References in this report (the "Quarterly Report") to "we," "us" or the "Company" refer to Athlon Acquisition Corp. References to our "management" or our "management team" refer to our officers and directors, and references to the "Sponsor" refer to AAC HoldCo, LLC. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the 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 includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 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, without limitation, statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the completion of the Proposed Business Combination (as defined below), the Company's financial position, business strategy and the plans and objectives of management for future operations and the Company's plans to dissolve, liquidate and redeem the Public Shares, including the estimated per-share redemption price, are forward-looking statements. Words such as "expect," "believe," "anticipate," "intend," "estimate," "seek" and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management's current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements, including that the conditions of the Proposed Business Combination are not satisfied. 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 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the "SEC"). 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 formed under the laws of the State of Delaware on October 6, 2020 for the purpose of effecting the merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the "Business Combination").

As of the date of the filing of this Quarterly Report, the Company has determined that it will not complete a Business Combination within the Combination Period. In accordance with the provisions of its Certificate of Incorporation, the Company plans to (i) cease all operations on December 1, 2022, except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to the Company to pay taxes (less $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Stockholders' rights as stockholders of the Company (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company's remaining stockholders and the Company's board of directors, dissolve and liquidate, subject in each case to the Company's obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Based on the Company's estimate of its tax liabilities to be paid from interest earned on the funds held in the Trust Account, the Company expects that the per-share redemption price for the Public Shares will be approximately $10.06. There will be no redemption rights or liquidating distributions with respect to the Company's warrants, which will expire worthless.

Results of Operations

We have neither engaged in any operations nor generated any revenues to date. Our only activities through September 30, 2022 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and identifying a target company for a Business Combination. We do not expect to generate any operating revenues. We generate non-operating income in the form of interest income on investments held in the Trust Account. 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 September 30, 2022, we had net income of $2,662,361, which consisted of the change in fair value of warrant liabilities of $1,705,600 and interest earned on investments held in Trust Account of $1,479,038, partially offset by formation and operating expenses of $239,914.

For the nine months ended September 30, 2022, we had a net income of $12,577,248, which consisted of changes in fair value of warrant liabilities of $11,937,068 and interest earned on investments held in Trust Account of $1,652,489, partially offset by formation and operating expenses of $729,946.

For the three months ended September 30, 2021, we had a net income of $1,078,911, which consisted of the changes in fair value of warrant liabilities of $1,279,200 and interest earned on marketable securities held in Trust Account of $4,957, offset by formation and operational costs of $205,246.

For the nine months ended September 30, 2021, we had net loss of $108,487, which consisted of formation and operational costs of $1,022,678 and transaction costs incurred in connection with warrant liabilities of $611,630, offset by the changes in fair value of the warrant liabilities of $1,492,400 and interest earned on marketable securities held in Trust Account of $33,421.


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Liquidity and Capital Resources

On January 14, 2021, the Company consummated the Initial Public Offering of 27,600,000 Units, which includes the full exercise by the underwriter of its over-allotment option in the amount of 3,600,000 Units, at $10.00 per Unit, generating gross proceeds of $276,000,000 which is described in Note 3. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 7,520,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant in a private placement with the Sponsor, generating gross proceeds of $7,520,000, which is described in Note 4.

Following the Initial Public Offering, the full exercise of the over-allotment option, and the sale of the Private Units, a total of $276,000,000 was placed in the Trust Account. We incurred related costs of $15,649,762, consisting of $5,520,000 in cash underwriting fees, $9,660,000 of deferred underwriting fees and $469,762 of other offering costs relating to the Initial Public Offering.

For the nine months ended September 30, 2022, cash used in operating activities was $650,441. Net income of $12,577,248 was affected by changes in fair value of warrant liabilities of $11,937,068 and interest earned on investments held in Trust Account of $1,652,489. Net changes in operating assets and liabilities provided $361,868 of cash for operating activities.

For the nine months ended September 30, 2021, cash used in operating activities was $833,314. Net loss of $108,487 was affected by the change in fair value of the warrant liability of $1,492,400, transaction costs associated with the Initial Public Offering of $611,630, and interest earned on marketable securities held in Trust Account of $33,421. Net changes in operating assets and liabilities provided $189,364 of cash for operating activities.

As of September 30, 2022, we had investments held in the Trust Account of $277,371,747 (including $1,371,747 of interest available to pay the Company's tax obligations). Interest income on the balance in the Trust Account may be used by us to pay taxes. Through September 30, 2022, we have withdrawn $320,000 in interest earned from the Trust Account to pay taxes.

As of September 30, 2022, we had $335,681 of cash held outside of the Trust Account. The Company has used the funds held outside the Trust Account, for expenses incurred as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as identifying and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, and structuring, negotiating and consummating the Business Combination. We may withdraw interest to pay taxes.

In connection with the Company's assessment of going concern considerations in accordance with Financial Accounting Standard Board's Accounting Standards Update ("ASU") 2014-15, "Disclosures of Uncertainties about an Entity's Ability to Continue as a Going Concern," the Company is required to dissolve and liquidate if a Business Combination is not completed within 24 months from the closing of the Company's Initial Public Offering (the "Combination Period"). The Company has determined that a Business Combination will not be consummated within the Combination Period, so there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the liquidity condition and mandatory liquidation and subsequent dissolution of the Company raises substantial doubt about the Company's ability to continue as a going concern. These unaudited condensed interim financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary as a result of the Company's substantial doubt to continue as a going concern.

Off-Balance Sheet Arrangements

We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2022. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

Contractual obligations

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of one of our executive officers a monthly fee of $5,000 for office space, utilities and secretarial and administrative services. We began incurring these fees on January 11, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.

The underwriters are entitled to a deferred fee of $0.35 per Unit, or $9,660,000 in the aggregate. The deferred fee will become payable to the underwriters solely in the event that the Company completes a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement.

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:


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Warrant Liabilities

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815. We account for the Warrants in accordance with the guidance contained in ASC 815-40 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statements of operations.

Class A Common Stock Subject to Possible Redemption

We account for our Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification ("ASC") Topic 480 "Distinguishing Liabilities from Equity." Shares of Class A 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 feature redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders' equity. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, shares of Class A common stock subject to possible redemption are presented as temporary equity, outside of the stockholders' deficit section of our balance sheets.

Net Income (loss) Per Common Share

The Company has two classes of shares, which are referred to as Class A common stock and Class B common stock. Income is shared pro rata between the two classes of shares. Net income (loss) per common stock is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value.

Recent Accounting Standards

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements.

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