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Item 1. Financial Statements

2021-11-12 compared with 2021-08-16 · 810 added, 433 removed, 44 unchanged (97% of the section changed)

Financial Statements

ATLAS CREST INVESTMENT CORP.

CONDENSED BALANCE SHEETS

June 30, 2021

Archer Aviation Inc.

Consolidated Condensed Balance Sheets

(In millions, except share and per share data;

September 30,

2021 December 31,

Current assets

Cash and cash equivalents $ 796.2 $ 36.6

Prepaid expenses 1.1 0.8

Other current assets 0.4 —

Total current assets 797.7 37.4

Investments held in Trust Account

Prepaid insurance - non-current

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

Property and equipment, net 4.3 1.6

Intangible assets, net 0.5 0.5

Right-of-use asset 2.7 2.3

Other long-term assets 0.5 —

Total assets $ 805.7 $ 41.8

Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable $ 19.4 $ 2.1

Accrued expenses

Franchise tax payable

Promissory note - related party

Lease liability 1.7 0.8

Notes payable 7.0 0.6

Other current liabilities 1.6 0.3

Total current liabilities 29.7 3.8

Notes payable, net of current portion 11.7 0.3

Lease liability, net of current portion 1.0 1.5

Warrant liabilities 40.9 —

Other long-term liabilities 0.5 0.3

Total liabilities 83.8 5.9

Commitments and Contingencies

Class A common stock, $ 0.0001 par value, subject to possible redemption;

50,000,000 and 44,885,287 shares at redemption value at June 30, 2021 and December 31, 2020, respectively

Stockholders’ (Deficit) Equity:

Commitments and contingencies (Note 8)

Stockholders’ equity

Preferred stock, $ 0.0001 par value;

10,000,000 shares authorized;

none issued and outstanding at June 30,2021 and December 31,2020

no shares issued and outstanding as of September 30, 2021 and December 31, 2020

Class A common stock, $ 0.0001 par value;

700,000,000 shares authorized;

50,000,000 shares issued;

none and 5,114,713 shares outstanding at June 30, 2021 and December 31, 2020, respectively (excluding 50,000,000 and 44,885,287 shares subject to possible redemption) at June 30, 2021 and December 31, 2020, respectively

157,013,725 shares issued and outstanding as of September 30, 2021 and 49,828,517 shares issued and outstanding as of December 31, 2020, respectively

Class B common stock, $ 0.0001 par value;

300,000,000 shares authorized;

12,500,000 shares issued and outstanding at June 30, 2021 and December 31, 2020

79,876,025 shares issued and outstanding as of September 30, 2021 and 66,714,287 shares issued and outstanding as of December 31, 2020, respectively

Additional paid-in capital 1,052.2 61.7

Accumulated deficit ( 330.3 ) ( 25.8 )

( 45,481,339 )

Total stockholders’ equity 721.9 35.9

Total liabilities and stockholders’ equity

$ 805.7 $ 41.8

Total Stockholders' (Deficit) Equity

See accompanying notes to consolidated condensed financial statements.

T a b l e o f Contents

Archer Aviation Inc.

Consolidated Condensed Statements of Operations and Comprehensive Loss

(In millions, except share and per share data;

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Total Liabilities and Stockholders' (Deficit) Equity

The accompanying notes are an integral part of these financial statements.

ATLAS CREST INVESTMENT CORP.

CONDENSED STATEMENT OF OPERATIONS

Three Months Ended

Six Months Ended

Operating costs

Franchise tax expense

Operating expenses

Research and development $ 23.1 $ 6.7 $ 44.6 $ 13.6

General and administrative 114.1 0.6 143.1 2.3

Other warrant expense 39.1 — 117.3 —

Total operating expenses 176.3 7.3 305.0 15.9

Loss from operations ( 176.3 ) ( 7.3 ) ( 305.0 ) ( 15.9 )

( 3,814,362 )

( 8,589,862 )

Unrealized gain on investments held in Trust Account

Interest and dividend income on investments held in Trust Account

Change in fair value of warrant liabilities

Basic and diluted weighted average shares outstanding, Redeemable Class A Common Stock

Basic and diluted net earnings per share, Redeemable Class A Common Stock

Basic and diluted weighted average shares outstanding, Non-Redeemable Class B Common Stock

Basic and diluted net income per share, Non-Redeemable Class B Common Stock

The accompanying notes are an integral part of these financial statements.

ATLAS CREST INVESTMENT CORP.

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

Stockholders’

Balance — December 31, 2020

( 10,850,513 )

Measurement adjustment on redeemable common stock

( 5,114,713 )

( 15,825,008 )

( 35,478,970 )

( 51,304,489 )

( 2,418,806 )

Balance — March 31, 2021

( 48,748,289 )

( 48,723,289 )

Measurement adjustment on redeemable common stock

Balance - June 30, 2021

( 45,481,339 )

( 45,456,339 )

The accompanying notes are an integral part of these financial statements.

ATLAS CREST INVESTMENT CORP.

CONDENSED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED June 30, 2021

Gain on forgiveness of PPP loan — — 0.9 —

Other income 0.1 — 0.1 —

Interest expense ( 0.5 ) — ( 0.5 ) ( 0.2 )

Loss before income taxes ( 176.7 ) ( 7.3 ) ( 304.5 ) ( 16.1 )

Net loss and comprehensive loss $ ( 176.7 ) $ ( 7.3 ) $ ( 304.5 ) $ ( 16.1 )

Net loss per share, basic and diluted $ ( 2.00 ) $ ( 0.14 ) $ ( 4.50 ) $ ( 0.32 )

Weighted-average shares outstanding, basic and diluted 88,443,192 50,486,449 67,693,754 50,381,374

See accompanying notes to consolidated condensed financial statements.

T a b l e o f Contents

Archer Aviation Inc.

Consolidated Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

(In millions, except share data;

Redeemable Convertible Preferred Stock Common Stock

Series Seed Series A Common Stock Class A Class B Additional

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Balance as of December 31, 2020 — $ — — $ — — $ — 49,828,517 $ — 66,714,287 $ — $ 61.7 $ ( 25.8 ) $ 35.9

Exercise of stock options — — — — — — 147,319 — 525,044 — — — —

Issuance of warrants — — — — — — — — — — 78.2 — 78.2

Stock-based compensation — — — — — — — — — — 0.9 — 0.9

Net loss — — — — — — — — — — — ( 94.9 ) ( 94.9 )

Balance as of March 31, 2021 — — — — — — 49,975,836 — 67,239,331 — 140.8 ( 120.7 ) 20.1

Exercise of stock options — — — — — — 147,318 — 94,005 — — — —

Stock-based compensation — — — — — — — — — — 1.0 — 1.0

Net loss — — — — — — — — — — — ( 32.9 ) ( 32.9 )

Balance as of June 30, 2021 — — — — — — 50,123,154 — 67,333,336 — 141.8 ( 153.6 ) ( 11.8 )

Issuance of restricted stock — — — — — — — — 10,004,612 — 101.7 — 101.7

Exercise of stock options — — — — — — 147,320 — 2,538,077 — 0.4 — 0.4

Issuance of warrants — — — — — — — — — — 44.8 — 44.8

Exercise of warrants — — — — — — 8,845,058 — — — 0.1 — 0.1

Stock-based compensation — — — — — — — — — — 1.1 — 1.1

Issuance of Class A common stock pursuant to the Business Combination Agreement — — — — — — 36,385,693 — — — 162.3 — 162.3

PIPE financing — — — — — — 61,512,500 — — — 600.0 — 600.0

Net loss — — — — — — — — — — — ( 176.7 ) ( 176.7 )

Balance as of September 30, 2021 — $ — — $ — — $ — 157,013,725 $ — 79,876,025 $ — $ 1,052.2 $ ( 330.3 ) $ 721.9

Redeemable Convertible Preferred Stock Common Stock

Series Seed Series A Common Stock Class A Class B Additional

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Balance as of December 31, 2019 (as previously reported) 18,193,515 $ 5.9 — $ — 50,000,000 $ — — $ — — $ — $ — $ ( 1.0 ) $ ( 1.0 )

Retroactive application of recapitalization ( 18,193,515 ) ( 5.9 ) — — ( 50,000,000 ) — 15,250,985 — 53,390,228 — 5.9 — 5.9

Balance as of December 31, 2019 (as adjusted) — — — — — — 15,250,985 — 53,390,228 — 5.9 ( 1.0 ) 4.9

Net loss — — — — — — — — — — — ( 4.0 ) ( 4.0 )

Balance as of March 31, 2020 — — — — — — 15,250,985 — 53,390,228 — 5.9 ( 5.0 ) 0.9

Issuance of restricted stock — — — — — — 1,141,444 — — — — — —

Net loss — — — — — — — — — — — ( 4.9 ) ( 4.9 )

Balance as of June 30, 2020 — — — — — — 16,392,429 — 53,390,228 — 5.9 ( 9.9 ) ( 4.0 )

Issuance of preferred stock — — — — — — 30,596,077 — 7,728,342 — 45.7 — 45.7

Conversion of notes and accrued interest to preferred stock — — — — — — 2,651,027 — 1,772,846 — 5.3 — 5.3

Net loss — — — — — — — — — — — ( 7.3 ) ( 7.3 )

Balance as of September 30, 2020 — $ — — $ — — $ — 49,639,533 $ — 62,891,416 $ — $ 56.9 $ ( 17.2 ) $ 39.7

See accompanying notes to consolidated condensed financial statements.

T a b l e o f Contents

Archer Aviation Inc.

Consolidated Condensed Statements of Cash Flows

(In millions;

Nine Months Ended September 30,

Cash flows from operating activities

Adjustments to reconcile net income to net cash used in operating activities:

Unrealized gain on investments held in Trust Account

Interest and dividend income on investments held in Trust Account

Change in fair value of warrant liabilities

( 9,280,003 )

Net loss $ ( 304.5 ) $ ( 16.1 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 0.8 0.1

Debt discount amortization 0.1 —

Stock-based compensation 104.7 —

Change in fair value of warrant liability 0.1 —

Non-cash interest — 0.3

Non-cash lease expense 1.0 —

Research and development warrant expense 5.7 —

Other warrant expense 117.3 —

Gain on forgiveness of PPP loan ( 0.9 ) —

Changes in operating assets and liabilities:

Prepaid expenses ( 0.3 ) ( 0.9 )

Other current assets ( 0.4 ) —

Other long-term assets ( 0.5 ) —

Accounts payable 16.9 1.4

Accrued expenses

Franchise tax payable

Other current liabilities 1.5 —

Operating lease liability ( 1.0 ) —

Net cash used in operating activities ( 59.5 ) ( 15.2 )

( 1,027,773 )

Cash flows from investing activities

Cash withdrawn from Trust Account to pay taxes

Net cash provided by investing activities

Purchase of property and equipment ( 3.0 ) ( 0.4 )

Net cash used in investing activities ( 3.0 ) ( 0.4 )

Cash flows from financing activities

Proceeds from issuance of promissory note

Proceeds from issuance of debt 20.0 0.9

Proceeds from PIPE financing 600.0 —

Recapitalization transaction 257.6 —

Recapitalization transaction costs ( 55.8 ) —

Proceeds from exercise of stock options 0.4 —

Proceeds from exercise of stock warrants 0.1 —

Proceeds from issuance of preferred stock, net — 45.7

Payment of debt issuance costs ( 0.2 ) —

Net cash provided by financing activities 822.1 46.6

Net change in cash

Cash — beginning of period

Cash — end of period

Supplemental disclosure of noncash investing and financing activities:

Change in value of Class A common stock subject to possible redemption

The accompanying notes are an integral part of these financial statements.

ATLAS CREST INVESTMENT CORP.

NOTES TO C ONDENSED FINANCIAL STATEMENTS

June 30, 2021

DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

Atlas Crest Investment Corp.

(the “Company” or “Atlas”) is a blank check company incorporated in Delaware on August 26, 2020.

The Company was formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses (the “Business Combination”).

The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.

As of June 30, 2021, the Company had not commenced any operations.

All activity through June 30, 2021 relates to the Company's formation, the initial public offering (“Initial Public Offering”) as described below, and since the closing of the Initial Public Offering, the search for a prospective initial Business Combination.

The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest.

The Company will generate non-operating income in the form of interest income or gains on investments on the cash and investments held in a trust account from the proceeds derived from the Initial Public Offering.

