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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-39668
Archer Aviation Inc.
(Exact name of registrant as specified in its charter)
Delaware85-2730902
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
190 West Tasman Drive, San Jose, CA
95134
(Address of principal executive offices)(Zip Code)

(650) 272-3233
Registrant's telephone number, including area code
N/A
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock, par value $0.0001 per share
ACHR
New York Stock Exchange
Warrants, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50 per share
ACHR WS
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
As of November 6, 2023, the number of shares of the registrant’s Class A common stock outstanding was 254,266,961, and the number of shares of the registrant’s Class B common stock outstanding was 46,510,746.


Archer Aviation Inc.
For 10-Q
For the Quarterly Period Ended September 30, 2023

Table of Contents
Page
i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements. All statements, other than statements of present or historical fact, included or incorporated by reference in this Quarterly Report regarding our future financial performance, as well as our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would,” the negative of such terms and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

These forward-looking statements are based on information available as of the date of this Quarterly Report, and current expectations, assumptions, hopes, beliefs, intentions and strategies regarding future events. Accordingly, forward-looking statements in this Quarterly Report and in any document incorporated herein by reference should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2023 (the “Annual Report”) and in Part II, Item 1A, “Risk Factors” in the Quarterly Report on Form 10-Q filed with the SEC on August 10, 2023 (the “Q2 10-Q”). Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, the Annual Report, the Q2 10-Q, and other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. Moreover, new risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks and uncertainties, the future events and circumstances discussed in this Quarterly Report and the Annual Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

As used herein, “Archer,” “the Company,” “Registrant,” “we,” “us,” “our,” and similar terms include Archer Aviation Inc. and its subsidiaries, unless the context indicates otherwise.

“Archer” and our other registered and common law trade names and trademarks of ours appearing in this Quarterly Report are our property. This Quarterly Report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.
ii

Part I - Financial Information
Item 1. Financial Statements
Archer Aviation Inc.
Consolidated Condensed Balance Sheets
(In millions, except share and per share data; unaudited)
September 30,
2023
December 31,
2022
Assets
Current assets
Cash and cash equivalents$461.4 $69.4 
Restricted cash7.3 2.9 
Short-term investments 461.8 
Prepaid expenses3.9 9.8 
Other current assets3.1 1.6 
Total current assets475.7 545.5 
Property and equipment, net49.9 11.5 
Intangible assets, net0.4 0.4 
Right-of-use assets9.5 11.9 
Other long-term assets4.1 4.5 
Total assets$539.6 $573.8 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$15.6 $3.6 
Current portion of lease liabilities2.9 3.7 
Notes payable2.3 9.3 
Accrued expenses and other current liabilities96.2 36.7 
Total current liabilities117.0 53.3 
Lease liabilities, net of current portion13.5 9.2 
Warrant liabilities32.8 7.0 
Other long-term liabilities11.8 11.0 
Total liabilities175.1 80.5 
Commitments and contingencies (Note 7)
Stockholders’ equity
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding as of September 30, 2023 and December 31, 2022
  
Class A common stock, $0.0001 par value; 700,000,000 shares authorized; 239,254,975 and 177,900,738 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
  
Class B common stock, $0.0001 par value; 300,000,000 shares authorized; 46,190,423 and 63,738,197 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
  
Additional paid-in capital1,404.2 1,185.0 
Accumulated deficit(1,039.7)(690.9)
Accumulated other comprehensive loss (0.8)
Total stockholders’ equity364.5 493.3 
Total liabilities and stockholders’ equity
$539.6 $573.8 
See accompanying notes to consolidated condensed financial statements.
1

Archer Aviation Inc.
Consolidated Condensed Statements of Operations
(In millions, except share and per share data; unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Operating expenses
Research and development$67.8 $47.0 $196.9 $112.3 
General and administrative (Note 9)
(21.6)40.8 140.6 121.0 
Other warrant expense 6.0 2.1 6.0 
Total operating expenses46.2 93.8 339.6 239.3 
Loss from operations(46.2)(93.8)(339.6)(239.3)
Other (expense) income, net(10.4)1.3 (19.7)15.8 
Interest income, net5.1 1.5 10.8 1.6 
Loss before income taxes(51.5)(91.0)(348.5)(221.9)
Income tax expense(0.1) (0.3) 
Net loss$(51.6)$(91.0)$(348.8)$(221.9)
Net loss per share, basic and diluted$(0.19)$(0.38)$(1.35)$(0.93)
Weighted-average shares outstanding, basic and diluted277,683,468 240,252,605 258,770,262 239,374,195 
See accompanying notes to consolidated condensed financial statements.
2

Archer Aviation Inc.
Consolidated Condensed Statements of Comprehensive Loss
(In millions; unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net loss$(51.6)$(91.0)$(348.8)$(221.9)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities, net of tax
 (1.2)0.8 (1.2)
Comprehensive loss$(51.6)$(92.2)$(348.0)$(223.1)
See accompanying notes to consolidated condensed financial statements.
3

