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 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 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 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 LAMA 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 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. - 34 - Capitalization and Dilution As of September 30, 2025, we had 34,213,387 shares outstanding. On a fully diluted basis, including outstanding warrants (exercisable for 107,741 shares) and options (exercisable for 609,318 shares), our total share count is 34,930,446. Additionally, under the Streeterville Purchase Agreement (the “Purchase Agreement”), up to 6,792,645 remaining registered shares were available at September 30, 2025 that may be issuable at a discount to the market price. The Purchase Agreement also specifies the re-purchase of 2,937,500 outstanding pre-delivery shares at par value upon expiration or termination of the agreement. The table below illustrates potential dilution under different conversion scenarios (unaudited): Scenario Shares Outstanding % Increase Current Outstanding (9/30/2025) 34,213,387 - % With all options and warrants exercised 34,930,446 2 % With all registered shares available for Streeterville issuance at September 30, 2025 41,723,091 22 % With re-purchase of pre-delivery shares 38,785,591 13 % These potential issuances could materially dilute existing stockholders, particularly if conversion occurs at depressed share prices. Recent Developments Share Repurchase Program On September 8, 2025, we announced a share repurchase program of up to $10 million of the Company’s common stock, par value $0.0002 per share, from September 8, 2025 through March 31, 2026. Repurchases may be made from time to time in the open market, through privately negotiated transactions, or under Rule 10b5-1 trading plans, in each case in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and subject to market conditions and other factors, including customary blackout periods. The program may be modified, suspended, or terminated at any time at the Company’s discretion. The timing and actual number of shares repurchased, if any, will depend on a variety of factors, including price, liquidity, and alternative uses of capital. The Company repurchased 9,700 shares on the open market on September 9, 2025, in multiple lots at an average price of $3.54 per share, and 10,000 shares on the open market on September 11, 2025, in multiple lots at an average price of $4.04 per share. Issuance of Shares Under the Equity Incentive Plan On July 18, 2025, we issued 2,264 fully vested shares under the 2023 Equity Incentive Plan to a consultant. On October 6, 2025, we issued 21,876 restricted stock units under the plan to three independent directors, subject to a one-year vesting. - 35 - Results of Operations Comparison of the Three Months Ended September 30, 2025, and September 30, 2024 Revenues: Three Months Ended September 30, $ % 2025 2024 Change Change Consulting services $ - $ - $ - NM % Installation 2,175 - 2,175 NM Subscription 5,275 - 5,275 NM $ 7,450 $ - $ 7,450 NM % During the three months ended September 30, 2025, we recognized total revenues of $7,450. Of this, $5,275 was for monthly subscriptions, and $2,175 was for installation 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. As a development stage company, during the three months ended September 30, 2024, we had no revenues. Percentage change from the prior year period is therefore not meaningful (“NM”). Operating Expenses: Three Months Ended September 30, $ % 2025 (Restated) 2024 Change Change General and administrative $ 1,370,346 $ 791,639 $ 578,707 73 % Research and development 179,854 7,940 171,914 2,165 Sales and marketing 107,530 28,414 79,116 278 $ 1,657,730 $ 827,993 $ 829,737 100 % Our third quarter results reflect growing investment in the team size, product development and marketing activities. General and administrative expenses increased by $578,707 to $1,370,346 for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024. Primary components of general and administrative expenses were: ● Salaries and benefits in total were $855,045, an increase of $338,795 from the prior year period, reflecting new hiring in product development, engineering and sales and marketing. ● Base salaries for the period were $540,323, an increase of $305,639 from the same period in the prior year. As of September 30, 2025, the Company had 33 full-time salaried employees, compared with 8 in the same period last year. ● Stock-based compensation for the period was $289,431, an increase of $14,926 from the same period in the prior year. ● Legal and professional service fees were $238,677, an increase of $90,099 from the same period in the prior year due to higher spend on investor relations ($40,483), patent expenses ($32,716), compliance ($20,495), and litigation ($18,635), offset by lower consulting services. ● Insurance expense was $72,421, an increase of $54,475 from the same period in the prior year, due to higher directors’ and officers’ insurance premiums. ● Information technology expense was $46,289, an increase of $37,390 from the same period in the prior year, due to onboarding a new service provider. ● General and administrative expense also includes an impairment charge in the current period of $10,541 related to a damaged asset in construction in process. Research and Development expenses were $179,854 for the three months ended September 30, 2025, an increase of $171,914 as compared to the same period in the prior year. This is primarily due to higher independent contractor spend ($42,911) and a one-time vendor credit in the prior year period of $129,351. Marketing expenses were $107,530 for the three months ended September 30, 2025, an increase of $79,116 from the same period in the prior year. The increase is due to higher travel expenses ($58,821) and advertising