The registration statement for the Company’s Initial Public Offering was declared effective on October 27, 2020.

On October 30, 2020, the Company consummated the Initial Public Offering of 50,000,000 units (the “Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”), at $ 10.00 per Unit, generating gross proceeds of $ 500,000,000 , which is discussed in Note 3.

Following the closing of the Initial Public Offering on October 30, 2020, an amount of $ 500,000,000 ($ 10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Warrants (as defined in Note 4) was placed in a trust account (the “Trust Account”), invested in U.S.

government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with maturities of 185 days or less, or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of:

(i) the consummation of a Business Combination or (ii) the distribution of the funds in the Trust Account to the Company’s stockholders, as described below.

Transaction costs related to the issuances described above amounted to $ 10,534,144 , consisting of $ 10,000,000 of underwriting fees and $ 534,144 of other costs.

In addition, at June 30, 2021, $ 297,376 of cash was held outside of the Trust Account and is available for working capital purposes.

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination.

New York Stock Exchange rules provide that the Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80 % of the balance in the Trust Account (excluding taxes payable on income earned on the Trust Account) at the time of the signing of a definitive agreement to enter a Business Combination.

The Company will only complete a Business Combination if the post-transaction company owns or acquires 50 % or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940.

There is no assurance that the Company will be able to successfully effect a Business Combination.

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

The Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer.

The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion.

The public stockholders are entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $ 10.00 per Public Share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations).

There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.

The Public Shares subject to redemption are recorded at redemption value and classified as temporary equity in accordance with the Financial Accounting Standards Board's Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity .

The Company will proceed with the Business Combination only if the Company has net tangible assets of at least $ 5,000,001 either prior to or upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination.

If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other reasons, the Company will, pursuant to its amended and restated Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the U.S.

Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination.

If, however, stockholder approval of the Business Combination is required by law, or the Company decides to obtain stockholder approval for business or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules.

If the Company seeks stockholder approval in connection with a Business Combination, Atlas Crest Investment LLC (the “Sponsor”) has agreed to vote its Founder Shares (as defined in Note 6) and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination.

Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed Business Combination or do not vote at all.

Notwithstanding the above, if the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the amended and restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 15 % or more of the Public Shares, without the prior consent of the Company.

The Sponsor has agreed (a) to waive its redemption rights with respect to its Founder Shares and Public Shares held by it in connection with the completion of a Business Combination, (b) to waive its liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within 24 months from the closing of the Initial Public Offering and (c) not to propose an amendment to the amended and restated Certificate of Incorporation (i) to modify the substance or timing of the Company’s obligation to allow redemption in connection with the Company’s initial Business Combination or to redeem 100 % of its Public Shares if the Company does not complete a Business Combination or (ii) with respect to any other provision relating to stockholders’ rights or pre-initial business combination activity, unless the Company provides the public stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment.

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

The Company will have until 24 months from the closing of the Initial Public Offering to complete a Business Combination (the “Combination Period”).

If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations 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 its tax obligations (less up to $ 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 (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.

There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.

In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below (1) $ 10.00 per Public Share or (2) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay our taxes.

This liability will not apply with respect to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”).

Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims.

The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except the Company’s independent registered public accounting firm), prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.

Business Combination Agreement

On February 10, 2021, the Company 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 the Company, 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 the Company and Archer.

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”.

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

The Business Combination is subject to customary closing conditions, including, without limitation, the required approval by Atlas’ stockholders.

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.

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.

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).

The Business Combination will be accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP.

Under this method of accounting, Atlas will be treated as the “accounting acquiree” and Archer as the “accounting acquirer” for financial reporting purposes.

PIPE Financing (Private Placement)

Concurrently with the execution of the Business Combination Agreement, the Company entered into subscription agreements (the “Subscription Agreements”) with certain investors.

Pursuant to the Subscription Agreements, each investor agreed to subscribe for and purchase, and the Company agreed to issue and sell to such investors, on the Closing Date (as defined in the Business Combination Agreement) substantially concurrently with the Closing (as defined in the Business Combination Agreement), an aggregate of 60,000,000 shares of the Company’s Class A Common Stock for a purchase price of $ 10.00 per share, for aggregate gross proceeds of $ 600 million (the “PIPE Financing”).

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

The closing of the PIPE Financing is contingent upon, among other things, the substantially concurrent consummation of the Business Combination.

The Subscription Agreements provide that Atlas will grant the investors in the PIPE Financing certain customary registration rights.

Going Concern Consideration

As of June 30, 2021, the Company had $ 297,376 in cash held outside of the Trust Account and a working capital deficit of $ 7,308,241 .

The Company has incurred and expects to continue to incur significant costs in pursuit of its acquisition plans.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of time within one year after the date that the financial statements are issued.

Management plans to address this uncertainty through the Business Combination as discussed above.

There is no assurance that the Company’s plans to consummate the Business Combination will be successful or successful within the Combination Period.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Risks and Uncertainties

Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations, and/or search for a target company, the specific impact is not readily determinable as of the date of these financial statements.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Net increase in cash and cash equivalents 759.6 31.0

Cash and cash equivalents, beginning of period 36.6 10.1

Cash and cash equivalents, end of period $ 796.2 $ 41.1

Supplemental Cash Flow Information:

Cash paid for interest $ 0.3 $ —

Non-cash investing and financing activities:

Purchases of property and equipment included in accounts payable 0.4 0.1

Promissory notes and interest settled with preferred shares — 5.3

Allocation of debt proceeds to stock warrants 1.2 —

Conversion of convertible preferred stock to common stock in connection with the reverse recapitalization 61.5 —

PIPE financing issuance costs settled with the issuance of Class A common stock 7.0 —

Recapitalization transaction costs settled with the issuance of Class A common stock 8.1 —

See accompanying notes to consolidated condensed financial statements.

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Note 1 - Organization and Nature of Business

Organization and Nature of Business

Archer Aviation Inc.

(the “Company” “we,” “us” or “our”), a Delaware corporation, with our headquarters located in Palo Alto, California, is an aerospace company.

The Company is a former blank check company incorporated on August 26, 2020 under the name Atlas Crest Investment Corp.

(“Atlas”) as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

Our mission is to advance the benefits of sustainable air mobility.

Our goal is to move people throughout the world's cities in a quick, safe, sustainable, and cost-effective manner.

To accomplish this goal, we are designing and developing an electric vertical takeoff and landing (“eVTOL”) aircraft for use in future urban air mobility (“UAM”) networks.

Business Combination

On September 16, 2021 (the “Closing Date”), Archer Aviation, Inc., a Delaware corporation (prior to the closing of the Business Combination, “Legacy Archer”), Atlas, and Artemis Acquisition Sub Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Atlas (“Merger Sub”), consummated the closing of the transactions contemplated by the Business Combination Agreement, dated February 10, 2021, as amended and restated on July 29, 2021, by and among Atlas, Legacy Archer and Merger Sub (the “Business Combination Agreement”), following approval at a special meeting of the stockholders of Atlas held on September 14, 2021 (the “Special Meeting”).

Unless otherwise specified or unless the context otherwise requires, references in these notes to Legacy Archer refers to Archer prior to the Business Combination and references in these notes 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 of Merger Sub with and into Legacy Archer, with Legacy Archer surviving the merger (the “Surviving Entity”) as a wholly-owned subsidiary of Atlas (the “Merger,” and, collectively with the other transactions described in the Business Combination Agreement, the “Business Combination”).

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 U.S.

Securities and Exchange Commission (“SEC”).

Prior to the closing of the Business Combination, the Class A common stock and public warrants of Atlas were listed on the New York Stock Exchange (“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.

Additionally, certain investors had agreed to subscribe for and purchase an aggregate of up to $ 600.0 million of common stock of the combined company (“PIPE Financing”).

The PIPE Financing was consummated substantially concurrent with the closing of the Merger.

The Business Combination generated gross cash proceeds of $ 857.6 million, including $ 600.0 million proceeds from the PIPE Financing.

Total direct and incremental transaction costs aggregated $ 81.8 million, of which $ 10.9 million were expensed as part of the Business Combination, $ 55.8 million were recorded to additional paid-in-capital (“APIC”) as equity issuance costs, and the remaining $ 15.1 million was settled through the issuance of shares of New Archer Class A shares.

While the legal acquirer in the Business Combination Agreement was Atlas, for financial accounting and reporting purposes under accounting principles generally accepted in the United States of America (“U.S.

GAAP”), Legacy Archer is the accounting acquirer, and the Business Combination is accounted for as a “reverse recapitalization.” A reverse recapitalization does not result in a new basis of accounting, and the financial statements of the combined entity represent the continuation of the financial statements of Legacy Archer in many respects.

Under this method of accounting, Atlas is treated as the “acquired” company for financial reporting purposes.

For accounting purposes, Legacy Archer is deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of Legacy Archer (i.e., a capital transaction involving the issuance of stock by Atlas for the stock of New Archer).

Refer to Note 4 for additional information.

The financial statements included in this report reflect (i) the historical operating results of Legacy Archer prior to the Business Combination;

(ii) the combined results of Atlas and Legacy Archer following the closing of the Business

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

(iii) the assets and liabilities of Legacy Archer at their historical cost;

and (iv) the Company’s equity structure for all periods presented.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic.

The rapid spread of COVID-19 caused volatility and disruption in financial markets and prompted governments and businesses to take unprecedented measures such as travel restrictions, quarantines, shelter-in-place orders, and business shutdowns.

The impact of the COVID-19 pandemic continues to evolve due to, among other reasons, the emergence of additional variants or strains of COVID-19.

As such, the full magnitude of the pandemic’s effect on our financial condition, liquidity, and future results of operations is uncertain.

Management continues to actively monitor our financial condition, liquidity, operations, suppliers, industry, and workforce, but currently does not anticipate any material impairments as a result of COVID-19 and will continue to evaluate the impact of COVID-19 on an ongoing basis.

See Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q for more information.

Note 2 - Liquidity and Going Concern

Since our formation, we have devoted substantial effort and capital resources to the design and development of our planned eVTOL aircraft and UAM network.

Funding of these activities has primarily been through the net proceeds received from the issuance of related and third-party debt (Note 6 and Note 7), and the sale of preferred and common stock to related and third parties (Note 9).

Through September 30, 2021, we have incurred cumulative losses from operations, negative cash flows from operating activities, and have an accumulated deficit of $ 330.3 million.

Additionally, we have cash and cash equivalents of $ 796.2 million as of September 30, 2021.

Our audit report for the year ended December 31, 2020 from our independent registered public accounting firm includes an explanatory paragraph stating that our recurring losses from operations and cash outflows from operating activities raise substantial doubt about our ability to continue as a going concern.

However, after the closing of the Business Combination on the Closing Date, we received net cash proceeds of $ 801.8 million.

Management expects that the net cash proceeds from the Business Combination along with our cash balances held prior to the Closing Date will be sufficient to fund our current operating plan for at least the next 12 months from the date these consolidated condensed financial statements were available to be issued.

There can be no assurance that we will be successful in achieving our business plans, that our current capital will be sufficient to support our ongoing operations, or that any additional financing will be available in a timely manner or on acceptable terms, if at all.

If events or circumstances occur such that we do not meet our business plans, we may be required to raise additional capital, alter, or scale back our aircraft design, development and certification programs, as well as our manufacturing capabilities, or be unable to fund capital expenditures.

Any such events would have a material adverse effect on our financial position, results of operations, cash flows, and ability to achieve our intended business plans.

Note 3 - Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements of the Company are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC.

Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting.

Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows.

In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K as filed with the SEC on March 8, 2021 and the Company’s Amended Annual Report on Form 10-K/A filed with the SEC on May 24, 2021.

The interim results for the periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any future interim periods.

Emerging Growth Company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.

The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable.

The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

This may make comparison of the Company’s financial statements with another public company, which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Making estimates requires management to exercise significant judgment.

It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events.

Accordingly, the actual results could differ significantly from those estimates.

The accompanying unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of SEC for interim financial information.

Accordingly, they do not include all of the information and footnotes required by U.S.

GAAP for complete financial statements.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position, results of operations, and cash flows for the interim periods presented have been reflected herein.

The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

The unaudited consolidated condensed financial statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2020 set forth in our final proxy statement/prospectus filed with the SEC on August 11, 2021.

The Company has provided a discussion of significant accounting policies, estimates, and judgments in our audited financial statements.

