Arrive AI Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risk, uncertainties and assumptions. Note about Forward-Looking Statements This Annual Report on Form 10-K includes statements that constitute “forward-looking statements.” These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “intends,” “plans,” “expects,” or “anticipates,” and do not reflect historical facts. Specific forward-looking statements contained in this portion of the report include, but are not limited to: (i) statements that are based on current projections and expectations about the markets in which we operate, (ii) statements about current projections and expectations of general economic conditions, (iii) statements about specific industry projections and expectations of economic activity, and (iv) statements relating to our future operations, prospects, results, and performance. Forward-looking statements involve risks, uncertainties, and other factors, which may cause our actual results, performance, or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results, future performance and capital requirements and cause them to materially differ from those contained in the forward-looking statements include those identified in the “Cautionary Note Regarding Forward-Looking Statements” and the Part 1, Item 1A. Risk Factors in this report, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future. In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Any information contained on our website www.arriveai.com or any other websites referenced in this report are not part of this report. Company Overview Arrive AI pioneered the smart mailbox for drone deliveries, evolving into a leader in the Autonomous Last Mile (“ALM”). Today, we are 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 intend to 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 the fourth quarter of 2024 we installed third-generation Arrive Points (“AP3” units), which began revenue operation in 2025. 33 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 expected to be deployed in our fourth and fifth-generation Arrive 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 LLaMa for device-based human interactions. 3. ALM Marketplace. Our network of Arrive 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 will 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 regional hospital and a specialty pharmaceutical delivery company, demonstrating early validation and learning opportunities for sustainable economics. Capitalization and Dilution As of December 31, 2025, we had 34,213,387 shares outstanding. On a fully diluted basis, including outstanding warrants (exercisable for 107,741 shares) options (exercisable for 609,318 shares) and restricted stock units (1,693,202), our total share count was 36,623,648. Additionally, under the Streeterville Purchase Agreement (the “Purchase Agreement”), up to 3,792,645 remaining shares were available at December 31, 2025 that may be issuable at a discount to the market price. The Purchase Agreement also specifies the Company may re-purchase 2,937,500 outstanding pre-delivery shares at par value upon expiration or termination of the agreement. The following table presents the potential impact on shares outstanding under various scenarios at December 31, 2025: Shares Outstanding % Increase Current Outstanding (12/31/2025) 34,213,387 - % With all options, warrants, and RSUs exercised 36,623,648 7 % With all registered shares available for Streeterville issuance at 12/31/2025 40,416,293 18 % With re-purchase of pre-delivery shares 37,478,793 10 % The share amounts shown above represent the period-end shares on a fully diluted basis. These potential issuances could materially dilute existing stockholders, particularly if conversion occurs at depressed share prices. 34 Recent Developments Streeterville Capital Prepaid Advance #4 On January 26, 2026, the Company closed Pre-Paid Purchase No. 4 under its Purchase Agreement dated March 21, 2025 with Streeterville Capital, LLC (“Streeterville”). In connection therewith, the Company received $10,000,000 in gross proceeds in exchange for an unsecured promissory note with an original principal balance of $10,800,000, reflecting an original issue discount of $800,000. The note bears interest at 8% per annum, compounded daily. Subject to the terms of the Purchase Agreement, Streeterville may, at its discretion, direct the Company to apply amounts outstanding under the note toward the purchase of shares of the Company’s common stock at a price equal to the lesser of (i) the initial listing reference price of the Company’s common stock on the Nasdaq Global Market or (ii) 90% of the lowest volume weighted average price during the ten trading days preceding a purchase notice, subject to a $0.25 per share floor. In connection with Pre-Paid Purchase No. 4, the Company entered into a side letter agreement pursuant to which the Company agreed to file a registration statement covering at least 10,000,000 shares of common stock issuable under the Purchase Agreement. On February 10, 2026, the Company filed a registration statement on Form S-1 registering up to 10,000,000 shares of common stock for resale pursuant to the side letter agreement which was declared effective on March 12, 2026. Shares Issued Under Purchase Agreement and Other Shares Issued Streeterville elected additional conversions as follows: on January 26, 2026, $5,000,000 of principal was converted into 2,221,136 shares of common stock; on February 18, 2026, $300,000 of principal was converted into 297,855 shares of common