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Item 7. Management’s Discussion and Analysis

2022-03-14 compared with 2021-03-08 · 227 added, 292 removed, 3 unchanged (99% of the section changed)

Management’s Discussion

and Analysis of Financial Condition and Results of Operations.

This Annual Report includes “forward-looking

statements” 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 Annual

Report including, without limitation, 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, including those that will be set forth in our preliminary prospectus/proxy statement to be included

in a Registration Statement on Form S-4 that we will file with the SEC relating to our proposed business combination

For information identifying important factors that could cause actual results to differ materially from those anticipated

in the forward-looking statements, please refer to “Cautionary Note Regarding Forward-Looking

Statements and Risk Factor Summary,”

“Item 1A.

Risk Factors”

and elsewhere in this Annual Report on Form 10-K.

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".

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 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”).

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”.

The Business Combination is expected to close in the second

quarter of 2021, following the receipt of the required approval by Atlas’ stockholders and the fulfillment of other customary

closing conditions.

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.

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.

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).

The Business Combination Agreement may

be terminated under certain circumstances prior to the Closing, including, but not limited to, (i) by mutual written consent of

Atlas and Archer, (ii) by either Atlas or Archer if the other party breaches its representations, warranties or covenants such

that the conditions set forth in the Business Combination Agreement would not be satisfied, and such party fails to cure such

breach (other than for certain limited exceptions), (iii) by either Atlas or Archer if the Business Combination is not consummated

by September 10, 2021, (iv) by either Atlas or Archer if any governmental entity issues an order or taken any other action permanently

enjoining, restraining or otherwise prohibiting the Business Combination and such order or other action has become final and non-appealable,

(v) by either Atlas or Archer if certain required approvals are not obtained from the Atlas stockholders after the conclusion

of a meeting of Atlas’ stockholders held for such purpose at which such shareholders voted on such approvals, and (vi) by

Atlas if (A) the Transaction Support Agreements are not executed and delivered to Atlas within one business day of the signing

date of the Business Combination Agreement, (B) Archer’s stockholders do not deliver, within one business day of the Registration

Statement being declared effective under the Securities Act, to Atlas a written consent approving the Business Combination (the

“Stockholder Written Consent”) or (C) Archer does not deliver, within one business day of the Registration Statement

being declared effective under the Securities Act, to Atlas a written consent approving the conversion of all shares of preferred

stock of Archer into shares of common stock of Archer immediately prior to the Closing (the “Conversion Written Consent”).

If the Business Combination Agreement

is validly terminated, none of the parties to the Business Combination Agreement will have any liability or any further obligation

under the Business Combination Agreement, other than customary confidentiality obligations, except in the case of Willful Breach

or Fraud (each, as defined in the Business Combination Agreement).

PIPE Financing (Private Placement)

Concurrently with the execution of the

Business Combination Agreement, Atlas entered into subscription agreements (the “Subscription Agreements”) with certain

investors Pursuant to the Subscription Agreements, each

investor agreed to subscribe for and purchase, and Atlas agreed to issue and sell to such investors, on the Closing Date (as defined

in the Business Combination Agreement) immediately following the Closing (as defined in the Business Combination Agreement), an

aggregate of 60,000,000 shares of Atlas’ Class A Common Stock for a purchase price of $10.00 per share, for aggregate gross

proceeds of $600 million (the “PIPE Financing”).

The closing of the PIPE Financing is contingent

upon, among other things, the substantially concurrent consummation of the Business Combination.

The Subscription Agreements provide

that Atlas will grant the investors in the PIPE Financing certain customary registration rights.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related accompanying notes included elsewhere in this Annual Report.

In addition to historical consolidated financial information, the following discussion 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 Annual Report.

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 I, Item 1A, “Risk Factors” in this Annual Report.

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 eVTOL aircraft for use in future 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 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 Archer UAM with our secondary focus being Archer Direct.

We plan to operate our own UAM ecosystem 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.

We have entered into a Purchase Agreement with United for the conditional purchase of up to $1 billion worth of aircraft, with an option for another $500.0 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.

Business Combination

On the Closing Date, Legacy Archer, Atlas, and Merger Sub, consummated the closing of the Business Combination Agreement, following approval at the Special Meeting.