There have been no changes to our significant accounting policies since December 31, 2020 which are expected to have a material impact on our financial position, results of operations, or cash flows.

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Retroactive Application of Reverse Recapitalization

As discussed in Note 4, Reverse Recapitalization and Related Transactions, the Business Combination is accounted for as a reverse recapitalization of equity structure.

Pursuant to U.S.

GAAP, we recast our consolidated condensed statements of redeemable convertible preferred stock and stockholders’ equity from December 31, 2019 to the Closing Date, the total stockholder’s equity within our consolidated condensed balance sheet as of September 30, 2020 and the weighted average outstanding shares, basic and diluted for the nine months ended September 30, 2020 by applying the recapitalization retroactively.

In addition, we recast the stock class and issued and outstanding number of stock, exercise prices of options, and warrants for each balance sheet period presented in these consolidated condensed financial statements and the accompanying notes.

Retroactive Application of Reverse Recapitalization to the Consolidated Condensed Statements of Stockholders’ Equity

Pursuant to the terms of the Business Combination Agreement, as part of the closing, all of the issued series seed redeemable convertible preferred stock and series A redeemable convertible preferred stock of Legacy Archer were automatically converted into Legacy Archer common stock at a 1 :1 ratio, which were converted again, along with all other issued and outstanding common stock of Legacy Archer, into 124,735,762 shares of New Archer Class A and Class B common stock at an Exchange Ratio of 1.00656519 (“Exchange Ratio”).

Additionally, each of Legacy Archer options, RSUs, and warrants that were outstanding immediately prior to the closing of the Business Combination remained outstanding and converted into options, RSUs, and warrants for New Archer Class A and Class B common stock equal to the number of Legacy Archer common stock, subject to such options, RSUs, or warrants, multiplied by the Exchange Ratio at an exercise price per share equal to the current exercise price per share for such option or warrant divided by the Exchange Ratio, with the aggregate amount of shares of New Archer Class A and B common stock issuable upon exercise of such options, RSUs, and warrants to be 60,260,483 .

Retroactive Application of Reverse Recapitalization to the Consolidated Condensed Statements of Operations and Comprehensive Loss

Furthermore, based on the retroactive application of the reverse recapitalization to our consolidated condensed statements of redeemable convertible preferred stock and stockholders’ equity, we recalculated the weighted average shares for the nine months ended September 30, 2020.

The basic and diluted weighted-average Legacy Archer common stock were retroactively converted to New Archer Class A and B common stock using the Exchange Ratio to conform to the recast in the consolidated condensed statements of redeemable convertible preferred stock and stockholders’ equity.

Retroactive Application of Reverse Recapitalization to the Consolidated Condensed Balance Sheets

Finally, to conform to the retroactive application of recapitalization to our statements of redeemable convertible preferred stock and stockholders’ equity, the Company reclassified the $ 5.9 million of Legacy Archer series seed redeemable convertible preferred stock and the $ 55.6 million of Legacy Archer series A redeemable convertible preferred stock to APIC, less amounts attributable to the par value of the common stock as adjusted, as of September 30, 2020.

Cash and Cash Equivalents

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.

The Company did no t have any cash equivalents as of June 30, 2021 and December 31, 2020.

Investments Held in Trust Account

At June 30, 2021 and December 31, 2020, substantially all of the assets held in the Trust Account were held in money market funds, which are invested in U.S.

Treasury securities.

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 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.

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

Offering Costs associated with the Initial Public Offering

The Company complies with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A - Expenses of Offering .

Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the Initial Public Offering.

Offering costs directly attributable to the issuance of an equity contract to be classified in equity are recorded as a reduction in equity.

Offering costs for equity contracts that are classified as assets and liabilities are expensed immediately.

The Company incurred offering costs amounting to $ 10,534,144 as a result of the Initial Public Offering (consisting of a $ 10,000,000 underwriting discount and $ 534,144 of other offering costs).

The Company recorded $ 9,988,271 of offering costs as a reduction of equity in connection with the shares of Class A common Stock included in the Units.

The Company immediately expensed $ 545,873 of offering costs in connection with the Public Warrants and Private Placement Warrants that were classified as liabilities.

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 (see Note 9).

The Company complies with the accounting and reporting requirements of ASC 740, Income Taxes , which requires an asset and liability approach to financial accounting and reporting for income taxes.

Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense.

There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2021 and December 31, 2020.

The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.

The Company is subject to income tax examinations by major taxing authorities since inception.

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

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 defined in Note 5) as these shares do not have any redemption features and do not participate in the income earned on the Trust Account.

The following table reflects the calculation of basic and diluted net income per common share (in dollars, except share and per share amounts):

Three Months Ended

Class A Common Stock subject to possible redemption

Earnings attributable to Class A Common Stock subject to possible redemption

Unrealized gain on investments held in Trust Account

Interest and dividend income on investments held in Trust Account

Income available to be withdrawn for payment of taxes

Net earnings attributable to Class A Common Stock subject to possible redemption

Weighted average Class A Common Stock subject to possible redemption

Basic and diluted weighted average shares outstanding, Class A Common Stock subject to possible redemption

Basic and diluted net earnings per share, Class A Common Stock subject to possible redemption

Non-Redeemable Class B Common Stock

Non-redeemable net income

Net earnings attributable to Class A Common Stock subject to possible redemption

Non-redeemable net income

Weighted average Non-Redeemable Class B Common Stock

Basic and diluted weighted average shares outstanding, Non-Redeemable Class B Common Stock

Basic and diluted net income per share, Non-Redeemable Class B Common Stock

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which, at times may exceed the Federal depository insurance coverage of $ 250,000 .

The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.

Fair Value of Financial Instruments

The Company applies ASC Topic 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework.

ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date.

The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity.

Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.

The carrying amounts reflected in the balance sheet for cash, prepaid expenses and accrued offering costs approximate fair value due to their short-term nature.

Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges.

Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.

See Note 9 for additional information on assets and liabilities measured at fair value.

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.

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.

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

INITIAL PUBLIC OFFERING

The registration statement for the Company’s Initial Public Offering was declared effective on October 27, 2020.

On October 30, 2020, the Company completed its Initial Public Offering of 50,000,000 Units, at $ 10.00 per Unit, generating gross proceeds of $ 500,000,000 .

Each Unit consisted of one share of Class A common stock, $ 0.0001 par value, and one -third of one redeemable warrant (“Public Warrant”).

Each Public Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $ 11.50 per whole share (see Note 7).

PRIVATE PLACEMENT

Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 8,000,000 warrants at a price of $ 1.50 per warrant in a private placement (the “Private Placement Warrants”) to the Sponsor, generating gross proceeds of $ 12,000,000 .

Each Private Placement Warrant is exercisable to purchase one share of Class A common stock at a price of $ 11.50 per share.

The proceeds from the sale of the Private Placement Warrants were added to the net proceeds from the Initial Public Offering held in the Trust Account.

If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Placement Warrants will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire worthless.

RELATED PARTY TRANSACTIONS

Founder Shares

On September 4, 2020, the Sponsor paid $ 25,000 in consideration for 14,375,000 shares of Class B common stock (the “Founder Shares”).

The Founder Shares included an aggregate of up to 1,875,000 shares subject to forfeiture by the Sponsor to the extent that the underwriter’s over-allotment was not exercised in full or in part, so that the Sponsor would collectively own, on an as-converted basis, 20 % of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial Public Offering).

Upon the expiration of the over-allotment option in December 2020, 1,875,000 shares of Class B common stock were forfeited, resulting in an aggregate of 12,500,000 Founder Shares outstanding.

The Sponsor has agreed not to transfer, assign or sell any of its Founder Shares until the earlier to occur of:

(A) one year after the completion of a Business Combination, or (B) the date on which the Company completes a liquidation, merger, capital stock exchange or similar transaction that results in the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.

Notwithstanding the foregoing, if the last sale price of the Company’s Class A common stock equals or exceeds $ 12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 -trading day period commencing at least 150 days after the Business Combination, the Founder Shares will be released from the lock-up.

Promissory Notes — Related Party

On September 11, 2020, the Company issued an unsecured promissory note to the Sponsor, pursuant to which the Company received proceeds of $ 300,000 to cover expenses related to the Initial Public Offering.

The promissory note was non-interest bearing and was payable on the earlier of March 31, 2021 or the completion of the Initial Public Offering.

The outstanding balance under the promissory note of $ 300,000 was repaid at the closing of the Initial Public Offering on October 30, 2020.

The Company issued an unsecured promissory note to the Sponsor (the “Promissory Note”) effective June 25, 2021, pursuant to which the Company can borrow an aggregate of up to $ 300,000 to cover expenses related to an initial Business Combination and general working capital.

The Promissory Note is non-interest bearing and payable upon the consumation of a Business Combination.

As of June 30, 2021, there was $ 300,000 outstanding under the Promissory Note.

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

Administrative Support Agreement

The Company entered into an agreement, commencing on the effective date of the Initial Public Offering, to pay the Sponsor a total of $ 10,000 per month for office space, secretarial and administrative support.

Upon completion of the Business Combination or the Company’s liquidation, the Company will cease paying these monthly fees.

During the three and six months ended June 30, 2021, the Company incurred expenses of $ 30,000 and $ 60,000 , respectively, under the agreement.

See Note 6, under Business Combination Marketing Agreement, for additional related party transactions.

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 (as defined below) (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 the Company 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 the Company’s securities.

The Company will bear the expenses incurred in connection with the filing of any such registration statements.

Business Combination Marketing Agreement

The Company engaged the representative of the underwriters and Moelis & Company LLC, an affiliate of the Sponsor, in connection with a Business Combination to assist the Company in holding meetings with its stockholders to discuss the potential Business Combination and the target business’ attributes, introduce the Company to potential investors that are interested in purchasing the Company’s securities in connection with a Business Combination, assist the Company in obtaining stockholder approval for the Business Combination and assist the Company with its press releases and public filings in connection with the Business Combination.

The Company 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 including the gross proceeds from the full or partial exercise of the underwriters’ over-allotment option.

A portion of such fee may be re-allocated or paid to members of FINRA that assist the Company in consummating its Business Combination.

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

Related Party Loans

In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s directors and officers may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”).

If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company.

Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account.

In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans.

Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans.

The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $ 1,500,000 of such Working Capital Loans may be convertible into warrants of the post-Business Combination entity at a price of $ 1.50 per warrant.

The warrants would be identical to the Private Placement Warrants.

No Working Capital Loans were outstanding as of and during the three and six months ended June 30, 2021.

Public Warrants may only be exercised for a whole number of shares.

No fractional shares are issued upon exercise of the Public Warrants.

The Public Warrants are exercisable on the later of (a) 30 days after the consummation of a Business Combination or (b) 12 months from the closing of the Initial Public Offering.

The Public Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation.

The Company will not be obligated to deliver any Class A common stock pursuant to the exercise of a Public Warrant and will have no obligation to settle such Public Warrant exercise unless a registration statement under the Securities Act covering the issuance of the Class A common stock issuable upon exercise of the Public Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration.

No warrant will be exercisable and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.

The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, it will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the Class A common stock issuable upon exercise of the warrants.

The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement.

If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the sixtieth ( 60 th ) business day after the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption.

Notwithstanding the above, if the Class A common stock are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elect, the Company will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, the Company will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.

Once the Public Warrants become exercisable, the Company may call the Public Warrants for redemption:

● in whole and not in part;

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

● at a price of $ 0.01 per Public Warrant;

● upon not less than 30 days ’ prior written notice of redemption to each warrant holder;

● if, and only if, the closing price of the common stock equals or exceeds $ 18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 - trading day period commencing after the warrants become exercisable and ending three business days before the Company sends the notice of redemption to the warrant holders.

If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.

The exercise price and number of Class A common stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation.

However, except as described below, the Public Warrants will not be adjusted for issuances of Class A common stock at a price below its exercise price.

Additionally, in no event will the Company be required to net cash settle the Public Warrants.

If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of Public Warrants will not receive any of such funds with respect to their Public Warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such Public Warrants.

Accordingly, the Public Warrants may expire worthless.

In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial Business Combination at an issue price or effective issue price of less than $ 9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60 % of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial Business Combination on the date of the consummation of such initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $ 9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115 % of the higher of the Market Value and the Newly Issued Price and the $ 18.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to 180 % of the higher of the Market Value and the Newly Issued Price.

The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants will and the common shares issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions.

