ARCHER AVIATION INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

This Quarterly Report includes forward-looking statements. These forward-looking
statements are based on our current expectations and beliefs concerning future
developments and their potential effects on us. There can be no assurance that
future developments affecting us will be those that we have anticipated. See the
section titled "Special Note Regarding Forward-Looking Statements" in this
Quarterly Report. Our actual results could differ materially from such
forward-looking statements. Factors that could cause or contribute to those
differences include, but are not limited to, those set forth in Part II, Item
1A, "Risk Factors" in this Quarterly Report and Part I, Item 1A, "Risk Factors"
in the Company's Annual Report. The following discussion should be read in
conjunction with our financial statements and related notes thereto included
elsewhere in this Quarterly Report and the audited financial statements as of
and for the year ended December 31, 2021 set forth in our Annual Report.

Insight

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 eVTOL aircraft will be fully electric and will emit zero carbon emissions
during operations. The goal of our eVTOL aircraft design is to maximize safety
while minimizing operating costs and noise. We look to accomplish that goal
through the use of a distributed electric propulsion system with inherent
redundancy and far fewer parts than a typical internal combustion propulsion
system found in similarly sized aircraft or rotorcraft today. The reduced number
of parts not only translates into fewer critical parts on the aircraft from a
safety perspective, but will also significantly reduce the maintenance
requirements versus internal combustion propulsion systems found in similarly
sized aircraft and rotorcraft today.

We continue to work to optimize our eVTOL aircraft design for both manufacturing
and certification by using advancements in key enabling technologies such as
high-energy batteries, high-performance electric motors, an advanced fly-by-wire
flight control system, and a lightweight and efficient aircraft structure.

The development of an eVTOL aircraft that meets our business requirements
demands significant design and development efforts on all facets of the
aircraft. We believe that by bringing together a mix of talent with eVTOL,
traditional aerospace and automotive backgrounds we are building a team that
will allow us to move through the design, development, and certification of our
eVTOL aircraft with the AVIATION-INC-114338426/news/ARCHER-AVIATION-INC-Management-s-Discussion-and-Analysis-of-Financial-Condition-and-Results-of-Ope-40420718/xmltag.org">Federal Aviation Administration ("FAA") in an efficient
manner, thus allowing us to achieve our end goal of getting to commercialization
as soon as possible.

Our planned business lines

Upon receipt of all necessary elements FAA certifications and other government approvals required to manufacture and operate our aircraft, we intend to operate two complementary business segments. Our primary focus is direct-to-consumer (“Archer UAM”), with our secondary focus being business-to-business (“Archer Direct”).

Archer UAM

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. We project that the cost to
manufacture and operate our eVTOL aircraft will be such that it will be able to
enter the UAM ride-sharing market at a price point that is competitive with
ground-based ride sharing services today. We will continue to evaluate our
go-to-market strategy based on, among other things, estimated demand, readiness
of the required infrastructure, and the scale of our UAM aircraft fleet.

straight archer

We also plan to selectively sell a certain amount of our eVTOL aircraft to third
parties. We have entered into a purchase agreement ("Purchase Agreement") with
United Airlines, Inc. ("United") for the conditional purchase of up to
$1 billion worth of aircraft, with an option for another $500 million worth of
aircraft. We will look to determine the right mix of selling our eVTOL aircraft
versus using them as part of our UAM ecosystem based on, among other factors,
our capital needs, our volume of manufacturing, our ability to ramp Archer UAM
operations, and the purchase demand from our Archer Direct customers.

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To date, we have not generated any revenue from either of these planned
categories, as we continue to design, develop, and seek the governmental
approvals necessary to operate our eVTOL aircraft and Archer UAM. We will use
the net proceeds from the Business Combination for the foreseeable future to
continue to fund our efforts to bring our eVTOL aircraft to market. The amount
and timing of any future capital requirements will depend on many factors,
including the pace and results of the design and development of our aircraft and
manufacturing operations, as well as our progress in obtaining necessary FAA
certifications and other government approvals. For example, any significant
delays in obtaining such FAA certifications and other government approvals will
likely require us to raise additional capital above our existing cash on hand
and delay our generation of revenues.