Archer Aviation Inc.
Consolidated Condensed Statements of Stockholders’ Equity
(In millions, except share data; unaudited)
Common StockAdditional Paid-in CapitalAccumulated
Other
Comprehensive
Loss
Class AClass B
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of December 31, 2022177,900,738 $ 63,738,197 $ $1,185.0 $(690.9)$(0.8)$493.3 
Conversion of Class B common stock to Class A common stock2,250,000 — (2,250,000)— — — — — 
Issuance of restricted stock units and restricted stock expense2,191,898 — — — 18.8 — — 18.8 
Exercise of stock options316,116 — 233,190 — 0.1 — — 0.1 
Issuance of warrants and warrant expense— — — — 6.3 — — 6.3 
Common stock withheld related to net share settlement of equity awards(786,342)— — — (2.3)— — (2.3)
Stock-based compensation— — — — 6.3 — — 6.3 
Net loss— — — — — (113.1)— (113.1)
Other comprehensive income— — — — — — 0.7 0.7 
Balance as of March 31, 2023181,872,410 $ 61,721,387 $ $1,214.2 $(804.0)$(0.1)$410.1 
Conversion of Class B common stock to Class A common stock14,109,310 — (14,109,310)— — — — — 
Issuance of restricted stock units and restricted stock expense1,834,274 — — — 16.2 — — 16.2 
Exercise of stock options306,003 — 233,192 — 0.1 — — 0.1 
Issuance of warrants and warrant expense— — — — 4.5 — — 4.5 
Common stock withheld related to net share settlement of equity awards(592,025)— — — (1.2)— — (1.2)
Common stock issued under employee stock purchase plan601,105 — — — 1.3 — — 1.3 
Common stock issued under stock purchase agreement6,337,039 — — — 21.4 — — 21.4 
Stock-based compensation— — — — 7.9 — — 7.9 
Net loss— — — — — (184.1)— (184.1)
Other comprehensive income— — — — — — 0.1 0.1 
Balance as of June 30, 2023204,468,116 $ 47,845,269 $ $1,264.4 $(988.1)$ $276.3 
Conversion of Class B common stock to Class A common stock1,888,036 — (1,888,036)— — — — — 
Issuance of Class A common stock1,985,559 — — — 11.0 — — 11.0 
Issuance of restricted stock units and restricted stock expense1,527,815 — — — (49.8)— — (49.8)
Exercise of stock options269,385 — 233,190 — 0.1 — — 0.1 
4

Consolidated Condensed Statements of Stockholders’ Equity, continued
Issuance of warrants and warrant expense— — — — 30.8 — — 30.8 
Exercise of warrants2,942,778 — — — — — — — 
PIPE financing26,173,286 — — — 139.0 — — 139.0 
Stock-based compensation— — — — 8.7 — — 8.7 
Net loss— — — — — (51.6)— (51.6)
Other comprehensive loss— — — — — —   
Balance as of September 30, 2023239,254,975 $ 46,190,423 $ $1,404.2 $(1,039.7)$ $364.5 
See accompanying notes to consolidated condensed financial statements.
5

Archer Aviation Inc.
Consolidated Condensed Statements of Stockholders’ Equity
(In millions, except share data; unaudited)
Common StockAdditional Paid-in CapitalAccumulated
Other
Comprehensive
Loss
Class AClass B
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of December 31, 2021162,789,591 $ 74,937,945 $ $1,072.5 $(373.6)$ $698.9 
Conversion of Class B common stock to Class A common stock1,757,980 — (1,757,980)— — — — — 
Issuance of restricted stock units and restricted stock expense300,014 — — — 16.0 — — 16.0 
Exercise of stock options353,640 — 399,621 — 0.1 — — 0.1 
Issuance of warrants and warrant expense— — — — 1.2 — — 1.2 
Stock-based compensation— — — — 6.7 — — 6.7 
Net loss— — — — — (59.2)— (59.2)
Balance as of March 31, 2022165,201,225 $ 73,579,586 $ $1,096.5 $(432.8)$ $663.7 
Conversion of Class B common stock to Class A common stock4,190,561 — (4,190,561)— — — — — 
Issuance of restricted stock units and restricted stock expense992,006 — — — 17.9 — — 17.9 
Exercise of stock options341,987 — 1,342,726 — 0.2 — — 0.2 
Issuance of warrants and warrant expense— — — — 1.6 — — 1.6 
Cancellation of Class B common stock (Note 9)— — (5,002,306)— — — — — 
Stock-based compensation— — — — 6.5 — — 6.5 
Net loss— — — — — (71.7)— (71.7)
Balance as of June 30, 2022170,725,779 $ 65,729,445 $ $1,122.7 $(504.5)$ $618.2 
Conversion of Class B common stock to Class A common stock1,182,629 — (1,182,629)— — — — — 
Issuance of restricted stock units and restricted stock expense1,568,279 — — — 18.4 — — 18.4 
Exercise of stock options334,978 — 233,190 — 0.1 — — 0.1 
Issuance of warrants and warrant expense— — — — 6.4 — — 6.4 
Stock-based compensation— — — — 6.3 — — 6.3 
Net loss— — — — — (91.0)— (91.0)
Other comprehensive loss— — — —  — (1.2)(1.2)
Balance as of September 30, 2022
173,811,665 $ 64,780,006 $ $1,153.9 $(595.5)$(1.2)$557.2 
See accompanying notes to consolidated condensed financial statements.
6