Additionally, the Private Placement Warrants will be exercisable on a cashless basis and will be non-redeemable so long as they are held by the initial purchasers or their permitted transferees.

If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

At June 30, 2021 and December 31, 2020, there were 16,666,667 Public Warrants and 8,000,000 Private Placement Warrants outstanding.

The Company accounts for the Public Warrants and Private Placement Warrants in accordance with the guidance contained in ASC 815-40.

Such guidance provides that because the warrants do not meet the criteria for equity treatment thereunder, each warrant must be recorded as a liability (see Note 9).

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

The accounting treatment of derivative financial instruments required that the Company record the warrants as derivative liabilities at fair value upon the closing of the Initial Public Offering.

The Public Warrants were allocated a portion of the proceeds from the issuance of the Units equal to its fair value.

The warrant liabilities are subject to re-measurement at each balance sheet date.

With each such re-measurement, the warrant liabilities are adjusted to current fair value, with the change in fair value recognized in the Company’s statement of operations.

The Company will reassess the classification at each balance sheet date.

If the classification changes as a result of events during the period, the warrants will be reclassified as of the date of the event that causes the reclassification.

STOCKHOLDERS’ EQUITY

Preferred stock — The Company is authorized to issue 1,000,000 shares of $ 0.0001 par value preferred stock.

At June 30, 2021 and December 31, 2020, there were no shares of preferred stock issued or outstanding.

Class A common stock — The Company is authorized to issue up to 200,000,000 shares of Class A, $ 0.0001 par value common stock.

Holders of the Company's common stock are entitled to one vote for each share.

At June 30, 2021 and December 31, 2020, there were 50,000,000 shares issued and no shares and 5,114,713 shares of Class A common stock outstanding, respectively, excluding 50,000,000 and 44,885,287 shares of Class A common stock subject to possible redemption at June 30, 2021 and December 31, 2020, respectively.

The Company determined the Class A common stock subject to redemption to be equal to the redemption value of approximately $ 10 per share of Class A common stock while also taking into consideration a redemption cannot result in net tangible assets being less than $ 5,000,001 .

Upon considering the impact of the PIPE Financing and associated Subscription Agreements that will close substantially concurrent with an initial Business Combination (see Note 1), which would result in an additional $ 600,000,000 in net tangible assets, it was concluded during the quarter ended March 31, 2021, that the redemption value would include all shares of Class A common stock resulting in the common stock subject to possible redemption being equal to $ 500,143,016 .

This resulted in a measurement adjustment to the initial carrying value of the Class A common stock subject to redemption with the offset recorded to additional paid-in capital and accumulated deficit.

Class B common stock — The Company is authorized to issue up to 20,000,000 shares of Class B, $ 0.0001 par value common stock.

Holders of the Company’s common stock are entitled to one vote for each share.

At June 30, 2021 and December 31, 2020, there were 12,500,000 shares of Class B common stock issued and outstanding.

Holders of Class A common stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of shareholders, except as required by law.

The shares of Class B common stock will automatically convert into shares of Class A common stock upon the consummation of a Business Combination on a one-for-one basis, subject to adjustment.

In the case that additional shares of Class A common stock or equity-linked securities are issued or deemed issued in connection with a Business Combination, the number of shares of Class A common stock issuable upon conversion of all Founder Shares will equal, in the aggregate, on an as-converted basis, 20 % of the total number of shares of Class A common stock outstanding after such conversion, including the total number of shares of Class A common stock issued, or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of a Business Combination, excluding any shares of Class A common stock or equity-linked securities or rights exercisable for or convertible into shares of Class A common stock issued, or to be issued, to any seller in a Business Combination and any Private Placement Warrants issued to the Sponsor, officers or directors upon conversion of Working Capital Loans, provided that such conversion of Founder Shares will never occur on a less than one-for-one basis.

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

Cash consists of cash on deposit with financial institutions.

Cash equivalents consist of short-term, highly liquid financial instruments that are readily convertible to cash and have maturities of three months or less from the date of purchase.

Cash and cash equivalent balances were $ 796.2 million and $ 36.6 million as of September 30, 2021 and December 31, 2020, respectively, of which money market funds were $ 0.3 million and $ 34.4 million as of September 30, 2021 and December 31, 2020, respectively.

Money market funds, which are considered cash equivalents, are recorded at fair value and classified as Level 1 within the fair value hierarchy.

Fair Value Measurements

The following table presents information about the Company’s financial assets that are measured at fair value on a recurring basis at June 30, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

Amount at Fair

June 30, 2021

Investments held in Trust Account:

Money Market investments

Warrant liability – Public Warrants

Warrant liability – Private Placement Warrants

We apply the provisions of Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, which defines a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurements.

The provisions of ASC 820 relate to financial assets and liabilities as well as other assets and liabilities carried at fair value on a recurring and nonrecurring basis.

The standard clarifies that fair value is an exit price,

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, the standard establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The carrying amounts of our cash, accounts payable, accrued compensation and accrued liabilities approximate fair value due to the short-term nature of these instruments.

The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation inputs we utilized to determine such fair value:

Description Level September 30,

2021 December 31,

Investments held in Trust Account:

Money Market investments

(In millions)

Money Market Funds 1 $ 0.3 $ 34.4

Warrant Liability – Public Warrants 1 $ 27.7 $ —

Warrant Liability – Private Placement Warrants 3 $ 13.2 $ —

The Company utilized a Monte Carlo simulation model for the initial valuation of the Public Warrants.

The subsequent measurement of the Public Warrants as of June 30, 2021 and December 31, 2020 is classified as Level 1 due to the use of an observable market quote in an active market under the ticker ACIC WS.

The quoted prices of the Public Warrants were $ 1.54 and $ 1.90 per warrant as of June 30, 2021 and December 31, 2020, respectively.

The Company utilizes a Modified Black-Scholes model to value the Private Placement Warrants at each reporting period, with changes in fair value recognized in the statement of operations.

Public Warrants

The measurement of the public warrants as of September 30, 2021 is classified as Level 1 due to the use of an observable market quote in an active market under the ticker ACHR WS.

The quoted price of the public warrants was $ 1.59 per warrant as of September 30, 2021.

Refer to Note 13 for additional information about the public warrants.

Private Placement Warrants

We utilize a Monte Carlo simulation model for the private placement warrants at each reporting period, with changes in fair value recognized in the statement of operations and comprehensive loss.

The estimated fair value of the private placement warrant liability is determined using Level 3 inputs.

Inherent in a binomial options pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield.

The Company estimates the volatility of its common stock based on historical volatility that matches the expected remaining life of the warrants.

The risk-free interest rate is based on the U.S.

Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants.

The expected life of the warrants is assumed to be equivalent to their remaining contractual term.

The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.

The aforementioned warrant liabilities are not subject to qualified hedge accounting.

Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period.

The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement in December 2020 when the Public Warrants were separately listed and traded.

There were no transfers between Levels 1, 2 or 3 during the three and six months ended June 30, 2021.

ATLAS CREST INVESTMENT CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2021

The following table provides the significant inputs to the Modified Black-Scholes model for the fair value of the Private Placement Warrants:

June 30, 2021

December 31, 2020

Probability of completing a Business Combination

Inherent in a binomial options pricing model and Monte Carlo simulation model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield.

The key inputs into the Monte Carlo simulation model for the private placement warrants are as follows:

Input September 30,

Stock price $ 8.88

Strike price $ 11.50

Dividend yield 0.00 %

Term (in years) 4.96

Volatility 29.6 %

Risk-free rate 0.97 %

Fair value of warrants

*The probability of completing a Business Combination is considered within the volatility implied by the traded price of the Public Warrants which is used to value the Private Placement Warrants.

The following table presents the changes in the fair value of warrant liabilities:

Fair value as of December 31, 2020

Change in valuation inputs or other assumptions

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

We recognized a loss in connection with changes in the fair value of warrant liabilities of $ 0.1 million within other income in the statement of operations and comprehensive loss during the three and nine months ended September 30, 2021 .

Refer to Note 13 for additional information about the private placement warrants.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

Certain financial instruments, including debt, are not measured at fair value on a recurring basis in the balance sheets.

The fair value of debt as of September 30, 2021 approximates its carrying value.

Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis

Certain assets and liabilities are subject to measurement at fair value on a non-recurring basis if there are indicators of impairment or if they are deemed to be impaired as a result of an impairment review.

Intangible Assets, Net

Intangible assets consist solely of domain names and are recorded at cost, net of accumulated amortization, and if applicable, impairment charges.

Amortization of domain names is provided over a 15 -year estimated useful life on a straight-line basis or based on the pattern in which economic benefits are consumed, if reliably determinable.

We review intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

We have analyzed a variety of factors in light of the known impact to date of the COVID-19 pandemic on our business to determine if any circumstance could trigger an impairment loss, and, at this time and based on the information presently known, do not believe that it is more likely than not that an impairment loss has been incurred.

As of September 30, 2021 and December 31, 2020, the gross carrying amount for domain names was $ 0.5 million with $ 28 thousand and $ 3 thousand recorded in accumulated amortization on our balance sheets in each period, respectively.

During the three and nine months ended September 30, 2021, we recognized amortization expense of $ 8 thousand and $ 25 thousand, respectively, included within general and administrative expenses in the statements of operations and comprehensive loss.

The Company did no t recognize any amortization expense during the three and nine months ended September 30, 2020.

Property and Equipment, Net

Property and equipment are stated at historical cost less accumulated depreciation.

Expenditures for major renewals and betterments are capitalized, while minor replacements, maintenance, and repairs, which do not extend the asset lives, are charged to operations as incurred.

Upon sale or disposition, the cost and related accumulated depreciation is removed from the accounts, and any difference between the selling price and net carrying amount is recorded as a gain or loss in the statements of operations and comprehensive loss.

Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets as follows:

Furniture, fixtures, and equipment 5

Computer hardware 3

Computer software 3

Website design 2

Leasehold improvements Shorter of lease term or the asset standard life

Impairment of Long-Lived Assets

We review our long-lived assets, consisting primarily of property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Such triggering events or changes in circumstances may include:

a significant decrease in the market price of a long-lived asset, a significant adverse

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

change in the extent or manner in which a long-lived asset is being or intended to be used, a significant adverse change in legal factors or in the business climate, the impact of competition or other factors that could affect the value of a long-lived asset, a significant adverse deterioration in the amount of revenue or cash flows expected to be generated from an asset group, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset, current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a long-lived asset, or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

We perform impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

Recoverability of these assets is determined by comparing the forecasted undiscounted cash flows attributable to such assets including any cash flows upon their eventual disposition to their carrying value.

If the carrying value of the assets exceeds the forecasted undiscounted cash flows, then the assets are written down to their fair value.

We determined there was no impairment of long-lived assets during all periods presented.

Operating Expenses

Research and Development

Research and development (“R&D”) costs are expensed as incurred and are primarily comprised of personnel-related costs including salaries, bonuses, benefits, and stock-based compensation for employees focused on R&D activities, costs associated with building prototype aircraft, other related costs, depreciation and an allocation of general overhead.

R&D efforts focus on the design and development of our eVTOL aircraft, including certain of the systems that are used in it.

General and Administrative

General and administrative expenses are primarily comprised of personnel-related costs including salaries, bonuses, benefits, and stock-based compensation for employees associated with our administrative services such as finance, legal, human resources, information technology, other related costs, depreciation, and an allocation of general overhead.

General and administrative expenses include $ 101.7 million of expense related to the vesting of a certain portion of the restricted stock units granted to our founders pursuant to the terms and conditions of the Business Combination Agreement immediately prior to closing (the “Founder Grants”), for the three and nine months ended September 30, 2021.

Refer to Note 10 for additional information.

Other Warrant Expense

Other warrant expense consists of expense related to the vesting of warrants issued in conjunction with the execution of Purchase Agreement, Collaboration Agreement, and Warrant Agreement with United Airlines Inc.

Refer to Note 10 for additional information.

Stock-Based Compensation

Our stock-based compensation awards consist of options granted to employees and non-employees and restricted stock units granted to employees, directors, and non-employees that convert into shares of our Class A common stock upon vesting.

We recognize stock-based compensation expense in accordance with the provisions of ASC 718, Compensation - Stock Compensation .

ASC 718 requires the measurement and recognition of compensation expense for all stock-based compensation awards made to employees, directors, and non-employees to be based on the grant date fair values of the awards.

We estimate the fair value of share options using the Black-Scholes option-pricing model.

