Arrive AI Inc S-1/A, filed Mar 24, 2025
Arrive AI Inc. (ARAI)
As filed with the Securities and Exchange Commission on March 21, 2025.
Registration No. 333-284042
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1/A
AMENDMENT NO. 2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Arrive AI Inc.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | [7340] | [85-0935006] | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
12175 Visionary Way
Fishers, Indiana 46038
Telephone: (463) 270-0092
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Daniel S. O’Toole
12175 Visionary Way
Fishers, Indiana 46038
Telephone: (463) 270-0092
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
Copies to:
Joseph M. Lucosky, Esq.
Lucosky Brookman LLP
101 Wood Avenue South, 5th Floor
Woodbridge, NJ 08830
Tel. No.: (732) 395-4400
Fax No.: (732) 395-4401
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | ||
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated March 21, 2025
PROSPECTUS
ARRIVE AI INC.
29,828,046 Shares of
Common Stock
This prospectus relates to the registration of the resale of up to 29,828,046 shares of our common stock by our stockholders identified in this prospectus, or their permitted transferees (“Registered Stockholders”) in connection with our direct listing (the “Direct Listing”) on the Nasdaq Global Market (“Nasdaq”). The shares being registered herein may be freely sold in market transactions following the listing and upon the effectiveness of this registration statement. All shares above mentioned in this paragraph represent one hundred percent (100%) of the company’s currently issued and outstanding common stock, all of such shares abovementioned in this paragraph may be freely sold upon the effective date of this registration statement. None of such outstanding shares registered herein may be freely sold in reliance on an exemption from registration such as Rule 144 at this time. Prior to the listing of our common stock on the Nasdaq Global Market there has been no public market for our common stock.
Unlike an initial public offering (“IPO”), the resale by the Registered Stockholders is not being underwritten by any investment bank. The Registered Stockholders may, or may not, elect to sell their shares of Common Stock covered by this prospectus, as and to the extent they may determine. Such sales, if any, will be made through brokerage transactions on the Nasdaq Global Market at prevailing market prices. We will not be involved in the price setting process. Additionally, the price of our shares in prior private transactions may have little or no relation to the opening price and subsequent public price of our stock on Nasdaq. For more information, see the section titled “Plan of Distribution.” If the Registered Stockholders choose to sell their shares of common stock, we will not receive any proceeds from the sale of such shares.
Our board of directors and our stockholders each approved a 1-for-4 reverse stock split of all classes of our issued and outstanding capital stock (the “Reverse Stock Split”). On November 25, 2024, we filed a certificate of amendment of certificate of incorporation with the State of Delaware to immediately effect the Reverse Stock Split. All share and per share information in this prospectus are presented after giving effect to the Reverse Stock Split retrospectively for all periods presented, unless otherwise stated or the context otherwise requires.
No public market exists for our common stock. Further, the listing of our common stock on Nasdaq, without a firm-commitment underwritten offering, is a novel method for commencing public trading in shares of our common stock, and consequently, the trading volume and price of shares of our common stock may be more volatile than if shares of our common stock were initially listed in connection with an initial public offering underwritten on a firm-commitment basis.
On the day that our shares of common stock are initially listed on Nasdaq, Nasdaq will begin accepting, but not executing, pre-opening buy and sell orders and will begin to continuously generate the indicative Current Reference Price (as defined below) on the basis of such accepted orders. The Current Reference Price is calculated each second and, during a 10-minute “Display Only” period, is disseminated, along with other indicative imbalance information, to market participants by Nasdaq on its NOII and BookViewer tools. Following the “Display Only” period, a “Pre-Launch” period begins, during which Maxim Group LLC (the “Advisor” or “Maxim”), in its capacity as our financial advisor, must notify Nasdaq that our shares are “ready to trade.” Once the Advisor has notified Nasdaq that our shares of common stock are ready to trade, Nasdaq will confirm the Current Reference Price for our shares of common stock, in accordance with the Nasdaq rules. If the Advisor then approves proceeding at the Current Reference Price, the applicable orders that have been entered will be executed at such price and the regular trading of our shares of common stock on Nasdaq will commence, subject to Nasdaq conducting validation checks in accordance with the Nasdaq rules. Under the Nasdaq rules, the “Current Reference Price” means: (i) the single price at which the maximum number of orders to buy or sell can be matched; (ii) if there is more than one price at which the maximum number of orders to buy or sell can be matched, then it is the price that minimizes the imbalance between orders to buy or sell (i.e. minimizes the number of shares that would remain unmatched at such price); (iii) if more than one price exists under (ii), then it is the entered price (i.e. the specified price entered in an order by a customer to buy or sell) at which our shares of common stock will remain unmatched (i.e. will not be bought or sold); and (iv) if more than one price exists under (iii), a price determined by Nasdaq in consultation with the Advisor in its capacity as our financial advisor. In the event that more than one price exists under (iii), the Advisor will exercise any consultation rights only to the extent that it can do so consistent with the anti-manipulation provisions of the federal securities laws, including Regulation M, or applicable relief granted thereunder. The Registered Stockholders will not be involved in Nasdaq’s price-setting mechanism, including any decision to delay or proceed with trading, nor will they control or influence the Advisor in carrying out its role as a financial adviser. The Advisor will determine when our shares of common stock are ready to trade and approve proceeding at the Current Reference Price primarily based on considerations of volume, timing and price. In particular, the Advisor will determine, based primarily on pre-opening buy and sell orders, when a reasonable amount of volume will cross on the opening trade such that sufficient price discovery has been made to open trading at the Current Reference Price. For more information, see “Plan of Distribution.”
We have applied to list our Common Stock on the Nasdaq Global Market under the symbol “ARAI.”
If our Nasdaq application is not approved or we otherwise determine that we will not be able to secure the listing of our common stock on Nasdaq, we will not complete this Direct Listing. This listing is a condition to the offering. No assurance can be given that our Nasdaq application will be approved and that our common stock will ever be listed on Nasdaq. If our listing application is not approved by Nasdaq, we will not be able to consummate the offering and we will terminate this Direct Listing.
Upon completion of this offering, our founder and Chief Executive Officer, Daniel S. O’Toole, will beneficially own approximately 78% of the voting power of our outstanding voting securities and we will be a “controlled company” within the meaning of the listing rules of The Nasdaq Stock Market LLC. We may rely on the exemptions from the corporate governance requirements that are available to controlled companies.
We are an “emerging growth company” as defined under U.S. federal securities laws and, as such, have elected to comply with reduced public company reporting requirements.
Investing in our common stock involves risks. See the “Risk Factors” section beginning on page 5 for risks you should consider before investing in our common stock.
Neither the Securities and Exchange Commission nor any state securities commission has approved, or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2025
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” All statements other than statements of historical facts contained in this prospectus may be forward-looking statements. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “continues,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will,” “would” or “should” or, in each case, their negative or other variations or comparable terminology. They appear in a number of places throughout this prospectus, and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies, future acquisitions and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in the “Risk Factors” section of this prospectus. These factors should not be construed as exhaustive and should be read with the other cautionary statements in this prospectus. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this prospectus. The matters summarized under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus could cause our actual results to differ significantly from those contained in our forward-looking statements. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods. In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this prospectus speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments, except as required by applicable law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect latest information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.
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USE OF MARKET AND INDUSTRY DATA
This prospectus includes market and industry data that has been obtained from third party sources, including industry publications, as well as industry data prepared by our management on the basis of its knowledge and experience in the industries in which we operate (including our management’s estimates and assumptions relating to those industries based on that knowledge). Although our management believes such information to be reliable, neither we nor our management have independently verified any of the data from third party sources referred to in this prospectus or ascertained the underlying economic assumptions relied upon by such sources. In addition, the agents have not independently verified any of the industry data prepared by management or ascertained the underlying estimates and assumptions relied upon by management. Furthermore, references in this prospectus to any publications, reports, surveys or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication, report, survey or article, including those discussed under the section entitled “Risk Factors” and elsewhere in this prospectus. Some data are also based on our good faith estimates. The information in any such publication, report, survey or article is not incorporated by reference in this prospectus.
TRADEMARKS
We own or have rights to various trademarks, service marks and trade names that we use in connection with the operation of our business. This prospectus may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks and trade names or products in this prospectus is not intended to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus may appear without the ®, TM or SM symbols, but the omission of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable owner of these trademarks, service marks and trade names.
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This prospectus is a part of a registration statement on Form S-1 that we filed with the SEC using a continuous offering process. Under this process, the Registered Stockholders may, from time to time, sell the common stock covered by this prospectus in the manner described in the section titled “Plan of Distribution.” Additionally, we may provide a prospectus supplement to add information to, or update or change information contained in, this prospectus, including the section titled “Plan of Distribution.” You may obtain this information without charge by following the instructions under the “Where You Can Find Additional Information” section appearing elsewhere in this prospectus. You should read this prospectus and any prospectus supplement before deciding to invest in our common stock.
Our board of directors and our stockholders each approved a 1-for-4 reverse stock split of all classes of our issued and outstanding capital stock (the “Reverse Stock Split”). On November 25, 2024, we filed a certificate of amendment of certificate of incorporation with the State of Delaware to immediately effect the Reverse Stock Split. All share and per share information in this prospectus are presented after giving effect to the Reverse Stock Split retrospectively for all periods presented, unless otherwise stated or the context otherwise requires.
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This summary highlights information contained in greater detail elsewhere in this prospectus and does not contain all of the information that you should consider before deciding to invest in our common stock. You should read the entire prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included in this prospectus, before making an investment decision. Some of the statements in this prospectus constitute forward-looking statements. See the “Cautionary Note Regarding Forward-Looking Statements.” Unless otherwise indicated in this prospectus, “Arrive AI Inc.,” “Arrive,” “the Corporation,” “the Company,” “we,” “us” and “our” refer to Arrive AI Inc. and, where appropriate, its subsidiaries.
Company Background
We were incorporated on April 30, 2020, in the State of Delaware under the name of Dronedek Corporation. The Company changed its name to Arrive Technology Inc. on July 27, 2023. The Company changed its name to Arrive AI Inc. on September 30, 2024. We are a developmental technology company with a focus on designing and implementing a commercially viable smart mailbox and platform system for smart, secure, and seamless exchange of packages, goods, supplies, food, and medications between people, through the use of robots, and drones. We have not started conducting commercial operations and we had no revenues for fiscal years 2022, 2023 or 2024.
Arrive executed an exclusive patent license agreement on May 26, 2020 with its CEO, Mr. O’Toole and amended in December 2024 and March 2025, whereby Mr. O’Toole granted Arrive rights to use, sell, manufacture and otherwise commercialize certain technologies relating to secured drone delivery ALM mailboxes in exchange for license fees. Such technologies helped jumpstart our business operations and will continue to play such a critical role in our growth that we became heavily reliant on the right to use them. Please see a more detailed description of the terms of such agreement under “Certain Relationships and Related Person Transactions—Exclusive Patent License Agreement” and the risks related to our reliance on such agreement under “Risk Factors—Risks Related to our Business and Future Commercial Operations – Regulations and Compliance—We may become reliant on our intellectual property; failure to protect our intellectual property could negatively affect our business, financial condition or results of operations” and “Risk Factors—Risks Related to our Business and Future Commercial Operations – Regulations and Compliance—If we materially breach the Exclusive Patent License Agreement and fail to cure such breach timely and to Mr. O’Toole’s satisfaction, such license agreement may transition to a non-exclusive license agreement which will allow Mr. O’Toole to seek other and/or additional licensees for exploitation of similar technology, in such an event, and if the company is not able to find other sources for the use of similar technology to support its future business operations, in such a case, our future business operations may be adversely affected or even essentially terminated, in such event investors may potentially lose a portion or even the entire amount of their investment.
Implications of being a Controlled Company
Upon completion of the Direct Listing, our founder and Chief Executive Officer, Daniel S. O’Toole, will beneficially own approximately 78% of the voting power of our outstanding voting securities and we will be a “controlled company” within the meaning of the listing rules of The Nasdaq Stock Market LLC.
As long as our principal shareholder owns at least 50% of the voting power of our Company, we will be a “controlled company” as defined under Nasdaq Listing Rules. As a controlled company, we are permitted to rely on certain exemptions from Nasdaq’s corporate governance rules, including:
| ● | an exemption from the rule that a majority of our board of directors must be independent directors; |
| ● | an exemption from the rule that the compensation of our chief executive officer must be determined or recommended solely by independent directors; and |
| ● | an exemption from the rule that our director nominees must be selected or recommended solely by independent directors. |
Although we currently do not intend to rely on the “controlled company” exemption under the Nasdaq listing rules, we could elect to rely on this exemption in the future. As a result, you may not in the future have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
As a company with less than $1.235 billion of revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We may remain an emerging growth company for up to five years from the date of the closing of our public offering, or until such earlier time as we have more than $1.235 billion in annual revenue, the market value of our stock held by non-affiliates is more than $700 million as of the final day of our second fiscal quarter, in which case we would cease to be an “emerging growth company” as of the following final day of our fiscal year, or we issue more than $1 billion of non-convertible debt over a three-year period.
For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period under the JOBS Act. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards.
We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during our most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. For so long as we remain a smaller reporting company, we are permitted and intend to rely on exemptions from certain disclosure and other requirements that are applicable to other public companies that are not smaller reporting companies, such as providing only two years of audited financing statements.
As of December 31, 2024, we had a total of 910,189 warrants outstanding, all of which are held by the Registered Shareholders. Each warrant unit converts to 0.25 common shares (after giving effect to the Reverse Stock Split). All outstanding shares as of the date of this prospectus represent one hundred percent (100%) of the company’s currently issued and outstanding common stock, all of such outstanding shares as of the date of this prospectus may be freely sold upon the effective date of this registration statement. None of such outstanding shares as of the date of this prospectus and registered herein may be freely sold in reliance on an exemption from registration such as Rule 144 at this time. We also have 614,704 shares of common stock issuable upon the exercise of options outstanding as of the date of this prospectus (after giving effect to the Reverse Stock Split). Of these, 98,815 are held by the Registered Shareholders. All the shares of common stock subject to stock options outstanding and reserved for issuance under our equity incentive plan are expected to be registered on Form S-8 under the Securities Act and such shares are eligible for sale in the public markets, subject to the limitations applicable to affiliates under Rule 144.
Reverse Stock Split
Our board of directors and our stockholders each approved the Reverse Stock Split. On November 25, 2024, we filed a certificate of amendment of certificate of incorporation with the State of Delaware to immediately effect the Reverse Stock Split. All share and per share information in this prospectus are presented after giving effect to the Reverse Stock Split retrospectively for all periods presented, unless otherwise stated or the context otherwise requires.
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Below is a summary of material factors that make an investment in our securities speculative or risky. This summary may not address all of the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks and uncertainties that we face, can be found under the section titled “Risk Factors” in this prospectus. The below summary is qualified in its entirety by that more complete discussion of such risks and uncertainties. You should carefully consider the risks and uncertainties described under the section titled “Risk Factors” as part of your evaluation of an investment in our securities:
● Our lack of commercial operations makes evaluating our business difficult and as result, our securities are considered highly speculative.
● We had negative cash flow for the fiscal year ended December 31, 2024, and for the year ended December 31, 2023.
● We have not based our financial projections or valuation on actual commercial operations.
● Arrive will need to engage in certain transactions, including raising substantial additional funds, which may not be available on acceptable terms and transactions with insiders which may generate a possible conflict of interest.
● Arrive’s future suppliers may be subject to governmental regulations including regulations regarding the operation of drones in certain environments.
● Product development is a long, expensive, and uncertain process, and investments in product development often involve a long wait until a return, if any, can be achieved on such an investment.
● Arrive AI’s success will depend on the growth of drone and mobile robot automated delivery services and will need to market its products successfully.
● Our collection, processing, use and disclosure of individually identifiable biometric or other personally identifiable information (PII) is subject to evolving and expanding privacy and security regulations.
● Arrive may be forced to litigate to defend its Intellectual Property (“IP”) rights, or defend against claims by third parties against Arrive relating to IP rights.
● We may become reliant on our intellectual property; failure to protect our intellectual property could negatively affect our business, financial condition or results of operations.
● If we materially breach the Exclusive Patent License Agreement and fail to cure such breach timely and to Mr. O’Toole’s satisfaction, such Exclusive Patent License Agreement may transition to a non-exclusive license agreement which will allow Mr. O’Toole to seek other and/or additional licensees for exploitation of similar technology, in such an event, and if the company is not able to find other sources for the use of similar technology to support its future business operations, in such a case, our business operation may be adversely affected or even essentially terminated, in such event investors may potentially lose a portion or even the entire amount of their investment.
● Arrive may be subject to risks related to information technology systems, including cyber-security risks which could disrupt business operations, result in the loss of critical and confidential information, and adversely impact Arrive AI’s reputation and results of operations.
● Privacy and data security laws and regulations could require us to make changes to our business, impose additional costs on us and reduce the demand for our software solutions.
● Once we start conducting commercial operations, if our security measures are breached or unauthorized access to personally identifiable information (PII) is otherwise obtained, our reputation may be harmed, and we may incur significant liabilities.
● Our collection, processing, use and disclosure of personally identifiable information (PII) is subject to evolving and expanding privacy and security regulations.
● Defects in our future products or failures in quality control could impair our ability to sell our products and services or could result in product liability claims, litigation and other significant events involving substantial costs.
● The Company is subject to ongoing litigation and may be subject to more including securities litigation, which is expensive and could divert management attention, including securities class action and derivative lawsuits which could result in substantial costs.
● Our technology may contain third-party open-source software components, and failure to comply with the terms of the underlying open-source software licenses could restrict our ability to provide our offered products and services.
● Failures in internet infrastructure or interference with internet or Wi-Fi access could cause prospective users to believe that our systems are unreliable, potentially causing our future customers to decline to renew their subscriptions.
● Cyberattacks and other security breaches of network or information technology security could have an adverse effect on our business.
● We may not be successful in our artificial intelligence initiatives, which could adversely affect our business, reputation, or financial results.
● The adoption, use, and commercialization of AI technology, and the continued rapid pace of developments in the AI field, are inherently uncertain.
● Failure by our customers to continue to adopt infrastructure to support AI use cases in their systems, or our ability to keep up with evolving AI infrastructure requirements, could have a material adverse effect on our business, financial condition, and results of operations.
● A disruption of our IT Systems and capabilities could lead to business disruption and could harm our reputation and result in financial penalty and legal liabilities, which would reduce our revenue and have a material adverse effect on our business, financial condition and results of operations
● We may face a shortage in talent or professionals with the appropriate experience and training in AI technology
● Arrive will rely on third party vendors such as software developers, suppliers, and service partners to create its products which may lead to interruptions outside of Arrive AI’s control.
● Arrive AI’s software platform may be at risk of unexpected technical failure due to the unavailability of third-party information and infrastructure services or because of data or security breaches or attacks.
● Arrive may be subject to litigation proceedings.
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● We will be a “controlled company” within the meaning of the Nasdaq Stock Market Rules upon the Direct Listing because our insiders will beneficially own more than 50% of the voting power of our outstanding voting securities. Our largest shareholder, officer and director, Daniel O’Toole holds substantial control over the Company and is able to influence all corporate matters.
● Our listing differs significantly from an initial public offering conducted on a firm-commitment basis.
● Our shares of common stock currently have no public market. An active trading market may not develop or continue to be liquid and the market price of our shares of common stock may be volatile.
Our corporate address is 12175 Visionary Way, Fishers, Indiana 46038. Our website can be found at https://www.arriveai.com/ The information contained on our website is not a part of this prospectus, nor is such content incorporated by reference herein, and should not be relied upon in determining whether to make an investment in our shares of common stock. We were incorporated on April 30, 2020, in the State of Delaware under the name of Dronedek Corporation. The Company changed its name to Arrive Technology Inc. on July 27, 2023. The Company changed its name to Arrive AI Inc. on September 30, 2024.
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
The following tables set forth our summary of historical financial data as of December 31, 2024 and December 31, 2023.
The summary statements of operations data for the periods ended December 31, 2024 and December 31, 2023 are derived from our audited financial statements and notes that are included elsewhere in this prospectus.
Our board of directors and our stockholders each approved the Reverse Stock Split. On November 25, 2024, we filed a certificate of amendment of certificate of incorporation with the State of Delaware to immediately effect the Reverse Stock Split. All share and per share information in this prospectus are presented after giving effect to the Reverse Stock Split retrospectively for all periods presented, unless otherwise stated or the context otherwise requires.
We have prepared the audited financial statements in accordance with the U.S. generally accepted accounting principles (“GAAP”). Our historical results are not necessarily indicative of our results in any future period. Results from our interim period may not necessarily be indicative of the entire year’s results.
| For the Year Ended December 31, 2024 | For the Year Ended December 31, 2023 | |||||||
| Statement of Operations Data: | ||||||||
| General and Administrative Expenses | $ | 4,558,849 | $ | 7,323,075 | ||||
| Loss From Operations | $ | 4,558,849 | $ | 7,323,075 | ||||
| Net loss | $ | 4,537,901 | $ | 7,321,134 | ||||
| Statement of Cash Flows Data: | ||||||||
| Cash Flows From Operating Activities | $ | (2,289,273 | ) | $ | (2,816,791 | ) | ||
| Cash Flows From Investing Activities | $ | (114,655 | ) | $ | (104,991 | ) | ||
| Cash Flows From Financing Activities | $ | 2,207,774 | $ | 1,690,158 | ||||
| Cash, End of Period | $ | 129,318 | $ | 325,472 | ||||
| As of | As of | |||||||
| December 31, 2024 | December 31, 2023 | |||||||
| Balance Sheet Data: | ||||||||
| Total assets | $ | 987,788 | $ | 619,601 | ||||
| Total liabilities | $ | 1,970,963 | $ | 1,097,367 | ||||
| Total stockholders’ deficit | $ | (983,175 | ) | $ | (477,766 | ) | ||
| 4 |
An investment in our common stock involves a high degree of risk. You should carefully consider the following risks and all of the other information contained in this prospectus before deciding whether to invest in our common stock. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. In that event, the trading price of our common stock could decline and you could lose all or part of your investment in our common stock. Additional risks of which we are not presently aware or that we currently believe are immaterial may also harm our business and results of operations. Some statements in this prospectus, including such statements in the following risk factors, constitute forward-looking statements. See the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
Risks Related to our Business and Operations - General Risks
Our lack of commercial operations makes evaluating our business difficult and as result, our securities are considered highly speculative.
We were founded in 2020 and have a history of incurring substantial operating losses in connection with the development of our products. We do not currently have commercial operations and therefore no revenues. Our lack of a significant history and the evolving nature of the market in which we will operate have risks inherent to our business that are yet to be recognized by us or others, or not fully appreciated as of this moment and until the company commences commercial operations, additionally, we may incur in further losses before we receive any revenues. As a result of the foregoing, an investment in our common stock necessarily involves uncertainty about the stability of our operating results or results of operations after we commence commercial operations.
We had negative cash flow for the fiscal year ended December 31, 2024, and for the year ended December 31, 2023.
Although we have not yet started conducting operations, during the developing process of our products, we had a negative operating cash flow of $2.3 million in the fiscal year ended December 31, 2024, and $2.8 million for the year ended December 31, 2023. Our management team believes our company will have sufficient funds to meet operational needs as of the date of this prospectus to start conducting commercial operations, the company continues to successfully raise new capital through equity sales to accredited investors and an active crowdfunding campaign. In 2023, the Company raised $1,409,380 from crowdfunding (before offering costs) and $429,755 from Reg D sales. In 2024, the Company raised $2,097,297 from crowdfunding (before offering costs) and $825,000 from Reg D sales. As of December 31, 2024, the Company had $129,318 cash on hand to support an average cash burn rate of approximately $200,000 per month. However, to the extent that we have negative operating cash flow in future periods and upon starting commercial operations, we may need to allocate a portion of our cash reserves to fund such negative cash flow. Additionally, we may be required to raise additional funds through the issuance of equity or debt securities. There can be no assurance that we will be able to generate positive cash flow from our operations, that additional capital or other types of financing will be available when needed or that these financings will be on terms favorable to us.
We have not based our financial projections or valuation on actual commercial operations.
Our pre-operational stage precludes us from providing financial information based on actual commercial operations. Current financial projections are based on assumptions concerning future commercial operations that we believe are reasonable but may prove incorrect. Because actual conditions will differ from those assumptions, and the differences may be material, we cannot assure you that these projections will prove accurate and caution you against excessive reliance on them in deciding whether to invest in our equity securities. Any increase in our costs or decrease in our revenues after we commence operations could affect your ability to receive a return on your investment.
We are highly dependent on our management team, and the loss of our senior executive officers or other key employees could harm our ability to implement our strategies, impair our relationships with clients and adversely affect our business, results of operations and growth prospects.
Our success depends, to a large degree, on the skills of our management team and our ability to retain, recruit and motivate key officers and employees. Our active senior executive leadership team has significant experience, and their knowledge and relationships would be difficult to replace. Leadership changes will occur from time to time, and we cannot predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel. Competition for senior executives and skilled personnel who possess an understanding and technical expertise in the artificial intelligence industry is intense, which means the cost of hiring, paying incentives and retaining skilled personnel may continue to increase. We need to continue attracting and retaining key personnel and recruiting qualified individuals to succeed existing key personnel to ensure the continued growth and successful operation of our business. In addition, as a provider of high-tech products and services, we must attract and retain qualified personnel to continue to grow our business, and competition for such personnel can be intense. Our ability to effectively compete for senior executives and other qualified personnel by offering competitive compensation and benefit arrangements may be restricted by cash flow and other operational restraints. The loss of the services of any senior executive or other key personnel, or the inability to recruit and retain qualified personnel in the future, could have a material adverse effect on our business, financial condition or results of operations. In addition, to attract and retain personnel with appropriate skills and knowledge to support our business, we may offer a variety of benefits, which could reduce our earnings or have a material adverse effect on our business, financial condition or results of operations.
Our insurance may not adequately cover our future operating risk.
We have insurance to protect our assets, future operations and employees. While we believe our insurance coverage addresses all material risks to which we may be exposed and is adequate and customary according to our current projections for our future operations, such insurance is subject to coverage limits and exclusions and may not be available for the risks and hazards to which we may be exposed. In addition, no assurance can be given that such insurance will be adequate to cover our liabilities or will be generally available in the future or, if available, that premiums will be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur such liability at a time when we are not able to obtain liability insurance, our business, results of operations and financial condition could be materially adversely affected. Additionally, the cost of insurance coverage may increase upon the commencement of our operations, such increase may have a negative impact on our business and financial position. Our lack of commercial operating history in an emerging area may make it difficult to obtain insurance policies at competitive rates. Insurance that is otherwise readily available, such as workers’ compensation, general liability, title insurance and directors’ and officers’ insurance, is more difficult for us to find and more expensive because of our involvement in emerging areas. There are no guarantees that we will be able to find insurance coverage at otherwise competitive, or even economically viable terms.
| 5 |
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.
Accounting principles generally accepted in the United States (“U.S. GAAP”) and related pronouncements, implementation guidelines and interpretations with regard to a wide variety of matters that are relevant to our business, such as, but not limited to, revenue recognition, stock-based compensation, trade promotions, and income taxes, are highly complex and involve many subjective assumptions, estimates and judgments by our management. Changes to these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported results.
A new outbreak of the COVID-19 or other pandemic(s) could materially adversely affect our business, financial condition, results of operations, cash flows and day-to-day operations.
Any future outbreak of COVID-19, or any other pandemic across the globe including the U.S., may have an adverse impact on many businesses and their operations and financial condition. The response to this coronavirus by federal, state and local governments in the U.S. in the past, has resulted in the significant market and business disruptions across many industries and affecting businesses of all sizes. This pandemic has also caused significant stock market volatility and further tightened capital access for most businesses.
The ultimate magnitude of COVID-19 or another pandemic, including the extent of its impact on our financial and operational results, which could be material, will depend on the length of time and magnitude of a new outbreak of the pandemic, its effect on the demand for our services and our supply chain, the effect of governmental regulations imposed in response to any new pandemic, as well as uncertainty regarding all of the foregoing. We cannot at this time predict the full impact of a new outbreak such as the COVID-19 pandemic, but it could have a larger material adverse effect on our future business, financial condition, results of operations and cash flows beyond what is discussed within this prospectus.
Our growth and financial health are subject to a number of economic risks including extreme volatility in securities prices.
The financial markets in the United States have experienced substantial uncertainty during recent years, particularly following the COVID-19 outbreak. This uncertainty has included, among other things, extreme volatility in securities prices, reduced liquidity and credit availability, rating downgrades of certain investments and declining values with respect to others. If capital and credit markets continue to experience uncertainty and available funds remain limited, we may not be able to obtain debt or equity financing or to refinance our existing indebtedness on favorable terms or at all, which could affect our planned strategic commercial operations and our financial performance and force modifications to our planned commercial operations. These conditions currently have not precluded us from accessing credit markets or financing our product development operations, but there can be no assurance that financial markets and confidence in major economies will not deteriorate. In addition, we are vulnerable to changes in market preferences or other market changes, such as general economic conditions, recession and fears of recession, interest rates, tax rates and policies, and inflation. The U.S. is currently experiencing unusually high rates of inflation, and we may experience a compression in our margins as a result. The U.S. and global economies have in the past, and will in the future, experience recessionary periods and periods of economic instability. During such periods, our potential customers may choose not to expend the amounts that we anticipate based on our expectations with respect to the addressable market for the services we offer. There could also be a number of other effects from adverse general business and economic conditions on our future business, including insolvency of any of our future third-party suppliers or contractors, decreased market confidence, decreased interest in communications solutions, decreased discretionary spending and reduced customer demand for the services we offer, any of which could have a material adverse effect on our business, financial condition and results of operations.
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A significant failure or deterioration in our quality control systems could have a material adverse effect on our business and operating results.
The quality and safety of our products and services will be critical to the success of our business and future commercial operations. As such, it is imperative that our and our future service providers’ quality control systems operate effectively and successfully. Quality control systems can be negatively impacted by the design of the quality control systems, the quality training programs and adherence by employees to quality control guidelines. Although we strive to ensure that all of our service providers have implemented and adhere to high-quality control systems, any significant failure or deterioration of such quality control systems could have a material adverse effect on our business and operating results.
We may experience physical breaches of security at our facilities, any security breaches could result in loss of sensitive information as well as loss as a result of any such breach.
A physical security breach at one of our facilities could result in a significant loss of available products, expose us to additional liability under applicable regulations and to potentially costly litigation or increase expenses relating to the resolution and future prevention of these breaches and may deter potential customers from choosing our products and services, any of which could have an adverse effect on our business, financial condition and results of operations.
We may face commercial operational risks because of our reliance on technology. Our information technology systems may be subject to failure, interruption or security breaches.
Information technology systems are critical to our business. Our business will require us to collect, process, transmit and store significant amounts of confidential information regarding our customers, employees and our own business, operations, plans and business strategies. We intend to use various technology systems to manage our customer relationships and general ledger. Our computer systems, data management and internal processes, as well as those of third parties, are integral to our performance. Our commercial operational risks may include the risk of malfeasance by persons outside our company, errors relating to transaction processing and technology, systems failures or interruptions, breaches of our internal control systems and compliance requirements, and business continuation and disaster recovery. Such risks related to cyber-attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information, damages to systems, or other material disruptions to network access or business operations. Although we take protective measures and believe that we have not experienced any of the data breaches described above, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber-attacks that could have an impact on information security. Because the techniques used to cause security breaches change frequently, we may be unable to proactively address these techniques or to implement adequate preventative measures. In the event of a breakdown in our internal control systems, improper operation of our systems or improper employee actions, or a breach of our security systems, including if confidential or proprietary information were to be mishandled, misused or lost, we could suffer financial loss, loss of customers and damage to our reputation, and face regulatory action or civil litigation. Any of these events could have a material adverse effect on our financial condition and results of operations after we start conducting commercial operations. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits.
