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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-03-15 · 93 added, 86 removed, 146 unchanged (55% of the section changed)

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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.

Refer to Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations located in our Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 15, 2023, for a comparison of our results of operations for the years ended December 31, 2022 and 2021.

In addition to historical consolidated financial information, the following discussion includes forward-looking statements.

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This means that it has 12 propellers attached to 6 booms on a fixed wing with all 12 propellers providing vertical lift during take-off and landing, and the forward 6 propellers tilting forward to cruise position to provide propulsion during forward flight with the wing providing aerodynamic lift like a conventional airplane.

Midnight is designed to carry 4 passengers plus a pilot up to 100 miles at speeds up to 150 miles per hour, but is optimized for back-to-back short distance trips of around 20-miles, with a charging time of approximately 10 minutes between trips.

We are working to certify Midnight with the FAA in late 2024 so that we can then enter into commercial service in 2025.

Midnight is designed to carry 4 passengers plus a pilot optimized for back-to-back short distance trips of around 20-miles, with minimal charging time between trips.

We are working to certify Midnight with the FAA so that we can then enter into commercial service as soon as possible.

In August 2023, we received the Special Airworthiness Certificate from the FAA for our first Midnight aircraft and began its flight testing program in October 2023.

Midnight is the evolution of our demonstrator eVTOL aircraft, Maker, which through its flight test program has helped validate our proprietary 12-tilt-6 aircraft configuration and certain key enabling technologies.

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Archer is committed to sourcing renewable energy wherever possible to power its aircraft.

Archer’s design and engineering teams have worked to integrate materials into this aircraft that have their own unique sustainability stories.

For example, Midnight’s seats are constructed out of “flax” fiber, a natural plant which requires very little irrigation and is highly absorbent of CO2.

In addition, Archer’s design uses fabric made from recycled contents like plastic bottles.

Archer’s design and engineering teams are working to integrate materials into this aircraft that have their own unique sustainability stories.

We continue to work to optimize our eVTOL aircraft design for both manufacturing and certification.

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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.

Archer UAM and Archer Direct.

We plan to operate our own UAM ecosystem initially in select major cities.

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

Consumers will be able to book rides directly through our service through an app-based platform.

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.

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Archer Direct

We also plan to selectively sell a certain amount of our eVTOL aircraft to third parties.

We also plan to selectively sell our aircraft to third parties.

We have entered into the United Purchase Agreement for the conditional purchase of up to $1.0 billion worth of aircraft, with an option for another $500.0 million worth of aircraft.

As we get closer to commercialization, 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 for our eVTOL aircraft to enter into service.

In August 2023, we entered into two new contracts with the U.S.

Air Force, worth up to $142.0 million, which includes the purchase of aircraft, as well as the sharing of additional flight test data certification related reports, pilot training, and the development of maintenance and repair operations.

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

To date, we have not generated revenue from either of these planned categories, as we continue to design, develop, and seek the governmental approvals necessary for our eVTOL aircraft to enter into service.

We will use our cash and cash equivalents for the foreseeable future to continue to fund our efforts to bring our eVTOL aircraft to market.

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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 September 16, 2021, (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.

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.

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

Operating Expenses

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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.

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

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

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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 8 - Commitments and Contingencies of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report.

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, associated facilities costs, depreciation, and non-cash technology and dispute resolution agreements expense.

We expect our general and administrative expenses to increase as we hire additional personnel and consultants to support our operations and comply with applicable regulations, including the Sarbanes-Oxley Act and other SEC rules and regulations.

Other Warrant Expense

Other warrant expense consists entirely of non-cash expense related to the warrants issued in conjunction with the execution of the United Purchase Agreement and that certain warrant agreement, dated January 29, 2021, between the Company and United (as amended, the “United Warrant Agreement”).

Other Income, Net

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

Other warrant expense consists entirely of non-cash expense related to the vesting of warrants issued in conjunction with the execution of the United Purchase Agreement and the Warrant to Purchase Shares Agreement (the “United Warrant Agreement”) with United.

Other (Expense) Income, Net

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

Interest Income (Expense), Net

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Loss from operations (446.9) (347.4) (99.5) 29 %

Gain on forgiveness of PPP Loan — 0.9 (0.9) (100) %

Other income, net 27.8 10.6 17.2 162 %

Other (expense) income, net

(26.9) 27.8 (54.7) NM

Interest income (expense), net

16.4 2.3 14.1 NM

Loss before income taxes (457.4) (317.3) (140.1) 44 %

Income tax expense (0.5) — (0.5) 100 %

Net loss $ (457.9) $ (317.3) $ (140.6) 44 %

NM=Not Meaningful.

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

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Research and development expenses increased by $104.9 million, or 61%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, as we invested in people and materials to advance our technology development.