The value of the award is recognized as expense over the requisite service period on a straight-line basis.

Determining the grant date fair value of the awards using the Black-Scholes option-pricing model requires management to make assumptions and judgments, including but not limited to the following:

Expected term — The estimate of the expected term of employee awards is determined in accordance with the simplified method, which estimates the term based on an averaging of the vesting period and contractual term of the option grant.

We use the contractual term for non-employee awards.

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Expected volatility — Since we were a private entity without sufficient historical data on the volatility of our common stock, the expected volatility used is based on the volatility of similar entities (referred to as “guideline companies”) for a period consistent with the expected term of the award.

Risk-free interest rate — The risk-free interest rate used to value awards is based on the United States Treasury yield in effect at the time of grant for a period consistent with the expected term of the award.

Dividend yield — We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.

Forfeiture rate — We have elected to account for forfeitures as they occur and will record stock-based compensation expense assuming all option holders will complete the requisite service period.

If an employee forfeits an award because they fail to complete the requisite service period, we will reverse stock-based compensation expense previously recognized in the period the award is forfeited.

Fair value of common stock

Our board of directors grants stock options with exercise prices equal to the fair value of our common stock on the date of grant.

Prior to the closing of the Business Combination on the Closing Date, we determined the fair value of our common stock at the time of the grant of stock options in accordance with the American Institute of Certified Public Accountants (“AICPA”) Accounting and Valuation Guide:

Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the “AICPA Practice Aid”).

We determined the fair value of our common stock based on a variety of factors including, but not limited to (i) the results of contemporaneous independent third-party valuations of our common stock and the prices, rights, preferences and privileges of our redeemable convertible preferred stock relative to those of our common stock;

(ii) the lack of marketability of our common stock;

(iii) actual operating and financial results;

(iv) current business conditions and projections;

(v) the likelihood of achieving a liquidity event, such as an IPO or sale of the Company, given prevailing market conditions, and (vi) precedent transactions involving our shares.

As provided in the AICPA Practice Aid, there are several approaches for setting the value of an enterprise and various methodologies for allocating the value of an enterprise to its outstanding equity.

We determined the fair value of equity awards using a combination of the market and income approach.

Within the market approach, the guideline public company method was used, which employs the use of ratios developed from the market price of traded shares from publicly traded companies considered reasonably similar to the Company.

Under the income approach, the enterprise value was estimated using the discounted cash flow method, which involves estimating the future cash flows of a business for a discrete period and discounting them to their present value.

In allocating enterprise value to our outstanding equity, we applied a hybrid approach, which consisted of the option pricing method (“OPM”) and probability-weighted expected return method (“PWERM”).

The OPM treats securities, including debt, common and preferred stock, as call options on the enterprise’s value, with exercise prices based on the securities’ respective liquidation preferences and conversion values.

The PWERM estimates the fair market value of the common stock based on an analysis of future values for the enterprise assuming various exit scenarios, such as IPO, merger or sale, staying private, and liquidation.

In conducting the valuations, we considered all objective and subjective factors that we believed to be relevant in the valuation conducted, including management’s best estimate of our business condition, and prospects and operating performance at the valuation dates.

There are significant judgments and estimates inherent in these valuations.

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding.

For all periods presented, the calculation of basic net loss per share excludes shares issued upon the early exercise of stock options where the vesting conditions have not been satisfied.

Because we reported net losses for all periods presented, diluted loss per share is the same as basic loss per share.

Contingently issuable shares, including equity awards with performance conditions, are considered outstanding common shares and included in basic net loss per share as of the date that all necessary conditions to earn the awards have been satisfied.

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Prior to the end of the contingency period, the number of contingently issuable shares included in diluted net loss per share is based on the number of shares, if any, that would be issuable under the terms of the arrangement at the end of the reporting period.

Because we reported net losses for all periods presented, all potentially dilutive common stock equivalents are antidilutive and have been excluded from the calculation of net loss per share.

The diluted net loss per common share were the same for Class A and Class B common shares because they are entitled to the same liquidation and dividend rights.

The following table presents the number of antidilutive shares excluded from the calculation of diluted net loss per share:

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Options to purchase common stock 10,296,564 3,738,589 10,296,564 3,738,589

Unvested restricted stock units 31,888,836 856,084 31,888,836 856,084

Warrants 32,519,357 — 32,519,357 —

Total 74,704,757 4,594,673 74,704,757 4,594,673

Comprehensive Loss

There were no differences between net loss and comprehensive loss presented in the statements of operations and comprehensive loss for the three and nine months ended September 30, 2021 and 2020.

Recently adopted accounting pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which outlines a comprehensive lease accounting model that supersedes the current lease guidance.

The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms greater than 12 months.

It also changes the definition of a lease and expands the disclosure requirements of lease arrangements.

In July 2018, the FASB issued ASU 2018-11, which provides the option of an additional transition method that allows entities to initially apply the new lease guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company entered into its first lease in July of 2020 and applied ASU 2016-02 to this lease and subsequent leases.

In June 2018, the FASB issued ASU 2018-07 , Compensation — Stock Compensation (Topic 718) :

Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”).

This amendment expands the scope of Topic 718, Compensation — Stock Compensation (which only included share-based payments to employees) to include share-based payments issued to nonemployees for goods or services.

Consequently, the accounting for share-based payments to nonemployees and employees is substantially aligned.

ASU 2018-07 supersedes Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees.

Early adoption of ASU 2018-07 is permitted and should be applied on a prospective basis.

The Company began applying ASU 2018-07 during 2020 upon the Company’s first grant of share-based payment awards.

No share-based payments were granted prior to 2020.

In August 2018, the FASB issued ASU 2018-13 , Fair Value Measurement (Topic 820) (“ASU 2018-13”), which modifies, removes, and adds certain disclosure requirements on fair value measurements based on the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8:

Notes to Financial Statements.

The ASU is effective for all entities for fiscal years beginning after December 15, 2019.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent annual period presented in the initial fiscal year of adoption.

All other amendments should be applied retrospectively to all periods presented upon their effective date.

The Company has applied ASU 2018-13 to all periods presented.

In November 2019, the FASB issued ASU 2019-08, Compensation — Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606) (“ASU 2019-08”), which requires entities to measure and classify share-based payments to a customer in accordance with the guidance in ASC 718, Compensation — Stock Compensation .

ASU 2019-08 expanded the scope of Topic 718 to include awards issued to customers for purposes of measurement and classification and amended portions of ASC 606, Revenue from Contracts with Customers , to refer to this guidance.

The amount that would be recorded as a

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

reduction in revenue would be measured based on the grant date fair value of the share-based payment in accordance with Topic 718.

The Company adopted ASU 2019-08 on January 1, 2021 and has applied its provisions to the measurement of the warrants issued to United Airlines.

Refer to Note 10 for details.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”) .

This amendment was issued to simplify the accounting for income taxes by removing certain exceptions for recognizing deferred taxes, performing intraperiod allocation, and calculating income taxes in interim periods.

Further, ASU 2019-12 adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax basis goodwill and allocating taxes to members of a consolidated group.

The Company has applied ASU 2019-12 to all periods presented, and there was no adoption date impact to its financial statements.

Recently issued accounting pronouncements not yet adopted

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity .

The ASU simplifies the accounting for convertible instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and Other Options , for convertible instruments.

The ASU updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging , or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from the host contract.

The convertible debt instruments will be accounted for as a single liability measured at amortized cost.

Further, the ASU made amendments to the EPS guidance in Topic 260 for convertible instruments, the most significant impact of which is requiring the use of the if-converted method for diluted EPS calculation, and no longer allowing the net share settlement method.

The ASU also made revisions to Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting.

The amendments to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities.

The ASU is effective for public business entities for interim and annual periods beginning after December 15, 2021, with early adoption permitted.

Adoption of the ASU can either be on a modified retrospective or full retrospective basis.

The Company is currently evaluating the impact the adoption of this standard will have on its financial statements and related disclosures.

Note 4 - Reverse Recapitalization and Related Transactions

Upon the consummation of the Business Combination, in accordance with the terms and conditions of the Business Combination Agreement, all issued and outstanding Legacy Archer common stock was converted into shares of common stock of New Archer at the Exchange Ratio.

Additionally, upon closing the Business Combination, Legacy Archer received $ 257.6 million in cash proceeds released from Atlas’ trust account, after redemptions of $ 242.4 million.

At closing, each non-redeemed outstanding share of Atlas Class A common stock was converted into one share of Class A common stock of New Archer.

Upon consummation of the Business Combination, the shares of Legacy Archer held by Legacy Archer shareholders converted into 124,735,762 shares of common stock of New Archer, including 54,987,838 shares of Class A common stock and 69,747,924 shares of Class B common stock.

While the legal acquirer in the Business Combination was Atlas, for accounting and financial reporting purposes under U.S.

GAAP, Legacy Archer is the accounting acquirer and the Business Combination was accounted for as a “reverse recapitalization.” A reverse recapitalization does not result in a new basis of accounting, and the financial statements of the combined entity represent the continuation of the financial statements of Legacy Archer in many respects.

Under this method of accounting, Atlas was treated as the “acquired” company.

Accordingly, the consolidated assets, liabilities, and results of operations of Legacy Archer became the historical financial statements of New Archer, and Atlas’ assets and liabilities were consolidated with Legacy Archer’s on the Closing Date.

Operations prior to the Business Combination are presented as those of New Archer in reports subsequent to the Closing Date.

The net assets of Atlas were recognized at their carrying value immediately prior to the closing with no goodwill or other intangible assets recorded and were as follows, net of transaction costs (in millions):

Warrant liability ( 39.5 )

Net assets acquired $ 162.3

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Additionally, as part of the recapitalization, 1,875,000 shares of Atlas Class A common stock held by Atlas Crest Investment LLC (the “Atlas Sponsor”) were exchanged with 1,875,000 shares of New Archer Class A common stock that will be subject to forfeiture if the vesting condition is not met over the three-year term following the Closing Date.

The vesting condition states that these earn-out shares of New Archer Class A common stock will vest if the New Archer’s Class A common stock volume weighted average price, as defined in the Amended and Restated Sponsor Letter Agreement, by and among Atlas Sponsor, Atlas, Legacy Archer and the individuals named therein, is greater than or equal to $ 12.00 per share for any period of ten ( 10 ) trading days out of twenty ( 20 ) consecutive trading days.

The earn-out shares were recognized at fair value upon the closing of the Business Combination and classified in stockholders’ equity (with no net impact to APIC) since the earn-out shares were determined to be indexed to the Company’s own equity and meet the requirements for equity classification.

Pursuant to the terms of the Business Combination Agreement, all of the issued and outstanding series seed redeemable convertible preferred stock and series A redeemable convertible preferred stock converted into 64,884,120 shares of Legacy Archer common stock immediately prior to the Business Combination.

Then, as of the closing of the Business Combination, all outstanding shares of Legacy Archer common stock converted into 124,735,762 shares of New Archer Class A and B common stock.

Additionally, each of Legacy Archer options, RSUs, and warrants that were outstanding immediately prior to the closing of the Business Combination remained outstanding and converted into options, RSUs, and warrants for New Archer Class A and Class B common stock equal to the number of the Company’s common stock, subject to such options, RSUs, or warrants, multiplied by the Exchange Ratio at an exercise price per share equal to the current exercise price per share for such option or warrant divided by the Exchange Ratio, with the aggregate amount of shares of New Archer Class A and B common stock issuable upon exercise of such options, RSUs, and warrants to be 60,260,483 .

Additionally, 10,004,612 of outstanding RSUs vested at the closing of the Business Combination into New Archer Class B common stock.

Substantially concurrently with the execution of the Business Combination Agreement, Atlas entered into Subscription Agreements (the “Subscription Agreement”) with certain investors in the PIPE Financing (the “Subscription Investors”).

Pursuant to the Subscription Agreements, the Subscription Investors agreed to purchase, and Atlas agreed to sell to the Subscription Investors, an aggregate of 60,000,000 shares of New Archer Class A common stock for a purchase price of $ 10 per share, or an aggregate of $ 600 million in gross cash proceeds.

Pursuant to the Subscription Agreements, Atlas granted certain registration rights to the Subscription Investors with respect to the shares issued and sold in the PIPE Financing.

The closing of the PIPE Financing occurred immediately prior to the closing of the Business Combination.