The Company’s products and future services may be affected from time to time by design and manufacturing defects that could materially adversely affect the Company’s business and result in harm to the Company’s reputation.
The Company will offer complex hardware and software products and services that can be affected by design and manufacturing defects. Sophisticated operating system software and applications, such as those to be offered by the Company, often have issues that can unexpectedly interfere with the intended operation of hardware or software products. Defects can also exist in components and products the Company will purchase from third parties. Component defects could make the Company’s products unsafe and create a risk of environmental or property damage and personal injury. In addition, the Company’s service offerings could have quality issues and may from time to time experience outages, service slowdowns or errors. As a result, the Company’s services may from time to time not perform as anticipated and may not meet customer expectations. There can be no assurance the Company will be able to detect and fix all issues and defects in the hardware, software and services it offers. Failure to do so can result in widespread technical and performance issues affecting the Company’s future products and services. In addition, the Company can be exposed to product liability claims, recalls, product replacements or modifications, write-offs of inventory, property, plant and equipment, and/or intangible assets, and significant warranty and other expenses, including litigation costs and regulatory fines. Quality problems can also adversely affect the experience for users of the Company’s products and services, and result in harm to the Company’s reputation, loss of competitive advantage, poor market acceptance, reduced demand for products and services, delay in new product and service introductions and lost sales.
We will need to raise substantial additional funds in the future, which funds may not be available or, if available, may not be available on acceptable terms.
Changing circumstances may cause us to consume capital more rapidly than we currently anticipate. The continued growth of our business, including the development, regulatory approval and commercialization of our products, will significantly increase our expenses going forward, regardless of our ability to generate revenue. As a result, we are required to seek substantial additional funds to continue our business and start commercial operations. Our future capital requirements will depend on many factors, including:
| ● | the cost of developing our products and services; | |
| ● | obtaining and maintaining regulatory clearance or approvals; | |
| ● | the costs associated with commercializing our products and services; | |
| ● | any change in our development priorities; | |
| ● | the revenue generated by sales of our products and services, once we reach the commercialization phase; | |
| ● | the costs associated with expanding our sales and marketing infrastructure for commercialization of our products and services; | |
| ● | any change in our plans regarding the manner in which we choose to commercialize any product or service in the United States or internationally; | |
| ● | the cost of ongoing compliance with regulatory requirements; | |
| ● | expenses we incur in connection with potential litigation or governmental investigations; | |
| ● | the costs to develop additional intellectual property: | |
| ● | anticipated or unanticipated capital expenditures; and | |
| ● | unanticipated general and administrative expenses. |
We may need to raise additional funds in the future to support our commercial operations. If we are required to secure additional financing, such additional fundraising efforts may divert our management from our day-to-day activities. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be prevented from carrying out our business plan. This would have a material adverse effect on our business, financial condition and results of operations.
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Raising additional capital may cause dilution to our existing stockholders or restrict our commercial operations.
We may seek additional capital through a variety of means, including through equity, debt financings, or other sources. We may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences and anti-dilution protections that adversely affect your rights as a stockholder.
Such financing may also result in imposition of debt covenants, increased fixed payment obligations or other restrictions that may adversely affect our ability to conduct our business. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that are not favorable to us.
We may be exposed to the effects of changing energy prices, and interruptions in supplies of this commodity.
We will not own nor operate the drones used by third parties in making deliveries to our mailboxes. However such drones are electrically operated and changing energy costs may have a significant impact on the operations of such third parties. The service delivery vehicles operated by third parties are exposed to the risks associated with variations in the energy market price. Such third parties could experience a disruption in energy supplies as a result of any war, weather-related events or natural disasters, actions by producers (including as part of their own sustainability efforts) or other factors beyond our control, which could have a material adverse effect on us, such as increase in costs related to finding alternative third parties.
We may be subject to risks associated with climate change, including the potential increased impacts of severe weather events on our future commercial operations and infrastructure.
The potential physical effects of climate change, such as increased frequency and severity of storms, floods, fires, fog, mist, freezing conditions, sea-level rise and other climate-related events, could affect our future commercial operations, infrastructure and financial results. We could incur significant costs to improve the climate resiliency of our products infrastructure such as making our mailboxes weather resistant and otherwise prepare for, respond to, and mitigate such physical effects of climate change. We are not able to accurately predict the materiality of any potential losses or costs associated with the physical effects of climate change and the costs associated to adapting or improving our products to be weather resistant.
We and our future third-party suppliers must comply with environmental, health and safety laws and regulations, which can be expensive and restrict how we do, or interrupt our, business.
Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the generation, use, storage and disposal of hazardous materials. We may work with materials, compounds and samples that could be hazardous to human health and safety or the environment, such as refrigerant substances, which are working fluids used in the refrigeration cycle of air conditioning systems and heat pumps where in most cases they undergo a repeated phase transition from a liquid to a gas and back again, as it does so, it absorbs heat and then releases it along its journey, helping to bring cool air and keep an area dry avoiding overheating, these substances may be used in our business with the purpose to preserve a steady temperature and prevent any damage to the products that will be temporarily store in our mail boxes. Our future operations may also produce waste products. Accordingly, we and our third-party manufacturers and future suppliers are subject to federal, state, local and foreign environmental, health and safety laws and regulations, and permitting and licensing requirements, including those governing the use, manufacture, storage, handling, transportation, disposal of, and exposure to, these products or materials, as well as worker health and safety. We cannot eliminate the risk of contamination or injury resulting from such products or materials. We also cannot guarantee that the procedures utilized by our third-party manufacturers for handling and disposing of hazardous materials comply with all applicable environmental, health and safety laws and regulations. As a result, we may be held liable for any resulting damages, costs or liabilities, including clean-up costs and liabilities, which could be significant, or our commercialization, research and development efforts and business operations may be restricted or interrupted. Environmental, health and safety laws and regulations are complex, change frequently and have tended to become more stringent. Compliance with such laws and regulations is expensive, and current or future environmental, health and safety laws and regulations may restrict our operations. If we do not comply with applicable environmental health and safety laws and regulations, and permitting and licensing requirements, we may be subject to fines, penalties, a suspension of our business or other sanctions. Changes in the technology regulatory environment, technological advances that render our technologies obsolete, availability of resources product trials, acceptance of technologies into the community, and competition from larger, more well-funded companies. These adverse conditions could affect the Company’s financial condition and the results of its operations after the company starts conducting commercial operations.
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Our future business partners and customers operation of drones and mobile robotics in work, campus, residential, suburban, and urban environments may be subject to regulation and operational risks, such as accidental collisions and transmission interference, which may limit demand for our smart mailbox service in such environments and harm our business and operating results.
Work, campus, residential, suburban, and urban environments may present certain challenges to our smart mailbox service partners and customers. Automation may accidentally collide with other aircraft, robots, persons or property, which could result in injury, death or property damage and significantly damage the reputation of and support for automation in general. As the usage of drone and robot automation has increased by causal users and by businesses, the danger of such collisions and other risks have increased. Furthermore, the incorporation of our new technology into our smart mailboxes for automation may increase the demand for the number of vehicles operating simultaneously in a given area and with this increase has come an increase in the risk of accidental collision. In addition, obstructions to effective transmissions in urban and other environments, such as large buildings, may limit the ability of the operator to utilize the aircraft for its intended purpose. The risks or limitations of operating drones and robots in urban and other environments may limit their value to partners and customers, which may limit demand for our smart mailbox services and consequently materially harm our business and operating results.
Product development is a long, expensive and uncertain process.
The product development process is a costly, complex and time-consuming process, and investments in product development often involve a long wait until a return, if any, can be achieved on such an investment. We might face difficulties or delays in the development process that will result in our inability to timely offer products that satisfy the market, which might allow competing companies offering similar products and services to emerge during the development and certification process. We anticipate making significant investments in research and development relating to our products and services, but such investments are inherently speculative and require substantial capital expenditures. Any unforeseen technical obstacles and challenges that we encounter in the research and development process could result in delays in or the abandonment of product commercialization, which may substantially increase development costs to be able to manufacture products and services which would be competitive and sustainable for our potential customers, and these potential costs may negatively affect our results of operations after we commence providing our services.
Rapid technological changes may adversely affect the market acceptance of our products and services and could adversely affect our business, financial condition and results of operations as we would incur in additional costs associated with developing products that would effectively obtain market acceptance and demand.
The Smart Mailbox for Automation (“SMA”) market is subject to technological changes, introduction of new products, change in customer demands and evolving industry standards. Our future success will depend upon our ability to keep pace with technological developments and to timely address the increasingly sophisticated needs of our customers by supporting existing and new technologies and by developing and introducing enhancements to our current products and new products in our future commercial operations. We may not be successful in developing and marketing our products in response to technological change, evolving industry standards or customer requirements. In addition, we may experience difficulties internally or in conjunction with key vendors and partners that could delay or prevent the successful development, introduction and sale of our products and services may not adequately meet the requirements of the market and may not achieve any significant degree of market acceptance. If release dates of our new products or services are delayed or, if when released, they fail to achieve market acceptance, our business, operating results and financial condition may be adversely affected as we would incur in additional costs associated with developing products that would effectively obtain market acceptance and demand, in addition to any other potential costs incurred to find viable alternatives in the event any of our future third party providers fail to keep up with the market demand for our potential products and services or become obsolete in the industry.
We may face competition from other Smart Mailbox for Automation companies, many of which have substantially greater resources.
The SMA industry is evolving rapidly and is highly competitive. There are many Smart Lockerbox and Smart Mailbox companies. What largely distinguishes our offerings is our focus and patents for Smart Mailboxes that support Automation, like drones and mobile robotics, in the delivery and pickup from our mailboxes. Our direct competitors include, but are not limited to, Matternet, and Valqari. Carriers like FedEx and UPS and retailers like Walmart and CVS have automation efforts underway as well but they are prospective customers for us. Some of these competitive firms have substantially greater financial, management, research and marketing resources than we have. Our Smart Mailbox for Automation business may also face competition from smaller businesses. Our competitors may be able to provide customers with different or greater capabilities or benefits than we can provide in areas such as technical qualifications, past contract performance, geographic presence, price and the availability of key professional personnel, including those with security clearances. Furthermore, our competitors may be able to utilize their substantially greater resources and economies of scale to develop competing products, services, and technologies more efficiently, divert sales away from us by winning broader contracts, or hire away our employees by offering more lucrative compensation packages. The market for drone and robotic delivery is expanding, and competition intensifying which both provides an opportunity for our Smart Mailboxes but also may create additional competitors to enter the market, and current competitors expand their product and service lines. In order to secure contracts successfully when competing with larger, well-financed companies, we may be forced to agree to contractual terms that provide for lower aggregate payments to us over the life of our future contracts, which could adversely affect our margins upon commencement of our commercial operations once we start providing our services to our potential customers. In addition, larger diversified competitors serving as prime contractors may be able to supply underlying products and services from affiliated entities, which would prevent us from competing for subcontracting opportunities on these contracts. Our failure to compete effectively with respect to any of these or other factors could have a material adverse effect on our business, prospects, financial condition or operating results.
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If the drone and mobile robot automated delivery and pickup services do not experience significant growth, if we cannot create and expand our customer base, or if our products and these services do not achieve broad acceptance, then we may not be able to achieve our anticipated level of growth.
We cannot accurately predict the future growth rates or sizes of the markets for our products and future services. Demand for our products and services may not increase, or may decrease, either generally or in specific markets, for particular types of products and services or during particular time periods. We believe the SMA, drone, and mobile robotics for all for the automated delivery and pickup market, are all nascent and we cannot assure you that our continued efforts to further increase our sales to customers will be successful. The expansion of these markets in general, and the market for our products and services in particular, depends on a number of factors, including the following:
| ● | customer satisfaction with drone delivery and pickup as an alternative solution; | |
| ● | customer satisfaction with mobile robotic delivery and pickup as an alternative solution; | |
| ● | our ability to technologically reduce the friction of handoffs between people, robots, and drones; | |
| ● | the cost, performance and reliability of our products and products offered by our competitors; | |
| ● | customer perceptions regarding the effectiveness and value of our system and it’s inter-operability with drone, robotic, and customers’ business and operational systems; | |
| ● | obtaining timely automation regulatory approvals, including, access to airspace and wireless spectrum; and | |
| ● | marketing efforts and publicity regarding these types of systems and services. |
Our products and services, and our automation partners’ products and services, may not adequately address market requirements and may not continue to gain market acceptance. If these types of systems generally, or our products and services specifically, do not gain wide market acceptance, then we may not be able to achieve our anticipated level of growth and our revenue and results of operations would decline.
If our proposed marketing efforts are unsuccessful, we may not earn enough revenue after we commence commercial operations to become profitable.
Our future growth depends on our gaining market acceptance and regular production orders for our products and services. We plan to bring our technology and services to market with an initial focused market target of medical operations such as hospitals, labs, clinic, doctors, pharmacies, and large assisted living businesses, which will then further expand to other market segments as we aim to eventually achieve ubiquity and business and residential density necessary for a future of pervasive automated logistics for everyone; we will use methods initially such as direct sales; automation partners as channel sales, tradeshows, publicized innovation research and projects with bellwether customers, white-papers, and targeted digital marketing campaigns and organic (search engine optimization, blogs). In the event we are not successful in obtaining a significant volume of early strategic innovation customers’ orders for our products and services, then we will face significant obstacles in expanding our business into an early adopters and mainstream market where the majority of future revenue would come from. We cannot give any assurance that our marketing efforts will be successful. If they are not, revenue may not be sufficient to cover our fixed costs and we may not become profitable.
We may engage in transactions with businesses that may be affiliated with our officers, directors or significant stockholders, and which may involve actual or potential conflicts of interest.
We may decide to make investments in one or more businesses affiliated with our officers, directors or significant stockholders. Such investment opportunities may compete with other opportunities for our investment dollars. Although we will not specifically focus on, or target, any particular transaction with any affiliates or affiliated entities, we would pursue such a transaction if we determined that such an affiliated investment was attractive from a risk-adjusted return perspective, and such transaction were approved by a majority of our independent and disinterested directors. Any such activity would involve actual or potential conflicts of interest. Although we are confident that we can navigate these conflicts consistent with best practices and applicable law, the existence or appearance of such conflicts of interest could make our publicly traded securities less attractive and thereby reduce their trading prices.
The ongoing conflict between Ukraine and Russia could adversely affect our business, consolidated financial condition, and results of operations.
Russia’s military actions against Ukraine have led to an unprecedented expansion of export restrictions and sanctions imposed by the United States, the European Union, the United Kingdom, and numerous other countries against Russia and Belarus. In addition, Russian authorities have imposed significant currency control measures, other sanctions, and imposed other economic and financial restrictions. The situation continues to evolve, and further sanctions and export restrictions could negatively impact the global economy and financial markets and could adversely affect our business, consolidated financial condition, and results of operations. The conflict may result in an increased likelihood of cyber-attacks that could directly or indirectly impact our operations. Any attempts by cyber attackers to disrupt our services or systems, or those of our vendors, suppliers, or customers, if successful, could harm our business both reputationally and financially. Measures to remediate such cyber-attacks may be costly and could have a material adverse effect on our business, financial condition and results of operations. We cannot predict the progress, outcome, or impact of the conflict in Ukraine, as the conflict and any resulting government reactions are beyond our control. We are monitoring the conflict in Ukraine to assess its impact on our business, as well as on our potential vendors, suppliers, future customers, and other parties with whom we plan to do business.
The Company is subject to ongoing litigation and may be subject to more including securities litigation, which is expensive and could divert management attention, including securities class action and derivative lawsuits which could result in substantial costs.
As discussed in details under the “Business—Legal Proceedings” section, we are subject to ongoing litigations, including an employment action which we are fervently defending ourselves against. In addition, following the completion of this direct listing, our share price may be volatile and, in the past, companies that have experienced volatility in the market price of their stock or shares have been subject to securities litigation, including class action litigation. The Company may be the target of this type of litigation in the future. Litigation of this type and our ongoing litigation could result in substantial costs and diversion of management’s attention and resources, which could have a material adverse effect on our business, financial condition, and results of operations. Any adverse determination in litigation could also subject the Company to significant liabilities. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative, and sometimes insurmountable impact on our liquidity and financial condition. We can neither assure that we will prevail in our ongoing litigation, nor predict whether any such lawsuits will be filed.
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Risks Related to our Business and Future Commercial Operations – Regulations and Compliance
Operating in highly regulated businesses requires significant resources.
We intend to operate in highly regulated businesses. As a result, we expect a significant amount of our management’s time and external resources to be used to comply with the laws, regulations and guidelines that impact our business, and changes thereto, and such compliance may place a significant burden on our management and other resources. Additionally, we may be subject to a variety of local laws, regulations and guidelines in each of the jurisdictions in which we plan to operate, which may differ among these various jurisdictions. Complying with multiple regulatory regimes will require additional resources and may impair our ability to expand into certain jurisdictions.
The growth of our business will be subject to potential new and changing federal, state, and local laws and regulations.
Although the majority of regulations directly affect our potential third party service providers, such regulations may also ultimately affect our business as our third party service providers may not be able to comply or may incur additional costs in order to be in compliance with such regulations, which in turn would result in additional expenses for our Company. Additionally, changes in applicable federal, state, and local regulations, including zoning restrictions, environmental requirements, Federal Aviation Administration (the “FAA”) and the Federal Communications Commission (the “FCC”) compliance, security requirements, or permitting requirements and fees, could restrict the products and services we may offer or impose additional compliance costs on us. Violations of applicable laws, or allegations of such violations, could disrupt our future business and result in a material adverse effect on our commercial operations once we start conducting business and offering our services. We cannot predict the nature of any future laws, regulations, interpretations or applications, including local, state or federal, and it is possible that regulations may be enacted in the future that will be materially adverse to our business or which would have materially significant costs of compliance which could negatively impact our business and commercial operations.
Our intended support of automated delivery strategies and technologies by other companies using our smart mailboxes for automation, is dependent upon our ability to successfully mitigate unique technological, operational, and regulatory risks.
Automated and autonomous delivery and pickup are new and evolving capabilities and markets, which makes it difficult to predict its acceptance, growth, the magnitude and timing of necessary investments, and other trends. This aspect of our business strategy and our partners’ and customers’ strategies who utilize our SMA services may be subject to a variety of risks inherent with the development of new technologies, including the ability to continue to develop automated and autonomous delivery and pickup software and hardware; access to sufficient capital; our ability to develop and maintain necessary partnerships; risks related to the manufacture of automated and autonomous devices; and significant competition from other companies, some of which may have more resources and capital to devote to automated and autonomous delivery and pickup technologies than we do. In addition, we may face risks related to the commercial deployment of our SMA technology and services and associated automated and autonomous delivery and pickup devices on our targeted timeline or at all, including consumer acceptance; achievement of adequate safety and other performance standards; and compliance with uncertain, evolving, and potentially conflicting federal and state regulations. To the extent accidents, cybersecurity breaches, or other adverse events associated with our autonomous delivery devices occur, we could be subject to liability, government scrutiny, further regulation, and reputational damage. Any of the foregoing could adversely impact our results of operations, financial condition, and growth prospects.
We will be subject to rapidly changing and increasingly stringent laws, regulations, industry standards, and other obligations relating to privacy, data protection, and data security. The restrictions and costs imposed by these requirements, or our actual or perceived failure to comply with them, could harm our business and commercial operations.
Once we start conducting commercial operations, we will be collecting, using, and disclosing personal information of customers, personnel, business contacts, and others in the course of operating our business. These activities will or may become regulated by a variety of domestic and foreign laws and regulations relating to privacy, data protection, and data security, which are complex, rapidly evolving, and increasingly stringent.
State legislatures have begun to adopt comprehensive privacy laws. For example, the California Consumer Privacy Act of 2018, which took effect on January 1, 2020, gives California residents expanded rights related to their personal information, including the right to access and delete their personal information, and receive detailed information about how their personal information is used and shared. Similar laws have been passed or been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States. The enactment of such laws could have potentially conflicting requirements that would make compliance challenging.
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Also, in our early market focus involving placing our products and providing services to medical facilities, we must also comply with the Health Insurance Portability and Accountability Act (HIPAA) if we handle protected health information (PHI) in the course of our commercial business operations. HIPAA imposes strict requirements for the use, disclosure, and safeguarding of PHI, including specific administrative, physical, and technical safeguards to protect the confidentiality, integrity, and availability of PHI. Failure to comply with HIPAA can result in severe penalties, including substantial fines and even criminal charges. Therefore, we may need to take appropriate measures to ensure our HIPAA compliance and protect the privacy and security of PHI in our possession. Any non-compliance with HIPAA could result in harm to our business once we start conducting commercial operations and providing our services to our potential customers, including regulatory action, loss of customer trust, negative publicity, and financial damage.
Finally, the services we plan to provide to our potential customers involve the processing, storage, or transmission of their data, we may be required to comply with certain industry standards and regulations, such as SOC 2 (Service Organization Controls 2). SOC 2 is a widely recognized auditing standard developed by the American Institute of Certified Public Accountants (AICPA) that evaluates the effectiveness of a service provider’s controls over the security, availability, processing integrity, confidentiality, and privacy of customers’ data. To maintain SOC 2 compliance, we must undergo regular audits and assessments by independent auditors to demonstrate that our controls are designed and operating effectively to achieve the desired outcomes. Any deficiencies identified during the audit could result in remediation requirements, reputational damage, and potential impacts on our customers. Any non-compliance with SOC 2 could result in harm to our business, including regulatory action, loss of customer trust, negative publicity, and financial damage.
Despite our best efforts, we may not be successful in complying with the rapidly evolving privacy, data protection, and data security requirements discussed above. Any actual or perceived non-compliance with such requirements could result in litigation and proceedings against us by governmental entities, passengers, or others, fines, civil or criminal penalties, limited ability or inability to operate our business, offer services, or market our platform in certain jurisdictions, negative publicity and harm to our brand and reputation. Such occurrences could have a material adverse effect on our business, financial condition or results of operations once we start conducting business and providing our services to our potential customers.
Potential Risks Related to our Future Business and Commercial Operations - Intellectual Property
We may be forced to litigate to defend our intellectual property rights, or to defend against claims by third parties against us relating to intellectual property rights.
We may be forced to litigate, to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of other parties’ proprietary rights. Any such litigation could be very costly and could distract our management from focusing on operating our business. The existence and/or outcome of any such litigation could harm our business and commercial operations.
Once we start conducting commercial operations and providing our services to our potential customers, other companies may claim that we infringe their intellectual property, which could materially increase our costs and harm our ability to generate future revenue and profit.
We do not believe that our technologies will infringe on the proprietary rights of any third party but claims of infringement are becoming increasingly common and third parties may assert infringement claims against us. It may be difficult or impossible to identify, prior to receipt of notice from a third party, the trade secrets, patent position or other intellectual property rights of a third party, either in the United States or in foreign jurisdictions. Any such assertion may result in litigation or may require us to obtain a license for the intellectual property rights of third parties. If we are required to obtain licenses to use any third-party technology, we would have to pay royalties, which may significantly reduce any profit on our products and the services we plan to offer to our potential customers. In addition, any such litigation could be expensive and disruptive to our ability to generate revenue or enter into new market opportunities. If any of our products or services were found to infringe other parties’ proprietary rights and we are unable to come to terms regarding a license with such parties, we may be forced to modify our products to make them non-infringing or to cease production of such products altogether.
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Upon commencement of our commercial operations and we start providing our planned services to our potential customers, we may be subject to risks related to information technology systems, including cyber-security risks; successful cyber-attacks or technological malfunctions
Any cyber-attacks or technological malfunctions can result in, among other things, financial losses, the inability to process transactions, the unauthorized release of confidential information and reputational risk, all of which would negatively impact our business, financial condition or results of operations. Our use of technology is critical to our future commercial operations. We may be susceptible to operational, financial and information security risks resulting from cyber-attacks or technological malfunctions. Successful cyber-attacks or technological malfunctions affecting us or our service providers can result in, among other things, financial losses, the inability to process transactions, the unauthorized release of confidential or proprietary information and reputational risk. As cybersecurity threats continue to evolve, we may be required to use additional resources to continue to modify or enhance protective measures or to investigate security vulnerabilities, which could have a material adverse effect on our business, financial condition or results of operations.
We may become reliant on our intellectual property; failure to protect our intellectual property could negatively affect our business, financial condition or results of operations.
Our success will depend in part on our ability to use and develop new technologies that are accepted by the market in which we plan to operate. We may be vulnerable to competitors who develop competing technology, whether independently or as a result of acquiring access to the proprietary products and trade secrets of acquired businesses. In addition, effective future patent, copyright and trade secret protection may be unavailable or limited in the U.S. Our patents are usually protected for a term of twenty years, but in the event we fail to adequately maintain them, for example, a late payment of the maintenance fees due, we can face surcharges or even suspension of those patents. Failure to adequately maintain and enhance protection over our proprietary techniques and processes, as well as over our unregistered intellectual property, including policies, procedures and training manuals, could have a material adverse effect on our business, financial condition or results of operations, if any such cost or additional expense related to finding a viable solution to protect our intellectual property is high and our expected income is not sufficient to cover such potential cost or expense. Our patent license agreement in connection with the intellectual property owned by our chief executive officer, Mr. O’Toole, was recently amended by the Company and Mr. O’Toole. The amendment contains the extension of the term of the patent license agreement from seven years to perpetuity of the full life of the licensed intellectual properties. The amendment also provides that Mr. O’Toole may terminate the agreement if the Company materially defaults on its obligations under the agreement, and such default is not timely cured by the Company. In the event of such termination, we would not be able to use licensed intellectual property and provide our planned services, which would adversely affect our future revenue and operations.
If we materially breach the Exclusive Patent License Agreement and fail to cure such breach timely and to Mr. O’Toole’s satisfaction, such license agreement will transition to a non-exclusive license agreement, and our business operation may be adversely affected or even essentially terminated.
As discussed above, we heavily rely on the patents Mr. O’Toole licensed us to use under the Exclusive Patent License Agreement, as amended in December 2024 and March 2025. In the event that we are sixty (60) days late in any payment after it becomes due, or materially default in performing any of the other terms under the Exclusive Patent License Agreement otherwise, Mr. O’Toole has the right to give us a notice of such default and to ultimately transition to a non-exclusive license agreement if we fail to cure such default within sixty (60) days after such notice to Mr. O’Toole’s satisfaction. In the event that Mr. O’Toole terminates the Exclusive Patent License Agreement, our business would be adversely affected and we may essentially terminate some or all of our operations if that occurs, investors could potentially lose a portion of or even the entire amount of their investment in our Company. In the second amendment executed on March 10, 2025, Mr. O’Toole also agreed that the Company could engage in the use, sale or other commercialization of the technologies otherwise licensed to us and we could sell related products with other technology agreements, provided however, the sale of remaining Mr. O’Toole’s-based inventory sold by Arrive AI may continue for up to 90 days post-termination of the O’Toole’s technology-based products.
Once we start conducting our planned commercial operations, maintaining the integrity of our computer systems and protecting confidential information and personal identifying information may become increasingly costly
Any cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations. Global cybersecurity threats and incidents can range from uncoordinated individual attempts that gain unauthorized access to information technology systems, both internally and externally, to sophisticated and targeted measures, known as advanced persistent threats, directed at us and our affiliated agents. In the ordinary course of our business, we intend to collect and store sensitive data, including our proprietary business information and intellectual property, and personally identifiable information (PII) of our customers. Additionally, we may rely on third-party providers, including cloud storage solution providers. The secure processing, maintenance and transmission of this information are critical to our operations and with respect to information collected and stored by our third-party service providers, we may be reliant upon their security procedures. Our systems and the confidential information on them may also be compromised by employee misconduct or employee error. We and third-party service providers may experience these types of internal and external threats and incidents, which can result in the misappropriation and unavailability of critical data and confidential or proprietary information (our own and that of third parties, including personally identifiable information) and the disruption of business operations. Depending on their nature and scope, these incidents could potentially also result in the destruction or corruption of such data and information. The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties, diminution in the value of the services we provide to our customers, and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness and results of operations. Developments in the laws and regulations governing the handling and transmission of personal identifying information in the United States may require us to devote more resources to protecting such information, which could in turn adversely affect our results of operations and financial condition.
Once we start conducting our planned commercial operations, losses or unauthorized access to or releases of confidential information, including personal information, could subject the Company to significant reputational, financial, legal and operational consequences.
The Company’s business intends to use and store confidential information, including personal information, with respect to the Company’s customers and employees. The Company intends to devote significant resources to network and data security, including through the use of encryption and other security measures intended to protect its systems and data. But these measures cannot provide absolute security, and losses or unauthorized access to or releases of confidential information occur and could materially adversely affect the Company’s business, reputation, results of operations and financial condition. The Company’s business also intends to share confidential information with suppliers and other third parties. The Company may rely on global suppliers that are also exposed to ransomware and other malicious attacks that can disrupt business operations. Although the Company intends to take steps to secure confidential information that is provided to or accessible by third parties working on the Company’s behalf, such measures may not always be effective and losses or unauthorized access to or releases of confidential information occur. Such incidents and other malicious attacks could materially adversely affect the Company’s business, reputation, results of operations and financial condition.
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Once we start conducting commercial operations, any material disruption in our information systems could adversely affect our business.
We may rely on information technology networks and systems to operate and manage our business. Our information technology networks and systems will process, transmit and store personal and financial information, proprietary information of our business, and also allow us to coordinate our business across our operation bases, and allow us to communicate with our employees and externally with customers, suppliers, partners, and other third parties. While we believe we take reasonable steps to secure these information technology networks and systems, and the data processed, transmitted, and stored thereon, such networks, systems, and data may be susceptible to cyberattacks, viruses, malware, or other unauthorized access or damage (including by environmental, malicious, or negligent acts), which could result in unauthorized access to, or the release and public exposure of, our proprietary information. Any of the foregoing could cause substantial harm to our business, require us to make notifications to governmental authorities, or the media, and could result in litigation, investigations or inquiries by government authorities, or subject us to penalties, fines, and other losses relating to the investigation and remediation of such an attack or other unauthorized access or damage to our information technology systems and networks.
Risks Related to Third Parties
The Company’s future performance depends in part on support from third-party software developers.
The Company believes decisions by customers to purchase its hardware products will depend in part on the availability of third-party software applications and services available at the moment we start conducting commercial operations. There can be no assurance third-party developers will continue to develop and maintain software applications and services for the Company’s products once we begin providing our planned services to our potential new customers. If third-party software applications and services cease to be developed and maintained for the Company’s products, customers may choose not to buy the Company’s products which would result in the loss revenue. The Company intends to rely on the continued availability and development of compelling and innovative software applications for its products. The Company’s products and operating systems may be subject to rapid technological change, and when developers are unable to or choose not to keep up with this pace of change, their applications can fail to take advantage of these changes to deliver improved customer experiences and can operate incorrectly and can result in dissatisfied customers.
Our dependence on suppliers and service partners for the parts and components in our Smart Mailboxes and for automation operational needs of our customers once we start conducting commercial operations.