Archer Aviation Inc.
Consolidated Condensed Statements of Cash Flows
(In millions; unaudited)
Nine Months Ended September 30,
20232022
Cash flows from operating activities
Net loss$(348.8)$(221.9)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and other4.2 2.7 
Debt discount and issuance cost amortization0.5 0.4 
Stock-based compensation24.8 76.3 
Change in fair value of warrant liabilities and other warrant costs25.8 (14.4)
Gain on issuance of common stock(3.6) 
Non-cash lease expense3.1 3.2 
Research and development warrant expense13.1 2.9 
Other warrant expense2.1 6.0 
Technology and dispute resolution agreements expense75.3  
Interest income on short-term investments (0.3)
Accretion and amortization income of short-term investments(2.3)(1.4)
Changes in operating assets and liabilities:
Prepaid expenses5.9 (3.2)
Other current assets0.3 (0.5)
Other long-term assets(0.1)1.8 
Accounts payable10.3 1.5 
Accrued expenses and other current liabilities(1.6)5.9 
Operating lease right-of-use assets and lease liabilities, net2.8 (2.5)
Other long-term liabilities0.6 10.3 
Net cash used in operating activities(187.6)(133.2)
Cash flows from investing activities
Purchase of short-term investments (487.6)
Proceeds from maturities of short-term investments465.0  
Purchase of property and equipment(35.3)(3.6)
Net cash provided by (used in) investing activities429.7 (491.2)
Cash flows from financing activities
Repayment of long-term debt(7.5)(7.5)
Payments for taxes related to net share settlement of equity awards(3.5) 
Proceeds from PIPE financing145.0  
Payment of offering costs in connection with PIPE financing(6.0) 
Proceeds from exercise of stock options 0.4 
Proceeds from shares issued under employee stock purchase plan1.3  
Proceeds from issuance of common stock25.0  
Net cash provided by (used in) financing activities154.3 (7.1)
Net increase (decrease) in cash, cash equivalents, and restricted cash396.4 (631.5)
Cash, cash equivalents, and restricted cash, beginning of period72.3 746.9 
Cash, cash equivalents, and restricted cash, end of period$468.7 $115.4 
Supplemental Cash Flow Information:
Cash paid for interest$0.7 $1.2 
Non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued expenses$9.9 $3.2 
See accompanying notes to consolidated condensed financial statements.
7

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)

Note 1 - Organization and Nature of Business
Organization and Nature of Business

Archer Aviation Inc. (the “Company,” “we,” “us” or “our”), a Delaware corporation, with 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”).

Archer UAM

The Company plans to operate its own UAM ecosystem initially in select major U.S. cities. The Company’s UAM ecosystem will operate using its eVTOL aircraft, which is currently in development.

Archer Direct

The Company also plans to selectively sell a certain amount of its eVTOL aircraft to third parties.
Note 2 - Liquidity and Going Concern
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 6), and the sale of preferred and common stock to related and third parties (Note 8). Through September 30, 2023, the Company has incurred cumulative losses from operations, negative cash flows from operating activities, and has an accumulated deficit of $1,039.7 million. As of September 30, 2023, the Company had cash and cash equivalents of $461.4 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 condensed 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
Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of financial position, results of operations, and cash flows for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The unaudited consolidated condensed financial statements should be read in conjunction with the Company’s audited
8

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
consolidated financial statements as of and for the fiscal year ended December 31, 2022 set forth in the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2023. The December 31, 2022 consolidated condensed balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
The Company has provided a discussion of significant accounting policies, estimates, and judgments in the Company’s audited consolidated financial statements. There have been no changes to the Company’s significant accounting policies since December 31, 2022 which are expected to have a material impact on the Company’s financial position, results of operations, or cash flows.

Cash, Cash Equivalents, and Restricted Cash
Cash consists of cash on deposit with financial institutions. Cash equivalents consist of short-term, highly liquid financial instruments that are readily convertible to cash and have maturities of three months or less from the date of purchase. As of September 30, 2023 and December 31, 2022, the Company’s cash and cash equivalents included money market funds of $400.4 million and $4.4 million, respectively.
Restricted cash consists primarily of cash held as security for the Company’s standby letters of credit. Refer to Note 7 - Commitments and Contingencies for further details.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated condensed balance sheets that sum to amounts reported on the statements of cash flows (in millions):
September 30,
2023
December 31,
2022
Cash and cash equivalents$461.4 $69.4 
Restricted cash7.3 2.9 
Total cash, cash equivalents, and restricted cash$468.7 $72.3 

Short-Term Investments
The Company had 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. If the impairment is deemed other than temporary, the security is written down to its fair value and a loss is recognized in other income. 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
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. The standard clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the standard establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
9

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
Level 2Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3Unobservable 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 the Company’s cash, accounts payable, accrued compensation, and accrued liabilities approximate their fair values due to the short-term nature of these instruments.

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 and indicate the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value (in millions):

As of September 30, 2023
DescriptionLevel 1Level 2Level 3Total
Assets:
Cash Equivalents:
Money market funds$400.4 $ $ $400.4 
Liabilities:
Warrant Liability – Public Warrants$21.4 $ $ $21.4 
Warrant Liability – Private Placement Warrants$ $ $11.4 $11.4 
Accrued technology and dispute resolutions agreements liability
$ $ $49.0 $49.0 

As of December 31, 2022
DescriptionLevel 1Level 2Level 3Total
Assets:
Cash Equivalents:
Money market funds$4.4 $ $ $4.4 
Short-Term Investments:
U.S. Treasury securities$316.6 $ $ $316.6 
Corporate debt securities$ $20.1 $ $20.1 
Commercial paper$ $125.1 $ $125.1 
Liabilities:
Warrant Liability – Public Warrants$4.5 $ $ $4.5 
Warrant Liability – Private Placement Warrants$ $ $2.5 $2.5 

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 consisted of high quality, investment grade marketable securities and were classified as available-for-sale. The Company classifies its investments in U.S. Treasury securities as Level 1, because they are
10

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
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.

The following table presents a summary of the Company’s cash equivalents and short-term investments as of September 30, 2023 and December 31, 2022 (in millions):

As of September 30, 2023
DescriptionAmortized CostUnrealized GainsUnrealized LossesFair Value
Cash Equivalents:
Money market funds$400.4 $— $— $400.4 
Total$400.4 $ $ $400.4 

As of December 31, 2022
DescriptionAmortized CostUnrealized GainsUnrealized LossesFair Value
Cash Equivalents:
Money market funds$4.4 $— $— $4.4 
Short-Term Investments:
U.S. Treasury securities317.4  (0.8)316.6 
Corporate debt securities20.1   20.1 
Commercial paper125.1   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. During the three and nine months ended September 30, 2023, the Company had no other-than-temporary impairments.

Public Warrants

The measurement of the public warrants as of September 30, 2023 is classified as Level 1 due to the use of an observable market quote in an active market under the ticker “ACHR WS.” The quoted price of the public warrants was $1.23 per warrant as of September 30, 2023.
Private Placement Warrants
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 condensed statements of operations. The estimated fair value of the private placement warrant liability is determined using Level 3 inputs. Inherent in a binomial options pricing model and Monte Carlo simulation model are assumptions related to expected share-price volatility, expected life, risk-free interest rate, and dividend yield.
The key inputs into the Monte Carlo simulation model for the private placement warrants are as follows:
InputSeptember 30,
2023
December 31,
2022
Stock price$5.06 $1.87 
Strike price$11.50 $11.50 
Dividend yield0.00 %0.00 %
Term (in years)2.963.71
Volatility70.9 %75.0 %
Risk-free rate4.75 %4.14 %
11

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)

Accrued Technology and Dispute Resolution Agreements Liability

Under the Technology and Dispute Resolution Agreements, the Company recognized an accrued technology and dispute resolution agreements liability related to the unvested warrants for the Second Tranche (capitalized terms defined below). See Note 7 - Commitments and Contingencies for further details. The Company utilizes a Monte Carlo simulation model for the accrued technology and dispute resolution agreements liability at each reporting period, with changes in fair value recognized in the consolidated condensed statements of operations. The estimated fair value of the accrued technology and dispute resolution agreements liability is determined using Level 3 inputs. Inherent in a Monte Carlo simulation model are assumptions related to expected share-price volatility, expected life, risk-free interest rate, and dividend yield.

The key inputs into the Monte Carlo simulation model for the accrued technology and dispute resolution agreements liability are as follows:

InputSeptember 30,
2023
Stock price$5.06 
Strike price$0.01 
Dividend yield0.00 %
Term (in years)0.36
Volatility98.0 %
Risk-free rate5.4 %
The following table presents the change in fair value of the Company’s Level 3 private placement warrants and accrued technology and dispute resolution agreements liability during the nine months ended September 30, 2023 (in millions):

Balance as of December 31, 2022
$2.5 
Additions: accrued technology and dispute resolution agreements liability
49.0 
Change in fair value8.9 
Balance as of September 30, 2023 (1)
$60.4 
(1) As of September 30, 2023, $11.4 million and $49.0 million were recorded within warrant liabilities and accrued expenses and other current liabilities, respectively, in the consolidated condensed balance sheets.

In connection with changes in the fair value of the Company’s public and private placement warrants, the Company recognized a loss of $10.2 million and $25.8 million within other (expense) income, net in the consolidated condensed statements of operations during the three and nine months ended September 30, 2023, respectively. Refer to Note 12 - Liability Classified Warrants for additional information about the public and private placement warrants.

In connection with the change in fair value of the accrued technology and dispute resolution agreements liability, the Company recognized a loss of $2.3 million within general and administrative expenses in the consolidated condensed statements of operations during each of the three and nine months ended September 30, 2023. Refer to Note 7 - Commitments and Contingencies for additional information about the accrued technology and dispute resolution agreements liability.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
Certain financial instruments, including debt, are not measured at fair value on a recurring basis in the consolidated condensed balance sheets. The fair value of debt as of September 30, 2023 approximates its carrying value (Level 2). Refer to Note 6 - Notes Payable for additional information.
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
Certain assets and liabilities are subject to measurement at fair value on a non-recurring basis if there are indicators of impairment or if they are deemed to be impaired as a result of an impairment review.
12

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
Intangible Assets, Net
Intangible assets consist solely of domain names and are recorded at cost, net of accumulated amortization, and if applicable, impairment charges. Amortization of domain names is provided over a 15-year estimated useful life on a straight-line basis or based on the pattern in which economic benefits are consumed, if reliably determinable. 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 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 each of September 30, 2023 and December 31, 2022, the net carrying amounts for the domain names were $0.4 million, respectively, and were recorded in the Company’s consolidated condensed balance sheets.

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 condensed 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 September 30, 2023 and December 31, 2022, the net carrying amounts of the Company’s capitalized cloud computing implementation costs were $3.6 million and $3.7 million, respectively.

Contract Liabilities

The Company records contract liabilities related to differences between the timing of cash receipts from the customer and the recognition of revenue. As of September 30, 2023 and December 31, 2022, our contract liability balances were $10.8 million and $10.0 million, respectively, and recorded in other long-term liabilities in the Company’s consolidated condensed balance sheets. As of September 30, 2023, our contract liabilities consisted of a $10.0 million pre-delivery payment received from United Airlines, Inc. under the terms of the Amended United Purchase Agreement (defined below) (see Note 9 - Stock-Based Compensation), and a $0.8 million payment received under a contract order with the United States Air Force for the design, development, and ground test of our production aircraft, Midnight.

Net Loss Per Share
Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding. For all periods presented, the calculation of basic net loss per share excludes shares issued upon the early exercise of stock options where the vesting conditions have not been satisfied.
Because 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 the computation of 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 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 was the same for Class A and Class B common shares because they are entitled to the same liquidation and dividend rights.
13

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
The following table presents the number of antidilutive shares excluded from the calculation of diluted net loss per share:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Options to purchase common stock3,605,513 5,973,985 3,605,513 5,973,985 
Unvested restricted stock units34,348,088 44,908,284 34,348,088 44,908,284 
Warrants52,011,560 30,558,565 52,011,560 30,558,565 
Shares issuable under the Employee Stock Purchase Plan (Note 9)
684,108  684,108  
Total90,649,269 81,440,834 90,649,269 81,440,834 
Comprehensive Loss
Comprehensive loss includes all changes in equity during the period from non-owner sources. The Company’s comprehensive loss consists of its net loss and its unrealized gains or losses on available-for-sale securities.

Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted
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. The ASU updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from the host contract. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. Further, the ASU made amendments to the EPS guidance in Topic 260, 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, 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.

No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s financial statements.
14

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
Note 4 - Property and Equipment, Net
Property and equipment, net, consisted of the following (in millions):
September 30,
2023
December 31,
2022
Furniture, fixtures, and equipment$6.5 $1.5 
Computer hardware5.2 4.5 
Computer software0.9 0.7 
Website design0.8 0.7 
Leasehold improvements29.6 2.9 
Construction in progress14.1 4.8 
Total property and equipment57.1 15.1 
Less: Accumulated depreciation(7.2)(3.6)
Total property and equipment, net$49.9 $11.5 
Construction in progress includes costs incurred for the Company’s manufacturing facilities to be constructed in Covington, Georgia 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 condensed statements of operations (in millions):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Research and development$1.7 $0.8 $3.3 $1.7 
General and administrative0.1 0.2 0.4 0.6 
Total depreciation expense$1.8 $1.0 $3.7 $2.3 
Note 5 - Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in millions):
September 30,
2023
December 31,
2022
Accrued professional fees$9.0 $17.2 
Accrued employee costs14.1 7.8 
Accrued parts and materials10.3 5.2 
Taxes payable0.9 0.3 
Accrued capital expenditures9.2 2.9 
Accrued cloud computing implementation costs0.9 2.0 
Accrued marketing fees 0.2 
Accrued technology and dispute resolution agreements liability (Note 7)
49.0  
Other current liabilities2.8 1.1 
Total$96.2 $36.7 
15

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
Note 6 - Notes Payable
The Company’s notes payable consisted of the following (in millions):
September 30,
2023
December 31,
2022
Silicon Valley Bank (“SVB”) Term Loans$2.5 $10.0 
Term Loans unamortized discount and loan issuance costs(0.2)(0.7)
Total debt, net of discount and loan issuance costs2.3 9.3 
Less current portion, net of discount and loan issuance costs(2.3)(9.3)
Total long-term notes payable, net of discount and loan issuance costs$ $ 

SVB Loan
On July 9, 2021, the Company, as the borrower, entered into a Loan and Security Agreement (the “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 $20.0 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. 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 (i) 8.5% and (ii) 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. For the three and nine months ended September 30, 2023, the Company recognized interest expense of $0.1 million and $0.6 million, respectively. For the three and nine months ended September 30, 2022, the Company recognized interest expense of $0.3 million and $1.1 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 liabilities at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to remeasurement 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 condensed statements of operations. The initial offsetting entry to the warrant liability was a debt discount recorded to reflect the loan issuance fee. See Note 12 - Liability Classified Warrants for further details. Effective March 27, 2023, the Term Loans and warrants were assigned to and assumed by First-Citizens Bank & Trust Company on the original terms and conditions of the financial instruments.

Upon the closing of the business combination between the Company, Atlas Crest Investment Corp. (“Atlas”) and Artemis Acquisition Sub Inc. (the “Business Combination”) on September 16, 2021 (the “Closing Date”), the SVB warrants became public warrants. The subsequent measurement of the SVB warrants as of September 30, 2023 is classified as Level 1 due to the use of an observable market quote in an active market under the ticker “ACHR WS.” The quoted price of the public warrants was $1.23 as of September 30, 2023.
During the three and nine months ended September 30, 2023, the Company recognized interest expense of $0.2 million and $0.5 million related to the amortization of the discount and issuance costs, respectively. During the three and nine months ended September 30, 2022, the Company recognized interest expense of $0.1 million and $0.4 million related to the amortization of the discount and issuance costs, respectively. The unamortized balance of the discount and issuance costs was $0.2 million as of September 30, 2023.
The future scheduled principal maturities of notes payable as of September 30, 2023 are as follows (in millions):

Remaining 2023
$2.5 
$2.5 
16

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
Note 7 - Commitments and Contingencies
Operating Leases
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.
The Company’s lease costs were as follows (in millions):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Operating lease cost$1.2 $1.5 $4.5 $4.1 
Short-term lease cost 0.1 0.6 0.1 
Total lease cost$1.2 $1.6 $5.1 $4.2 
The Company’s weighted-average remaining lease term and discount rate as of September 30, 2023 and 2022 were as follows:
20232022
Weighted-average remaining lease term (in months)5941
Weighted-average discount rate14.66 %11.46 %
The minimum aggregate future obligations under the Company’s non-cancelable operating leases as of September 30, 2023 were as follows (in millions):
Remaining 2023
$1.2 
20245.4 
20255.0 
20264.6 
20272.1 
Thereafter6.7 
Total future lease payments25.0 
Less: leasehold improvement allowance(0.7)
Total net future lease payments24.3 
Less: imputed interest(7.9)
Present value of future lease payments$16.4 
Supplemental cash flow information and non-cash activities related to right-of-use assets and lease liabilities were as follows (in millions):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Operating cash outflows from operating leases$1.0 $0.9 $3.8 $2.7 
Operating lease liabilities from obtaining right-of-use assets$ $ $0.4 $9.2 

Finance Lease
In February 2023, the Company entered into a lease arrangement with the Newton County Industrial Development Authority (the “Authority”) for the Company’s manufacturing facilities to be constructed in Covington, Georgia. In connection with the lease arrangement, the Authority issued a taxable revenue bond (the “Bond”), which was acquired by the Company. The arrangement is structured so that the Company’s lease payments to the Authority equal and offset the Authority’s bond
17

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
payments to the Company. Accordingly, the Company offsets the finance lease obligation and the Bond on its consolidated condensed balance sheets.

Letters of Credit
On February 28, 2023, in conjunction with a project agreement the Company entered into with the City of Covington and the Authority for the Company’s manufacturing facilities to be constructed in Covington, Georgia, the Company entered into a standby letter of credit in the amount of $3.5 million in favor of the City of Covington, to guarantee certain performance obligations. The standby letter of credit expires on March 31, 2035.
As of September 30, 2023, the Company had standby letters of credit in the aggregate outstanding amount of $6.2 million, secured with restricted cash.
Litigation
During the ordinary course of the business, the Company 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 the Company’s financial condition or results of operations.
Wisk Settlement
On August 10, 2023, the Company, the Boeing Company (“Boeing”) and Wisk Aero LLC (“Wisk”) (a wholly-owned subsidiary of Boeing) entered into a series of agreements that provide for, among other things, for certain investments by Boeing into the Company and an autonomous flight technology collaboration between Wisk and the Company, the issuance of certain warrants to Wisk and resolution of the federal and state court litigation between the parties (the “Technology and Dispute Resolution Agreements”).

Pursuant to a private placement transaction entered into by the Company on August 10, 2023, Boeing subscribed to purchase shares of the Company’s Class A common stock, par value $0.0001 per share (the “Common Stock”) (the “First Boeing Investment”) and received registration rights with respect to such shares of Common Stock and the shares of Common Stock underlying the Warrant (as defined below) pursuant to a registration rights agreement.

Pursuant to the Technology and Dispute Resolution Agreements, the Company has agreed to issue Wisk a warrant to purchase up to 13,176,895 shares of Common Stock with an exercise price of $0.01 per share (the “Warrant”). The Warrant shall vest and be exercisable as follows: (i) immediately as to 4,512,636 shares, underlying the Warrant (the “Initial Vested Share Tranche”) and (ii) for up to 8,664,259 shares (the “Second Tranche”) underlying the Warrant as determined six months from the effective date of the Warrant (the “Specified Date”). The extent to which the Second Tranche vests is based on the value of the First Boeing Investment and the shares underlying the Initial Vested Share Tranche as of the Specified Date. The portion of the Warrant that does not vest in accordance with the foregoing shall be forfeited on the Specified Date.

Wisk and Boeing agreed not to transfer any of the shares of Common Stock issued in the Initial Boeing Investment or the shares of Common Stock underlying the Warrant until the Specified Date.

In addition, Boeing has agreed to participate in a subsequent private placement of equity or equity-linked securities by the Company, if any, that occurs on or prior to a specified date (the “Second Boeing Investment”). Concurrently with the closing of the Second Boeing Investment, the Company would issue to Wisk a subsequent warrant to purchase a certain number of shares of Common Stock at an exercise price of $0.01 per share, in connection with Wisk’s services related to the insertion of its autonomy technology into the Company’s aircraft.

The Company recorded the Initial Vested Share Tranche within equity at its fair value. The Company recognized technology and dispute resolution agreements expense for the Initial Vested Share Tranche upon issuance. The Company recorded the Second Tranche as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to remeasurement 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 condensed statements of operations. The initial offsetting entry to the warrant liability was technology and dispute resolution agreements expense. During the three months ended September 30, 2023, the Company recorded a loss of $2.3 million to recognize the change in fair value of the Second Tranche. During the nine months
18

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
ended September 30, 2023, the Company recorded a $75.3 million non-cash charge in general and administrative expenses consisting of a $26.3 million non-cash charge associated with the Initial Vested Share Tranche and a $49.0 million non-cash charge for the unvested portion of the Warrant that is subject to the vesting criteria described above and may never be realized.
Note 8 - Preferred and Common Stock
Preferred Stock
As of September 30, 2023, no shares of preferred stock were outstanding, and the Company has no present plans to issue any shares of preferred stock.

Class A and Class B Common Stock
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:
Voting

Holders of the Company’s Class A common stock are entitled to one vote per share on all matters to be voted upon by the stockholders, and holders of Class B common stock are entitled to ten votes per share on all matters to be voted upon by the stockholders. The holders of Class A common stock and Class B common stock will generally vote together as a single class on all matters submitted to a vote of the stockholders, unless otherwise required by Delaware law or the Company’s amended and restated certificate of incorporation.
Dividends
Holders of Class A common stock and Class B common stock are entitled to receive such dividends, if any, as may be declared from time to time by the Company’s board of directors in its discretion out of funds legally available therefor. No dividends on common stock have been declared by the Company’s board of directors through September 30, 2023, and the Company does not expect to pay dividends in the foreseeable future.
Preemptive Rights
Stockholders have no preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to Class A common stock and Class B common stock.
Conversion
Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock will automatically convert into one share of Class A common stock upon transfer to a non-authorized holder. In addition, Class B common stock is subject to “sunset” provisions, under which all shares of Class B common stock will automatically convert into an equal number of shares of Class A common stock upon the earliest to occur of (i) the ten-year anniversary of the closing of the Business Combination, (ii) the date specified by the holders of two-thirds of the then outstanding Class B common stock, voting as a separate class, and (iii) when the number of Class B common stock represents less than 10% of the aggregate number of Class A common stock and Class B common stock then outstanding. In addition, each share of Class B common stock will automatically convert into an equal number of Class A common stock upon the earliest to occur of (a) in the case of a founder of the Company, the date that is nine months following the death or incapacity of such founder, and, in the case of any other holder, the date of the death or incapacity of such holder, (b) in the case of a founder of the Company, the date that is 12 months following the date that such founder ceases to provide services to the Company and 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 or holder (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).
19

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
During the three and nine months ended September 30, 2023, 1,888,036 and 18,247,346 shares of Class B common stock were converted into Class A common stock, respectively. During the three and nine months ended September 30, 2022, 1,182,629 and 7,131,170 shares of Class B common stock were converted into Class A common stock, respectively.
On August 10, 2023, the Company entered into subscription agreements with certain investors providing for the private placement of 26,173,286 shares of Common Stock, resulting in net proceeds of approximately $139.0 million, after deducting offering costs.
Liquidation
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.
Note 9 - Stock-Based Compensation
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 following this amendment, 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 and Class B common stock outstanding on December 31 of the preceding year, or (2) a lesser number of shares of Class A common stock determined by the board of directors prior to the date of the increase. In accordance therewith, the number of shares of Class A common stock reserved for issuance under the Amended and Restated 2021 Plan increased by 12,292,155 shares on January 1, 2023. 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.

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. 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 31 of the preceding year; (ii) 9,938,118 shares of Class A common stock; or (iii) a lesser number of shares of Class A common stock determined by the board of directors prior to the date of the increase. In accordance therewith, the number of shares of Class A common stock reserved for issuance under the ESPP increased by 1,809,383 on January 1, 2023. As of September 30, 2023, the maximum number of shares authorized for issuance under the ESPP was 8,406,337, of which 7,805,232 shares remained available under the ESPP.

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.
20

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)

During the nine months ended September 30, 2023, for the six-month ESPP offering period that ended on May 31, 2023, employees purchased 601,105 shares at a price of $2.19 per share.

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 six-month offering period that started on June 1, 2023:

June 1, 2023
Stock price$2.99 
Risk-free interest rate5.44 %
Term (in years)0.50
Volatility81.00 %
Dividend yield0.00 %
Grant date fair value per share$1.11 

During the three and nine months ended September 30, 2023, the Company recognized stock-based compensation expense of $0.4 million and $1.0 million for the ESPP, respectively. There was no stock-based compensation expense recognized for the ESPP during each of the three and nine months ended September 30, 2022.

As of September 30, 2023, the total remaining stock-based compensation expense was $0.2 million for the ESPP, which is expected to be recognized over the current six-month offering period until November 30, 2023.

Annual 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 an annual grant of a number of restricted stock units (“RSUs”) determined by dividing 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 annual equity awards are contingent and issued only upon approval by the Company’s board of directors or the compensation committee. During the three and nine months ended September 30, 2023, the Company recognized stock-based compensation expense of $2.8 million and $8.8 million, respectively, and during the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $2.6 million and $6.6 million, respectively, related to these annual equity awards.

Stock Options
A summary of the Company’s stock option activity is as follows:
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
(In millions)
Outstanding as of January 1, 20235,335,974 $0.12 7.66$9.4 
Exercised(1,591,076)$0.12 $5.5 
Expired/forfeited(139,385)$0.12 
Outstanding as of September 30, 2023
3,605,513 $0.12 6.91$17.8 
Exercisable as of September 30, 2023
1,260,335 $0.13 7.01$6.2 
Vested and expected to vest as of September 30, 2023
3,605,513 $0.12 6.91$17.8 
The Company recognized stock-based compensation expense of $0.6 million and $2.0 million for stock options for the three and nine months ended September 30, 2023, respectively. The Company recognized stock-based compensation expense of $0.9 million and $3.0 million for stock options for the three and nine months ended September 30, 2022, respectively.
21

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)

As of September 30, 2023, the total remaining stock-based compensation expense for unvested stock options was $5.8 million, which is expected to be recognized over a weighted-average period of 0.8 years.

Restricted Stock Units
A summary of the Company’s RSU activity is as follows:
Number of
Shares
Weighted
Average
Grant Price
Outstanding as of January 1, 202343,146,632 $5.72 
Granted10,879,413 $3.14 
Vested(5,704,993)$3.95 
Forfeited(15,847,964)$6.28 
Outstanding as of September 30, 2023
32,473,088 $4.90 
During the nine months ended September 30, 2023, the Company granted 998,364 RSUs under the Amended and Restated 2021 Plan, representing the quarterly equity awards for the Company’s fourth fiscal quarter 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, the Company granted 9,881,049 RSUs under the Amended and Restated 2021 Plan, which generally vest over a three- or four-year period with a 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 RSU grants are not issued and outstanding until the applicable vesting date.

Immediately prior to closing of the Business Combination, each of the Company’s founders was granted 20,009,224 RSUs under the 2019 Plan (the “Founder Grants”) pursuant to the terms and conditions of the business combination agreement, dated February 10, 2021, as amended and restated on July 29, 2021 (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.

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). 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. If the applicable performance condition is not probable of being achieved, compensation cost for the value of the award incorporating the market condition is recognized, so long as the requisite service is provided. If the performance milestone becomes probable of being achieved, the full fair value of the award will be recognized, and any remaining expense for the market award will be canceled.

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 the Company’s co-founder and former co-CEO, were cancelled. Following the separation of the officer from the Company on April 13, 2022 (the “Separation Date”), the officer’s unvested 15,006,918 shares of Class B common stock for the remaining three tranches remain 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.

22

Archer Aviation Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
On July 13, 2023, 15 months following the separation of the officer from the Company, the officer’s unvested 15,006,918 shares of Class B common stock for the remaining three tranches of the Founder Grant were forfeited. The Company reversed the previously recognized stock-compensation expense associated with these shares for $59.1 million. As of September 30, 2023, there were 15,006,918 shares of Class B common stock outstanding for the remaining Founder Grant.

For the three and nine months ended September 30, 2023, the Company recorded $8.2 million and $24.3 million, respectively, of stock-based compensation expense for the amortized portion of the market award for the remaining three tranches of the outstanding Founder Grant in general and administrative expenses in the consolidated condensed statements of operations. For the three and nine months ended September 30, 2022, the Company recorded $16.3 million and $48.5 million, respectively, 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 condensed statements of operations. Of the amounts recorded during the prior year periods, approximately $8.2 million and $24.3 million of stock-based compensation expense associated with the forfeiture were reversed in July 2023 for the three and nine months ended September 30, 2022, respectively, which were recorded during the three months ended September 30, 2023.

For the three and nine months ended September 30, 2023, the Company recorded $7.7 million and $19.2 million, respectively, and for the three and nine months ended September 30, 2022, the Company recorded $5.4 million and $16.5 million, respectively, of stock-based compensation expense related to RSUs (excluding the Founder Grants).

As of September 30, 2023, the total remaining stock-based compensation expense for unvested RSUs (including the remaining Founder Grant) was $139.3 million, which is expected to be recognized over a weighted-average period of 1.2 years.

Restricted Stock

In August 2023, the Company issued 1,985,559 shares of Class A common stock to an outside vendor to satisfy $11.0 million of the Company’s outstanding payable to that vendor. Accordingly, the Company reclassified $11.0 million of legal expense to stock-based compensation expense within general and administrative expenses in the consolidated condensed statements of operations during the three months ended September 30, 2023.

The Company records stock-based compensation expense for stock-based compensation awards based on the fair value on the date of grant. The stock-based compensation expense is recognized ratably over the course of the requisite service period.