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

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 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, in connection with the PIPE Financing, certain investors had agreed to subscribe for and purchase an aggregate of up to $600.0 million of Class A common stock of the combined company.

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 common stock.

The Merger was accounted for as a reverse recapitalization in accordance with U.S.

Under this method of accounting, Atlas was treated as the “acquired” company for financial reporting purposes.

Accordingly, the financial statements of Archer represent the continuation of the financial statements of Legacy Archer, with the Merger reflected as the equivalent of Archer issuing common stock for the net assets of Atlas, accompanied by a recapitalization.

The net assets of Atlas were recognized as of the Closing at historical cost, with no goodwill or other intangible assets recorded.

Operations prior to the Merger are those of Legacy Archer and Legacy Archer’s operations are the only ongoing operations of Archer.

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 I, Item 1A, “Risk Factors” in this Annual Report 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, 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 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 9 - Commitments and Contingencies of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report.

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 Agreement and Warrant Agreement with United (the “United Warrant Agreement”).

Other Income (Expense)

Other income (expense) consists of miscellaneous income and expense items, including the change in fair value of our warrant liabilities .

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 December 31, 2020

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.

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

on cash and cash equivalents held after 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 period from August 26, 2020 (inception)

through December 31, 2020, we had a net loss of $131,310, which resulted from operating and formation costs of $159,947 and franchise

tax expense of $69,945, which was partially offset by an unrealized gain on marketable securities held in Trust Account in the

amount of $98,582.

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

Year Ended December 31,

2021 2020 Change $

(In millions)

Operating expenses:

Research and development (1)

$ 64.3 $ 21.1 $ 43.2

General and administrative (1)

176.7 3.5 173.2

Other warrant expense 117.3 — 117.3

Total operating expenses 358.3 24.6 333.7

Loss from operations (358.3) (24.6) (333.7)

Gain on forgiveness of PPP Loan 0.9 — 0.9

Other income 10.6 — 10.6

Interest expense (1.0) (0.2) (0.8)

Loss before income taxes (347.8) (24.8) (323.0)

Net loss $ (347.8) $ (24.8) $ (323.0)

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

Year Ended December 31,

Research and development $ 3.7 $ —

General and administrative 119.9 0.2

Total stock-based compensation expense $ 123.6 $ 0.2

Comparison of the Year Ended December 31, 2021 and 2020

Research and Development

Research and development expenses increased by $43.2 million for the year ended December 31, 2021, compared to the year ended December 31, 2020.

The increase was primarily due to an increase of $25.8 million in personnel-related expenses due to significantly increasing our workforce during 2021.

Warrant expense increased $7.0 million due to a manufacturing consulting agreement we entered into in July 2021 with FCA Italy S.p.A.

In addition, there was an increase of $6.7 million pertaining to tools and materials to support our increased research and development activities.

General and Administrative

General and administrative expenses increased by $173.2 million for the year ended December 31, 2021, compared to the year ended December 31, 2020.

This increase was primarily due to an increase of $118.1 million in stock compensation expense related to the vesting of a certain portion of restricted stock units granted to our founders immediately prior to closing of the Business Combination pursuant to the terms and conditions of the Business Combination Agreement (the “Founder Grants”).

Legal fees and expenses and professional service expenses increased $33.4 million due to the Business Combination and company readiness for going public, as well as legal fees and expenses related to the Wisk litigation.

Personnel-related expenses increased $14.3 million due to significantly increasing our workforce during 2021.

In addition, there was an increase of $5.9 million pertaining primarily to marketing costs related to the Maker unveiling event.

Other Warrant Expense

Other warrant expense increased by $117.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase was 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 Agreement and United Warrant Agreements, in satisfaction of specific milestones.

Gain on Forgiveness of PPP Loan

In June 2021, we received notification that our Paycheck Protection Program Loan (“PPP Loan”) and accrued interest were forgiven in full, resulting in a $0.9 million gain on extinguishment of the loan and interest for the year ended December 31, 2021, compared to the year ended December 31, 2020.

Other income increased by $10.6 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase was primarily due to a gain of $10.4 million recorded from a change in fair value of our warrant liabilities (see Note 3 - Summary of Significant Accounting Policies).