Once we start commercial operations, we intend to rely on purchased parts and services which we will source from several suppliers and service partners, some of whom are currently single source suppliers for these components and services. Many of the components used in our Smart Mailboxes must be custom made for us. This supply chain will potentially expose us to multiple potential sources of delivery failure or component shortages for our products and future services. While we believe that we may be able to establish alternate supply relationships and can obtain replacement components and services, we may be unable to do so in the short term or at all at prices that are favorable to us. We may experience source disruptions in our supply and service chains which may cause delays in our production process for both prototype and commercial production of the Smart Mailbox product and services. We are also in some cases subject to sole source suppliers for certain pieces of manufacturing equipment for which we will rely on, or may be potentially reliant on to achieve our projected high-volume production numbers. Changes in business conditions, wars, governmental changes, political intervention, and other factors beyond our control or which we do not presently anticipate, could also affect our suppliers’ ability to deliver components and services to us on a timely basis. Furthermore, if we experience significant increased demand, or need to replace our existing suppliers, there can be no assurance that additional supplies of component parts will be available when required on terms that are acceptable to us, or at all, or that any supplier would allocate sufficient supplies to us in order to meet our requirements or fill our orders in a timely manner. The disruption in the supply of components from suppliers could lead to delays in Smart Mailbox production, which could materially adversely affect our business prospects and forecasted operating results.
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If we or our future third-party service providers experience a security breach, or if unauthorized parties otherwise obtain access to our potential customers’ data, our reputation may be harmed, demand for services may be reduced, and we may incur significant liabilities.
Our services intend to involve the storage, processing and transmission of data, including certain confidential and sensitive information. Any security breach, including those resulting from a cybersecurity attack, phishing attack, or any unauthorized access, unauthorized usage, virus or similar breach or disruption could result in the loss or destruction of or unauthorized access to, or use, alteration, disclosure, or acquisition of, data, damage to our reputation, litigation, regulatory investigations, or other liabilities. These attacks may come from individual hackers, criminal groups, and state-sponsored organizations. If our security measures are breached as a result of third-party action, employee error, a defect or bug in our products or those of our third-party service providers, malfeasance or otherwise and, as a result, someone obtains unauthorized access to our data, including our confidential, sensitive, or other information about individuals, or any of these types of information is lost, destroyed, or used, altered, disclosed, or acquired without authorization, our reputation may be damaged, our business may suffer, and we could incur significant liability. Even the perception of inadequate security may damage our reputation and negatively impact our ability to win new customers and retain and receive timely payments from existing customers. Further, we could be required to expend significant capital and other resources to address any data security incident or breach, which may not be covered or fully covered by our insurance and which may involve payments for investigations, forensic analyses, legal advice, public relations advice, system repair or replacement, or other services. We may engage third-party vendors and service providers to store and otherwise process our data, including confidential, sensitive, and other information about individuals. Our future vendors and service providers may also be the targets of cyberattacks, malicious software, phishing schemes, and fraud. Our future ability to monitor our vendors and service providers’ data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, misuse, acquisition, disclosure, loss, alteration, or destruction of our data, including confidential, sensitive, and other information about individuals. Techniques used to sabotage or obtain unauthorized access to systems or networks are constantly evolving and, in some instances, are not identified until after they have been launched against a target. We and our service providers may be unable to anticipate these techniques, react in a timely manner, or implement adequate preventative and mitigating measures. If we are unable to efficiently and effectively maintain and upgrade our system safeguards, we may incur unexpected costs and certain of our systems may become more vulnerable to unauthorized access or disruption.
For certain of the components and services included in our products there may be a limited number of suppliers we can rely upon and if we are unable to obtain these components and services when needed we could experience delays in the manufacturing of our products and delivering our services, and our financial results could be adversely affected.
We intend to acquire most of the components for the manufacture of our products from suppliers and subcontractors. Suppliers of some of the components may require us to place orders with significant lead-times to assure supply is in accordance with its manufacturing requirements. Any delay in the supply of any of the components of our products by any third party may cause us to delay the placement of any future potential orders and may result in the cancellation of an order or the services we plan to provide. Delays in supply, or unavailability of services, may significantly hurt our ability to fulfil our contractual obligations and may significantly hurt our business and result of operations. In addition, we may not be able to continue to obtain such components or services from these suppliers on satisfactory commercial terms. Disruptions of our manufacturing and information systems operations could ensue if we were required to obtain components or services from alternative sources, which would have an adverse effect on our business, results of operations and financial condition.
We may pursue strategic transactions in the future, which could be difficult to implement, disrupt our business or change our business profile significantly.
We intend to consider potential strategic transactions, which could involve acquisitions of businesses or assets, joint ventures or investments in businesses, products or technologies that expand, complement or otherwise relate to our current or future business plan. As of the date of this prospectus, we have not entered into any agreements for such acquisitions. After we start conducting commercial operations, we may also consider, from time to time, opportunities to engage in joint ventures or other business collaborations with third parties to address particular market segments. Should our relationships fail to materialize into significant agreements, or should we fail to work efficiently with these companies, we may lose sales and marketing opportunities and our business, results of operations and financial condition could be adversely affected. These activities, if successful, create risks such as, among others: (i) the need to integrate and manage the businesses and products acquired with our own business and products; (ii) additional demands on our resources, systems, procedures and controls; (iii) disruption of our ongoing business; and (iv) diversion of management’s attention from other business concerns. Moreover, these transactions could involve: (a) substantial investment of funds or financings by issuance of debt or equity securities; (b) substantial investment with respect to technology transfers and operational integration; and (c) the acquisition or disposition of product lines or businesses. Also, such activities could result in one-time charges and expenses and have the potential to either dilute the interests of our existing shareholders or result in the issuance of, or assumption of debt. Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and other resources. Any such activities may not be successful in generating revenue, income or other returns, and any resources we committed to such activities will not be available to us for other purposes. Moreover, if we are unable to access the capital markets on acceptable terms or at all, we may not be able to consummate acquisitions, or may have to do so on the basis of a less than optimal capital structure. Our inability to take advantage of growth opportunities or address risks associated with acquisitions or investments in businesses may negatively affect our operating results. Additionally, any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment, or charges to earnings associated with any acquisition or investment activity, may materially reduce our earnings. Future acquisitions or joint ventures may not result in their anticipated benefits, and we may not be able to properly integrate acquired products, technologies or businesses with our existing products and operations or successfully combine personnel and cultures. Failure to do so could deprive us of the intended benefits of those acquisitions.
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Our software platform may be at risk of unexpected technical failure due to the unavailability of third-party information and infrastructure services such as communications, data processing, compute, software as a service (“SaaS”), and other information and infrastructure services or technical issues with our third party dependent data and software platform.
Our planned future platform may experience technical difficulties that prevent customers from collecting and processing data in near real-time or a timely manner. The most common technical problem our customers may experience is the unavailability of third-party communications, data processing, compute, SaaS, and other information and infrastructure services which is necessary in order to process and collect data through our product and services in the cloud. While this may not affect the performance of our platform or the collection of the data, it could potentially prevent customers and Smart Mailbox for Automation market participants from being able to access their data, services, and analysis in near real-time or a timely manner.
Once we start conducting commercial operations, we may be subject to additional risks associated with SaaS, Smart Mailbox, Last-mile logistics coordination with automation.
Dependence on cloud infrastructure providers
We may depend on cloud infrastructure providers, as a company supplying software, SaaS, and APIs as an integral part of our Mailbox-as-a-Service. We will rely on third-party cloud infrastructure providers, such as Amazon Web Services, Microsoft Azure, or Google Cloud, to host and deliver their software products. Any disruption or failure of these providers could have a negative impact on the company’s operations and financial results.
Customer churn and contract renewals
Software, software as a service, application programming interface (“SaaS,” and “API”) based companies like ours, typically rely on subscription-based revenue models, where customers pay for access to the software on a recurring basis. The company may face challenges in retaining customers or renewing their contracts if they fail to deliver value or if customers find better alternatives.
Intellectual property protection
Software, SaaS, and API based companies like ours may rely on proprietary software code or other intellectual property to differentiate themselves from competitors. Any infringement on the company’s intellectual property could have a negative impact on its ability to compete and generate revenue.
Difficulty in forecasting revenue and financial results for software, SaaS, and API-based businesses
Software, SaaS, and API -based companies may experience variability in their revenue and financial results due to a range of factors, such as customer acquisition, retention, and expansion, pricing strategies, seasonality, and macroeconomic conditions.
Lack of commercial operating history and historical financial results as a software, SaaS, and API company
Our company has no operating history, and may face difficulty in generating revenue, achieving profitability, and scaling operations, which utilize and deliver software, SaaS, and API as part of our business. As we move forward with our continued efforts to develop our product and future services, improvements and innovation, and the continued changes in leading-edge software technology we depend on, it may be more challenging for us because of our lack of history conducting commercial operations.
Evolving technology and customer preferences
Our company, and the companies of our customers and go-to-market, service, information processing, and infrastructure partners, expects to operate in a rapidly changing technology and business landscape, where new technologies and customer preferences can quickly disrupt existing business models. Our company, and the companies of our customers and go-to-market, service, information processing, and infrastructure partners may face difficulty in adapting to these changes and in maintaining their competitive position and success.
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Dependence on strategic partners
Our company will rely on strategic partners, once we start conducting commercial operations and providing our planned services to potential customers, such as information processing, infrastructure partners, and automation resellers, distributors, system integrators, to go-to-market, reach new customers, and expand existing market reach. Any disruption or termination of these partnerships could have a negative impact on the company’s operations and financial results as a result of additional costs incurred by the Company in connection to finding new partners or alternative solutions to avoid any interruption of our services once we have started conducting commercial operations.
Exposure to foreign currency fluctuations
We may operate in multiple countries and therefore may be exposed to foreign currency fluctuations, which could negatively impact on our financial results. The company may face difficulty in hedging or managing currency risks.
Exposure to foreign regulation
We may operate in multiple countries and therefore may be exposed to foreign changes in foreign regulations, which could negatively impact our financial results. The company may face difficulty in adapting to or managing foreign regulatory risks.
Dependence on annually recurring revenue subscriptions (“ARR”)
SaaS companies often rely heavily on ARR to generate revenue, and a decline in ARR could have a negative impact on their financial results. We are offering Mailbox-as-a-Service subscriptions to our customers, which are also based on ARR. Factors that could negatively impact our results and success in obtaining positive financial results with ARR include customer churn, pricing strategies, competitive pressures, and customer demand.
Inability to innovate or respond to customer needs
Technology companies like ours need to invest in continuously innovating their products to meet changing customer needs and to remain competitive. Any inability to do so could result in reduced demand for the company’s products and services.
Warranty, installation, uninstall, insurance, and repair costs
Our Mailbox-as-a-Service includes the warranting, installation, uninstallation, insurance, and repair of our Smart Mailbox hardware in the field. Though we have designed it for minimal maintenance and modularized for quick and easy repair in most cases, our hardware may be responsible for unexpected and large warranty, repair, and other costs that could impact the company’s financial results.
Product liability and safety risks
As a SaaS company, we may be exposed to product liability and safety risks from its hardware and software, if they cause direct or indirect injury or harm to our partners, our customers, their operations, or their customers. The company may be subject to legal claims, fines, or reputational damage from liability and safety risks.
Additional regulatory requirements
Since we sell Hardware in the form of Maibox-as-a-Service we may subject our company to additional regulatory requirements, such as safety or environmental regulations. Any non-compliance with these regulations could result in fines, legal liability, or reputational damage.
Dependence on the physical environment
Smart locker box or smart mailbox companies rely on physical infrastructure and locations to provide their services. Any damage to, or from, the physical environment, such as vandalism, natural disasters, ecological damage, power outages, and communications outages, could impact the company’s operations and financial results once we start conducting commercial operations and provide services to potential customers.
Cybersecurity risks from selling hardware-as-a-service
Smart locker box or smart mailbox companies handle sensitive customer data, such as delivery information, user identification, and location data. Any breach or loss of this data could have a negative impact on the company’s reputation and financial results.
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Dependence on last-mile and automation operations partners
Last-mile automated delivery and pickup series that can take advantage of our Smart Mailboxes for Automation, rely on third-party logistics and service companies, who in-turn may rely on partnerships with retailers, restaurants, or other businesses to provide their services. Any disruption or termination of their operations or their partnerships could have a negative impact on their company’s operations and financial results, which in turn would have a negative impact on our Smart Mailbox company’s operations and financial results.
Last-mile services and partners’ dependence on hardware and technology
Last-mile automated delivery and pickup logistics companies rely heavily on hardware and technology, such as drones, robots, or autonomous vehicles, to provide their services. Any disruption or failure of these hardware, services, and technology systems could have a negative impact on the company’s operations and financial results, which in turn would have a negative impact on our Smart Mailbox company’s operations and financial results.
Last-mile services and partners’ regulatory compliance
Last-mile automated delivery and pickup services and companies may be subject to a range of legal and regulatory requirements, such as data protection, privacy, and cybersecurity regulations, as well as regulations related to drones, robots, or autonomous vehicles. Non-compliance with these regulations could result in fines, legal liability, and reputational damage, which in turn would have a negative impact on our Smart Mailbox company’s operations and financial results.
Last-mile services and partners’ supply chain and logistics risks
Last-mile automated delivery and pickup logistics companies may face supply chain and logistics risks, such as product delays, disruptions, or shipping and delivery failures. Any disruptions to the supply chain or logistics could impact on the company’s operations and financial results, which in turn would have a negative impact on our Smart Mailbox company’s operations and financial results.
Privacy and data security laws and regulations could require us to make changes to our business, impose additional costs on us and reduce the demand for our software solutions.
We contemplate that we will transmit a significant amount of personally identifiable information (“PII”) through our platform. Privacy and data security have become significant issues in the United States and in other jurisdictions where we may offer our video surveillance solutions. The regulatory framework relating to privacy and data security issues worldwide is evolving rapidly and is likely to remain uncertain for the foreseeable future. Federal, state and foreign government bodies and agencies have in the past adopted, or may in the future adopt, laws and regulations regarding the collection, use, processing, storage and disclosure of personal or identifying information obtained from customers and other individuals. In addition to government regulation, privacy advocates and industry groups may propose various self-regulatory standards that may legally or contractually apply to our business. Because the interpretation and application of many privacy and data security laws, regulations and applicable industry standards are uncertain, it is possible that these laws, regulations and standards may be interpreted and applied in a manner inconsistent with our existing privacy and data management practices. As we expand into new jurisdictions or verticals, we will need to understand and comply with various new requirements applicable in those jurisdictions or verticals. To the extent applicable to our business or the businesses of our customers, these laws, regulations and industry standards could have negative effects on our business, including by increasing our costs and operating expenses, and delaying or impeding our deployment of new core products or services. Compliance with these laws, regulations and industry standards requires significant management time and attention, and failure to comply could result in negative publicity, subject us to fines or penalties or result in demands that we modify or cease existing business practices. In addition, the costs of compliance with, and other burdens imposed by, such laws, regulations and industry standards may adversely affect our customers’ ability or desire to collect, use, process and store PII using our products and services, which could reduce overall demand for them. Even the perception of privacy and data security concerns, whether or not valid, may inhibit market acceptance of our products and services in certain verticals. In particular, some regulatory bodies have recently become more interested in technologies that we employ including artificial intelligence (“AI”) and face recognition. Any of these outcomes could adversely affect our business and operating results.
If our security measures are breached or unauthorized access to personally identifiable information is otherwise obtained, our reputation may be harmed, and we may incur significant liabilities.
In the ordinary course of our business, we may collect and store sensitive data, including personally identifiable information (“PII”), owned or controlled by ourselves or our customers, and other parties. We may communicate sensitive data electronically, and through relationships with multiple third-party vendors and their subcontractors. These applications and data encompass a wide variety of business-critical information, including commercial information, and business and financial information. We face a number of risks relative to protecting this critical information, including loss of access risk, inappropriate use or disclosure, inappropriate modification, and the risk of our being unable to adequately monitor, audit, and modify our controls over our critical information. This risk extends to the third-party vendors and subcontractors we use to manage this sensitive data. As a custodian of this data, we therefore inherit responsibilities related to this data, exposing ourselves to potential threats. Data breaches occur at all levels of corporate sophistication (including at companies with significantly greater resources and security measures than our own) and the aftermath of these breaches can be costly, time-consuming, and damaging to a company’s reputation. Further, data breaches need not occur from malicious attacks or phishing only. Often, employee carelessness can result in sharing PII with a much wider audience than intended. Consequences of such data breaches could result in fines, litigation expenses, costs of implementing better systems, and the damage of negative publicity, all of which could have a material adverse effect on our business operations and financial condition.
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Our collection, processing, use and disclosure of personally identifiable information is subject to evolving and expanding privacy and security regulations.
Data privacy remains evolving, with new regulations coming into effect at both the domestic and international level. For example, various states, such as California, Massachusetts, and others, have implemented similar privacy laws and regulations, such as the California Consumer Privacy Act, which took effect January 1, 2020 (the “CCPA”), and creates new data privacy rights for users. The CCPA requires covered businesses that process personal information of California residents to disclose their data collection, use and sharing practices. Further, the CCPA provides California residents with new data privacy rights (including the ability to opt out of certain disclosures of personal data), imposes new operational requirements for covered businesses, provides for civil penalties for violations as well as a private right of action for data breaches and statutory damages (which is expected to increase data breach class action litigation and result in significant exposure to costly legal judgements and settlements). Aspects of the CCPA and its interpretation and enforcement remain uncertain. In addition, the California Privacy Rights Act of 2020 (the “CPRA”), which took effect January 1, 2023, expanded the CCPA. The CPRA, among other things, gives California residents the ability to limit use of certain sensitive personal information, further restricts the use of cross-contextual advertising, establishes restrictions on the retention of personal information, expands the types of data breaches subject to the CCPA’s private right of action, provides for increased penalties for CPRA violations concerning California residents under the age of 16, and establishes a new California Privacy Protection Agency to implement and enforce the CPRA. The CCPA and other similar laws could impact our business activities depending on how they are interpreted. New legislation proposed or enacted in various other states will continue to shape the data privacy environment nationally. For example, Virginia recently passed its Consumer Data Protection Act, and Colorado recently passed the Colorado Privacy Act, both of which differ from the CPRA and became effective in 2023. Additional states have since also passed comprehensive privacy laws with additional obligations and requirements on businesses. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to confidential, sensitive and personal information than federal, international or other state laws, and such laws may differ from each other, which may complicate compliance efforts. Additionally, all U.S. states and the District of Columbia have enacted breach notification laws that may require that we notify customers, employees or regulators in the event of unauthorized access to or disclosure of personal or confidential information experienced by us or our service providers. These laws are not consistent, and compliance in the event of a widespread data breach is difficult and may be costly. Moreover, states have been frequently amending existing laws, requiring attention to changing regulatory requirements. We also may be contractually required to notify customers of a security breach. Although we may have contractual protections with our service providers, any actual or perceived security breach could harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach. Any contractual protections we may have from our service providers may not be sufficient to adequately protect us from any such liabilities and losses, and we may be unable to enforce any such contractual protections. In addition to government regulation, privacy advocates and industry groups have and may in the future propose self-regulatory standards from time to time. These and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards.
Data collection includes risks associated with collecting, storing, and processing large datasets, which introduces risks of breaches, data misuse, and compliance challenges with privacy regulations. We must be compliant with data collection, use practices and other data privacy laws and regulations. Failure to comply with these practices may result in claims for misuse or inappropriate disclosure of data, as well as unfair or deceptive practices. The development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated. Moreover, despite our efforts, the possibility of these events occurring cannot be eliminated entirely.
Algorithm Performance Risks: Errors or biases in ML and AI models could harm customer experiences, operational efficiency, and reputation. The loss or disclosure of both the data and the algorithm could be detrimental to the future development and competitive advantage of our services. Any errors with respect to how we may measure the performance of certain operational and business metrics though machine learning algorithm may affect our understanding of certain details of our business, which could affect our longer-term strategies. If our operational and business metrics are not accurate representations of our business, market penetration, retention or engagement; if we discover material inaccuracies in our metrics; or if the metrics we rely on to track our performance do not provide an accurate measurement of our business, our reputation may be harmed, and our operating and financial results could be adversely affected. Search engines frequently modify their search algorithms, and these changes can cause our future services to receive less favorable placements, which could reduce the number of our potential customers. The costs associated with advertising through search engines can also vary significantly from period to period and have generally increased over time. We may be unable to modify our strategies in response to any future search algorithm changes made by the search engines, which could require a change in the strategy we use to generate customer attraction for our future services. We plan to use machine learning and artificial intelligence by employing algorithms as they relate to delivery, pickup, users, environment, and autonomous logistics.
Operational Dependencies: Success is contingent on achieving specific deployment and utilization targets. Delays in reaching these targets may hinder AI/ML development and revenue growth.
Third-Party Reliance Risks: Dependence on third-party and open-source models may limit control over key technologies and expose the company to licensing risks.
Product Development and Quality Control
Defects in our products or failures in quality control could impair our ability to sell our products and services or could result in product liability claims, litigation and other significant events involving substantial costs.
The detection of significant defects in our products or failures in quality control procedures, including those of suppliers, carries several potential consequences. These include delays in bringing products to market, decreased sales, and challenges in gaining market acceptance. Furthermore, such issues may lead to the diversion of development resources and damage to our reputation, with potential regulatory restrictions. Rectifying product defects can incur substantial costs, and identifying suitable remedies may prove difficult. Moreover, errors or defects could result in financial damage to our customers, potentially leading to litigation. Product liability lawsuits, regardless of the outcome, may entail significant time and expenses for defense.
Our technology may contain third-party open-source software components, third-party commercial software, and proprietary software that we develop in-house. Failure to comply with the terms of these underlying software licenses could restrict our ability to provide our offered products and services.
We plan to use a combination of software modules licensed to us by third-party authors under “open source” licenses, third-party commercial software, and internally developed code in our platform. Although open-source software provides flexibility and cost advantages, use and distribution of open-source software may entail greater risks than use of third-party commercial software. Open-source licensors generally do not provide support, warranties, indemnification, or other contractual protections regarding infringement claims or the quality of the code. In addition, the public availability of such open-source code may make it easier for others to compromise our technology.
Some open-source licenses contain requirements that we make available the source code for any modifications or derivative works we create using that open-source software, or that we grant other licenses to our intellectual property. If we combine our proprietary code with open-source software in certain ways, we could, under specific open-source licenses, be required to release the source code of our proprietary software to the public. Such disclosure could allow competitors to develop similar offerings with less development effort or time, resulting in a potential loss of our competitive advantages. Alternatively, to avoid the public release of the affected portions of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our software.
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Although we monitor our use of open-source software to avoid subjecting our technology to conditions we do not intend, the terms of many open-source licenses have not been interpreted by U.S. or foreign courts. As a result, there is a risk these licenses could be construed in ways that impose unanticipated conditions or restrictions on our ability to provide or distribute our technology. From time to time, companies that incorporate open-source software into their solutions have faced claims challenging the ownership of that software. Consequently, we could be subject to lawsuits by parties claiming ownership of what we believe to be open-source software.
Moreover, we cannot assure you that our processes for controlling our use of all third-party and open-source software in our technology will be effective. If we are found to have breached or failed to comply fully with the terms and conditions of an open-source or commercial software license, we could face infringement or other liability. We might also be required to seek costly licenses from third parties on terms that are not economically feasible, to re-engineer our technology, to discontinue or delay the provision of our offerings if re-engineering could not be accomplished on a timely basis, or to make generally available—in source code form—our proprietary code. Any of these outcomes could adversely affect our business, financial condition, and results of operations, and could cause the value of our securities to decline or become worthless.
Failures in internet infrastructure or interference with internet or Wi-Fi access could cause prospective users to believe that our systems are unreliable, potentially leading our customers to decline to renew their subscriptions.
Our platform will depends on our users’ internet access. Increasing numbers of users on our platform and increasing bandwidth requirements may degrade the performance of our products or platform due to capacity constraints and other internet infrastructure limitations. If internet service providers and other third parties providing internet services have outages or deteriorations in their quality of service, our users may not have access to our platform or may experience a decrease in the quality of our products. Furthermore, as the rate of adoption of new technologies increases, the networks our platform relies on may not be able to sufficiently adapt to any increased demand for our products. Frequent or persistent interruptions, including those from increased usage stemming from the pandemic, could cause prospective users to believe that our platform is unreliable, leading them to switch to any competitors, which could materially adversely affect our business, financial condition, results of operations, and prospects. Users who access our platform must have an internet or Wi-Fi connection to use our products. Currently, this access is provided by a limited number of companies. These providers could take measures that degrade, disrupt, or increase the cost of user access to third-party services, including our platform, by charging increased fees to third parties or the users of third-party services, any of which would make our platform less attractive to customers and reduce our revenue.
Cyberattacks and other security breaches of network or information technology security could have an adverse effect on our business.
We maintain information necessary to conduct our business, including confidential and proprietary information as well as personal information regarding our customers and employees, in digital form. We also use computer systems in our products and services and operate our businesses. Data maintained in digital form is subject to the risk of unauthorized access, modification, filtration, destruction or denial of access and our computer systems are subject to cyberattacks that may result in disruptions in service. We may also use many third-party systems and software, which are also subject to supply chain and other cyberattacks. We intend to develop and maintain an information security program to identify and mitigate cyber risks, but the development and maintenance of this program may be costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Accordingly, despite our efforts, the risk of unauthorized access, modification, filtration, destruction or denial of access with respect to data or systems and other cybersecurity attacks cannot be eliminated entirely, and the risks associated with a potentially material incident remain. In addition, we may provide some confidential, proprietary and personal information to third parties in certain cases when it is necessary to pursue business objectives. While we obtain assurances that these third parties will protect this information and, where we believe appropriate, monitor the protections employed by these third parties, there is a risk the confidentiality of data held by third parties may be compromised. The potential liabilities associated with these events could exceed the insurance coverage we may maintain. Our inability to operate our facilities as a result of such events, even for a limited period of time, may result in significant expenses or loss of market share to other competitors. In addition, a failure to protect the privacy of customer and employee confidential data against breaches of technology platforms or IT security could result in damage to our reputation. To date, we have not been subject to cyber-attacks or other cyber incidents which, individually or in the aggregate, resulted in a material adverse effect on our business, operating results and financial condition. Successful cybersecurity attacks or other security incidents however, could result in, for example, one or more of the following: unauthorized access to, disclosure, modification, misuse, loss, or destruction of company, customer, or other third party data or systems; theft or import or export of sensitive, regulated, or confidential data including personal information and intellectual property, including key innovations in artificial intelligence, quantum, or other disruptive technologies; the loss of access to critical data or systems through ransomware, crypto mining, destructive attacks or other means; and business delays, service or system disruptions or denials of service.
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Artificial intelligence (“AI”) related risks
We may not be successful in our artificial intelligence initiatives, which could adversely affect our business, reputation, or financial results.
The development of generative artificial intelligence (“AI”) technologies is complex, and there are technical challenges associated with achieving the desired level of accuracy, efficiency, and reliability. The algorithms and models utilized in generative AI systems may have limitations, including biases, errors, or inability to handle certain data types or scenarios. Furthermore, there is a risk of system failures, disruptions, or vulnerabilities that could compromise the integrity, security, or privacy of the generated content. These limitations or failures could result in reputational damage, legal liabilities, or loss of user confidence.
We intend to make investments in AI initiatives, including generative AI, to, among other things, develop new products, and develop new features for existing products. There are significant risks involved in development and deploying AI and there can be no assurance that the usage of AI will enhance our products or services or be beneficial to our business, including our efficiency or profitability. For example, our AI-related efforts may give rise to risks related to accuracy, intellectual property infringement or misappropriation, data privacy, and cybersecurity, among others. In addition, these risks include the possibility of new or enhanced governmental or regulatory scrutiny, litigation, or other legal liability, ethical concerns, negative consumer perceptions as to automation and AI, or other complications that could adversely affect our business, reputation, or financial results. Further, we face significant competition from other companies that are developing their own AI products and technologies. Those other companies may develop AI products and technologies that are similar or superior to our technologies or are more cost-effective to develop and deploy. We cannot guarantee that third parties will not use such AI technologies for improper purposes, including through the dissemination of inaccurate content, intellectual property infringement or misappropriation, furthering cybersecurity attacks, data privacy violations, or to develop competing technologies. As such, it is not possible to predict all of the risks related to the use of AI and changes in laws, rules, directives, and regulations governing the use of AI may adversely affect our ability to develop and use AI or subject us to legal liability.
Once we commence providing our services to potential customers, the adoption, use, and commercialization of AI technology, and the continued rapid pace of developments in the AI field, are inherently uncertain. Failure by our potential customers to continue to adopt infrastructure to support AI use cases in their systems, or our ability to keep up with evolving AI infrastructure requirements, could have a material adverse effect on our business, financial condition, and results of operations.
As part of our growth strategy, we seek to attract and acquire customers focused on AI. We foresee emerging demand from companies that are dedicated to providing infrastructure for AI use cases, AI-dedicated data centers, and larger enterprises, as they begin to build systems to meet their unique requirements. However, AI has been developing at a rapid pace, and continues to evolve and change. If we are unable to keep up with the changing AI landscape or in developing products to meet our customers’ evolving AI needs, or if the AI landscape does not develop to the extent we or our customers expect, our business, and financial results may be adversely impacted. Additionally, our efforts in developing new AI infrastructure technology solutions are inherently risky and may not always succeed. We may incur significant costs and expect significant delays in developing new products or new generations of existing products to adapt to the changing AI landscape, and may not achieve a return on investment or capitalize on the opportunities presented by demand for AI solutions. Moreover, while AI-adoption is likely to continue and may accelerate, the long-term trajectory of this technological trend is uncertain.
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Risk related to technological advancements and obsolescence of product.
Our commercial operations will be exposed to the risk of rapid technological advancements in the development and deployment of our products, which could render our existing infrastructure obsolete and adversely impact our financial performance.
Our industry is characterized by rapid technological change, with companies continually developing and deploying new equipment and techniques to enhance computational efficiency and reduce energy consumption. These advancements may outpace our ability to adapt, maintain, and upgrade our equipment, thereby negatively affecting our competitive position and operational efficiency. As a result, we may be required to make significant capital investments to acquire and implement new technology to maintain our competitiveness. If we are unable to anticipate or adapt to such advancements, or if we fail to allocate our resources efficiently, we may be forced to rely on outdated equipment that becomes increasingly inefficient and expensive to maintain. Additionally, there is a risk that our competitors, who may have greater financial resources and flexibility, will be better positioned to adopt emerging technologies and gain a competitive advantage. This could result in a decline in our market share, revenue, and profitability. Inability to manage these risks could have a material adverse effect on our business, financial condition, and operating results.
Compliance with ever evolving federal, state and foreign laws relating to the handling of information about individuals involves significant expenditure and resources, and any failure by us or our vendors to comply may result in significant liability and negative publicity which could adversely affect our business, results of operations and financial condition.
We will receive, store, handle, transmit, use and otherwise process business information and information related to individuals, including from and about actual and prospective customers, as well as our employees and vendors. We also depend on a number of third-party vendors in relation to the operation of our business, a number of which process data on our behalf and have access to our information systems. We and our vendors are subject to a variety of federal, state and foreign data privacy laws, rules, regulations, industry standards and other requirements, including those that apply generally to the handling of information about individuals, and those that are specific to certain industries, sectors, contexts, or locations. These requirements, and their application, interpretation and amendment are constantly evolving and developing. For example, in the United States, the Federal Trade Commission and state regulators enforce a variety of data privacy issues, such as promises made in privacy policies or failures to appropriately protect information about individuals, as unfair or deceptive acts or practices in or affecting commerce in violation of the Federal Trade Commission Act or similar state laws. In addition, certain states have adopted new or modified privacy and security laws and regulations that may apply to our business. For example, the California Consumer Privacy Act (“CCPA”) requires covered businesses that process personal information of California residents (including residents acting in an employment and business-to-business capacity) to, among other things: provide certain disclosures to California residents regarding the business’s collection, use and disclosure of personal information; receive and respond to requests from California residents to access, delete and correct their personal information, or to opt-out of certain disclosures of their personal information; and enter into specific contractual provisions with service providers that process California resident personal information on the business’s behalf. The enactment of the CCPA has prompted a wave of similar laws in other states in the United States, and there also remains interest in greater regulation regarding the processing of personal information at the federal level as well, which creates a patchwork of overlapping but different state laws. As we have expanded, and may continue to expand, our international presence, we are and may become subject to additional laws relating to the processing of information in countries in which we operate and have customers, including Australia, Brazil, Canada, the European Union, Singapore, South Africa and the United Kingdom. Personal information is increasingly subject to regulation in these and other jurisdictions in which we operate, and the requirements can be more restrictive and rigorous than those in the United States. In particular, we are subject to data protection laws in Europe including the General Data Protection Regulation 2016/679 and the United Kingdom General Data Protection Regulation and Data Protection Act of 2018 (collectively, the “GDPR”), which impose stringent data protection obligations for processors and controllers of personal data with the risk of enforcement action, civil claims (including class actions), significant penalties or requirements for us to cease or change how we process personal data and conduct our business. Amongst other things, the GDPR regulates cross-border transfers of personal information out of the European Economic Area and the United Kingdom. European case law and guidance have imposed additional onerous requirements in relation to data transfers, and we expect the existing legal complexity and uncertainty regarding international personal data transfers to continue. In particular, we expect international transfers from the European Union and the United Kingdom to continue to be subject to enhanced scrutiny by regulators. As regulatory guidance and the enforcement landscape develops, we could suffer additional costs, complaints and/or regulatory investigations or fines, or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our business, financial condition and results of operations. Applicable requirements regarding data privacy and the processing of information in the United States, Europe and other jurisdictions, and the application and interpretation of such requirements, are continuously evolving and subject to potentially differing interpretations, which increases the complexity of compliance and has required, and may require in the future, us to modify our practices, implement a variety of compliance measures, and incur compliance-related costs and expenses. It is also possible that we could become subject to a regulatory inquiry or investigation, and be required to take additional compliance steps or incur costs in remediating any identified issues. We intend to develop and update our policies, procedures and data transfer mechanisms in accordance with requirements under applicable data privacy and protection laws and regulations. Additionally, as these requirements may be inconsistent from one jurisdiction to another or conflict with other rules or our practices, our practices may not comply in the future with all such laws, regulations, requirements and obligations. Moreover, it is possible that new laws, regulations and other requirements, or amendments to or changes in interpretations of existing laws, regulations and other requirements, may require us to incur significant costs, implement new processes, or change our handling of information and business operations. In addition, any failure, or perceived failure, by us to comply with any U.S. federal, state or foreign privacy, processing of personal information, consumer protection or e-marketing related laws, regulations, standards or other requirements to which we may be subject or other legal obligations relating to these matters, any regulatory inquiry, or any significant data breach, could adversely affect our reputation, brand and business, result in claims, investigations, proceedings or actions against us by individuals, consumer rights groups, private and public customers, governmental regulatory entities or others or other penalties or liabilities, or require us to change our operations and/or cease using certain data sets. We could incur significant costs in responding to any inquiries or investigating and defending such claims, investigations, proceedings or actions and, if found liable, pay significant damages or fines or be required to make changes to our business. Further, these proceedings and any subsequent adverse outcomes may subject us to significant negative publicity and an erosion of trust. If any of these events were to occur, our business, results of operations and financial condition could be adversely affected.
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A disruption of our IT Systems and capabilities could lead to business disruption and could harm our reputation and result in financial penalty and legal liabilities, which would reduce our revenue and have a material adverse effect on our business, financial condition and results of operations.
Our business operations will be reliant on our IT Systems and any interruption may impair our ability to provide our services to our customers. In addition to potential disruptions to our IT Systems from cyber-attacks and cybersecurity incidents, we may also face potential disruptions resulting from equipment failures, shutdowns, power outages, human errors and other events, including disruptions experienced by service providers and other third parties. We may also experience disruptions during the implementation, upgrade or subsequent operation of our IT Systems, including supporting the legacy systems of acquired companies. Moreover, as we transition to new systems, our ability to timely mitigate, manage and patch vulnerabilities related to legacy systems and related legacy third-party technologies could impact security as well as our day-to-day operations. As a result, upgrades to our IT Systems may be expensive undertakings, may not be successful and/or could be abandoned. Additionally, if such upgraded IT Systems fail to operate or are unable to support our growth, our business operations could be severely disrupted, and we could be required to make significant additional expenditures to remedy any such failure. We could also encounter threats to our physical security, including our facilities and personnel, and threats from workplace violence, civil unrest, terrorism, or similar acts, any of which could disrupt our IT Systems and business. Our business, and the business of our suppliers, subcontractors, service providers and customers, could be disrupted by public health crises, such as pandemics and epidemics, and governmental, business and individual actions taken in response, damaging weather or other acts of nature, or other events outside our control. The impact of any such disruptions is difficult to predict, but could lead to operational delays and detrimental impacts on our operations, diversion of management’s attention and resources or loss of business. Any of these developments could have a material and adverse effect on our business, financial condition and results of operations.
We may face a shortage in talent or professionals with the appropriate experience and training in AI technology
AI companies face intense competition for skilled data scientists, machine learning engineers, and AI researchers. A shortage of qualified talent could hinder our product development, delay innovation, or raise our labor costs significantly. We may also be dependent on key AI researchers, as many AI companies, we are highly dependent on the expertise of a few key individuals who are critical to the company’s intellectual property and model development. Losing these individuals could significantly impact the company’s competitive advantage.
Risks Related to our Management and Control Persons
We will be a “controlled company” within the meaning of the Nasdaq Stock Market Rules upon the Direct Listing because our insiders will beneficially own more than 50% of the voting power of our outstanding voting securities.
Upon completion of this Direct Listing, our founder and Chief Executive Officer, Daniel S. O’Toole, together with certain management officers will collectively beneficially own approximately 84% of the voting power of our outstanding voting securities and we will be a “controlled company” within the meaning of the listing rules of The Nasdaq Stock Market LLC. We may rely on certain exemptions from corporate governance rules, including an exemption from the rule that a majority of our board of directors must be independent directors. Although we currently do not intend to rely on the “controlled company” exemption under the Nasdaq listing rules, we could elect to rely on this exemption in the future. In the event that we elected to rely on the “controlled company” exemption, a majority of the members of our board of directors might not be independent directors, and our nominating and corporate governance and compensation committees might not consist entirely of independent directors. Our status as a controlled company could cause our shares of common stock to be less attractive to certain investors or otherwise harm our trading price. As a result, you would not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements. Additionally, investors may be prevented from effecting matters involving our Company, including:
| ● | the composition of our Board and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers; | |
| ● | any determination with respect to mergers or other business combinations; | |
| ● | our acquisition or disposition of assets; and | |
| ● | our corporate financing activities. |
Furthermore, this concentration of voting power could have the effect of delaying, deterring, or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders. This significant concentration of share ownership may also adversely affect the trading price of our common stock because investors may perceive disadvantages in owning stock in a Company that is controlled by a small number of stockholders. Although our Company does not intend to utilize the controlled company exemptions to the Nasdaq corporate governance listing standards, if we are eligible to utilize the controlled company exemptions in the future, we may choose to do so. In such instance we would be exempted from, among other things, the requirements to have a board with a majority of independent members and the requirement that we have a nominating and governance committee and compensation committee that are composed entirely of independent directors and have written charters addressing the respective committee’s purpose and responsibilities.
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You may be diluted by future issuances of preferred stock or additional common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.
We could issue a significant number of shares of common stock in the future in connection with investments or acquisitions. Any of these issuances could dilute our existing stockholders, and such dilution could be significant. Moreover, such dilution could have a material adverse effect on the market price for the shares of our common stock.
The future issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of shares of our common stock, either by diluting the voting power of our common stock if the preferred stock votes together with the common stock as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote, even if the action were approved by the holders of our shares of our common stock.
The future issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in the common stock less attractive. For example, investors in the common stock may not wish to purchase common stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase common stock at the lower conversion price, causing economic dilution to the holders of common stock.
Risks Related to this Direct Listing and Ownership of Our Common Stock
Our listing differs significantly from an initial public offering conducted on a firm-commitment basis.
This is not an initial public offering of common stock conducted on a firm-commitment underwritten basis. There have been few companies that have undertaken a direct listing to date and there are many uncertainties associated with such type of listing. This listing of our common stock on Nasdaq differs from a firm-commitment underwritten initial public offering in several significant ways, which include, but are not limited to, the following:
| ● | There are no underwriters engaged on a firm-commitment basis. Consequently, prior to the opening of trading on Nasdaq, there will be no traditional book building process and no price at which underwriters initially sold shares to the public to help inform efficient and sufficient price discovery with respect to the opening trades on Nasdaq. Therefore, buy and sell orders submitted prior to and at the opening of trading of our common stock on Nasdaq will not have the benefit of being informed by a published price range or a price at which the underwriters initially sold shares to the public, as would be the case in an initial public offering underwritten on a firm-commitment basis. Moreover, there will be no underwriters engaged on a firm-commitment underwritten basis assuming risk in connection with the initial resale of shares of our common stock. In an initial public offering underwritten on a firm-commitment basis, the underwriters may engage in “covered” short sales in an amount of shares representing the underwriters’ option to purchase additional shares. To close a covered short position, the underwriters purchase shares in the open market or exercise the underwriters’ option to purchase additional shares. In determining the source of shares to close the covered short position, the underwriters typically consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the underwriters’ option to purchase additional shares. Purchases in the open market to cover short positions, as well as other purchases underwriters may undertake for their own accounts, may have the effect of preventing a decline in the market price of shares. Given that there will be no underwriters’ option to purchase additional shares and no underwriters engaging in stabilizing transactions, there could be greater volatility in the public price of our common stock during the period immediately following the listing. |
| ● | There is not a fixed number of securities available for sale. Therefore, there can be no assurance that any Registered Stockholders or will sell any or all of their common stock and there may initially be a lack of supply of, or demand for, our common stock on Nasdaq. Alternatively, we may have a large number of Registered Stockholders or who choose to sell their common stock in the near term resulting in an oversupply of our common stock, which could adversely impact the public price of our common stock once listed on Nasdaq. |
| ● | Consistent with Regulation M and other federal securities laws applicable to the Direct Listing, we have not consulted with Registered Stockholders (other than our directors and officers who own our common stock) regarding their desire or plans to sell shares in the public market following the listing or discussed with potential investors their intentions to buy our common stock in the open market. None of our Registered Stockholders have entered into contractual lock-up agreements or other contractual restrictions on transfer. In a firm-commitment underwritten initial public offering, it is customary for an issuer’s officers, directors, and most of its other shareholders to enter into a 180-day contractual lock-up arrangement with the underwriters to help promote orderly trading immediately after listing. Consequently, only our Registered Stockholders, may sell any or all of their common stock at any time (subject to any restrictions under applicable law), including immediately upon listing. The shares being registered herein may be freely sold in market transactions following the listing and upon effectiveness of this registration statement, shares issued upon the exercise of the warrants may be freely sold upon effectiveness of a subsequent registration statement covering such shares, such shares may be freely sold in reliance on an exemption from registration subject to Rule 144 under the Securities Act (“Rule 144”). All the shares of common stock subject to stock options outstanding and reserved for issuance under our equity incentive plan are expected to be registered on Form S-8 under the Securities Act and such shares are eligible for sale in the public markets, subject to the limitations applicable to affiliates under Rule 144. If such sales were to occur in a significant quantum, it may result in an oversupply of our common stock in the market, which could adversely impact the public price of our common stock. See “Our shares of common stock currently have no public market. An active trading market may not develop or continue to be liquid and the market price of our shares of common stock may be volatile.” None of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Sales of substantial amounts of our common stock in the public markets by our founders, affiliates, or non-affiliates, or the perception that such sales might occur, could reduce the price that our common stock might otherwise attain and may dilute your voting power and your ownership interest in us. Conversely, there can be no assurance that the Registered Stockholders will not sell all of their shares of our common stock, resulting in an oversupply of our common stock on The Nasdaq Capital Market. In the case of a lack of supply of our common stock, the trading price of our common stock may rise to an unsustainable level. Further, institutional investors may be discouraged from purchasing our common stock if they are unable to purchase a block of our common stock in the open market in a sufficient size for their investment objectives due to a potential unwillingness of our existing stockholders to sell a sufficient amount of our common stock at the price offered by such institutional investors and the greater influence individual investors have in setting the trading price. If institutional investors are unable to purchase our common stock in a sufficient amount for their investment objectives, the market for our common stock may be more volatile without the influence of long-term institutional investors holding significant amounts of our common stock. In the case of a lack of demand for our common stock, the trading price of our common stock could decline significantly and rapidly after the Direct Listing. |
| ● | We will not conduct a traditional “roadshow” with underwriters prior to the opening of trading on Nasdaq. Instead, we may host an investor day, as well as engage in certain other investor education meetings. In advance of the investor day, we will announce the date for such day over financial news outlets in a manner consistent with typical corporate outreach to investors. We will prepare an electronic presentation for this investor day, which will have content similar to a traditional roadshow presentation, and make one version of the presentation publicly available, without restriction, on a website. There can be no guarantees that the investor day and other investor education meetings will have the same impact on investor education as a traditional “roadshow” conducted in connection with a firm-commitment underwritten initial public offering. As a result, there may not be efficient price discovery with respect to our common stock or sufficient demand among investors immediately after our listing, which could result in a more volatile public price of our common stock. |
Such differences from a firm-commitment underwritten initial public offering could result in a volatile market price for our common stock and uncertain trading volume and may adversely affect your ability to sell your common stock.
The direct listing process differs from an initial public offering underwritten on a firm-commitment basis and the impact of awareness of our brand and investor recognition of our Company on the demand for our common stock is unpredictable and our marketing and brand development efforts may not be successful.
As stated elsewhere in this prospectus, we will not conduct a traditional “roadshow” with underwriters prior to the opening of trading of our common stock on Nasdaq. Instead, we may engage in certain investor presentations and educational meetings to enhance our brand awareness and investor recognition of our Company. In advance of any investor presentation or educational meeting, we will announce the date for such presentation or meeting through financial news outlets in a manner consistent with typical corporate outreach to investors. We will prepare an electronic presentation for any investor presentation or educational meeting that we hold, and will make the presentation publicly available, without restriction, on a website.
There can be no assurance that any investor presentations or other educational meetings that we hold will have the same impact on awareness of our brand and investor recognition of our Company as a traditional “roadshow” conducted in connection with a firm-commitment underwritten initial public offering. As a result, there may not be efficient price discovery with respect to our common stock or sufficient demand among investors immediately following our listing, which could result in a more volatile public price of our common stock.
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Our shares of common stock currently have no public market. An active trading market may not develop or continue to be liquid and the market price of our shares of common stock may be volatile.
We expect our shares of common stock to be listed and traded on Nasdaq. We will not be involved in the price setting process and the Registered Stockholders will not be involved in the price setting process. Additionally the price of our shares in prior private transactions may have little or no relation to the opening price and subsequent public price of our stock on Nasdaq. We have engaged a third party firm to conduct a valuation pursuant to Nasdaq’s listing qualification rules and requirements. Prior to the listing on Nasdaq, there has not been a public market for our shares of common stock, and an active market for our shares of common stock may not develop or be sustained after the listing, which could depress the market price of our shares of common stock and could affect the ability of our stockholders to sell our shares of common stock. In the absence of an active public trading market, investors may not be able to liquidate their investments in our shares of common stock. An inactive market may also impair our ability to raise capital by selling our shares of common stock, our ability to motivate our employees through equity incentive awards and our ability to acquire other companies, products or technologies by using our shares of common stock as consideration.
In addition, we cannot predict the prices at which our shares of common stock may trade on Nasdaq following the listing of our shares of common stock, and the market price of our shares of common stock may fluctuate significantly in response to various factors, some of which are beyond our control. In particular, as this listing is taking place through a novel process that is not a firm-commitment underwritten initial public offering, there will be no traditional book building process and no price at which traditional underwriters initially sold shares to the public to help inform efficient price discovery with respect to the opening trades on Nasdaq. On the day that our shares of common stock are initially listed on Nasdaq, Nasdaq will begin accepting, but not executing, pre-opening buy and sell orders and will begin to continuously generate the indicative Current Reference Price (as defined below) on the basis of such accepted orders. The Current Reference Price is calculated each second and, during a 10-minute “Display Only” period, is disseminated, along with other indicative imbalance information, to market participants by Nasdaq on its NOII and BookViewer tools. Following the “Display Only” period, a “Pre-Launch” period begins, during which the Advisor, in its capacity as our financial advisor, must notify Nasdaq that our shares are “ready to trade.” Once the Advisor has notified Nasdaq that our shares of common stock are ready to trade, Nasdaq will confirm the Current Reference Price for our shares of common stock, in accordance with the Nasdaq rules. If the Advisor then approves proceeding at the Current Reference Price, the applicable orders that have been entered will be executed at such price and regular trading of our shares of common stock on Nasdaq will commence, subject to Nasdaq conducting validation checks in accordance with Nasdaq rules. The Advisor will determine when our shares of common stock are ready to trade and approve proceeding at the Current Reference Price primarily based on considerations of volume, timing and price. In particular, the Advisor will determine, based primarily on pre-opening buy and sell orders, when a reasonable amount of volume will cross on the opening trade such that sufficient price discovery has been made to open trading at the Current Reference Price. If the Advisor does not approve proceeding at the Current Reference Price (for example, due to the absence of adequate pre-opening buy and sell interest), the Advisor will request that Nasdaq delay the open until such a time that sufficient price discovery has been made to ensure a reasonable amount of volume crosses on the opening trade. For more information, see “Plan of Distribution.”
Additionally, prior to the opening trade, there will not be a price at which underwriters initially sold shares of common stock to the public as there would be in a firm-commitment underwritten initial public offering. The absence of a predetermined initial public offering price could impact the range of buy and sell orders collected by Nasdaq from various broker-dealers. Consequently, upon listing on Nasdaq, the public price of our common stock may be more volatile than in a firm-commitment underwritten initial public offering and could decline significantly and rapidly.
Furthermore, because of our novel listing process on the Nasdaq Global Market, Nasdaq’s rules for ensuring compliance with its initial listing standards, such as those requiring a valuation or other compelling evidence of value, are untested. In the absence of a prior active public trading market for our common stock, if the price of our common stock or our market capitalization falls below those required by Nasdaq’s eligibility standards, we may not be able to satisfy the ongoing listing criteria and may be required to delist.
In addition, because of our novel listing process, individual investors, retail or otherwise, may have greater influence in setting the opening public price and subsequent public prices of our common stock on Nasdaq and may participate more in our initial trading than is typical for a firm-commitment underwritten initial public offering. These factors could result in a public price of our common stock that is higher than other investors (such as institutional investors) are willing to pay, which could cause volatility in the trading price of our common stock and an unsustainable trading price if the price of our common stock significantly rises upon listing and institutional investors believe our common stock is worth less than retail investors, in which case the price of our common stock may decline over time. Further, if the public price of our common stock is above the level that investors determine is reasonable for our common stock, some investors may attempt to short our common stock after trading begins, which would create additional downward pressure on the public price of our common stock. To the extent that there is a lack of consumer awareness among retail investors, such a lack of consumer awareness could reduce the value of our common stock and cause volatility in the trading price of our common stock.
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The public price of our common stock following the listing also could be subject to wide fluctuations in response to the risk factors described in this prospectus and others beyond our control, including:
| ● | the number of shares of our common stock publicly owned and available for trading; |
| ● | overall performance of the equity markets and/or publicly-listed companies that offer competing services and products; |
| ● | actual or anticipated fluctuations in our revenue or other operating metrics; |
| ● | our actual or anticipated operating performance and the operating performance of our competitors; |
| ● | changes in the financial projections we provide to the public or our failure to meet these projections; |
| ● | failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet the estimates or the expectations of investors; |
| ● | any major change in our Board, management, or key personnel; |
| ● | the economy as a whole and market conditions in our industry; |
| ● | rumors and market speculation involving us or other companies in our industry; |
| ● | announcements by us or our competitors of significant innovations, new products, services, features, integrations or capabilities, acquisitions, strategic investments, partnerships, joint ventures, or capital commitments; |
| ● | new laws or regulations or new interpretations of existing laws or regulations applicable to our business, in the U.S. or globally; |
| ● | lawsuits threatened or filed against us; |
| ● | other events or factors, including those resulting from war, incidents of terrorism, or responses to these events and |
| ● | sales or expected sales of our common stock by us and our officers, directors and principal stockholders. |
In addition, stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner often unrelated to the operating performance of those companies. These fluctuations may be even more pronounced in the trading market for our common stock shortly following the listing of our common stock on Nasdaq as a result of the supply and demand forces described above. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and harm our business, results of operations and financial condition.
We may not be able to meet each of the quantitative requirements of the Nasdaq Global Market’s Market Value Standard for Direct Listings
We have applied to have our common stock listed on Nasdaq Global Market. We expect that our common stock will be listed on Nasdaq Global Market on or promptly after the date of this prospectus. In order for Nasdaq Global Market to approve our listing application, we will need to meet the quantitative requirements of the Nasdaq Global Market’s Market Value Standard for Direct Listings, as provided in Nasdaq Listing Rules 5405(a) and 5405(b)(3). We expect to meet all those requirements but in the event that we are unable to meet such requirements, we will not be approved to list our common stock on Nasdaq Global Market and our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
| ● | a limited availability of market quotations for our securities; | |
| ● | reduced liquidity for our securities; | |
| ● | a determination that our common stock is “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; | |
| ● | a limited amount of news and analyst coverage; and | |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because we expect that our common stock will be listed on Nasdaq Global Market, our common stock will qualify as covered securities under the statute. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. If we cannot be listed on Nasdaq Global Market or any other national securities exchange, our securities would not qualify as covered securities under the statute and we would be subject to regulation in each state in which we offer our securities.
If we cannot meet the continued listing requirements of Nasdaq, Nasdaq may delist our securities.
As a public company, we will be subject to the reporting requirements and the rules and regulations of the applicable listing standards of Nasdaq. If we fail to maintain compliance with the continued listing standards of Nasdaq, our securities may be delisted, which could negatively affect the market price and liquidity of our securities. In such a case, we may seek to regain compliance by implementing a number of available options. If in the future our securities are delisted from Nasdaq, we could face significant material adverse consequences, including: limited availability of market quotations for our securities; reduced liquidity for our shares; a determination that our shares are “penny stock,” which will require brokers trading in our shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our shares; a limited amount of news and analyst coverage; and decreased ability to issue additional securities or obtain additional financing in the future. In addition, as long as our shares are listed on Nasdaq, U.S. federal law prevents or preempts the states from regulating their sale, although the law does allow the states to investigate companies if there is a suspicion of fraud and, if there is a finding of fraudulent activity, then the states can regulate or bar their sale. If we were no longer listed on Nasdaq, we would be subject to regulations in each state in which we offer our shares.
Following the initial public offering, there can be no assurance that the Company will be able to comply with the continued listing standards of Nasdaq.
Following the initial public offering, if the Company fails to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum share price requirement, Nasdaq may take steps to delist the Company’s securities. Such a delisting would likely have a negative effect on the price of the securities and would impair stockholders’ ability to sell or purchase the securities when they wish to do so. In the event of a delisting, the Company can provide no assurance that any action taken by it to restore compliance with listing requirements would allow the securities to become listed again, stabilize the market price or improve the liquidity of the securities, prevent the securities from dropping below the Nasdaq minimum share price requirement or prevent future non-compliance with Nasdaq’s listing requirements. Additionally, if the securities are not listed on, or become delisted from Nasdaq, for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of the securities may be more limited than if the Company was quoted or listed on Nasdaq or another national securities exchange. Stockholders may be unable to sell their securities unless a market can be established or sustained.
Industry and Market Data
This Prospectus contains estimates made, and other statistical data published by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this Prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are inherently subject to a high degree of uncertainty and actual events or circumstances may differ materially from events and circumstances reflected in this information. We caution you not to give undue weight to such projections, assumptions and estimates. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.
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The Registered Stockholders may, or may not, elect to sell shares of our common stock covered by this prospectus. To the extent any Registered Stockholder chooses to sell shares of our common stock covered by this prospectus, we will not receive any proceeds from any such sales of our common stock.
Since our inception, we have not paid any dividends on our common stock, and we currently expect that, for the foreseeable future, all earnings, if any, will be retained for use in the development and operation of our business. In the future, our board of directors may decide, at its discretion, whether dividends may be declared and paid to holders of our common stock.
The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2024 (after giving effect to the Reverse Stock Split retrospectively for all periods presented).
This table should be read in conjunction with, and is qualified in its entirety by, reference to “Summary Historical Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes appearing elsewhere in this prospectus.
| As of December 31, 2024 | ||||
| Cash and cash equivalents | $ | 129,318 | ||
| Stockholders’ equity: | ||||
| Common stock, par value $0.0002 per share (after giving effect to the Reverse Stock Split), 200,000,000 shares authorized; 29,120,905 shares issued and outstanding | 5,822 | |||
| Additional paid-in capital, net of offering costs | 14,984,561 | |||
| Subscription Receivable | (53,003 | ) | ||
| Accumulated deficit | (15,920,555 | ) | ||
| Other comprehensive income (loss) | 0 | |||
| Total stockholders’ deficit | (983,175 | ) | ||
| Total capitalization | $ | (993,733 | ) | |
The number of shares of our voting common stock reflected in our actual information set forth in the table above excludes:
614,704 shares of common stock issuable upon exercise of stock options outstanding under our 2023 Equity Incentive Plan (the Stock Plan) as of December 31, 2024, after giving effect to the Reverse Stock Split, with an exercise price of $0.80 per share;
885,296 Shares of common stock reserved for issuance under our Stock Plan, after giving effect to the Reverse Stock Split.
All the shares of common stock subject to stock options outstanding and reserved for issuance under our equity incentive plan are expected to be registered on Form S-8 under the Securities Act and such shares are eligible for sale in the public markets, subject to Rule 144 under the Securities Act (“Rule 144”) limitations applicable to affiliates.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our results of operations and financial condition should be read together with “Selected Financial Data” and the financial statements and related notes included elsewhere in this prospectus. Such discussion and analysis reflect our historical results of operations and financial position and does not give effect to the completion of this offering. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this prospectus.
Overview and History
Management believes that Arrive is pioneering the emerging market for the automated exchange of packages and goods between people, robots, and drones with our autonomous last mile (“ALM”) mailbox, but there can be no assurance that we will be able to achieve these objectives.
The future of automated last-mile delivery, consumer services, and business operations all need smart, secure, and seamless exchanges of packages, goods, supplies, food, and medicine between people, robots, and drones. Our ALM mailbox, a.k.a. ALM Access Point or Arrive Point™, is designed to provide a frictionless exchange point between people, robots, and drones that will make new automated ALM services possible for ALM operators, businesses, and consumers. This term, “frictionless,” refers to an efficient, seamless exchange process with minimal barriers or delays for users. In the context of the ALM Access Point, this means creating a streamlined environment where stakeholders can access and exchange information, data, or services without encountering unnecessary complexities, such as cumbersome processes, excessive manual intervention, or technical incompatibilities. For example, an ALM Access Point might integrate automated delivery data validation and synchronization features, ensuring that users can share and retrieve up-to-date information effortlessly about a delivery, even across different platforms. Such features are designed to eliminate redundant steps and reduce the risk of errors, thereby fostering a smooth and uninterrupted exchange experience that is frictionless.
Arrive AI expects to have three primary revenue streams:
1. Mailbox-as-a-service (MaaS) provides our ALM Access Points or ALM mailboxes to both businesses and consumers through a single, monthly subscription fee. This turnkey service includes hardware, software, support, maintenance, installation/uninstallation, and financing for long-term field assets. Our flexible payment structure accommodates various business models in the evolving ALM Industry. In Q4 of 2024 we installed AP3 units (third generation Arrive Points) for which we will provide MaaS in 2025. Arrive AI has a confidential agreement and pricing in place to provide these services for compensation, with an East-Coast Specialty Pharm company. The terms and pricing are confidential and preliminary terms, intended for both parties to learn from the pilot project how effective the terms are in providing sustainable benefits and economics over the course of the first year of operations. Once Arrive AI and the customer have operationalized and learned from these initial services, both parties plan to renegotiate terms and pricing in 2026 to produce new terms that are sustainable and can be disclosed to other customers and the public.
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 AP4 and AP5 Access Points devices 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.
c. More details on our hybrid approach to AI and ML development and the timing of development and foundational data capture necessary for improvements beyond synthetic training are presented in the Business section
3. Operational platform fees. Our network of ALM Access Points, the supporting software and AI plus ML, collectively create an ALM 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. The 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 capabilities enable ALM automation operators, businesses, and end-customers all to make better value- and data-based operational decisions, such as for a specific Access Point prioritizing time-sensitive food deliveries during peak demand versus optimizing route efficiency for a deferrable delivery at a given time like during the Super Bowl. Another example of ALM platform functionality is our planned mailbox financing exchange (MFE) facilitates dynamic cost-sharing arrangements between financiers, business partners, automation operators, and end-customers. These advanced capabilities will be introduced through our AP5 development and pilot program after development of AP4. At this time we have not engaged any customers or third-parties to participate in, or utilize, these advanced capabilities that have yet to be introduced.
Since inception, we have operated at a loss, with no revenue in 2024 or 2023. Our net losses were $4,537,901 and $7,321,134 for the years ended December 31, 2024, and 2023, respectively. We anticipate continued operating losses as we pursue market penetration and first revenues in 2025.
Key milestones for achieving revenue for sustainable operations include:
○ Initial AP3 units were delivered in Q4-2024
○ Implementation of contracted use cases in Specialty Pharma and Assisted Living communities in 2025, with potential expansion to hospital environments; no agreements exist as of the date of this prospectus
○ Completion of AP4 development with a Fortune 500 logistics customer, featuring reverse logistics and pickup capabilities, for 2025 deployment
○ Development of AP5, our comprehensive “universal” solution supporting all drone and robotic delivery operations, with development starting 2025, pilots in 2026, and general availability in 2027
Our path to profitability relies on achieving product-market fit, for the growing number of ALM automation operators and the businesses seeking to use ALM automation for delivery savings and improved customer experience. We will be able to meet their needs after the successful development and deployment of AP3, AP4, and AP5 (our 3rd, 4th, and 5th generation of ALM Access Points), which will provide universal support for all autonomous delivery systems. AP3 is complete and was installed for customers in November 2024, and AP4 is presently in development with a F500 customer and is on-track to be deployed in 2025. Success requires delivering a user-friendly, competitively priced solution with scalable manufacturing, marketing, and distribution meeting the needs for a universal ALM Access Point for all drone, robotic, and human pickup and delivery. Once achieved as scheduled in 2026 with AP5, we can pursue broader market adoption beyond pilot programs to generate scalable and sustainable revenue growth. While we believe in our plans, and are optimistic that we can continue to achieve them, there is no guarantee that we will achieve product market fit or be successful in our commercialization and plans.
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Factors Affecting our Business and Results of Operations
This section includes a summary of our historical results of operations, followed by detailed comparisons of our results for the years ended December 31, 2024 and December 31, 2023. We have derived this data from our financial statements included elsewhere in this prospectus.
The Company’s auditor has completed a review of its 2024 and 2023 financial performance in accordance with the standards of the PCAOB. The Company has not started commercial operations but has incurred expenses in connection with corporate and administrative matters, development of its products and services and applications for patents. These expenses include cash and stock-based compensation for services rendered, legal and audit fees, and development hardware. As a result, the Company reported a net loss in all reporting periods. An analysis of the Company’s operating performance for the periods ended December 31, 2024 and December 31, 2023, together with the Company’s income statement summarizing income and expense items are presented below.
Results of Operations
Comparison of Years Ended December 31, 2024, and December 31, 2023
| Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||
| Salaries and wages - office | $ | 2,384,925 | $ | 2,610,407 | ||||
| Impairment losses | - | 1,824,923 | ||||||
| Legal and professional fees | 629,690 | 1,645,678 | ||||||
| Research and development | 395,386 | 214,493 | ||||||
| Outside services | 364,650 | 266,225 | ||||||
| Marketing | 189,076 | 207,234 | ||||||
| Licensing fee – related party | 120,000 | 120,000 | ||||||
| Office supplies and software | 99,008 | 106,011 | ||||||
| Insurance | 83,270 | 67,005 | ||||||
| Taxes and licenses | 67,708 | 69,852 | ||||||
| Rent | 65,840 | 40,550 | ||||||
| Travel | 45,305 | 68,325 | ||||||
| Meals and entertainment | 31,801 | 35,634 | ||||||
| Depreciation | 28,303 | 13,106 | ||||||
| Shipping and freight | 27,243 | 12,271 | ||||||
| Transportation | 14,188 | 13,428 | ||||||
| Utilities | 6,801 | 4,000 | ||||||
| Bank charges and fees | 3,011 | 709 | ||||||
| Interest | 1,635 | 2,937 | ||||||
| Amortization | 812 | 287 | ||||||
| Repairs and maintenance | 197 | - | ||||||
| Total general and administrative expenses | $ | 4,558,849 | $ | 7,323,075 | ||||
| OTHER INCOME (EXPENSES) | ||||||||
| Other Income | 39,482 | 1,941 | ||||||
| Other Expense | (18,534 | ) | - | |||||
| Total other income (expenses) | 20,948 | 1,941 | ||||||
| NET LOSS | $ | (4,537,901 | ) | $ | (7,321,134 | ) | ||
| NET LOSS PER SHARE: | ||||||||
| Basic and diluted | $ | (0.16 | ) | $ | (0.25 | ) | ||
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
| Basic and diluted | 28,971,543 | 29,680,228 | ||||||
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Management Discussion of Results
For the year ended December 31, 2024, the Company’s net loss decreased from $7,321,134 to $4,537,901. General and administrative expenses for the period decreased 38% ($2,764,226).
Salaries and wages decreased by 9% ($225,482) due to lower stock-based compensation ($315,087), and employee benefits ($7,793), partially offset by an increase in base compensation ($79,195). The Company utilizes independent contractors to supplement the full-time workforce. For the year ended December 31, 2024, expenses related to these outside services increased by $98,425, or 37% from the prior year due to increased engineering and administrative workload.
No impairment expense was recorded for the year ended December 31, 2024, a reduction of $1,824,923 from the prior year. The Company was previously capitalizing certain expenses related to the development of its products. During 2023, the Company performed an evaluation of these assets and determined that they were obsolete and fully impaired. An impairment expense ($827,060) was recorded in Q4 2023, to write off the accumulated construction in progress which had previously been capitalized. An additional impairment expense ($997,863) was recorded on the value of patents purchased in the acquisition of Airbox in Q4, 2023. As of December 31, 2023, the Company had not yet integrated these patents into its product development roadmap and could not determine a conclusive fair value.
Legal and professional fees decreased 62% ($1,015,988) for the period. In 2023, the Company recorded an accrual ($883,900) for unbilled legal expenses incurred for two merger transactions which were terminated. The Company relies on third-party firms for accounting, audit, tax, human resources and international patent applications, as well as general legal advice.
Research and development expense increased by 84% ($180,893) as the Company continues to invest in its technology.
Marketing expense decreased slightly ($18,158) due to the timing of advertising spend on video and media productions.
Insurance expense increased by 24% ($16,265) due to increased premiums for Directors and Officers insurance.
Rent increased by 62% ($25,290) due to the Company’s move to a new, larger office space in the second quarter of 2024.
Expenses for Travel, Meals and Entertainment collectively were lower by 26% ($26,853) due to less employee travel in the period.
Depreciation expense increased by 116% ($15,197) due to a full year depreciation on the drone hexacopter acquired from Airbox in late 2023, as well as amortization of the Company’s issued international patents.
Shipping and freight expense increased by 122% ($14,972) due to the increased quantity of finished units shipping from an international supplier.
Net other income and expense for the period was $20,948, of which the State of Indiana EDGE tax credit refund was $24,089 and grant income from Massachusetts Department of Transportation was $10,000. This income was offset by a one-time legal expense ($18,500) to settle an outstanding lawsuit from 2020.
Liquidity and Capital Resources
December 31, 2024, Compared to December 31, 2023
As of December 31, 2024, the Company had cash of $129,318 compared to $325,472 as of December 31, 2023. Since its inception, the Company has incurred net losses and funded its operations primarily through the issuance of equities. As of December 31, 2024, the Company had a total stockholders’ deficit of $(983,175) compared to $(477,766) as of December 31, 2023.
The Company has incurred recurring losses from operations, and as of December 31, 2024, had an accumulated deficit of $15,920,555 (2023: $11,382,654) and a working capital of $(1,343,143) (2023: ($743,666)). The Company’s continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing. The Company has developed plans to raise funds and continues to pursue sources of funding that management believes, if successful, would be sufficient to support the Company’s operation. During the period ended December 31, 2024, the Company raised $2,643,626 (net of offering costs) through Common Stock issuances. The Company has also raised $1,696,810 in 2023 and $1,150,490 in 2022 (net of offering costs). The Company’s operating plan is predicated on a variety of assumptions including, but not limited to, the level of product demand, cost estimates, its ability to continue to raise additional financing and the state of the general economic environment in which the Company operates. There can be no assurance that these assumptions will prove accurate in all material respects, or that the Company will be able to successfully execute its operating plan. In the event that the Company is not able to raise capital from investors in a timely manner, the Company will explore available options, including but not limited to, an equity backed loan. In the absence of additional appropriate financing, the Company may have to modify its plan or slow down the pace of development and commercialization.
The Company does not have any short or long-term contractual purchases with suppliers for future purchases, capital expenditure commitments that cannot be cancelled with minimal fees, non-cancelable operating leases, or any commitment or contingency that would hinder management’s ability to scale down operations and management expenses until funding is raised.
The following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2024 and December 31, 2023:
| Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (2,289,273 | ) | $ | (2,816,791 | ) | ||
| Net cash used by investing activities | (114,655 | ) | (104,991 | ) | ||||
| Net cash provided by financing activities | 2,207,774 | 1,690,158 | ||||||
Inflation
Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the year ended December 31, 2024.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While there are a number of significant accounting policies affecting our consolidated financial statements, management believes the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments.
Quantitative and Qualitative Disclosures About Market Risk
We have not utilized any derivative financial instruments such as futures contracts, options and swaps, forward foreign exchange contracts or interest rate swaps and futures. We believe that adequate controls are in place to monitor any hedging activities. We do not intend to hedge any existing or future borrowings and, consequently, we do not expect to be affected by changes in market interest rates. We do not currently have any sales or own assets and operate facilities in countries outside the United States and, consequently, we are not affected by foreign currency fluctuations or exchange rate changes. Overall, we believe that our exposure to interest rate risk and foreign currency exchange rate changes is not material to our financial condition or results of operations.
Recent Accounting Pronouncements
There are no recently issued accounting pronouncements that we have not yet adopted that management believes are applicable or would have a material impact on our financial statements.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
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Stockholders should read this section in conjunction with the more detailed information about the Company contained in this prospectus, including our audited financial statements and the other information appearing in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Management believes that Arrive is pioneering the emerging market for the automated exchange of packages and goods between people, robots, and drones with our autonomous last mile (“ALM”) mailbox, but there can be no assurance that we will be able to achieve these objectives However, Arrive is a development stage company with no revenues to date. While the Company has several pilots in place, as described elsewhere in this prospectus, these pilots are not revenue-generating activities and there is no guarantee that customers currently in pilot programs will choose to subscribe to our services after the pilot programs conclude. The Company continues to develop its product and the technology inherent to its planned services, but there is no assurance that we will meet our business and partnership goals.
Management also believes that the future of automated last-mile delivery, consumer services, and business operations will require smart, secure, easy, and fault-tolerant exchanges of packages, goods, supplies, food, and medicine between people, robots, and drones. We anticipate that our ALM mailbox, a.k.a. ALM Access Point or Arrive Point™, will serve as the foundation of a platform approach to support the ALM ecosystem by providing a frictionless exchange point between people, robots, and drones, enabling new automated ALM services for ALM operators, businesses, and consumers. However, there is no guarantee that the development of our ALM mailbox will succeed or achieve broad adoption.
Arrive Points, and the eventual Arrive Point Network, are intended to support the ALM ecosystem through three primary components:
| 1. | A network of ALM mailboxes or ALM Access Points designed to enable the smart, secure, and frictionless exchange of packages, goods, supplies, food, and medicine between people, robots, and drones. Unlike traditional smart mailboxes and locker boxes, which are typically limited to human-operated delivery and pickup or lack specialized features for autonomous systems, our ALM Access Points are designed to universally support autonomous robot and drone delivery services. They incorporate secure chain-of-custody capabilities, temperature-controlled delivery and pickup options, and standardized interfaces designed to be compatible with a variety of autonomous delivery platforms, which are developing through pilots with customers. However, there is no guarantee that these pilots will result in commercial agreements. | |
| 2. | An ALM Platform, consisting of a collection of software services currently under development, which we anticipate will include specific tools and capabilities for our future potential partners and customers such as: (i) arrival/departure scheduling software to coordinate timing for autonomous deliveries, (ii) space optimization algorithms to maximize storage efficiency within ALM Access Points, and (iii) smart notification systems to provide real-time updates on weather conditions, airspace or ground restrictions, delivery status, and potential automation obstacles. The ALM Platform is not currently in use, as it remains in the developmental stage and is aspirational in nature. There is no assurance that we will successfully develop or implement these tools, or that the ALM Platform will achieve the intended functionality or market acceptance. | |
| 3. | AI and ML technology leveraging two distinct applications of artificial intelligence and machine learning: (1) edge-based inferencing models running directly on Access Points for real-time operations, and (2) centralized AI systems analyzing network-wide data to generate business insights and ecosystem improvements. We have already demonstrated initial AP4 AI capabilities to customers, with comprehensive implementation planned for 2025 delivery. We plan to develop further advanced AI capabilities for AP5 in 2025 and 2026. The effectiveness and value of our AI/ML models are directly correlated with delivery network utilization and the associated transactional data volume. Beginning in 2025, we expect to accumulate 12-18 months of operational and delivery data, reaching the critical mass necessary to begin improving the value of our proprietary ALM models and insights. This unique and growing dataset will encompass transactional patterns, operational performance metrics, and environmental conditions across our network, creating a valuable proprietary asset for improving autonomous last-mile delivery operations. Note that to meet our data accumulation goals and maximize the effectiveness of our proprietary ALM models, we believe a minimum of 200 deployed and actively utilized ALM Access Points, with an average daily volume of 3 deliveries, will be necessary to generate sufficient data over 18 months of operations. If fewer units are deployed or the average utilization rate per unit falls below 50%, the rate of data accumulation will slow, delaying both the expected timeframe for likely AI improvements and the monetization of the resulting insights. These metrics—deployment scale and utilization rate—are critical to achieving the desired scale for AI/ML and network-wide operational improvements. |
Management believes that Arrive is pioneering the emerging market for the automated exchange of packages and goods between people, robots, and drones with our autonomous last mile (“ALM”) mailbox but there are no guarantees that we are right or will be successful in our efforts. We are advancing our technology through structured customer and partner trials or pilots for which the Company receives no revenues. All pilots operate under executed Statements of Work (SOW). Active customer agreements and SOWs differ in that SOWs outline specific deliverables and project scope for pilot activities, such as unit deployment schedules, performance testing protocols, and feedback milestones, while active customer agreements define broader terms of collaboration, such as pilot objectives, mutual obligations, and options for post-pilot expansion. Arrive AI currently has the following active innovation and pilot efforts:
● A Fortune 500 logistics company: On February 23, 2024, Arrive entered into the Statement of Work (SOW) with this company. The SOW conducts a 90-day Proof of Concept (PoC) deployment of Arrive’s MaaS solution. The PoC aims to evaluate the potential return on investment (ROI) for this company by reducing driver time, miles, fuel costs, emissions, and community safety incidents, while also assessing customer satisfaction and operational efficiencies. The PoC analyzes the feasibility of integrating Arrive’s MaaS solution with this company’s operations, with a focus on future automation opportunities such as drone and autonomous delivery robot (ADR) integration. Arrive’s major services include providing temporary installation of Arrive Bank units, cloud-based software, and support services such as training and data collection. The duration of PoC is estimated to be 90 days from the start in February 2024. The total cost for the PoC is $0 for the first 90 days, with potential extensions subject to further agreement. All intellectual property created during the PoC will be owned by Arrive, though non-exclusive, royalty-free licenses may be granted to this company for internal use. The SOW is subject to the terms of the parties’ Mutual Non-Disclosure Agreement (MNDA) and Arrive’s General Terms and Conditions. We completed the Statement of Work (SOW) to pilot a single AP3 unit, testing delivery efficiency through multiple test deliveries, including those involving third-party packages, over a two-month period. The pilot concluded successfully, and feedback on the AP3’s functionality prompted discussions for a phase-2 demonstration, which involved deploying a fourth-generation (AP4) unit featuring enhanced AI interfaces and RFID reading capabilities; this phase-2 demonstration was also delivered and completed on December 20, 2024. Management believes these efforts could lay the groundwork for further collaboration with this company, though there is no assurance that additional agreements or projects will result.
● A Sunbelt innovation campus: On December 5, 2023, Arrive entered into a Statement of Work (SOW) with this company to conduct a 90-day Proof of Concept (PoC) deployment of Arrive’s Mailbox-as-a-Service (MaaS) solution. The PoC aims to evaluate the potential return on investment (ROI) for this company by reducing effort and cold times in collecting deliveries, increasing security, and assessing user experience. Arrive’s major services include providing temporary installation of Arrive Bank units, cloud-based software, and support services such as training, data collection, and analysis. Arrive will own all intellectual property created during the PoC, though non-exclusive, royalty-free licenses may be granted to this company for internal use. The SOW is subject to the terms of the parties’ Mutual Non-Disclosure Agreement (MNDA) and Arrive’s General Terms and Conditions. This active Statement of Work (SOW) governs the deployment of two or more AP3 units to explore use cases, including autonomously receiving packages at a lab for multiple tenants and sending or redirecting packages across the campus to additional AP3 units serving other buildings. The pilot evaluates informational and messaging exchanges to manage deliveries from multiple third-party logistics providers, which is the primary assessment criterion. Discussions are underway regarding the potential for this installation to support further testing of robotic deliveries already active on the campus. The SOW remains ongoing, with installation scheduled for Q2 2025, and includes a two-month pilot period during which we will provide installation, technical support, and data collection. Pricing terms for retaining the AP3 units post-pilot will be negotiated if the customer opts to continue, though there is no assurance that the pilot will lead to a permanent deployment or further agreements.
● An East Coast specialty pharma logistics company: On February 21, 2024, Arrive entered into a Statement of Work (SOW) with this company to conduct a 60-day Proof of Concept (PoC) deployment of Arrive’s Mailbox-as-a-Service (MaaS) solution at one company site and up to two company facilities. The PoC aims to evaluate the potential return on investment (ROI) for this company by reducing lost or expired goods due to missed deliveries, improving the secure return of undeliverable medications, and assessing customer satisfaction and operational efficiencies. The PoC also seeks to identify future automation opportunities, such as integrating autonomous delivery robots (ADR) and drone delivery with Arrive’s MaaS solution. Arrive will provide temporary installation of Arrive Bank units and cloud-based software solutions and API. Arrive will own all intellectual property created during the PoC, though non-exclusive, royalty-free licenses may be granted to this company or its facilities for internal use. The SOW is subject to the terms of the parties’ agreement and Arrive’s General Terms and Conditions. An active Statement of Work (SOW) governs a temperature-controlled delivery pilot, testing two AP3 units for medical logistics. The units have been installed and integrated into the customer’s operational logistics system for messaging and status control, with production deliveries scheduled to begin no later than Q2 2025, contingent on the customer’s operational readiness. Our AP3 units are prepared to meet the customer’s requirements for secure, temperature-controlled receiving and storage of specialty pharmaceutical deliveries multiple times per day. The customer has agreed to an installation fee and a monthly recurring service fee tied to delivery volumes, with pricing terms remaining confidential at this stage. These initial pricing terms are a preliminary test of structure and direction for Arrive AI, not reflective of our final pricing model, and the customer’s success in ordering additional units will help validate pricing for future sales in similar markets. Management is optimistic that this pilot could lead to a successful and profitable customer relationship, though there is no assurance of such an outcome.
All SOWs are subject to NDAs, limiting disclosure of specific terms such as pricing and exact timelines. For AP3 installations and planned MaaS services in 2025, we are deploying units under pilot SOWs with no revenue-generating agreements yet in place; material terms for future MaaS agreements (e.g., subscription scope, service levels) will depend on pilot outcomes and are not yet defined. The Company does not have any MaaS service agreements with its customers.
Our first post-pilot MaaS production support is scheduled for deployment in early 2025, followed by full MaaS services in 2025. These services aim to transition pilot customers into full-time operational production. However, there is no assurance that these customers will choose to move beyond pilot testing. Additionally, while we plan to introduce operational platform fees and advanced AI/ML capabilities through AP4 and AP5 development and pilot programs, we have not yet engaged participants for these future pilot programs and have no guarantee of participation or success.
While there has been significant and encouraging interest in our 2025 prospect pipeline, including inquiries from assisted living communities and hospital chains, we do not yet know if any of these organizations will enter into agreements for our services.
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Arrive AI’s MaaS subscription model is designed to accelerate market adoption by reducing upfront costs and operational complexity, making implementation more accessible and affordable for customers. The subscription model eliminates the need for significant capital expenditures by offering a service-based approach where customers pay recurring fees for access to ALM infrastructure, ongoing support, and software updates. This model allows Arrive AI to scale efficiently while expanding and maintaining an increasingly large ALM mailbox network. Beginning in early 2025, we plan to launch MaaS services with pilot customers, transitioning into full production over time. Based on our internal projections and assuming sufficient deployment and utilization rates (a minimum of 200 deployed and actively utilized at three or more deliveries per day), we estimate that in 18 months of operational data collection, by 2026 we will likely have obtained the critical deployments mass and utilization rates needed to improve our initial AI and ML models. These enhanced models are expected to deliver improved customer experiences by optimizing delivery routes, predicting maintenance needs, and generating actionable insights for operational improvements. However, these outcomes depend on meeting deployment scale and utilization targets, and there is no guarantee that such adoption or data accumulation will occur as projected.
On January 24, 2023, we entered into a Design Engineering Services Agreement with HUSH Aerospace, LLC (“HUSH”), engaging HUSH to modify and integrate HUSH 1400X8 drones with our smart receptacles. HUSH agreed to provide two custom drones, integrating our branding, API connectivity, and an ultra-precision landing system. We agreed to pay HUSH an aggregate of $150,000 in exchange for the products and services the latter agreed to provide, payable in three equal installments with the first $50,000 paid for Hush’s work to commence, the second payable when the first drone is delivered and the third payable when the second drone is delivered. This agreement can be either terminated for convenience by either party with 30 days’ written notice, or for cause for the non-defaulting party when the defaulting party fails to timely correct non-performance upon notice. We agreed to pay HUSH for the services the latter provided up through the termination date. A copy of the Design Engineering Services Agreement is filed as Exhibit 10.3.
On October 20, 2021, we entered into a Memorandum of Understanding with Helium Systems Inc. (“Helium”), outlining a commercial partnership to integrate Helium’s LoRaWAN network into our smart receptacles for improved connectivity and monitoring. We agreed to deploy Helium network coverage and sensors in our receptacles, beginning with a pilot deployment in Indianapolis, IN. The agreement provides for ongoing technical collaboration, post-deployment support, and potential expansion to additional locations. Either party may purchase additional services at its discretion. We agreed to pay Helium all data credit fees at a rate of $0.00001 per 24-byte payload. A copy of the Memorandum of Understanding with Helium is filed as Exhibit 10.4.
These agreements align with the Company’s strategic objective of enhancing its smart receptacle ecosystem, expanding network connectivity, and integrating drone-based delivery services. By partnering with Helium for IoT connectivity and HUSH for drone integration, we strengthen our position in the last-mile delivery industry, fostering innovation, operational efficiency, and market expansion.
Intellectual Property
Arrive AI’s innovation leadership began under our former name Dronedek Inc, which secured the first utility patent for smart, secure, climate-controlled drone and robotic package delivery, storage, and pickup.
New and improved technology is needed to support the emerging market for the automated exchange of packages and goods. These exchanges between people, robots, and drones are happening in the autonomous last mile (“ALM”). Our original intellectual property position included four foundational patents by Dan O’Toole which focused on drone deliveries of packages to a smart and secure arrival point. These original patents contained many expansion features, temperature assist, battery exchanges, and various controls which allowed the smart mailbox receptacle devices to receive the data streams and logistics from both residential and commercial customers. Additional development efforts as well as acquisitions extended and expanded the features. The technology extended to multiple sources for the sending and receiving of packages in a safe, secure manner. That effort broadened quickly to include receipt and package exchanges with automated delivery robots and traditional companies with courier driver focused deliveries. These additional business acquisitions and technology developments focused on receiving multiple packages and multiple users. These foundational patents as well as the newly acquired technology consisted of features for tracking packages as well as for collecting data from multiple shipping companies and the commercial and residential customers.
| ○ | US Patent #1 – (DD1) US 9,840,340 Drone Docking Station and Delivery System – 11 claims | |
| ○ | US Patent #2 –(AB1) US10,210,475 Systems, devices, and/or methods for managing drone deliveries – 23 claims | |
| ○ | US Patent #3 – (DD2) US 10,457,421 Drone Docking Station and Delivery System – 21 claim | |
| ○ | US Patent #4 – (AB4)) US 11,556,887 Systems, devices, and/or methods for managing drone deliveries – 17 claims | |
| ○ | US Patent #5 – (DD3) US 11,738,883 Expanding Floor/ Accordion drone docking station – 39 claims | |
| ○ | US Patent #6 – (AB2)) US 11905013 Devices, and/or Methods for Managing Drone Tethering - 7 claims | |
| ○ | US Patent #7 (DD4) (Allowed) Serial No 17233635 - Hot and Cold Section drone docking station Temperature Controlled Device -20 claims including CIP | |
| ○ | US Patent #8 (AB4) (Allowed) Serial No 18/078,985 - Systems, Devices, and/or Methods for Managing Drone Deliveries – 12 claims without CIP | |
| ○ | With 2 more (DD5, DD6) US patents pending – 20 more claims | |
| US Claims are 170 to date from the issued, allowed and pending ten US patents. |
Additional international patent applications (48 filed) and extensions, based on these patents, are pending in 21 countries and the EU. Six (6) National/non-US Patents have been issued (based on US Patents 2, 4, and 5) and 42 are pending.
Patent portfolio was strengthened December 18, 2023, with the acquisition of AirBox Technologies ($1.15M all-stock transaction), adding Patents 2, 4, 6, and 8.
Continued Progress on the Arrive AI Product Roadmap
In 2024, while continuing to conduct unpaid pilots, we secured our first commercial contract with a specialty pharmaceutical delivery company on the East Coast. This customer has agreed to both utilize our third-generation Access Points (AP3) in their operations and act as a Value-Added Reseller (VAR) for the AP3 to their customers. Initial units were delivered in Q4-2024. Production MaaS support is anticipated to commence in early -2025, followed by recurring MaaS revenue in the first half of 2025. The terms of this agreement are confidential and not available for public disclosure. However, they define the nature of the customer’s operations, specify the work to be performed by both parties (SOW), and outline where our services will be used. They also detail the services Arrive AI must provide and establish initial pricing. All terms are subject to change as both parties gain insight into the actual economics, benefits, and sustainability of this initial engagement. We anticipate renegotiation in 2026, and the customer may cancel the existing or any renegotiated agreement at any time.
Our 2025 prospect pipeline includes assisted living communities and hospital chains that have expressed interest in implementing AP3 to support courier, drone, and robotic delivery systems. Arrive AI does not know if any of the assisted living communities and hospital chains that expressed interest will enter into agreements with us for our services.
These opportunities are pending contracts and subject to demonstration pilots, analysis, and drone regulatory approval, with initial phases expected to complete in 2025. If drone regulatory approval is delayed, implementations can proceed at a modified pace using courier and robotic delivery systems while awaiting FAA approval.
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AP development progression and roadmap
| ○ | AP1 and AP2: Initial mailboxes / Access Points utilized for customer learning and pilot programs, including successful pilot in Lawrence, Indiana in 2022 with the USPS and local DoorDash and Uber Eats operations. | |
| ○ | AP3: has completed manufacturing and design enhancements and was deployed in December of 2024 with an East Coast Specialty Pharma logistics company under a signed SOW. Production support of their MaaS is scheduled for 2025. Their MaaS recurring revenue is anticipated to begin in the first half of 2025. Customer VAR (Value Added Resales) by this same company is also planned to begin in first half of 2025 which will increase Arrive AI MaaS recurring revenue in the second half of 2025. The terms of this agreement are confidential and not available for public disclosure. However, they define the nature of the customer’s pilot operations, specify the pilot work to be performed by both parties (SOW), and outline where our services will be used. They also detail the services Arrive AI must provide and establish initial pricing. All terms are subject to change as both parties gain insight into the actual economics, benefits, and sustainability of this initial engagement. We anticipate renegotiation in 2026, and the customer may cancel the existing or any renegotiated agreement at any time. | |
| ○ | AP4: is currently under development for a F500 logistics company. Development demonstrations have been completed as part of phase-1 development and phase-2 is expected to begin in Q2-2025. Deployment for a Florida Assisted Living Community is being discussed with customer for 2025. AP4 capabilities continue to expand our target feature set, for example it supports many delivery customers in one system, can support reverse logistics and pickup, and has AI-based Chat interfaces using third-party LLM and Agnetic foundation models to construct our ALM-specific code and intelligent interactions. No resale to deployment agreements or contracts have been executed to-date but are in discussion for 2025. The terms for phase-2 have yet to be established. The customer may cancel the existing or any renegotiated agreement at any time. We anticipate that the phase-2 terms, if and when they are established, will include the nature of the customer’s pilot operations, specify the work to be performed by both parties (SOW), and outline where our services will be used in pilot project. They also detail the services Arrive AI must provide and they establish initial pricing. All terms are subject to change as both parties gain insight into the actual economics, benefits, and sustainability of this initial engagement. | |
| ○ | AP5: development anticipated to start in 2025 and will introduce our “universal” solution supporting all drone and robotic delivery operations that require additional ML and AI-based models and processing capabilities to accomplish. We have no customers engaged or asking for these “universal” capabilities at this time but our management team believes they will be industry-leading and highly desirable in the future. | |
| ○ | All development schedules are naturally subject to change and all Access Point, software, and AI/ML development carries technology development risk and unpredictability that may result in delays or even failure to achieve results and goals. |
AI and ML Plans and Capabilities
Arrive AI aspires to establish product-market fit with AP5 and, at that point, anticipates being able to meet the needs of a large group of customers, consistent with projections such as those described in ARK Invest’s Annual Innovation Report in the Autonomous Logistics section. Achieving this milestone depends on Arrive AI developing a product that is easy to use, competitively priced, and supported by strong marketing and sales strategies. Only after establishing product-market fit will Arrive AI pursue the next steps of scaling its business, data collection, and services, with a goal of achieving sustainable revenue and growth by 2027. There is no guarantee that Arrive AI will successfully achieve these objectives or that market adoption will occur as planned.
Arrive AI aspires to scale its operations in a way that produces unique datasets that could potentially serve as the foundation for future monetization through Machine Learning (ML) and Artificial Intelligence (AI). This goal is aspirational and dependent on achieving operational scale and adoption, which are not guaranteed. The platform envisions employing several ML applications, including classification, prediction, interpretation, and generation, to create value, enhance delivery performance, and increase revenue potential. These outcomes rely on sufficient deployment and utilization of ALM Access Points to collect the data necessary to train and refine these models.
Hybrid Development Approach and Proprietary Software
Arrive AI employs a hybrid development approach to create AI and ML capabilities. This approach leverages foundational third-party models from NVIDIA, Google, Azure, OpenAI, and AWS, along with open-source software like LAMA. At this time, none of Arrive AI’s software is proprietary, though the company intends to develop proprietary ML and AI models specifically tailored to its unique data sets as operational data volumes increase. These efforts depend on collecting transactional, logistical, and locational data through AP deployments. For example, Arrive AI has demonstrated AI-based delivery chat capabilities for AP4 by using third-party foundational models. Further ML and AI development will occur during AP5’s evolution, contingent on achieving a critical mass of operational data.
We estimate an 18-month operational data collection timeframe will be required to reach critical mass for effective ML/AI training and improvements. Current estimates assume deployment of at least 200 actively utilized ALM Access Points, with a utilization rate exceeding 3 deliveries per day. Without achieving these deployment and utilization targets, critical mass may be delayed or unattainable. While machine learning and AI are expected to enhance operational efficiencies, Arrive AI also aims to leverage these technologies to generate additional revenue streams. For example, AI-enabled dynamic pricing, predictive maintenance, and tailored customer services are envisioned as revenue-generating applications within the ALM ecosystem.
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Machine Learning and AI Applications in Delivery, Pickup, Users, Environment, and Autonomous Logistics
Arrive AI plans to employ ML and AI algorithms across five key areas, but these plans are contingent on scaling operations and collecting sufficient data, which are not guaranteed. Below are examples of the data points and intended applications for each category, as well as associated risks:
1. Delivery
| ● | Data Collected: Package dimensions, delivery times, and customer identifiers. | |
| ● | Planned Use: Classification algorithms could optimize package placement in ALM mailboxes, while prediction models could anticipate delivery times to pre-emptively unlock mailboxes and reduce theft. | |
| ● | Associated Risks: Errors in predictions or classifications may result in misplaced deliveries, theft, or customer dissatisfaction. |
2. Pickup
| ● | Data Collected: Package return types (e.g., resell, refurbish, recycle) and pickup schedules. | |
| ● | Planned Use: Algorithms could classify return packages into categories to optimize reverse logistics. Prediction models could anticipate return pickups to improve mailbox space management. | |
| ● | Associated Risks: Misclassification or delayed pickups could disrupt reverse logistics networks or create customer dissatisfaction. |
3. Users
| ● | Data Collected: Usage frequency, delivery preferences, and transaction histories. | |
| ● | Planned Use: Classification algorithms could group users into categories (e.g., frequent vs. occasional users) to personalize services and optimize delivery schedules. | |
| ● | Associated Risks: Misuse or breaches of sensitive user data may create privacy or regulatory challenges. |
4. Environment
| ● | Data Collected: Weather conditions, temperature, and sensor readings from ALM mailboxes. | |
| ● | Planned Use: Environmental data could optimize delivery schedules or alert users to potential risks (e.g., extreme temperatures damaging packages). | |
| ● | Associated Risks: Inaccurate environmental data could result in delivery delays or damaged packages. |
5. Autonomous Logistics
| ● | Data Collected: Route conditions, mailbox availability, and vehicle telemetry. | |
| ● | Planned Use: Algorithms could generate new routes based on environmental conditions, user behavior, and mailbox availability to improve delivery efficiency. | |
| ● | Associated Risks: Poorly generated routes could lead to inefficiencies or increased costs. |
These are just a few examples of how Arrive AI envisions utilizing AI and ML to enhance its ALM platform and Arrive Points. As we expand our installed ALM AP Network footprint and foundational AI models become more sophisticated, we anticipate identifying additional innovative applications of these technologies. While these advancements have the potential to accelerate growth and revenue generation, achieving these outcomes will depend on successful deployment, sufficient operational data collection, and continued technological progress.
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Competitive Positioning and Market Strategy
Arrive differentiates itself in the emerging ALM market through:
1. First-mover advantage with comprehensive IP portfolio specified elsewhere herein.
2. Purpose-built solutions for autonomous robot and drone delivery integration
3. Comprehensive MaaS offering versus other smart mailbox and locker solutions that uniquely supports automation providers and networks
4. Strategic focus on converting and consolidating potential competitors into partners through our technology leadership
We recognize emerging competition from:
- Smart locker box and mailbox companies are also adapting to ALM trends and may pursue similar capabilities or business as Arrive AI
- Automation providers, like drone and robotic companies and/or operators, are now also developing point solutions for last-mile delivery handoffs and may pursue similar capabilities or business as Arrive AI
Our strategy leverages our intellectual property and technological advantages developed in AP1, AP2, AP3, AP4 and soon to be AP5, to position Arrive AI’s ALM MaaS solutions as the industry standard, anticipating that proprietary point-solutions will transition towards our broader, full-featured, universal ALM network/platform because of cost, interoperability, and customer demand for universal vs. proprietary solution lock-in.
This business foundation, combined with our strategic product rollout and strong intellectual property portfolio, positions Arrive AI to lead the transformation of ALM infrastructure and the formation of an ALM platform for the emerging ALM ecosystem, in the era that will most certainly be transformed by last-mile autonomous logistics as projected by organizations like ARK Invest in their Annual Innovation Report in the Autonomous Logistics sections.
Arrive AI expects to have three primary revenue streams
| 1. | Mailbox-as-a-service (MaaS) provides our ALM Access Points or ALM mailboxes to both businesses and consumers through a single, monthly subscription fee. This turnkey service includes hardware, software, support, maintenance, installation/uninstallation, and financing for long-term field assets. Our flexible payment structure accommodates various business models in the evolving ALM Industry. In Q4 of 2024 we installed AP3 units (third generation Arrive Points) for which we will provide MaaS in 2025. Arrive AI has a confidential agreement and pricing in place to provide these services for compensation, with an East-Coast Specialty Pharm company. The terms and pricing are confidential and preliminary terms, intended for both parties to learn from the pilot project how effective the terms are in providing sustainable benefits and economics over the course of the first year of operations. Once Arrive AI and the customer have operationalized and learned from these initial services, both parties plan to renegotiate terms and pricing in 2026 to produce new terms that are sustainable and can be disclosed to other customers and the public. | |
| 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 AP4 and AP5 Access Points devices 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. | |
| c. | After 12-18 months of delivering MaaS, Arrive AI should have collected sufficient data to begin to better leverage a growing dataset with AI and ML models for enhanced services and insights for customers and partners. – Note that to meet our data accumulation goals and maximize the effectiveness of our proprietary ALM models, a minimum of 5,000 deployed and actively utilized ALM Access Points will be necessary to generate sufficient data over 12-18 months of operations. If fewer units are deployed or the average utilization rate per unit falls below 50%, the rate of data accumulation will slow, delaying both the expected timeframe for likely AI improvements and the monetization of the resulting insights. These metrics—deployment scale and utilization rate—are critical to achieving the desired scale for AI/ML optimization and network-wide operational improvements. |
| 3. | Operational platform fees. Our network of ALM Access Points, the supporting software and AI plus ML, collectively create an ALM 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. The 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 capabilities enable ALM automation operators, businesses, and end-customers all to make better value- and data-based operational decisions, such as for a specific Access Point prioritizing time-sensitive food deliveries during peak demand versus optimizing route efficiency for a deferrable delivery at a given time like during the Super Bowl. Another example of ALM platform functionality is our planned mailbox financing exchange (MFE) facilitates dynamic cost-sharing arrangements between financiers, business partners, automation operators, and end-customers. These advanced capabilities will be introduced through our AP5 development and pilot program and will be demonstrated in 2025 at the earliest. At this time we have not engaged any customers or third-parties to participate in, or utilize, these advanced capabilities that have yet to be introduced. |
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Since inception, we have operated at a loss, with no revenue in 2024 or 2023. Our net losses were $4,537,901 and $7,321,134 for the years ended December 31, 2024, and 2023, respectively.
Key milestones for achieving revenue for sustainable operations include:
| ○ | Initial AP3 units were delivered in Q4-2024. | |
| ○ | Implementation of contracted use cases in Specialty Pharma and Assisted Living communities in 2025, with potential expansion to hospital environments; no agreements have been executed as of the date of this prospectus. The engagement is underway and the terms of this agreement are confidential and not available for public disclosure. However, they define the nature of the customer’s pilot operations, specify the work to be performed by both parties (SOW), and outline where our services will be used. They also detail the services Arrive AI must provide and establish initial pricing. All terms are subject to change as both parties gain insight into the actual economics, benefits, and sustainability of the initial pilot engagement. We anticipate renegotiation in 2026, and the customer may cancel the existing or any renegotiated agreement at any time. | |
| ○ | Completion of AP4, is currently in development and the first phase of demonstration has been completed with a prospective Fortune 500 logistics customer, featuring reverse logistics, and domain-specific AI-Chat capabilities in 2025. The second phase of this development has yet to be agreed to by the customer, The terms for phase-2 have yet to be established. We anticipate that the phase-2 terms, if and when they are established, will include the nature of the customer’s pilot operations, specify the work to be performed by both parties (SOW), and outline where our services will be used, which we anticipate to be a large Assisted Living Community. The terms will also detail the services Arrive AI must provide and they establish initial pricing. All terms are subject to change as both parties gain insight into the actual economics, benefits, and sustainability of this initial pilot engagement. The customer may cancel the engagement and terms at any time. | |
| ○ | Development of AP5, our comprehensive “universal” solution supporting all drone and robotic delivery operations, with development starting no sooner than 2025. At this time we have not engaged any customers or third-parties to participate in, or utilize, these advanced capabilities that have yet to be introduced. |
Our path to profitability relies on achieving product-market fit, for the growing number of ALM automation operators and the businesses seeking to use ALM automation for delivery savings and improved customer experience. We will be able to meet their needs after the successful development and deployment of AP3, AP4, and AP5 (our 3rd, 4th, and 5th generation of ALM Access Points), which will provide universal support for all autonomous delivery systems. Once AP5 is achieved, we can pursue broader market adoption beyond pilot programs to generate scalable and sustainable revenue growth. While we believe in our development plans, and are optimistic that we can continue to achieve them, there is no guarantee that we will achieve product market fit or be successful in our commercialization, development, or planning.
On December 5, 2023, the Company acquired certain assets of AirBox Technologies (“AirBox”), in an all-stock transaction. In addition to certain tangible assets, the acquisition includes AirBox’s patent portfolio, which Arrive believes will broaden the capabilities of its high-tech mailbox system designed for autonomous and conventional package delivery. In addition to acquiring the above mentioned assets, AirBox’s CEO Brandon Pargoe has joined the Arrive team in the role of Vice President of Product Operations, as an independent contractor. In consideration for the asset purchase, the Company issued 94,573 shares at a price of $11.08 per share, which was determined based on the average price per stock of $11.08 issued to investors for cash in 2023 (after giving effect to the Reverse Stock Split retrospectively for all periods presented).
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Growth Strategies
ALM mailboxes for the automated and frictionless exchange of packages and goods between people, robots, and drones are a promising new emerging market and category of technology, validated by customer interest and new competition. To obtain sustainable advantageous growth Arrive is employing proven strategies, platform thinking, and playbooks for bringing new technologies to market.
Early Market Progress
Arrive believes an initial focus on medical operations, first on medical campuses and later growing to their extended networks for doctors, clinics, pharmacies and more, will provide a successful and profitable growth path towards more ubiquitous availability of automated delivery and pickup. Market progress:
| ● | First demonstration of a multi-Smart-Mailbox AP2 deployment and delivery use in partnership with USPS in Lawrence, Indiana 2022 |
| ● | Arrive AI currently has SOWs with: |
| (a) | A F500 logistics company for delivery in 2025 | |
| (b) | A Sunbelt innovation campus | |
| (c) | An East Coast Specialty Pharma logistics company for delivery in Q4-2024 and MaaS to begin early 2025 |
| ● | Three prospective Mid-west hospital chains awaiting further analysis and investigating drone flight approvals | |
| ● | The first post-pilot MaaS production support for customers is anticipated for early 2025, which will customers to move to full-time operational production and will support MaaS recurring revenue generation for Arrive AI. | |
| ● | All active partners and customers have executed non-disclosure agreements (NDAs). |
By focusing initially on the delivery and pickup of lab samples, medicine and supplies on medical campuses and then reaching out to their local networks of medical business partners, Arrive can build the requisite foundation and ROI for then further spreading ALM mailboxes into communities and other use cases for automated delivery like food, goods, and services.
Arrive AI plans to recruit and partner with strategic leaders in the automated delivery of food, goods, and services by demonstrating the advanced universal AP5 to them in 2026. Currently, we have active customer development and pilot agreements with businesses in the logistics and healthcare sectors, where we are deploying AP3 or collaborating on the design of AP4 with these customers. However, specific customer names cannot be disclosed due to signed confidentiality agreements. Large automation companies like Google Wing, Zipline, Serve Robotics, and Starship Robotics, as well as large retailers and delivery services such as Walmart, DoorDash, and Uber Eats, are independently investing in automated operations and ALM-based business models. These companies are conducting their own pilots in locations such as Dallas, San Francisco, Los Angeles, and Research Triangle Park. While we aim to recruit similar partners and participate in larger pilots, we wish to clarify that Arrive AI and its operations are not affiliated with these companies or their pilots, and there is no guarantee that any affiliation or partnership will occur in the future. Like Arrive AI, these companies are working to systematically build the operations and business cases necessary to deliver the ALM customer experience and capture the projected cost savings of up to 5X for robots and 20X for drones, as highlighted in ARK Invest’s Annual Innovation Report, Autonomous Logistics section. Our current strategy is to focus on automation pilots in critical and high-margin medical logistics (our current pilots) before expanding into larger, lower-margin autonomous automation markets with similar strategic partners. We believe this approach will maximize ROI and accelerate our speed to market.
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Begin with a Beachhead
The order of growth for Arrive AI’s go-to-market and ROI starts with a beachhead in medical operations and large assisted living communities. With other automation providers like MatterNet and Aethon succeeding in establishing customers in hospitals, and with Arrive AI having three prospective Mid-west hospital chains, and one large assisted living community as active prospects, we continue to believe these areas remain one of our primary paths to market. We currently have no signed agreements with these prospects.
Establishing a beachhead is a proven strategy, first described in Geoffrey Moore’s Crossing the Chasm, to approach early markets by focusing on niche markets that can be well-served before expanding to adjacent ones. Arrive AI has begun its go-to-market strategy by targeting the ALM needs of two synergistic markets: medical operations and large assisted living communities. While no agreements have been executed yet, we are currently engaged in multiple active discussions regarding technology development partnerships with organizations in these sectors. These discussions cover terms related to joint development timelines, pilot program goals, and technology integration milestones. Although we anticipate finalizing at least two of these partnerships in 2025, there is no guarantee that any agreements will be successfully executed. The number of partnerships and their outcomes will depend on ongoing negotiations and mutual alignment on operational and business goals.
Medical Operations
Arrive AI defines medical operations as hospitals, medical campuses, and laboratories with associated networks of doctors and clinics. We continue to market and interact with hospitals, medical campuses, and laboratories to prove the value and ROI of better patient outcomes and operational efficiencies by employing Arrive AI’s ALM Access Points across a portfolio of valuable use cases:
| (a) | Weekend, off-hour, and holiday lab sample deliveries and pickups when staffing is much lower. This begins with immediate improvements in the time-sensitive receiving, notification, and routing of courier lab sample deliveries, which will be improved with automated drone delivery and robotic pickup. | |
| (b) | For hospitals and labs that are already navigating the use of robots and drones, our APs can make exchanging supplies, medicine and samples between buildings and across campuses more timely, secure, and controlled - eliminating the friction of handoffs and optimizing the utilization/ROI of personnel, robots, and drones as a smart cross-dock and Access Point. | |
| (c) | Lab samples may require rare or costly tests, and surgeries may require specific or rare medical kits that are difficult to maintain an inventory for at every location. ALM mailboxes can serve as an external, dynamic, just-in-time (“JIT”) supply closet to maximize the ROI on rare inventory while supporting better availability and outcomes. | |
| (d) | Leading medical operations are at the cutting edge of formulating custom JIT treatment protocols that can require couriering specialty custom medicines between multiple facilities. Arrive AI’s ALM Access Points can provide a foundational network for optimizing courier and utilization for more reliable inventory and drug movement/re-positioning. | |
| (e) | Similarly, prescription, biologics, and sample delivery networks that extend beyond the medical campus to networks of doctors and clinics can benefit from improved cycle times, notifications, climate control, security, and chain-of-custody capabilities of our ALM mailboxes. |
As previously mentioned, Arrive AI has three hospital networks in discussion as active prospects for 2025. No agreements have been executed at this time.
Large Assisted Living Communities
Second, Arrive is simultaneously targeting large, assisted living communities (“LALCs”), where there is already a history of consolidating mail, package, prescription, and food delivery for a large dependent community. For LALCs Arrive can help introduce and improve the smart, secure, and seamless automated exchange of packages, goods, supplies, food, and medicine between people, robots, and drones. By placing banks of Arrive’s ALM mailboxes beside existing walls/banks of US Postal Mailbox Arrive can expedite courier deliveries and residence convenience as a foundation, followed by automated drone and robotic deliveries and ultimately robotic pickup and delivery to residence front doors. Logistics services, whether leveraging automation or not, prefer delivering to a few locations that have banks of ALM mailboxes which are convenient for residents and will ultimately support automated transfers to their front doors if desired. No agreements have been executed at this time.
Emerging Retail Growth
Third, Arrive AI continues progress planned capabilities development with AP5 in 2025, aimed at drone delivery pioneers like Walmart, and drone network providers like Wing, Zipline, and DroneUp, who are all laying the groundwork for residential and retail delivery networks in Dallas and other parts of the US. As Arrive builds its MaaS network and digital platform, we aim to empower these direct-to-consumer initiatives by providing secure autonomous pickup and delivery points, further enhancing their efficiency and effectiveness. We view this expansion as a natural extension of our existing medical operations and ecosystem, leveraging our strong presence in these communities. No agreements have been executed at this time.
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Platform Design
Arrive is also employing platform thinking and strategies in its product and market relationships. What does Arrive AI mean by a platform? At the highest level, a platform is a group of technologies, data, processes, standards, licensing, and business operations/rules that are developed as a collective system and foundation upon which an ecosystem of stakeholders, comprised of businesses, consumers, and investors, can interoperate a share in the profits and benefits of collectively serving a market better than they can do alone or by narrow vertical integrations. It provides a market- driven foundation for multiple, interdependent, stakeholders to collectively supply and consume value more efficiently - like an ecosystem - for a given market opportunity. An example is Apple’s iPhone, app store, chips, operating system, and developer resources together form a platform for multiple independent developers, consumers, suppliers, accessory makers, and others to serve Apple’s iPhone customer/community base. Similarly, Arrive AI’s Mailbox-as-a- Service creates a common foundation for many independent businesses, carriers, automation operators, technology providers to partner in deploy ALM solutions, services, and business models for an evolving set of end-customer needs as a collective ALM ecosystem.
| 1. | Arrive AI’s automated delivery marketplace (“ADM”) software planned for AP5, provides platform services to multiple partners and automation operators for scheduling arrival and departure times at Arrive AI’s mailboxes (and other locker boxes), optimizing space/inventory utilization of each mailbox, and delivers important real-time location and transaction data and smart notifications, like weather, restrictions, mailbox status, package statuses, and observable automation obstructions upon which Arrive aI’s customers rely. Allowing Arrive AI’s partners to inter-operate in environments with other providers, and to make real-time value-based trade-offs like placing a premium on the ability to deliver food during a major sports event or at dinner time, versus the ability of a carrier to schedule and guarantee delivery at multiple mailboxes on a specific route at a specific time for operational efficiency and margin. |
| 2. | Arrive AI’s mailbox financing exchange (“MFE”) software, also part of AP5 development, will enable partner financiers, businesses, and automation operators to dynamically share and sponsor the cost of Mailbox-as-a-Service between themselves and for end-customers. For example, if a consumer is a loyal Walmart customer, uses DoorDash regularly, and orders prescription deliveries from CVS, these three partners could easily recognize and split the monthly tab for MaaS together for this important customer’s ALM mailbox to further their loyalty, sales, and usage. |
While we believe in our development plans and are optimistic that we can continue to achieve them, there is no guarantee that we will achieve product market fit or be successful in our commercialization, development, or planning.
Mechanics of Arrive’s Go-to-market
Since Arrive AI expects to bring a complex mix of hardware, software, and machine learning to market within Arrive AI’s ALM Platform and MaaS aimed at larger medical and assisted living operations and enterprises, our initial go-to-market is modeled after a typical enterprise SaaS sales motion. Arrive will be reliant on a direct consultative sales model in the early market for which marketing activities will provide leads. Arrive will lean heavily on meeting medical and ALM leaders where they congregate like industry trade shows and on providing valuable research and content on how to use our ALM technologies and offerings for target ALM automation operators and customers.
Arrive AI expects to work closely with drone and robotic technology providers and automation operators/networks to coordinate utilizing our MaaS turnkey solution to Arrive AI’s medical operations and assisted living target markets.
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Competitive Strengths
There are many smart locker box and mailbox companies, and ALM automation operators (drone and robotic) that are increasingly looking to support ALM goods exchanges in the marketplace. Arrive AI strategically differentiates from them with:
| a) | Management currently believes we have the potential to lead the market in IP and pioneering development of the first ALM mailboxes for automated delivery and pickup with advanced capabilities to reduce the friction of exchanges between people, robots, and drones, but there can be no assurance that we will be able to achieve these objectives. | |
| b) | Being approved as a certified US Mailbox (application formally submitted September 15, 2023), which will allow for uniquely advantageous service, deployment, and a secure treatment for Arrive AI’s customers. As of the date hereof, the certified US Mailbox application is currently pending. | |
| c) | Providing an integrated platform of hardware, software, services, and financing, all delivered as an easy-to-use and procure ALM mailbox. | |
| d) | ALM Access Points designed as a modular and extensible product system to allow for flexibility and re/configuration, quick maintenance, and better support - all to lower the cost of ownership, innovation, and learning by Arrive AI’s customers and partners as they rapidly evolve their business models, experiments, requirements, and technologies to better serve their markets and customers. |
In many cases we can partner with these competitors to supply them with the last inch of the last mile to make their ALM businesses more successful.
Industry Overview and Opportunity
US Market Overview
Arrive AI’s end goal and target market is to work with automation technology providers and operators who need to serve businesses needing to deliver automated last-mile logistics, consumers services, and advanced business operations to their business and consumer end-customers.
Arrive AI’s market opportunity lies in developing a smart Mobility-as-a-Service (MaaS) platform that aims to serve as shared infrastructure for the Autonomous Logistics Market (ALM). According to ARK Invest’s ANNUAL Innovation Reports, this market has significant potential, with access to over 165 million U.S. business and residential addresses. While we currently have no U.S. addresses in our portfolio, our smart MaaS platform is scheduled to deploy in December 2024 or early 2025, positioning us to begin serving as core infrastructure for the broader ALM ecosystem.
Arrive AI’s management estimates that capturing just 1% of these addresses (1.65 million) could generate approximately $3.5 billion in annual recurring revenue across our three planned revenue streams: MaaS subscriptions, data and AI monetization, and operational platform fees. Our business model, though currently untested in the market, anticipates annual recurring revenue rates of approximately $360 for residential and $3,600 for commercial MaaS subscriptions. We project that capturing 1% of the market could generate annual MaaS subscription revenue of approximately $1.1 billion by year 10. The remaining $2.4 billion in projected annual revenue would come from data and AI monetization services, including the ADM (automated delivery marketplace), MFE (mailbox finance exchange), reverse logistics arbitrage, and generating unique sales, marketing, and growth insights for our partners and customers. Over the next two years, as part of AP4 and AP5 development, we will be testing and refining these pricing models to support revenue at the scale previously mentioned. These projections are based on Arrive AI management’s internal business forecast models and have not yet been tested in the market.
The following data points support Arrive AI’s large market potential. These figures are based on management’s projections as of December 2023 and may not reflect the actual revenue potential upon the commencement of the Company’s business operations. Management’s projections are based on assumptions including anticipated growth trends in automation and delivery technology, current market reports, and the evolving regulatory landscape. However, these projections are subject to limitations, including potential delays in technology development, market adoption, and unforeseen regulatory or competitive challenges.
| 1. | According to a report by Grand View Research, the U.S. healthcare robotics market size was valued at $2.6 billion in 2020 and is expected to grow at a compound annual growth rate (“CAGR”) of 27.2% from 2021 to 2028. Hospital delivery is one of the potential applications of healthcare robotics, and it is likely to be a significant segment of the overall market. | |
| 2. | According to a report by Research And Markets, the delivery drone market in the United States was valued at $40.7 million in 2020 and is expected to grow at a CAGR of 58.9% from 2021 to 2028. | |
| 3. | According to McKinsey, drone deliveries, by some of our potential automation partners, have reached impressive levels: |
| ● | Zipline: Over 500,000 drone deliveries and more than 37 million miles. | |
| ● | Wing: Over 300,000 drone deliveries in Australia, Finland, and the United States. | |
| ● | Walmart with DroneUp: 6,000 drone deliveries (also with Zipline and Flytrex) in 2022, operating across 36 sites, with a goal of reaching 1,000,000 deliveries annually. | |
| ● | Manna Drone Delivery: Over 100,000 drone deliveries in Ireland, with plans to expand to Europe and the United States. | |
| ● | Flytrex: Expanding its service radius to reach 100,000 eligible customers. | |
| ● | Matternet: Achieved a type certificate and production certification, paving the way for cost-effective drone delivery operations. |
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Regulatory Background
The Postal Reorganization Act of 1970 created the U.S. Postal Service as an independent establishment of the executive branch of the federal government. The Postal Accountability and Enhancement Act of 2006 amended the 1970 Act to give the re-named Postal Regulatory Commission revised oversight authority over many aspects of the U.S. Postal Service, including postal rates, product offerings and service standards. Once we begin our scaled operation and supply the market with Arrive’s ALM Mailboxes, a significant portion of our business will be subject to regulation and oversight by the USPS, posts in other major markets, and the governmental bodies that regulate the postal services themselves. These postal authorities have the power to regulate some of our current products and services and they sometimes also must approve many of our new or future product and service offerings before we can bring them to market. If new or future product and service offerings are not approved or there are significant conditions to approval, regulations on existing products or services are changed, posts utilize their position in the market or their role as product regulator to limit competition in areas where the posts themselves offer solutions, or if we fall out of compliance with the posts’ regulations, our financial performance could be adversely affected.
There has recently been heightened regulatory and enforcement focus relating to the collection, use, retention, transfer, and processing of personal data in the U.S. (at both the state and federal level), including the California Privacy Rights Act, the Virginia Consumer Data Protection Act, and other similar laws that have been or will be enacted by other jurisdictions. In addition, in the U.S., there has been increased legislative and regulatory activity related to artificial intelligence and the risks and challenges artificial intelligence poses, including the current U.S. presidential administration’s executive order to, among other things, establish artificial intelligence safety and security. An actual or alleged failure to comply with applicable U.S. or foreign data protection laws, regulations, or other data protection standards may expose us to litigation (including, in some instances, class action litigation), fines, sanctions, or other penalties, which could harm our reputation and adversely affect our business, results of operations, and financial condition. This regulatory environment is increasingly challenging, based on discretionary factors, and difficult to predict. Consequently, compliance with all applicable regulations in the various jurisdictions in which we do business may present material obligations and risks to our business, including significantly expanded compliance burdens, costs, and enforcement risks; require us to make extensive system or operational changes; or adversely affect the cost or attractiveness of the services we offer. All of these evolving compliance and operational requirements, as well as the uncertain interpretation and enforcement of laws, impose significant costs and regulatory risks that are likely to increase over time. Developing privacy legislation within the U.S. may also create limitations or added requirements on the use and collection of personal data that our ML/AI models will be built for.
The adoption of drones and autonomous robots for delivery has been gaining momentum in recent years due to the potential for increased efficiency, speed, and cost savings. However, the pace of adoption has been hindered by a variety of legal and regulatory barriers, including the Federal Aviation Administration’s (“FAA”) Beyond Visual Line of Sight (“BVLOS”) requirements. These regulations require operators to demonstrate that their drones can fly beyond the visual line of sight of the pilot or observer and still maintain safe operation. Meeting these requirements has been a significant challenge for many companies seeking to use drones for delivery and has slowed down the pace of adoption. Despite these challenges, many companies are investing heavily in developing and testing delivery drones and robots that can meet the FAA’s BVLOS requirements. As such, Arrive can expect continued progress in the adoption of drones and autonomous robots for delivery, albeit with careful consideration of legal and ethical implications, including compliance with BVLOS requirements.
Also, in our early market focus involving placing our products and providing services to medical facilities, we must also comply with the HIPAA if we handle PHI in the course of our commercial business operations. Please see “Risk Factors—Risks Related to our Business and Future Commercial Operations – Regulations and Compliance—We will be subject to rapidly changing and increasingly stringent laws, regulations, industry standards, and other obligations relating to privacy, data protection, and data security. The restrictions and costs imposed by these requirements, or our actual or perceived failure to comply with them, could harm our business and commercial operations” for detailed discussion. Despite the need to comply with HIPAA, we are only a provider of intelligent mailboxes and do not and will not manufacture, sell or transport medical or biological products or prescriptions, we are not and will not be subject to any regulations in those areas, for example, the Federal Food, Drug, and Cosmetic Act of 1938 and the Medical Device Amendments of 1976.
Regulations Related to the Transportation of Pharmaceutical and Biomedical Products
Even though we do not and will not manufacture, sell or transport medical or biological products or prescriptions, there are several regulations related to the transportation of pharmaceutical and biomedical products and our potential third party service providers may be subject to such regulations, described further below.
Title 21 of the Code of Federal Regulations (CFR) regulates the shipping, warehousing, distribution, and record keeping of pharmaceuticals. Because of the sensitive nature of some pharmaceutical products, there are many federal, state, and local laws that dictate how to package and transport the items. There are also several different federal agencies with oversight, including the Food and Drug Administration (FDA), the FDA’s role is to protect the public’s health by ensuring that the items to be consumed are safe. Prescription drugs and medical devices undergo rigorous screening and testing to ensure they work as the manufacturer claims. Within the context of pharmaceuticals, this means information on the approved temperature range for shipping, warehousing, and distribution. In addition to the FDA’s temperature control requirements, there are other requirements which include hygiene, security, and recordkeeping. The packaging procedures of manufacturers and the transportation third parties must ensure compliance with FDA’s temperature control requirements. When transporting products that require temperatures outside the normal bounds, it usually requires a particular type of vehicle or trailer. These vans and trucks are modified to allow temperature control while traveling. This helps ensure the products stay within the safe temperature range. The modifications to the trailers and vehicles often include improved gaskets, seals, and partitions that allow the transport of products in different temperature zones. The FDA also sets state licensing laws for pharmaceutical companies.
The most relevant of the FDA requirements is the cold supply chain, which is crucial to many different industries. If products go outside of their safe temperature range, it can lead to ineffective medications, vaccines, or devices. This is what makes compliance so crucial in the medical community. For most products, storage and transportation are easy so long as the temperature range remains between 55- and 77-degrees Fahrenheit, but once outside of that comfortable range, things start to become more challenging. Within the cold supply chain, there are four different steps. The first stage is where the supply is from, such as the factory or plant. The second step is the transportation stage. This stage can occur multiple times and is when the medical devices or medication are on the transport vehicle. The third step, storage, is whenever the product is in a cold storage location before arriving at its final destination. This step also has the possibility of happening more than once. The last step is arrival at the market when the products reach the buyers. This is the stage where the items remain before being sold or administered. Our Company will not guarantee the temperature of any of these items as this is a requirement applicable to manufacturer’s and transportation third parties in connection with their packaging procedures.
Transportation, when transporting products that require temperatures outside the normal bounds, it usually requires a particular type of vehicle or trailer. These vans and trucks are modified to allow temperature control while traveling. This helps ensure the products stay within the safe temperature range. The modifications to the trailers and vehicles often include improved gaskets and seals. Some even have partitions that allow the transport of products in different temperature zones.
Storage, similar to vehicles, for storage purposes, one must ensure the warehouses will remain compliant with the temperature requirements. Some warehouses have a backup generator in the event of a power loss. This will make sure that temperature-sensitive products aren’t lost or damaged. Security, another critical aspect of FDA regulation, is the requirement for who can be around the products while in transit. There are rules about who can and is allowed in proximity to pharmaceuticals. Hygiene, like in restaurants, the FDA is responsible for overseeing the storage conditions of products. Anywhere that the pharmaceuticals are stored must provide adequate cleaning, proper ventilation, and safe storage practices to ensure nothing happens to the products. Recordkeeping, there is a requirement for accurate recordkeeping, which is a requirement for anybody following the FDA-approved pharmaceutical shipping regulations. This work is crucial for products to arrive protected. Being able to provide this documentation also ensures the responsible party pays the cost of any non-compliance problems, including any fines or replacements.
Department of Transportation (DOT), several scenarios may include the involvement of the Department of Transportation in connection with the transport of pharmaceutical products. This is often in connection with the transportation of hazardous materials. Any planned delivery route must comply with all requirements for the transport of whatever item that has the hazardous materials label. Another government agency applicable to pharmaceutical transportation is the DEA (Drug Enforcement Agency). This group gets involved because many different medications double as controlled substances, thanks to the risk of generating addiction. These medications can be anything from painkilling opiates to medicines that address ADHD. Whatever the individual medical product is, the DEA will be involved if there is the possibility of theft.
These regulations have a significant impact on the operations and responsibilities of third parties, such as those who have autonomous mobile robots (“AMRs”) and drone operations, or those imposed on medical facilities regarding control and preservation of certain medications considered perishable or which may need refrigeration. Although they are not directly applicable to our own business and future operations, these regulations related to aviation, medical and biological operations are applicable to our partners by, for example, increasing their compliance cost and financial burden, and may thereby unwilling to transition to a smarter and more modern mailbox provider like us. Our intended operations will comply with the specific requirements for each application as defined by the third parties responsible for compliance.
Market Growth or US Market Overview
| ● | 64% of people in the US have had a package stolen2 | |
| ● | $9.1B+ spent each year on lost goods and services3 | |
| ● | 3,000 delivery trucks would be removed from the road for every 1% of packages delivered autonomously5 | |
| ● | 50% savings on packages under 5 lbs., 91% of all packages delivered6 |
Large Target Market Progression
| ● | The FAA has issued guidance for regulations carrying BVLOS | |
| ● | The Company hopes to be a part of certain pilot programs that have begun in 2022, including Amazon, Google/Wing, Zipline, Walmart and others |
2 https://www.safewise.com/blog/metro-areas-porch-theft/
3 https://www.cnbc.com/2020/01/10/package-theft-how-amazon-google-others-are-fighting-porch-pirates.html
4 https://www.businessinsider.com/delivery-fee-for-amazon-prime-air-2015-4
5 https://www.arrive.tech/insight-hub/environmental-impact-report
6 https://news.erau.edu/-/media/files/news/forecast-commercial-uas-package-delivery-market.pdf
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Intellectual Property
Arrive AI’s intellectual property consists of patents, trademarks and trade secrets. Arrive AI’s trade secrets consist of research and development and know-how, all of which we seek to protect, in part, by confidentiality agreements. To protect Arrive AI’s intellectual property, Arrive relies on a combination of laws and regulations, as well as contractual restrictions. Federal trademark law protects Arrive AI’s registered trademarks. Arrive also relies on the protection of laws regarding unregistered copyrights for certain content Arrive creates, as well as trade secret laws to protect Arrive AI’s proprietary technology.
