What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-15 compared with 2022-03-14 · 463 added, 423 removed, 591 unchanged (60% of the section changed)

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Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

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We have audited the accompanying consolidated balance sheets of Archer Aviation Inc.

(the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, of redeemable convertible preferred stock and stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive loss, of stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

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Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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Cash and cash equivalents $ 69.4 $ 746.6

Restricted cash 2.9 0.3

Short-term investments 461.8 —

Prepaid expenses 9.8 7.6

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Accumulated deficit ( 690.9 ) ( 373.6 )

Accumulated other comprehensive loss ( 0.8 ) —

Total stockholders’ equity 493.3 698.9

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Archer Aviation Inc.

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Operations

(In millions, except share and per share data)

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Gain on forgiveness of PPP loan — 0.9

Other income 10.6 —

Interest expense ( 1.0 ) ( 0.2 )

Other income, net 27.8 10.6

Interest income (expense), net 2.3 ( 1.0 )

Loss before income taxes ( 317.3 ) ( 347.8 )

Net loss and comprehensive loss $ ( 347.8 ) $ ( 24.8 )

Net loss $ ( 317.3 ) $ ( 347.8 )

Net loss per share, basic and diluted $ ( 1.32 ) $ ( 3.14 )

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Archer Aviation Inc.

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

Consolidated Statements of Comprehensive Loss

(In millions)

Year Ended December 31,

Net loss $ ( 317.3 ) $ ( 347.8 )

Other comprehensive loss:

Unrealized loss on available-for-sale securities, net of tax ( 0.8 ) —

Comprehensive loss $ ( 318.1 ) $ ( 347.8 )

See accompanying notes to consolidated financial statements.

Archer Aviation Inc.

Consolidated Statements of 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

Common Stock Additional

Comprehensive

Class A Class B

Shares Amount Shares Amount

Balance as of December 31, 2021 162,789,591 $ — 74,937,945 $ — $ 1,072.5 $ ( 373.6 ) $ — $ 698.9

Conversion of Class B to Class A common stock — — — — — — 5,337,446 — ( 5,337,446 ) — — — —

Conversion of Class B common stock to Class A common stock 8,406,170 — ( 8,406,170 ) — — — — —

Issuance of restricted stock and restricted stock expense 5,269,553 — — — 71.3 — — 71.3

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Issuance of warrants and warrant expense — — — — 14.1 — — 14.1

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

Cancellation of Class B common stock (Note 10) — — ( 5,002,306 ) — — — — —

Stock-based compensation — — — — 26.7 — — 26.7

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 — — — — — ( 317.3 ) — ( 317.3 )

Other comprehensive loss — — — — — — ( 0.8 ) ( 0.8 )

Balance as of December 31, 2022 177,900,738 $ — 63,738,197 $ — $ 1,185.0 $ ( 690.9 ) $ ( 0.8 ) $ 493.3

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

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

Common Stock Additional

Comprehensive

Class A Class B

Shares Amount Shares Amount

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

Conversion of Class B common stock to Class A common stock 5,337,446 — ( 5,337,446 ) — — — — —

Issuance of restricted stock and restricted stock expense 20,833 — 10,004,612 — 118.1 — — 118.1

Exercise of stock options 859,544 — 3,556,492 — 0.5 — — 0.5

Issuance of warrants and warrant expense — — — — 124.3 — — 124.3

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

Stock-based compensation — — — — 5.5 — — 5.5

Issuance of preferred stock — — — — — — 30,596,077 — 11,551,213 — 50.3 — 50.3

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

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 — — — — — ( 347.8 ) — ( 347.8 )

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

Depreciation and amortization 1.3 0.2

Debt discount amortization 0.2 —

Depreciation, amortization and other 4.4 1.3

Debt discount and issuance cost amortization 0.5 0.2

Stock-based compensation 102.8 123.6

Change in fair value of warrant liabilities ( 10.4 ) —

Non-cash interest — 0.3

Change in fair value of warrant liabilities and other warrant costs ( 22.9 ) ( 10.4 )

Non-cash lease expense 4.6 1.7

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Other warrant expense 10.8 117.3

Interest income on short-term investments ( 0.5 ) —

Accretion and amortization income of short-term investments ( 4.9 ) —

Gain on forgiveness of PPP loan — ( 0.9 )

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Accrued expenses and other current liabilities 15.6 12.1

Operating lease liabilities ( 1.9 ) —

Operating lease right-of-use assets and lease liabilities, net ( 3.4 ) ( 1.9 )

Other long-term liabilities 10.1 —

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Cash flows from investing activities

Purchase of short-term investments ( 487.4 ) —

Proceeds from maturities of short-term investments 30.0 —

Purchase of property and equipment ( 6.9 ) ( 3.5 )

Purchase of domain names — ( 0.5 )

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

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Proceeds from issuance of debt — 20.0

Repayment of debt ( 10.0 ) —

Proceeds from PIPE financing — 600.0

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Proceeds from exercise of stock warrants — 0.1

Proceeds from issuance of preferred stock, net — 50.3

Payment of debt issuance costs — ( 0.2 )

Net cash provided by financing activities 822.2 51.2

Net increase in cash and cash equivalents 710.3 26.5

Cash and cash equivalents, beginning of period 36.6 10.1

Cash and cash equivalents, end of period $ 746.9 $ 36.6

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

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 674.6 ) 710.3

Cash, cash equivalents, and restricted cash, beginning of period 746.9 36.6

Cash, cash equivalents, and restricted cash, end of period $ 72.3 $ 746.9

Supplemental Cash Flow Information:

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Non-cash investing and financing activities:

Purchases of property and equipment included in accounts payable 2.1 0.3

Promissory notes and interest settled with preferred shares — 5.3

Purchases of property and equipment included in accounts payable and accrued expenses 3.1 2.1

Allocation of debt proceeds to stock warrants — 1.2

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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.

Our Planned Lines of Business

Upon receipt of all necessary Federal Aviation Administration (“FAA”) certifications and any other government approvals necessary for us to manufacture and operate our aircraft, we intend to operate two complementary lines of business.

Our core focus is direct-to-consumer (“Archer UAM”) with our secondary focus being business-to-business (“Archer Direct”).

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

cities, such as Los Angeles and Miami.

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

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

The Company is designing and developing electric vertical takeoff and landing (“eVTOL”) aircraft for use in urban air mobility (“UAM”) networks.

The Company’s mission is to unlock the skies, freeing everyone to reimagine how they move and spend time.

The Company’s Planned Lines of Business

Upon receipt of all necessary Federal Aviation Administration (“FAA”) certifications and any other government approvals necessary for the Company to manufacture and operate its aircraft, the Company intends to operate two complementary lines of business.

The Company’s core focus is direct-to-consumer offerings (“Archer UAM”) with its secondary focus being business-to-business offerings (“Archer Direct”).

The Company plans to operate its own UAM ecosystem initially in select major U.S.

The Company’s UAM ecosystem will operate using its eVTOL aircraft which is currently in development.

Archer Direct

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

The Company also plans to selectively sell a certain amount of its eVTOL aircraft to third parties.

Business Combination

On September 16, 2021 (the “Closing Date”), Archer Aviation, Inc., a Delaware corporation (prior to the closing of the Business Combination (as defined below), “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”).

On September 16, 2021 (the “Closing Date”), Archer Aviation, Inc., a Delaware corporation (prior to the closing of the Business Combination (as defined below), “Legacy Archer”), Atlas Crest Investment Corp., a Delaware corporation (“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 refer to Archer prior to the Business Combination and references in these notes to “New Archer” refer to Archer following the Business Combination.