stock; on March 3, 2026, $275,000 of principal was converted into 287,656 shares; on March 18, 2026, $450,000 of principal was converted into 522,830 shares, and on April 9, 2026, $5,319,001 of principal was converted into 10,000,000 shares of common stock. In aggregate, $11,344,001 of principal has been converted into 13,329,477 shares of common stock subsequent to December 31, 2025. On February 3, 2026, the Company issued 118,343 shares of common stock to a vendor in exchange for consulting and media services with fair value of $200,000, based on the share price on the date of issuance. On March 31, 2026, the Company issued 70,184 shares of common stock upon the vesting of restricted stock units to three officers. Outlook And Challenges Facing Our Business Dependence on Streeterville Financing Our recent financings with Streeterville Capital involve pre-paid purchase agreements that permit the investor to acquire our common shares at a discount to market price. These arrangements may cause significant shareholder dilution and could exert downward pressure on our stock price. Certain triggers, including sustained declines in our share price, could accelerate cash repayment obligations, which we may not be able to meet. Customer Concentration Our revenues to date have been derived from a limited number of customers. In the year ended December 31, 2025, more than 90% of our total revenue came from a single customer, Hancock Health. If we are unable to expand our customer base and generate recurring subscription revenue, our results of operations will remain highly volatile. Intellectual Property. We rely on patented and non-patented proprietary information relating to product development, manufacturing capabilities, and other core competencies of our business. Protection of intellectual property is critical. Therefore, steps such as additional patent applications, confidentiality, and non-disclosure agreements, as well as other security measures are important. While we believe we have a strong patent portfolio and there is no actual or, to our knowledge, threatened litigation against us for patent-related matters, litigation or threatened litigation is a common method to effectively enforce or protect intellectual property rights. Such action may be initiated by or against us and would require significant management time and expenses. 35 Supply Chain Constraints. We cannot be sure whether global supply chain shortages will impact our future plans. In order to mitigate supply chain risks, we may need to incur higher costs to secure available inventory and place non-cancelable purchase commitments with our suppliers, which could introduce inventory risk if our forecasts and assumptions prove inaccurate. Higher costs of components would impact our cash runway and delays in the manufacturing of our Arrive Points would push out our revenue forecasts. Governmental and Regulatory Conditions. Our potential for growth depends on continued permission and acceptance by local governments and municipalities of autonomous robot and drone deliveries. Changes in regulations such as restrictions on autonomous vehicle operation or technical requirements such as size and weight restrictions or limitations on autonomy within a certain geographic area could reduce or limit our ability to generate revenues and/or impact our unit economics in those markets. Components of Results of Operations Revenue. Revenue currently consists of consulting services, installation services and subscription fees. 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. General and Administrative Expenses . General and administrative expenses primarily consist of personnel-related costs, legal and professional services, rent, information technology expenses, insurance, general corporate expenses as well as depreciation on property and equipment as well as amortization of right of use assets. Research and Development Expenses. Costs incurred in the research and development of the Company’s products are expensed as incurred. Research and development costs include product design, hardware and software costs. Sales and Marketing Expenses. Sales and marketing expenses include advertising, marketing, trade shows and travel. Interest Expense. Interest expense consists of interest on notes payable, finance and leasing instruments, and amortization of debt issuance costs. Other Income, Net. Other income includes payroll tax refunds earned under the federal research and development (“R&D”) tax credit program, state tax refunds from Indiana EDGE tax credits, funds from grants, and dividend and interest income. Change in Fair Value of Derivative Liabilities. Change in fair value of derivative liabilities consists of non-cash gains and losses arising from the remeasurement of bifurcated derivative liabilities associated with the Company’s convertible notes at each reporting date and conversion date using a Monte Carlo simulation model. Accretion of Debt Discount. Accretion of debt discount consists of the non-cash accretion of the combined discount on the host convertible note instruments, comprising original issue discount, the fair value of each bifurcated derivative at issuance, and allocable debt issuance costs, recognized using the effective interest method over the estimated term of the notes. Loss on Conversion of Convertible Notes Payable. Loss on conversion of convertible notes payable consists of losses recognized upon the conversion of convertible notes principal into common stock, representing the difference between the net carrying value of