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Item 2. Management’s Discussion and Analysis

2021-11-12 compared with 2021-08-16 · 220 added, 117 removed, 4 unchanged (99% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Atlas Crest Investment Corp..

References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Atlas Crest Investment LLC.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report.

Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected.

All statements other than statements of historical fact included in this Form 10-Q including statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements.

Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements.

Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available.

A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements.

For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Amendment No.

1 to its Annual Report on Form 10-K for the year ending December 31, 2020 filed with the SEC on May 24, 2021 and under Item 1A – Risk Factors in this report.

The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov.

Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

We are a blank check company incorporated on August 26, 2020 as a Delaware corporation and formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses, which we refer to throughout this Annual Report as our “initial business combination”.

We intend to effectuate our initial business combination using cash from the proceeds of the initial public offering and the private placement of the private placement warrants, the proceeds of the sale of our shares in connection with our initial business combination (pursuant to forward purchase agreements or backstop agreements we may enter into following the consummation of the initial public offering or otherwise), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing.

Proposed Business Combination

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.

The Business Combination

The Business Combination Agreement provides for, among other things, the following transactions on the date of closing of the Business Combination (the “Closing”):

(i) Atlas will amend and restate its certificate of incorporation (the “Post-Closing Atlas Certificate of Incorporation”), pursuant to which, among other things, Atlas will have a dual class share structure with (A) shares of Class A common stock that will carry voting rights in the form of one vote per share (the “New Class A Common Stock”), and (B) shares of Class B common stock that will carry voting rights in the form of ten votes per share (the “New Class B Common Stock” and, together with the New Class A Common Stock, the “New Atlas Common Stock”), and (ii) Artemis Merger Sub will merge with and into Archer, with Archer as the surviving company in the merger and, after giving effect to such merger, continuing as a wholly-owned subsidiary of Atlas (the “Merger”).

The Merger and the other transactions contemplated by the Business Combination Agreement are hereinafter referred to as the “Business Combination”.

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 $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.

Representations and Warranties;

The Business Combination Agreement contains representations, warranties and covenants of each of the parties thereto that are customary for transactions of this type.

Atlas has also agreed to take all action within its power as may be necessary or appropriate such that, effective immediately after the Closing, the Atlas board of directors will be divided into three classes and be composed of a total of seven directors, which directors shall include an individual designated by Atlas, three individuals designated by Archer and three individuals to be identified by Archer in consultation with Atlas who qualify as “independent directors” under the listing rules of the New York Stock Exchange.

Conditions to Each Party’s Obligations

The obligations of Atlas and Archer to consummate the Business Combination are subject to certain closing conditions, including, but not limited to, (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the absence of any law or governmental order or other legal restraint or prohibition preventing the consummation of the Business Combination, (iii) the Registration Statement (as defined below) being declared effective under the Securities Act of 1933, as amended (the “Securities Act”), (iv) the shares of New Class A Common Stock to be issued in connection with the Business Combination having been approved for listing on the New York Stock Exchange, (v) the approval of Atlas’ stockholders, (vi) the approval of Archer’s stockholders and (vii) Atlas having at least $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Securities Exchange Act of 1934, as amended) remaining after the Closing.

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 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 .”

This Quarterly Report on Form 10-Q includes forward-looking statements.

These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us.

There can be no assurance that future developments affecting us will be those that we have anticipated.

See the section titled “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

Our actual results could differ materially

from such forward-looking statements.

Factors that could cause or contribute to those differences include, but are not limited to, those set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and the section titled “Risk Factors” in the Company’s prospectus filed with the Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b)(3) under the Securities Act of 1933, as amended (the “Securities Act”), on October 26, 2021 (the “Prospectus”).

The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this report and the audited financial statements as of and for the year ended December 31, 2020 set forth in the Prospectus.

We are a former blank check company incorporated on August 26, 2020 under the name Atlas Crest Investment Corp.

(“Atlas”) as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

Business Combination

On September 16, 2021 (the “Closing Date”), Archer Aviation Inc., a Delaware corporation (prior to the closing of the Business Combination, “Legacy Archer”), Atlas, and Artemis Acquisition Sub Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Atlas (“Merger Sub”), consummated the closing of the transactions contemplated by the Business Combination Agreement, dated February 10, 2021, as amended and restated on July 29, 2021, by and among Atlas, Legacy Archer and Merger Sub (the “Business Combination Agreement”), following approval at a special meeting of the stockholders of Atlas held on September 14, 2021 (the “Special Meeting”).