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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 Class A common stock of the combined company (“PIPE Financing”).

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

Archer Aviation Inc.

Notes to Consolidated Financial Statements

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 common stock.

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;

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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 I, Item 1A, “Risk Factors” in this Annual Report for more information.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

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 7 and Note 8), and the sale of preferred and common stock to related and third parties (Note 10).

Through December 31, 2021, we have incurred cumulative losses from operations, negative cash flows from operating activities, and have an accumulated deficit of $ 373.6 million.

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

Additionally, we had cash and cash equivalents of $ 746.9 million as of December 31, 2021, which management believes will be sufficient to fund our current operating plan for at least the next 12 months from the date these consolidated financial statements were 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.

Since the Company’s formation, the Company has devoted substantial effort and capital resources to the design and development of its 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 7), and the sale of preferred and common stock to related and third parties (Note 9).

Through December 31, 2022, the Company has incurred cumulative losses from operations and negative cash flows from operating activities and has an accumulated deficit of $ 690.9 million.

Following the closing of the Business Combination on the Closing Date, the Company received net cash proceeds of $ 801.8 million.

As of December 31, 2022, the Company had cash and cash equivalents of $ 69.4 million and short-term investments in marketable securities of $ 461.8 million, which management believes will be sufficient to fund the Company’s current operating plan for at least the next 12 months from the date these consolidated financial statements were issued.

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

If the Company’s business plans require it to raise additional capital, but the Company is unable to do so, it may be required to alter, or scale back its aircraft design, development and certification programs, as well as its manufacturing capabilities, or be unable to fund capital expenditures.

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

Note 3 - Summary of Significant Accounting Policies

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GAAP and include the accounts of the Company.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

Use of Estimates

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On an ongoing basis, management evaluates its estimates, including those related to the:

(i) realization of deferred tax assets and estimates of tax liabilities, (ii) valuation of common stock, (iii) fair value of debt, (iv) fair value of share-based payments, (v) valuation of leased assets and liabilities, and (vi) estimated useful lives of long-lived assets.

(i) realization of deferred tax assets and estimates of tax liabilities, (ii) fair value of debt, (iii) fair value of share-based payments, (iv) valuation of leased assets and liabilities, and (v) estimated useful lives of long-lived assets.

These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

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Actual results may differ from those estimates under different assumptions, financial inputs, or circumstances.

Given the global economic climate and unpredictable nature and unknown duration of the COVID-19 pandemic, estimates are subject to additional volatility.

Given the global economic climate and unpredictable nature and unknown duration of the ongoing COVID-19 pandemic, estimates are subject to additional volatility.

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.

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

Pursuant to U.S.

GAAP, we recast our consolidated statements of redeemable convertible preferred stock and stockholders’ equity from December 31, 2019 to the Closing Date, the total stockholders’ equity within our consolidated balance sheet as of December 31, 2020 and the weighted-average outstanding shares, basic and diluted for the year ended December 31, 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 financial statements and the accompanying notes.

Retroactive Application of Reverse Recapitalization to the Consolidated 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, restricted stock units (“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 number 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 Statements of Operations and Comprehensive Loss

Furthermore, based on the retroactive application of the reverse recapitalization to our consolidated statements of redeemable convertible preferred stock and stockholders’ equity, we recalculated the weighted-average shares for the year ended December 31, 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 statements of redeemable convertible preferred stock and stockholders’ equity.

Retroactive Application of Reverse Recapitalization to the Consolidated 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 December 31, 2020.

GAAP, the Company retrospectively recast its weighted-average outstanding shares within the Company’s consolidated statement of operations for the year ended December 31, 2021.

As part of the closing, all of Legacy Archer’s issued Series Seed redeemable convertible preferred stock and Series A redeemable convertible preferred stock were converted into Legacy Archer common stock, which were converted again, along with all other issued and outstanding common stock of Legacy Archer, into New Archer Class A common stock and New Archer Class B common stock.

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

Archer Aviation Inc.

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Cash and cash equivalent balances were $ 69.4 million and $ 746.6 million as of December 31, 2022 and 2021, respectively, of which money market funds were $ 4.4 million and $ 0.3 million as of December 31, 2022 and 2021, respectively.

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

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and deposits.

The Company’s cash and cash equivalents are held at major financial institutions located in the United States of America.

At times, cash account balances with any one financial institution may exceed Federal Deposit Insurance Corporation insurance limits ($250 thousand per depositor per institution).

Management believes the financial institutions that hold the Company’s cash and cash equivalents are financially sound, and accordingly, minimal credit risk exists with respect to cash and cash equivalents.

Restricted cash consists of cash held as security for the Company’s standby letters of credit to support three of the Company’s leased properties.

Refer to Note 8 - Commitments and Contingencies for further details.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets that sum to amounts reported on the consolidated statements of cash flows (in millions):

2022 December 31,

Cash and cash equivalents $ 69.4 $ 746.6

Restricted cash 2.9 0.3

Total cash, cash equivalents, and restricted cash $ 72.3 $ 746.9

Short-Term Investments

The Company has short-term investments in marketable securities with original maturities of less than one year, including U.S.

Treasury securities, corporate debt securities and commercial paper.

The Company classifies its marketable securities as available-for-sale at the time of purchase and reevaluates such classification at each balance sheet date.

These marketable securities are carried at fair value, and unrealized gains and losses are recorded in other comprehensive loss in the consolidated condensed statements of comprehensive loss, which is reflected as a component of stockholders’ equity.

These marketable securities are assessed as to whether those with unrealized loss positions are other than temporarily impaired.

The Company considers impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely the securities will be sold before the recovery of their cost basis.

Realized gains and losses from the sale of marketable securities and from declines in value deemed to be other than temporary are determined based on the specific identification method and recognized in other income, net in the consolidated condensed statements of operations.

Fair Value Measurements

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 Company applies 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.

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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 December 31, 2021 and 2020 and indicates the fair value hierarchy of the valuation inputs we utilized to determine such fair value:

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

Archer Aviation Inc.

Notes to Consolidated Financial Statements

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2022 and 2021 and indicate the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value (in millions):

As of December 31, 2022

Description Level 2021 2020

(In millions)

Description Level 1 Level 2 Level 3 Total

Cash Equivalents:

Money market funds $ 4.4 $ — $ — $ 4.4

Short-Term Investments:

Treasury securities $ 316.6 $ — $ — $ 316.6

Corporate debt securities $ — $ 20.1 $ — $ 20.1

Commercial paper $ — $ 125.1 $ — $ 125.1

Warrant Liability – Public Warrants $ 4.5 $ — $ — $ 4.5

Warrant Liability – Private Placement Warrants $ — $ — $ 2.5 $ 2.5

Public Warrants

As of December 31, 2021

Description Level 1 Level 2 Level 3 Total

Money market funds $ 0.3 $ — $ — $ 0.3

Warrant Liability – Public Warrants $ 20.2 $ — $ — $ 20.2

Warrant Liability – Private Placement Warrants $ — $ — $ 10.1 $ 10.1

Cash Equivalents

The Company’s 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.

The Company classifies its money market funds as Level 1, because they are valued based on quoted market prices in active markets.

Short-Term Investments

The Company’s short-term investments consist of high quality, investment grade marketable securities and are classified as available-for-sale.

The Company classifies its investments in U.S.