the debt retired less consideration transferred. Realized Gain on Investments. Realized gain on investments consists of net gains and losses recognized upon the sale or settlement of exchange-traded equity securities and options held as part of the Company’s strategy to generate short-term returns on excess cash. 36 Results of Operations Comparison of the Years Ended December 31, 2025, and December 31, 2024 2025 2024 Change REVENUE $ 113,250 $ - $ 113,250 OPERATING EXPENSES General and administrative 9,636,140 3,546,520 6,089,620 Research and development 600,510 760,036 (159,526 ) Sales and marketing 229,206 266,182 (36,976 ) Total operating expenses 10,465,856 4,572,738 5,893,118 OTHER INCOME (EXPENSES) Interest Expense (686,897 ) (4,645 ) (682,252 ) Other income 108,351 39,482 68,869 Change in fair value of derivative liabilities 1,516,266 - 1,516,266 Accretion of debt discount (249,530 ) - (249,530 ) Loss on conversion of convertible notes payable (3,295,072 ) - (3,295,072 ) Realized gain on investments 133,104 - 133,104 Total other income (expenses) (2,473,778 ) 34,837 (2,508,615 ) NET LOSS BEFORE TAXES (12,826,384 ) (4,537,901 ) (8,288,483 ) PROVISION FOR INCOME TAXES - - - NET LOSS $ (12,826,384 ) $ (4,537,901 ) $ (8,288,483 ) Financial Overview For the year ended December 31, 2025 and 2024, we generated revenues of $113,250 and $0, respectively, and reported net loss of $12,826,384 and $4,537,901, respectively. During the year ended December 31, 2025, results reflect growing investment in the size of our team for product development, engineering and marketing activities. General and administrative expenses include one-time costs related to the direct listing and financing transaction. 37 Revenues During the year ended December 31, 2025, we recognized total revenues of $113,250. Of this, $89,000 was for design and consulting services, $3,675 for installation fees, and $20,575 for monthly subscriptions. As a development stage company, during the year ended December 31, 2024, we had no revenues. Operating Expenses General and administrative expenses were $9,636,140 for the year ended December 31, 2025, an increase of $6,089,620, as compared to the year ended December 31, 2024. Primary components of general and administrative expenses were: ● Salaries and benefits in total increased by $5,822,581 from the prior year. This was impacted by $1,866,531 one-time success bonuses paid upon completion of the public listing in May 2025. Base salaries for the year ended December 31, 2025 were $2,578,595, an increase of $1,592,946 from the same period in the prior year due to new hiring in product development, engineering and sales and marketing. As of December 31, 2025, the Company had 41 full-time salaried employees, compared with 8 last year. Stock-based compensation for the year ended December 31, 2025 was $2,503,657, an increase of $1,11 4 ,7 91 from the same period in the prior year. Benefits and payroll taxes increased $235,813 due to the increase in employees. A bonus program for the Chief Executive Officer resulted in an increase of $200,000 in non-transaction related bonus expense in 2025. ● Legal and professional service fees were $1,273,511 for the year ended December 31, 2025, an increase of $643,821 from the prior year due to higher legal fees related to being a public company ($185,375), general corporate legal fees ($173,034), investor and public relations ($122,920), compensation consulting ($79,400) and patent expenses ($77,205). ● Insurance expense was $158,349, an increase of $115,079 from the prior year, due to higher directors and officers insurance premiums. ● Rent increased $120,535 as a result of entering into a new office building that will accommodate the increase in employees and growth and the leasing of robots in 2025. ● Information technology and subscriptions expense was $203,802, an increase of $120,187 from the same period in the prior year, due to onboarding a new service provider as well as the increase in employees. ● Remaining increase of $79,917 from prior year is made up of individual increases of less than $25,000 each. Research and Development expenses were $600,510 for the year ended December 31, 2025, a decrease of $159,526 as compared to the prior year. This is primarily due to the timing of vendor engineering projects resulting in a decrease in expense of $437,921 (which included a refund and reversal of an accrual associated with a successful dispute over a vendor project related to prior years aggregating $150,000), offset by higher independent contractor spend of $160,145 and one-time success bonuses for independent contractors of $118,250. Sales and marketing expenses were $229,206 for the year ended December 31, 2025, a decrease of $36,976 from the same period in the prior year. The decrease is due to lower television advertising of $100,000 and other marketing costs of $15,038 offset by higher travel, meals and entertainment expenses of $78,062. Other Income/Expenses Interest expense of $686,897 for the year ended December 31, 2025 was comprised primarily of the immediate expensing of the debt issuance costs associated with the bifurcated derivative of $311,613, stated interest on the convertible note of $282,930, and amortization of debt issuance costs of the convertible note of $20,548. Other miscellaneous interest expense and bank fees were $71,806 in 2025. Interest expense and bank fees for the year ended December 31, 2024 was $4,645. 