The increase was primarily due to an increase of $39.4 million in costs related to professional services and tools and materials to support our increased research and development activities, an increase of $37.8 million in personnel-related expenses due to a significant increase in our workforce from the prior year period, and an increase of $22.4 million in stock-based compensation expense primarily related to new restricted stock units (“RSUs”) granted since the closing of the Business Combination and 2022 quarterly bonus equity awards.

See Note 10 - Stock-Based Compensation for further details on our stock-based compensation.

The remainder of the increase was made up of other immaterial items.

The increase was primarily due to an increase of $40.9 million in costs related to professional services and tools and materials to support our increased research and development activities, an increase of $38.1 million in personnel-related expenses due to a significant increase in our workforce from the prior year, and an increase of $14.7 million in warrant expenses related to the warrants issued to Stellantis in connection with the manufacturing and collaboration agreement between us and Stellantis.

See Note 10 - Stock-Based Compensation to our consolidated financial statements for further details on our warrants.

The remainder of the increase was made up of other incidental items.

General and Administrative

General and administrative expenses decreased by $11.6 million, or 7%, for the year ended December 31, 2022, compared to the year ended December 31, 2021.

The decrease was primarily due to a decrease of $53.2 million in stock-based compensation expense related to the Founder Grants.

The decrease was partially offset by an increase of $14.4 million in personnel-related expenses due to a significant increase in our workforce from the prior year period, as we invested in people and infrastructure to support our growth and maturity as a public company, an increase of $10.0 million in stock-based compensation expense primarily related to new RSUs granted since the closing of the Business Combination and 2022 quarterly bonus equity awards, an increase of $9.9 million in professional service expenses mainly due to legal fees and expenses, and an increase of $6.3 million in general and administrative expenses primarily related to the directors and officers (“D&O”) insurance.

See Note 10 - Stock-Based Compensation for further details on our stock-based compensation.

The remainder of the decrease was made up of other immaterial items.

General and administrative expenses increased by $3.3 million, or 2%, for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The increase was primarily due to a $70.3 million non-cash charge comprised of a $26.3 million non-cash charge associated with the Initial Vested Share Tranche and a $44.0 million non-cash charge for the unvested portion of the Warrant that is contingent and may never be realized, relating to a series of agreements between us, Boeing and Wisk on August 10, 2023, providing for, among other things, certain investments and warrant issuances, as well as an autonomous flight technology agreement and the resolution of certain federal and state court litigation between the parties (the “Technology and Dispute Resolution Agreements”).

The increase was partially offset by a reversal of previously recognized stock-based compensation expense of $59.1 million associated with the forfeiture of the unvested portion of the restricted stock units (“RSUs”) granted to our founders pursuant to the terms and conditions of the Business Combination Agreement immediately prior to closing (the “Founder Grant”) issued to the Company’s co-founder and former co-CEO.

See Note 8 - Commitments and Contingencies and Note 10 - Stock-Based Compensation to our consolidated financial statements

for further details on our commitments and contingencies and stock-based compensation, respectively.

The remainder of the offset was made up of other incidental items.

Other Warrant Expense

Other warrant expense decreased by $8.7 million, or 81%, for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The decrease was due to the vesting of warrants pursuant to the United Warrant Agreement in association with the achievement of specific milestones.

See Note 10 - Stock-Based Compensation for further details.

Gain on Forgiveness of PPP Loan

Gain on Forgiveness of PPP Loan decreased by $0.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The decrease was due to the one-time gain recognized on the extinguishment of a Paycheck Protection Program loan and accrued interest during the year ended December 31, 2021.

There was no comparable activity for the year ended December 31, 2022.

Other income increased by $17.2 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase was primarily due to the change in fair value of our warrant liabilities.

See Note 3 - Summary of Significant Accounting Policies for further details.

In addition, there was a $4.9 million accretion and amortization income related to our short-term investments recognized during the year ended December 31, 2022.

The decrease was primarily due to the vesting of United warrants associated with specific milestones during the year ended December 31, 2022.

The warrants associated with the specific milestones fully vested in the first quarter of 2023.

See Note 10 - Stock-Based Compensation to our consolidated financial statements for further details on our warrants.

Other (Expense) Income, Net

Other (expense) income, net decreased by $54.7 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The decrease was primarily due to changes in fair value of our warrant liabilities.

See Note 3 - Summary of Significant Accounting Policies to our consolidated financial statements for further details.

Interest Income (Expense), Net

Interest income (expense), net increased by $3.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to interest income from our cash and cash equivalents and short-term investments, net of interest expense recognized for the Silicon Valley Bank term loans, which we entered into in July 2021.

Interest income (expense), net increased by $14.1 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The increase was primarily due to interest income from our cash and cash equivalents and short-term investments in marketable securities.