Unless otherwise specified or unless the context otherwise requires, references herein Legacy Archer refers to Archer prior to the Business Combination and references herein to “New Archer” refers to Archer following the Business Combination

Pursuant to the terms of the Business Combination Agreement, a business combination of Legacy Archer and Atlas was effected by the merger of Merger Sub with and into Legacy Archer, with Legacy Archer surviving the merger (the “Surviving Entity”) as a wholly-owned subsidiary of Atlas (the “Merger,” and, collectively with the other transactions described in the Business Combination Agreement, the “Business Combination”).

Following the consummation of the Merger on the Closing Date, the Surviving Entity changed its name from Archer Aviation Inc.

to Archer Aviation Operating Corp., and Atlas changed its name from Atlas Crest Investment Corp.

to Archer Aviation Inc.

and it became the successor registrant with the SEC.

Prior to the closing of the Business Combination, the Class A common stock and public warrants of Atlas were listed on the New York Stock Exchange (“NYSE”) under the symbols “ACIC” and “ACIC WS,” respectively.

New Archer Class A common stock and public warrants are currently listed on the NYSE under the symbols “ACHR” and “ACHR WS,” respectively.

Additionally, certain investors had agreed to subscribe for and purchase an aggregate of up to $600.0 million of common stock of the combined company (“PIPE Financing”).

The PIPE Financing was consummated substantially concurrent with the closing of the Merger.

The Business Combination generated gross cash proceeds of $857.6 million, including $600.0 million proceeds from the PIPE Financing.

Total direct and incremental transaction costs aggregated $81.8 million, of which $10.9 million were expensed as part of the Business Combination, $55.8 million were recorded to APIC as equity issuance costs, and the remaining $15.1 million was settled through the issuance of shares of New Archer Class A shares.

Our mission is to advance the benefits of sustainable air mobility.

Our goal is to move people throughout the world’s cities in a quick, safe, sustainable, and cost-effective manner.

To accomplish this goal, we are designing and developing an electric vertical takeoff and landing (“eVTOL”) aircraft for use in future urban air mobility (“UAM”) networks.

Our eVTOL aircraft will be fully electric and will emit zero emissions during operations.

The goal of our eVTOL aircraft design is to maximize safety while minimizing operating costs and noise.

We look to accomplish that goal through the use of a distributed electric propulsion system with inherent redundancy and far fewer parts than a typical internal combustion propulsion system found in similarly sized aircraft or rotorcraft today.

The reduced number of parts not only translates into

fewer critical parts on the aircraft from a safety perspective, but will also significantly reduce the maintenance requirements versus internal combustion propulsion systems found in similarly sized aircraft and rotorcraft today.

We have optimized our eVTOL aircraft design for both manufacturing and certification by using advancements in key enabling technologies such as high-energy batteries, high-performance electric motors, an advanced fly-by-wire flight control system, and a lightweight and efficient aircraft structure.

The development of an eVTOL aircraft that meets our business requirements demands significant design and development efforts on all facets of the aircraft.

We believe that by bringing together a mix of talent with both eVTOL and traditional commercial aerospace backgrounds we are building a team that will allow us to move through the design, development, and certification of our eVTOL aircraft with the Federal Aviation Administration (“FAA”) in an efficient manner, thus allowing us to achieve our end goal of bringing to market our eVTOL aircraft.

Our Planned Lines of Business

Upon receipt of all necessary FAA certifications and any other government approvals necessary for us to manufacture and operate our aircraft, we intend to operate two complementary lines of business.

Our core focus is direct-to-consumer (“Archer UAM”) with our secondary focus being business-to-business (“Archer Direct”).

We plan to operate our own UAM ecosystem (“Archer UAM”) initially in select major U.S.

cities, such as Los Angeles and Miami.

Our UAM ecosystem will operate using our eVTOL aircraft which is currently in development.

We project that the cost to manufacture and operate our eVTOL aircraft will be such that it will be able to enter the UAM ride-sharing market at a price point that is competitive with ground-based ride sharing services today.

We will continue to evaluate our go-to-market strategy based on, among other things, estimated demand, readiness of the required infrastructure, and the scale of our UAM aircraft fleet.