In conjunction with the PIPE Financing, 1,512,500 shares of New Archer Class A common stock were issued to satisfy certain fees related to the Business Combination and PIPE Financing.

The number of shares of common stock issued immediately following the consummation of the Business Combination were as follows:

Number of shares

Class A and B common stock outstanding on July 1, 2021 52,572,374

Common Stock issued through option exercises between July 1, 2021 and September 16, 2021 4,738,344

Vesting of Unvested Shares between July 1, 2021 and September 16, 2021 2,540,925

Common Stock outstanding prior to the Business Combination 59,851,643

Conversion of Preferred Stock 64,884,120

Common Stock attributable to Atlas 36,385,693

Adjustment related to Reverse Recapitalization* 101,269,813

Restricted Stock Units vested at Closing 10,004,612

Common Stock attributable to PIPE Financing 61,512,500

Total shares of common stock as of Closing of Business Combination and Related Transactions as of September 16, 2021 232,638,568

* The corresponding adjustment to APIC related to the reverse recapitalization was comprised of (i) $ 162.3 million which represents the fair value of the consideration transferred in the Business Combination, less the excess of the fair value of the

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

shares issued over the value of the net monetary assets of Atlas, net of transaction costs and (ii) $ 61.5 million which represents the conversion of the convertible preferred stock into New Archer Class A and Class B common stock.

At the Closing Date, Legacy Archer had 56,390,023 outstanding options and RSUs under the 2019 Plan (as defined below) in addition to 13,112,602 outstanding warrants, which remained outstanding and converted into 70,265,095 options, RSUs, and warrants in New Archer Class A or B common stock, as derived by multiplying the number of Legacy Archer common stock subject to such option or warrant by the Exchange Ratio.

In addition, of the RSUs outstanding immediately prior to the closing of the Business Combination, 10,004,612 vested at closing into New Archer Class B common stock.

The options and warrants shall be exercised at an exercise price per share equal to the current exercise price per share for such option or warrant divided by the Exchange Ratio.

Following the Business Combination, Atlas’ warrants to purchase 24,666,667 shares of New Archer Class A common stock, consisting of (i) 16,666,667 public warrants listed on the NYSE and (ii) 8,000,000 private warrants, each with an exercise price of $ 11.50 per share, remained outstanding.

As part of the closing, total direct and incremental transaction costs aggregated $ 81.8 million, of which $ 10.9 million was expensed as part of the Business Combination, $ 55.8 million was recorded to APIC as equity issuance costs, and the remaining $ 15.1 million was settled through the issuance of shares of New Archer Class A common stock.

Note 5 - Property and Equipment, Net

Property and equipment, net, consists of the following (in millions):

September 30,

2021 December 31,

Furniture, fixtures, and equipment $ 1.8 $ 1.0

Computer hardware 1.6 0.5

Website design 0.5 0.1

Leasehold improvements 0.9 0.1

Construction in progress 0.4 —

Total property and equipment 5.2 1.7

Accumulated depreciation ( 0.9 ) ( 0.1 )

Total property and equipment, net $ 4.3 $ 1.6

The following table presents depreciation expense included in each respective expense category in the statements of operations and other comprehensive loss (in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Research and development $ 0.3 $ — $ 0.5 $ —

General and administrative 0.1 — 0.3 —

Total depreciation expense $ 0.4 $ — $ 0.8 $ —

Note 6 - Related Party Transactions

Partial Recourse Promissory Notes

On November 21, 2020, we entered into a partial recourse promissory note arrangements with each of our founders which provided each of them with a partial recourse loan as consideration for the issuance of stock, which proceeds were used for the exercise of 2,662,885 shares, per founder, of our common stock pursuant to the outstanding option agreements issued by us to the founders on November 3, 2020.

Due to the partial recourse nature of the notes, the promissory note arrangements are considered nonrecourse loans in their entirety for accounting purposes and thus are accounted for as in-substance share options.

The purchase price for the shares was $ 0.15 per share for a total amount of $ 0.4 million paid by each founder.

The notes bear

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

interest at a rate of 0.38 % per annum, compounded annually.

The promissory notes may be repaid at any time and from time to time and are due upon the earlier of five years from issuance or upon a deemed liquidation event, initial draft registration statement filing, or within 90 days of the respective founder’s termination.

Concurrent with the execution of the notes, the founders early exercised their common stock options at the exercise price of $ 0.15 per share in accordance with the terms of the early exercise agreements.

These options are subject to vesting conditions and are subject to forfeiture in the form of a Company repurchase option at the original $ 0.15 per share price if the founders terminate employment prior to the vesting dates of the original option agreements.

We determined that the stock options exercised by a nonrecourse note are considered unexercised until the nonrecourse note is repaid.

Because the loan is deemed nonrecourse for accounting purposes, the principal and interest represent the strike price of the in-substance awards for the purposes of fair valuing the in-substance awards, and the principal and interest on the note and shares underlying the in-substance share options will not be recorded on our balance sheets or statements of operations and comprehensive loss.

We estimated the fair value of the in-substance share options using the Black-Scholes option-pricing model and compared this fair value to the value of the original awards immediately prior to the issuance of the promissory note.

We determined that the promissory note terms did not result in incremental fair value of these awards and no incremental compensation cost would be recognized under the promissory note arrangement.

The grant date fair value of the original award is recognized as expense over the requisite service period on a straight-line basis.

The partial recourse promissory notes were repaid in full prior to the closing of the Business Combination.

Note 7 - Notes Payable

Long-term notes payable consisted of the following (in millions):

September 30,

2021 December 31,

Silicon Valley Bank (“SVB”) Term Loans $ 20.0 $ —

PPP Loan — 0.9

Term Loans unamortized loan issuance fees and costs ( 1.3 ) —

Total debt, net of issuance costs 18.7 0.9

Less current portion, net of loan issuance fees and costs ( 7.0 ) ( 0.6 )

Total long-term notes payable, net of loan issuance fees and costs $ 11.7 $ 0.3

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.

The CARES Act also appropriated funds for the U.S.

Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.

On April 9, 2020, we entered into a PPP Loan with JPMorgan Chase Bank, N.A.

under the PPP of the CARES Act and received total proceeds of $ 0.9 million, with interest accruing at a rate of 0.98 % per annum.

The application for these funds required the us to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company and that we will use the loan funds to retain workers, maintain payroll, or make mortgage, lease, and utility payments.

In accordance with the requirements of the CARES Act, we used the proceeds for payroll costs.

In June 2021, the Company received notification from the SBA that the loan and accrued interest were forgiven in full.

Accordingly, we recorded a gain on forgiveness of PPP loan and interest in the consolidated condensed statement of operations and comprehensive loss.

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

On July 9, 2021, we, as the borrower, entered into a Loan and Security Agreement with SVB and SVB Innovation Credit Fund VIII, L.P.

(“SVB Innovation”) as the lenders, and SVB as the collateral agent.

The total principal amount of the loans is $ 20 million (the “Term Loans”), and all obligations due under the Term Loans are collateralized by all of our right, title, and interest in and to its specified personal property in favor of the collateral agent.

The term loans include events of default and covenant provisions, whereby accelerated repayment may result if we were to default.

The Term Loans are subject to a final payment fee which was determined to be zero as a result of the completion of the Business Combination prior to October 10, 2021 (the “Outside Date”).

Commencing on December 31, 2021, we shall repay the term loans in 24 equal monthly installments which include principal and interest.

The interest rate on the loans is a floating rate per annum equal to the greater of (1) 8.5 % and (2) the Prime Rate plus the Prime Rate Margin (each as defined in the Loan and Security Agreement), which increases by 2 % per annum upon the occurrence of an event of default.

As of September 30, 2021, we accrued interest of $ 0.1 million, and for the three months ended September 30, 2021, the Company recognized interest expense of $ 0.4 million.

Additionally, in conjunction with the issuance of the Term Loans, we agreed to issue 366,140 warrants to SVB and 366,140 warrants to SVB Innovation, totaling 732,280 warrants.

We issued the warrants to the lenders as consideration for entering into the Term Loans, representing a loan issuance fee.

Each warrant provides SVB and SVB Innovation with the right to purchase one share of our Class A common stock.

We determined the warrants do not meet the criteria for equity treatment and must be recorded as liabilities.

Accordingly, we classified 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 as a gain or loss in our statement of operations and comprehensive loss.

See Note 13 - Liability Classified Warrants for further details.

The initial offsetting entry to the warrant liability was a debt discount recorded to reflect the loan issuance fee.

We estimated the fair value of the warrants at the issuance date to be $ 1.2 million using the probability-weighted fair value of the warrants under two scenarios, the Business Combination occurring prior to, or after, the Outside Date, with the first scenario of the Business Combination occurring prior to the Outside Date weighted at 95 % and the second scenario of the Business Combination occurring after the Outside Date weighted at 5 %.

For the second scenario, we determined the fair value of the warrants using a Monte Carlo simulation approach.

Determining the fair value of these warrants under this model requires subjective assumptions.

Upon the closing of the Business Combination, the SVB warrants became public warrants.

The subsequent measurement of the SVB warrants as of September 30, 2021 is classified as Level 1 due to the use of an observable market quote in an active market under the ticker ACHR WS.

The quoted price of the public warrants was $ 1.59 as of September 30, 2021.

We also incurred issuance costs of $ 0.2 million.

The loan issuance fee and issuance costs will be amortized to interest expense over the commitment period of 30 months.

During the three and nine months ended September 30, 2021, we recognized interest expense in the amount of $ 0.1 million to the amortization of the loan issuance fee and issuance costs.

The unamortized balance of the discount and issuance costs totaled $ 1.3 million as of September 30, 2021.

The future scheduled principal maturities of notes payable as of September 30, 2021 are as follows (in millions):

Note 8 - Commitments and Contingencies

Operating Leases

The Company leases office, lab, hangar, and storage facilities under various operating lease agreements with lease periods expiring between 2022 and 2023 and generally containing periodic rent increases and various renewal and termination options.

On August 18, 2021, we entered into a lease agreement to lease 27,790 square feet of general office and R&D space, which has a non-cancelable lease term of 18 months.

We obtained control of the initial 20,184 square feet on October 1, 2021 and expect to take control of the remaining 7,606 square feet on December 1, 2021.

The aggregate future rent payment obligations total approximately $ 2.2 million, which includes an upward adjustment in month 13 .

This does not include payment of

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

additional rent to cover our share of the annual operating expenses of the building.

In addition, we paid a security deposit in the amount of $ 0.3 million, which the landlord may retain for base rent and other damages, in the event of our default under the lease agreement.

The Company’s lease costs were as follows (in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Fair value as of June 30, 2021

The Company recognized income in connection with changes in the fair value of warrant liabilities of $ 7,053,334 and $ 9,280,003 within change in fair value of warrant liabilities in the Statement of Operations during the three and six months ended June 30, 2021, respectively.

SUBSEQUENT EVENTS

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued.

Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements except as disclosed in Note 1 under Business Combination Agreement.

Operating lease cost $ 0.5 $ — $ 1.2 $ —

The Company’s weighted-average remaining lease term and discount rate were as follows:

Nine Months Ended September 30,

Weighted-average remaining lease term (in months) 19.2 —

Weighted-average discount rate 10.8 % —

The minimum aggregate future obligations under our non-cancelable operating leases as of September 30, 2021 were as follows (in millions):

Remaining 2021

Total future lease payments 3.0

imputed interest ( 0.3 )

Present value of future lease payments $ 2.7

Supplemental cash information and non-cash activities related to right-of-use assets and lease liabilities were as follows (in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Operating cash outflows from operating leases $ 0.5 $ — $ 1.2 $ —

Operating lease assets obtained in exchange for new lease liabilities 0.4 — 1.4 —

Letter of Credit

In conjunction with our operating lease for our headquarters, we entered into a standby letter of credit in favor of the Company’s lessor, in lieu of paying cash to the lessor to satisfy the security deposit requirements of the leased property.

The standby letter of credit was issued on September 15, 2020 for an amount of $ 0.3 million and expired on September 30, 2021.

On June 24, 2021, we entered into a standby letter of credit for the same amount, which expires on September 1, 2022.

The letter of credit automatically renews annually until September 1, 2023, unless cancelled earlier by us.

During the ordinary course of our business, we may be subject to legal proceedings, various claims, and litigation.

Such proceedings can be costly, time consuming, and unpredictable, and therefore, no assurance can be given that the final outcome of such proceedings will not materially impact financial condition or results of operations.

