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Item 2. Management’s Discussion and Analysis

2021-08-16 compared with 2021-05-24 · 66 added, 34 removed, 55 unchanged (65% of the section changed)

17 unchanged sentences

Proposed Business Combination

On February 10, 2021, we entered into a Business Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”), by and among Atlas, Artemis Acquisition Sub Inc., a Delaware corporation (“Artemis Merger Sub”), and Archer Aviation Inc., a Delaware corporation (“Archer”).

On February 10, 2021, we entered into a Business Combination Agreement (as amended and restated on July 29, 2021 and as it may be further amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”), by and among Atlas, Artemis Acquisition Sub Inc., a Delaware corporation (“Artemis Merger Sub”), and Archer Aviation Inc., a Delaware corporation (“Archer”).

The Business Combination Agreement and the transactions contemplated thereby were approved by the boards of directors of each of Atlas and Archer.

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Business Combination Consideration

In accordance with the terms and subject to the conditions of the Business Combination Agreement, at the effective time of the Merger, (i) outstanding shares of common stock and preferred stock of Archer will be converted into a right to receive a number of shares of New Class B Common Stock determined on the basis of an implied Archer equity value of $2,525,000,000 (the “Implied Equity Value”), (ii) all stock awards (whether vested or unvested) to purchase Archer common stock will be converted into stock awards to purchase a number of shares of New Class B Common Stock based on an exchange ratio derived from the Implied Equity Value, and (iii) outstanding warrants (whether vested or unvested) to purchase Archer common stock will be converted into warrants to purchase a number of shares of New Class B Common Stock determined on the basis of the Implied Equity Value.

In accordance with the terms and subject to the conditions of the Business Combination Agreement, at the effective time of the Merger, (i) outstanding shares of common stock and preferred stock of Archer will be converted into a right to receive a number of shares of New Class B Common Stock determined on the basis of an implied Archer equity value of $1,480,000,000 (the “Implied Equity Value”), (ii) all stock awards (whether vested or unvested) to purchase Archer common stock will be converted into stock awards to purchase a number of shares of New Class B Common Stock based on an exchange ratio derived from the Implied Equity Value, and (iii) outstanding warrants (whether vested or unvested) to purchase Archer common stock will be converted into warrants to purchase a number of shares of New Archer Class A Shares or New Class B Common Stock, as applicable, determined on the basis of the Implied Equity Value.

The former Archer equity holders will have the right to convert their shares of New Class B Common Stock into shares of New Class A Common Stock pursuant to the Post-Closing Atlas Certificate of Incorporation.

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In addition, the obligation of Archer to consummate the Business Combination is subject to, among other conditions, the aggregate cash proceeds from Atlas’ trust account, together with the proceeds from the PIPE Financing (as defined below), equaling no less than $600,000,000 (after deducting any amounts paid to Atlas shareholders that exercise their redemption rights in connection with the Business Combination).

On April 6, 2021, Wisk Aero LLC (“ Wisk ”) brought a lawsuit against Archer in United States District Court in the Northern District of California alleging misappropriation of trade secrets and patent infringement.

On May 19, 2021, Wisk filed a motion for preliminary

injunction and expedited discovery.

In addition, Atlas has been informed by Archer that it has placed an employee on paid administrative leave in connection with a government investigation and a search warrant issued to the employee, which Archer believes are focused on conduct prior to the employee joining Archer.

Atlas has also been informed that Archer and three other Archer employees with whom the individual worked have received subpoenas relating to this investigation.

Atlas is reviewing these matters.

On March 30, 2021, one of Archer’s employees, who is a former employee of Wisk Aero LLC ("Wisk"), had a search warrant executed at his home in connection with a federal investigation into the employee.

In addition, Archer and three of Archer’s employees, who are also former Wisk employees, received grand jury subpoenas from the United States Attorney’s Office for the Northern District of California in relation to the same investigation.

Archer has informed Atlas that it is cooperating with the investigation of the employee.

