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Item 2. Management’s Discussion and Analysis

2025-08-14 compared with 2025-06-05 · 197 added, 106 removed, 60 unchanged (83% of the section changed)

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

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.

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.

AI pioneered the smart mailbox for drone deliveries, evolving into a leader in the Autonomous Last Mile (“ALM”).

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differentiate ourselves through a comprehensive, integrated solution:

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.

We combine advanced hardware with a powerful software platform and AI/ML capabilities, offering a complete ecosystem for

automated exchange.

Market Penetration:

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.

Health Deployment

May 19, 2025, we announced a two-year agreement to deploy patented Arrive Points at Hancock Health, a regional hospital located in Greenfield,

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

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.

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.

June 10, 2025, we announced the issuance of a new U.S.

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.

of S-8 Registration Statement

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,

of Shares Under the Equity Incentive Plan

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

May 13, 2025, the Company’s S-1 Registration Statement was declared effective, registering 29,978,212 shares of our common stock

representing one hundred percent (100%) of the company’s currently issued and outstanding common stock.

Trading on Nasdaq Global Market

May 15 , 2025, the Company’s common stock began trading on the Nasdaq Global Market under the ticker “ARAI”.

of Equity Line of Credit

May 15, 2025, the Company closed a financing agreement with an investor.

Per the terms of the agreement, the investor transferred $4,000,000

as the initial pre-paid advance.

Shares to be issued under the share purchase agreement are included on a resale registration statement

filed with the SEC.

Independent Board Member

On June 2, 2025, the Company named Laurie

Tucker as a new independent member of the Board of Directors.

Tucker will serve an initial three-year term and also be the Chairperson

of the Compensation Committee.

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.

of Operations

of the Three Months Ended March 31, 2025, and March 31, 2024

Three Months Ended

GENERAL AND ADMINISTRATIVE EXPENSES

Salaries and wages - office

Legal and professional fees

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

Three Months Ended June 30,

Consulting services

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 $725 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.

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”).

Three Months Ended June 30,

General and administrative

Research and development

Licensing fee

Office supplies and software

Taxes and licenses

Depreciation and amortization

All Other General and Administrative Expenses

Total general and administrative expenses

OTHER INCOME (EXPENSES)

Miscellaneous expense

Total other income (expenses)

NET LOSS BEFORE TAXES

$ (1,978,165 )

$ (1,061,412 )

Provision for Income Taxes

$ (1,978,165 )

$ (1,061,412 )

Components of Our Results of Operations

first quarter results reflect continued investment in our products and services.

Operating expenses were higher than the same period

in 2024, due mainly to higher compensation expenses in the quarter.

and wages were higher by $1,085,536 (218%) compared to the same period in 2024.

Base wages were lower by $16,097 (6%) due to fluctuations

in the full-time workforce.

Stock-based compensation increased $1,101,633, as the Company used equity instead of cash as compensation

for services.

and professional fees were higher by $25,285 (14%) due mainly to increased filing and maintenance fees associated with its patent portfolio.

supplies and software expenses were lower by $4,587 as the Company continued to manage discretionary spending in the quarter to extend

the cash runway.

expense was higher by $4,400 compared to the prior year period.

In April 2024, the Company moved to a new, larger office space resulting

in higher monthly rent expense.

and license expense was lower by $13,542 in the period, due mainly to lower payroll taxes.

The Company deferred certain salaries and

wages in the period, including the associated payroll taxes, to extend liquidity prior to closing the direct listing.

These payroll taxes

were accrued in salaries and wages.

other general and administrative expenses, in total, were lower by $23,082 due to reduced discretionary spend in all areas.

Sales and marketing

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.

and administrative expenses increased by $3,483,247 for the three months ended June 30, 2025, as compared to the three months ended June

Primary components of general and administrative expenses were:

and benefits in total were $3,538,589, an increase of $2,935,372 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.

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 $1,496,978, an increase of $1,137,977 from the same period

in the prior year.

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).

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.

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).

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.

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.

Income/Expenses:

Three Months Ended June 30,

Interest expense and bank charges

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.

expense of $194,212 was comprised primarily of the amortization of the original issue discount on the Streeterville convertible note

($192,000), other miscellaneous interest ($1,617) and bank charges ($595).

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.

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

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.

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

Six Months Ended June 30,

General and administrative

Research and development

Sales and marketing

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.

and administrative expenses increased by $4,577,295 for the three months ended June 30, 2025, as compared to the three months ended June

Primary components of general and administrative expenses were:

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

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 $2,845,223, an increase of $2,239,608 from the same period

in the prior year.

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).

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.

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).

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.

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.

Income/Expenses:

Six Months Ended June 30,

Interest expense and bank charges

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.

expense of $195,389 was comprised primarily of the amortization of the original issue discount on the Streeterville convertible note

($192,000), other miscellaneous interest ($1,939) and bank charges ($1,450).

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.

and Capital Resources

primary source of liquidity is cash on hand.

As of March 31, 2025, our cash totalled $295,368.

This represents an increase of $166,050

from the $129,318 on hand at the end of the prior fiscal year.

This increase was primarily attributable to net proceeds received from

the sales of stock totalling $717,628.

These proceeds were used to fund general operating expenses, including salaries, professional services

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.

Flow and Liquidity

Three Months Ended

Six Months Ended June 30,

Net cash provided by (used in):

Operating activities

$ (3,799,494 )

$ (1,353,985 )

$ (2,445,509 )

Investing activities

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Net increase (decrease) in cash

cash used in operating activities was $546,671 for the three months ended March 31, 2025, compared to $602,477 for the same period in

The decrease in cash outflows was primarily due to higher use of stock-based compensation in lieu of cash payments to employees,

contractors and advisors.

Stock-based compensation in the period increased by $1,101,633 compared to the same period in 2024, while the

net loss was $1,061,412 higher compared to the prior year period, resulting in a net operating cash flow improvement of $40,221.

in net operating assets and liabilities resulted in a net inflow of $75,858 in the period.

This was primarily driven by increases in

accrued liabilities ($133,468), prepaid expenses ($7,081), other current assets ($1,412), and credit card payable ($159), offset by a

reduction of accounts payable of $66,262.

The increase in accrued liabilities was due to an increase of deferred salaries and wages of

$113,716 in the period and deferral of licensing fee payments of $20,000.

the prior-year period, changes in net operating assets and liabilities resulted in a net inflow of $60,409.

This was primarily driven

by an increase in accrued liabilities ($87,676) and prepaid expenses ($4,377), offset by reductions in accounts payable ($3,554), and

credit card payable ($28,090).

adjustments to reconcile net loss to cash used in operating activities for the current period included depreciation and amortization

of $7,391, compared to $7,255 for the prior year period.

cash used for investing activities was $2,832 in the period.

This was due to an increase in construction in progress for final installation

costs related to an Arrive Point asset deployed to a customer location.

cash provided by financing activities was $715,553 in the period.

This was due to new equity issuances and conversion of outstanding

Funds raised through a crowdfunding campaign included new gross equity investment ($288,002), a net release of funds from prior

crowdfunding issuances ($40,219), offset by funding costs associated with the campaign ($59,468), resulting in new funds from crowdfunding

Company also issued new shares to accredited investors for net proceeds of $152,000, and to an existing investor in exchange for a warrant

conversion, resulting in net proceeds of $296,875.

Payments made on an outstanding note for the company cargo van totalled $2,075 in the

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

The increase in cash outflows of $2,445,509 was primarily due to our net loss of $6,668,129, offset by non-cash items of stock-based compensation expense of $2,845,223, depreciation

and amortization expense of $17,118 and the amortization of a discount on the convertible debt of $192,000.

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.

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).

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.

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 the convertible note of $4,010,000.

We received net proceeds of $444,360

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 $4,187 and payments for deferred offering costs of $698,570.

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 notes payable of $3,905.

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis