment at settlement that takes into account an earlier dividend payment, the amount of the dividend equivalent is determined on the earlier of the record date or the day before the ex-dividend date for that dividend.

Net delta must be determined in a commercially reasonable manner. If a QDD calculates net delta for nontax business purposes, the net delta ordinarily will be the delta used for that purpose, subject to the modifications required by this definition.

Each QDD must determine its net delta exposure separately only taking into account transactions that are recognized and attributable to that QDD under U.S. tax law.

Examples. Subparagraph (q)(5) provides three examples that illustrate the rules of paragraph (q). Example 1 illustrates the results of a forward contract between a foreign equity derivatives dealer and a foreign customer that is hedged with a total return swap between the foreign dealer and a U.S. broker.

Foreign bank FB is a QI that acts as a QDD. On April 1, year 1, FB enters into a cash settled forward contract initiated by a foreign customer that:

  • entitles the customer to receive from FB all appreciation and dividends on 100 shares of stock X; and
  • obligates the customer to pay FB any depreciation on 100 shares of stock X at the end of three years.

FB hedges the forward contract by entering into a total return swap contract with a domestic broker that is maintained as a hedge for the duration of the forward contract. The swap contract:

  • entitles FB to receive an amount equal to all dividends on 100 shares of stock X;
  • obligates FB to pay an amount referenced to a floating interest rate each quarter; and
  • provides for FB to receive from or pay to the broker (as the case may be) the difference between:
  • the FMV of 100 shares of stock X at the inception of the swap; and
  • the FMV of 100 shares at the end of three years.

Stock X pays a quarterly dividend of $0.25 per share.

At the end of the day on the date provided in subparagraph (j)(2) for the dividend, FB owns the forward contract and the total return swap. FB does not own any shares of stock X or any other transactions that reference stock X.

FB provides valid documentation to the broker that FB will receive payments under the swap contract in its capacity as a QDD, and FB contemporaneously enters both the swap contract with the broker and the forward contract with the customer on its equity derivatives dealer books.

At the end of the day on the date provided in subparagraph (j)(2) for the dividend, FB is a long party on a delta-one contract (the total return swap with the broker) and also a short party on a delta-one contract (the forward contract with the customer). Under reg. section 1.1441-1(b)(4)(xxii), the broker is not obligated to withhold tax on the dividend equivalent payments to FB on the swap contract referenced to stock X dividends because the broker may rely upon valid documentation to treat the payment as made to FB acting as a QDD.

Under subparagraph (q)(1), FB is not liable for tax under sections 871(m) and 881 on the payments it receives from the broker referenced to stock X dividends because FB’s net delta exposure on the 100 shares of stock X is zero at the end of the day on the date provided in subparagraph (j)(2) for the dividend.

The net delta exposure is zero because the taxpayer has:

  • 100 shares of stock X long position exposure because of the total return swap; minus
  • 100 shares of stock X short position exposure because of the forward contract.

FB is required to withhold tax on dividend equivalent payments to the customer on the forward contract in accordance with reg. section 1.1441-2(e)(7).

Example 2 illustrates an at-the-money call option contract (meaning the contract price is close or equal to the spot price) entered into by a foreign equity derivatives dealer that is hedged with a total return swap. The facts are the same as in Example 1, but the customer purchases from FB an at-the-money call option on 100 shares of stock X with a term of one year. The call option has a delta of 0.5, and FB hedges the call option by entering into a total return swap that references 50 shares of stock X with the broker.

At the end of the day on the date provided in subparagraph (j)(2) for the dividend, the call option has a delta of 0.6, FB hedges the call option with a total return swap that references 60 shares of stock X with the broker, and FB has no shares of stock X or other transactions that reference stock X.

At the end of the day on the date provided in subparagraph (j)(2) for the dividend, FB is a long party on 60 shares of stock X through the total return swap and a short party on the call option. Because the option has a delta of less than 0.8 at the calculation time, it is not a section 871(m) transaction. Therefore, there will be no dividend equivalent payments made by FB to the customer that are subject to withholding.

Under reg. section 1.1441-1(b)(4)(xxii), the broker is not obligated to withhold tax on the dividend equivalents on stock X paid to FB because the broker has valid documentation that it may rely upon to treat the dividend equivalents as paid to FB acting as a QDD.

The net delta exposure is zero at the end of the day on the date provided in subparagraph (j)(2) for the dividend because:

  • FB has a long position of 60 shares because of the total return swap; minus
  • FB’s short position of 60 shares because of the option.

Example 3 illustrates an in-the-money call option contract (meaning the contract price is less than the spot price) entered into by a foreign equity derivatives dealer that is hedged by ownership of the underlying security. The facts are the same as Example 2, but the customer purchases from FB an in-the-money call option on 100 shares of stock X with a term of one year. The call option has a delta of 0.8, and FB hedges the call option by purchasing 80 shares of stock X, which are held in an account with the broker, who also acts as paying agent.

The price of stock X declines substantially and the option lapses unexercised. At the end of the day on the date provided in subparagraph (j)(2) for the dividend, the call option has a delta of 0.48 and FB has reduced its hedge to 50 shares of stock X with the broker. Also on that date, FB owns no other shares of stock X or any other transactions that reference stock X in its equity derivatives dealer capacity.

At the end of the day on the date provided in subparagraph (j)(2) for the dividend, FB is a long party on 50 shares of stock X and a short party on an option. Because the option has a delta of 0.8 at the calculation time, it is a section 871(m) transaction. Therefore, FB is required to withhold tax on dividend equivalent payments to the customer on the option contract in accordance with reg. section 1.1441-2(e)(7).

The broker is required to withhold tax on the dividends paid to FB. Assuming that FB is a qualified resident of a country with a treaty that allows withholding on dividends at a 15 percent rate, the broker is required to withhold tax on the dividends paid on the 50 shares of stock X held by FB.

FB’s net delta exposure is two shares of stock X at the end of the day on the date provided in subparagraph (j)(2) because:

  • FB has a long position of 50 shares; minus
  • FB’s short position of 48 shares because of the option.

FB’s section 871(m) amount is $0.50 ($0.50 = net delta exposure of two shares * $0.25 dividend per share). FB’s section 881 tax on the $0.50 is reduced (but not below zero) by the section 881 tax paid by the QDD.

Notice 2022-37 extends transition relief provided in Notice 2020-2, 2020-3 IRB 327, for two years through 2024. The notice provides a useful summary of the history of regs under section 871(m) and successive extensions of their applicability dates.

General Extensions

Published June 14, 2010, Notice 2010-46, 2010-24 IRB 757, addresses potential overwithholding on securities lending and sale-repurchase agreements. It provides a two-part solution to the problem of overwithholding on a chain of dividends and dividend equivalents.

First, it provides an exception from withholding for payments to a qualified securities lender (QSL). Second, it provides a proposed framework to credit forward prior withholding on a chain of substitute dividends paid on a chain of securities lending, or stock repurchase agreements.

