# Archer Aviation Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Archer Aviation Inc.](/companies/achr.md) (CIK 1824502)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 21:26 ET
- Period: 2023-09-30
- Accession: 0001628280-23-038275
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1824502/000162828023038275/achr-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1824502/000162828023038275/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $67.8m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $196.9m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$46.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$339.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $100.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $300.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$51.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$348.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.19 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.35 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.19 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.35 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 277,683,468 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 258,770,262 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$187.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $35.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $461.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $475.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $539.6m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $117.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $175.1m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $0 | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $2.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $364.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,187 characters.

*This Quarterly Report includes forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. See the section titled “Special Note Regarding Forward-Looking Statements” in this Quarterly Report. 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 our Annual Report and in Part II, Item 1A, “Risk Factors” of our Q2 10-Q. The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Quarterly Report and the audited financial statements as of and for the year ended December 31, 2022 set forth in our Annual Report.*

### Overview

We are designing and developing electric vertical takeoff and landing (“eVTOL”) aircraft for use in urban air mobility (“UAM”) networks. Our mission is to unlock the skies, freeing everyone to reimagine how they move and spend time. Our eVTOL aircraft are designed to be safe, sustainable, and quiet. Our production aircraft, Midnight, which we unveiled in November 2022, is designed around our proprietary 12-tilt-6 aircraft configuration. 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 minimal charge time in between trips. We are working to certify Midnight with the Federal Aviation Administration (“FAA”) so that we can then enter into commercial service in 2025.

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. The design of Midnight marries what we believe to be cutting-edge electric propulsion technology with state-of-the-art aircraft systems to deliver the key attributes of our eVTOL aircraft:

- **Safety.** High redundancy and simplified propulsion systems make for a significantly safer aircraft compared to a helicopter. Midnight has no single critical point of failure, meaning that should any single component fail, the aircraft can still safely complete its flight.
- **Low noise.** With its intended cruising altitude at approximately 2,000 feet, the design of Midnight is such that the noise that reaches the ground is expected to measure around 45 A-weighted decibels, approximately 100 times quieter than that of a helicopter. During forward flight, the aircraft’s tilt propellers spin on axes that are aligned with the oncoming air flow, rather than edge-wise to the flow, as is the case with traditional helicopters - further decreasing noise levels. Since Archer’s aircraft is spinning 12 small propellers rather than one large rotor, it can also spin them at significantly lower tip speeds, resulting in much lower noise levels.
- **Sustainable.** Midnight is all electric, resulting in zero operating emissions. 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.

We continue to work to optimize our eVTOL aircraft design for both manufacturing and certification. 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 eVTOL, traditional commercial aerospace, as well as electric propulsion backgrounds, we have built a team that enables 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 as efficiently as possible.

### Our Planned Lines of Business

Upon receipt of all necessary FAA certifications and any other government approvals necessary for us to manufacture and operate our aircraft, we intend to operate two complementary lines of business. Our core focus is direct-to-consumer offerings (“Archer UAM”) with our secondary focus being business-to-business offerings (“Archer Direct”).

### Archer UAM

We plan to operate our own UAM ecosystem initially in select major U.S. cities. 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 our ability to scale of our 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 (as further amended, the “United Purchase Agreement”) with United Airlines, Inc. (“United”) for the conditional purchase of up to $1.0 billion worth of aircraft, with an option for another $500.0 million worth of aircraft. In July 2023, we entered into two new contracts with the U.S. Air Force, which includes the delivery of Midnight aircraft, sharing flight test data and development of maintenance and repair operations.

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. 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. 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.

### Components of Results of Operations

### Revenue

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 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.

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, associated facilities costs, depreciation and non-cash technology and dispute resolution agreements expense. We expect our general and administrative expenses to increase in absolute dollars, primarily 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.