Treasury securities as Level 1, because they are valued using quoted market prices in active markets.

The Company classifies its investments in corporate debt securities and commercial paper as Level 2, because they are valued using inputs other than quoted prices which are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

The following table presents a summary of the Company’s cash equivalents and short-term investments as of December 31, 2022 (in millions) :

As of December 31, 2022

Description Amortized Cost Unrealized Gains Unrealized Losses Fair Value

Cash Equivalents:

Money market funds $ 4.4 $ — $ — $ 4.4

Short-Term Investments:

Treasury securities 317.4 — ( 0.8 ) 316.6

Corporate debt securities 20.1 — — 20.1

Commercial paper 125.1 — — 125.1

Total $ 467.0 $ — $ ( 0.8 ) $ 466.2

The unrealized losses related to the Company’s short-term investments were primarily due to changes in interest rates and not due to increased credit risk or other valuation concerns.

T he Company had no other-than-temporary impairments for the year ended December 31, 2022 .

Public Warrants

The measurement of the public warrants as of December 31, 2022 is classified as Level 1 due to the use of an observable market quote in an active market under the ticker ACHR WS.

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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 Company utilizes a Monte Carlo simulation model for the private placement warrants at each reporting period, with changes in fair value recognized in the consolidated statements of operations.

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

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Input December 31,

2022 December 31,

Stock price $ 1.87 $ 6.04

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Risk-free rate 4.14 % 1.22 %

The following table presents the change in fair value of our Level 3 private placement warrants during the years ended December 31, 2021 and 2020:

The following table presents the change in fair value of the Company’s Level 3 private placement warrants during the years ended December 31, 2022 and 2021:

Balance as of December 31, 2020 $ —

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Balance as of December 31, 2021 10.1

We recognized a gain in connection with changes in the fair value of warrant liabilities of $ 10.4 million within other income in the statement of operations and comprehensive loss during the year ended December 31, 2021 .

Change in fair value ( 7.6 )

Balance as of December 31, 2022 $ 2.5

Archer Aviation Inc.

Notes to Consolidated Financial Statements

The Company recognized a gain in connection with changes in the fair value of warrant liabilities of $ 23.3 million and $ 10.4 million within other income, net in the consolidated statements of operations during the years ended December 31, 2022 and 2021, respectively.

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

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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 December 31, 2021 approximates its carrying value.

The fair value of debt as of December 31, 2022 approximates its carrying value (Level 2).

Refer to Note 7 for additional information.

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

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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.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021 and 2020, the gross carrying amount for domain names was $ 0.5 million with $ 36 thousand and $ 3 thousand recorded in accumulated amortization on our balance sheets in each period, respectively.

During the years ended December 31, 2021 and 2020, we recognized amortization expense of $ 33 thousand and $ 3 thousand, respectively, included within general and administrative expenses in the statements of operations and comprehensive loss.

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

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

As of December 31, 2022 and 2021, the net carrying amounts for domain names were $ 0.4 million and $ 0.5 million recorded in the Company’s consolidated balance sheets, respectively.

Property and Equipment, Net

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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:

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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.

The Company reviews its 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 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.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

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.

The Company performs 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.

The Company did not identify any events or changes in circumstances that would indicate that the Company’s long-lived assets may be impaired and therefore determined there was no impairment of long-lived assets during all periods presented.

Cloud Computing Arrangements

The Company capitalizes certain implementation costs incurred in the application development stage of projects related to its cloud computing arrangements that are service contracts.

Capitalized implementation costs are recognized in other long-term assets in the consolidated balance sheets and amortized on a straight-line basis over the fixed, noncancellable term of the associated hosting arrangement plus any reasonably certain renewal periods.

Costs related to preliminary project activities and post-implementation activities are expensed as incurred.

As of December 31, 2022, the Company recognized $ 3.7 million of capitalized cloud computing implementation costs.

Operating Expenses

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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.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

R&D efforts focus on the design and development of the Company’s 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, and information technology, other related costs, depreciation, and an allocation of general overhead.

General and administrative expenses include $ 118.1 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 year ended December 31, 2021.

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

General and administrative expenses include $ 64.9 million and $ 118.1 million of expense related to the restricted stock units granted to the Company’s founders pursuant to the terms and conditions of the Business Combination Agreement immediately prior to closing (the “Founder Grants”), for the years ended December 31, 2022 and 2021.

Refer to Note 10 - Stock-Based Compensation for additional information.

Other Warrant Expense

Other warrant expense consists of expense related to the vesting of warrants issued related to the first two milestones in conjunction with the execution of the purchase agreement (“Purchase Agreement”), collaboration agreement (“United Collaboration Agreement”), and warrant agreement (“United Warrant Agreement”) with United Airlines Inc.

Other warrant expense consists entirely of non-cash expense related to the warrants issued in conjunction with the execution of the purchase agreement (“United Purchase Agreement”), collaboration agreement (“United Collaboration Agreement”), and warrant agreement (“United Warrant Agreement”) with United Airlines Inc.

Refer to Note 10 - Stock-Based Compensation 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 .

The Company’s 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 the Company’s Class A common stock upon vesting.

The Company recognizes 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.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

The Company estimates the fair value of stock 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.

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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.

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.

The Company uses the contractual term for non-employee awards.

Expected volatility — Since the Company does not have sufficient historical data on the volatility of its 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.

Dividend yield — The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future.

Forfeiture rate — The Company has 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, the Company will reverse stock-based compensation expense previously recognized in the period the award is forfeited.

The Company has not issued any stock options since the closing of the Business Combination.

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”)

Archer Aviation Inc.

Notes to Consolidated Financial Statements

Accounting and Valuation Guide:

The Company’s board of directors grants stock options with exercise prices equal to the fair value of the Company’s common stock on the date of grant.

Prior to the closing of the Business Combination, the Company determined the fair value of its 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;

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

(ii) the lack of marketability of the Company’s common stock;

(iii) actual operating and financial results;

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(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.

and (vi) precedent transactions involving the Company’s 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.

The Company 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”).

In allocating enterprise value to the Company’s outstanding equity, the Company 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.

Since there was no active market for our common stock, we also applied a discount for lack of marketability for both OPM and PWERM scenarios.

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.

Since there was no active market for the Company’s common stock, the Company also applied a discount for lack of marketability for both OPM and PWERM scenarios.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

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

There are significant judgments and estimates inherent in these valuations.

Since the closing of the Business Combination, the fair value of the Company’s common stock is based on the closing price of the Company’s Class A common stock, as quoted on the NYSE, on the date of grant.

The Company accounts for leases in accordance with ASC 842, Leases , and determines if an arrangement is a lease at its inception.

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The Company has placed a full valuation allowance against its federal and state deferred tax assets since the recovery of the assets is uncertain.

Should a change in circumstances lead to a

Archer Aviation Inc.

Notes to Consolidated Financial Statements

change in judgment about the utilization of deferred tax assets in future years, the adjustment related to valuation allowances would be reported as an increase to income.

Should a change in circumstances lead to a change in judgment about the utilization of deferred tax assets in future years, the adjustment related to valuation allowances would be reported as an increase to income.

The Company utilizes the guidance in ASC 740-10, Income Taxes , to account for uncertain tax positions.

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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.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

Because the Company 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.

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.

Because the Company 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.

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Warrants 30,558,565 32,519,357

Shares issuable under the Employee Stock Purchase Plan (Note 10)

Total 81,629,009 80,087,974

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance.

The Company’s CODM consists of its Co-Chief Executive Officers.