The QSL regime requires the person that agrees to act as a QSL to comply with withholding and documentation requirements. Treasury and the IRS permitted withholding agents to rely on transition rules provided in Part III of Notice 2010-46 until guidance was developed that would include documentation and substantiation of withholding.

The preamble to the 2015 temporary regs (published with the 2015 final regs and finalized in 2017) indicated that final QDD regs would supplant the framework proposed in Notice 2010-46. Published July 18, 2016, Notice 2016-42, 2016-29 IRB 67, contained a proposed QI agreement that included provisions relating to the QDD regime and reiterated the intent to replace the framework proposed in Notice 2010-46 with the QDD regime.

Published December 19, 2016, Notice 2016-76, 2016-51 IRB 1, provided for the phased-in application of some provisions of the section 871(m) regs to allow for their orderly implementation and announced that taxpayers may continue to rely on Notice 2010-46 until January 1, 2018. The applicability dates in the 2017 final regs reflect the phased-in application described in Notice 2016-76 (see reg. section 1.871-15(r)).

Published January 17, 2017, Rev. Proc. 2017-15, 2017-3 IRB 437, sets forth the final QI agreement (2017 QI agreement), including the requirements and obligations applicable to QDDs, and provided that taxpayers may continue to rely on Notice 2010-46 during 2017.

Consistent with Notice 2016-76, the 2017 final regs’ preamble made Notice 2010-46 obsolete as of January 1, 2018. In response to a comment requesting that the QSL regime remain, the preamble noted that while the QSL regime was administratively more convenient for taxpayers than the QI regime, it created administrability problems for the IRS, especially verification. The QSL regime was replaced by incorporating the QDD rules into the existing QI framework, including rules for pooled reporting on Form 1042-S and the QI requirements for compliance review and certification.

Published August 21, 2017, Notice 2017-42, 2017-34 IRB 212, extended some of 2016 transition relief. Published February 5, 2018, Notice 2018-5, 2018-6 IRB 341, permits withholding agents to apply the transition rules from Notice 2010-46 in 2018 and 2019.

Published October 1, 2018, Notice 2018-72, 2018-40 IRB 522, further extended transition relief and permitted withholding agents to apply the transition rules from Notice 2010-46 in 2020. Published January 13, 2020, Notice 2020-2, extended the phase-in period described in Notice 2018-72 through 2022. This most accurate Notice 2022-37 further extends that phase-in period through 2024.

QDD Extension

Part V of Notice 2022-37 is dedicated to describing the extension of phase-in relief for QDDs. In 2015 reg. section 1.871-15T(q)(1) provided that when a QDD received a dividend or dividend equivalent payment and was obligated to make an offsetting dividend equivalent payment on the same underlying security in an amount that was less than the amount received, the QDD would be liable for tax under section 871(a) or 881 for the difference.

Reg. section 1.1441-1(b)(4)(xxii) of the 2015 final regs provided that a withholding agent who made a payment of a dividend to a QI acting as a QDD was not required to withhold on that payment if the withholding agent reliably associated the payment with a valid QI withholding form containing a certification described in reg. section 1.1441-1(e)(3)(ii)(E). The 2017 final regs adopted the net delta exposure method.

In adopting the net delta exposure method, however, Treasury and the IRS were concerned that the exemption from withholding on dividends paid to a QDD combined with the net delta exposure method could cause U.S.-source dividends to escape U.S. tax completely. Therefore, the 2017 final regs revised reg. sections 1.871-15(q)(1) and 1.1441-1(b)(4)(xxii) to provide that a QDD remains liable for tax under section 881(a)(1) and subject to withholding under chapters 3 and 4 on dividends.

However, to allow taxpayers time to implement the net delta exposure method, the 2017 QI agreement and final regs provided that dividends and dividend equivalents received by a QDD in its equity derivatives dealer capacity in 2017 will not be subject to tax under section 881(a)(1) or withholding under chapters 3 and 4.

Notices 2017-42, 2018-72, and 2020-2 announced that Treasury and the IRS intend to amend reg. sections 1.871-15(q)(1) and (r)(3), and 1.1441-1(b)(4)(xxii)(C) to provide that a QDD will not be subject to tax on dividends and dividend equivalents received in 2017-2022 in its equity derivatives dealer capacity or withholding on those dividends (including deemed dividends).

This notice again announces that Treasury and the IRS intend to amend those provisions to provide that a QDD will not be subject to tax on dividends and dividend equivalents received in 2023 and 2024 in its equity derivatives dealer capacity or withholding on those dividends (including deemed dividends).

Section 4.01(1) of Rev. Proc. 2017-15 provides that a QDD will be required to compute its section 871(m) amount using the net delta exposure method beginning in 2018. Notices 2017-42, 2018-72, and 2020-2 provided that a QDD would be required to compute its section 871(m) amount using the net delta exposure method beginning in 2023. This notice provides that a QDD will be required to compute its section 871(m) amount using the net delta exposure method beginning in 2025.

A QDD will remain liable for tax under section 881(a)(1) on dividends and dividend equivalents that it receives in any capacity other than as an equity derivatives dealer and on any other U.S.-source fixed, determinable, annual, and periodic payments that it receives (whether or not in its equity derivatives dealer capacity). Also, a QDD is responsible for withholding on dividend equivalents it pays to a foreign person on a section 871(m) transaction, whether acting in its capacity as an equity derivatives dealer or otherwise.

Finally, section 10.01(C) of the 2017 QI agreement provides that, for calendar year 2017, a QDD is not required to perform a periodic review of its QDD activities (as required by section 10.04 of the agreement) or provide the factual information specified in Appendix I. Notices 2017-42, 2018-72, and 2020-2 provide that a QDD is not required to perform a periodic review of its QDD activities for 2017-2022.

This notice provides that a QDD is not required to perform a periodic review of its QDD activities for 2023 or 2024. Treasury and the IRS anticipate including in the 2023 QI agreement the waiver of a QDD’s periodic review and the other transitional provisions for QDDs for 2023 and 2024.

QSL Extension

Notices 2018-5, 2018-72, and 2020-2 provide that, notwithstanding the 2017 regs’ preamble rendering Notice 2010-26 obsolete, withholding agents may apply the QSL transition rules in Notice 2010-46 for payments made in 2018-2022. This notice provides that withholding agents may also apply those QSL transition rules for payments made in 2023 and 2024.

Mon, 21 Aug 2023 00:08:00 -0500 Carrie Brandon Elliott en text/html https://www.forbes.com/sites/taxnotes/2023/08/21/tax-regs-address-overwithholding-with-qualified-derivatives-dealers-exemption/
Killexams : EHang Reports Second Quarter 2023 Unaudited Financial Results

- All Planned Tests for EH216-S Type Certification Completed 100%

- Strategic UAM Operational Partnership with Shenzhen Bao’an District

- US$23 Million Strategic PIPE Investment to Strengthen Liquidity

GUANGZHOU, China, Aug. 17, 2023 (GLOBE NEWSWIRE) -- EHang Holdings Limited (“EHang” or the “Company”) (Nasdaq: EH), the world’s leading autonomous aerial vehicle (“AAV”) technology platform company, today announced its unaudited financial results for the second quarter ended June 30, 2023.

Financial and Operational Highlights for the Second Quarter 2023

  • Total revenues were RMB10.0 million (US$1.4 million), compared with RMB22.2 million in the first quarter of 2023, as some deliveries have been extended to be post type certification (“TC”) of EH216-S per customers’ requests in light that the TC process is approaching the end.
  • Gross margin was 60.2%, representing a continued high gross margin level with a slight decrease of 3.7 percentage points compared to 63.9% in the first quarter of 2023, mainly due to the changes in revenue mix.
  • Operating loss was RMB75.3 million (US$10.4 million), compared with RMB75.7 million in the first quarter of 2023.
  • Adjusted operating loss1 (non-GAAP) was RMB51.3 million (US$7.1 million), compared with RMB34.3 million in the first quarter of 2023.
  • Net loss was RMB75.7 million (US$10.4 million), compared with RMB87.0 million in the first quarter of 2023.
  • Adjusted net loss2 (non-GAAP) was RMB51.8 million (US$7.1 million), compared with RMB33.6 million in the first quarter of 2023.
  • Cash, cash equivalents and restricted short-term deposits balances were RMB160.7 million (US$22.2 million) as of June 30, 2023, and increased to RMB320.6 million (US$44.9 million) as of July 31, 2023 after the closing of the US$23 million strategic PIPE investment.
  • Sales and deliveries of EH216 series AAVs3 were 5 units, compared with 11 units in the first quarter of 2023.

Business Highlights for the Second Quarter 2023 and accurate Developments

  • All Planned Tests for EH216-S Type Certification Completed 100%

The Company has achieved a significant milestone for EH216-S TC by successfully completing all of the planned tests and flights in the last phase of demonstration and verification of compliance, and also completed the definitive TC Flight Test by the Civil Aviation Administration of China (“CAAC”), with unwavering endeavors throughout past 31 months since the CAAC officially accepted the Company’s TC application in January 2021. After finishing the remaining procedures, the Company expects to obtain the type certificate of EH216-S Unmanned Aerial Vehicle (“UAV”) System from the CAAC soon.

  • Delivered 5 Units of EH216-S AAVs to Joint Venture withShenzhen-listed Xiyu Tourism

In the second quarter of 2023, EHang established a joint venture with Xiyu Tourism (300859.SZ), a Shenzhen-listed leading tourism company in China and delivered 5 units of EH216-S AAVs to the joint venture. The customer aims to develop low-altitude tourism and sightseeing projects with EHang AAVs in the Heavenly Lake of Tianshan, a national 5A-class tourist attraction, and other scenic areas in Northwestern China. The partnership consists of plans to operate a minimum of 120 units of EH216-S or EHang’s comparable passenger-carrying AAVs within the next five years.

  • Strategic UAM Operational Partnership with Shenzhen Bao’an District

In July 2023, EHang reached a Memorandum of Understanding (“MOU”) with the Bao’an District Government of Shenzhen municipality on a strategic partnership for urban air mobility (“UAM”) operations after the certification of EH216-S. Both parties will jointly develop UAM use cases, systems, and routes to build Shenzhen as a national low-altitude economy development demonstration city. EHang plans to establish a UAM Operation Demonstration Center at the OH Bay in Shenzhen and launch aerial tourism and sightseeing experience services with EH216-S AAVs.

  • Continued Trial Operations of EH216-S in China

Under the CAAC’s guidance and the Company’s 100 Air Mobility Route Initiative, EHang, along with its customers and partners, have developed a total of 20 trial operation sites across 18 cities in China during the two years prior to the end of July 2023. More than 9,300 safety-ensured operational trial flights for low-altitude tourism and aerial sightseeing have been conducted by EH216-S at these sites, which paves the way for future commercial operations following the certification.

  • Extended Flight Footprints in Asia and Europe

In April 2023, EHang was inducted as a member of Japan’s Public-Private Committee for Advanced Air Mobility. In June 2023, EHang extended its flight footprints to Okinawa with EH216-S, making the 7th Japanese city that it has flown. It also demonstrated Japan’s first island-hopping flights by an unmanned electric vertical take-off and landing aircraft (“eVTOL”).

As part of the Israel National Drone Initiative and supported by Dronery and Cando Drones, test flights were conducted for EH216-S and EH216-L in Caesarea and Tel Aviv, Israel in June and August 2023 successively.

In July 2023, test flights to transport blood bags in Belgium using EH216-S were conducted with the supports of Helicus, DronePort and Blood Services of the Belgian Red Cross. This marked the Europe’s first unmanned flight for medical transportation by an unmanned large-payload eVTOL.

As of the end of July 2023, the flight footprints of EH216 series AAVs have extended to 14 countries across Asia, Europe and Americas, with a total of more than 39,000 demo and trial flights.

  • US$23 Million Strategic PIPE Investment to Strengthen Liquidity

In July 2023, EHang secured a new round of US$23 million of equity investment through a private placement from several strategic investors led by Mr. Lee Soo Man (“Mr. Lee”), a renowned K-Pop music mogul. Additionally, EHang and Mr. Lee will collaborate to drive the development of UAM business in Asian Pacific regions by leveraging each other’s complementary strengths. The gross proceeds from the placement will be allocated by EHang for working capital and general corporate purposes, enabling acceleration of strategic plans for technology advancement, business development, and post-certification commercial operations.

CEO Remarks

Mr. Huazhi Hu, EHang’s Founder, Chairman and Chief Executive Officer, commented, “We’ve made remarkable progress in our pursuit of long-term growth. Notably, we are thrilled to announce that we have successfully completed all the planned tests for EH216-S type certification. This achievement marks a significant unprecedented milestone in the global emerging eVTOL industry, underscoring our unwavering dedication and pioneering advantages. Additionally, this sets the stage for us to secure the type certificate soon and proceed with our endeavors to initiate commercial operations.”

“We’ve also witnessed positive policy developments for the industry recently. Specifically in June, China issued regulations governing UAVs, the first of this kind in the nation, which could propel growth of the sector and provide a clear guidance for UAV flight operations in China, including for our passenger-carrying eVTOL. Furthermore, our global initiatives to expand orders and collaborations have continued to gain traction. This includes conducting additional demonstration and tests flights and exploring various business opportunities at home and abroad. Our strategic partnership with Shenzhen Bao’an Government will stand out as a pivotal step after we obtain the type certificate. For our execution of the post-certification commercial plans, we have further strengthened our liquidity position with a new round of US$23 million investments from long-term strategic investors in July 2023. As a trailblazer in the sector, we are committed to continuously enhancing our products and technologies to offer a secure, efficient, and sustainable aerial experience for our customers and partners. In doing so, we are well-positioned to seize the abundant market opportunities that lie ahead.”

Financial Results for the Second Quarter 2023

Revenues

Total revenues were RMB10.0 million (US$1.4 million), compared with RMB22.2 million in the first quarter of 2023, as some deliveries have been extended to be post TC of EH216-S per customers’ requests in light that the TC process is approaching the end.

Costs of revenues

Costs of revenues were RMB4.0 million (US$0.6 million), compared with RMB8.0 million in the first quarter of 2023.

Gross profit and gross margin

Gross profit was RMB6.0 million (US$0.8 million), compared with RMB14.2 million in the first quarter of 2023.

Gross margin was 60.2%, down 3.7 percentage points from 63.9% in the first quarter of 2023. The decrease in gross margin was mainly due to changes in revenue mix.

Operating expenses

Total operating expenses were RMB82.0 million (US$11.3 million), representing a decrease of 10.4% compared with RMB91.5 million in the first quarter of 2023.

  • Sales and marketing expenses were RMB13.5 million (US$1.9 million), compared with RMB12.4 million in the first quarter of 2023. The increase was mainly due to increased marketing and promotion activities to enhance brand awareness and higher employee compensation.
  • General and administrative expenses were RMB31.1 million (US$4.3 million), compared with RMB25.0 million in the first quarter of 2023. The increase was mainly attributed to additional provisions for several long-aging accounts receivable on certain customers in the second quarter of 2023.
  • Research and development expenses were RMB37.4 million (US$5.1 million), compared with RMB54.1 million in the first quarter of 2023. The decrease was mainly due to lower share-based compensation expenses for a certain portion of share-based awards vested in the first quarter of 2023, partially offset by the continued focus on EH216-S type certification and increased expenditures on the conforming aircraft and compliance tests in the final demonstration and verification phase of the type certification.

Adjusted operating expenses4 (non-GAAP)

Adjusted operating expenses were RMB58.1 million (US$8.0 million), compared with RMB50.1 million in the first quarter of 2023. Adjusted sales and marketing expenses, adjusted general and administration expenses, and adjusted research and development expenses were RMB8.9 million (US$1.2 million), RMB20.4 million (US$2.8 million) and RMB28.8 million (US$4.0 million) in the second quarter of 2023, respectively. The changes in adjusted operating expenses were primarily due to the same reasons discussed under the heading “Operating expenses” above.

Operating loss

Operating loss was RMB75.3 million (US$10.4 million), compared with RMB75.7 million in the first quarter of 2023.

Adjusted operating loss (non-GAAP)5

Adjusted operating loss was RMB51.3 million (US$7.1 million), compared with RMB34.3 million in the first quarter of 2023.

Other income

Other income was RMB1.2 million (US$0.2 million), compared with RMB11.2 million of other expenses in the first quarter of 2023. This was primarily due to the non-cash expenses of amortization of debt discounts incurred in the first quarter of 2023, which relates to the interim funding recognized as short-term debt provided by an investor in the private placement entered in December 2022. The Company accounted for a significant portion of the funds as short-term debt and the remaining portion as warrants under additional paid-in capital. In addition, the Company has repaid the interim funding of short-term debt in full and, with the warrants exercised, the Company concurrently received US$10 million as purchase price of Class A ordinary shares.

Net loss

Net loss was RMB75.7 million (US$10.4 million), compared with RMB87.0 million in the first quarter of 2023.

Adjusted net loss (non-GAAP)6

Adjusted net loss was RMB51.8 million (US$7.1million), compared with RMB33.6 million in the first quarter of 2023.

Adjusted net loss attributable to EHang’s ordinary shareholders was RMB51.6 million (US$7.1million), compared with RMB33.4 million in the first quarter of 2023.

Loss per share and per ADS

Basic and diluted net loss per ordinary share were both RMB0.63 (US$0.09). Adjusted basic and diluted net loss per ordinary share7 (non-GAAP) were both RMB0.43 (US$0.06).

Basic and diluted net loss per ADS were both RMB1.26 (US$0.18). Adjusted basic and diluted net loss per ADS8 (non-GAAP) were both RMB0.86 (US$0.12).

Balance Sheets

  • Cash, cash equivalents and restricted short-term deposits balances were RMB160.7 million (US$22.2 million) as of June 30, 2023. In July 2023, the Company completed and closed the private investment of US$23 million from long-term strategic investors to support the needs of working capital and general corporate purposes, enabling acceleration of strategic plans for technology advancement, business development, and post-certification commercial operations.

Liquidity

The Company has been incurring losses from operations since inception. For the six months ended June 30, 2023, the Company had net loss of RMB162.8 million (US$22.4 million). As of December 31, 2022 and June 30, 2023, accumulated deficit amounted to RMB1,450.4 million and RMB1,615.2 million (US$222.7 million), respectively.

The Company’s liquidity and continuous operation depend on its ability to enhance its operating cash flows and financial position, which is currently largely dependent on when the Company will obtain the type certificate of EH216-S to launch commercial sales of EH216-S AAVs, and the Company’s capability to raise additional funds through debt financings or equity offerings. The Company expects to obtain the type certificate soon as it has already completed all the planned tests in the final phase of Demonstration and Verification of Compliance for EH216-S type certification as of the date of this earnings release. In July 2023, the Company has also secured a round of US$23 million of equity investment through private placement from several strategic investors. The gross proceeds from the placement has strengthened the Company’s liquidity status. Therefore, we believe that our current cash and cash equivalents and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and material cash requirements for at least the next 12 months. However, we may need additional cash resources in the future if we experience changes in business conditions or other developments, or if we pursue opportunities for investment, acquisition, capital expenditure or similar actions.

Management Transition

The Company also announced today that Mr. Richard Jian Liu tendered his resignation from his position as the Chief Financial Officer (“CFO”) of the Company for personal reasons, which resignation will become effective on August 31, 2023 and will serve as a senior advisor to the Company effective on September 1, 2023. In addition, the Board has appointed Mr. Conor Chia-hung Yang, currently a director of the Company, as the new Chief Financial Officer while keeping his directorship, effective on September 1, 2023. Mr. Liu’s resignation did not result from any dispute or disagreement with the Board or the Company.

Mr. Huazhi Hu, EHang’s Founder, Chairman and Chief Executive Officer, commented, “On behalf of the Board and the management team, I would like to thank Richard for his wholehearted dedication and tremendous contributions to EHang’s growth during his 8-year tenure with the Company. As a founding member, his foresight and leadership have been instrumental in leading the Company in going public and navigating the capital markets as the pioneer in the global eVTOL/UAM industry. We would also like to warmly welcome Conor to join our management team, who has more than 30 years of professional experience in financial management, investor relations, capital markets and corporate governance at many listed companies, and served as a director in our Board for more than 3 years since our listing on Nasdaq, demonstrating his deep understanding and confidence in the Company. We look forward to continuing working with Conor in his new capacities to take EHang into a new stage with bright prospect.”

Mr. Liu said, “I would like to sincerely thank the Board, Huazhi and the investment communities for all your trust and supports in the past 8 years. I have witnessed and experienced the Company’s development and every milestone from an innovative startup into an industry leading listed company and believe the Company has built a solid foundation for its sustainable long-term growth.”

Mr. Yang said, “I feel privileged to join the management team of EHang, a trailblazer in global UAM industry, and take over CFO’s responsibilities at this pivotal and exhilarating stage. Leveraging my extensive finance experience and my enthusiasm for the UAM sector, I am dedicated to forging strong collaborations with our talented team to drive financial excellence and maximize value for the Company’s stakeholders.”

Prior to this appointment as CFO, Mr. Yang has served as an independent director, the chair of Audit Committee, and a member of Compensation Committee of the Board of EHang since December 2019. From 2007 to 2023, Mr. Yang served in several chief financial officer positions, including Tuniu Corporation (Nasdaq: TOUR), E-Commerce China Dangdang Inc., and AirMedia Group Inc. Mr. Yang was the chief executive officer of Rock Mobile Corporation from 2004 to 2007, and the chief financial officer of the Asia Pacific region for CellStar Asia Corporation from 1999 to 2004. Prior to that, Mr. Yang was a senior banker at Goldman Sachs (Asia) L.L.C., Lehman Brothers Asia Limited and Morgan Stanley Asia Limited from 1992 to 1999. Mr. Yang currently also serves as an independent director of I-Mab, iQIYI, Inc., Tongcheng Travel Holdings Limited, UP Fintech Holding Ltd and Smart Share Global Limited. Mr. Yang received his master’s degree in business administration from the University of California, Los Angeles (UCLA).

Board Change

The Company also announced today that it has appointed Mr. Wing Kee Lau (“Mr. Lau”) as a new independent director to the Board, effective on August 16, 2023. Mr. Lau was also concurrently appointed as the chair of Audit Committee, and a member of Compensation Committee, to succeed Mr. Yang’s prior roles in the Board. The Board has reviewed and determined that Mr. Lau meets all the “independence” requirements under Rule 10A-3 of the United States Exchange Act of 1934 and Listing Rule 5605 of the Nasdaq Stock Market Rules and qualifies as an audit committee financial expert as defined in the instructions to Item 16A of the Form 20-F.

Following this appointment, the Board will be comprised of six members, including four independent non-executive directors and two executive directors.

Mr. Huazhi Hu, EHang’s Founder, Chairman and Chief Executive Officer, commented, “On behalf of the Board and the management team, I would like to express our warm welcome to Mr. Lau to join us. I am confident that his extensive background of over 30 years in financial management and accounting will enrich us with a wealth of valuable experience and expertise, further fortifying our dedication to robust governance and strategic oversight.”

Mr. Lau said, “I am honored to join the Company’s Board, Audit Committee and Compensation Committee. I look forward to collaborating closely with my fellow Board members and the management team to uphold the principles of sound financial stewardship and contribute to the Company’s continued success.”

Mr. Lau has been serving as the chief financial officer of RoboSense Technology Co., Ltd. since August 2022. From 2000 to 2022, Mr. Lau served in several chief financial officer and senior financial positions at listed or industry-leading companies, including Perfect World Co., Ltd. (SHE: 002624), Ogilvy & Mather Advertising Ltd. Beijing Branch, Tarena International Inc. (Nasdaq: TEDU), Beijing Media Corporation Ltd. (HKEX: 01000), and Square Panda Inc. Prior to that, Mr. Lau was a senior manager at PricewaterhouseCoopers (“PwC”) Shanghai and Beijing from 1994 to 2000, and a senior accountant at PwC Hong Kong from 1990 to 1994. Mr. Lau currently also serves as an independent director at Genetron Holding Ltd. since June 2020. Mr. Lau received his bachelor’s degree in business administration (finance) from Hong Kong Baptist University in 1990, and an EMBA degree from Cheung Kong Graduate School of Business in 2011. Mr. Lau is a member of the Association of Chartered Certified Accountants, and a member of the Hong Kong Institution of Certified Public Accountants.

Business Outlook

The Company continues to receive increasing inquiries, demands, and orders from customers for AAV uses in aerial tourism, urban transportation, emergency rescue, and smart city management, which are driven by its first-mover advantages, favorable policies in the UAM sector, and expected upcoming commercialization. The Company’s EH216-S order pipeline in China has reached more than 100 units and continues growing. Most of these orders are conditional upon the Company’s completion of the type certification.

The above outlook is based on information available as of the date of this press release and reflects the Company’s current and preliminary expectations regarding its business situation and market conditions. The outlook is subject to changes, especially uncertainties and situations related to EH216-S certification, political and economic landscape, etc.

Conference Call

EHang’s management team will host an earnings conference call at 8:00 AM on Thursday, August 17, 2023, U.S. Eastern Time (8:00 PM on Thursday, August 17, 2023, Beijing/Hong Kong Time).

To join the conference call via telephone, participants must use the following link to complete an online registration process. Upon registering, each participant will receive email instructions to access the conference call, including dial-in information and a PIN number allowing access to the conference call.

Participant Online Registration:
https://register.vevent.com/register/BId28c5673b2f747f68e3a7042f02cf7f1

A live and archived webcast of the conference call will be available on the Company’s investors relations website at https://ir.ehang.com/.

About EHang

EHang (Nasdaq: EH) is the world’s leading autonomous aerial vehicle (“AAV”) technology platform company. EHang’s mission is to make safe, autonomous, and eco-friendly air mobility accessible to everyone. EHang provides customers in various industries with AAV products and commercial solutions: urban air mobility (including passenger transportation and logistics), smart city management, and aerial media solutions. As the forerunner of cutting-edge AAV technologies and commercial solutions in the global Urban Air Mobility (“UAM”) industry, EHang continues to explore the boundaries of the sky to make flying technologies benefit our life in smart cities. For more information, please visit www.ehang.com.

Safe Harbor Statement

This press release contains statements that may constitute “forward-looking” statements pursuant to the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “aims,” “future,” “intends,” “plans,” “believes,” “estimates,” “likely to” and similar statements. Statements that are not historical facts, including statements about management’s beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause genuine results to differ materially from those contained in any forward-looking statement, including but not limited to those relating to EH216-S type certification, our expectations regarding demand for, and market acceptance of, our AAV products and solutions and the commercialization of UAM services, our relationships with strategic partners, and current litigation and potential litigation involving us. Management has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While they believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond management’s control. These statements involve risks and uncertainties that may cause EHang’s genuine results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements.

Non-GAAPFinancial Measures

The Company uses adjusted gross profit, adjusted operating expenses, adjusted sales and marketing expenses, adjusted general and administration expenses, adjusted research and development expenses, adjusted operating loss, adjusted net loss, adjusted net loss attributable to ordinary shareholders, adjusted basic and diluted loss per ordinary share and adjusted basic and diluted loss per ADS (collectively, the “Non-GAAP Financial Measures”) in evaluating its operating results and for financial and operational decision-making purposes. There was no income tax impact on the Company’s non-GAAP adjustments because the non-GAAP adjustments are usually recorded in entities located in tax-free jurisdictions, such as the Cayman Islands.

The Company believes that the Non-GAAP Financial Measures help identify underlying trends in its business that could otherwise be distorted by the effects of items of (i) share-based compensation expenses and (ii) certain non-operational expenses, such as provisions for legal proceedings and amortization of debt discounts, which are included in their comparable GAAP measures. The Company believes that the Non-GAAP Financial Measures provide useful information about its operating results, enhance the overall understanding of its past performance and future prospects and allow for greater visibility with respect to key metrics used by its management members in their financial and operational decision-making.

The Non-GAAP Financial Measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. The Non-GAAP Financial Measures have limitations as analytical tools. One of the key limitations of using the Non-GAAP Financial Measures is that they do not reflect all items of expense that affect the Company’s operations. Share-based compensation expenses have been and may continue to be incurred in the business and are not reflected in the presentation of the Non-GAAP Financial Measures. Further, the Non-GAAP Financial Measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore their comparability may be limited. The Company compensates for these limitations by reconciling the Non-GAAP Financial Measures to the nearest U.S. GAAP measures, all of which should be considered when evaluating the Company’s performance.

Each of the Non-GAAP Financial Measures should not be considered in isolation or construed as an alternative to its comparable GAAP measure or any other measure of performance or as an indicator of the Company’s operating performance or financial results. Investors are encouraged to review the Company’s most directly comparable GAAP measures in conjunction with the Non-GAAP Financial Measures. The Non-GAAP Financial Measures presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company’s data. The Company encourages investors and others to review its financial information in its entirety and not rely on a single financial measure.

For more information on the Non-GAAP Financial Measures, please see the table captioned “Unaudited Reconciliations of GAAP and Non-GAAP Results” set forth at the end of this press release.

Exchange Rate

This press release contains translations of certain RMB amounts into U.S. dollars (“USD”) at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to USD were made at the rate of RMB7.2513 to US$1.00, the noon buying rate in effect on June 30, 2023 in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or USD amounts referred to in this press release could have been converted into USD or RMB, as the case may be, at any particular rate or at all.

Investor Contact: ir@ehang.com

Media Contact: pr@ehang.com

________________________________

1 Adjusted operating loss is a non-GAAP financial measure, which is defined as operating loss excluding share-based compensation expenses. See “Non-GAAP Financial Measures” below.
2 Adjusted net loss is a non-GAAP financial measure, which is defined as net loss excluding share-based compensation expenses and certain non-operational expenses. See “Non-GAAP Financial Measures” below.
3 The EH216 series AAVs include EH216-S, the standard model for passenger transportation, EH216-F model for aerial firefighting, and EH216-L model for aerial logistics.
4 Adjusted operating expenses is a non-GAAP financial measure, which is defined as operating expenses excluding share-based compensation expenses. See “Non-GAAP Financial Measures” below.
5 Adjusted operating loss is a non-GAAP financial measure, which is defined as operating loss excluding share-based compensation expenses. See “Non-GAAP Financial Measures” below.
6 Adjusted net loss is a non-GAAP financial measure, which is defined as net loss excluding share-based compensation expenses and certain non-operational expenses, which include amortization of debt discounts. See “Non-GAAP Financial Measures” below.
7 Adjusted basic and diluted net loss per ordinary share is a non-GAAP financial measure, which is defined as basic and diluted loss per ordinary share excluding share-based compensation expenses and certain non-operational expenses, which include amortization of debt discounts. See “Non-GAAP Financial Measures” below.
8 Adjusted basic and diluted net loss per ADS is a non-GAAP financial measure, which is defined as basic and diluted loss per ADS excluding share-based compensation expenses and certain non-operational expenses, which include amortization of debt discounts. See “Non-GAAP Financial Measures” below.

 
EHANG HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”))
 
  As of   As of
  December 31, 2022   June 30, 2023
  RMB   RMB   US$
  (Unaudited)   (Unaudited)   (Unaudited)
ASSETS          
Current assets:          
Cash and cash equivalents 249,310   127,067   17,523
Restricted short-term deposits -   33,617   4,636
Accounts receivable, net9 20,298   16,403   2,262
Inventories 72,364   70,528   9,726
Prepayments and other current assets9 45,183   48,175   6,644
Total current assets 387,155   295,790   40,791
           
Non-current assets:          
Property and equipment, net 47,060   43,802   6,041
Operating lease right‑of‑use assets, net 73,482   73,525   10,140
Intangible assets, net 1,959   2,139   295
Long-term loans receivable 9,980   8,000   1,103
Long-term investments10 9,839   14,142   1,950
Other non-current assets 1,392   1,562   215
Total non-current assets 143,712   143,170   19,744
           
Total assets 530,867   438,960   60,535
           

___________________________________

9 On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), using the modified retrospective method and have no material impact on the consolidated financial statements.
10 The Company established a joint venture with Xiyu Tourism, a third party, in the second quarter of 2023 and accounted as an equity method investment.

 
EHANG HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONT’D)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”))
 
  As of   As of
  December 31, 2022   June 30, 2023
  RMB   RMB   US$
  (Unaudited)   (Unaudited)   (Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities          
Short-term bank loans 49,794   59,338   8,183  
Short-term debt11 57,838   -   -  
Accounts payable 35,456   33,613   4,635  
Contract liabilities 19,321   22,251   3,069  
Current portion of long-term bank loans 13,154   1,538   212  
Accrued expenses and other liabilities 97,763   93,931   12,953  
Current portion of lease liabilities 5,520   6,596   910  
Deferred income 1,495   1,551   214  
Deferred government subsidies 1,993   2,270   313  
Income taxes payable 7   2   -  
Total current liabilities 282,341   221,090   30,489  
           
Non-current liabilities:          
Long-term bank loans 3,846   3,077   424  
Mandatorily redeemable non-controlling interests 40,000   40,000   5,516  
Deferred tax liabilities 292   292   40  
Unrecognized tax benefit 5,480   5,480   756  
Lease liabilities 69,913   70,864   9,773  
Deferred income 2,928   2,269   313  
Other non-current liabilities 1,389   1,973   272  
Total non-current liabilities 123,848   123,955   17,094  
           
Total liabilities 406,189   345,045   47,583  
             
Shareholders’ equity:            
Ordinary shares   75     77     11  
Additional paid-in capital12   1,558,356     1,687,880     232,769  
Statutory reserves   1,191     1,191     164  
Accumulated deficit913   (1,450,374 )   (1,615,182 )   (222,744 )
Accumulated other comprehensive income   15,010     19,256     2,656  
Total EHang Holdings Limited shareholders’ equity   124,258     93,222     12,856  
Non-controlling interests   420     693     96  
Total shareholders’ equity   124,678     93,915     12,952  
Total liabilities and shareholders’ equity   530,867     438,960     60,535  

___________________________________

11 In December 2022, the Company received interim funding from an investor who has subscribed for certain number of Class A ordinary shares of the Company in a private placement. The funds amounted to US$10 million in total and were made available for use by the Company pending the closing of the private placement. We accounted for a significant portion of the funds as short-term debt and the remaining portion as additional paid-in capital. The closing of the private placement has occurred by the end of first quarter of 2023. The Company has repaid the interim funding in full and concurrently received US$10 million as purchase price of 3,466,204 Class A ordinary shares.
12 Additional paid-in capital reflected the impacts from transactions with non-controlling shareholder. Please refer to the annual report for more details.
13 Accumulated deficit reflected the impacts from adoption of ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) since January 1, 2023 and transactions with non-controlling shareholder. Please refer to the annual report for more details.

 
EHANG HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”) except for per share data and per ADS data)
 
    Three Months Ended   Six Months Ended
    June 30,
2022
  March 31,
2023
  June 30,
2023
  June 30,
2022
  June 30,
2023
    RMB   RMB   RMB US$   RMB   RMB US$
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Total revenues   14,618     22,201     10,006   1,380     20,408     32,207   4,442  
Costs of revenues   (4,805 )   (8,007 )   (3,986 ) (550 )   (6,979 )   (11,993 ) (1,654 )
Gross profit   9,813     14,194     6,020   830     13,429     20,214   2,788  
                         
Operating expenses:                        
Sales and marketing expenses   (12,243 )   (12,474 )   (13,526 ) (1,865 )   (24,940 )   (26,000 ) (3,586 )
General and administrative expenses   (39,563 )   (24,996 )   (31,061 ) (4,284 )   (63,073 )   (56,057 ) (7,731 )
Research and development expenses   (34,727 )   (54,075 )   (37,414 ) (5,160 )   (66,728 )   (91,489 ) (12,617 )
Total operating expenses   (86,533 )   (91,545 )   (82,001 ) (11,309 )   (154,741 )   (173,546 ) (23,934 )
                         
Other operating income   2,424     1,605     676   93     3,202     2,281   315  
Operating loss   (74,296 )   (75,746 )   (75,305 ) (10,386 )   (138,110 )   (151,051 ) (20,831 )
                         
Other income (expense):                        
Interest and investment income   1,139     983     966   133     2,509     1,949   269  
Interest expenses   (440 )   (714 )   (816 ) (113 )   (915 )   (1,530 ) (211 )
Amortization of debt discounts   -     (12,023 )   -   -     -     (12,023 ) (1,658 )
Foreign exchange loss   (1,018 )   (96 )   (1,028 ) (142 )   (1,441 )   (1,124 ) (155 )
Other non-operating income (expenses), net   721     651     2,075   286     (4,768 )   2,726   375  
Total other income (expense)   402     (11,199 )   1,197   164     (4,615 )   (10,002 ) (1,380 )
                         
Loss before income tax and income (loss) from equity method investment   (73,894 )   (86,945 )   (74,108 ) (10,222 )   (142,725 )   (161,053 ) (22,211 )
Income tax (expenses) benefits   (1 )   (1 )   (13 ) (2 )   1     (14 ) (2 )
Loss before income (loss) from equity method investment   (73,895 )   (86,946 )   (74,121 ) (10,224 )   (142,724 )   (161,067 ) (22,213 )
Income (loss) from equity method investment   30     (90 )   (1,607 ) (222 )   43     (1,697 ) (234 )
Net loss   (73,865 )   (87,036 )   (75,728 ) (10,446 )   (142,681 )   (162,764 ) (22,447 )
 
EHANG HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (CONT’D)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”) except for per share data and per ADS data)
 
    Three Months Ended   Six Months Ended
    June 30,
2022
  March 31,
2023
  June 30,
2023
  June 30,
2022
  June 30,
2023
    RMB   RMB   RMB US$   RMB   RMB US$
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Net loss   (73,865 )   (87,036 )   (75,728 ) (10,446 )   (142,681 )   (162,764 ) (22,447 )
Net loss attributable to non-controlling interests   312     211     165   23     467     376   52  
Net loss attributable to ordinary shareholders   (73,553 )   (86,825 )   (75,563 ) (10,423 )   (142,214 )   (162,388 ) (22,395 )
Net loss per ordinary share:                        
Basic and diluted   (0.64 )   (0.74 )   (0.63 ) (0.09 )   (1.24 )   (1.37 ) (0.19 )
Shares used in net loss per ordinary share computation (in thousands of shares):                        
Basic and diluted   114,410     117,549     120,159   120,159     114,385     118,286   118,286  
Loss per ADS (2 ordinary shares equal to 1 ADS)
Basic and diluted
  (1.28 )   (1.48 )   (1.26 ) (0.18 )   (2.48 )   (2.74 ) (0.38 )
                         
Other comprehensive income (loss)                        
Foreign currency translation adjustments net of nil tax   12,444     (722 )   4,968   685     11,330     4,246   586  
Total other comprehensive income (loss), net of tax   12,444     (722 )   4,968   685     11,330     4,246   586  
Comprehensive loss   (61,421 )   (87,758 )   (70,760 ) (9,761 )   (131,351 )   (158,518 ) (21,861 )
Comprehensive loss attributable to non-controlling interests   312     211     165   23     467     376   52  
Comprehensive loss attributable to ordinary shareholders   (61,109 )   (87,547 )   (70,595 ) (9,738 )   (130,884 )   (158,142 ) (21,809 )
                         
 
EHANG HOLDINGS LIMITED
UNAUDITED RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”) except for per share data and per ADS data)
 
    Three Months Ended   Six Months Ended
    June 30,
2022
  March 31,
2023
  June 30,
2023
  June 30,
2022
  June 30,
2023
    RMB   RMB   RMB US$   RMB   RMB US$
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Gross profit   9,813     14,194     6,020   830     13,429     20,214   2,788  
Plus: Share-based compensation   -     -     -   -     -     -   -  
Adjusted gross profit   9,813     14,194     6,020   830     13,429     20,214   2,788  
                         
Sales and marketing expenses   (12,243 )   (12,474 )   (13,526 ) (1,865 )   (24,940 )   (26,000 ) (3,586 )
Plus: Share-based compensation   4,545     4,951     4,656   642     8,897     9,607   1,325  
Adjusted sales and marketing expenses   (7,698 )   (7,523 )   (8,870 ) (1,223 )   (16,043 )   (16,393 ) (2,261 )
                         
General and administrative expenses   (39,563 )   (24,996 )   (31,061 ) (4,284 )   (63,073 )   (56,057 ) (7,731 )
Plus: Share-based compensation   10,726     9,163     10,693   1,475     20,979     19,857   2,738  
Adjusted general and administrative expenses   (28,837 )   (15,833 )   (20,368 ) (2,809 )   (42,094 )   (36,200 ) (4,993 )
                         
Research and development expenses   (34,727 )   (54,075 )   (37,414 ) (5,160 )   (66,728 )   (91,489 ) (12,617 )
Plus: Share-based compensation   7,834     27,325     8,607   1,187     15,373     35,931   4,955  
Adjusted research and development expenses   (26,893 )   (26,750 )   (28,807 ) (3,973 )   (51,355 )   (55,558 ) (7,662 )
                         
Operating expenses   (86,533 )   (91,545 )   (82,001 ) (11,309 )   (154,741 )   (173,546 ) (23,934 )
Plus: Share-based compensation   23,105     41,439     23,956   3,304     45,249     65,395   9,018  
Adjusted operating expenses   (63,428 )   (50,106 )   (58,045 ) (8,005 )   (109,492 )   (108,151 ) (14,916 )
                         
Operating loss   (74,296 )   (75,746 )   (75,305 ) (10,386 )   (138,110 )   (151,051 ) (20,831 )
Plus: Share-based compensation   23,105     41,439     23,956   3,304     45,249     65,395   9,018  
Adjusted operating loss   (51,191 )   (34,307 )   (51,349 ) (7,082 )   (92,861 )   (85,656 ) (11,813 )
 
EHANG HOLDINGS LIMITED
UNAUDITED RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS (CONT’D)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”) except for per share data and per ADS data)
 
    Three Months Ended   Six Months Ended
    June 30,
2022
  March 31,
2023
  June 30,
2023
  June 30,
2022
  June 30,
2023
    RMB   RMB   RMB US$   RMB   RMB US$
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Net loss   (73,865 )   (87,036 )   (75,728 ) (10,446 )   (142,681 )   (162,764 ) (22,447 )
Plus: Share-based compensation   23,105     41,439     23,956   3,304     45,249     65,395   9,018  
Plus: Amortization of debt discounts   -     12,023     -   -         12,023   1,658  
Plus: Certain non-operational expenses   -     -     -   -     5,803     -   -  
Adjusted net loss   (50,760 )   (33,574 )   (51,772 ) (7,142 )   (91,629 )   (85,346 ) (11,771 )
                     
Net loss attributable to ordinary shareholders   (73,553 )   (86,825 )   (75,563 ) (10,423 )   (142,214 )   (162,388 ) (22,395 )
Plus: Share-based compensation   23,105     41,439     23,956   3,304     45,249     65,395   9,018  
Plus: Amortization of debt discounts   -     12,023     -   -     -     12,023   1,658  
Plus: Certain non-operational expenses   -     -     -   -     5,803     -   -  
Adjusted net loss attributable to ordinary shareholders   (50,448 )   (33,363 )   (51,607 ) (7,119 )   (91,162 )   (84,970 ) (11,719 )
                         
Adjusted basic and diluted net loss per ordinary share   (0.44 )   (0.28 )   (0.43 ) (0.06 )   (0.80 )   (0.72 ) (0.10 )
Adjusted basic and diluted net loss per ADS   (0.88 )   (0.56 )   (0.86 ) (0.12 )   (1.60 )   (1.44 ) (0.20 )

 

 


Wed, 16 Aug 2023 22:42:00 -0500 en text/html https://markets.businessinsider.com/news/stocks/ehang-reports-second-quarter-2023-unaudited-financial-results-1032562456
Killexams : Archer developments accelerate Midnight eVTOL path to market

Photo Credit: Archer Aviation Inc.

Archer Aviation Inc. (Santa Clara, Calif., U.S.) has made a series of announcements that reinforce its path to Federal Aviation Administration (FAA) certification and commercial operations in 2025. In tandem, the company issued a shareholder letter providing additional details on these updates along with its second quarter operating and financial results and third quarter 2023 estimates, which can be accessed here.

“Over the last quarter, we’ve seen the U.S. government make an unwavering commitment that America will lead the way in commercializing eVTOL [electric vertical takeoff and landing] aircraft, the FAA validated the timeline for eVTOL aircraft to begin operations in the U.S. in 2025 and leaders in the mobility industry, Stellantis, United Airlines and Boeing, have come together to invest in Archer’s future,” Adam Goldstein, Archer’s founder and CEO, says. “The pace at which our industry is advancing is unprecedented. Our team’s hard work and dedication have brought us to this exciting moment, and we can’t wait to see Midnight soar.”

Led by Stellantis (Amsterdam, Netherlands), Archer’s long-term strategic partner, Archer says it has further strengthened its liquidity position with a $215 million equity investment round. This investment round includes an acceleration of $70 million from Stellantis under the strategic funding agreement entered into in January 2023, with $55 million remaining available under that facility. Stellantis has provided the manufacturing expertise and capital needed to accelerate Archer’s business objectives, as well as the strategic vision and steadfast support from CEO Carlos Tavares and chief engineering and technology officer Ned Curic.

Archer continues to make strong progress on Midnight’s certification program with the FAA in support of the company’s planned entry into service in 2025.

The roster of investors from this latest funding round also includes United Airlines and industry giant Boeing, as well as other financial institutions, including ARK Invest. The funds from this round are intended to be used for working capital and general corporate purposes, including Archer’s continued development of its aircraft and related technology, as well as the build out of its manufacturing and test facilities.

Archer and Wisk Aero (Mountain View, Calif., U.S.), along with The Boeing Company (Arlington, Va., U.S.), have also announced a collaboration that looks forward to the growth and development of the advanced air mobility (AAM) industry. Simultaneously, the parties reached a settlement to resolve the federal and state court litigation between them. This collaboration is said to puts Archer in a unique position to be able to source autonomy technology from a leader in the industry. Over the long term, autonomy is seen as one of the keys to achieving scale across all AAM applications, from passenger to cargo and beyond. 

This strategic relationship will leverage each company’s respective strengths and competencies with the goal of accelerating the commercialization of autonomous flight. This approach is a natural extension of Archer’s overall strategy of focusing its in-house R&D on the key enabling technologies that cannot be sourced from the existing aerospace supply base, thereby helping Archer potentially avoid hundreds of millions of dollars of spending. 

In addition, Archer announces that its Midnight aircraft has received its special airworthiness certificate from the FAA. This certification signals that Archer’s aircraft has successfully met all FAA safety requirements enabling it to begin flight test operations, which Archer expects to commence in the coming weeks.

Archer continues to make strong progress on Midnight’s certification program with the FAA in support of the company’s planned entry into service in 2025. This is an important step as Archer readies to begin its piloted “for credit” testing of the aircraft with the FAA in early 2024 and bring online the company’s high-volume eVTOL production facility in Covington, Ga., U.S. in mid-2024 alongside Stellantis. 

As part of Archer’s recently announced landmark agreements with the Department of Defense valued at up to $142 million, the company is on track to deliver the Midnight aircraft to the U.S. Air Force later this year or early next year. Archer believes this would make Midnight the first ever eVTOL aircraft delivered to a customer.

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Fri, 11 Aug 2023 08:07:00 -0500 en text/html https://www.compositesworld.com/news/archer-developments-accelerate-midnight-evtol-path-to-market
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