Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management, with the participation of our co-Chief Executive Officers and Chief Financial Officer, evaluated, as of the end of the period covered by this Annual Report, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 of the Exchange Act. Based on this evaluation and as a result of the material weaknesses described below, our co-Chief Executive Officers and Chief Financial Officer concluded that, as of December 31, 2021, our disclosure controls and procedures were not effective at the reasonable assurance level.
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However, after giving full consideration to these material weaknesses, and the additional analyses and other procedures that we performed to ensure that our consolidated financial statements included in this Annual Report were prepared in accordance with U.S. GAAP, our management has concluded that our consolidated financial statements included in this Annual Report fairly present, in all material respects, our financial position, results of operations, and cash flows for the periods presented.
Material Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely basis.
In connection with the preparation and audit of our financial statements, we identified certain control deficiencies in the design and operation of our internal control over financial reporting that constituted material weaknesses. The material weaknesses are:
▪ We did not design and maintain an effective control environment commensurate with our financial reporting requirements. We lack a sufficient number of trained professionals with (i) an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately, and (ii) an appropriate level of knowledge and experience to establish effective processes and controls. Additionally, the limited personnel also resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in our finance and accounting functions.
The material weakness in the control environment contributed to the following additional material weaknesses:
▪ We did not design and maintain an effective risk assessment process at a precise enough level to identify new and evolving risks of material misstatement in our financial statements. Specifically, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement to financial reporting.
▪ We did not design and maintain formal accounting policies, procedures, and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over the preparation and review of business performance reviews, account reconciliations, and journal entries.
▪ We did not design and maintain effective controls over IT general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain:
• user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate company personnel;
• program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized, and implemented appropriately; and
• computer operations controls to ensure that data backups are authorized and monitored.
These material weaknesses resulted in immaterial audit adjustments to the research and development expense and property and equipment line items in our financial statements and related disclosures for the years ended December 31, 2020 and 2019, the general and administrative expense line item and within current liabilities in our consolidated financial statements and related disclosures for the year ended December 31, 2021, and a revision to our consolidated condensed financial statements for the period ended March 31, 2021 to reclassify certain costs within operating expenses from research and development expense to other warrant expense. Additionally, each of these material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.
Remediation Measures
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We are taking the necessary steps to remediate the material weaknesses to comply with Section 404(a) of Sarbanes-Oxley Act. Management, with the participation of the Audit Committee and the Board of Directors, is engaged in remedial activities to address the material weaknesses described above. Those remediation measures are ongoing and include the following:
▪ We have prepared a remediation plan for each of the material weaknesses and intend to train process owners, develop new controls, enhance existing controls, evaluate process adoption, and monitor results;
▪ We have recently hired and plan to continue to hire in 2022, additional accounting, human resources and payroll, and IT personnel to bolster our accounting and IT capabilities and capacity, and to establish and maintain our internal controls;
▪ We designed and continue to implement controls to formalize roles and review responsibilities that align with our team’s skills and experience and designing and implementing formal controls over segregation of duties;
▪ We have engaged third-party professionals to assist management in designing and implementing a formal risk assessment process to identify and evaluate changes in our business and the impact on our internal controls;
▪ We are implementing formal processes, policies, and procedures supporting our financial close process, including establishing and reviewing thresholds for business performance reviews, formalizing procedures over the review of financial statements, and creation of standard balance sheet reconciliation templates and journal entry controls; and
▪ We continue to design and implement IT general controls, including controls over the review and updating of user access rights and privileges and implementing more robust IT policies and procedures over change management, data backup authorization, and computer operations.
We believe we are making progress toward achieving the effectiveness of our internal control over financial reporting and disclosure controls and procedures. The actions that we are taking are subject to ongoing senior management review, as well as Audit Committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate these material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting, which may necessitate additional implementation and evaluation time. We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously.
Management’s Report on Internal Control over Financial Reporting
This Annual Report does not include a report of management’s assessment regarding our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) as allowed by the SEC for reverse acquisitions between an issuer and a private operating company when it is not possible to conduct an assessment of the private operating company’s internal control over financial reporting in the period between the consummation date of the reverse acquisition and the date of management’s assessment of internal control over financial reporting (pursuant to Section 215.02 of the SEC Division of Corporation Finance’s Regulation S-K Compliance & Disclosure Interpretations).