As of August 16, 2021, the investigation was ongoing.

On April 6, 2021, Wisk brought a lawsuit against Archer in United States District Court in the Northern District of California (the “Court’’) alleging misappropriation of trade secrets and patent infringement.

On May 19, 2021, Wisk filed a motion for preliminary injunction and expedited discovery.

On June 1, 2021, Archer filed a motion to dismiss and counterclaims and issued a press release in response to Wisk’s allegations.

On June 15, 2021, Wisk amended its complaint, and the following day Archer filed a motion to dismiss the amended complaint.

On June 23, 2021, Archer filed an opposition to the motion for preliminary injunction and issued a press release the following day.

On July 22, 2021, the Court denied Wisk’s motion for a preliminary injunction.

On July 27, 2021, Wisk filed a motion to dismiss Archer’s counterclaims and strike Archer’s affirmative defenses.

On August 11, 2021 there was a hearing to address Archer’s motions to dismiss Wisk's complaint and strike Wisk's trade secret disclosure, as well as to address Wisk's request for an expedited trial schedule.

The Judge has tentatively denied Archer's motion to dismiss Wisk's complaint and strike Wisk's trade secret disclosure.

The final order is expected to be issued shortly.

The Court tentatively set trial for November 28, 2021.

Archer cannot predict the timing or outcome of the litigation or federal government investigation.

See “Item 1A of this Report - Risk Factors — Risks Related to Archer’s Business and Industry and New Archer Following the Business Combination — Archer has been named in civil litigation alleging misappropriation by Archer of a competitor’s trade secrets and infringement by Archer of certain of the competitor’s patents.

Additionally, one of Archer’s employees was the subject of a search warrant relating to a federal government investigation, and Archer as well as three of Archer’s employees have been served with grand jury subpoenas in connection with such investigation.

These civil and criminal proceedings and similar allegations or legal actions in the future may be time-consuming and expensive and, if adversely determined, could delay, limit or prevent Archer’s ability to commercialize its aircraft or otherwise execute on its business plan .”

Results of Operations

We have neither engaged in any operations nor generated any revenues to date.

Our only activities for the period from August 26, 2020 (inception) through March 31, 2021 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and, after our Initial Public Offering, identifying a target company for a business combination.

Our only activities for the period from August 26, 2020 (inception) through June 30, 2021 were organizational activities, those necessary to prepare for our initial public offering (the "Initial Public Offering"), described below, and, after the Initial Public Offering, identifying a target company for a business combination.

We do not expect to generate any operating revenues until after the completion of our initial business combination.

We generate non-operating income in the form of interest income or gains on investments on the cash and investments held in a trust account from the proceeds derived from the Initial Public Offering.

We generate non-operating income in the form of interest and dividend income or gains on investments on the cash and investments held in a trust account from the proceeds derived from the Initial Public Offering.

We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

For the three months ended March 31, 2021, we had a net loss of $2,418,806, which resulted from operating and formation costs of $4,725,017 and franchise tax expense of $50,483, which was partially offset by an unrealized gain on marketable securities held in Trust Account in the amount of $130,025 and a gain on the change in fair value of warrant liabilities of $2,226,669.

For the three months ended June 30, 2021, we had net income of $3,252,607, which resulted from a gain on the change in fair value of warrant liabilities of $7,053,334, interest and dividend income on investments held in the trust account of $8,633, and an unrealized gain on investments held in the trust account of $5,002, offset in part by operating costs of $3,764,636 and franchise tax expense of $49,726.

For the six months ended June 30, 2021, we had net income of $833,801, which resulted from a gain on the change in fair value of warrant liabilities of $9,280,003, an unrealized gain on marketable securities held in the trust account in the amount of $135,027, and interest and dividend income on investments held in the trust account of $8,633, offset in part by operating costs of $8,489,653 and franchise tax expense of $100,209.

Liquidity and Capital Resources

As of March 31, 2021, the Company had $445,231 in cash held outside of the Trust Account and a working capital of deficit of $3,443,288.