#### 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 United Purchase Agreement and the United Warrant Agreement.

### 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, Net

Interest income, net primarily consists of interest income from our cash and cash equivalents and short-term investments in marketable securities, net of interest on notes payable.

### Results of Operations

The following tables set forth our consolidated condensed statements of operations for the periods indicated:

*(In millions)*

| Operating expenses | Three Months Ended September 30, 2023 | 2022 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: |
| Research and development (1) | $67.8 | $47.0 | $20.8 | 44% |
| General and administrative (1) | (21.6) | 40.8 | (62.4) | (153)% |
| Other warrant expense | — | 6.0 | (6.0) | (100)% |
| Total operating expenses | 46.2 | 93.8 | (47.6) | (51)% |
| Loss from operations | (46.2) | (93.8) | 47.6 | (51)% |
| Other (expense) income, net | (10.4) | 1.3 | (11.7) | NM |
| Interest income, net | 5.1 | 1.5 | 3.6 | NM |
| Loss before income taxes | (51.5) | (91.0) | 39.5 | (43)% |
| Income tax expense | (0.1) | — | (0.1) | 100% |
| Net loss | $(51.6) | $(91.0) | $39.4 | (43)% |

NM=Not Meaningful.

*(In millions)*

| Operating expenses | Nine Months Ended September 30, 2023 | 2022 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: |
| Research and development (1) | $196.9 | $112.3 | $84.6 | 75% |
| General and administrative (1) | 140.6 | 121.0 | 19.6 | 16% |
| Other warrant expense | 2.1 | 6.0 | (3.9) | (65)% |
| Total operating expenses | 339.6 | 239.3 | 100.3 | 42% |
| Loss from operations | (339.6) | (239.3) | (100.3) | 42% |
| Other (expense) income, net | (19.7) | 15.8 | (35.5) | NM |
| Interest income, net | 10.8 | 1.6 | 9.2 | NM |
| Loss before income taxes | (348.5) | (221.9) | (126.6) | 57% |
| Income tax expense | (0.3) | — | (0.3) | 100% |
| Net loss | $(348.8) | $(221.9) | $(126.9) | 57% |

NM=Not Meaningful.

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

*(In millions)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $7.5 | $6.7 | $20.9 | $19.0 |
| General and administrative | (34.9) | 19.5 | 3.9 | 57.3 |
| Total stock-based compensation expense | $(27.4) | $26.2 | $24.8 | $76.3 |

### Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

#### Research and Development

Research and development expenses increased by $20.8 million, or 44%, for the three months ended September 30, 2023, compared to the same period ended September 30, 2022, as we invested in people and materials to advance our technology development. Specifically, the increase was primarily due to an increase of $9.4 million in personnel-related expenses due to a significant increase in our workforce from the prior year period, an increase of $5.6 million in costs related to professional services and tools and materials to support our increased research and development activities, and an increase of $4.0 million in warrant expenses related to the warrants issued to Stellantis N.V. (“Stellantis”) in connection with the manufacturing and collaboration agreement between us and Stellantis. See Note 9 - Stock-Based Compensation to our consolidated condensed financial statements for further details on our warrants.

Research and development expenses increased by $84.6 million, or 75%, for the nine months ended September 30, 2023, compared to the same period ended September 30, 2022, as we invested in people and materials to advance our technology development. Specifically, the increase was primarily due to an increase of $36.8 million in costs related to professional services and tools and materials to support our increased research and development activities, an increase of $29.6 million in personnel-related expenses due to a significant increase in our workforce from the prior year period and an increase of $10.2 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 9 - Stock-Based Compensation to our consolidated condensed financial statements for further details on our warrants.

#### General and Administrative

General and administrative expenses decreased by $62.4 million, or 153%, for the three months ended September 30, 2023, compared to the same period ended September 30, 2022, primarily due to a reversal of previously recognized stock-compensation expense of $59.1 million associated with the forfeiture of the unvested portion of the Founder Grant issued to the Company’s co-founder and former co-CEO. For more information, refer to Note 9 - Stock-Based Compensation to our consolidated condensed financial statements.

General and administrative expenses increased by $19.6 million, or 16%, for the nine months ended September 30, 2023, compared to the same period ended September 30, 2022. There was an increase primarily due to a $75.3 million non-cash charge comprised of a $26.3 million non-cash charge associated with the Initial Vested Share Tranche and a $49.0 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. The increase was partially offset by a reversal of previously recognized stock-compensation expense of $59.1 million associated with the forfeiture of the unvested portion of the Founder Grant issued to the Company’s co-founder and former co-CEO. For additional information on our commitments and contingencies and stock-based compensation, see Note 7 and Note 9, respectively, to our consolidated condensed financial statements.

#### Other Warrant Expense

Other warrant expense decreased by $6.0 million, or 100%, and $3.9 million, or 65%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods ended September 30, 2022. The decrease was due to the vesting of United warrants associated with specific milestones during the periods ended September 30, 2022. The warrants associated with the specific milestones fully vested in the first quarter of 2023. See Note 9 - Stock-Based Compensation to our consolidated condensed financial statements for further details on our other warrant expense.

#### Other (Expense) Income, Net

Other (expense) income, net decreased by $11.7 million and $35.5 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods ended September 30, 2022, primarily due to changes in fair value of our warrant liabilities. See Note 3 - Summary of Significant Accounting Policies to our consolidated condensed financial statements.

#### Interest Income, Net

Interest income, net increased by $3.6 million and $9.2 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods ended September 30, 2022, primarily due to interest income from our cash and cash equivalents and short-term investments in marketable securities.

### Liquidity and Capital Resources

As of September 30, 2023, our principal sources of liquidity were cash and cash equivalents of $461.4 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.

On August 10, 2023, we entered into subscription agreements with certain investors providing for the private placement of 26,173,286 shares of Class A common stock (“Common Stock”) of the Company for net proceeds of approximately $139.0 million, after deducting offering costs (the “Private Placement”).

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 the Company’s Common Stock. On October 16, 2023, we issued 12,313,234 shares of Common Stock to Stellantis, at a price per share of $5.68, for gross proceeds of approximately $70.0 million.

On October 5, 2023, the Company entered into a credit agreement (the “Credit Agreement”) with Synovus Bank, as administrative agent and lender, and the additional lenders (the “Lenders”) from time to time. The Company may request the Lenders to provide multiple delayed term loan advances (“Loans”) in an aggregate principal amount of up to $65.0 million for the construction and development of the Company’s manufacturing facility in Covington, Georgia. The Loans 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%. The Company is required to make interest-only payments for 36 months on the Loans 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 all outstanding Loans have been declared or automatically become due and payable pursuant to the terms of the Credit Agreement. The obligations of the Company under the Credit Agreement are jointly and severally guaranteed by the Company’s 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 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.

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, pre-delivery payments, equity financing and debt financing.

The following includes our short-term and long-term material cash requirements from known contractual obligations as of September 30, 2023:

### Notes Payable

We have short-term debt obligations of $2.5 million. See Note 6 - Notes Payable to the consolidated condensed financial statements for further details on our debt.

### Leases

We lease office, lab, hangar, and storage facilities in the normal course of business. Under our operating leases as noted in Note 7 - Commitments and Contingencies to the consolidated condensed financial statements, we have current obligations of $5.4 million and long-term obligations of $19.6 million.

### Cash Flows

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

*(In millions)*

| Net cash provided by (used in): | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $(187.6) | $(133.2) |
| Investing activities | $429.7 | $(491.2) |
| Financing activities | $154.3 | $(7.1) |

#### Cash Flows Used in Operating Activities

We continue to experience negative cash flows from operations as we are still working to design, develop, certify, and bring up manufacturing of our eVTOL aircraft and thus have not generated any revenues from either of our planned lines of business. Our cash flows from operating activities are significantly affected by our cash investments to support the growth of our research and development activities related to our eVTOL aircraft, as well as the general and administrative functions necessary to support those activities and operations as a publicly traded company. Our operating cash flows are also impacted by the working capital requirements to support growth and fluctuations in personnel-related expenditures, accounts payable, accrued interest and other current liabilities, and other current assets.

Net cash used in operating activities during the nine months ended September 30, 2023 was $187.6 million, resulting from a net loss of $348.8 million, adjusted for non-cash items consisting primarily of a $75.3 million non-cash charge comprised of a $26.3 million non-cash charge associated with the Initial Vested Share Tranche and a $49.0 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, $24.8 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 $25.8 million due to a change in fair value of our warrant liabilities, and $13.1 million of research and development warrant expense related to the warrants issued to Stellantis (see Note 9 - Stock-Based Compensation to our consolidated condensed financial statements). The net cash provided by changes in our net operating assets and liabilities of $18.2 million was primarily related to a $10.3 million increase in accounts payable due to timing of payments and a $5.9 million decrease in prepaid expenses, primarily due to the release of payments from the receipt of goods and services during the period.

Net cash used in operating activities during the nine months ended September 30, 2022 was $133.2 million, resulting from a net loss of $221.9 million, adjusted for non-cash items consisting primarily of $76.3 million in stock-based compensation primarily related to the Founder Grants and $6.0 million in other warrant expense related to the United warrants (see Note 9 - Stock-Based Compensation to the consolidated condensed financial statements), partially offset by a gain of $14.4 million primarily due to a change in fair value of our warrant liabilities. The net cash provided by changes in our net operating assets and liabilities of $13.3 million was primarily related to a $10.3 million increase in other long-term liabilities mainly due to the $10.0 million pre-delivery payment from United (see Note 9 - Stock-Based Compensation to the consolidated condensed financial statements) and a $5.9 million increase in accrued expenses and other current liabilities mainly due to legal fees and expenses. These increases were partially offset by a $3.2 million increase in prepaid expenses, primarily due to prepaid research and development-related expenses.

#### Cash Flows Provided by (Used in) Investing Activities

Net cash provided by investing activities during the nine months ended September 30, 2023 was $429.7 million, driven by proceeds from maturities of short-term investments of $465.0 million, offset by purchases of property and equipment of $35.3 million within the period.

Net cash used in investing activities during the nine months ended September 30, 2022 was $491.2 million, driven by purchases of short-term investments of $487.6 million and purchases of property and equipment of $3.6 million within the period.

#### Cash Flows Provided by (Used in) Financing Activities

Net cash provided by financing activities during the nine months ended September 30, 2023 was $154.3 million, driven by gross proceeds from the PIPE financing of $145.0 million, proceeds from the issuance of common stock to Stellantis of $25.0 million, and proceeds from shares issued under the Employee Stock Purchase Plan of $1.3 million (see Note 9 - Stock-Based Compensation to the consolidated condensed financial statements), offset by the repayment of term loans to Silicon Valley Bank, a division of First-Citizens Bank (the “Silicon Valley Bank Term Loans”) for $7.5 million, payments of offering costs in connection with the PIPE financing for $6.0 million, and payments for taxes related to net share settlement of equity awards for $3.5 million.

Net cash used in financing activities during the nine months ended September 30, 2022 was $7.1 million, consisting of the repayment of the Silicon Valley Bank Term Loans for $7.5 million, offset by $0.4 million proceeds from the exercise of stock options.

### Critical Accounting Policies and Estimates

Our audited consolidated condensed financial statements and accompanying notes set forth in the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2023 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated condensed financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

For a discussion of our critical accounting policies and estimates, see “Critical Accounting Policies and Estimates” included under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. There have been no material changes in our policies from those previously discussed in our Annual Report.