Trade suit

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 herein to Legacy Archer refer to Archer prior to
the Business Combination and references herein to "New Archer" refer to Archer
following the Business Combination.

Pursuant to the terms of the Business Combination Agreement, a business
combination of Legacy Archer and Atlas was effected by the merger of Merger Sub
with and into Legacy Archer, with Legacy Archer surviving the merger (the
"Surviving Entity") as a wholly-owned subsidiary of Atlas (the "Merger," and,
collectively with the other transactions described in the Business Combination
Agreement, the "Business Combination"). Following the consummation of the Merger
on the Closing Date, the Surviving Entity changed its name from Archer Aviation
Inc. to Archer Aviation Operating Corp., and Atlas changed its name from Atlas
Crest Investment Corp. to Archer Aviation Inc. and it became the successor
registrant with the Securities and Exchange Commission (the "SEC"). Prior to the
closing of the Business Combination, Atlas' Class A common stock and public
warrants of Atlas were listed on the New York Stock Exchange ("NYSE") under the
symbols "ACIC" and "ACIC WS," respectively. Our Class A common stock and public
warrants are currently listed on the NYSE under the symbols "ACHR" and "ACHR
WS," respectively.

Impact of COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 a
global pandemic. The rapid spread of COVID-19 caused volatility and disruption
in financial markets and prompted governments and businesses to take
unprecedented measures such as travel restrictions, quarantines,
shelter-in-place orders, and business shutdowns. The impact of the COVID-19
pandemic continues to evolve due to, among other reasons, the emergence of
additional variants or strains of COVID-19. As such, the full magnitude of the
pandemic's effect on our financial condition, liquidity, and future results of
operations is uncertain. Management continues to actively monitor our financial
condition, liquidity, operations, suppliers, industry, and workforce, but
currently does not anticipate any material impairments as a result of COVID-19
and will continue to evaluate the impact of COVID-19 on an ongoing basis. See
Part II, Item 1A, "Risk Factors" in this Quarterly Report and Part I, Item 1A,
"Risk Factors" in our Annual Report for more information.

Components of operating results

Revenue

We are still working to design, develop, certify, and bring up manufacturing of
our eVTOL aircraft and thus have not generated any revenues from either of our
planned lines of business. We do not expect to begin generating significant
revenues until we are able to complete the design, development, certification,
and bring up of manufacturing of our eVTOL aircraft.

Functionnary costs

Research and development

Research and development activities represent a significant part of our
business. Our research and development efforts focus on the design and
development of our eVTOL aircraft, including certain of the systems that are
used in it. As part of those activities, we continue to work closely with the
FAA towards our goal of achieving certification of our eVTOL aircraft on an
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efficient timeline. Research and development expenses consist primarily of
personnel-related costs (including salaries, bonuses, benefits, and stock-based
compensation) for employees focused on research and development activities,
costs associated with developing and building prototype aircraft, associated
facilities costs, and depreciation. We expect research and development expenses
to increase significantly as we progress towards the certification and
manufacturing of our eVTOL aircraft.

We cannot determine with certainty the timing, duration or the costs necessary
to complete the design, development, certification, and manufacturing bring up
of our eVTOL aircraft due to the inherently unpredictable nature of our research
and development activities. Development timelines, the probability of success,
and development costs may differ materially from expectations.

General and administrative

General and administrative expenses consist primarily of personnel-related costs
(including salaries, bonuses, benefits, and stock-based compensation) for
employees associated with administrative services such as finance, legal, human
resources, information technology, associated facilities costs, and
depreciation. We expect our general and administrative expenses to increase in
absolute dollars, primarily as a result of operating as a publicly-traded
company, including expenses to comply with the rules and regulations applicable
to publicly-traded companies, as well as additional expenses customary for a
publicly-traded company, such as directors' and officers' liability insurance,
director fees, and additional internal and external accounting and legal fees
and expenses.