Trademarks
Arrive has 17 registered trademarks, all of which are being used in commerce:
| No. | Mark | Filed | Serial No | Granted | Reg. No | |||||
| 1 | DRONEDEK (words) | July 18, 2019 | 88522545 | June 29, 2021 | 6399323 | |||||
| 2 1b | DRONEDEK WE’RE THINKING OUTSIDE OF THE (MAIL) BOX! | December 23, 2020 | 90407560 | Allowed March15, 2022 need show use | ||||||
| 3 1b | WE’RE KICKING THE MAILBOX TO THE CURB, DRONEDEK | December 23, 2020 | 90407603 | Allowed March15, 2022 need show use | ||||||
| 4 1b | DRONEDEK, WE’RE KICKING THE MAILBOX TO THE CURB | December 23, 2020 | 90407636 | Allowed March15, 2022 need show use | ||||||
| 5 | DRONEDEK
|
December 29, 2020 | 90426343 | April 5, 2022 | 6689433 | |||||
| 6 1b | TAG BY DRONEDEK | May 6, 2022 | 97399534 | Allowed June 20, 2023 need show use | ||||||
| 7 1b | MAAS - MAILBOX AS A SERVICE | May 6, 2022 | 97399527 | Allowed June 20, 2023 need show use | ||||||
| 8 1b | THE LAST INCH OF THE LAST MILE | May 6, 2022 | 97399520 | Allowed June 20, 2023 need show use | ||||||
| 9 1b | ARRIVE
|
June 20, 2022 | 97466319 | Allowed June 20, 2023 need show use | ||||||
| 10 1b | ARRIVAL POINT | June 20, 2022 | 97466345 | Allowed June 20, 2023 need show use | ||||||
| 11 1b | ARRIVE PAY | June 20, 2022 | 97466377 | Allowed June 20, 2023 need show use | ||||||
| 12 1b | ARRIVE POINTS | June 20, 2022 | 97466382 | Allowed June 20, 2023 need show use |
| 13 1b | You can’t Spell Arrive without AI | Jan 7, 2024 | 98345727 | Pending | ||||||
| 14 1b | Arrive - Beyond Delivered | Jan 7, 2024 | 98345734 | Pending | ||||||
| 15 1b | Arrive Technology | Jan 7, 2024 | 98345739 | Pending | ||||||
| 16 1b | Arrive Mobile | Jan 7, 2024 | 98345742 | Pending | ||||||
| 17 1b | Arrive Go | Jan 7, 2024 | 98345744 | Pending |
Arrive has no unregistered trademarks.
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Patents
Arrive has six (6) US Patents approved, registered, and issued United States patents. Arrive AI has two (2) US Patents allowed and ready for issue. Arrive AI has two (2) additional US patent applications in the examination process by the United States Patent and Trademark Office (“USPTO”). In addition, there are forty-eight (48) non-U.S. patent applications in process. Six (6) of these international patent applications have been examined and approved (allowed and issued). Most of these first group of smart/ interactive boxes were related to the original drone deliveries. With the Air Box acquisition, Arrive AI added three (3) of the granted US patents, one (1) of the allowed, one (1) US patents pending applications, and one (1) international patent pending in the totals above. These additional business acquisitions and technology developments are focused on receiving multiple packages and allowing multiple users. These foundational patents as well as the newly acquired technology (listed below) consisted of over 130+ filed featured claims for tracking packages as well as for collecting data from multiple shipping companies and the commercial and residential customers.
Patents and Patents Pending: DRONEDEK was initially granted the first US Patent in 2017 with a 2014 priority. A second was granted in 2019 with priority back to the original. A third was issued August 29, 2023 in connection with the expanding floor and homeowners recess into ground. The fourth US patent has been allowed and is scheduled for issue next month. A fifth provisional was transformed into a non-provisional and Patent Cooperation Treaty (“PCT”) in mid-June of 2023 for multi-users such as offices and retirement villages. These are starting to enter the National phase in twelve (12) other countries and the EU. The next generation 2.1 with new features and performance was submitted as a continuation of the expanding patent in July of 2023. Gen 3 will soon be in the provisional stage. The expanding floor and hot/cold assist are in national phases in 21 other countries at various levels of exam. Arrive has continued to bolster its protected features and functions with additional patents which are currently pending (see table below).
Optional features protected by the patents and applications include: a sensor-equipped, fully autonomous landing pad receptacle; a receptacle for receiving or sending food, medicine, groceries, or parcels; a secure receptacle on a porch, roof, window, house, building, existing edifice or mailbox post; interior temperature control (hot and cold holding section); a curved bottom to mitigate damage to the parcel from abrupt drops; infrared, ultraviolet or ozone virus and bacteria prevention including anthrax and COVID; detection of explosive materials; in-ground vaults for home owners association also known as “HOA” restrictions; mobility on trucks, boats and trailers; weather monitoring station, traffic, human and pet movement with facial recognition cameras; powered by a solar panel and/or 110-volt electrical; assist mechanism for robot/aerial unmanned vehicle systems (“AUVS”); and a charging station or battery exchange to the drones and unmanned aerial vehicles (“UAVs”).
International Patents Pending: Patents pending are based on the PCT and World Intellectual Property Organization (“WIPO”). International filings are focused on those global markets that provide the best commercial opportunity (the top 20 nations representing over 80% of the global economy). National patents for various countries have been assessed and are being examined in various stages depending on the country’s rules.
Trademarks: DRONEDEK holds two US trademarks registered, an additional fifteen are allowed and ready to show use or pending approval; other marks such as US and foreign applications are under consideration for protecting the brands with the transition to ARRIVE.
Licenses: DRONEDEK has an exclusive license to all the patents described herein from the inventor and CEO of Arrive, Daniel S. O’Toole. The details of the terms of use for these licenses are further described herein under the section Related Party Transactions.
| DD – Original Development by Dronedek | AB – Acquired from AirBox | ||||||||||||
| COUNTRY | SERIAL NO. | FILING DATE | PATENT or Publication NO. |
TITLE | STATUS | ANTICIPATED EXPIRATION DATE | |||||||
| DD1 | U.S. | 14/565,418 | 12/9/2014 | 9,840,340 | Drone Docking Station and Delivery System
|
Granted in U.S. 12/12/2017 | 12/9/2034 | ||||||
| DD2 | U.S. | 15/328,027 | 11/21/2015 | 10,457,421 | Drone Docking Station and Delivery System
|
Granted in U.S. 10/29/2019 | 11/21/2035 | ||||||
| DD3 | U.S. | 17233624 | 4/19/2021 | 11,738,883 | Expanding Floor/Accordion drone docking station | Granted in U.S. 08/29/2023 | 4/23/2041 | ||||||
| DD3A | International 22 countries plus the EU |
PCT/US21/ 27879 |
4/19/2021 | WO 2021 - 216397 |
Expanding Floor/Accordion drone docking station
|
Pending Internat’ly Ready for National stage – 22 countries |
4/23/2041 | ||||||
| DD4 | U.S. | 17233635 | 4/19/2021 | US 2022-0055770 | Hot and Cold Section drone docking station Temperature Controlled Device | U.S. Allowed by Examiner. |
11/21/2035 | ||||||
| DD4A | International 22 countries plus the EU |
PCT/US21/ 27895 |
4/19/2021 | WO2021 - 216407A1 | Hot and Cold Section drone docking station Temperature Controlled Device
|
Pending Internat’ly Ready for National stage – 24 countries |
4/19/2041 | ||||||
| 3DDB | U.S. | 18226016 | 7/25/2023 | US 2023-0363562 | CIP Expanding Floor/Accordion drone docking station
|
Pending in U.S. | 7/25/2043 | ||||||
| DD5 | U.S. | 18208803 | 6/12/2023 | US 2023-0410028 | Device and system for an autonomous mobile robot, drone, and/or courier to deliver, hold, protect, and return parcels for multi-users in both residential and commercial applications
|
Pending in U.S. | 6/12/2043 | ||||||
| DD5A | International Countries twelve (12) countries plus the EU
|
PCT/US23/ 25086 |
6/12/2023 | WO2023244549A1
|
Ditto Title of 18208803 | Pending Internat’ly Ready for National stage – 24 countries
|
6/12/2043 | ||||||
Acquired AirBox |
Acquired AirBox |
Acquired AirBox | |||||||||||
| AB1 | U.S. | 15018696 | 2/8/2016 | US 10,210,475 | Air Box - Systems, devices, and/or methods for managing drone deliveries | Granted in US 1/30/2019 |
2/8/2036 | ||||||
| AB2 | U.S. | 16846280 | 4/11/2020 | US 11,905,013 | Air Box – Systems, Devices, and/or Methods for Managing Drone Tethering
|
Granted in US 1/30/2019 |
4/11/2040 | ||||||
| AB3 | U.S. | 18/078,985 | 12/11/2022 | US 2023-0112944 | Air Box CIP - Systems, Devices, and/or Methods for Managing Drone Deliveries
|
Allowed in U.S.
|
12/11/2043 | ||||||
| AB4 | U.S. | 16/054,305 | 8/3/2018 | US 11,556,887 | Air Box -Systems, devices, and/or methods for managing drone deliveries. |
Granted in U.S. | 8/3/2043 | ||||||
| ● | Anticipated expiration is the terminology used since maintenance fees are required to be paid to assure the full amount of twenty years. There are no reasons known that those maintenance fees will not be paid when they become due. | |
| ● | Maintenance fees are payments to keep the patents active (alive). These payments are made to the Patenting agency for that country or nation. For example, in the U.S., the regulatory action and fees are made to the USPTO. For other countries, the payment of fees is commonly paid to the patent regulatory office, specific for each country, where the patent application was originally examined, approved, and issued. | |
| ● | The regulatory maintenance fee (often called an annuity) is paid every year for most countries. However, for patents issued from the USPTO, the maintenance fee for each of the issued patent is due at 3 to 3.5 years, then at 7 to 7.5 years, and finally 11 to 11.5 years, respectively, after the date of issue with no early payment options. In the event of a late payment, there is a “six-month grace period” to reactivate a late, unintentional, missed payment of the fee, but a surcharge will be incurred during such grace period at 3.5 to 4 years, 7.5 to 8 years, and 11.5 to 12 years, respectively, after the date of issue. | |
| ● | The Company will be responsible for paying patent issue fee, maintenance fees, and annuity fees due on each patent granted, transferred or licensed to it. |
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Recent Developments and Current Licenses Held
Securities Purchase Agreement between Arrive AI Inc. and Streeterville Capital LLC
On March 21, 2025, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Streeterville Capital LLC (“Streeterville”). Under the Securities Purchase Agreement, Streeterville agrees to purchase an amount of up to $40,000,000 in pre-paid purchases of the Company’s common stock, $0.0002 par value per share. The original principal amount is a $4,330,000 pre-paid purchase with a $4,000,000 initial purchase price and $330,000 original issue discount. In addition, the Company agrees to pay $10,000 to cover Streeterville’s transaction expenses, along with 62,500 shares of common stock issued as a commitment fee and 2,937,500 shares of common stock as pre-delivery shares to be delivered to Streeterville at closing. The Securities Purchase Agreement is being filed as Exhibit 10.11 of this registration statement.
In exchange for the Streeterville’s participation, the Company agrees to restrict its executive officers from selling their shares of common stock until the later of 90 days from the agreement date or 45 days after the effective date of this Registration Statement (the “Lock-Up Expiration Date”). Until then, the executive officers cannot: (i) sell shares below the Reference Price (as defined in the Securities Purchase Agreement); (ii) sell during the first three trading days; nor (iii) exceed certain volume limits—10% for the Chief Executive Officer and 25% of daily trading volume collectively for all other executive-level officers. These restrictions automatically expire on the Lock-Up Expiration Date.
Second Amendment to the Exclusive Patent License Agreement between Arrive AI Inc., formerly Arrive Technology Inc., formerly Dronedek Corporation, and Daniel S. O’Toole
On March 10, 2025, Arrive entered into the second amendment to the Exclusive Patent License Agreement of May 26, 2020 with Daniel S. O’Toole (the “Second Amendment”). The Second Amendment extends the license to perpetuity, covering the full term and life of the patents, and incorporates all terms from the original Agreement and the First Amendment. In the event of a default, the defaulting party has 60 days to cure. If the default is not cured, the license transitions to a non-exclusive license, allowing both parties to seek additional licensees or sources for similar technology, while royalty payments continue into perpetuity or until the 20-year patent term ends. The Second Amendment also removes prior restrictions on the Arrive’s use, sale, or commercialization of the technology after termination, permitting the sale of remaining inventory for up to 90 days post-termination, provided all required reports and payments are made under the Agreement.
First Amendment to the Exclusive Patent Agreement between Arrive AI Inc., formerly Arrive Technology Inc., formerly Dronedek Corporation, and Daniel S. O’Toole
On December 10, 2024, Arrive entered into the first amendment to the Exclusive Patent License Agreement of May 26, 2020 with Daniel S. O’Toole (the “First Amendment”). The First Amendment extends the license term from the original seven years to perpetuity, covering the full term and life of the patents. All terms and conditions from the original Agreement are renewed and incorporated into this First Amendment. The First Amendment ensures the continuation of the exclusive worldwide rights to practice and utilize the licensed inventions, technology, know-how, patents, and patent applications, including the manufacture and marketing of the product.
Exclusive Patent License Agreement between Arrive AI Inc., formerly Arrive Technology Inc., formerly Dronedek Corporation, and Daniel S. O’Toole
On May 26, 2020, Arrive entered into an Exclusive Patent License Agreement with Daniel S. O’Toole, where Arrive was granted exclusive worldwide rights to use, manufacture, and commercialize patented technology related to secured drone delivery smart mailboxes and receiving containers (the “Products”). The Licensor, Daniel S. O’Toole, owns the intellectual property, including patents and trademarks, and warrants that he has the right to grant these rights. Arrive agrees to pay a pre-revenue fee of $10,000 per month starting June 1, 2020, and once revenue exceeds $10,000 per month, a fee of $25 per unit sold. Arrive is responsible for all development, manufacturing, and patent-related costs, and must diligently exploit the Products. The Agreement has an initial term of seven years, renewable year-to-year, and can be terminated by either party under specific conditions. The Agreement also includes provisions for record-keeping, reporting, infringement defense, and indemnification, with disputes governed by laws of the State of Indiana.
Conversion of warrants
As of December 31, 2024, we had a total of 910,189 warrants outstanding. Each warrant unit converts to 0.25 common shares (after giving effect to the Reverse Stock Split). The shares issued upon the exercise of the warrants may be freely sold upon effectiveness of a registration statement covering such shares, these shares may be freely sold in reliance on an exemption from registration such as Rule 144.
Potential Partnership collaboration between Arrive AI Inc., formerly Arrive Technology Inc., formerly Dronedek Corporation, and Hush Aerospace
On May 2, 2022, Arrive issued a press release announcing its collaboration for a potential partnership with Hush Aerospace. Arrive expects to resume negotiation in connection with the terms of an agreement upon the successful completion of this offering. This partnership will focus on reducing drone noise levels during delivery.
Agreement between Arrive AI Inc., formerly Arrive Technology Inc., formerly Dronedek Corporation, and Helium Network
On December 1, 2022, Arrive issued a press release announcing that it will utilize Helium Network to transmit sensor data for Arrive AI’s ALM mailbox system. Helium Network technology will provide Arrive ALM mailboxes with low- band wireless transmissions that can power low-band electronics. Additionally, Arrive ALM mailboxes may also include Helium Hotspots that can connect Arrive AI’s devices to wireless networks.
Every implementation of ALM operations requires partners to work together. Every ALM project/solution requires autonomous drones and robots, automation operations, end-customer integration and operation, and ALM endpoints for secure, frictionless, and asynchronous handoffs between people, drones, and robots. Arrive continues to have numerous discussions with partners of all types in automation, automation operations, retail, service delivery, and more – all of which Arrive tracks and maintains in its CRM to form an ever-growing pipeline of opportunity which has recently culminated in several SOWs and which Arrive expects to continue to grow. The many partner names referenced throughout this document are all partners that Arrive has many discussions with and whose need for Arrive solutions are at various phases of maturation driven by their market experimentation, innovation, alternatives, and the rate of Arrive product development. Arrive aims to be the leader in ALM Mailboxes and is hopeful that it will have the opportunity to bring many, if not the majority, of these relationships and discussions to fruition as sales for Arrive. Arrive continues to see, and dialogue on, the great rate of progress in ALM by Wing, Zipline, Walmart, Starship, Doordash, CVS, and others. Arrive hopes to establish SOWs with some of these leaders as Arrive makes its AP3 and AP4 products available for pilots and ALM operations. Active SOWs include: a Kentucky logistics company, a Georgia innovation campus, and a Virginia specialty drug logistics company, all of which have also executed non-disclosure agreements (“NDA”).
Merger with Public Entity and Termination of Merger Agreement
On December 14, 2023, Bruush Oral Care Inc. (“PubCo”), a company incorporated under the laws of British Columbia, Canada, Bruush Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of PubCo (the “Merger Sub”), and Arrive AI Inc., formerly Arrive Technology Inc., a Delaware corporation (“Arrive”) entered into an agreement and plan of merger (the “Merger Agreement”). Upon the closing of the merger and pursuant to the terms and subject to the conditions of the Merger Agreement, Merger Sub would merge with and into the Arrive, with Arrive continuing under the name of Arrive after the Merger and as a wholly owned subsidiary of PubCo. Upon closing, PubCo was expected to be renamed “Arrive Technology Inc.” or any name chosen by Arrive, and trade on Nasdaq under the ticker symbol of “ARAI”. As a result of the Merger and as set forth in the Merger Agreement, at closing the outstanding shares of Arrive AI’s common stock, would be exchanged for common shares of PubCo (the “PubCo Shares”) representing, upon issuance, 94.5% of PubCo’s issued and outstanding common shares on a fully diluted basis and the legacy shareholders of PubCo would own shares of PubCo common shares representing 5.5% of PubCo’s issued and outstanding common shares on a fully diluted basis. Prior to Closing, PubCo would, among other things, effect a reverse stock split with respect to PubCo’s common shares at a ratio within the range of 6-for-1 to 200-for-1. PubCo, as of the closing, would maintain a net cash minimum as defined in the terms of the Merger Agreement consisting of cash and cash equivalents after full payment of current liabilities, including any financing in connection with the above referenced amount and all expenses related to the transaction (“Net Cash Minimum”). After closing, PubCo would sell, transfer and assign all existing legacy business, assets and liabilities of PubCo (“Legacy Business”) to a purchaser, including in the form of a newly established entity (“Purchaser”), and pursuant to that certain separation and distribution agreement to be entered into by and between PubCo and Purchaser on terms and conditions to be mutually agreed by PubCo and Purchaser (the “Separation Agreement”). The sale, transfer and assignment of the Legacy Business would be conducted after the Merger became effective. The Merger Agreement contained customary representations and warranties by the parties thereto. Certain of the representations and warranties qualified by materiality. The Merger Agreement also contained pre-closing covenants by the parties thereto, including obligations of the parties to use reasonable efforts to operate their respective businesses in the ordinary course consistent with past practice, and to refrain from taking certain specified actions without the prior written consent of the other applicable parties, in each case, subject to certain exceptions and qualifications. Under the Merger Agreement, the obligations of the parties to consummate the Merger were subject to a number of customary conditions including, among others: “…PubCo having satisfied any applicable continuing listing requirements of Nasdaq and PubCo having not received any notice of non-compliance therewith”.
The PubCo was delisted from the Nasdaq Stock Market LLC in June 2024. The company terminated the Merger Agreement with the PubCo on or around July 11, 2024 on the basis of PubCo’s failure to comply with several of the conditions to the closing of the Merger Agreement, the most relevant ones being PubCo’s failure to comply with the continuous listing requirements and qualifications of the Nasdaq Capital Market and maintain the requisite cash reserves to consummate the transaction.
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Human Capital Resources
As of December 31, 2024, Arrive had 7 full-time employees. The Company also has approximately 15 part-time contract employees.
Property
Our corporate headquarters is located at 12175 Visionary Way, Fishers, Indiana 46038.
Third Party Advisors
Advisory Agreement. On July 16, 2024, Arrive executed an advisory services agreement with Maxim Group LLC (“Maxim”) in connection with a go public transaction including a direct listing. Pursuant to the terms of the Advisory Agreement, upon Closing, Arrive agreed to compensate Maxim with a number of shares of Arrive, equal to that certain percentage from the aggregate value of the transaction as described in the Advisory Agreement. As of the date hereof, Maxim has been issued 532,913 of our shares, after giving effect to the Reverse Stock Split.
Legal Proceedings
From time to time, Arrive AI Inc. may be subject to various claims, lawsuits and other legal and administrative proceedings arising in the ordinary course of business. Defending such proceedings is costly and can impose a significant burden on management and employees. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Other than as set forth below, Arrive AI is not presently a party to any litigation the outcome of which, if determined adversely to us, would in our estimation, have a Material Adverse Effect on our business, operating results, cash flows or financial condition. The following is a summary of the Company’s ongoing legal proceedings:
Byfield Management, Inc. and Ohrn II, Richard B v. Dronedek Corporation. This is an employment action, originally filed in the Hamilton County Court of the State of Indiana Hamilton Superior Court/File: 5 29 D05-2303-PL-002478. Orhn, working as Byfield Management, Inc., was the original chief financial officer of the Company under an oral agreement. The amount in dispute includes two years of salary and stock options. The Company terminated this executive contract for cause and the matter is currently being handled by external counsel Taft Stettinius & Hollister LLP. The case was moved to Marion Superior Court No. 2 of the State of Indiana on March 15, 2023 CAUSE NO. 49D02-2305-PL-020604. Plaintiffs alleged breach of employment agreement; breach of stock purchase agreement; breach of fiduciary duties and non-payment of salary, bonuses, and benefits. Arrive terminated Ohrn/Byfield’s employment because of several misrepresentations in connection with the financial stability by Ohrn, including bankruptcy and mortgage foreclosure. The termination of Ohrn was completed after several attempts and opportunities to have a discussion as to the concerns. Ohrn failed to respond. Further to his financial lack of stability, Ohrn also failed to pay any amounts owed under the stock purchase agreement. Indiana is an at-will employment state. Affirmative defenses and counterclaims were filed, discovery documents have been exchanged by the parties but no further motions are pending. No trial dates or case management plan has been filed. In May, 2024, the court asked for a dismissal which prompted the plaintiff to request some third-party documents. No other motions are pending. The settlement demands, include unpaid salary and stock awards. Arrive has engaged Taft Stettinius & Hollister LLP as its external counsel to represent the company in this matter. The Company firmly believes there is no unpaid salary since there was no written or oral contract of employment. The potential stock issue was never completed. Any partial vesting required a small purchase which never happened in Ohrn’s case, therefore Ohrn held no stock upon termination. Even though plaintiff’s allegations amount to approximately $29 million in total damages, plaintiff’s allegations have no merit, it is not possible at this time to ascertain an exact figure upon the outcome of this litigation through a court’s final decision, or if any damages may be granted at all, in the opinion of the company’s management and litigation counsel, such allegations may not proceed given the facts presented before the court, such as the breach of the plaintiff’s obligations under the agreement and the termination of the agreement by the Company for cause.
An initial Cease and Desist letter on Arrive AI’s trademark from Arrive Logistics was received July 19, 2023. An open, positive discussion is ongoing between counsel.
Government Regulation
Arrive is subject to local, state, federal and international laws, statutes, rules, policies, and regulations (collectively “Regulations”) that relate directly or indirectly to Arrive AI’s operations. These include privacy and data protection regulations. Arrive AI’s business operations involve the collection, transfer, use, disclosure, security, and disposal of personal or sensitive information. As a result, Arrive AI’s business is subject to complex and evolving U.S. and international laws and regulations regarding privacy and data protection. Other Regulations that Arrive is subject to, include the following: licensing, permitting, and zoning requirements for the operations of Arrive AI’s offices and other facilities; health, safety, and sanitation requirements; the service of food; working conditions, labor, minimum wage and hour, citizenship, immigration, visas, harassment and discrimination, and other labor and employments laws and regulations; marketing activities; and environmental protection regulations. Arrive is also subject to common business and tax rules and regulations pertaining to the operation of its business.
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While Arrive does not operate AMRs, it’s customers and partners do while utilizing Arrive MaaS. The United States does not have specific regulations governing autonomous mobile robots (“AMRs”). However, AMRs are subject to a number of general safety regulations, including the following:
| ● | The Federal Motor Carrier Safety Administration (“FMCSA”) regulates AMRs that are used to transport goods on public roads. | |
| ● | The Occupational Safety and Health Administration (“OSHA”) regulates AMRs that are used in the workplace. | |
| ● | The Consumer Product Safety Commission (“CPSC”) regulates AMRs that are sold to consumers. |
In addition to these general safety regulations, AMRs may also be subject to specific regulations in certain states or localities. For example, the state of California has a number of regulations governing the use of AMRs in public spaces.
The lack of specific regulations governing AMRs can create some challenges for businesses that want to deploy these robots. However, there are a number of organizations that have developed voluntary safety standards for AMRs. These standards can help businesses to ensure that their AMRs are safe to operate.
Some of the voluntary safety standards for AMRs include:
| ● | ANSI/ITSDF B56.5-2012: Safety Standard for Driverless, Automatic Guided Industrial Vehicles and Automated Functions of Manned Industrial Vehicles | |
| ● | ANSI/RIA R15.06-2012: American National Standard for Industrial Robots and Robot Systems - Safety Requirements | |
| ● | ISO 13482:2014: Robots and robotic devices - Safety requirements for personal care robots |
As the use of AMRs continues to grow, it is likely that the US government will develop more specific regulations governing these robots. In the meantime, businesses that want to deploy AMRs should carefully consider the relevant safety regulations and voluntary standards.
Drone Regulation in the United States
While Arrive does not operate AMRs, it’s customers and partners do while utilizing Arrive MaaS. A part of our business may be subject to air drone operations carried out by third parties, drone operations in the United States is subject to regulations of the Federal Aviation Administration (“FAA”). The FAA has set rules for routine commercial use of small, unmanned aircraft systems (“UAS”) weighing less than 55 pounds that are conducting non-hobbyist operations. UAS operators-for-hire must pass a written test and be vetted by the Transportation Security Administration. The rules include restrictions regarding the right of way in certain areas for drone operations by also requiring the broadcast of remote ID information. These regulations have a significant impact on the operations and responsibilities of third parties, such as those who have AMR and drone operations, or those imposed on medical facilities regarding control and preservation of certain medications considered perishable or which may need refrigeration. Our intended operations will comply with the specific requirements for each application as defined by the third parties responsible for compliance.
We are also subject to the USPS mailbox regulations and specifications which include parameters for residential and commercial installations.
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The following table sets forth certain information as of the date of this prospectus about our executive officers and members of our Board.
| Directors and Executive Officers | Age | Position/Title | ||
| Daniel O’Toole | 61 | Chief Executive Officer, Chairman | ||
| Todd Pepmeier | 51 | Chief Financial Officer | ||
| Mark Hamm | 59 | Chief Operations Officer, Director | ||
| Lora O’Toole | 25 | Vice President Business Development | ||
| Neerav Shah | 53 | Chief Strategy Officer, Director | ||
| John Ritchison | 75 | General Counsel, Director | ||
| John Gallina | 65 | Director | ||
| Kevin McAdams | 67 | Director | ||
| Bill Stafford | 45 | Director |
Executive Officers and Directors
Daniel O’Toole – Chief Executive Officer, Founder, Chairman,
Dan O’Toole is a seasoned entrepreneur with over 37 years of experience in building and scaling successful businesses, positioning him as a strategic leader for Arrive AI’s direct listing on NASDAQ. O’Toole began his career as a top national sales manager in specialty distribution, where he built strong relationships across the environmental industry. He went on to found and exit three companies, most recently Facility Maintenance USA, a provider to Fortune 500 clients like McDonald’s and Enterprise Rent-a-Car. His track record in business expansion and operational oversight demonstrates his capacity to navigate complex markets and manage national portfolios.
In 2020, O’Toole founded Dronedek Inc. (now Arrive AI) and has served as its full-time CEO since incorporation. Under his leadership, the pioneering company in autonomous delivery has secured nearly $11 million in funding and built a community of over 5,000 investors. Arrive AI has built a robust first-position patent portfolio and collaborates with major clients to advance industry innovations. With an experienced board and regular PCAOB audits, Arrive AI maintains transparency and rigorous financial practices, aligning with public market standards. Listing on NASDAQ will provide the necessary capital for Arrive AI to scale its IP portfolio, continue groundbreaking work in autonomous delivery, and create value for its diverse investor base.
Todd Pepmeier – Chief Financial Officer
Todd Pepmeier serves as the Chief Financial Officer of Arrive AI, Inc., bringing 28 years of financial expertise across diverse sectors, including automotive, aerospace, healthcare, and technology. Joining Arrive AI in May 2023, Todd has become instrumental in strengthening the company’s financial operations as it prepares for a potential NASDAQ direct listing. From 2021 to 2023, Todd provided interim CFO support to several early-stage technology firms, focusing on financial structuring, controls, and scalability. From 2016 to 2021, he led Ascension Health’s shared services division, where he optimized finance and operational processes. Concurrently, he served as CFO of Agilify, a technology startup specializing in robotic process automation, where he oversaw a strategic acquisition that marked a successful exit. Todd began his career at Ford Motor Company in the finance leadership program, grounding his approach in rigorous internal controls and public company financial practices. His experience with public and private company finance, internal controls, and regulatory compliance equips him to navigate Arrive AI’s public market entry confidently. Todd’s strategic financial leadership will be critical in positioning Arrive AI for sustainable growth on NASDAQ and delivering value to its broad investor base.
Mark Hamm – Chief Operations Officer, Director
Mark Hamm is the Chief Operating Officer of Arrive AI Inc., formerly Arrive Technology Inc. With over two decades of experience in technology and operations, Mark is uniquely qualified to lead Arrive AI, bringing a proven track record in innovation and strategic execution. In the past five years, he served as Vice President of Innovation at FedEx, where he spearheaded the launch of the Sense Aware business and led key innovation initiatives. Prior to that, Mark held executive positions at ServiceMaster as Vice President of Customer Experience and at AutoZone as Vice President of Information Technology. His extensive experience includes launching and leading technology startups in the B2B SaaS and autonomous drone/robotics sectors. Mark’s expertise encompasses strategy, marketing, business operations, software development, IoT, machine learning, and robotic process automation across the technology, logistics, services, and retail industries, positioning him to drive growth and operational excellence at Arrive AI.
Lora O’Toole - Vice President Business Development
Lora O’Toole is the Vice President of Business Development at Arrive AI, where she drives partner and customer relations and oversees related key deployment initiatives. She entered the industry in 2019, leveraging her background in startups and sales to foster growth in emerging technologies. Recognized in 2021 by Conexus as one of Indiana’s Rising 30 for her contributions to logistics and advanced manufacturing, Lora is highly regarded in both the technology and Unmanned Aerial Systems (UAS) communities. Lora’s industry involvement includes her role as President of the Rocky Mountain chapter of AUVSI (Association for Uncrewed Vehicle Systems International) and active participation in other technology organizations. She frequently speaks at conferences, sharing her insights on autonomous systems and UAS innovations. Since joining Arrive AI in 2021, Lora has been pivotal in developing strategic partnerships and ensuring seamless integration of Arrive AI’s solutions with major clients. Lora’s expertise in scaling customer-focused initiatives within a rapidly advancing field underscores her vital role in Arrive AI’s public market readiness, contributing to the company’s growth strategy as it prepares for NASDAQ.