expenses ($20,295) in the current quarter. - 36 - Other Income/Expenses: Three Months Ended September 30, $ % 2025 (Restated) 2024 Change Change Other income $ 23,388 $ 5,434 $ 17,954 330 % Interest expense and bank charges (283,586 ) (1,192 ) (282,394 ) 23,691 Change in fair value of derivative liability 896,266 - 896,266 NM Amortization of debt discount (88,295 ) - (88,295 ) NM Loss on Conversion of convertible note payable (3,295,072 ) - (3,295,072 ) NM Realized gain (loss) on investments 46,491 - 46,491 NM Unrealized gain (loss) on investments (76,120 ) - (76,120 ) NM $ (2,776,928 ) $ 4,242 $ (2,781,170 ) (65,563 )% Other income for the three months ended September 30, 2025, was $23,388. Income was recognized from payroll tax refunds earned under the federal R&D tax credit program of $18,780, and interest income of $4,608. Interest expense of $283,586 was comprised primarily of the immediate expensing of the debt issuance costs associated with the bifurcated derivative of $102,599, amortization of the debt issue costs of the convertible note of $6,297, and accrued interest on the convertible note of $165,832. Other miscellaneous interest and bank fees was $8,858 in the period. Change in fair value of derivative liabilities resulted in a non-cash gain of $896,266 for the three months ended September 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 $88,295 for the three months ended September 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. Loss on conversion of convertible notes payable of $3,295,072 for the three months ended September 30, 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 $46,491, and unrealized losses were $76,120 for the quarter ended September 30, 2025. During the quarter, the Company engaged in speculative trading of derivatives, primarily options, resulting in a net realized gain of $104,635. The Company’s short-term investments, primarily in marketable securities, contributed a realized net loss of $58,144 and unrealized net loss of $76,120 for the quarter. These activities are part of the Company’s strategy to generate short-term returns on excess cash. During the three months ended September 30, 2024, we recognized income from a corporate card rebate program ($5,434). Interest expense and bank fees for the prior-year period were $1,175. During the three months ended September 30, 2024, we had no realized or unrealized gains or losses on investments. Percentage change from the prior year period is therefore not meaningful (“NM”) Comparison of the Nine Months Ended September 30, 2025, and September 30, 2024 Revenues: Nine Months Ended September 30, $ % 2025 (Restated) 2024 Change Change Consulting services $ 89,000 $ - $ 89,000 NM % Installation 3,675 - 3,675 NM Subscription 5,500 - 5,500 NM $ 98,175 $ - $ 98,175 NM % During the nine months ended September 30, 2025, we recognized total revenues of $98,175. Of this, $89,000 was for design and consulting services, $3,675 for installation fees, and $5,500 for monthly subscriptions. As a development stage company, during the nine months ended September 30, 2024, we had no revenues. Operating Expenses: Nine Months Ended September 30, $ % 2025 (Restated) 2024 Change Change General and administrative $ 6,739,384 $ 2,395,881 $ 4,343,503 181 % Research and development 564,585 548,879 15,706 3 Sales and marketing 164,793 281,160 (116,367 ) (41 ) $ 7,468,762 $ 3,225,920 $ 4,242,842 132 % - 37 - Our nine months ended September 30, 2025 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 $4,343,503 for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024. Primary components of general and administrative expenses were: ● Salaries and benefits in total increased by $4,359,704 from the prior year period. This was impacted by $1,866,531 one-time success bonuses paid upon completion of the public listing in May 2025. ● Excluding the one-time bonus costs, base salaries for the period were $730,687, an increase of $208,822 from the same period in the prior year due to new hiring in product development, engineering and sales and marketing. As of September 30, 2025, the Company had 33 full-time salaried employees, compared with 8 in the same period last year. ● Stock-based compensation for the period was $2,322,155, an increase of $1,442,035 from the same period in the prior year. ● Legal and professional service fees were $950,017, an increase of $549,239 from the same period in the prior year due to higher spend on legal fees related to the direct listing ($260,383), investor relations ($106,298), compensation consulting ($77,140), patent expenses ($54,745), and higher transfer agent fees ($19,869). ● Insurance expense was $147,052, an increase of $93,835 from the same period in the prior year, due to higher directors and officers insurance premiums. Research and Development expenses were $564,585 for the nine months ended September 30, 2025, an increase of $15,706 as compared to the same period in the prior year. This is primarily due to the timing of vendor engineering projects (lower by $258,861), offset by higher independent contractor spend ($159,342) and one-time success bonuses for independent contractors ($118,250). Marketing expenses were $164,793 for the nine months ended September 30, 2025, a decrease of $116,367 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, meals and entertainment expenses ($63,017), and other marketing expenses ($20,616). Other Income/Expenses: Nine Months Ended September 30, $ % 2025 (Restated) 2024 Change Change Other income $ 83,454 $ 29,523 $ 53,931 183 % Interest expense and bank charges (452,843 ) (3,209 ) (449,634 ) 14,012 Change in fair value of derivative liability 1,086,266 - 1,086,266 NM Amortization of debt discount (116,033 ) - (116,033 ) NM Loss on conversion of convertible notes payable (3,295,072 ) - (3,295,072 NM Realized gain (loss) on investments 46,491 - 46,491 NM Unrealized gain (loss) on investments (76,120 ) - (76,120 ) NM $ (2,723,857 ) $ 26,314 $ (2,750,171 ) (10,451 )% Other Income of $83,454 for the nine months ended September 30, 2025 was recognized from payroll tax refunds earned under the federal R&D tax credit program of $61,637, state tax refund from the EDGE credit of $16,915, and interest income of $4,902. Interest expense of $452,843 for the nine months ended September 30, 2025 was comprised primarily of the immediate expensing of the debt issuance costs associated with the bifurcated derivative of $266,612, amortization of the debt issue costs of the convertible note of $8,153, and accrued interest on the convertible note of $165,832. Other miscellaneous interest and bank fees was $12,246 in the period. Change in fair value of derivative liabilities resulted in a non-cash gain of $1,086,266 for the nine months ended September 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 $116,033 for the nine months ended September 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. Loss on conversion of convertible notes payable of $3,295,072 for the nine months ended September 30, 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 $46,491, and unrealized losses were $76,120 for the nine months ended September 30, 2025. During the quarter, the Company engaged in speculative trading of derivatives, primarily options, resulting in a net realized gain of $104,635. The Company’s short-term investments, primarily in marketable securities, contributed a realized net loss of $58,144 and unrealized net loss of $76,120 for the nine months ended September 30, 2025. These activities are part of the Company’s strategy to generate short-term returns on excess cash. During the nine months ended September 30, 2024, we recognized income from the Indiana EDGE tax credit of $24,089 and no federal R&D tax refunds. We also recognized income from a corporate card rebate program ($5,434). Interest expense and bank fees for the prior-year period was $3,209. Liquidity and Capital Resources Our primary sources of liquidity are cash on hand, short-term liquid investments, and the Streeterville Purchase Agreement. As of September 30, 2025, our cash was $816,715, and short-term investments were $1,918,995. There is currently $32 million available under the Streeterville Purchase Agreement. The balance of cash on-hand and short-term investments represents approximately three and one-half months of runway based on our current average operating losses. Including the remaining proceeds from the Purchase Agreement, our currently available funds are sufficient to fund operations with an increasing burn rate for more than twelve months. - 38 - Cash Flow and Liquidity Nine Months Ended September 30, $ % 2025 2024 Change Change Net cash provided by (used in): Operating activities $ (5,048,431 ) $ (1,959,447 ) $ (3,088,984 ) (158 )% Investing activities (2,036,474 ) - (2,036,474 ) - Financing activities 7,772,302 1,925,768 5,846,534 304 Net increase (decrease) in cash $ 687,397 $ (33,679 ) $ 721,076 (2,141 )% Operating Activities (Restated) Net cash used in operating activities was $5,048,431 for the nine months ended September 30, 2025, compared to $1,959,447 for the same period in 2024. The increase in cash outflows of $3,088,984 was primarily due to our increased net loss. For the nine months ended September 30, 2025, our net loss of $10,094,444 was offset by non-cash items of stock-based compensation expense of $2,322,155, depreciation and amortization expense of $31,048, change in fair value of derivative liabilities of ($1,086,266), loss on conversion of convertible note payable of $3,295,072, amortization of a discount on the convertible debt of $116,033, amortization of the $274,766 debt issuance costs, and unrealized depreciation on investments of $76,120. Other working capital movements in the period resulted in a net cash inflow of $63,576, primarily due to an increase in accrued liabilities ($125,842), accounts payable ($43,148), credit card payable ($4,938), and other current assets ($3,458). These inflows were offset by an increase in prepaid expenses of $108,910, accounts receivable of $4,900. For the nine months ended September 30, 2024, operating cash flow used of $1,959,447 was comprised of our net loss of $3,199,606, offset by non-cash items of stock-based compensation expense of $880,120 and depreciation and amortization of $21,792. Working capital movements in the prior-year period resulted in net cash inflows of $338,247 due to an increase in accounts payable of $408,485, accrued liabilities of $21,889 offset by outflows due to prepaid expenses ($63,407) and the credit card payable ($28,720). Investing Activities Net cash used for investing activities was $2,036,474 for the nine months ended September 30, 2025. This was due to an increase in fixed assets for new Arrive Points placed into service or waiting final installation ($87,850). We also incurred a net cash outflow from sales and purchases of short-term investments of $1,948,624. No fixed assets or other investing activities were recorded during the nine months ended September 30, 2024. Financing Activities (Restated) Net cash provided by financing activities was $7,772,302 for the nine months ended September 30, 2025. We received $8,000,000 in proceeds from issuance of convertible debt under the Purchase Agreement. We received net proceeds of $448,056 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 $6,337, debt issuance costs of $480,000 and payments for deferred offering costs of $688,570. We made purchases of our common stock under the share repurchase program of $74,743 in the period. For the nine months ended September 30, 2024, net cash provided by financing activities was $1,925,768, which included $2,031,682 from sales of common stock, offset by payments made on the notes payable of $5,914 and the payment of deferred offering costs of $100,000. 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.”