The Company’s liquidity needs prior to the consummation of the Initial Public Offering were satisfied through the proceeds of $25,000 from the sale of the Founder Shares, and a loan of $300,000 under an unsecured and non-interest bearing promissory note.

Subsequent to the consummation of the Initial Public Offering, the Company’s liquidity will be satisfied through the net proceeds from the private placement held outside of the Trust Account.

In addition, in order to finance transaction costs in connection with a Business Combination, our Sponsor or an affiliate of the Sponsor, or certain of our officers and directors may, but are not obligated to, loan us funds as may be required (“Working Capital Loans”).

As of March 31, 2021, there were no amounts outstanding under any Working Capital Loan.

For the three months ended March 31, 2021, net cash used in operating activities was $551,940, which was due to our net loss of $2,418,806, a gain on the change in fair value of warrant liabilities of $2,226,669, and unrealized gains on investments in the Trust Account of $130,025, offset in part by changes in working capital of $4,219,156 and payment of formation costs by a related party of $4,404.

For the three months ended March 31, 2021, net cash provided by investing activities of $71,248 was the result of cash withdrawn from Trust Account to pay franchise taxes.

As of June 30, 2021, we had $297,376 in cash held outside of the trust account and a working capital deficit of $7,308,241.

We have incurred and expect to continue to incur significant costs in pursuit of our acquisition plans.

These conditions raise substantial doubt about our ability to continue as a going concern for a period of time within one year after the date that the financial statements are issued.

We plan to address this uncertainty through a business combination as discussed above.

There is no assurance that our plans to consummate the business combination will be successful.

In addition, in order to finance transaction costs in connection with a business combination, our Sponsor or an affiliate of our Sponsor, or certain of our officers and directors may, but are not obligated to, loan us funds as may be required (“Working Capital Loans”).

As of June 30, 2021, there were no amounts outstanding under any Working Capital Loan.

For the six months ended June 30, 2021, net cash used in operating activities was $1,027,773, which was due to a gain on the change in fair value of warrant liabilities of $9,280,003, unrealized gains on investments in the trust account of $135,027, and interest and dividend income on investments held in the trust account of $8,633, offset in part by changes in working capital of $7,562,089, and our net income of $833,801.

For the six months ended June 30, 2021, net cash provided by investing activities of $99,226 was the result of cash withdrawn from trust account to pay taxes.

For the six months ended June 30, 2021, net cash provided by financing activities of $300,000 was the result of proceeds from the issuance of the promissory note with our Sponsor.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2021.

We did not have any off-balance sheet arrangements as of June 30, 2021 and December 31, 2021.

Contractual Obligations

Registration Rights

The holders of the Founder Shares, Private Placement Warrants and any warrants that may be issued upon conversion of the Working Capital Loans (and any shares of Class A common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares) will be entitled to registration rights pursuant to a registration rights agreement that was effective with the Initial Public Offering, requiring us to register such securities

for resale (in the case of the Founder Shares, only after conversion to Class A common stock).

The holders of the founder shares, private placement warrants and any warrants that may be issued upon conversion of the Working Capital Loans (and any shares of Class A common stock issuable upon the exercise of the private placement warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the founder shares) are entitled to registration rights pursuant to a registration rights agreement signed on the effective date of the Initial Public Offering, requiring the Company to register such securities for resale (in the case of the founder shares, only after conversion to Class A common stock).

The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities.

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Business Combination Marketing Agreement

We engaged the representative of the underwriters and Moelis & Company LLC, an affiliate of the Sponsor, in connection with a Business Combination to assist us in holding meetings with our stockholders to discuss the potential Business Combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing our securities in connection with a Business Combination, assist us in obtaining stockholder approval for the Business Combination and assist us with press releases and public filings in connection with the Business Combination.