The Company’s CODM is its Chief Executive Officer.

The Company has determined that it operates as a single operating segment and one reportable segment, as the CODM reviews financial information presented on a combined basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.

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Comprehensive Loss

There were no differences between net loss and comprehensive loss presented in the statements of operations and comprehensive loss for the years ended December 31, 2021 and 2020.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

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 (“Topic 718”) (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.

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.

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 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.

Refer to Note 11 - Stock-Based Compensation 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.

Comprehensive loss includes all changes in equity during a period from nonowner sources.

The Company’s comprehensive loss consists of its net loss and its unrealized gains or losses on available-for-sale securities.

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 .

In August 2020, the Financial Accounting Standards Board 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.

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

Further, the ASU made amendments to the Earnings Per Share (“EPS”) guidance in ASU 2015-06, Earnings per share (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

Archer Aviation Inc.

Notes to Consolidated Financial Statements

exception from derivative accounting.

Further, the ASU made amendments to the Earnings Per Share (“EPS”) guidance in Topic 260, Earnings per share 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.

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

For all other entities, the amendments are effective for interim and annual periods beginning after December 15, 2023.

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.

The Company is currently evaluating the impact the adoption of this

Archer Aviation Inc.

Notes to Consolidated Financial Statements

standard will have on its financial statements and related disclosures.

No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s financial statements.

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.

Upon the consummation of the Business Combination on September 16, 2021, 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 an exchange ratio of 1.00656519 (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.

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Net assets acquired $ 162.3

The Company has accounted for the Business Combination as a tax-free reorganization.

The Company accounted for the Business Combination as a tax-free reorganization.

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.

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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,

Archer Aviation Inc.

Notes to Consolidated Financial Statements

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 number 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 .

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 number 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.

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Leasehold improvements 2.9 1.0

Construction in progress 4.8 —

Total property and equipment 15.1 7.3

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Total property and equipment, net $ 11.5 $ 5.9

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

Construction in progress includes costs incurred for leasehold improvements and other assets that have not yet been placed in service.

The following table presents depreciation expense included in each respective expense category in the consolidated statements of operations (in millions):

Year Ended December 31,

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Accrued capital expenditures 2.9 0.4

Accrued cloud computing implementation costs 2.0 —

Accrued marketing fees 0.2 0.3

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Total $ 36.7 $ 12.3

Note 7 - Related Party Transactions

Partial Recourse Promissory Notes

On November 21, 2020, we entered into a partial recourse promissory note arrangement 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 interest at a rate of 0.38 % per annum, compounded annually.

The promissory notes may be repaid at any time and from time to

Archer Aviation Inc.

Notes to Consolidated Financial Statements

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

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Silicon Valley Bank (“SVB”) Term Loans $ 10.0 $ 20.0

PPP loan — 0.9

Term Loans unamortized loan issuance fees and costs ( 1.2 ) —

Total debt, net of issuance costs 18.8 0.9

Less current portion, net of loan issuance fees and costs ( 9.5 ) ( 0.6 )

Total long-term notes payable, net of loan issuance fees and costs $ 9.3 $ 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 the PPP loan and interest in the consolidated statement of operations and comprehensive loss.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

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.

Term Loans unamortized discount and loan issuance costs ( 0.7 ) ( 1.2 )

Total debt, net of discount and loan issuance costs 9.3 18.8

Less current portion, net of discount and loan issuance costs ( 9.3 ) ( 9.5 )

Total long-term notes payable, net of discount and loan issuance costs $ — $ 9.3

On July 9, 2021, the Company, 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 total principal amount of the loans is $ 20.0 million (the “Term Loans”), and all obligations due under the Term Loans are collateralized by all of the Company’s 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 the Company 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 January 1, 2022, we shall repay the Term Loans in 24 equal monthly installments, which include principal and interest.

On January 1, 2022, the Company began repaying the Term Loans, which are payable in 24 equal monthly installments, including 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 December 31, 2021, we accrued interest of $ 0.1 million, and for the year ended December 31, 2021, the Company recognized interest expense of $ 0.9 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.

For the years ended December 31, 2022 and 2021, the Company recognized interest expense of $ 1.5 million and $ 0.9 million, respectively.

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

The Company 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 the Company’s Class A common stock.

The Company recorded the warrants as a liability at their fair value, which 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 the Company’s consolidated statements of operations.

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.

The Company 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, the Company 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.

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The quoted price of the public warrants was $ 0.26 as of December 31, 2022.

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 year ended December 31, 2021, we recognized interest expense in the amount of $ 0.2 million to the amortization of the loan issuance fee and issuance costs.

The unamortized balance of the discount and issuance costs totaled $ 1.2 million as of December 31, 2021.

The Company also incurred issuance costs of $ 0.2 million.

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

During the years ended December 31, 2022 and 2021, the Company recognized interest expense of $ 0.5 million and $ 0.2 million related to the amortization of the discount and loan issuance costs, respectively.

The unamortized balance of the discount and loan issuance costs was $ 0.7 million as of December 31, 2022.

The future scheduled principal maturities of notes payable as of December 31, 2022 are as follows (in millions):

Archer Aviation Inc.

Notes to Consolidated Financial Statements

Note 8 - Commitments and Contingencies

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The Company leases office, lab, hangar, and storage facilities under various operating lease agreements with lease periods expiring between 2023 and 2030 and generally containing periodic rent increases and various renewal and termination options.

On January 14, 2022, the Company entered into a sublease agreement with Forescout Technologies, Inc.

The sublease is for approximately 96,000 rentable square feet of building space in the building located at 190 West Tasman Drive, San Jose, California, which serves as the Company’s corporate headquarters.

The term of the sublease commenced on February 26, 2022 and will expire on October 31, 2026, with no right to extend.

The Company is also responsible for certain other costs under the sublease, such as certain build-out expenses, operating expenses, taxes, assessments, insurance, and utilities.

On March 9, 2022, the Company entered into a lease agreement with SIR Properties Trust.

The lease is for approximately 68,000 rentable square feet of building space in the building located at 77 Rio Robles, San Jose, California.

The Company intends that the premises will be used for lab space and a low rate initial production facility.

The term of the lease commences 210 days after the landlord delivers possession of the premises to the Company, subject to certain demolition work being completed, and will expire 90 months thereafter, with an option for the Company to extend the term for one additional five-year period.

The Company is also responsible for certain other costs under the lease, such as certain build-out expenses, operating expenses, taxes, assessments, insurance, and utilities.

However, the Company is expected to receive a $ 6.0 million leasehold improvement allowance from the landlord that will be applied against certain of the Company’s build-out expenses.

The Company took possession of the premises on October 8, 2022, and therefore the lease commenced in accordance with ASC 842.

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

Archer Aviation Inc.

Notes to Consolidated Financial Statements

Year Ended December 31,

Operating lease cost $ 5.8 $ 2.1

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

Year Ended December 31,

Short-term lease cost 0.2 —

Total lease cost $ 6.0 $ 2.1

The Company’s weighted-average remaining lease term and discount rate as of December 31, 2022 and 2021 were as follows:

Weighted-average remaining lease term (in months) 46 16

Weighted-average discount rate 13.78 % 11.06 %

The minimum aggregate future obligations under our non-cancelable operating leases as of December 31, 2021 were as follows (in millions):

Archer Aviation Inc.