Wisk Litigation and Government Investigation

On April 6, 2021, Wisk brought a lawsuit against us in the United States District Court for the Northern District of California alleging misappropriation of trade secrets and patent infringement.

On June 1, 2021, we filed a motion to dismiss the trade secret claims and filed counterclaims.

On June 15, 2021, Wisk amended its complaint, and the following day we filed a motion to dismiss the amended complaint.

On July 13, 2021, we filed amended counterclaims.

On July 27, 2021, Wisk filed a

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

motion to strike and dismiss certain of our amended counterclaims.

On August 10, 2021, we filed an opposition to Wisk’s motion to strike and dismiss certain of the amended counterclaims.

On August 24, 2021, the Court denied our motion to dismiss the trade secret claims.

On September 14, 2021, the Court denied Wisk’s motion to strike and dismiss certain of our amended counterclaims.

A trial on Wisk’s claims and our counterclaims has been scheduled to begin on January 30, 2023.

We continue to strongly believe Wisk’s lawsuit is without merit.

We will continue to vigorously defend ourselves against Wisk’s claims and pursue our counterclaims.

On May 19, 2021, Wisk filed a motion for preliminary injunction and expedited discovery.

On June 23, 2021, we filed an opposition to the motion for preliminary injunction.

On July 22, 2021, the Court denied Wisk’s motion for preliminary injunction.

On August 20, 2021, Wisk filed a notice of appeal of the Court’s denial of the motion for preliminary injunction.

On September 30, 2021, Wisk withdrew its notice of appeal of the District Court’s denial of the motion for preliminary injunction.

Prior to Wisk bringing the lawsuit against us, on March 30, 2021, one of our employees, who is a former employee of Wisk, had a search warrant executed at his home in connection with a federal investigation.

We placed this former Wisk employee on paid administrative leave in connection with this government investigation, which we believe is focused on conduct prior to the employee joining the Company.

We are cooperating with the investigation of the employee.

As of November 12, 2021, the investigation is ongoing.

In addition, we and three of our 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.

The grand jury subpoenas seek documents and information about our business, including our hiring practices and intellectual property.

We cannot predict the timing or outcome of the litigation or government investigation or range of reasonably possible loss, if any, from either but a negative result could have a material adverse effect on our financial position, liquidity, operations, and cash flows.

Note 9 - Preferred and Common Stock

Amended and Restated Certificate of Incorporation

Upon the effectiveness of our amended and restated certificate of incorporatio n on September 16, 2021, we are authorized to issue up to 700,000,000 shares of Class A common stock, par value $ 0.0001 per share, 300,000,000 shares of Class B common stock, par value $ 0.0001 per share, and 10,000,000 shares of preferred stock, par value $ 0.0001 per share.

There were 157,013,725 and 49,828,517 shares of Class A common stock issued and outstanding as of September 30, 2021 and December 31, 2020, respectively.

There were 79,876,025 and 66,714,287 shares of Class B common stock issued and outstanding as of September 30, 2021 and December 31, 2020, respectively.

Preferred Stock

As of September 30, 2021, no shares of preferred stock were outstanding, and the Company has no present plans to issue any shares of preferred stock.

Pursuant to the terms of our amended and restated certificate of incorporation, shares of preferred stock may be issued from time to time in one or more series.

The board of directors is authorized to fix the voting rights, if any, designations, powers and preferences, the relative, participating, optional or other special rights, and any qualifications, limitations and restrictions thereof, applicable to the shares of each series of preferred stock.

The board of directors is able to, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the common stock and could have anti-takeover effects.

The ability of the board of directors to issue preferred stock

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

without stockholder approval could have the effect of delaying, deferring or preventing a change of control or the removal of existing management.

Class A and Class B Common Stock

Except for voting rights and conversion rights, or as otherwise required by applicable law, the shares of our Class A common stock and Class B common stock have the same powers, preferences, and rights and rank equally, share ratable and are identical in all respects as to all matters.

The rights, privileges, and preferences are as follows:

Holders of the Company’s Class A common stock are entitled to one vote per share on all matters to be voted upon by the stockholders, and holders of Class B common stock are entitled to ten votes per share on all matters to be voted upon by the stockholders.

The holders of Class A common stock and Class B common stock will generally vote together as a single class on all matters submitted to a vote of the stockholders, unless otherwise required by Delaware law or the Company’s amended and restated certificate of incorporation.

Holders of Class A common stock and Class B common stock are entitled to receive such dividends, if any, as may be declared from time to time by the Company’s board of directors in its discretion out of funds legally available therefore.

No dividends on common stock have been declared by the Company’s board of directors through September 30, 2021.

Preemptive Rights

Stockholders have no preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to Class A common stock and Class B common stock.

Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock.

In addition, each share of Class B common stock will automatically convert into one share of Class A common stock upon transfer to a non-authorized holder.

In addition, Class B common stock is subject to “sunset” provisions, under which all shares of Class B common stock will automatically convert into an equal number of shares of Class A common stock upon the earliest to occur of (i) the ten-year anniversary of the closing of the Business Combination, (ii) the date specified by the holders of two-thirds of the then outstanding Class B common stock, voting as a separate class, and (iii) when the number of Class B common stock represents less than 10 % of the aggregate number of Class A common stock and Class B common stock then outstanding.

In addition, each share of Class B common stock will automatically convert into an equal number of Class A common stock upon the earliest to occur of (a) in the case of a founder of the Company, the date that is nine months following the death or incapacity of such founder, and, in the case of any other holder, the date of the death or incapacity of such holder, (b) in the case of a founder of the company, the date that is 12 months following the date that such founder ceases to provide services to the Company and our subsidiaries as an executive officer, employee or director of the Company, and, in the case of any other holder, immediately at the occurrence of any such event, and (c) in the case of a founder of the Company or any other holder, at least 80 % (subject to customary capitalization adjustments) of the Class B common stock held by such founder (on a fully as converted/as exercised basis) as of immediately following the closing of the Business Combination having been transferred (subject to exceptions for certain permitted transfers).

In the event of our voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of the Company’s common stock will be entitled to receive an equal amount per share of all of our assets of whatever kind available for distribution to stockholders, after the rights of the holders of any preferred stock have been satisfied.

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Note 10 - Stock-Based Compensation

2021 Stock Plan

In August 2021, we adopted the 2021 Equity Incentive Plan (“2021 Plan”), which was approved by the stockholders of the Company in September 2021 and became effective immediately upon the closing of the Business Combination.

The 2021 Plan provides for the grant of incentive and non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards, and other awards to employees, directors, and non-employees.

Initially, the aggregate number of shares of Class A common stock that may be issued under the plan will not exceed 7,453,588 shares.

In addition, the number of shares of Class A common stock reserved for issuance under the 2021 Plan will automatically increase on January 1st of each year, starting on January 1, 2022 and ending on December 31, 2030, in an amount equal to the lesser of (1) 2.0 % of the total number of shares of Class A common stock outstanding on December 31 of the preceding year, or (2) a lesser number of Class A common stock determined by the board of directors prior to the date of the increase.

The maximum number of Class A common stock that may be issued on the exercise of incentive stock options under the 2021 Plan is 22,360,764 shares.

2019 Stock Plan

Stock Options

In January 2021, we granted 1,277,622 incentive and non-statutory stock options under Legacy Archer’s 2019 Equity Incentive Plan (the “2019 Plan”).

Following the Business Combination, we assumed the outstanding stock options under the 2019 Plan and converted such stock options into options to purchase our common stock.

Such stock options will continue to be governed by the terms of the 2019 Plan and the stock option agreements thereunder, until such outstanding options are exercised or until they terminate or expire.

The 2019 Plan terminated in connection with the Business Combination, and no further awards will be made under the 2019 Plan.

A summary of our employee stock option activity is as follows (in millions, except share and per share data):

Outstanding as of January 1, 2021 11,240,403 $ 0.11 9.61 $ 137.9

Granted 1,211,885 0.15

Exercised ( 3,261,086 ) 0.12 34.7

Expired/forfeited ( 19,074 ) 0.15

Outstanding as of September 30, 2021

9,172,128 0.12 8.90 80.4

Exercisable as of September 30, 2021

306,665 0.05 8.47 2.7

Vested and expected to vest as of September 30, 2021

9,172,128 0.12 8.90 80.4

A summary of our non-employee stock option activity is as follows (in millions, except share and per share data):

Outstanding as of January 1, 2021 1,396,696 $ 0.15 9.84 $ 17.1

Granted 65,737 0.15

Exercised ( 337,997 ) 0.15 4.4

Outstanding as of September 30, 2021

1,124,436 0.15 9.10 9.8

Exercisable as of September 30, 2021

54,691 0.15 9.16 0.5

Vested and expected to vest as of September 30, 2021

1,124,436 0.15 9.10 9.8

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Determination of Fair Value

The assumptions used in the Black-Scholes option pricing model are provided in the following table.

September 30, 2021 December 31, 2020

Risk-free interest rate:

Employee stock options 0.62 % 0.52 — 1.52 %

Non-employee stock options 1.08 % 0.79 %

Expected term (in years):

Employee stock options 6.32 6.02 — 6.32

Non-employee stock options 10.00 10.00

Expected volatility:

Employee stock options 87.94 % 60.00 — 70.00 %

Non-employee stock options 88.03 % 60.00 %

Dividend yield:

Employee stock options 0.00 % 0.00 %

Non-employee stock options 0.00 % 0.00 %

Grant date fair value per share:

Employee stock options $ 13.65 $ 0.02 — $ 0.08

Non-employee stock options $ 13.68 $ 0.10

We recognized stock-based compensation expense of $ 0.9 million and $ 0.1 million for employee and non-employees, respectively, for stock options for the three months ended September 30, 2021.

For the nine months ended September 30, 2021, we recognized stock-based compensation expense of $ 2.6 million and $ 0.3 million for employees and non-employees, respectively.

For the three and nine months ended September 30, 2020, we recognized an immaterial amount of stock-based compensation expense related to stock options for employees.

As of September 30, 2021, the total remaining stock-based compensation expense for unvested stock options was $ 14.5 million and $ 0.7 million for employees and non-employees, respectively, which are expected to be recognized over a weighted-average period of 1.5 years and 1 year for employees and non-employees, respectively.

Restricted Stock

Immediately prior to closing of the Business Combination, each of our founders was granted 20,009,224 restricted stock units under the 2019 Stock Plan pursuant to the terms and conditions of the Business Combination Agreement.

Considering each of the founder’s existing equity ownership and assuming the Founder Grants fully vest, it would result in each of the founders owning approximately 18 % of all outstanding shares of the Total Outstanding Capitalization of the Company (as defined in the Business Combination Agreement).

One-quarter of each Founder Grant vests upon the achievement of the earlier to occur of (i) a price-based milestone or (ii) a performance-based milestone, with a different set of such price and performance-based milestones applying to each quarter of each Founder Grant and so long as the achievement occurs within seven years following the closing of the Business Combination.

We account for the Founder Grants as four separate tranches, with each tranche consisting of two award grants, a performance award grant and market award grant.

Each tranche vests when either the market condition or performance condition is satisfied (only one condition is satisfied).

We determined the fair value of the performance award by utilizing the trading price on the Closing Date.

When the applicable performance milestone is deemed probable of being achieved, we will recognize compensation expense for the portion earned to date over the requisite period.

For the market award, we determined both the fair value and derived service period using a Monte Carlo simulation model on the Closing Date.

The Company will recognize compensation expense for the market award on a straight-line basis over the derived service period.

If the applicable performance condition is not probable of being achieved, compensation cost for the value of the award incorporating the market condition is recognized, so long as the requisite service is provided.

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 canceled.

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

The following assumptions were used to estimate the fair value, using the Monte Carlo simulation, of the market award grant:

September 30, 2021

Stock price $ 9.92

Term (in years) 7

Volatility 55.00 %

Risk-free interest rate 1.13 %

Dividend yield 0.00 %

As of September 30, 2021, one-quarter of each Founder Grant, totaling 5,002,306 shares each of Class B common stock, has vested.

Accordingly, the Company recorded expense of $ 101.7 million in general and administrative expenses in the statements of operations and comprehensive loss.

A summary of our restricted stock activity is as follows:

Outstanding as of January 1, 2021 570,722 $ 0.04

Granted 40,018,448 7.28

Vested ( 10,575,334 ) 9.39

Outstanding as of September 30, 2021

30,013,836 6.39

For the three and nine months ended September 30, 2021, the Company recognized stock-based compensation expense of $ 101.7 million related to restricted stock units granted to the Company’s founders, as discussed above.

For the nine months ended September 30, 2021 and three and nine months ended September 30, 2020, the Company recognized an immaterial amount of stock-based compensation expense related to restricted stock awards for non-employees.

As of September 30, 2021, the total remaining stock-based compensation expense for unvested restricted stock was $ 295.2 million, which is expected to be recognized over a weighted-average period of 3 years.

The Company records stock-based compensation expense for stock-based compensation awards based on the fair value on the date of grant.

The stock-based compensation expense is recognized ratably over the course of the requisite service period.

The Company has elected to account for forfeitures as they occur and will record stock-based compensation expense assuming all stockholders will complete the requisite service period.

If an employee forfeits an award because they fail to complete the requisite service period, the Company will reverse stock-based compensation expense previously recognized in the period the award is forfeited.

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

The following table presents stock-based compensation expense included in each respective expense category in the statements of operations and other comprehensive loss (in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Research and development $ 0.8 $ — $ 2.2 $ —

General and administrative 102.0 — 102.5 —

Total stock-based compensation expense $ 102.8 $ — $ 104.7 $ —

Employee Stock Purchase Plan

In August 2021, we adopted the 2021 Employee Stock Purchase Plan (the “ESPP”), which became effective immediately upon the closing of the Business Combination.

The ESPP permits eligible employees to purchase shares of Class A common stock at a price equal to 85 % of the lower of the fair market value of Class A shares on the first day of an offering or on the date of purchase.

The maximum number of shares of Class A common stock that may be issued under the ESPP will not exceed 4,969,059 shares.

Additionally, the number of shares of Class A common stock reserved for issuance under the ESPP will automatically increase on January 1st of each year, beginning on January 1, 2022 and continuing through and including January 1, 2031, by the lesser of (i) 1.0 % of the total number of shares of Class A common stock outstanding on December 31st of the preceding calendar year;

(ii) 9,938,118 shares of Class A common stock;

or (iii) such lesser number of shares of the Company as determined by the board of directors.

Collaboration and Warrant Agreements

United Airlines

On January 29, 2021, the Company entered into a Purchase Agreement, Collaboration Agreement, and a Warrant agreement with United Airlines Inc.

Under the terms of the Purchase Agreement, United has a conditional purchase order for up to 200 of our aircraft, with an option to purchase an additional 100 aircraft.

Those purchases are conditioned upon us meeting certain conditions that include, but are not limited to, the certification of our aircraft by the Federal Aviation Administration (“FAA”) and further negotiation and reaching of mutual agreement on certain material terms related to the purchases.

We issued 14,741,764 warrants to United to purchase shares of the Company’s common stock.

Each warrant provides United with the right to purchase one share of our Class A common stock at an exercise price of $ 0.01 per share.

The warrants vest in four equal installments in accordance with the following milestones:

the execution of the Purchase and Collaboration Agreements, completion of the Business Combination, the certification of the aircraft by the FAA, and the initial sale of aircraft to United.

On January 29, 2021, a valuation of the Company’s common stock was performed, valuing the Company’s common stock at $ 13.35 per share.

The value of the common stock was determined using a hybrid approach of the OPM and PWERM, with the PWERM weighted at 80 % primarily based on management’s expectation of the planned merger as described in Note 1 and the OPM weighted at 20 % due to uncertainties in the timing of other possible scenarios.

The Company used the OPM to allocate value in a stay private scenario.

Given the $ 0.01 exercise price, each warrant also had a fair value of $ 13.35 at the grant date.

The Company determined that as a result of the relationship established by signing the Purchase Agreement, United is a customer with the intention of obtaining the output of the Company’s ordinary activities (design and production of aircraft).

United has not contracted to share in the risks and benefits of development of the aircraft, and United is not otherwise involved in the development of the aircraft.

As a result, the Company accounts for the Purchase and Collaboration Agreements under ASC 606, Revenue from Contracts with Customers .

The Company identified the sale of each aircraft ordered by United as a separate performance obligation in the contract.

As the performance obligations have not been satisfied, the Company has not recognized any revenue as of September 30, 2021.

With respect to the four warrant vesting milestones outlined above, the Company accounts for them as consideration payable to a customer under ASC 606 related to the future purchase of aircraft by United.

Pursuant to ASC 718, the Company measured the grant date fair value of the warrants to be recognized upon the achievement of each of the four milestones and the

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

vesting of the related warrants.

The Company determined that the warrants will be classified as equity awards based on the criteria of ASC 480 and ASC 718.

Pursuant to ASC 606, consideration payable to the customer is generally accounted for as a reduction to revenue and recorded at the later of when (i) the entity recognizes revenue for the transfer of related goods, or (ii) the entity pays the consideration.

Due to the nature of the four warrant vesting milestones, and the Company’s unique circumstances upon the actual or anticipated vesting dates as described below, the recognition pattern and cost presentation of each will differ.

For the first milestone, issuance of the warrant in conjunction with the execution of the Purchase and Collaboration Agreements, the Company has recorded the grant date fair value of the respective warrant tranche at the vesting date upon satisfaction of the milestone.

The Company does not believe that the consideration payable for the first milestone was provided in exchange for a distinct good or service.

Rather, the consideration was to induce United to commit to a contingent purchase agreement for an aircraft from the Company.

The related costs for this milestone were recorded in other warrant expense in the statements of operations and comprehensive loss due to the absence of historical or probable future revenue.

For the second milestone, the completion of the Business Combination transaction, the related costs were also recorded in other warrant expense in the statements of operations and comprehensive loss due to the absence of historical or probable future revenue.

For the third warrant vesting milestone, the certification of the aircraft by the FAA, the Company will assess whether it is probable that the award will vest at the end of every reporting period.

If and when the award is deemed probable of vesting, the Company will begin capitalizing the grant date fair value of the associated warrant as an asset through the vesting date and subsequently amortize the asset as a reduction to revenue as it sells the new aircraft to United.

For the fourth milestone, the sale of aircraft to United, the Company will record the cost associated with the vesting of each portion of warrants within this milestone as a reduction of the transaction price as revenue is recognized for each sale of the aircraft.

As of September 30, 2021, the first and second vesting milestones had been achieved.

Accordingly, the Company recorded the associated expense of $ 39.1 million and $ 117.3 million for the three and nine months ended September 30, 2021, respectively, related to 8,845,058 warrants that vested.

On November 6, 2020, we entered into a Collaboration Agreement with FCA US LLC (“FCA”), in which both parties agreed to work together to complete a series of fixed duration collaboration projects related to our ongoing efforts to design, develop, and bring up production capabilities for our aircraft.

In exchange for services to be provided by FCA under the Collaboration Agreement, we issued a warrant to FCA on November 6, 2020, in which FCA has the right to purchase up to 1,671,202 shares of our Class A common stock at an exercise price of $ 0.01 per share (subject to appropriate adjustment in the event of a stock dividend, stock split, combination, or other similar recapitalization).

In September 2020, a valuation of the Company’s common and preferred stock was performed, valuing our common stock and Series A Preferred Stock at $ 0.15 and $ 1.20 per share, respectively.

The warrant expires on November 6, 2025.

Shares under the warrant vest based on the completion of specific aircraft development milestones identified under the Collaboration Agreement which are expected to be achieved on a rolling basis through December 2022.

As the Company is currently in pre-revenue stage and is not generating any revenue from the collaboration agreement, all costs incurred with third parties are recorded based on the nature of the cost incurred.

The Company accounts for the warrant in accordance with the provisions of ASC 718.

The Company will assess whether it is probable that the award will vest for each of the seven milestones at the end of every reporting period.

If and when the award is deemed probable of vesting, the Company will recognize compensation expense for the portion of the grant determined probable of vesting on a straight-line basis over the duration of each milestone.

If services had been provided by FCA prior to management determining the milestone is probable of being achieved, a cumulative catch-up adjustment will be recorded for services performed in prior periods.

Costs incurred under the Collaboration Agreement and warrant are associated with the design, development, and bring up of production for our aircraft and are recorded in R&D expense in the statements of operations and comprehensive loss.

During the three and nine months ended September 30, 2021, the Company recorded $ 0.1 million of expense related to the completion of four milestones, amounting to 986,010 shares that have vested.

FCA Italy S.p.A.

On July 19, 2021, we entered into a Manufacturing Consulting Agreement with an affiliate of FCA, FCA Italy S.p.A.

(“FCA Italy”), in which both parties agreed to work together to complete a series of fixed duration projects to develop manufacturing and production processes in connection with our ongoing efforts to bring up production capabilities for our aircraft.

In conjunction with the Manufacturing Consulting Agreement, we issued a warrant to FCA Italy, in which FCA Italy has the right to purchase up to 1,077,024 shares of our Class A common stock at an exercise price of $ 0.01 per share.

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

2021, a valuation of the warrant was performed, valuing it at $ 8.98 per share.

The shares underlying the warrant vest in two equal installments in accordance with two time-based milestones.

The Company accounts for the warrant in accordance with ASC 718.

The Company recognized compensation cost for half of the shares that were fully vested upon execution of the Manufacturing Consulting Agreement.

The Company will recognize compensation cost for the remaining half of the warrant as the related services are received from FCA Italy on a straight-line basis over the service period of 12 months.

During the three months ended September 30, 2021, the Company recorded $ 5.6 million of expense in R&D expense in the statements of operations and comprehensive loss related to the warrants that vested.

Note 11 - Income Taxes

We recognized zero and an immaterial amount of income tax expense for the three and nine months ended September 30, 2021, respectively, resulting in an effective tax rate of 0 %.

The Company did not recognize an income tax benefit/(expense) during the three and nine months ended September 30, 2020.

The effective tax rate is different from the federal statutory tax rate primarily due to a full valuation allowance against deferred tax assets.

In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible.

Based upon the analysis of federal and state deferred tax balances, future tax projections, and the Company’s lack of taxable income in the carryback period, the Company recorded a full valuation allowance against the federal and state deferred tax assets as of September 30, 2021 and 2020.

Note 12 - 401(k) Savings Plan

We maintain a 401(k) savings plan for the benefit of our employees.

We make matching contributions equal to 50 % of each employee contribution, subject to the maximum amount established by the Internal Revenue Service.

All current employees are eligible to participate in the 401(k) savings plan.

Our matching contributions were approximately $ 0.2 million and $ 0.5 million for the three and nine months ended September 30, 2021, respectively, and $ 0.1 million and $ 0.2 million for the three and nine months ended September 30, 2020, respectively.

Note 13 - Liability Classified Warrants

As of September 30, 2021, there were 17,398,947 public w arrants outstanding.

Public warrants may only be exercised for a whole number of shares.

No fractional shares are issued upon exercise of the public warrants.

The public warrants became exercisable on October 30, 2021, 12 months after the closing of the initial public offering of Atlas.

The public warrants will expire five years from the consummation of the Business Combination or earlier upon redemption or liquidation.

Once the public warrants become exercisable, the Company may redeem the public warrants for redemption:

• in whole and not in part;

• at a price of $ 0.01 per public warrant;

• upon not less than 30 days’ prior written notice of redemption to each warrant holder;

• if, and only if, the closing price of the Class A common stock equals or exceeds $ 18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 -trading day period commencing after the warrants become exercisable and ending three business days before the Company sends the notice of redemption to the warrant holders.

Archer Aviation Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Each public warrant entitles the registered holder to purchase one share of Class A common stock at a price of $ 11.50 per share.

The exercise price and number of Class A common stock issuable upon exercise of the public warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation.

The public warrants will not be adjusted for issuances of Class A common stock at a price below its exercise price.

Additionally, in no event will the Company be required to net cash settle the public warrants.

As of September 30, 2021, there were 8,000,000 private placement warrants outstanding.

The private placement warrants are identical to the public warrants underlying the shares sold in the initial public offering of Atlas, except that the private placement warrants and the shares of Class A common stock issuable upon the exercise of the private placement warrants will not be transferable, assignable or salable until 30 days after the completion of the Business Combination, subject to certain limited exceptions.

Additionally, the private placement warrants will be exercisable on a cashless basis and will be non-redeemable so long as they are held by the initial purchasers or their permitted transferees.

If the private placement warrants are held by someone other than the initial purchasers or their permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants.

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-Q

Item 1. Financial Statements