We will pay the representative of the underwriters and Moelis & Company LLC a cash fee for such services upon the consummation of the Business Combination of 2.25% ($11,250,000) and 1.25% ($6,250,000), respectively, or 3.5% ($17,500,000), in the aggregate, of the gross proceeds of the initial public offering.

We engaged the representative of the underwriters and Moelis & Company LLC, an affiliate of our Sponsor, in connection with a business combination to assist us in holding meetings with our stockholders to discuss the potential business combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing our securities in connection with a business combination, assist us in obtaining stockholder approval for the business combination and assist us with press releases and public filings in connection with the business combination.

We will pay the representative of the underwriters and Moelis & Company LLC a fee for such services upon the consummation of the business combination of 2.25% ($11,250,000) and 1.25% ($6,250,000), respectively, or 3.5% ($17,500,000), in the aggregate, of the gross proceeds of the initial public offering.

A portion of such fee may be re-allocated or paid to members of FINRA that assist us in consummating our business combination.

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Common stock subject to possible redemption

We account for common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value.

Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity.

The Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity .

Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value.

Conditionally redeemable common stock (including common stock that features

redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity.

At all other times, common stock is classified as stockholders’ equity.

Our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events.

As of March 31, 2021, 44,643,406 shares of Class A common stock subject to possible redemption are presented at redemption value as temporary equity, outside of the stockholders’ equity section of our balance sheet.

Net Earnings (Loss) Per Common Share

Net earnings (loss) per share is computed by dividing net earnings by the weighted-average number of shares of common stock outstanding during the period.

The Company has not considered the effect of the warrants sold in the Public Offering and Private Placement to purchase an aggregate of 24,666,667 shares in the calculation of diluted loss per share, since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.

The Company’s statement of operations includes a presentation of earnings (loss) per share for common shares subject to possible redemption and applies the two-class method in calculating earnings (loss) per share.

Net earnings per common share, basic and diluted, for Class A redeemable common stock is calculated by dividing the allocable unrealized gain on investments held in the Trust Account, net of applicable franchise and income taxes, by the weighted average number of Class A common stock subject to possible redemption outstanding since original issuance.

Net loss per share, basic and diluted, for Class A and Class B non-redeemable common stock is calculated by dividing the net loss, adjusted for income attributable to Class A redeemable common stock, by the weighted average number of Class A and Class B non-redeemable common stock outstanding for the period.

The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events.

As of June 30, 2021 and December 31, 2020, 50,000,000 and 44,885,287 shares of Class A common stock subject to possible redemption are presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s condensed balance sheet, respectively.

Warrant Liabilities

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance.

For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.

Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.

The initial fair value of the public warrants was estimated using a Monte Carlo simulation approach and the fair value of the private placement warrants was estimated using a Modified Black-Scholes model.

Net Income Per Share of Common Stock

Net income per common share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period.

The Company has not considered the effect of the warrants sold in the Initial Public Offering and Private Placement to purchase an aggregate of 24,666,667 shares in the calculation of diluted income per share, since the warrants are contingently exercisable, and the contingencies have not yet been met.

The Company’s statement of operations includes a presentation of income per share for common shares subject to possible redemption and applies the two-class method in calculating income per share.

Net earnings per common share, basic and diluted, for Class A redeemable common stock is calculated by dividing the allocable unrealized gain on investments held in the trust account and interest and dividend income on investments held in the trust account, net of applicable franchise and income taxes, by the weighted average number of Class A common stock subject to possible redemption outstanding for the period.

Net income per share, basic and diluted, for Class B non-redeemable common stock is calculated by dividing the net income, adjusted for income attributable to Class A redeemable common stock, by the weighted average number of Class B non-redeemable common stock outstanding for the period.

Class B non-redeemable common stock includes the founder shares as these shares do not have any redemption features and do not participate in the income earned on the trust account.

Recent Accounting Standards

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments.

ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity.

The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity.

ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments.

ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021.

The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.

Quantitative and Qualitative Disclosures About Market Risk.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis