Arrive AI Inc.: Form 10-Q/A for the period ended Jun 30, 2025

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited financial statements and the notes presented herein included in this Form 10-Q and the audited financial statements and the other information set forth in the Prospectus that forms a part of our Registration Statement on Form S-1 (File No. 333-284042) which was filed with the Securities and Exchange Commission on December 23, 2024 and amended on Form S-1/A on May 13, 2025. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties.

Company Overview

Arrive AI pioneered the smart mailbox for drone deliveries, evolving into a leader in the Autonomous Last Mile (“ALM”). Today, we’re transforming last-mile logistics by enabling secure, seamless exchanges between drones, robots, and people. Our mission is to connect these systems through a universal ALM network of Arrive Points™—smart lockers and mini-cross-docks—powered by an AI-driven ALM platform. This network unlocks exceptional efficiency, accelerating adoption in medical, retail, e-commerce, and beyond, making Arrive AI the intelligent choice for the final inch of automated delivery.

Our patented Arrive Points™ deliver a smart, secure, and seamless solution for automated last-mile delivery. These innovative docks streamline exchanges by eliminating manual intervention and technical barriers, ensuring efficient data validation and synchronization. With robust security, precise tracking, and support for diverse goods—including temperature-controlled options for food and medicine—Arrive Points enhance chain of custody and product integrity. By bridging physical and digital interfaces, they are paving the way for scalable, fully autonomous delivery networks.

We expect to have three primary revenue streams:

1. The Company is currently generating revenue through subscription services for Arrive Points, along with installation, support, and infrastructure agreements with customers. We provide our ALM Access Points to both businesses and consumers through monthly and annual subscription fees. This turnkey service includes hardware, software, support, maintenance, installation/uninstallation, and financing for long-term deployed assets. In Q4 of 2024 we installed third generation Arrive Points (“AP3” units), which began revenue operation in 2025.

2. Data monetization via models and insights generated by machine learning and artificial intelligence (“ML” and “AI”). Machine learning facilitates our systems’ ability to learn and improve from experience using data patterns, while artificial intelligence encompasses broader capabilities and models to simulate human intelligence and decision-making. We plan to use both technologies distinctly:

a. Machine learning: Primarily deployed in our fourth and fifth generation Access Points (“AP4” and “AP5” units) for local IoT (Internet of Things) data processing, edge computing (inferencing) for environment and transactional models, and interactions models for drones and robots.

b. Artificial intelligence: Used more broadly to analyze and derive insights from our network’s transactional and environmental data through complex AI models, but we will also leverage foundational AI models like ChatGPT or LAMA for device-based human interactions.

3. Operational platform fees. Our network of Access Points, the supporting software and AI plus ML, collectively create a platform that is intended to provide valuable services and insights to all stakeholders in the ALM ecosystem. For example, our automated delivery marketplace (“ADM”) will use a Google-AdSense-like market to help prioritize and optimize high-demand access schedules and space availability for our access point network. This platform will provide a broad array of critical functions for the ALM ecosystem including arrival/departure scheduling, space optimization, smart delivery notifications, micro weather conditions, local restrictions, transactional status updates, and automation issues/obstacles. These advanced capabilities will be introduced in our AP5 development and pilot program currently in development.

We differentiate ourselves through a comprehensive, integrated solution:

• Universal Compatibility: Our multi-generational Arrive Points (AP3, AP4, AP5) are being developed for universal support of all drone and robotic delivery systems, overcoming a major hurdle for widespread ALM adoption.
• End-to-End Solution: We combine advanced hardware with a powerful software platform and AI/ML capabilities, offering a complete ecosystem for automated exchange.
• Early Market Penetration: We have already secured pilot programs with significant customers, including a specialty pharmaceutical delivery company, demonstrating early validation and learning opportunities for sustainable economics.
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Recent Developments

Hancock Health Deployment

On May 19, 2025, we announced a two-year agreement to deploy patented Arrive Points at Hancock Health, a regional hospital located in Greenfield, Indiana. Under this agreement, Arrive Points will serve as a reliable, chain-of-custody compliant hub for the drop-off and pickup of biospecimens from the cancer center. The first deployment installed two third generation Arrive Points (“AP3”) in conjunction with ground robots in a single route. Initial revenue was recorded in this quarter for the engineering, development and consulting on the project. Recurring subscription service for access to the Arrive network and rolling robots began in August 2025. Additional delivery routes, including drone operations, are being evaluated for expansion in future stages.

Go2Delivery Partnership

On May 20, 2025, we announced a partnership with Go2 Delivery, a Virginia-based courier, to autonomously deliver high-risk, high-value specialty pharmacy products using Arrive AI technology. Go2 Delivery is rolling out Arrive Points initially in Virginia Beach, Virginia. The companies have been testing the process for several months, with the initial units delivered in 2024. We recognized revenue this quarter from the installation of the units and began subscription revenue service in April 2025.

Patents Issued

On June 10, 2025, we announced the issuance of a new U.S. patent. The new patent (US12304671B2) is for the Arrive Points’ ability to heat and cool items on demand and brings our total issued U.S. patents to eight.

Skye Air Mobility Partnership

On June 24, 2025, we announced a new global customer, Skye Air Mobility. Skye Air is India’s dominant and rapidly expanding hyperlocal drone delivery platform, making about 6,000 deliveries per day. Under the terms of the agreement, the two companies will collaborate to deploy up to 500 Arrive Points in India, including the capital of New Delhi. The first Arrive Point units are expected to be delivered to Skye Air by the end of 2025.

Filing of S-8 Registration Statement

On June 13, 2025, we filed a registration statement on Form S-8 to register 1,500,000 shares of common stock, which includes (i) 886,799 shares which may be issued under the Company’s 2023 Equity Incentive Plan (the “2023 Plan”), and (ii) 613,201 shares that may be issued upon exercise of outstanding options granted under the 2023 Plan. The 2023 Plan was adopted by the Company’s board of directors on April 27, 2023, and approved by Daniel S. O’Toole, the Company’s majority shareholder, on April 27, 2023.

Issuance of Shares Under the Equity Incentive Plan

From June 19, 2025 through July 18, 2025, we issued 36,079 fully vested shares under the 2023 Plan to employees, directors, and consultants. A total of 25,932 shares were issued to independent Directors, 4,111 shares were issued to employees, and 6,036 shares were issued to advisors and consultants.

Effectiveness of S-1 Registration Statement

On July 28, 2025, our resale registration statement was declared effective by the SEC registering up to 8,125,779 shares of common stock for resale by selling shareholders. This includes 8,000,000 shares under the Streeterville Purchase Agreement, 114,421 shares issuable upon exercise of outstanding warrants (6,680 of which have since expired), and 11,358 shares issued after the effectiveness of our registration statement on Form S-1 in connection with our direct listing.

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Results of Operations

Comparison of the Three Months Ended June 30, 2025, and June 30, 2024

Revenues:

During the three months ended June 30, 2025, we recognized total revenues of $90,725. Of this, $89,000 was for design and consulting services, $1,500 for installation fees, and $225 for monthly subscriptions. Consulting services, and installation fees are typically project-based and non-recurring in nature. Subscription services are recurring and paid either up-front or monthly for an annual term. We anticipate these revenue streams to continue in future quarters while we develop new revenue models for the autonomous delivery marketplace and AI data insight monetization.

As a development stage company, during the three months ended June 30, 2024, we had no revenues. Percentage change from the prior year period is therefore not meaningful (“NM”).

Operating Expenses:

Our second quarter results reflect continued investment in product development and marketing activities. This quarter’s general and administrative expenses include one-time costs related to the direct listing and financing transaction.

General and administrative expenses increased by $2,670,748 for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024. Primary components of general and administrative expenses were:

• Salaries and benefits in total were $2,726,090, an increase of $2,122,872 from the prior year period. This was driven by $1,866,531 one-time success bonuses paid upon completion of the public listing in May 2025, and higher stock-based compensation in the period.
• Excluding the one-time bonus costs, base salaries for the period were $167,127, a reduction of $77,088 from the same period in the prior year due to vacancies.
• Stock-based compensation for the period was $684,479, an increase of $325,478 from the same period in the prior year.
• Legal and professional service fees were $511,439, an increase of $433,855 from the same period in the prior year due to higher spend on legal fees related to the direct listing ($249,875), investor relations ($65,815), consulting services ($47,440), transfer agent fees ($18,769) and patent expenses ($15,131).
• Insurance expense was $54,495, an increase of $38,251 from the same period in the prior year, due to higher directors and officers insurance premiums.
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Research and Development expenses were $293,468 for the three months ended June 30, 2025, a decrease of $159,070 as compared to the same period in the prior year. This is due to the timing of vendor engineering projects (lower by $345,845), offset by higher independent contractor spend ($68,525) and one-time success bonuses for independent contractors ($118,250).

Marketing expenses were $49,602 for the three months ended June 30, 2025, a decrease of $176,687 from the same period in the prior year. The decrease is due to one-time expenses in the prior year period for television advertising ($200,000), offset by higher travel and miscellaneous expenses in the current quarter.

