References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Atlas Crest Investment Corp.. References to our "management"
or our "management team" refer to our officers and directors, and references to
the "Sponsor" refer to Atlas Crest Investment LLC. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the unaudited condensed financial statements and the
notes thereto contained elsewhere in this Quarterly Report. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act that are not historical facts, and involve risks and uncertainties that
could cause actual results to differ materially from those expected and
projected. All statements other than statements of historical fact included in
this Form 10-Q including statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements. Words such as
"expect," "believe," "anticipate," "intend," "estimate," "seek" and variations
and similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future
performance, but reflect management's current beliefs, based on information
currently available. A number of factors could cause actual events, performance
or results to differ materially from the events, performance and results
discussed in the forward-looking statements. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to the Risk
Factors section of the Company's Amendment No. 1 to its Annual Report on Form
10-K for the year ending December 31, 2020 filed with the SEC on May 24, 2021
and under Item 1A - Risk Factors in this report. The Company's securities
filings can be accessed on the EDGAR section of the SEC's website at
www.sec.gov. Except as expressly required by applicable securities law, the
Company disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future events
or otherwise.
Overview
We are a blank check company incorporated on August 26, 2020 as a Delaware
corporation and formed for the purpose of effectuating a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses, which we refer to throughout this
Annual Report as our "initial business combination". We intend to effectuate our
initial business combination using cash from the proceeds of the initial public
offering and the private placement of the private placement warrants, the
proceeds of the sale of our shares in connection with our initial business
combination (pursuant to forward purchase agreements or backstop agreements we
may enter into following the consummation of the initial public offering or
otherwise), shares issued to the owners of the target, debt issued to bank or
other lenders or the owners of the target, or a combination of the foregoing.
Proposed Business Combination
On February 10, 2021, we entered into a Business Combination Agreement (as
amended and restated on July 29, 2021 and as it may be further amended,
supplemented or otherwise modified from time to time, the "Business Combination
Agreement"), by and among Atlas, Artemis Acquisition Sub Inc., a Delaware
corporation ("Artemis Merger Sub"), and Archer Aviation Inc., a Delaware
corporation ("Archer").
The Business Combination Agreement and the transactions contemplated thereby
were approved by the boards of directors of each of Atlas and Archer.
21
Table of Contents
The Business Combination
The Business Combination Agreement provides for, among other things, the
following transactions on the date of closing of the Business Combination (the
"Closing"): (i) Atlas will amend and restate its certificate of incorporation
(the "Post-Closing Atlas Certificate of Incorporation"), pursuant to which,
among other things, Atlas will have a dual class share structure with (A) shares
of Class A common stock that will carry voting rights in the form of one vote
per share (the "New Class A Common Stock"), and (B) shares of Class B common
stock that will carry voting rights in the form of ten votes per share (the "New
Class B Common Stock" and, together with the New Class A Common Stock, the "New
Atlas Common Stock"), and (ii) Artemis Merger Sub will merge with and into
Archer, with Archer as the surviving company in the merger and, after giving
effect to such merger, continuing as a wholly-owned subsidiary of Atlas (the
"Merger").
The Merger and the other transactions contemplated by the Business Combination
Agreement are hereinafter referred to as the "Business Combination".
Business Combination Consideration
In accordance with the terms and subject to the conditions of the Business
Combination Agreement, at the effective time of the Merger, (i) outstanding
shares of common stock and preferred stock of Archer will be converted into a
right to receive a number of shares of New Class B Common Stock determined on
the basis of an implied Archer equity value of $1,480,000,000 (the "Implied
Equity Value"), (ii) all stock awards (whether vested or unvested) to purchase
Archer common stock will be converted into stock awards to purchase a number of
shares of New Class B Common Stock based on an exchange ratio derived from the
Implied Equity Value, and (iii) outstanding warrants (whether vested or
unvested) to purchase Archer common stock will be converted into warrants to
purchase a number of shares of New Archer Class A Shares or New Class B Common
Stock, as applicable, determined on the basis of the Implied Equity Value. The
former Archer equity holders will have the right to convert their shares of New
Class B Common Stock into shares of New Class A Common Stock pursuant to the
Post-Closing Atlas Certificate of Incorporation.
