Arrive AI Inc. 10-Q/A

Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations 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. - 28 - 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. - 29 - Results of Operations Comparison of the Three Months Ended June 30, 2025, and June 30, 2024 Revenues: Three Months Ended June 30, $ % 2025 2024 Change Change Consulting services $ 89,000 $ - $ 89,000 NM % Installation 1,500 - 1,500 NM Subscription 225 - 225 NM $ 90,725 $ - $ 90,725 NM % 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: Three Months Ended June 30, $ % 2025 (Restated) 2024 Change Change General and administrative $ 3,474,059 $ 803,311 $ 2,670,748 332 % Research and development 293,468 452,538 (159,070 ) (35 ) Sales and marketing 49,602 226,289 (176,687 ) (78 ) $ 3,817,129 $ 1,482,138 $ 2,334,991 158 % 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. - 30 - 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: Three Months Ended June 30, $ % 2025 (Restated) 2024 Change Change Other income $ 43,151 $ 24,089 $ 19,062 79 % Interest expense and bank charges (168,080 ) (1,053 ) (167,027 ) 15,862 Change in fair value of derivative liabilities 190,000 - 190,000 NM Amortization of debt discount (27,738 ) - (27,738 ) NM $ 37,333 $ 23,036 $ 14,297 62 % 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: Six Months Ended June 30, $ % 2025 (Restated) 2024 Change Change General and administrative $ 5,369,038 $ 1,604,242 $ 3,764,796 235 % Research and development 384,731 540,939 (156,208 ) (29 ) Sales and marketing 57,263 252,746 (195,483 ) (77 ) $ 5,811,032 $ 2,397,927 $ 3,413,105 142 % 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. - 31 - ● 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: Six Months Ended June 30, $ % 2025 (Restated) 2024 Change Change Other income $ 60,066 $ 24,089 $ 35,977 149 % Interest expense and bank charges (169,257 ) (2,017 ) (167,240 ) 8,292 Change in fair value of derivative liabilities 190,000 - 190,000 NM Amortization of debt discount (27,738 ) (27,738 ) NM $ 53,071 $ 22,072 $ 30,999 140 % 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 Six Months Ended June 30, $ % 2025 2024 Change Change Net cash provided by (used in): Operating activities $ (3,799,494 ) $ (1,353,985 ) $ (2,445,509 ) (181 )% Investing activities (47,827 ) - (47,827 ) - Financing activities 4,325,499 1,197,328 3,128,171 261 Net increase (decrease) in cash $ 478,178 $ (156,657 ) $ 634,835 (405 )% - 32 - 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is not required to provide the information required by this Item because it is a “smaller reporting company.”