At this time, we are unable to estimate the costs of defending the ongoing Wisk
Aero LLC ("Wisk") litigation or any potential settlement or award of damages
related thereto and thus, we have not established any related reserves. For a
description of our material pending legal proceedings, see Note 7 - Commitments
and Contingencies of the notes to the consolidated condensed financial
statements included in Part I, Item 1 of this Quarterly Report.

Other Warrant Fees

Other Warrant Expenses consist entirely of non-cash expenses related to the acquisition of Warrants issued pursuant to the Purchase Agreement and Warrant Agreement with United (“Warrant Agreement”). United Underwriting”).

Other income, net

Other income, net, includes various income and expense items, including the change in fair value of our warrant liabilities.

Interest expense, net

Interest expense, net, primarily includes interest on notes payable less interest income from our money market accounts.

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Operating results

The following table sets forth our condensed consolidated statements of earnings for the periods indicated:

                                                        Three Months Ended March 31,
                                                           2022                 2021             Change $            Change %
                                                                         (In millions)
Operating expenses:
Research and development (1)                         $         27.5          $   10.1          $    17.4                   172  %
General and administrative (1)                                 37.8               6.6               31.2                   473  %
Other warrant expense                                             -              78.2              (78.2)                 (100) %
Total operating expenses                                       65.3              94.9              (29.6)                  (31) %
Loss from operations                                          (65.3)            (94.9)              29.6                   (31) %

Other income, net                                               6.5                 -                6.5                   100  %
Interest expense, net                                          (0.4)                -               (0.4)                  100  %
Loss before income taxes                                      (59.2)            (94.9)              35.7                   (38) %

Net loss                                             $        (59.2)         $  (94.9)         $    35.7                   (38) %

(1) Includes stock-based compensation expense as follows:

                                                    Three Months Ended March 31,
                                                          2022                     2021
                                                           (In millions)
Research and development                   $            5.4                       $ 0.7
General and administrative                             19.1                         0.2
Total stock-based compensation expense     $           24.5                 

$0.9

Comparison of the three months ended March 31, 2022 and 2021

Research and development

Research and development expenses increased by $17.4 million, or 172%, for the
three months ended March 31, 2022, compared to the same period ended March 31,
2021, as we invested in people and materials to advance our technology
development. Specifically, the increase was primarily due to an increase of
$9.7 million in personnel-related expenses due to a significant increase in our
workforce from the prior year period and an increase of $4.7 million in
stock-based compensation expense primarily related to new restricted stock units
granted since the prior year period and 2022 quarterly bonus equity awards to be
granted in the subsequent fiscal quarter. In addition, warrant expense increased
by $1.2 million related to compensation cost recognized for the warrants issued
to FCA Italy S.p.A. under a manufacturing consulting agreement. See Note 9 -
Stock-Based Compensation for further details on our stock-based compensation.
The remainder of the increase was made up of other immaterial items.

General and administrative

General and administrative expenses increased by $31.2 million, or 473%, for the
three months ended March 31, 2022, compared to the same period ended March 31,
2021, as we invested in people and infrastructure to support our growth and
maturity as a public company. Specifically, the increase was primarily due to an
increase of $16.0 million in stock-based compensation expense related to the
restricted stock units granted to our founders immediately prior to closing of
the Business Combination pursuant to the terms and conditions of the Business
Combination Agreement (the "Founder Grants"). In addition, professional service
expenses increased by $6.1 million, mainly due to legal fees and expenses, and
personnel-related expenses increased by $3.9 million due to a significant
increase in our workforce from the prior year period. Furthermore, there was an
increase of $2.9 million in stock-based compensation expense primarily related
to new restricted stock units granted since the prior year period and 2022
quarterly bonus equity awards to be granted in the subsequent fiscal quarter.
See Note 9 - Stock-Based Compensation for further details on our stock-based
compensation. The remainder of the increase was made up of other immaterial
items.