Liquidity and Capital Resources

As of December 31, 2022, our principal sources of liquidity were cash and cash equivalents of $69.4 million and short-term investments in marketable securities of $461.8 million.

As of December 31, 2023, our principal sources of liquidity were cash and cash equivalents of $464.6 million.

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

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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.

On August 10, 2023, we entered into subscription agreements with certain investors providing for the private placement of 26,173,286 shares of our Class A common stock for net proceeds of approximately $139.0 million, after deducting offering costs.

On June 23, 2023, we issued 6,337,039 shares of Class A common stock to Stellantis at a price of $3.94506 per share in connection with the first milestone under the Stellantis Forward Purchase Agreement and received approximately $25.0 million in gross proceeds.

On August 10, 2023, Stellantis waived certain conditions provided for in the Stellantis Forward Purchase Agreement relating to our actual achievement pursuant to Milestone 2 (as defined in the Stellantis Forward Purchase Agreement).

In connection with this, we submitted an election notice to draw down upon the $70.0 million applicable to Milestone 2, which equals 12,313,234 shares of our Class A common stock.

On October 16, 2023, we issued 12,313,234 shares of our Class A common stock to Stellantis, at a price per share of $5.68, for gross proceeds of approximately $70.0 million.

On October 5, 2023, we entered into the Credit Agreement with Synovus Bank, as administrative agent and lender, and the additional lenders (the “Lenders”) from time to time.

We may request the Lenders to provide multiple delayed term loan advances (together, the “Loan”) in an aggregate principal amount of up to $65.0 million for the construction and development of our manufacturing facility in Covington, Georgia.

The Loan under the Credit Agreement shall accrue interest from and including the date the applicable advance is made but excluding the repayment date at a rate of the secured overnight financing rate (“SOFR”), plus 2.00% subject to a SOFR floor of 0.00%.

We are required to make interest-only payments for 36 months on the Loan starting on November 14, 2023, followed by monthly interest and principal payments for the remaining maturity, with any outstanding principal, interest and other then outstanding indebtedness due at maturity.

The Credit Agreement matures on the earlier of October 5, 2033 or the date on which the outstanding Loan has been declared or automatically becomes due and payable pursuant to the terms of the Credit Agreement.

Our obligations under the Credit Agreement are jointly and severally guaranteed by our current and future wholly-owned domestic subsidiaries, and are secured by cash, general intangibles, instruments, securities, financial assets, security entitlements and other property maintained in a money market account at Synovus Bank.

In November 2023, we filed a shelf registration statement on Form S-3 (the “Shelf Registration Statement”), which became effective in November 2023.

The Shelf Registration Statement permits the offering of up to $70.0 million aggregate dollar amount of shares of our Class A common stock or preferred stock, debt securities, warrants to purchase our Class A common stock, preferred stock or debt securities, subscription rights to purchase our Class A common stock, preferred stock or debt securities and/or units consisting of some or all of these securities, in one or more offerings and in any combination.

In connection with the Shelf Registration Statement, we entered into an Open Market Sales Agreement SM (the “Sales Agreement”), with Cantor Fitzgerald & Co.

, as the sales agent, pursuant to which we may offer and sell shares of our Class A common stock having an aggregate offering amount of up to $70.0 million.

The $70.0 million of Class A common stock that may be issued and sold pursuant to the Sales Agreement is included in the $70.0 million of securities that may be issued and sold pursuant to the Shelf Registration Statement.

We will pay Cantor Fitzgerald & Co.

a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of Class A common stock pursuant to the Sales Agreement.

As of December 31, 2023, we had $49.3 million remaining under the Sales Agreement.

In the long term, our ability to support our working capital and capital expenditure requirements will depend on many factors, including:

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The following includes our short-term and long-term material cash requirements from known contractual obligations as of December 31, 2023:

We have short-term debt obligations of $10.0 million due within the next 12 months.

See Note 7 - Notes Payable to the consolidated financial statements for further detail on our debt.

Notes Payable

See Note 7 - Notes Payable to our consolidated financial statements for further details on our debt.

We lease office, lab, hangar, and storage facilities in the normal course of business.

Under our operating leases as noted in Note 8 - Commitments and Contingencies to the consolidated financial statements, we have current obligations of $4.9 million due within the next 12 months and long-term obligations of $23.5 million.

Under our operating leases as noted in Note 8 - Commitments and Contingencies to our consolidated financial statements, we have current obligations of $5.5 million and long-term obligations of $18.5 million.

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

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(In millions)

Net cash used in operating activities $ (200.4) $ (108.4)

Net cash used in investing activities (464.3) (3.5)

Net cash (used in) provided by financing activities (9.9) 822.2

Net cash provided by (used in):

Operating activities

$ (271.6) $ (200.4)

Investing activities

420.7 (464.3)

Financing activities

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.