Interest Expense

Interest expense increased by $0.8 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily related to interest expense recognized for the Silicon Valley Bank term loans, which we entered into in July 2021.

Liquidity and Capital Resources

On October 30, 2020, we consummated an

Initial Public Offering of 50,000,000 units generating gross proceeds to the Company of $500,000,000.

Simultaneously with the

consummation of the initial public offering, we completed the private sale of 8,000,000 warrants to Atlas Crest Investment LLC

at a purchase price of $1.50 per warrant (the "Private Placement Warrants"), generating gross proceeds of $12,000,000.

The proceeds from the sale of the Private Placement Warrants were added to the net proceeds from the Initial Public Offering held

in a trust account (the "Trust Account").

If we do not complete an initial business combination within 24 months from

the closing of the Initial Public Offering, the proceeds from the sale of the Private Placement Warrants will be used to fund

the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire

For the period from August 26, 2020 (inception)

through December 31, 2020, net cash used in operating activities was $564,933, which was due to our net loss of $131,310, unrealized

gain on investments in the Trust Account of $98,582 and changes in working capital of $335,041.

For the period from August 26, 2020 (inception)

through December 31, 2020, net cash used in investing activities of $500,000,000 was the result of the amount of net proceeds

from the Initial Public Offering being deposited to the Trust Account.

As of December 31, 2021, our principal sources of liquidity were cash and cash equivalents of $746.9 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.

We believe that our existing cash and cash equivalents will be sufficient for at least the next 12 months to meet our requirements and plans for cash, including meeting our working capital requirements and capital expenditure requirements.

In the long term, our ability to support our working capital and capital expenditure 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;

• general and administrative expenses as we scale our operations and;

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

The following includes our short-term and long-term material cash requirements from known contractual obligations as of December 31, 2021:

We have short-term and long-term debt obligations of $10.0 million each.

See Note 8 - Notes Payable to the consolidated financial statements for further detail on our debt.

The Company leases office, lab, hangar, and storage facilities in the normal course of business.

Under our operating leases as noted in Note 9 - Commitments and Contingencies to the consolidated financial statements, we have current obligations of $4.3 million and long-term obligations of $12.0 million, which include our obligations under the new sublease we entered into on January 14, 2022.

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.

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

Year Ended December 31,

(In millions)

Net cash used in operating activities $ (108.4) $ (22.8)

Net cash used in investing activities (3.5) (1.9)

Net cash provided by financing activities 822.2 51.2

for the period from August 26, 2020 (inception) through December 31, 2020 of $501,490,856 was comprised of $490,000,000 in proceeds

from the issuance of Units in the Initial Public Offering net of underwriter's discount paid, $12,000,000 in proceeds from the

issuance of warrants in a private placement to our Sponsor, proceeds from the issuance of a promissory note to our Sponsor of

$300,000, and $25,000 from the issuance of Class B common stock to our Sponsor, offset by the payment of $534,144 for offering

costs associated with the Initial Public Offering and repayment of the outstanding balance on the promissory note to our Sponsor

As of December 31, 2020, we had cash

of $925,923 held outside the trust account.

We intend to use the funds held outside the trust account primarily to identify and

evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants

or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material

agreements of prospective target businesses, and structure, negotiate and complete a business combination.

In order to fund working capital deficiencies

or finance transaction costs in connection with an intended initial 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 on a non-interest basis.

If we complete our initial business combination, we would repay such loaned amounts.

In the event that our initial business combination

does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no

proceeds from our Trust Account would be used for such repayment.

Up to $1,500,000 of such loans may be convertible into warrants

of the post business combination entity at a price of $1.50 per warrant at the option of the lender.

The warrants would be identical

to the private placement warrants.

The terms of such loans, if any, have not been determined and no written agreements exist with

respect to such loans.

Prior to the completion of our initial business combination, we do not expect to seek loans from parties

other than our Sponsor or an affiliate of our Sponsor as we do not believe third parties will be willing to loan such funds and

provide a waiver against any and all rights to seek access to funds in our trust account.

We do not believe we will need to raise

additional funds following the Initial Public Offering in order to meet the expenditures required for operating our business prior

to our initial business combination.

However, if our estimates of the costs of identifying a target business, undertaking in-depth

due diligence and negotiating an initial business combination are less than the actual amount necessary to do so, we may have

insufficient funds available to operate our business prior to our initial business combination.

Moreover, we may need to obtain

additional financing either to complete our business combination or because we become obligated to redeem a significant number

of public shares upon completion of our business combination, in which case we may issue additional securities or incur debt in

connection with such business combination.

In addition, we intend to target businesses larger than we could acquire with the net

proceeds of our Initial Public Offering and the sale of the private placement units and may as a result be required to seek additional

financing to complete such proposed initial business combination.

Subject to compliance with applicable securities laws, we would

only complete such financing simultaneously with the completion of our business combination.

If we are unable to complete our

initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and

liquidate the trust account.

In addition, following our business combination, if cash on hand is insufficient, we may need to

obtain additional financing in order to meet our obligations.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet

arrangements as of December 31, 2020.

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 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.

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 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.

A portion of such fee may be re-allocated or paid to members

of FINRA that assist us in consummating our Business Combination.

Advisory and Placement Agent Services

Engagement Letters

We engaged Moelis & Company LLC, an

affiliate of our Sponsor, in connection with the Business Combination to act as our financial advisor and exclusive placement agent

for the PIPE financing pursuant to engagement letters entered into between Atlas and Moelis & Company LLC.

Upon completion

of the Business Combination, approximately $24,000,000 in aggregate M&A advisory fees and placement agent fees will be payable

to Moelis & Company LLC pursuant to these engagement letters.

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

account for common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification 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.

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

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 December 31, 2020, 49,635,954 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 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 interest income earned on the Trust Account, net of applicable franchise and

income taxes, by the weighted average number of Class A redeemable common stock outstanding since original issuance.

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 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

Quantitative and Qualitative

Disclosures About Market Risk.

This item is not applicable as we are

a smaller reporting company.

Financial Statements and Supplementary

This information appears following Item 16 of this Form 10-K

and is incorporated herein by reference.

Changes in and Disagreements

With Accountants on Accounting and Financial Disclosure.

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 year ended December 31, 2021 was $108.4 million, resulting from a net loss of $347.8 million, adjusted for non-cash items consisting primarily of $117.3 million in other warrant expense related to the vesting of United warrants and $123.6 million in stock-based compensation primarily related to expense recognized for the Founder Grants.

The net cash provided by changes in our net operating assets and liabilities of $0.4 million was primarily related to an increase in accrued professional fees and other miscellaneous expenses offset by an increase in prepaid expenses related to the ramp up in our research and development activities and expenses related to becoming a publicly traded company.

Net cash used in operating activities during the year ended December 31, 2020 was $22.8 million, resulting from a net loss of $24.8 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 $1.3 million was primarily related to a $1.6 million increase in accounts payable.

The increase is related to parts and 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 year ended December 31, 2021 was $3.5 million, driven by purchases of property and equipment.

Net cash used in investing activities during the year ended December 31, 2020 was $1.9 million, driven by purchases of property and equipment and domain names.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities during the year ended December 31, 2021 was $822.2 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 year ended December 31, 2020 was $51.2 million, consisting primarily of proceeds received from the issuance of preferred stock, net of issuance costs.

Critical Accounting Policies and Estimates

Our consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of these consolidated 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

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

The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgements, often as a result of the need to make estimates of matters that are inherently uncertain.

We believe that the following critical accounting policies involve a greater degree of judgment or complexity than our other accounting policies.

Accordingly, these are the policies we believe are the most critical to a full understanding and evaluation of our consolidated financial statements.

For additional information, refer to Note 3 - Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this Annual Report.

Common Stock Valuation

Prior to the Business Combination, there was no public market for our common stock, and our board of directors determined the fair value of our common stock by taking into account input from management and independent third-party valuation analyses.

The determinations of the fair value of our common stock were made using methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide:

Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

In valuing our common stock, we determined the equity value of our business using a combination of the market and income approach valuation methods.

The total enterprise value was then allocated to our various share classes using a hybrid approach consisting of the option pricing model (“OPM”) and probability-weighted expected return method (“PWERM”).