As discussed elsewhere in this report, we completed a business combination of Archer Aviation, Inc., Atlas, and Artemis Acquisition Sub Inc. on September 16, 2021, pursuant to which was effected by the merger of Archer Aviation, Inc. and Artemis Acquisition Sub, Inc. Prior to the merger, we were a special purpose acquisition company 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. As a result, previously existing internal controls are no longer applicable or comprehensive enough as of the assessment date as our operations prior to the merger were insignificant compared to those of the consolidated entity post-merger. The design of our internal control over financial reporting following the merger has required and will continue to require significant time and resources from management and other personnel. If management were to conduct an assessment regarding our internal control over financial reporting, however, its scope would include the criteria set forth by the Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Changes in Internal Control Over Financial Reporting
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We are taking actions to remediate the material weaknesses relating to our internal control over financial reporting. Except as otherwise described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Lease Agreement with SIR Properties Trust
On March 9, 2022, we entered into a lease agreement with SIR Properties Trust. The lease is for approximately 68,000 rentable square feet of building space in the building located at 77 Rio Robles, San Jose, California. Archer intends that the premises will be used for lab space and a low rate initial production facility. The term of the lease commences 210 days after the landlord delivers possession of the premises to us, subject to certain demolition work being completed, and will expire 90 months thereafter, with an option for us to extend the term for one additional five-year period. Base rent payments due under the lease are expected to be approximately $15 million in the aggregate over the term of the lease. We are also responsible for certain other costs under the lease, such as certain build-out expenses, operating expenses, taxes, assessments, insurance, and utilities. However, the lease does require that the landlord shall provide us with an allowance that may be applied against certain of our build-out and moving expenses. The foregoing summary of key terms of the lease does not purport to be complete and is subject to, and qualified in its entirety by, the complete text of the lease, a copy of which we expect to file with our Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2022.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report.
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Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report:
1. Financial Statements
See Index to Consolidated Financial Statements under Part II, Item 8 of this Annual Report.
2. Financial Statement Schedules
Schedules not listed above have been omitted because they are not required, not applicable, or the required information is otherwise included.
3. Exhibits
The exhibits listed below are filed as part of this Annual Report or are incorporated by reference as indicated.
Exhibit Description
2.1†† Amended and Restated Business Combination Agreement, dated as of July 29, 2021, by and among Atlas Crest Investment Corp., Artemis Acquisition Sub Inc. and Archer Aviation Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K (File No. 001-39668), filed July 29, 2021)
3.1 Amended and Restated Certificate of Incorporation of Archer Aviation Inc. ( incorporated by reference to Exhibit 3.1 to Form 8-K (File No. 001-39668), filed September 22, 2021 )
3.2 Amended and Restated Bylaws of Archer Aviation Inc. ( incorporated by reference to Exhibit 3.2 to Form 8-K (File No. 001-39668), filed September 22, 2021 )
4.1* Description of Archer Aviation Inc.’s Securities
4.2 Warrant Agreement, dated October 27, 2020, by and between the Company and Continental Stock Transfer & Trust Company, as warrant agent (incorporated by reference to Exhibit 4.1 to Form 8-K (File No. 001-39668), filed November 2, 2020
10.1 Form of Subscription Agreement (incorporated by reference to Exhibit 10.2 to Form 8-K (File No. 001-39668), filed February 10, 2021)
10.2 Amended and Restated Sponsor Letter Agreement, dated as of July 29, 2021, by and among Atlas Crest Investment Corp., Atlas Crest Investment LLC, Archer Aviation Inc., and the individuals named therein (incorporated by reference to Exhibit 10.1B to Registration Statement on Form S-4 (File No. 333-254007), filed August 3, 2021)
10.3† Archer 2019 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to Form 8-K (File No. 001-39668), filed September 22, 2021)
10.4† Form of Stock Option Grant Package under Archer 2019 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to Form 8-K (File No. 001-39668), filed September 22, 2021)
10.5† Form of RSU Grant Package under Archer 2019 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 to Form 8-K (File No. 001-39668), filed September 22, 2021)
10.6† Archer 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to Form 8-K (File No. 001-39668), filed September 22, 2021)
10.7† Form of Stock Option Grant Package under Archer 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.9 to Form 8-K (File No. 001-39668), filed September 22, 2021)
10.8† Form of RSU Grant Package under Archer 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.10 to Form 8-K (File No. 001-39668), filed September 22, 2021)
10.9† Form of Employee Stock Purchase Plan ( incorporated by reference to Exhibit 10.11 to Form 8-K (File No. 001-39668), filed September 22, 2021 )
10.10† Offer Letter, dated September 16, 2021, by and between the Company and Brett Adcock (incorporated by reference to Exhibit 10.12 to Form 8-K (File No. 001-39668), filed September 22, 2021)
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Exhibit Description
10.11† Offer Letter, dated September 16, 2021, by and between the Company and Adam Goldstein (incorporated by reference to Exhibit 10.13 to Form 8-K (File No. 001-39668), filed September 22, 2021)
10.12† Offer Letter, dated November 19, 2019, by and between the Company and Tom Muniz (incorporated by reference to Exhibit 10.19 to Registration Statement on Form S-4 (File No. 333-254007) filed August 10, 2021)
10.13† Offer Letter, dated June 24, 2021, by and between the Company and Ben Lu (incorporated by reference to Exhibit 10.18 to Registration Statement on Form S-4 (File No. 333-254007) filed August 10, 2021)
10.14† Offer Letter, dated May 5. 2021, by and between the Company and Andy Missan (incorporated by reference to Exhibit 10.17 to Registration Statement on Form S-4 (File No. 333-254007) filed August 10, 2021)
10.15 Sublease Agreement, dated July 1, 2020, by and between Aurora Innovation, Inc. and Archer Aviation Inc. (incorporated by reference to Exhibit 10.12 to Registration Statement on S-4 (File No. 333-254007), filed August 10, 2021)
10.16 Lease Agreement, dated December 11, 2020, by and between Jack Dymond Lathing Co. and Archer Aviation Inc. (incorporated by reference to Exhibit 10.13 to Registration Statement on S-4 (File No. 333-254007), filed August 10, 2021)
10.17 Sublease Agreement, dated March 1, 2020, by and between Delta Mike Enterprises, LLC and Archer Aviation Inc. (incorporated by reference to Exhibit 10.14 to Registration Statement on S-4 (File No. 333-254007), filed August 10, 2021)
10.18 Lease Agreement, dated April 14, 2021, by and between NC Investments, LLC and Archer Aviation Inc. (incorporated by reference to Exhibit 10.15 to Registration Statement on S-4 (File No. 333-254007), filed August 10, 2021)
10.19 Storage/R&D Space License Agreement, dated March 15, 2021, by and between J.V. Lewis Enterprises, Inc. and Archer Aviation Inc. (incorporated by reference to Exhibit 10.16 to Registration Statement on S-4 (File No. 333-254007), filed August 10, 2021)
10.20 Warrant to Purchase Shares, dated as of November 6, 2020, by and among FCA US LLC and Archer Aviation Inc. (incorporated by reference to Exhibit 10.8 to Registration Statement on S-4 (File No. 333-254007), filed August 10, 2021)
10.21* Warrant to Purchase Shares, dated as of January 29, 2021, by and among United Airlines, Inc. and Archer Aviation Inc.
10.22 Warrant to Purchase Shares, dated as of February 26, 2021, by and among Mesa Air Group, Inc. and Archer Aviation Inc. (incorporated by reference to Exhibit 10.9 to Registration Statement on S-4 (File No. 333-254007), filed August 10, 2021)
10.23* Warrant to Purchase Shares, dated as of July 19, 2021, by and between FCA Italy, S.p.A. and Archer Aviation Inc.
10.24 Form of Subscription Agreement ( incorporated by reference to Exhibit 10.2 to Form 8-K (File No. 001-39668), filed February 10, 2021 )
10.25 Amended and Restated Registration Rights Agreement, by and between the Company and certain stockholders, dated September 16, 2021 (incorporated by reference to Exhibit 10.2 to Form 8-K (File No. 001-39668), filed September 22, 2021)
10.26 Loan and Security Agreement, dated July 9, 2021, by and among Silicon Valley Bank, in its capacity as administrative agent and collateral agent, Silicon Valley Bank and SVB Innovation Credit Fund VIII, L.P., as lenders, and Archer Aviation Inc. (incorporated by reference to Exhibit 10.10 to Registration Statement on Form S-4 (File No. 333-254007), filed August 3, 2021)
10.27 Form of Indemnity Agreement (incorporated by reference to Exhibit 10.26 to Form 8-K (File No. 001-39668), filed September 22, 2021)
10.28 Form of Transaction Support Agreement (incorporated by reference to Exhibit 10.2 to Registration Statement on Form S-4 (File No. 333-254007), filed March 8, 2021)
21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to Form 8-K (File No. 001-39668), filed September 22, 2021)
23.1* Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm
24.1* Power of Attorney (reference is made to the signature page thereto)
31.1* Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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Exhibit Description
31.2* Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3* Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1# Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2# Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.3# Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
____________________
* Filed herewith.
† Indicates management contract or compensatory plan or arrangement.
†† Certain of the exhibits and schedules to these exhibits have been omitted in accordance with Regulation S-K Item 601(a)(5). The registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.
# This certification is deemed not filed for purpose of section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
ARCHER AVIATION INC.
March 14, 2022 By: /s/ Mark Mesler
Mark Mesler
Chief Financial Officer
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS , that each person whose signature appears below constitutes and appoints Brett Adcock, Adam Goldstein and Mark Mesler, and each of them, as his or her true and lawful attorneys-in-fact, proxies and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report and to file the same, with any exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorneys-in-fact, proxies and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, proxies and agents, or their or his or her substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report has been signed by the following persons in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Brett Adcock
Co-Chief Executive Officer and Co-Chairman of the Board of Directors
( Principal Co-Executive Officer )
March 14, 2022
Brett Adcock
/s/ Adam Goldstein Co-Chief Executive Officer and Co-Chairman of the Board of Directors
( Principal Co-Executive Officer )
March 14, 2022
Adam Goldstein
/s/ Mark Mesler
Chief Financial Officer
( Principal Financial and Accounting Officer )
March 14, 2022
Mark Mesler
/s/ Deborah Diaz
Director
March 14, 2022
Deborah Diaz
/s/ Fred Diaz
Director
March 14, 2022
Fred Diaz
/s/ Oscar Munoz
Director
March 14, 2022
Oscar Munoz
/s/ Barbara J. Pilarski
Director
March 14, 2022
Barbara J. Pilarski
/s/ Maria Pinelli
Director
March 14, 2022
Maria Pinelli
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/s/ Michael Spellacy
Director
March 14, 2022
Michael Spellacy
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