Archer Direct

We also plan to selectively sell a certain amount of our eVTOL aircraft to third parties (“Archer Direct”).

We have entered into a purchase agreement with United Airlines Inc.

(“United”) for the conditional purchase of up to $1 billion worth of aircraft, with an option for another $500 million worth of aircraft.

We will look to determine the right mix of selling our eVTOL aircraft versus using them as part of our UAM ecosystem based on, among other factors, our capital needs, our volume of manufacturing, our ability to ramp Archer UAM operations, and the purchase demand from our Archer Direct customers.

To date, we have not generated any revenue from either of these planned categories, as we continue to design, develop, and seek the governmental approvals necessary to operate our eVTOL aircraft and Archer UAM.

We will use the net proceeds from the Business Combination for the foreseeable future to continue to fund our efforts to bring our eVTOL aircraft to market.

The amount and timing of any future capital requirements will depend on many factors, including the pace and results of the design and development of our aircraft and manufacturing operations, as well as our progress in obtaining necessary FAA certifications and other government approvals.

For example, any significant delays in obtaining such FAA certifications and other government approvals will likely require us to raise additional capital above our existing cash on hand and delay our generation of revenues.

Impact of COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic.

The rapid spread of COVID-19 caused volatility and disruption in financial markets and prompted governments and businesses to take unprecedented measures such as travel restrictions, quarantines, shelter-in-place orders, and business shutdowns.

The impact of the COVID-19 pandemic continues to evolve due to, among other reasons, the emergence of additional variants or strains of COVID-19.

As such, the full magnitude of the pandemic’s effect on our financial condition, liquidity, and future results of operations is uncertain.

Management continues to actively monitor our financial condition, liquidity, operations, suppliers, industry, and workforce, but currently does not anticipate any material impairments as a result of COVID-19 and will continue to evaluate the impact of COVID-19 on an ongoing basis.

See Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q for more information.

Components of Results of Operations

We are still working to design, develop, certify, and bring up manufacturing of our eVTOL aircraft and thus have not generated any revenues from either of our planned lines of business.

We do not expect to begin generating significant revenues until we are able to complete the design, development, certification, and bring up of manufacturing of our eVTOL aircraft.

Operating Expenses

Research and Development

Research and development activities represent a significant part of our business.

Our research and development efforts focus on the design and development of our eVTOL aircraft, including certain of the systems that are used in it.

As part of those activities, we continue to work closely with the FAA towards our goal of achieving certification of our eVTOL aircraft on an efficient timeline.

Research and development expenses consist of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for employees focused on research and development activities, costs associated with building prototype aircraft, other related costs, depreciation, and an allocation of general overhead.

We expect research and development expenses to increase significantly as we progress towards the certification and manufacturing of our eVTOL aircraft.

We cannot determine with certainty the timing, duration or the costs necessary to complete the design, development, certification, and manufacturing bring up of our eVTOL aircraft due to the inherently unpredictable nature of our research and development activities.

Development timelines, the probability of success, and development costs may differ materially from expectations.

General and Administrative

General and administrative expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for employees associated with administrative services such as finance, legal, human resources, information technology, other related costs, and depreciation and an allocation of our general overhead.

We expect our general and administrative expenses to increase in absolute dollars as a result of operating as a publicly-traded company, including expenses to comply with the rules and regulations applicable to publicly-traded companies, as well as additional expenses customary for a publicly-traded company, such as directors’ and officers’ liability insurance, director fees, and additional internal and external accounting and legal fees and expenses.

At this time, we are unable to estimate the costs of defending the ongoing Wisk Aero LLC (“Wisk”) litigation or any potential settlement or award of damages related thereto and thus, we have not established any related reserves.

For a description of our material pending legal proceedings, see Note 8 - Commitments and Contingencies of the notes to the consolidated condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other Warrant Expense

Other warrant expense consists entirely of non-cash expense related to the vesting of warrants issued in conjunction with the execution of the Purchase and Warrant Agreements with United.

We expect to incur additional expense as these warrants vest upon satisfaction of certain milestones outlined in the applicable agreements.

Other Expense, Net

Other expense, net primarily consists of miscellaneous income and expense items .

Interest expense primarily consists of interest on notes payable net of interest income from money market accounts.

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 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 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 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.