### Recent Accounting Pronouncements

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

### Credit Risk

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 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). 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 Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Atlas initially elected, and we currently 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 currently 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 currently 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.

Because the market value of our common stock held by our non-affiliates as of June 30, 2023, exceeded $700.0 million, we will generally lose the ability to rely on the scaled disclosure and other benefits associated with emerging growth company status and smaller reporting company status in our periodic reports and other filings with the SEC during the year ending December 31, 2024.

## Market risk

As filed, 686 characters.

### Interest Rate Risk

We are exposed to market risk for changes in interest rates applicable to our short-term investments. We had cash, cash equivalents, and restricted cash totaling $468.7 million as of September 30, 2023. Cash equivalents were invested in money market funds. The primary objectives of our investment activities are to preserve principal and achieve liquidity requirements. We do not enter into investments for trading or speculative purposes. Due to the relatively short-term nature of our investment portfolio, a hypothetical 100 basis point change in interest rates would not have had a material impact on the fair value of our portfolio for the periods presented.

## Controls and procedures

As filed, 9,348 characters.

### 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 (as defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly 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 (the “Exchange Act”)) as required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, our disclosure controls and procedures were ineffective, due to the material weaknesses described below.

However, after giving full consideration to these material weaknesses, and the additional analyses and other procedures that we performed to ensure that our consolidated condensed financial statements included in this Quarterly Report were prepared in accordance with U.S. GAAP, our management has concluded that our consolidated condensed financial statements included in this Quarterly 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 information technology (“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 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 and immaterial errors to our previously issued consolidated financial statements which were corrected in the consolidated financial statements as of and for the year ended December 31, 2022. 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

We are taking the steps we believe are necessary to remediate these material weaknesses to comply with the rules and regulations of the SEC regarding compliance with Section 404(a) of the Sarbanes-Oxley Act. Management, with the participation of our Board of Directors and its Audit Committee, is engaged in remediation activities to address the material weaknesses described above. Those remediation measures are ongoing and include the following:

- We prepared a remediation plan for each of the material weaknesses and trained process owners, developed new controls, enhanced existing controls and evaluated process adoption, and are monitoring results;
- We hired a new Chief Financial Officer in February 2022 and have hired and plan to continue to hire 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 have implemented and continue to implement controls to formalize roles and review responsibilities that align with our team’s skills and experience and to ensure segregation of duties;
- We engaged third-party professionals to design and implement a formal risk assessment process and identified and evaluated changes in our internal controls;
- We have implemented 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;
- 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; and
- We implemented a new enterprise resource planning (“ERP”) system in February 2023 that is expected to be capable of automating some of our manual financial reporting processes, enhancing our information technology control environment, and mitigating some of the internal control gaps and limitations that cannot be addressed by our current system.

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 oversight by the audit committee of our board of directors. 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 including evaluation of their ongoing effectiveness for a sufficient period of time. 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.

### Changes in Internal Control Over Financial Reporting

We are taking actions to remediate the material weaknesses relating to our internal control over financial reporting. 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 September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,292 characters.

Investing in our securities involves risks. Risk factors describing the major risks to our business can be found under Part I, Item 1A, “Risk Factors” in our Annual Report and in Part II, Item 1A, “Risk Factors” of our Q2 10-Q. You should consider carefully the risks and uncertainties described therein, together with all of the other information in this Quarterly Report, including Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated condensed financial statements and related notes, before deciding whether to purchase any of our securities. Our business, results of operations, financial condition, and prospects could also be harmed by risks and uncertainties that are not presently known to us or that we currently believe are not material. If any of these risks actually occur, our business, results of operations, financial condition, and prospects could be materially and adversely affected. Unless otherwise indicated, references in these risk factors to our business being harmed will include harm to our business, reputation, brand, financial condition, results of operations, and prospects. In such event, the market price of our securities could decline, and you could lose all or part of your investment.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-038275. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.