Representations and Warranties; Covenants
The Business Combination Agreement contains representations, warranties and
covenants of each of the parties thereto that are customary for transactions of
this type. Atlas has also agreed to take all action within its power as may be
necessary or appropriate such that, effective immediately after the Closing, the
Atlas board of directors will be divided into three classes and be composed of a
total of seven directors, which directors shall include an individual designated
by Atlas, three individuals designated by Archer and three individuals to be
identified by Archer in consultation with Atlas who qualify as "independent
directors" under the listing rules of the New York Stock Exchange.
Conditions to Each Party's Obligations
The obligations of Atlas and Archer to consummate the Business Combination are
subject to certain closing conditions, including, but not limited to, (i) the
expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the
absence of any law or governmental order or other legal restraint or prohibition
preventing the consummation of the Business Combination, (iii) the Registration
Statement (as defined below) being declared effective under the Securities Act
of 1933, as amended (the "Securities Act"), (iv) the shares of New Class A
Common Stock to be issued in connection with the Business Combination having
been approved for listing on the New York Stock Exchange, (v) the approval of
Atlas' stockholders, (vi) the approval of Archer's stockholders and (vii) Atlas
having at least $5,000,001 of net tangible assets (as determined in accordance
with Rule 3a51-1(g)(1) of the Securities Exchange Act of 1934, as amended)
remaining after the Closing.
In addition, the obligation of Archer to consummate the Business Combination is
subject to, among other conditions, the aggregate cash proceeds from Atlas'
trust account, together with the proceeds from the PIPE Financing (as defined
below), equaling no less than $600,000,000 (after deducting any amounts paid to
Atlas shareholders that exercise their redemption rights in connection with the
Business Combination).
22
Table of Contents
On March 30, 2021, one of Archer's employees, who is a former employee of Wisk
Aero LLC ("Wisk"), had a search warrant executed at his home in connection with
a federal investigation into the employee. In addition, Archer and three of
Archer's employees, who are also former Wisk employees, received grand jury
subpoenas from the United States Attorney's Office for the Northern District of
California in relation to the same investigation. Archer has informed Atlas that
it is cooperating with the investigation of the employee. As of August 16, 2021,
the investigation was ongoing. On April 6, 2021, Wisk brought a lawsuit against
Archer in United States District Court in the Northern District of California
(the "Court'') alleging misappropriation of trade secrets and patent
infringement. On May 19, 2021, Wisk filed a motion for preliminary injunction
and expedited discovery. On June 1, 2021, Archer filed a motion to dismiss and
counterclaims and issued a press release in response to Wisk's allegations. On
June 15, 2021, Wisk amended its complaint, and the following day Archer filed a
motion to dismiss the amended complaint. On June 23, 2021, Archer filed an
opposition to the motion for preliminary injunction and issued a press release
the following day. On July 22, 2021, the Court denied Wisk's motion for a
preliminary injunction. On July 27, 2021, Wisk filed a motion to dismiss
Archer's counterclaims and strike Archer's affirmative defenses. On August 11,
2021 there was a hearing to address Archer's motions to dismiss Wisk's complaint
and strike Wisk's trade secret disclosure, as well as to address Wisk's request
for an expedited trial schedule. The Judge has tentatively denied Archer's
motion to dismiss Wisk's complaint and strike Wisk's trade secret disclosure.
The final order is expected to be issued shortly. The Court tentatively set
trial for November 28, 2021. Archer cannot predict the timing or outcome of the
litigation or federal government investigation. See "Item 1A of this Report -
Risk Factors - Risks Related to Archer's Business and Industry and New Archer
Following the Business Combination - Archer has been named in civil litigation
alleging misappropriation by Archer of a competitor's trade secrets and
infringement by Archer of certain of the competitor's patents. Additionally, one
of Archer's employees was the subject of a search warrant relating to a federal
government investigation, and Archer as well as three of Archer's employees have
been served with grand jury subpoenas in connection with such investigation.
These civil and criminal proceedings and similar allegations or legal actions in
the future may be time-consuming and expensive and, if adversely determined,
could delay, limit or prevent Archer's ability to commercialize its aircraft or
otherwise execute on its business plan."
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities for the period from August 26, 2020 (inception) through June
30, 2021 were organizational activities, those necessary to prepare for our
initial public offering (the "Initial Public Offering"), described below, and,
after the Initial Public Offering, identifying a target company for a business
combination. We do not expect to generate any operating revenues until after the
completion of our initial business combination. We generate non-operating income
in the form of interest and dividend income or gains on investments on the cash
and investments held in a trust account from the proceeds derived from the
Initial Public Offering. We incur expenses as a result of being a public company
(for legal, financial reporting, accounting and auditing compliance), as well as
for due diligence expenses.
For the three months ended June 30, 2021, we had net income of $3,252,607, which
resulted from a gain on the change in fair value of warrant liabilities of
$7,053,334, interest and dividend income on investments held in the trust
account of $8,633, and an unrealized gain on investments held in the trust
account of $5,002, offset in part by operating costs of $3,764,636 and franchise
tax expense of $49,726.
For the six months ended June 30, 2021, we had net income of $833,801, which
resulted from a gain on the change in fair value of warrant liabilities of
$9,280,003, an unrealized gain on marketable securities held in the trust
account in the amount of $135,027, and interest and dividend income on
investments held in the trust account of $8,633, offset in part by operating
costs of $8,489,653 and franchise tax expense of $100,209.
Liquidity and Capital Resources
As of June 30, 2021, we had $297,376 in cash held outside of the trust account
and a working capital deficit of $7,308,241. We have incurred and expect to
continue to incur significant costs in pursuit of our acquisition plans. These
conditions raise substantial doubt about our ability to continue as a going
concern for a period of time within one year after the date that the financial
statements are issued. We plan to address this uncertainty through a business
combination as discussed above. There is no assurance that our plans to
consummate the business combination will be successful.
In addition, in order to finance transaction costs in connection with a business
combination, our Sponsor or an affiliate of our Sponsor, or certain of our
officers and directors may, but are not obligated to, loan us funds as may be
required ("Working Capital Loans"). As of June 30, 2021, there were no amounts
outstanding under any Working Capital Loan.
23
Table of Contents
For the six months ended June 30, 2021, net cash used in operating activities
was $1,027,773, which was due to a gain on the change in fair value of warrant
liabilities of $9,280,003, unrealized gains on investments in the trust account
of $135,027, and interest and dividend income on investments held in the trust
account of $8,633, offset in part by changes in working capital of $7,562,089,
and our net income of $833,801.
For the six months ended June 30, 2021, net cash provided by investing
activities of $99,226 was the result of cash withdrawn from trust account to pay
taxes.
For the six months ended June 30, 2021, net cash provided by financing
activities of $300,000 was the result of proceeds from the issuance of the
promissory note with our Sponsor.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2021 and
December 31, 2021.
Contractual Obligations
Registration Rights
The holders of the founder shares, private placement warrants and any warrants
that may be issued upon conversion of the Working Capital Loans (and any shares
of Class A common stock issuable upon the exercise of the private placement
warrants and warrants that may be issued upon conversion of Working Capital
Loans and upon conversion of the founder shares) are entitled to registration
rights pursuant to a registration rights agreement signed on the effective date
of the Initial Public Offering, requiring the Company to register such
securities for resale (in the case of the founder shares, only after conversion
to Class A common stock). The holders of these securities are entitled to make
up to three demands, excluding short form demands, that we register such
securities. In addition, the holders have certain "piggy-back" registration
rights with respect to registration statements filed subsequent to the
completion of a business combination. The registration rights agreement does not
contain liquidating damages or other cash settlement provisions resulting from
delays in registering our securities. We will bear the expenses incurred in
connection with the filing of any such registration statements.