38 Other Income of $108,351 for the year ended December 31, 2025 was recognized from payroll tax refunds earned under the federal R&D tax credit program of $69,856, state tax refunds and estimates from Indiana EDGE tax credits of $29,240, and dividend and interest income of $9,255. Other income of $39,482 for the year ended December 31, 2024 was recognized from the Indiana EDGE tax credits of $24,089, a transportation grant of $9,959 and income from a corporate card rebate program of $5,434. Change in fair value of derivative liabilities resulted in a non-cash gain of $1,516,266 in 2025, with no comparable amount in 2024. The embedded conversion feature of each convertible note was bifurcated as a derivative liability at issuance under ASC 815 due to the path-dependent lookback formula used to determine the conversion price. 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 each issuance date to December 31, 2025, which reduced the expected value of the noteholder’s conversion optionality. Accretion of debt discount resulted in a non-cash charge of $249,530 in 2025, with no comparable amount in 2024, representing EIM accretion 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 notes. Loss on conversion of convertible notes payable of $3,295,072 in 2025 resulted from the issuance of common stock for the conversion of convertible notes payable with no comparable amount in 2024. Under ASC 470-50, each conversion was treated as a debt conversion, and the loss represents the difference between the net carrying value converted and the fair value of common stock issued. Realized gains on investments were $133,104 for the year ended December 31, 2025. During the second half of 2025, the Company engaged in trading of derivatives, primarily options, resulting in a net realized gain of $358,086. The Company’s short-term investments, primarily in marketable securities, contributed to a realized net loss of $224,982. These activities are part of the Company’s strategy to generate short-term returns on excess cash. Liquidity and Capital Resources Liquidity As of December 31, 2025, the Company had cash and cash equivalents of approximately $2.1 million. As disclosed in Note 20 “Subsequent Events” of the financial statements, subsequent to year end, on January 26, 2026, the Company received $9.6 million in net proceeds from a convertible note payable financing transaction with Streeterville Capital, LLC (“Streeterville”), representing $10.0 million in gross proceeds less approximately $0.4 million in banking fees. As disclosed in Note 10 “Convertible Notes Payable” of the financial statements, the Company is party to a convertible note payable financing arrangement with Streeterville (the “Streeterville Facility”), which initially provided a maximum facility of up to $40,000,000 in gross borrowings, subject to the terms and conditions of the agreement. The convertible note payable includes limitations that may restrict additional borrowings, including (i) a limitation on total outstanding indebtedness and (ii) a minimum market capitalization requirement of $100 million and (iii) a minimum book value of $4 million at the time of a draw. Availability under this facility is subject to the Company’s ability to satisfy these conditions, or the investor’s continued practice of extending funds, despite certain conditions not being met. Going Concern The accompanying Financial Statements in Appendix A have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In accordance with ASC 205-40, Presentation of Financial Statements - Going Concern , management evaluated whether conditions or events, considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements are issued. The Company has incurred recurring operating losses and has experienced negative cash flows from operations since inception and expects to continue to do so as it invests in product development, commercialization, and infrastructure. These conditions, considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address its liquidity needs include: (i) utilizing existing cash and cash equivalents of $2.1 million as of December 31, 2025, (ii) deploying the $9.6 million in net proceeds received from the January 2026 financing and (iii) potentially drawing additional amounts under the Securities Purchase Agreement with Streeterville, which provides up to an additional $19.0 million in gross borrowings, subject to certain conditions including a limitation on total outstanding indebtedness, a minimum market capitalization of $100 million and a minimum book value of $4 million at the time of each draw. The Company’s ability to access these funds is dependent on satisfying these conditions and on Streeterville’s willingness to continue funding draws. The Company’s continued existence is dependent on its ability to continue its operating plan and to access remaining funds under the Securities Purchase Agreement (“SPA”) or obtain additional debt or equity financing. Accordingly, substantial doubt about the Company’s ability to continue as a going concern is not alleviated by management’s plans. The accompanying Financial Statements in Appendix A do not include any adjustment that might result from the Company’s inability to continue as a going concern. As of April 10, 2026, the Company’s cash, cash equivalents, and short-term investments are approximately $8.2 million. Cash Flow and Liquidity Years Ended December 31, $ 2025 2024 Change Net cash provided by (used in): Operating activities $ (8,253,348 ) $ (2,289,273 ) $ (5,964,075 ) Investing activities (362,081 ) (114,655 ) (247,426 ) Financing activities 10,590,115 2,207,774 8,382,341 Net increase (decrease) in cash and cash equivalents $ 1,974,686 $ (196,154 ) $ 2,170,840 39 Operating Activities Net cash used in operating activities was $8,253,348 for the year ended December 31, 2025, compared to $2,289,273 for the same period in 2024. The increase in cash outflows of $5,964,075 was primarily due to our increased net loss. For the year ended December 31, 2025, our net loss of $12,826,384 was offset by non-cash items of stock-based compensation expense of $2,503,657, depreciation and amortization expense of $66,889, the accretion of a discount on the convertible notes payable of $249,530, the accretion of issuance costs on convertible notes payable of $332,160, impairment loss of $10,541 and cash in excess of lease cost of $739 offset by change in fair value of derivative liabilities of $1,516,266, loss on conversion of convertible notes payable of $3,295,072, and realized gain on investments of $133,104. Other working capital movements in the period resulted in a net cash outflow of $236,182, primarily due to a decrease in accounts payable ($479,959), an increase in prepaids ($134,011), security deposits ($64,133), other current assets ($8,146) and accounts receivable ($4,975). These outflows were offset by an increase in accrued expenses of $455,042. For the year ended December 31, 2024, operating cash flow used of $2,289,273 was composed of our net loss of $4,537,901, offset by non-cash items of stock-based compensation expense of $1,388,866 and depreciation and amortization of $29,115. Working capital movements in the prior-year period resulted in net cash inflows of $830,647 due to an increase in accounts payable of $843,682, accrued liabilities of $37,868 offset by outflows due to prepaid expenses ($46,724) and other current assets ($4,179). Investing Activities Net cash used for investing activities was $362,081 for the year ended December 31, 2025. This was due to capital expenditures of $495,185. We also incurred a net cash inflow from sales and purchases of short-term investments of $133,104. Net cash used for investing activities was $114,655 for the year ended December 31, 2024. This was due to capital expenditures of $38,155 and patent application filings of $76,500. Financing Activities Net cash provided by financing activities was $10,590,115 for the year ended December 31, 2025. We received $11,000,000 in proceeds from issuance of convertible notes payable under the Purchase Agreement. We received net proceeds of $448,057 from other sales of common stock and $573,895 from exercise of outstanding warrants, prior to the direct listing. These cash inflows were offset by payments made on an outstanding note payable of $8,524, payments for deferred offering costs of $688,570, and payments of debt issuance costs of $660,000. We made purchases of our common stock under the share repurchase program of $74,743 in the period. For the year ended December 31, 2024, net cash provided by financing activities was $2,207,774, which included $2,643,626 from sales of common stock, offset by payments made on the notes payable of $7,954 and the payment of deferred offering costs of $427,898. Capital Expenditures Capital expenditures for the years ended December 31, 2025 and 2024 were $495,185 and $38,155, respectively. Our future capital expenditures will depend on many factors, including, but not limited to our growth, our ability to attract and retain customers, market acceptance of our offerings, the time and extent of spending to support our efforts to develop our platform, the expansion of sales and marketing activities, and the timing and extent of spending for initiatives. Further, we may in the future enter into arrangements to acquire or invest in businesses, products, services, and technologies. We may be required to seek additional equity or debt financing. If additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition, and results of operations could be adversely affected. 40 Contractual Obligations/Indebtedness To provide a clear picture of matters potentially impacting our liquidity position, the table below sets forth a summary of our contractual obligations as of December 31, 2025. Some of the figures included in this table are based on management’s estimates and assumptions about these obligations, including their duration, the possibility of renewal and other factors. Because these estimates and assumptions are necessarily subjective, the obligations we may actually pay in future periods could vary from those reflected in the table. Payments Due by Period Contractual Obligations Total Less than 1 year 1-3 years 3-5 years More than 5 Years Convertible notes payable principal (1) $ 7,765,000 $ 7,765,000 $ - $ - $ - Vehicle note payable (2) 10,558 9,140 1,418 - - Operating leases (3) 2,625,804 588,174 1,737,252 300,378 - Interest related to notes payable (4) 605,847 605,847 - - - Patent License Agreement (5) 1,720,000 120,000 240,000 240,000 1,120,000 $ 12,727,209 $ 9,088,161 $ 1,978,670 $ 540,378 $ 1,120,000 (1) Convertible notes payable principal represents borrowings under the Company’s security purchase agreement with Streeterville Capital. The note bears interest at 8% per annum with no set maturity date. The amounts presented represent outstanding principal as of December 31, 2025. The note is convertible into shares of common stock at a price determined pursuant to the agreement. Upon conversion, the obligation would be settled in equity rather than cash. As there is no stated maturity for the notes, the payments were presented in the less than 1 year category for this table. (2) Vehicle note payable