The following table sets forth our consolidated condensed statements of operations for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 Change $ 2021 2020 Change $

(In millions)

Operating expenses:

Research and development (1)

$ 23.1 $ 6.7 $ 16.4 $ 44.6 $ 13.6 $ 31.0

General and administrative (1)

114.1 0.6 113.5 143.1 2.3 140.8

Other warrant expense 39.1 — 39.1 117.3 — 117.3

Total operating expenses 176.3 7.3 169.0 305.0 15.9 289.1

Loss from operations (176.3) (7.3) (169.0) (305.0) (15.9) (289.1)

Gain on forgiveness of PPP loan — — — 0.9 — 0.9

Other expense, net (0.4) — (0.4) (0.4) (0.2) (0.2)

Loss before income taxes (176.7) (7.3) (169.4) (304.5) (16.1) (288.4)

Net loss $ (176.7) $ (7.3) $ (169.4) $ (304.5) $ (16.1) $ (288.4)

(1) Includes stock-based compensation expense as follows:

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Research and development $ 0.8 $ — $ 2.2 $ —

General and administrative 102.0 — 102.5 —

Total stock-based compensation expense $ 102.8 $ — $ 104.7 $ —

Comparison of the Three and Nine Months Ended September 30, 2021 and 2020

Research and Development

Research and development expenses increased by $16.4 million for the three months ended September 30, 2021, compared to the same period ended September 30, 2020.

The increase was primarily due to an increase of $16.4 million in personnel-related expenses and allocated facilities expenses due to significantly increasing our workforce from the prior period and an increase in stock-based compensation.

Research and development expenses increased by $31.0 million for the nine months ended September 30, 2021, compared to the same period ended September 30, 2020.

The increase was primarily due to an increase of $23.5 million in personnel-related expenses and allocated facilities expenses due to significantly increasing our workforce in the first nine months of 2021.

The increase was also due to increases of $1.7 million and $5.7 million pertaining to third-party consultant expenses and tools and materials, respectively, to support our increased research and development activities.

General and Administrative

General and administrative expenses increased by $113.5 million for the three months ended September 30, 2021, compared to the same period ended September 30, 2020.

This increase was primarily due to an increase of $104.8 million in personnel-related expenses and allocated facilities costs due to a significant increase in stock-based compensation, which was primarily related to the vesting of one-quarter of the Founder Grants that were granted immediately prior to closing pursuant to the terms and conditions of the Business Combination Agreement.

In addition, there was an increase in legal and professional service expenses of $7.7 million pertaining to the Business Combination and company readiness for going public, as well as legal fees and expenses related to the Wisk litigation, as described in detail in Note 8 - Commitments and Contingencies of our consolidated condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q.

General and administrative expenses increased by $140.8 million for the nine months ended September 30, 2021, compared to the same period ended September 30, 2020.

This increase was primarily due to an increase of $108.9 million in personnel-related expenses and allocated facilities costs due to a significant increase in our workforce and stock-based compensation,

which was primarily related to the vesting of one-quarter of the Founder Grants that were granted immediately prior to closing pursuant to the terms and conditions of the Business Combination Agreement.

In addition, there was an increase in legal fees and expenses and professional service expenses of $26.4 million pertaining to the Business Combination and company readiness for going public, as well as legal fees and expenses related to the Wisk litigation.

There was also an increase of $5.1 million pertaining to advertising and marketing expenses.

Other Warrant Expense

Other warrant expense increased by $39.1 million and $117.3 million for the three and nine months ended September 30, 2021, respectively, compared to the same periods ended September 30, 2020.

These increases were due to $78.2 million and $39.1 million of non-cash expense recognized in the first and third quarter of 2021, respectively, related to the vesting of warrants associated with the execution of the Purchase and Warrant Agreements with United, in satisfaction of specific milestones.

Gain on Forgiveness of PPP Loan

In June 2021, we received notification that our PPP Loan (as defined below) and accrued interest were forgiven in full, resulting in an increase of $0.9 million in gain on extinguishment of the loan and interest for the nine months ended September 30, 2021, compared to the same period ended September 30, 2020.

Other Expense, Net

Other expense, net, increased by $0.4 million and $0.2 million for the three and nine months ended September 30, 2021, respectively, compared to the same periods ended September 30, 2020.

The increase in both of these periods primarily was due to increased interest expense related to the Term Loans, which was entered into in July 2021.