The OPM considers preferred stockholders’ liquidation preferences, participation rights, dividend policy, and conversion rights to determine how proceeds from a liquidity event shall be distributed among the various ownership classes at a future date, whereas the PWERM estimates the fair market value of the common stock based on an analysis of future values for various potential liquidity outcomes.

Since there was no active market for our common stock, we also applied a discount for lack of marketability for both OPM and PWERM scenarios.

Application of these approaches and methods involves the use of estimates, judgments, and assumptions, such as future revenue, expenses and cash flows, selections of comparable companies, probabilities and timing of exit events, and other factors.

The fair value of our common stock, utilizing the above methodology prior to the closing of the Business Combination, was used to determine the fair value of the United warrants, and was a key input in in the estimation of the fair value of our stock options (as discussed below).

Since the closing of the Business Combination in September 2021, the fair value of our common stock is based on the closing price of our Class A common stock, as quoted on the NYSE, on the date of grant.

Stock-Based Compensation

We account for stock-based compensation awards granted to employees and non-employees by recording compensation expense based on each award’s grant date estimated fair value over the vesting period, in accordance with ASC 718, Compensation — Stock Compensation .

We estimate the fair value of restricted stock units (“RSUs”) based on the fair value of our common stock on the date of grant.

We estimate the fair value of stock options using the Black-Scholes option-pricing model.

Determining the fair value of stock options under this model requires highly subjective assumptions, including the fair value of the underlying common stock, the risk-free interest rate, the expected term of the award, the expected volatility of the price of our common stock, and the expected dividend yield of our common stock.

These estimates involve inherent uncertainties and the application of management’s judgment.

If we had made different assumptions, our stock-based compensation expense could have been materially different.

We have not issued any stock options since the closing of the Business Combination.

The fair value of RSUs that vest based on service conditions is determined based on the value of the underlying common stock at the date of grant.

The Founder Grants vest when either a market condition or performance condition is satisfied.

We determined the fair value of the performance award by utilizing the trading price on the Closing Date.

When the applicable performance milestone is deemed probable of being achieved, we will recognize compensation expense for the portion earned to date over the requisite period.

For the market condition award, we estimated the fair value using a Monte Carlo simulation model.

The Company recognizes compensation expense for the market award on a straight-line basis over the derived service period.

Determining the fair value for the market condition award under this model requires subjective assumptions, including the expected volatility of the price of our common stock.

If the applicable performance condition is not probable of being achieved, compensation cost for the value of the award incorporating the market condition is recognized, so long as the

requisite service is provided.

If the performance milestone becomes probable of being achieved, the full fair value of the award will be recognized, and any remaining expense for the market award will be cancelled.

We are subject to income taxes in the United States.

Our income tax provision consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws.

We recognize tax benefits from uncertain tax positions only if we believe that it is more-likely-than-not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different.

We make adjustments to these reserves when facts and circumstances change, such as the closing of issues under audit or expiration of statute of limitation, changes in or interpretations of tax law.

To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and results of operations.

Significant judgment is applied when assessing the need for valuation allowances and includes the evaluation of historical income (loss) adjusted for the effects of non-recurring items.

Areas of estimation include consideration of future taxable income.

We have placed a full valuation allowance against its federal and state deferred tax assets since the recovery of the assets is uncertain.

Should a change in circumstances lead to a change in judgment about the utilization of deferred tax assets in future years, the adjustment related to valuation allowances would be reported as an increase to income.

Recent Accounting Pronouncements

See Note 3 - Summary of Significant Accounting Policies to the consolidated financial statements included elsewhere in this Annual Report for a discussion about accounting pronouncements recently adopted and recently issued and 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 and Smaller Reporting Company Status

Section 107(b) of the 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.

Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.

Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.

We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our shares of common stock held by non-affiliates equals or exceeds $250 million as of the end of that year’s second fiscal quarter, and (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year or the market value of our shares of common stock held by non-affiliates equals or exceeds $700 million as of the end of that year’s second fiscal quarter.

Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company,” we are not required to provide disclosure under this item.

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-K

Item 7. Management’s Discussion and Analysis