matures in February 2027. The loan is secured by the related vehicle. The amounts presented represent scheduled principal. (3) Operating lease obligations represent undiscounted fixed lease payments under the Company’s office lease in accordance with ASC 842. Variable lease payments and non-lease components are excluded. (4) Interest related to notes payable primarily represents accrued interest at December 31, 2025 and projected contractual interest payments on the convertible note, assuming payment proportionately over 2026. (5) The Company is party to an exclusive patent license agreement with its Chief Executive Officer, Daniel O’Toole, providing rights to certain patented technology through April 2040. The agreement requires fixed payments of $10,000 per month through the patent’s expiration. As of December 31, 2025, the remaining fixed commitment totals approximately $1,720,000. The agreement also provides for a $25 per unit royalty upon achievement of unit sales revenue milestones in excess of $10,000 a month. No royalties have been incurred to date, and future royalty obligations are not currently estimable due to the Company’s limited operating history and uncertain future sales volumes. The License Agreement constitutes a related-party transaction. Critical Accounting Estimates The preparation of our financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses, along with the disclosure of contingent assets and liabilities at the date of the financial statements. We consider an accounting estimate to be critical if it requires assumptions about highly uncertain matters and different estimates reasonably could have been used that would have had a material impact on our financial statements. We have identified the following critical accounting estimate. Fair Value of Bifurcated Derivative Liabilities and Carrying Value of the Host Convertible Notes Payable In connection with our convertible notes issued under the Securities Purchase Agreement with Streeterville Capital, LLC, we are required to bifurcate the embedded conversion feature and account for it as a derivative liability measured at fair value at each reporting date, with changes recognized in earnings. The conversion feature must be bifurcated because it fails the indexed-to-own-stock test under ASC 815-40-15-7. Because this formula does not permit a closed-form solution, we engaged an independent third-party valuation firm to estimate fair value using a Monte Carlo simulation model. This measurement is classified as Level 3 in the fair value hierarchy, as it relies on significant unobservable inputs, including expected equity volatility, an estimated instrument term (the notes have no stated maturity, as they are convertible solely at the discretion of the investor with no fixed repayment date specified in the agreement), and a debt discount rate calibrated to comparable issuers. Equity volatility is the most sensitive input; the conversion feature’s asymmetric payoff structure means higher assumed volatility increases the expected value of the noteholder’s conversion optionality. The fair value of the bifurcated derivative at issuance also directly determines the initial carrying value of the host debt instrument, which is measured as cash proceeds received, reduced by the original issue discount, allocated debt issuance costs, and that derivative fair value. The resulting discount is accreted to par using the effective interest method over the estimated term of each note, the same expected term assumption used in the Monte Carlo model. A shorter assumed term accelerates interest expense recognition through faster accretion; a longer term decelerates it. Because the derivative valuation and host note carrying value share critical assumptions, particularly expected term and equity volatility, changes in those assumptions affect both the fair value of the derivative liabilities and the pattern of interest expense recognized on the host instruments and could have a material effect on our reported net loss in any given period. As of December 31, 2025, the aggregate fair value of the derivative liabilities was $1,460,000 and the net carrying value of the host instruments was $4,144,657. For the year ended December 31, 2025, the net change in fair value of the derivative liabilities recognized in earnings was a gain of $1,516,266, and interest expense on the convertible notes consisted of stated interest of $282,930, EIM accretion of discount $249,530, and EIM accretion of debt issuance costs of $20,548. For a complete discussion of these estimates, including valuation inputs, sensitivity analysis, and roll-forward schedules, refer to Note 5, Fair Value Measurements , and Note 10, Convertible Notes Payable . New Accounting Standards For a description of new accounting standards that could affect the Company, reference the “Recently Issued Accounting Standards Not Yet Adopted” section of Note 2 to the Financial Statements included in this Annual Report on Form 10-K. Off Balance Sheet Arrangements As of December 31, 2025, we had no off-balance sheet arrangements pursuant to Item 303 of Regulation S-K under the Securities Exchange Act of 1934, as amended, that we believe are reasonably likely to have a current or future effect on our financial condition, results of operations, or cash flows. Item 7A. Quantitative and Qualitative Disclosures about Market Risk We are a smaller reporting company, as defined in Rule 12b-2 under the Exchange Act, for this reporting period and are not required to provide the information required under this item.