See Note 7 - Notes Payable of our consolidated condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Liquidity and Capital Resources

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.

As of September 30, 2021, our principal sources of liquidity were cash and cash equivalents of $796.2 million.

We have incurred net losses since our inception and to date have not generated any revenues.

We expect to incur additional losses and higher operating expenses for the foreseeable future.

The Business Combination generated net cash proceeds of $801.8 million.

We expect that the net cash proceeds from the Business Combination along with our cash balances held prior to the closing date will be sufficient to fund our current operating plan for at least the next 12 months from the date the consolidated condensed financial statements are available to be issued.

Our future capital requirements will depend on many factors, including:

• the level of research and development expenses we incur as we continue to develop our eVTOL aircraft;

• capital expenditures needed to bring up our aircraft manufacturing capabilities, including for both the build out of our manufacturing facilities and component purchases necessary to build our aircraft;

• capital expenditures needed to support the infrastructure required to launch our UAM network;

• general and administrative expenses as we scale our operations;

• interest expense from our debt financing;

• sales, marketing and distribution expenses as we build, brand and market our eVTOL aircraft and UAM network.

Until such time as we can generate significant revenue from our business operations, we expect to finance our cash needs primarily through existing cash on hand, public or private equity or debt financings or other capital sources, including potential collaborations and other similar commercial arrangements.

However, we may be unable to raise additional capital or enter into such other commercial arrangements when needed, on favorable terms or at all.

To the extent that we raise additional capital through equity or convertible debt financings, the ownership interest of our stockholders could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our current stockholders.

Additionally, these financings may require us to agree to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.

If we raise funds through collaborations or other similar commercial arrangements with third parties, we may have to relinquish valuable rights which in turn may reduce the value of our common stock.

If we are unable to raise additional capital through equity or debt financings or commercial arrangements when needed, we may be required to delay, limit, reduce or terminate certain business operations.

Loan and Security Agreement

On July 9, 2021, we entered into a Loan and Security Agreement, as borrower, with Silicon Valley Bank (“SVB”) and SVB Innovation Credit Fund VIII, L.P.

(“SVB Innovation”) as the lenders, and SVB as the collateral agent.

The total principal amount of the loans is $20.0 million (the “Term Loans”), and all obligations due under the Term Loans are collateralized by all of our rights, title and interest in and to our specified personal property in favor of the collateral agent.

The interest rate on the Term Loans is a floating rate per annum equal to the greater of (1) 8.5% and (2) the Prime Rate plus the Prime Rate Margin, which increases by 2% per annum upon the occurrence of an event of default.

The proceeds were required to be used solely for the working capital or to fund the Company’s general business purpose.

The Term Loans are subject to a final payment fee ranging between zero and 5.5% of the original aggregate principal amount depending on the timing of repayment.

The following table summarizes our cash flows for the periods indicated:

Nine Months Ended September 30,

(In millions)

Net cash used in operating activities $ (59.5) $ (15.2)

Net cash used in investing activities (3.0) (0.4)

Net cash provided by financing activities 822.1 46.6

Cash Flows Used in Operating Activities

We continue to experience negative cash flows from operations as we are still working to design, develop, certify, and bring up manufacturing of our eVTOL aircraft and thus have not generated any revenues from either of our planned lines of business.

Our cash flows from operating activities are significantly affected by our cash investments to support the growth of our research and development activities related to our eVTOL aircraft, as well as the general and administrative functions necessary to support those activities and operations as a publicly traded company.

Our operating cash flows are also impacted by the working capital requirements to support growth and fluctuations in personnel-related expenditures, accounts payable, accrued interest and other current liabilities, and other current assets.

Net cash used in operating activities during the nine months ended September 30, 2021 was $59.5 million , resulting from a net loss of $304.5 million , adjusted for non-cash items consisting primarily of $117.3 million in other warrant expense related to the vesting of United warrants and $104.7 million in stock-based compensation primarily related to the vesting of one-quarter of the Founder Grants that were granted immediately prior to closing pursuant to the terms and conditions of the Business Combination Agreement.

The net cash provided by changes in our net operating assets and liabilities of $16.2 million was primarily related to a $16.9 million increase in accounts payabl e related to Wisk litigation costs, parts and materials used in our research and development activities, and advertising and marketing activities.