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, 2023 was $271.6 million, resulting from a net loss of $457.9 million, adjusted for non-cash items consisting primarily of a $70.3 million non-cash charge comprised of a $26.3 million non-cash charge associated with the Initial Vested Share Tranche and a $44.0 million non-cash charge for the unvested portion of the Warrant that is contingent and may never be realized, relating to the Technology and Dispute Resolution Agreements, $45.2 million in stock-based compensation which includes the reversal of $59.1 million of stock-based compensation expense related to the forfeiture of one of the Founder Grants, a loss of $32.9 million due to a change in fair value of our warrant liabilities, and $17.5 million of research and development warrant expense related to the warrants issued to Stellantis (see Note 10 - Stock-Based Compensation to our consolidated financial statements).

The net cash provided by changes in our net operating assets and liabilities of $13.2 million was primarily related to a $9.2 million increase in accounts payable due to timing of payments.

Net cash used in operating activities during the year ended December 31, 2022 was $200.4 million, resulting from a net loss of $317.3 million, adjusted for non-cash items consisting primarily of $102.8 million in stock-based compensation primarily related to the Founder Grants and $10.8 million in other warrant expense related to the United warrants (see Note 10 - Stock-Based Compensation), partially offset by a gain of $22.9 million primarily due to the change in fair value of our warrant liabilities.

The net cash related to changes in our net operating assets and liabilities of $19.2 million was primarily related to a $15.6 million increase in accrued expenses and other current liabilities mainly due to legal fees and expenses and a $10.1 million increase in other long-term liabilities mainly due to the $10.0 million pre-delivery payment from United (see Note 10 - Stock-Based Compensation), partially offset by a $3.4 million increase in operating lease right-of-use assets and lease liabilities, net driven by lease payments and a $2.2 million increase in prepaid expenses primarily due to prepaid research and development-related expenses.

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

The net cash related to 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.

Cash Flows Used in Investing Activities

Cash Flows Provided by (Used in) Investing Activities

Net cash provided by investing activities during the year ended December 31, 2023 was $420.7 million, driven by proceeds from maturities of short-term investments of $465.0 million, offset by purchases of property and equipment of $44.3 million within the period.

Net cash used in investing activities during the year ended December 31, 2022 was $464.3 million, driven by purchases of short-term investments of $487.4 million and purchases of property and equipment of $6.9 million, offset by proceeds from maturities of short-term investments of $30.0 million.

Net cash used in investing activities during the year ended December 31, 2021 was $3.5 million, driven by purchases of property and equipment.

Cash Flows (Used in) Provided by Financing Activities

Net cash used in financing activities during the year ended December 31, 2022 was $9.9 million, consisting of the repayment of debt for $10.0 million, offset by $0.1 million proceeds from the exercise of stock options.

Net cash provided by financing activities during the year ended December 31, 2021was $822.2 million, consisting primarily of $600.0 million in proceeds from the PIPE Financing, $201.8 million net proceeds from the Business Combination, and $20.0 million in proceeds from the issuance of debt.

Cash Flows Provided by (Used in) Financing Activities

Net cash provided by financing activities during the year ended December 31, 2023 was $250.1 million, driven by gross proceeds from the PIPE financing of $145.0 million, proceeds from the issuance of common stock to Stellantis of $95.0 million, and proceeds from shares issued under an at-the-market offering of $20.7 million, partially offset by the repayment of term loans to Silicon Valley Bank, a division of First-Citizens Bank, for $10.0 million.

Net cash used in financing activities during the year ended December 31, 2022 was $9.9 million, consisting primarily of the repayment of debt for $10.0 million.

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.

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

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.

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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.

For additional information, refer to Note 3 - Summary of Significant Accounting Policies to our consolidated financial statements.

Common Stock Valuation

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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.

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

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

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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 are subject to income taxes in the United States and other jurisdictions.

Our income tax provision consists of an estimate of federal, state and foreign income taxes based on enacted federal, state and foreign 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.

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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.

We have placed a full valuation allowance against our 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 short-term investments.

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

See Note 3 - Summary of Significant Accounting Policies to our consolidated financial statements for a discussion about accounting pronouncements recently adopted and recently issued and not yet adopted.

Financial instruments, which subject us to concentrations of credit risk, consist primarily of cash, cash equivalents, and short-term investments.

Our cash and cash equivalents are held at several long-standing financial institutions located in the United States.

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.

Our short-term investments consist of high quality, investment grade marketable securities and are held at a major financial institution located in the United States.

We have not experienced any losses due to these excess deposits and believe this risk is not significant.

Our short-term investments consisted of high quality, investment grade marketable securities and were held at a major financial institution located in the United States.

We have established guidelines regarding diversification of our investments and their maturities that are designed to preserve principal and achieve liquidity requirements.

We review these guidelines and modify them as necessary based on updated liquidity needs and changes in our operations and financial position.

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.

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