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Other Warrant Expense

During the three months ended March 31, 2021, we recognized $78.2 million of
non-cash expense related to the vesting of warrants associated with the
execution of the Purchase Agreement and United Warrant Agreement, in
satisfaction of the first milestone. There was no comparable activity during the
three months ended March 31, 2022.

Other income, net

We recognized other income, net of $6.5 million for the three months ended
March 31, 2022, primarily due to a gain of $6.6 million recorded from a change
in fair value of our warrant liabilities (see Note 3 - Summary of Significant
Accounting Policies). There was no comparable activity during the three months
ended March 31, 2021.

Interest Expense, Net

Interest expense, net increased by $0.4 million during the three months ended
March 31, 2022, compared to the same period ended March 31, 2021, primarily due
to interest expense recognized for the Silicon Valley Bank term loans we entered
into in July 2021.

Cash and capital resources

As of March 31, 2022, our principal sources of liquidity were cash and cash
equivalents of $704.2 million. We have incurred net losses since our inception
and to date have not generated any revenues. We expect to incur additional
losses and higher operating expenses for the foreseeable future. We believe that
our existing cash and cash equivalents will be sufficient for at least the next
12 months to meet our requirements and plans for cash, including meeting our
working capital requirements and capital expenditure requirements.

Over the long term, our ability to meet our working capital and capital expenditure requirements will depend on many factors, including:

•the level of research and development expenses that we incur in the development of our eVTOL aircraft;

•capital expenditures necessary to increase our aircraft manufacturing capabilities, including for the construction of our manufacturing facilities and the purchases of components necessary to build our aircraft;

•general and administrative expenses as we expand our operations; and

•sales, marketing and distribution expenses related to the construction, branding and marketing of our eVTOL aircraft and our UAM network.

The following items include our significant short-term and long-term cash requirements arising from contractual obligations known to March 31, 2022:

Notes payable

We have short and long term debt securities of $10.0 million and
$7.5 million, respectively. See Note 6 – Notes payable to the condensed consolidated financial statements for more details on our debt.

Leases

We rent offices, laboratories, hangars and storage facilities in the normal course of our business. Under our operating leases, as disclosed in Note 7 – Commitments and contingencies to the condensed consolidated financial statements, we have present obligations to $4.8 million and the long-term obligations of $10.6 million.

Until we can generate significant revenues from our business activities, we expect to fund our cash requirements primarily with existing cash.

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Cash flow

The following table summarizes our cash flows for the periods indicated:

                                                 Three Months Ended March 31,
                                                       2022                   2021
                                                         (In millions)
Net cash used in operating activities     $        (36.8)                   $ (12.0)
Net cash used in investing activities     $         (0.6)                   $  (1.1)
Net cash used in financing activities     $         (2.4)                   

$-

Cash flows used in operating activities

We continue to experience negative cash flows from operations as we are still
working to design, develop, certify, and bring up manufacturing of our eVTOL
aircraft and thus have not generated any revenues from either of our planned
lines of business. Our cash flows from operating activities are significantly
affected by our cash investments to support the growth of our research and
development activities related to our eVTOL aircraft, as well as the general and
administrative functions necessary to support those activities and operations as
a publicly traded company. Our operating cash flows are also impacted by the
working capital requirements to support growth and fluctuations in
personnel-related expenditures, accounts payable, accrued interest and other
current liabilities, and other current assets.

Net cash used in operating activities during the three months ended March 31,
2022 was $36.8 million, resulting from a net loss of $59.2 million, adjusted for
non-cash items consisting primarily of $24.5 million in stock-based compensation
primarily related to the Founder Grants, partially offset by a gain of $6.6
million due to a change in fair value of our warrant liabilities. The net cash
provided by changes in our net operating assets and liabilities of $1.6 million
was primarily related to a $5.3 million increase in accrued expenses and other
current liabilities mainly due to legal fees and expenses, partially offset by a
$1.7 million increase in prepaid expenses, primarily due to prepaid research and
development-related expenses and a $1.6 million decrease in accounts payable due
to timing of payments.

Net cash used in operating activities during the three months ended March 31,
2021 was $12.0 million, resulting from a net loss of $94.9 million, adjusted for
non-cash items consisting primarily of $78.2 million in other warrant expense
related to the vesting of United warrants. The net cash provided by changes in
our net operating assets and liabilities of $3.3 million was primarily related
to a $3.7 million increase in accounts payable mainly due to the ramp up in our
research and development activities.

Cash flows used in investing activities

Net cash used in investing activities during the three months ended March 31, 2022 and 2021 was $0.6 million and $1.1 millionrespectively, driven by purchases of property, plant and equipment during those respective periods.

Cash flows used in financing activities

Net cash used in financing activities during the three months ended March 31,
2022 was $2.4 million, consisting of the repayment of the Silicon Valley Bank
term loans for $2.5 million, offset by $0.1 million proceeds from the exercise
of stock options. There was no cash provided by or used in financing activities
during the three months ended March 31, 2021.

Significant Accounting Policies and Estimates

Our consolidated condensed financial statements and accompanying notes have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP"). The preparation of these consolidated
condensed financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets, liabilities, and expenses, and
related disclosures. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances. We evaluate our estimates and assumptions on an ongoing basis.
Actual results may differ from these estimates. To the extent that there are
material differences between these estimates and our actual results, our future
financial statements will be affected.
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For a discussion of our critical accounting policies and estimates, see
"Critical Accounting Policies and Estimates" included under Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report. There have been no material changes in our
policies from those previously discussed in our Annual Report.

Recent accounting pronouncements

See Note 3 - Summary of Significant Accounting Policies to the consolidated
condensed financial statements included elsewhere in this Quarterly Report for a
discussion about accounting pronouncements recently adopted and recently issued
not yet adopted.

Credit Risk

Financial instruments, which subjects us to concentrations of credit risk,
consist primarily of cash, cash equivalents, and deposits. Our 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 our cash and cash equivalents are financially sound and,
accordingly, minimal credit risk exists with respect to cash and cash
equivalents.

Emerging Growth Company and Small Company Reporting Status

Section 107(b) of the Jumpstart Our Business Startups Act of 2012 ("JOBS Act")
provides that an emerging growth company can take advantage of an extended
transition period for complying with new or revised accounting standards. Thus,
an emerging growth company can delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies.
Atlas initially elected, and now we have elected, to take advantage of the
extended transition period to comply with new or revised accounting standards
and to adopt certain of the reduced disclosure requirements available to
emerging growth companies. As a result of the accounting standards election, we
are not subject to the same implementation timeline for new or revised
accounting standards as other public companies that are not emerging growth
companies which may make comparison of our financials to those of other public
companies more difficult.

We have also elected to take advantage of some of the reduced regulatory and
reporting requirements of emerging growth companies pursuant to the JOBS Act so
long as we qualify as an emerging growth company, including, but not limited to,
not being required to comply with the auditor attestation requirements of
Section 404(b) of the Sarbanes-Oxley Act and exemptions from the requirements of
holding non-binding advisory votes on executive compensation and golden
parachute payments.

Additionally, we are a "smaller reporting company" as defined in Item 10(f)(1)
of Regulation S-K. Smaller reporting companies may take advantage of certain
reduced disclosure obligations, including, among other things, providing only
two years of audited financial statements. We will remain a smaller reporting
company until the last day of the fiscal year in which (1) the market value of
our shares of common stock held by non-affiliates equals or exceeds $250 million
as of the end of that year's second fiscal quarter, and (2) our annual revenues
equaled or exceeded $100 million during such completed fiscal year or the market
value of our shares of common stock held by non-affiliates equals or exceeds
$700 million as of the end of that year's second fiscal quarter.

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