Notes to Consolidated Financial Statements

The minimum aggregate future obligations under the Company’s non-cancelable operating leases as of December 31, 2022 were as follows (in millions):

Thereafter 6.7

Total future lease payments 28.4

leasehold improvement allowance ( 6.0 )

Total net future lease payments 22.4

imputed interest ( 9.5 )

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Operating cash outflows from operating leases $ 4.3 $ 1.9

Operating lease assets obtained in exchange for new lease liabilities 3.7 2.3

Operating lease liabilities from obtaining right-of-use assets 11.7 3.6

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 Aero LLC (“Wisk”) brought a lawsuit against us in the United States District Court for the Northern District of California (the “District Court”) 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 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 District Court denied our motion to dismiss the trade secret claims.

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

A trial on Wisk’s claims and our counterclaims has

On September 15, 2020, in conjunction with the operating lease for the Company’s old headquarters, the Company entered into a standby letter of credit in the amount of $ 0.3 million 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 expired on September 30, 2021.

On June 24, 2021, the Company entered into a standby letter of credit for the same amount, which automatically renews annually through September 1, 2023.

On February 23, 2022, in conjunction with the sublease the Company entered into for its new corporate headquarters, the Company entered into a standby letter of credit in the amount of $ 1.5 million in favor of the lessor, to satisfy the security deposit or other obligations of the leased property.

The standby letter of credit will be automatically reduced and renewed annually through February 1, 2026.

On March 31, 2022, in conjunction with the lease the Company entered into for its new lab space and low rate initial production facility, the Company entered into a standby letter of credit in the amount of $ 1.2 million in favor of the lessor, to satisfy the security deposit of the leased property.

The standby letter of credit automatically renews annually through September 28, 2030.

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

Wisk Litigation

On April 6, 2021, Wisk Aero LLC (“Wisk”) brought a lawsuit against the Company in the United States District Court for the Northern District of California (the “District Court”) alleging misappropriation of trade secrets and patent infringement.

The Company has filed certain counterclaims for defamation, tortious interference and unfair competition.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

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

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

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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.

In relation to the same investigation, 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.

On January 28, 2022, the U.S.

Attorney’s Office informed us that, based on its review, it has made the decision not to bring charges against this employee and does not intend to continue its investigation.

The proceedings are in the early stages.

We cannot predict their outcome or impact on us and our business.

As such, and in consideration of the above, we have not accrued any amounts related to the award of damages or settlement of this matter with Wisk.

Therefore, a negative result in these proceedings could have a material adverse effect on our reputation, financial position, liquidity, operations, and cash flows.

On January 19, 2022, the Company filed a motion for judgment on the pleadings to dismiss two of Wisk’s asserted patents as invalid, which the District Court granted on April 19, 2022.

The District Court separately ordered Wisk to narrow its trade secret case to 10 of the 52 alleged trade secrets and its patent case to eight claims across all patents that remain in the case.

Wisk has now narrowed its claims as ordered.

The deadline for filing motions for summary judgment and motions to exclude expert evidence is March 19, 2023.

The District Court is scheduled to hear oral argument on those motions on May 12, 2023.

A trial on Wisk’s claims and the Company’s counterclaims is currently scheduled to begin on August 14, 2023.

On April 6, 2022, the Company brought a lawsuit against The Boeing Company (“Boeing”) in the Superior Court of California, County of Santa Clara (the “Superior Court”), asserting substantially the same claims set forth in the Company’s counterclaims against Wisk.

On April 11, 2022, the Superior Court issued an order staying discovery and the responsive pleading deadline until after the case management conference set for August 2022.

On September 6, 2022, the Superior Court entered an order approving the parties’ joint stipulation to stay the Company’s lawsuit against Boeing pending the resolution of the lawsuit between Wisk and the Company in the District Court.

The Company continues to strongly believe Wisk’s lawsuit is without merit.

The Company will continue to vigorously defend itself against Wisk’s claims and pursue the Company’s counterclaims against Wisk and its claims against Boeing.

Because the Company cannot yet predict the outcome of these proceedings or their potential impact on the Company and its business, the Company has concluded that a potential loss amount or a potential range of loss is not probable or reasonably estimable under ASC 450, Contingencies, and therefore has not accrued any amounts related to the award of damages or settlement of this matter with Wisk.

Therefore, a negative result in these proceedings could have a material adverse effect on the Company’s 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.

Upon the effectiveness of the Company’s amended and restated certificate of incorporatio n on September 16, 2021, the Company is 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 177,900,738 and 162,789,591 shares of Class A common stock issued and outstanding as of December 31, 2022 and 2021, respectively.

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As of December 31, 2022, 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.

Pursuant to the terms of the Company’s 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

The ability of the board of directors to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control or the removal of existing management.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

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.

Except for voting rights and conversion rights, or as otherwise required by applicable law, the shares of the Company’s 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:

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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.

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 its 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).

During the years ended December 31, 2022 and 2021, 8,406,170 and 5,337,446 shares of Class B common stock were converted into Class A common stock, respectively.

In the event of the Company’s 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 the Company’s 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.

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Note 10 - Stock-Based Compensation

In August 2021, we adopted the 2021 Equity Incentive Plan (the “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.

On October 11, 2019, we adopted the 2019 Equity Incentive Plan (the “2019 Plan”).

The 2019 Plan terminated in connection with the Business Combination on September 16, 2021, and no further awards will be made under the 2019 Plan.

Following the closing of 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.

Amended and Restated 2021 Plan

In August 2021, the Company adopted the 2021 Equity Incentive Plan (the “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.

In April 2022, the Company amended and restated the 2021 Plan (the “Amended and Restated 2021 Plan”), which was approved by the stockholders of the Company in June 2022.

The aggregate number of shares of Class A common stock that may be issued under the plan increased to 34,175,708 .

In addition, the number of shares of Class A common stock reserved for issuance under the Amended and Restated 2021 Plan will automatically increase on January 1st of each year, starting on January 1, 2023 and ending on (and including) January 1, 2031, in an amount equal to the lesser of (1) 5.0 % 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 Amended and Restated 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.

In connection with the adoption of the 2021 Plan, the Company ceased issuing awards under its 2019 Equity Incentive Plan (the “2019 Plan”).

Following the closing of the Business Combination, the Company assumed the outstanding stock options under the 2019 Plan and converted such stock options into options to purchase the Company’s 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.

Stock Options

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

Employee Stock Purchase Plan

In August 2021, the Company 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 common stock 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.

In accordance therewith, the number of shares of Class A common stock reserved for issuance under the ESPP increased by 1,627,895 on January 1, 2022.

The Company currently offers six-month offering periods, and at the end of each offering period, which occurs every six months on May 31 and November 30, employees can elect to purchase shares of the Company’s Class A common stock with contributions of up to 15% of their base pay, accumulated via payroll deductions, subject to certain limitations.

The Company uses the Black-Scholes option pricing model to calculate the grant date fair value of each award granted under the ESPP.

The following table sets forth the key assumptions and fair value results for each award granted in the Company’s first offering period under the ESPP, which started on December 1, 2022:

December 1, 2022

Stock price $ 2.58

Risk-free interest rate 4.65 %

Term (in years) 0.50

Volatility 87.00 %

Dividend yield 0.00 %

Grant date fair value per share $ 1.00

During the year ended December 31, 2022, the Company recognized stock-based compensation expense of $ 0.1 million for the awards granted under the ESPP.

There were no ESPP offerings for the year ended December 31, 2021.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022, the total remaining stock-based compensation expense was $ 0.5 million for the awards granted under the ESPP, which is expected to be recognized over the current six-month offering period until May 31, 2023.

Quarterly Equity Awards

Subject to the achievement of certain performance goals established by the Company from time to time, the Company’s employees are eligible to receive an annual incentive bonus that will entitle them to a quarterly grant of a number of restricted stock units (“RSUs”) determined by dividing 25 % of the annual bonus target amount by the closing price of the Company’s Class A common stock on the date of grant.

The RSUs will be fully vested on the date of grant.

Furthermore, all the quarterly equity awards are contingent and issued only upon approval by the Company’s board of directors.

During the year ended December 31, 2022, the Company recognized stock-based compensation expense of $ 9.5 million related to these quarterly equity awards.

There were no quarterly equity awards granted for the year ended December 31, 2021.

Stock Options

A summary of the Company’s stock option activity is as follows:

(In millions)

Outstanding as of January 1, 2022 9,444,221 $ 0.12 8.66 $ 55.9

Granted 1,211,885 0.15

Exercised ( 3,644,154 ) 0.12 12.8

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5,335,974 0.12 7.66 9.4

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 ( 463,833 ) 0.15 5.2

Outstanding as of December 31, 2021

998,600 0.15 8.85 5.9

Exercisable as of December 31, 2021

58,591 $ 0.15 8.93 $ 0.3

Vested and expected to vest as of December 31, 2021

998,600 0.15 8.85 5.9

There were no options granted for the year ended December 31, 2022.

During the year ended December 31, 2021, the Company granted 1,277,622 incentive and non-statutory stock options under the 2019 Plan.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

In January 2021, we granted 1,277,622 incentive and non-statutory stock options under the 2019 Plan.

Determination of Fair Value

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

Year Ended December 31,

The assumptions used in the Black-Scholes option pricing model to estimate the fair value of the stock options granted during the year of December 31, 2021 are provided in the following table:

December 31, 2021

Risk-free interest rate:

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Non-employee stock options $ 13.68

We recognized stock-based compensation expense of $ 3.4 million and $ 0.5 million for employee and non-employees, respectively, for stock options for the year ended December 31, 2021.

For the year ended December 31, 2020, we recognized $ 0.1 million and an immaterial amount of stock-based compensation expense related to stock options for employees and non-employees, respectively.

As of December 31, 2021, the total remaining stock-based compensation expense for unvested stock options was $ 13.6 million and $ 0.5 million for employees and non-employees, respectively, which are expected to be recognized over a weighted-average period of 1.5 years and 0.9 years for employees and non-employees, respectively.

The Company recognized stock-based compensation expense of $ 3.8 million and $ 3.9 million for stock options for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, the total remaining stock-based compensation expense for unvested stock options was $ 8.7 million, which is expected to be recognized over a weighted-average period of 1.1 years.

Restricted Stock Units

A summary of our restricted stock activity is as follows:

A summary of the Company’s restricted stock activity is as follows:

Outstanding as of January 1, 2022 36,249,396 $ 6.53

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43,146,632 5.72

In December 2021, we granted 6,265,293 RSUs under the 2021 Plan.

The RSUs generally vest over a three or four-year period with a straight-line vesting and a 33 % or 25 % one-year cliff and remain subject to forfeiture if vesting conditions are not

During the year ended December 31, 2022, the Company granted 9,692,806 RSUs under the 2021 Plan and the Amended and Restated 2021 Plan.

The RSUs generally vest over a three - or four-year period with a straight-line vesting and a 33 % or 25 % one-year cliff and remain subject to forfeiture if vesting conditions are not met.

Upon vesting, RSUs are settled in Class A

Archer Aviation Inc.

Notes to Consolidated Financial Statements

common stock on a one -for-one basis.

The shares of Class A common stock underlying RSU grants are not issued and outstanding until the applicable vesting date.

During the year ended December 31, 2022, the Company granted 1,865,582 RSUs under the Amended and Restated 2021 Plan, representing the quarterly equity awards for the Company’s first three fiscal quarters of 2022.

The RSUs were fully vested on the date of grant and settled in Class A common stock on a one -for-one basis.

In addition, in July 2022, the Company granted 2,151,639 RSUs under the Amended and Restated 2021 Plan.

The RSUs vest over three and a half years with a straight-line vesting and remain subject to forfeiture if vesting conditions are not met.

Upon vesting, RSUs are settled in Class A common stock on a one -for-one basis.

The shares of Class A common stock underlying RSU grants are not issued and outstanding until the applicable vesting date.

During the year ended December 31, 2021, the Company granted 6,265,293 RSUs under the 2021 Plan.

The RSUs generally vest over a three or four-year period with a straight-line vesting and a 33 % or 25 % one-year cliff and remain subject to forfeiture if vesting conditions are not met.

Upon vesting, RSUs are settled in Class A common stock on a one -for-one basis.

The shares of Class A common stock underlying this grant are not issued and outstanding until the applicable vesting date.

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

Immediately prior to closing of the Business Combination, each of the Company’s founders was granted 20,009,224 RSUs under the 2019 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.

The Company accounts 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 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, the Company will recognize compensation expense for the portion earned to date over the requisite period.

For the market award, the Company 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.

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

December 31, 2021

September 16, 2021

Stock price $ 9.92

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Dividend yield 0.00 %

For the year ended December 31, 2021, the Company recorded $ 118.1 million of expense for the amortized portion of the market award and the vesting of one-quarter of each Founder Grant, totaling 5,002,306 shares each of Class B common stock, in general and administrative expenses in the statements of operations and comprehensive loss.

For the year ended December 31, 2021, the Company recorded recurring expense of $ 1.6 million related to restricted stock awards.

For the year ended December 31, 2020, the Company recognized an immaterial amount of stock-based compensation expense related to restricted stock awards.

As of December 31, 2021, the total remaining stock-based compensation expense for unvested restricted stock was $ 322.3 million, which is expected to be recognized over a weighted-average period of 2.6 years.

One-quarter of each Founder Grant, totaling 5,002,306 shares each of Class B common stock, vested immediately prior to the Closing Date pursuant to the terms and conditions of the Business Combination Agreement.

On April 14, 2022, the vested 5,002,306 shares of Class B common stock of Brett Adcock, the Company’s co-founder and former co-CEO, were cancelled.

Following the separation of Mr.

Adcock from the Company on April 13, 2022 (the “Separation Date”), Mr.

Adcock’s unvested 15,006,918 shares of Class B common stock for the remaining three tranches remain

Archer Aviation Inc.

Notes to Consolidated Financial Statements

outstanding and eligible for vesting upon the achievement of the milestones as described above for 15 months from the Separation Date pursuant to the original terms of the Founder Grants.

For the year ended December 31, 2022, the Company recorded $ 64.9 million of stock-based compensation expense for the amortized portion of the market award for the remaining three tranches in general and administrative expenses in the consolidated statements of operations.

For the year ended December 31, 2021, the Company recorded $ 118.1 million of stock-based compensation expense for the vesting of the first tranche and the amortized portion of the market award for the remaining three tranches in general and administrative expenses in the consolidated statements of operations.

For the years ended December 31, 2022 and 2021, the Company recorded $ 22.8 million and $ 1.6 million of stock-based compensation expense, respectively, related to RSUs (excluding the Founder Grants).

As of December 31, 2022, the total remaining stock-based compensation expense for unvested RSUs (including the Founder Grants) was $ 263.2 million, which is expected to be recognized over a weighted-average period of 1.6 years.

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

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Archer Aviation Inc.

Notes to Consolidated Financial Statements

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

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

Year Ended December 31,

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Total stock-based compensation expense $ 102.8 $ 123.6

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

(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.

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

A summary of the Company’s warrant activity is as follows:

(In millions)

Outstanding as of January 1, 2022 8,644,932 $ 0.01 8.87 $ 52.1

Issued 91,667 0.01

Exercised ( 8,845,058 ) 0.01 85.3

Outstanding as of December 31, 2022

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United Airlines

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

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 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 United 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

On January 29, 2021, the Company entered into the United Purchase Agreement, United Collaboration Agreement, and United Warrant Agreement.

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

Those purchases are conditioned upon the Company meeting certain conditions that include, but are not limited to, the certification of the Company’s aircraft by the FAA and further negotiation and reaching of mutual agreement on certain material terms related to the purchases.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

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).

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

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

The warrants were initially expected to vest in four installments in accordance with the following milestones:

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

On August 9, 2022, the Company entered into Amendment No.

1 to the United Purchase Agreement (the “Amended United Purchase Agreement”) and Amendment No.

1 to the United Warrant Agreement (the “Amended United Warrant Agreement”).

In association with the Amended United Purchase Agreement, the Company received a $ 10.0 million pre-delivery payment from United for 100 of the Company’s aircraft (the “Pre-Delivery Payment”), which was recognized as a contract liability in other long-term liabilities in the Company’s consolidated condensed balance sheets.

Pursuant to the Amended United Warrant Agreement, the vesting condition of the fourth milestone of the United Warrant Agreement was modified, and the warrants now vest in four installments in accordance with the following sub-milestones:

(i) 737,088 warrants vested upon receipt by the Company of the Pre-Delivery Payment on August 9, 2022;

(ii) 2,211,264 warrants shall vest on February 9, 2023 upon the six-month anniversary of the amendment date;

(iii) 3,685.45 warrants shall vest upon the acceptance and delivery of each of the Company’s 160 aircraft;

and (iv) 22,112.65 warrants shall vest upon the acceptance and delivery of each of the Company’s 40 aircraft.

The Company determined that as a result of the relationship established by signing the United 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 United Collaboration Agreements under ASC 606.

As a result, the Company accounts for the United Purchase Agreement (including the subsequent amendment) and the United 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 December 31, 2022.

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 vesting of the related warrants.

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

With respect to the 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.

The Company determined that the warrants are classified as equity awards based on the criteria of ASC 480, Distinguishing Liabilities from Equity and ASC 718.

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 original four milestones and the vesting of the related warrants.

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 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.

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 United 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, 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 December 31, 2021, the first and second vesting milestones had been achieved.

Accordingly, the Company recorded the associated expense of $ 117.3 million for the year ended December 31, 2021 related to 8,845,058 warrants that vested.

On November 6, 2020, we entered into a Collaboration Agreement with FCA US LLC (“FCA”) (the “FCA Collaboration Agreement”), 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.

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 FCA 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 FCA 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

Due to the nature of the 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 United Purchase Agreement and the United Collaboration Agreements, the Company recorded the grant date fair value of the respective warrant tranche at the vesting date upon satisfaction of the milestone, and the related costs were recorded in other warrant expense in the consolidated statements of operations due to the absence of historical or probable future revenue.

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

For the third 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 warrants as an asset through the vesting date and subsequently amortize the asset as a reduction to revenue as it sells the aircraft to United.

For the original fourth milestone, the sale of aircraft to United, the Company was initially expected to 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

Archer Aviation Inc.

Notes to Consolidated Financial Statements

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 FCA Collaboration Agreement and warrant are associated with the design, development, and bring up of production for our aircraft.

During the year ended December 31, 2021, the Company recorded $ 0.2 million in R&D expense in the statements of operations and comprehensive loss.

As of December 31, 2021, four milestones have been completed, amounting to 986,010 shares that have vested.

recognized for each sale of the aircraft.

In connection with the Amended United Warrant Agreement, the Company evaluated the accounting implications associated with the amendment to the fourth milestone in accordance with ASC 606 and ASC 718.

For the first sub-milestone, the receipt of the Pre-Delivery Payment, the Company accounted for it as a modification under ASC 718 and recorded the modification date fair value of the associated warrants in other warrant expense upon satisfaction of the sub-milestone on August 9, 2022.

For the second sub-milestone, the vesting of warrants on February 9, 2023, the Company accounted for it as a modification under ASC 718 and will record the modification date fair value of the associated warrants in other warrant expense on a straight-line basis over six months following the amendment date.

The modification date fair value of each warrant associated with the first and second sub-milestones was determined to be $ 4.37 , which was the closing price of the Company’s Class A common stock on August 9, 2022.

For the third and fourth sub-milestones, the sale of 160 aircraft and 40 aircraft, respectively, the Company determined that the amendment does not represent a modification under ASC 718.

The Company will record the cost associated with the vesting of each portion of the associated warrants as a reduction of the transaction price based on the original grant date fair value as revenue is recognized for each sale of the aircraft.

For the year ended December 31, 2022, the Company recorded $ 10.8 million in other warrant expense in the consolidated statements of operations related to the first two sub-milestones under the fourth milestone, and a total of 737,088 warrants vested from achievement of the first sub-milestone under the fourth milestone.

For the year ended December 31, 2021, the Company recorded $ 117.3 million in other warrant expense in the consolidated statements of operations related to the achievement of the first two milestones.

A total of 8,845,058 warrants vested from achievement of the first two milestones and were exercised during the year ended December 31, 2021.

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

In conjunction with the FCA Collaboration Agreement, the Company issued a warrant to FCA on November 6, 2020, in which FCA has the right to purchase up to 1,671,202 shares of the Company’s Class A common stock at an exercise price of $ 0.01 per share.

The Company performed a valuation and determined each warrant had a fair value of $ 0.15 per share at the grant date.

Shares under the warrant vest based on the completion of specific aircraft development milestones identified under the FCA Collaboration Agreement.

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

The Company assessed whether it was probable that the award vested for each of the seven milestones at the end of every reporting period.

If and when the award was deemed probable of vesting, the Company recognized 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 was probable of being achieved, a cumulative catch-up adjustment was recorded for services performed in prior periods.

During the years ended December 31, 2022 and 2021, the Company recorded $ 0.1 million and $ 0.2 million of R&D expense, respectively, in the consolidated statements of operations related to the completion of certain milestones.

As of December 31, 2022, all of the seven milestones have been completed, amounting to 1,671,202 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”) (the “Manufacturing Consulting Agreement”), 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.

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

On July 19, 2021, the Company entered into a manufacturing consulting agreement with an affiliate of FCA, FCA Italy S.p.A.

(“FCA Italy”) (the “Manufacturing Consulting Agreement”), 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 the Company’s ongoing efforts to bring up production capabilities for its aircraft.

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

The Company performed a valuation and determined each warrant had a fair value of $ 8.98 per share at the grant date.

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

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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 year ended December 31, 2021, the Company recorded $ 6.8 million of expense in R&D expense in the statements of operations and comprehensive loss related to the warrants that vested.

The Company recognized

Archer Aviation Inc.

Notes to Consolidated Financial Statements

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

During the year ended December 31, 2022, the Company recorded $ 2.8 million of R&D expense in the consolidated statements of operations related to services received for the second milestone.

During the year ended December 31, 2021, the Company recorded $ 6.8 million of R&D expense in the consolidated statements of operations related to the achievement of the first milestone and services received for the second milestone.