Net cash used in operating activities during the nine months ended September 30, 2020 was $15.2 million, resulting from a net loss of $16.1 million, adjusted for non-cash items consisting of primarily $0.3 million in non-cash interest primarily related to our convertible notes.

The net cash provided by changes in our net operating assets and liabilities of $0.5 million was primarily related to a $1.4 million increase in accounts payable offset by an increase of $0.9 million in prepaid expenses.

Both increases are related to parts & materials and outside contractors from the ramp up in our research and development activities.

Cash Flows Used in Investing Activities

Net cash used in investing activities during the nine months ended September 30, 2021 and 2020 was $3.0 million and $0.4 million, respectively, driven by purchases of property and equipment within those respective periods.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities during the nine months ended September 30, 2021 was $822.1 million, consisting primarily of $20.0 million in proceeds from the issuance of debt, $600.0 million in proceeds from the PIPE Financing, and $201.8 million net proceeds from the Business Combination.

Net cash provided by financing activities during the nine months ended September 30, 2020 was $46.6 million, consisting primarily of proceeds received from the issuance of preferred stock, net of issuance costs.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of September 30, 2021:

Payments Due by Period

Total Less than

1 year 1 to 3

years After 5

(In millions)

Operating lease obligation (1)

$ 5.2 $ 0.6 $ 4.6 $ — $ —

Note payable (2)

20.0 — 20.0 — —

Note payable accrued interest 2.4 1.6 0.8 — —

$ 27.6 $ 2.2 $ 25.4 $ — $ —

__________________________

(1) Operating lease obligation is primarily related to the corporate headquarters lease expiring on June 30, 2023.

As of September 30, 2021, the Company has entered into six real estate lease agreements.

(2) Note payable is related to the Term Loans.

Refer to Note 7 - Notes Payable of our condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q.

The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts.

The table does not include obligations under agreements that we can cancel without a significant penalty.

Paycheck Protection Program

In April 2020, we obtained a loan of approximately $0.9 million pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act (the “PPP Loan”), with interest accruing on the PPP Loan at a rate of 0.98% per annum.

The Paycheck Protection Program was established as part of the CARES Act and provides for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the business, subject to certain limitations.

The loan and accrued interest are forgivable after 24 weeks so long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent, and utilities.

We applied for loan forgiveness under the CARES Act and received forgiveness of the loan and accrued interest in full from the Small Business Administration in June 2021.

Off-Balance Sheet Arrangements

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) 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.

In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a business combination.

The registration rights agreement does not contain liquidating damages or other cash settlement provisions resulting from delays in registering our securities.

We will bear the expenses incurred in connection with the filing of any such registration statements.

Business Combination Marketing Agreement

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.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported.

Actual results could materially differ from those estimates.

We have identified the following critical accounting policies:

Common stock subject to possible redemption

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.

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

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.

This item is not applicable as we are a smaller reporting company.

As of September 30, 2021, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our consolidated condensed financial statements and accompanying notes have been prepared in accordance with GAAP.

The preparation of these consolidated condensed financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses, and related disclosures.

We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.

We evaluate our estimates and assumptions on an ongoing basis.

Actual results may differ from these estimates.

To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

For additional information about our critical accounting policies and estimates, see the disclosure included elsewhere in this Form 10-Q as well as Note 3 - Summary of Significant Accounting Policies in the notes to the consolidated condensed financial statements included elsewhere in this Form 10-Q.

Recent Accounting Pronouncements

See Note 3 - Summary of Significant Accounting Policies to the consolidated condensed financial statements included elsewhere in this Form 10-Q for a discussion about accounting pronouncements recently adopted and recently issued not yet adopted.

Financial instruments, which subjects us to concentrations of credit risk, consist primarily of cash, cash equivalents, and deposits.

Our cash and cash equivalents are held at major financial institutions located in the United States of America.

At times, cash account balances with any one financial institution may exceed Federal Deposit Insurance Corporation insurance limits ($250 thousand per depositor per institution).

Management believes the financial institutions that hold our cash and cash equivalents are financially sound and, accordingly, minimal credit risk exists with respect to cash and cash equivalents.

Emerging Growth Company Status

Section 107(b) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.

Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

Atlas initially elected, and now we have elected, to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies.

As a result of the accounting standards election, we are not subject to the same implementation timeline for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult.

We have also elected to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as we qualify as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.

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