Other Income/Expenses:

Other income for the three months ended June 30, 2025 was $43,151. Income was recognized from payroll tax refunds earned under the federal R&D tax credit program of $42,857, and interest income of $294.

Interest expense of $168,080 was comprised primarily of immediate expensing of the debt issuance costs associated with the bifurcated derivative of $164,013, the amortization of the debt issue costs on the Streeterville convertible note of $1,856, and other miscellaneous interest of $2,211.

During the three months ended June 30, 2024, we recognized income from the Indiana EDGE tax credit of $24,089 and no federal R&D tax refunds. Interest expense for the prior-year period was $1,053.

Change in fair value of derivative liabilities resulted in a non-cash gain of $190,000 for the three months ended June 30, 2025, with no comparable amount in 2024. The embedded conversion feature of the convertible note was bifurcated as a derivative liability at issuance under ASC 815. Each derivative is remeasured at fair value using a Monte Carlo simulation model at each reporting and conversion date, with changes recognized in earnings. The gain reflects the decline in the Company’s stock price from issuance, which reduced the expected value of the noteholder’s conversion optionality.

Amortization of debt discount resulted in a non-cash charge of $27,738 in the three months ended June 30, 2025, with no comparable amount in 2024, representing effective interest method amortization of the combined discount on the host convertible note instruments, consisting of original issue discount, the fair value of each bifurcated derivative at issuance, and allocable debt issuance costs, over the estimated three-year expected term of the note.

Comparison of the Six Months Ended June 30, 2025, and June 30, 2024

Revenues:

During the six months ended June 30, 2025, we recognized total revenues of $90,725. Of this, $89,000 was for design and consulting services, $1,500 for installation fees, and $725 for monthly subscriptions.

As a development stage company, during the six months ended June 30, 2024, we had no revenues.

Operating Expenses:

Our first half results reflect continued investment in product development and marketing activities. General and administrative expenses include one-time costs related to the direct listing and financing transaction.

General and administrative expenses increased by $3,764,796 for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024. Primary components of general and administrative expenses were:

• Salaries and benefits in total increased by $4,020,908 from the prior year period. This was driven by $1,866,531 one-time success bonuses paid upon completion of the public listing in May 2025.
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• Excluding the one-time bonus costs, base salaries for the period were $399,186, a reduction of $96,817 from the same period in the prior year due to vacancies.
• Stock-based compensation for the period was $2,032,723, an increase of $1,427,108 from the same period in the prior year.
• Legal and professional service fees were $711,641, an increase of $459,140 from the same period in the prior year due to higher spend on legal fees related to the direct listing ($249,875), investor relations ($65,815), compensation consulting ($47,440), transfer agent ($26,589) and higher patent expenses ($27,540).
• Insurance expense was $74,631, an increase of $39,360 from the same period in the prior year, due to higher directors and officers insurance premiums.

Research and Development expenses were $384,731 for the six months ended June 30, 2025, a decrease of $156,208 as compared to the same period in the prior year. This is due to the timing of vendor engineering projects (lower by $387,864), offset by higher independent contractor spend ($113,406) and one-time success bonuses for independent contractors ($118,250).

Marketing expenses were $57,263 for the six months ended June 30, 2025, a decrease of $195,483 from the same period in the prior year. The decrease is due to one-time expenses in the prior year period for television advertising ($200,000), offset by higher travel and miscellaneous expenses in the current quarter.

Other Income/Expenses:

Other income for the six months ended June 30, 2025 was $60,066. Income was recognized from payroll tax refunds earned under the federal R&D tax credit program of $42,857, state tax refund from the EDGE credit of $16,915, and interest income of $294.

Interest expense of $169,257 was comprised primarily of immediate expensing of the debt issuance costs associated with the bifurcated derivative of $164,013, the amortization of the debt issue costs on the Streeterville convertible note of $1,856, and other miscellaneous interest of $3,388.

Change in fair value of derivative liabilities resulted in a non-cash gain of $190,000 for the six months ended June 30, 2025, with no comparable amount in 2024. The embedded conversion feature of the convertible note was bifurcated as a derivative liability at issuance under ASC 815. Each derivative is remeasured at fair value using a Monte Carlo simulation model at each reporting and conversion date, with changes recognized in earnings. The gain reflects the decline in the Company’s stock price from issuance, which reduced the expected value of the noteholder’s conversion optionality.

Amortization of debt discount resulted in a non-cash charge of $27,738 for the six months ended June 30, 2025, with no comparable amount in 2024, representing effective interest method amortization of the combined discount on the host convertible note instruments, consisting of original issue discount, the fair value of each bifurcated derivative at issuance, and allocable debt issuance costs, over the estimated three-year expected term of the note.

During the six months ended June 30, 2024, we recognized income from the Indiana EDGE tax credit of $24,089 and no federal R&D tax refunds. Interest expense for the prior-year period was $2,017.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, and the Streeterville Purchase Agreement. As of June 30, 2025, our cash was $607,496. This represents an increase of $478,178 from $129,318 on hand at the end of the prior fiscal year. Proceeds from the sales of common stock and the convertible note were used to fund general operating expenses, including salaries, professional services and research and development expenses. Cash flow was also impacted by significant one-off expenditures related to the public listing, as described in the discussion of operating expenses.

Cash Flow and Liquidity

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Operating Activities (Restated)

Net cash used in operating activities was $3,799,494 for the six months ended June 30, 2025, compared to $1,353,985 for the same period in 2024. The increase in cash outflows of $2,445,509 was primarily due to our net loss of $5,667,236 and the change in fair value of derivative liabilities of $190,000, offset by non-cash items of stock-based compensation expense of $2,032,723, depreciation and amortization expense of $17,118, the amortization of a discount on the convertible debt of $27,738, and amortization of debt issuance costs of $165,869.

Other working capital movements in the period resulted in a net cash outflow of $185,706, primarily due to an increase in prepaid expenses of $141,431, accounts receivable of $89,075, and a reduction of accrued liabilities of $27,245. This outflow was partially offset by increases in accounts payable of $61,131 and the credit card payable of $9,943.

For the six months ended June 30, 2024, operating cash flow was comprised of our net loss of $2,375,855, offset by non-cash items of stock-based compensation expense of $605,615 and depreciation and amortization of $14,469. Working capital movements in the prior-year period resulted in net cash inflows of $401,786 due to an increase in accounts payable of $344,817, accrued liabilities of $85,136 offset by outflows due to prepaid expenses ($3,381) and the credit card payable ($24,786).

Investing Activities

Net cash used for investing activities was $47,827 for the six months ended June 30, 2025. This was due to an increase in fixed assets for new Arrive Points placed into service or waiting final installation. No production Arrive Point units or other fixed assets were recorded during the six months ended June 30, 2024.

Financing Activities (Restated)

Net cash provided by financing activities was $4,325,499 for the six months ended June 30, 2025. On May 15, 2025, we closed the initial pre-paid purchase under the Streeterville Purchase Agreement, resulting in proceeds from issuance of convertible debt of $4,000,000. We received net proceeds of $444,360 from other sales of common stock and $573,896 from exercise of outstanding warrants, prior to the direct listing. These cash inflows were offset by payments made on an outstanding note payable of $4,187 and payments for deferred offering costs of $688,570.

For the six months ended June 30, 2024, net cash provided by financing activities was $1,197,328, which included $1,201,233 from sales of common stock, offset by payments made on the note payable of $3,905.

The Company is not required to provide the information required by this Item because it is a “smaller reporting company.”

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10Q/A, we carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2025, our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting described below.

Management identified a material weakness in internal control over financial reporting related to the identification, evaluation, and accounting for certain embedded conversion features that should have been bifurcated from the related host instruments and accounted for as derivative liabilities at fair value in accordance with ASC 815, and the accretion of original issue discount and debt issuance costs associated with the host instruments using the effective interest method over the appropriate accretion period. As a result of this material weakness, management concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2025.

Remediation Plan for the Material Weakness

Management is in the process of implementing remediation measures to address the material weakness discovered in connection with the preparation of this Form 10-Q/A, including enhancing its accounting review procedures for complex financial instruments, engaging additional external resources with expertise in derivative valuations, internal procedures to evaluate accounting treatment under ASC 815, and strengthening its controls around the review and approval of significant accounting estimates and elections. Management may determine to take additional measures to address the material weakness or modify the remediation efforts described above. The material weakness will be considered remediated after applicable controls operate for a sufficient period of time, and management has concluded that the controls are effective.

Changes in Internal Controls over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) was identified in the evaluation required by Rule 13a-15(d) or 15d-15(d) under the Exchange Act during the quarter ended June 30, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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As a smaller reporting company under Rule 12b-2 of the Exchange Act, the Company is not required to provide risk factors in this report. For our current risk factors relating to our operations see the section entitled “Risk Factors” contained in our Registration Statement on Form S-1 filed with the SEC on December 23, 2024, and amended Form S-1/A filed with the SEC on May 13, 2025.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.