As of December 31, 2022, both of the milestones have been completed, amounting to 1,077,024 shares that have vested.

Note 11 - Income Taxes

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Effective tax rate 0.0 % 0.0 %

Differences between state statutory rate and state effective tax rate for the year ended December 31, 2021 primarily relate to the disallowance of warrant expense as a deduction for tax purposes and limitations imposed on certain share-based compensation under Section 162(m).

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are provided below (in millions):

Differences between state statutory rate and state effective tax rate for the year ended December 31, 2022 primarily relate to the limitations imposed on certain share-based compensation under Section 162(m), R&D tax credits and an increase in the valuation allowance.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are provided below (in millions):

As of December 31,

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Credits 21.1 6.1

Start-up costs 4.7 —

Other 0.9 0.1

Gross deferred tax assets 132.8 48.7

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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 and future tax projections and the Company’s lack of taxable income in the carryback period, the Company recorded a valuation allowance against the federal and state deferred tax assets of $ 47.1 million.

Based upon the analysis of federal and state deferred tax balances and future tax projections and the Company’s lack of taxable income in the carryback period, the Company recorded a valuation allowance of $ 129.7 million against the federal and state deferred tax assets.

The valuation allowance increased by $ 82.6 million during the year ended December 31, 2022, and by $ 39.9 million during the year ended December 31, 2021.

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act of 2022.

The Company does not currently expect the Inflation Reduction Act to impact its estimated effective tax rate due to a full valuation allowance against deferred tax assets.

As of December 31, 2022 and 2021, the Company has U.S.

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The state R&D tax credit carryforward is $ 9.3 million and $ 3.1 million for December 31, 2022 and 2021, respectively, which can be carried forward indefinitely.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

The following table summarizes the activity related to the Company’s unrecognized tax benefits during the years ended December 31, 2022 and 2021 (in millions):

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Increases related to current year tax positions 0.3

Decreases based on tax positions related to prior years ( 2.0 )

Balance as of December 31, 2021 0.3

Increases related to current year tax positions 1.2

Decreases based on tax positions related to prior years ( 2.0 )

Balance as of December 31, 2022 $ 1.5

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of December 31, 2022 and 2021 is zero due to the valuation allowance that would otherwise be recorded on the deferred tax asset associated with the recognized position.

During the years ended December 31, 2021 and 2020, the Company recognized no interest and

Archer Aviation Inc.

Notes to Consolidated Financial Statements

penalties related to uncertain tax positions.

During the years ended December 31, 2022 and 2021, the Company recognized no interest and penalties related to uncertain tax positions.

It is not expected that there will be a significant change in uncertain tax positions in the next 12 months.

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The Company is subject to taxation and files income tax returns with the U.S.

federal government and the state of California.

The tax years ended December 31, 2018 through December 31, 2020 remain open to examination by the Internal Revenue Service and New York State Department of Revenue, and from December 31, 2020, by the California Franchise Tax Board.

federal government and the states of California and Florida.

The tax years ended December 31, 2018 through December 31, 2021 remain open to examination for federal purposes, and the tax years ended December 31, 2018 through December 31, 2021 remain open to examination for state purposes.

In addition, the utilization of NOL and R&D credit carryforwards is subject to federal and state review for the periods in which those net losses were incurred.

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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.

The Company maintains a 401(k) savings plan for the benefit of its employees.

The Company makes 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 $ 0.8 million and $ 0.3 million for the years ended December 31, 2021 and 2020, respectively.

The Company’s matching contributions were $ 2.1 million and $ 0.8 million for the years ended December 31, 2022 and 2021, respectively.

Note 13 - Liability Classified Warrants

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• 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 Financial Statements

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.

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As of December 31, 2022, there were 8,000,000 private placement warrants outstanding.

Archer Aviation Inc.

Notes to Consolidated Financial Statements

became transferable, assignable, and salable as of October 16, 2021, 30 days after the completion of the Business Combination, subject to certain limited exceptions.

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 became transferable, assignable, and salable as of October 16, 2021, 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.

1 unchanged sentence

Note 14 - Subsequent Events

We evaluated subsequent events and transactions that occurred after the balance sheet date through the date of the issuance of these consolidated financial statements.

Other than as described below, we did not identify any subsequent events that would have required adjustment or disclosure in the consolidated financial statements.

On January 14, 2022, we entered into a sublease agreement with Forescout Technologies, Inc.

The sublease is for approximately 96,000 rentable square feet of building space in the building located at 190 West Tasman Drive, San Jose, California.

Archer intends that the premises will become its corporate headquarters.

The term of the sublease commences on March 26, 2022 and will expire on October 31, 2026, with no option to extend.

Base rent payments due under the sublease are expected to be approximately $ 12 million in the aggregate over the term of the sublease.

We are also responsible for certain other costs under the sublease, such as certain build-out expenses, operating expenses, taxes, assessments, insurance, and utilities.

On March 9, 2022, we entered into a lease agreement with SIR Properties Trust.

The lease is for approximately 68,000 rentable square feet of building space in the building located at 77 Rio Robles, San Jose, California.

Archer intends that the premises will be used for lab space and a low rate initial production facility.

The term of the lease commences 210 days after the landlord delivers possession of the premises to us, subject to certain demolition work being completed, and will expire 90 months thereafter, with an option for us to extend the term for one additional five-year period.

Base rent payments due under the lease are expected to be approximately $ 15 million in the aggregate over the term of the lease.

We are also responsible for certain other costs under the lease, such as certain build-out expenses, operating expenses, taxes, assessments, insurance, and utilities.

However, the lease does require that the landlord shall provide us with an allowance that may be applied against certain of our build-out and moving expenses.

The foregoing summary of key terms of the lease does not purport to be complete and is subject to, and qualified in its entirety by, the complete text of the lease, a copy of which we expect to file with our Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2022.

The Company evaluated subsequent events and transactions that occurred after the balance sheet date through the date of the issuance of these consolidated financial statements.

Other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the consolidated financial statements.

On January 3, 2023, the Company entered into a manufacturing collaboration agreement with Stellantis N.V.

(“Stellantis”), pursuant to which the Company and Stellantis will collaborate on the development and implementation of the Company’s manufacturing operations for the production of its eVTOL aircraft products (the “Stellantis Collaboration Agreement”).

In connection with the Stellantis Collaboration Agreement, the Company entered into a forward purchase agreement (the “Stellantis Forward Purchase Agreement”) and a warrant agreement (the “Stellantis Warrant Agreement”) with Stellantis on January 3, 2023.

Under the terms of the Stellantis Forward Purchase Agreement, the Company may elect, in the Company’s sole discretion, to issue and sell to Stellantis up to $ 150.0 million of shares of the Company’s Class A common stock, following the satisfaction of certain Milestones (as defined in the Stellantis Forward Purchase Agreement) and pursuant to the terms and conditions of the Stellantis Forward Purchase Agreement.

Under the terms of the Stellantis Warrant Agreement, Stellantis is entitled to purchase up to 15.0 million of shares of the Company’s Class A common stock, at an exercise price of $ 0.01 per share (the “Stellantis Warrant”).

The Stellantis Warrant Agreement provides that the warrant will become vested and exercisable in three separate tranches upon either (i) the performance by Stellantis of certain undertakings set forth in the Stellantis Collaboration Agreement or (ii) the VWAP (as defined in the Stellantis Warrant Agreement) for the Class A common stock exceeding certain specified amounts.

In addition, a member of the Company’s board of directors is also an executive at Stellantis.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data