Business Combination Marketing Agreement
We engaged the representative of the underwriters and Moelis & Company LLC, an
affiliate of our Sponsor, in connection with a business combination to assist us
in holding meetings with our stockholders to discuss the potential business
combination and the target business' attributes, introduce us to potential
investors that are interested in purchasing our securities in connection with a
business combination, assist us in obtaining stockholder approval for the
business combination and assist us with press releases and public filings in
connection with the business combination. We will pay the representative of the
underwriters and Moelis & Company LLC a fee for such services upon the
consummation of the business combination of 2.25% ($11,250,000) and 1.25%
($6,250,000), respectively, or 3.5% ($17,500,000), in the aggregate, of the
gross proceeds of the initial public offering. A portion of such fee may be
re-allocated or paid to members of FINRA that assist us in consummating our
business combination.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Common stock subject to possible redemption
The Company accounts for its common stock subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480, Distinguishing Liabilities from Equity. Common stock subject to mandatory
redemption is classified as a liability instrument and is measured at fair
value. Conditionally redeemable common stock (including common stock that
features
24
Table of Contents
redemption rights that are either within the control of the holder or subject to
redemption upon the occurrence of uncertain events not solely within the
Company's control) is classified as temporary equity. At all other times, common
stock is classified as stockholders' equity. The Company's common stock features
certain redemption rights that are considered to be outside of the Company's
control and subject to occurrence of uncertain future events. As of June 30,
2021 and December 31, 2020, 50,000,000 and 44,885,287 shares of Class A common
stock subject to possible redemption are presented at redemption value as
temporary equity, outside of the stockholders' equity section of the Company's
condensed balance sheet, respectively.
Warrant Liabilities
The Company accounts for warrants as either equity-classified or
liability-classified instruments based on an assessment of the warrant's
specific terms and applicable authoritative guidance in ASC 480, Distinguishing
Liabilities from Equity ("ASC 480") and ASC 815, Derivatives and Hedging ("ASC
815"). The assessment considers whether the warrants are freestanding financial
instruments pursuant to ASC 480, meet the definition of a liability pursuant to
ASC 480, and whether the warrants meet all of the requirements for equity
classification under ASC 815, including whether the warrants are indexed to the
Company's own common stock, among other conditions for equity classification.
This assessment, which requires the use of professional judgment, is conducted
at the time of warrant issuance and as of each subsequent quarterly period end
date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity
classification, the warrants are required to be recorded as a component of
additional paid-in capital at the time of issuance. For issued or modified
warrants that do not meet all the criteria for equity classification, the
warrants are required to be recorded at their initial fair value on the date of
issuance, and each balance sheet date thereafter. Changes in the estimated fair
value of the warrants are recognized as a non-cash gain or loss on the
statements of operations. The initial fair value of the public warrants was
estimated using a Monte Carlo simulation approach and the fair value of the
private placement warrants was estimated using a Modified Black-Scholes model.
Net Income Per Share of Common Stock
Net income per common share is computed by dividing net income by the
weighted-average number of shares of common stock outstanding during the period.
The Company has not considered the effect of the warrants sold in the Initial
Public Offering and Private Placement to purchase an aggregate of 24,666,667
shares in the calculation of diluted income per share, since the warrants are
contingently exercisable, and the contingencies have not yet been met.
The Company's statement of operations includes a presentation of income per
share for common shares subject to possible redemption and applies the two-class
method in calculating income per share. Net earnings per common share, basic and
diluted, for Class A redeemable common stock is calculated by dividing the
allocable unrealized gain on investments held in the trust account and interest
and dividend income on investments held in the trust account, net of applicable
franchise and income taxes, by the weighted average number of Class A common
stock subject to possible redemption outstanding for the period. Net income per
share, basic and diluted, for Class B non-redeemable common stock is calculated
by dividing the net income, adjusted for income attributable to Class A
redeemable common stock, by the weighted average number of Class B
non-redeemable common stock outstanding for the period. Class B non-redeemable
common stock includes the founder shares as these shares do not have any
redemption features and do not participate in the income earned on the trust
account.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06") to simplify accounting for
certain financial instruments. ASU 2020-06 eliminates the current models that
require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is effective January 1, 2022 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on January
1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06
would have on its financial position, results of operations or cash flows.
25
Table of Contents
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on the Company's financial statements.
© Edgar Online, source Glimpses