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Neerav Shah –Chief Strategy Officer, Director
Neerav Shah brings over two decades of entrepreneurial and leadership experience, uniquely positioning him to support a successful NASDAQ direct listing. He launched and led a high-growth business focused on electromechanical assemblies for the Department of Defense, managing a team of 50 across two locations until 2020, when he joined Arrive AI. Shah’s deep network within defense contracting remains an asset, reinforcing his capability to guide scalable operations under strict regulatory standards. In 2014, Shah co-founded a business leveraging data analytics for infrastructure inspections, utilizing single-rotor Unmanned Aerial Systems (UAS) to improve efficiency and safety in critical infrastructure monitoring. His background in high-stakes industries is complemented by management roles at Sun Microsystems and Kaiser Permanente, where he honed his operational and strategic skills. Shah’s academic background includes an MBA from Purdue University and a BSc from the London School of Economics. His expertise in navigating complex operational landscapes and data-driven decision-making makes him an invaluable asset for a public company aiming to scale sustainably on NASDAQ.
John Ritchison, JD – Director, Corporate Counsel
John Ritchison serves as Director and Corporate Counsel at Arrive AI Inc., contributing his extensive expertise in engineering, patent law, and global operations to support the company’s strategic initiatives. Since the company’s incorporation as Dronedek Inc. in 2020, John has served as Corporate Counsel while simultaneously maintaining his solo practice in Intellectual Property law, which he has operated for over 22 years. As a registered patent attorney and Indiana-licensed professional engineer, John brings valuable legal and technical insights to Arrive AI’s preparations for a NASDAQ listing. John’s 30-year career with Delphi and General Motors included senior roles in manufacturing and product engineering, with responsibilities spanning U.S. and international markets. His leadership experience includes roles as a plant manager in the U.S. and as General Director of Operations in Europe, where he managed full P&L and balance sheet responsibilities. His extensive experience in manufacturing, engineering, and operations enhances Arrive AI’s approach to scaling and compliance in the autonomous systems industry. John’s academic background includes a JD from Indiana University School of Law, a master’s in mechanical engineering from Rose-Hulman, and a bachelor’s in mathematics. Fluent in English and Portuguese, he is also admitted to practice before the U.S. Supreme Court. John’s blend of legal, technical, and global business experience strengthens Arrive AI’s positioning for sustainable growth on NASDAQ.
John Gallina – Director
John Gallina is the chairman of the Audit and Finance committee and has over 40 years of financial and business management in both a Corporate and Public Accounting environment. John most recently served as Executive Vice President and Chief Financial Officer for Elevance Health, one of the nation’s leading health benefits companies serving 47.5 million members within its family of health plans and representing more than $170 billion in annual revenues, ranked #20 on the Fortune 500 list. He held several executive positions in his nearly 30 years at Elevance Health, including Chief Accounting Officer and Senior Vice President of Internal Audit and Continuous Improvement. He was also a member of the Anthem Initial Public Offering team and was instrumental in the due diligence and integration of Anthem’s acquisitions.
Kevin McAdams, Director
Former VP of Delivery, Retail and Fleet Operations for USPS, oversaw delivery operations for largest last mile network nationally. Implemented policy, programs and innovative logistic solutions for package processing and delivery. Oversaw retail network of 30K facilities which also served as first mile entry points for USPS network. Led fleet operations including fleet maintenance operations and vehicle procurement. Provided Officer-level experience and insight in operational excellence, shipping solutions, planning and strategy for USPS. Currently, Founder and CEO of Vertical Mile Consulting providing insight and solutions for Leadership, Strategy and Operational Excellence in first, middle and last mile logistics.
Bill Stafford, Director
Board Member15-year background as a military, commercial and private aviator. Holding qualifications on multiple manned rotary and fixed-wing aircraft and unmanned platforms. Holds Masters and Undergraduate degrees from Embry Riddle Aeronautical University in Unmanned Systems and Professional Aeronautics, respectively. As an executive at Verizon, he supported large organizations’ implementation of robotic systems. He is currently Senior Director of Training and Compliance for Zeitview (formerly DroneBase).
Other than Ms. O’Toole, who is the daughter of our CEO, there are no other family relationships between executive officers, directors, or nominees.
Corporate Governance
Our business and affairs are managed under the direction of our Board of Directors (“Board”). The number of directors is currently determined by our Board, subject to the terms of our certificate of incorporation and bylaws, which provide that the number of directors be determined exclusively by a resolution adopted by directors constituting a majority of the total number of authorized directors, whether or not there exist any vacancies in previously authorized directorships. Our Board currently consists of eight directors.
When considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable our Board to satisfy its oversight responsibilities effectively in light of our business and structure, the Board focuses primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth above. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business.
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Term of Office
Our directors are appointed to hold office for a three year term or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Corporate Governance Profile
The structure of our corporate governance include the following:
| ● | Our directors are subject to re-election every three years; | |
| ● | Our directors satisfy the Nasdaq listing standards for independence; | |
| ● | Generally, all matters to be voted on by stockholders is approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all stockholders present in person or represented by proxy, voting together as a single class; | |
| ● | We intend to comply with the requirements of the Nasdaq marketplace rules, including having committees comprised of independent directors; and | |
| ● | We currently do not have a stockholder rights plan. |
Our directors stay informed about our business by attending meetings of our Board and its committees and through supplemental reports and communications. Our independent directors meet regularly in executive sessions without the presence of our corporate officers or non-independent directors.
Role of the Board in Risk Oversight
The Board actively manages the Company’s risk oversight process and receives periodic reports from management on areas of material risk to the Company, including operational, financial, legal, and regulatory risks. The Board committees will assist the Board in fulfilling its oversight responsibilities in certain areas of risk. The Audit and Finance Committee will assist the Board with its oversight of the Company’s major financial risk exposures. The Compensation Committee will assist the Board with its oversight of risks arising from the Company’s compensation policies and programs. The Corporate Governance and Nominating Committee will assist the Board with its oversight of risks associated with board organization, board independence, and corporate governance. While each committee will be responsible for evaluating certain risks and overseeing the management of those risks, the entire Board will be regularly informed about the risks.
Director Independence
The Nasdaq marketplace rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominations committees be independent, or, if a listed company has no nominations committee, that director nominees be selected or recommended for the board’s selection by independent directors constituting a majority of the board’s independent directors. The Nasdaq marketplace rules further require that audit committee members satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act and that compensation committee members satisfy the independence criteria set forth in Rule 10C-1 under the Exchange Act. These rules require that our Audit and Finance Committee be composed of at least three (3) members, one of whom must be independent on the date of listing on Nasdaq, a majority of whom must be independent within 90 days of the effective date of the registration statement containing this prospectus, and all of whom must be independent within one year of the effective date of the registration statement containing this prospectus.
Prior to the completion of this offering, our Board undertook a review of the independence of our directors and considered whether any director has a material relationship with us that could compromise that director’s ability to exercise independent judgment in carrying out that director’s responsibilities.
Our Board has affirmatively determined that each of John Gallina, Kevin McAdams and Bill Stafford qualify as an independent director, as defined under the applicable corporate governance standards of Nasdaq.
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Board Leadership
Daniel O’Toole is the Chairman of the Board. Daniel O’Toole is our Chief Executive Officer and Director.
The Board does not have a lead independent director. To help ensure the independence of the Company’s Board, the independent directors of the Board generally meet without members of management at various times during the year.
Board Committees and Meetings
The Board intends to establish three committees, the Audit and Finance Committee, the Compensation Committee and the Corporate Governance and Nominating Committee, to assist with the performance of the Company’s responsibilities. The initial composition of these committees will be initially set by the Board in its discretion. Going forward, the Board will designate the members of these committees and the committee chairs based on the recommendation of the Corporate Governance and Nominating Committee. The Board has adopted written charters for each of these committees, which will be available on the investor relations section of our website at Arriveai.com. Copies will also be available in print to any stockholder upon written request. The chair of each committee will develop the agenda for that committee and determine the frequency and length of committee meetings.
Following the listing of the Company on Nasdaq, the Board will hold quarterly meetings. Directors will be expected to attend Board meetings, the Annual Meeting of Stockholders and meetings of the committees on which they serve, with the understanding that on occasion a director may be unable to attend a meeting.
Audit and Finance Committee
The Board formally established an Audit and Finance Committee in October 2023. The Audit and Finance Committee is composed of three (3) members, John Gallina, Kevin McAdams and Bill Stafford, each of whom is an independent director. John Gallina serves as chair of the Audit and Finance Committee. The committee’s primary duties are to:
| ● | review and discuss with management and our independent auditor our annual and quarterly financial statements and related disclosures, including disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the results of the independent auditor’s audit or review, as the case may be; | |
| ● | review our financial reporting processes and internal control over financial reporting systems and the performance, generally, of our internal audit function; | |
| ● | oversee the audit and other services of our independent registered public accounting firm and be directly responsible for the appointment, independence, qualifications, compensation and oversight of the independent registered public accounting firm, which reports directly to the Audit and Finance Committee; | |
| ● | provide an open means of communication among our independent registered public accounting firm, management, our internal auditing function and our Board; | |
| ● | review any disagreements between our management and the independent registered public accounting firm regarding our financial reporting; | |
| ● | prepare the Audit and Finance Committee report for inclusion in our proxy statement for our annual stockholder meetings; | |
| ● | establish procedures for complaints received regarding our accounting, internal accounting control and auditing matters; and | |
| ● | approve all audit and permissible non-audit services conducted by our independent registered public accounting firm. |
The Board has determined that each member of the Audit and Finance Committee is independent of management and free of any relationships that, in the opinion of the Board, would interfere with the exercise of independent judgment and are independent, as that term is defined under the enhanced independence standards for audit committee members in the Exchange Act and the rules promulgated thereunder.
The Board has determined that John Gallina is an “audit committee financial expert,” as that term is defined in the rules promulgated by the Securities and Exchange Commission (the “SEC”) pursuant to the Sarbanes-Oxley Act of 2012. The Board has further determined that each member of the Audit and Finance Committee is financially literate and that at least one member of the committee has accounting or related financial management expertise, as such terms are interpreted by the Board in its business judgment.
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Compensation Committee
The Board formally established a Compensation Committee in October 2023. The Compensation Committee is composed of one (1) independent director (as defined under the general independence standards of the Nasdaq listing standards and our Corporate Governance Guidelines): Bill Stafford, a “non-employee director” (within the meaning of Rule 16b-3 of the Exchange Act), serves as chair of the Compensation Committee. Mark Hamm, Chief Operating Officer, also serves on the committee. The committee’s primary duties are to:
| ● | approve corporate goals and objectives relevant to executive officer compensation and evaluate executive officer performance in light of those goals and objectives; | |
| ● | determine and approve executive officer compensation, including base salary and incentive awards; | |
| ● | make recommendations to the Board regarding compensation plans; and | |
| ● | administer any stock plan, equity incentive plan, inducement plan or other compensation plan adopted for the benefit of our employees and/or directors. |
The Compensation Committee will determine and approve all elements of executive officer compensation. It will also provide recommendations to the Board with respect to non-employee director compensation. The Compensation Committee may not delegate its authority to any other person, other than to a subcommittee.
Corporate Governance and Nominating Committee
Our Board formally established a Corporate Governance and Nominating Committee in October 2023. The Corporate Governance and Nominating Committee is composed of one (1) independent director (as defined under the general independence standards of the Nasdaq listing standards and our Corporate Governance Guidelines): Kevin McAdams, a “non-employee director” (within the meaning of Rule 16b-3 of the Exchange Act), serves as chair of the committee. John Ritchison also serves on the committee. The committee’s primary duties are to:
| ● | recruit new directors, consider director nominees recommended by stockholders and others and recommend nominees for election as directors; | |
| ● | review the size and composition of our Board and committees; | |
| ● | oversee the evaluation of the Board; | |
| ● | recommend actions to increase the Board’s effectiveness; and | |
| ● | develop, recommend and oversee our corporate governance principles, including our Code of Business Conduct and Ethics and our Corporate Governance Guidelines. |
Code of Business Conduct and Ethics
We adopted a written code of business ethics and conduct (the “Code of Conduct”) that applies to all of our directors, officers and employees, including our Chief Executive Officer and Chief Financial Officer. The objective of the Code of Conduct is to provide guidelines for maintaining our and our subsidiaries integrity, reputation, honesty, objectivity and impartiality. The Code of Conduct addresses conflicts of interest, protection of our assets, confidentiality, fair dealing with stockholders, competitors and employees, insider trading, compliance with laws and reporting any illegal or unethical behavior. As part of the Code of Conduct, any person subject to the Code of Conduct is required to avoid or fully disclose interests or relationships that are harmful or detrimental to our best interests or that may give rise to real, potential or the appearance of conflicts of interest. Our Board has ultimate responsibility for the stewardship of the Code of Conduct, and it will monitor compliance through our Corporate Governance and Nominating Committee. Directors, officers and employees are required to annually certify that they have not violated the Code of Conduct. Our Code of Business Conduct and Ethics reflects the foregoing principles. The full text of our Code of Business Conduct and Ethics will be published on our website prior to the effectiveness of this registration statement.
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers from any provision of the Code of Conduct applicable to our Chief Executive Officer and Chief Financial Officer by posting such information on our website.
Legal Proceedings
To our knowledge, other than as described in the section titled Business - Legal Proceedings in this prospectus, (i) no director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years; (ii) no director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years; (iii) no director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten years; and (iv) no director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.
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EXECUTIVE AND DIRECTOR COMPENSATION
We are an “emerging growth company” under applicable SEC rules and are providing disclosure regarding our executive compensation arrangements pursuant to the rules applicable to emerging growth companies, which means that we are not required to provide a compensation discussion and analysis and certain other disclosures regarding our executive compensation. The following discussion relates to the compensation of our named executive officers for 2024.
Following the adoption of the Compensation Committee charter in October 2023, the Compensation Committee will determine and approve all elements of executive officer compensation. The Compensation Committee’s primary objectives in determining executive officer compensation are to (i) develop an overall compensation package that is at market levels and thus fosters executive officer retention and (ii) align the interests of our executive officers with our stockholders by linking a significant portion of the compensation package to performance.
Summary Compensation Table
The following table sets forth the compensation paid by the Company to its chief executive officer and other compensated executive officers. The disclosure is provided for the years ended December 31, 2024, December 31, 2023, December 31, 2022, and December 31, 2021.
| Name and Principal Position | Year | Salary | Bonus | Stock Awards | Total | |||||||||||||
| Dan O’Toole CEO | 2021 | $ | 290,833 | (1) | $ | 290,833 | ||||||||||||
| Neerav Shah Chief Strategy Officer | 2021 | $ | 36,000 | $ | 45,100 | (2) | $ | 81,100 | ||||||||||
| Lora O’Toole VP Business Development | 2021 | $ | 29,880 | $ | 586 | (3) | $ | 30,466 | ||||||||||
| Dan O’Toole CEO | 2022 | $ | 403,333 | (1) | $ | 403,333 | ||||||||||||
| Mark Hamm COO | 2022 | $ | 140,000 | $ | 140,000 | |||||||||||||
| Lora O’Toole VP Business Development | 2022 | $ | 72,500 | $ | 5,202 | (4) | $ | 77,702 | ||||||||||
| Neerav Shah Chief Strategy Officer | 2022 | $ | 48,000 | $ | 218,400 | (5) | $ | 266,400 | ||||||||||
| Dan O’Toole CEO | 2023 | $ | 420,000 | (1) | $ | 420,000 | ||||||||||||
| Todd Pepmeier CFO | 2023 | $ | 18,750 | $ | 1,361,480 | (6) | $ | 1,380,230 | ||||||||||
| Mark Hamm COO | 2023 | $ | 240,000 | $ | 4,143,989 | (7) | $ | 4,383,989 | ||||||||||
| Lora O’Toole VP Business Development | 2023 | $ | 85,000 | $ | 574,817 | (8) | $ | 659,817 | ||||||||||
| Neerav Shah Chief Strategy Officer | 2023 | $ | 48,000 | $ | 332,400 | (9) | $ | 380,400 | ||||||||||
| Dan O’Toole CEO | 2024 | $ | 420,000 | (1) | $ | 420,000 | ||||||||||||
| Todd Pepmeier CFO | 2024 | $ | 150,000 | $ | 150,000 | |||||||||||||
| Mark Hamm COO | 2024 | $ | 240,000 | $ | 240,000 | |||||||||||||
| Lora O’Toole VP Business Development | 2024 | $ | 85,000 | $ | 20,619 | (10) | $ | 105,619 | ||||||||||
| Neerav Shah Chief Strategy Officer | 2024 | $ | 48,000 | $ | 352,560 | (11) | $ | 400,560 | ||||||||||
| (1) | CEO compensation includes $120,000 each year according to the terms of a patent licensing agreement. | |
| (2) | 55,000 shares at $0.82 per share fair value (after giving effect to the Reverse Stock Split), based on independent 409a valuation as of August 31, 2021. | |
| (3) | 714 shares at $0.82 per share fair value (after giving effect to the Reverse Stock Split), based on independent 409a valuation as of August 31, 2021. | |
| (4) | 715 shares at $7.28 per share fair value (after giving effect to the Reverse Stock Split), based on average of share sales during 2022. | |
| (5) | 30,000 shares at $7.28 per share fair value (after giving effect to the Reverse Stock Split), based on average of share sales during 2022. | |
| (6) | 126,250 options at $10.784 per share fair value (after giving effect to the Reverse Stock Split) based on Black Scholes analysis as disclosed in the December 31, 2023 financial statements. | |
| (7) | 384,272 options at $10.784 per share fair value (after giving effect to the Reverse Stock Split) based on Black Scholes analysis as disclosed in the December 31, 2023 financial statements. | |
| (8) | 3,214.50 shares at $11.08 per share fair value (after giving effect to the Reverse Stock Split) based on average of share sales during 2023. 50,000 options at $10.784 per share fair value (after giving effect to the Reverse Stock Split) based on Black Scholes analysis as disclosed in the December 31, 2023 financial statements. | |
| (9) | 30,000 shares at $11.08 per share fair value (after giving effect to the Reverse Stock Split) based on average of share sales during 2023. | |
| (10) | 1,754.5 options at $11.752 per share fair value (after giving effect to the Reverse Stock Split) based on Black Scholes analysis as disclosed in the December 31, 2024 financial statements. | |
| (11) | 30,000 options at $11.752 per share fair value (after giving effect to the Reverse Stock Split) based on Black Scholes analysis as disclosed in the December 31, 2024 financial statements. |
Employment Agreements
Other than as set forth below the Company does not have an employment agreement with any member of the Company’s management team or any members of the Board. However, the Company plans to enter into executive employment agreements with the Company’s management team.
Mark Hamm, COO
On June 1, 2022, the Company entered into an employment agreement with Mr. Hamm as its Chief Operating Officer on at-will basis (“Hamm Agreement”). Pursuant to the Hamm Agreement, Mr. Hamm will receive an annual salary of $240,000. He is eligible to receive stock options at a quantity, issue, and strike price will be such that at a company valuation of $1 billion USD valuation, the net value, after long term capital gains, is $10 million USD (ten million dollars). The vesting schedule allocates the stock options into two equal parts: time-based Non-Qualified Stock Options (NQSO) and performance-based Incentive Stock Options (ISO). The first 50% (NQSO) vests quarterly over four years with a one-year cliff. On day 366, 25% of this tranche vests, followed by 6.25% quarterly until fully vested. If employment ends before day 366, no NQSO options will vest. The remaining 50% (ISO) is performance-based. Half of this portion (25% of the total options) vests when the company valuation sustains $500 million, and the remaining half vests at $1 billion, provided each valuation holds for six months. These options also follow the time-based vesting structure. In the event of a change of control, 50% of all options will vest immediately under a single trigger, with the remaining 50% vesting upon a second trigger. Mr. Hamm may be eligible to bonus compensation out of net revenues of the Company at the sole discretion of the Board of Directors. The employment agreement has been filed as an exhibit to this prospectus.
Todd Pepmeier,
On November 13, 2023, the Company entered into an employment agreement with Mr. Pepmeier as its Chief Financial Officer on at-will basis (“Pepmeier Agreement”). Pursuant to the Pepmeier Agreement, Mr. Pepmeier will receive an annual salary of $150,000, an annual bonus of $25,000, and 125,000 stock options with an exercise price of $0.76 per share (after giving effect to the Reverse Stock Split), which will become effective as of August 15, 2023. The stock options’ vesting schedule divides the 125,000 stock options into two equal parts: time-based Non-Qualified Stock Options (NQSO) and performance-based Incentive Stock Options (ISO). The NQSO (62,500 options) vest over four years, with a one-year cliff. After one year, 25% vests, followed by 6.25% quarterly until fully vested. If employment ends before August 15, 2024, no NQSO will vest. The ISO (62,500 options) vest upon achieving company valuation milestones: 50% when the valuation sustains $600 million for six months and the remaining 50% at $1 billion for six months, with time-based vesting requirements. In the event of a change of control, 50% of all options vest immediately under a “single trigger”, with the remaining 50% vesting under “double trigger.” Mr. Pepmeier will also be eligible to receive certain employee benefits. The employment agreement has been filed as an exhibit to this prospectus.
Brandon Pargoe
As detailed elsewhere in this prospectus, on December 5, 2023, the Company acquired certain assets of AirBox Technologies (“AirBox”), in an all-stock transaction. The acquisition included AirBox’s patent portfolio and other tangible assets, in addition, AirBox’s CEO Brandon Pargoe joined the Arrive team in a role of product line lead (Airbox), as an independent contractor. On November 29, 2023, the Company entered into an independent contractor agreement with Mr. Pargoe as its Vice President of Product Operations, effective December 1, 2023 (“Pargoe Agreement”). The Company agreed to pay Mr. Pargoe a base salary of $5,000 per month for his service as the Product Line Lead for a term of two years and the Company has the option to extend the Pargoe Agreement in November 2025. Either the Company and Mr. Pargoe may terminate the Pargoe Agreement, with or without reason at any time. Mr. Pargoe agreed not to utilize or exploit the Company’s confidential information made available to him during his service after the termination of the Pargoe Agreement.
Stock Equity Incentive Plan
During Fiscal Year 2023, the board of directors adopted the stock equity incentive plan (the “Plan”). Below is a summary of the Plan, which is qualified in its entirety by the full text of the Plan, attached hereto as Exhibit 10.8 to the registration statement on Form S-1 of which this prospectus is a part, incorporated herein by reference.
Overview and Purpose
The purpose of the Plan is to attract, retain and provide incentives to key management employees and non-employee directors of, and non-employee consultants to, the Company and its Affiliates, and to align the interests of such employees, non-employee directors and non-employee consultants with those of the Company’s shareholders. Accordingly, the Plan provides for the granting of distribution equivalent rights, incentive stock options, non-qualified stock options, performance unit awards, restricted stock awards, restricted stock unit awards, stock appreciation rights, tandem stock appreciation rights, unrestricted stock awards or any combination of the foregoing, as may be best suited to the circumstances of the particular employee, director or consultant as provided in the Plan.
Material Terms of the Stock Incentive Plan
The maximum aggregate number of shares that shall be available and may be issued pursuant to awards granted under the Plan shall be, a total of 1,500,000 shares of common stock (after giving effect to the Reverse Stock Split), all of which may be granted as incentive stock options. During the terms of the awards, the Company shall keep available at all times the number of shares of common stock required to satisfy such awards. Shares of common stock shall be deemed to have been issued under the Plan solely to the extent actually issued and delivered pursuant to an award.
Administration of the Plan
The Plan designates the committee as the initial Plan administrator, if no such committee is appointed, the Board will be the Plan administrator.
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The Plan administrator determines which directors, officers, consultants and employees are eligible to receive awards under the Plan, the time or times at which awards may be granted, the conditions under which awards may be granted or forfeited to the Company, the number of shares to be covered by any award, the exercise price of any award, whether restrictions or limitations are to be imposed on the shares issuable pursuant to grants of any award, and the nature of any such restrictions or limitations, any acceleration of exercisability or vesting, or waiver of termination regarding any award, based on such factors as the Plan administrator may determine.
Eligibility
All directors, employees and consultants are eligible to participate in the Plan. The extent to which any such individual is entitled to receive a grant of an award pursuant to the Plan will be determined in the sole and absolute discretion of the Plan administrator.
Types of Awards
An award may be granted on more than one occasion to the same employee, director or consultant, and, subject to the limitations set forth in the Plan, such award may include a non-qualified stock option, a restricted stock award, a restricted stock unit award, an unrestricted stock award, a performance unit award, a stock appreciation right, a tandem stock appreciation right, any combination thereof or, solely for employees, an incentive stock option.
Options
An option entitles a holder thereof to purchase a prescribed number of shares at an exercise price set at the time of the grant. The Plan administrator will establish the exercise price at the time each option is granted. To the extent that the aggregate fair market value (determined as of the grant date of the respective incentive stock option) of shares of common stock with respect to which incentive stock options are exercisable for the first time by an individual during any calendar year under all plans of the company and any “parent corporation” or “subsidiary corporation” thereof exceeds $100,000 (or such other individual limit as may be in effect on the grant date), the portion of such incentive stock options that exceeds such threshold shall be treated as a non-qualified stock option. incentive stock options shall be granted to employees only. No incentive stock option shall be granted more than 10 years from the earlier of (x) the date on which the Plan is adopted by the Board, or (y) the date on which the Plan is approved by the Company’s shareholders.
Restricted Stock Awards
Shares of Common Stock awarded pursuant to a restricted stock award shall be recorded in the company’s books and records in the name of the participant of such restricted stock award. if provided for under the award agreement for the restricted stock award, the participant shall have the right to vote shares of common stock subject thereto and to enjoy all other shareholder rights, including the entitlement to receive dividends on the shares of common stock during the restriction period, except that (i) the participant shall not be entitled to delivery of a share certificate (if any) until the restriction period shall have expired, (ii) the company shall retain custody of such share certificate (if any) during the restriction period (with a share power endorsed by the participant in blank), (iii) the participant may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the shares of common stock during the restriction period, and (iv) a breach of the terms and conditions established by the committee pursuant to the award agreement for the restricted stock award shall cause a forfeiture of the restricted stock award. At the time of such award, the committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to restricted stock award, including, but not limited to, rules pertaining to the effect of termination of employment, director status or consultant status prior to expiration of the restriction period. Such additional terms, conditions or restrictions shall be set forth in an award agreement for the restricted stock award made in conjunction with the award. Such award agreement for the restricted stock award may also include provisions relating to (x) subject to the provisions hereof, accelerated vesting of awards, including, but not limited to, accelerated vesting upon the occurrence of a change in control, (y) tax matters (including provisions covering any applicable withholding requirements), and (z) any other matters not inconsistent with the terms and provisions of the plan that the committee shall, in its sole discretion, determine. The terms and conditions of the respective award agreements for restricted stock awards need not be identical.
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Restricted Stock Units
A RSU is a unit equivalent in value to a share credited by means of a bookkeeping entry in the books of the Company which entitles the holder to receive one share of common stock (or the value thereof) for each RSU after a specified vesting period. The Plan administrator may, from time to time, subject to the provisions of the Plan and such other terms and conditions as the Plan administrator may prescribe, grant RSUs to any participant in respect of a bonus or similar payment in respect of services rendered by the applicable participant in a taxation year. The plan administrator shall have the authority to determine the settlement and any vesting terms applicable to the grant of RSUs, provided that the terms applicable to RSUs granted to U.S. taxpayers comply with Section 409A of the Internal Revenue Code of 1986 (the “Code”), to the extent applicable. Upon settlement, holders will redeem each vested RSU for one fully paid and non-assessable share of common stock in respect of each vested RSU.
Holders of a restricted stock unit Award shall be entitled to receive either a cash payment equal to the Fair Market Value of one share of Common Stock or one share of Common Stock, as determined in the sole discretion of the Committee and as set forth in the Award Agreement for the Restricted Stock Unit Award, for each Restricted Stock Unit subject to such Restricted Stock Unit Award, if the Participant satisfies the applicable vesting requirement.
Performance Unit Awards
The Plan administrator sets forth in the applicable award agreement for a Performance Unit Award, the performance goals and the performance period to which such performance goals shall apply which the participant and/or the Company would be required to satisfy before the participant would become entitled to payment, the number of units awarded to the participant and the dollar value assigned to each such unit. At the time of such award, the Plan administrator may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Performance Unit Awards, including, but not limited to, rules pertaining to the effect of termination of employment, Director status or consultant status prior to expiration of the applicable performance period.
Stock Appreciation Rights
The Plan administrator sets forth in the applicable award agreement for a stock appreciation right award the terms and conditions of the stock appreciation right, including (i) the base value for the stock appreciation right, which for purposes of a stock appreciation right which is not a tandem stock appreciation right, shall be not less than the fair market value of a share of common stock on the grant date of the stock appreciation right (unless granted in substitution for an appreciation right previously granted by an entity that is acquired by or merged with the company or an affiliate), (ii) the number of shares of common stock subject to the stock appreciation right, (iii) the period during which the stock appreciation right may be exercised; provided, however, that no stock appreciation right shall be exercisable after the expiration of 10 years from the grant date, and (iv) any other special rules and/or requirements which the committee imposes upon the stock appreciation right. upon the exercise of all or a portion of a stock appreciation right, the participant shall receive a payment from the company, either in cash or in the form of shares of common stock having an equivalent fair market value or in a combination of both, as determined, in the sole discretion of the committee, equal to the product of: (a) the excess of (i) the fair market value of a share of common stock on the date of exercise, over (ii) the base value, multiplied by; (b) the number of shares of common stock with respect to which the stock appreciation right is exercised.
Tandem Stock Appreciation Rights.
If the Plan administrator grants a stock appreciation right which is intended to be a tandem stock appreciation right, the tandem stock appreciation right shall be granted at the same time as the related option, and the following special rules shall apply: (a) the base value shall be equal to or greater than the exercise price under the related option; (b) the tandem stock appreciation right may be exercised for all or part of the shares of common stock which are subject to the related option, but solely upon the surrender by the participant of the participant’s right to exercise the equivalent portion of the related option (and when a share of common stock is purchased under the related option, an equivalent portion of the related tandem stock appreciation right shall be cancelled); (c) the tandem stock appreciation right shall expire no later than the date of the expiration of the related option; (d) the value of the payment with respect to the tandem stock appreciation right may be no more than 100% of the difference between the exercise price under the related option and the fair market value of a share of common stock subject to the related option at the time the tandem stock appreciation right is exercised, multiplied by the number of shares of common stock with respect to which the tandem stock appreciation right is exercised; and (e) the tandem stock appreciation right may be exercised only when the fair market value of a share of common stock subject to the related option exceeds the exercise price under the related option.
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Termination of Plan
The Plan shall continue in effect, unless sooner terminated, until the 10th anniversary of the earlier of the date on which it is adopted by the Board or the date on which it is approved by the shareholders of the Company (in either case, except as to awards outstanding on such date). The Board, in its discretion, may terminate the Plan at any time with respect to any shares of common stock for which awards have not theretofore been granted; provided, however, that the plan’s termination shall not materially and adversely impair the rights of a participant with respect to any award theretofore granted without the written consent of the participant.
Adjustments Upon Changes in Common Stock
In the event of changes in the outstanding common stock or in the capital structure of the company by reason of any stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change in capitalization occurring after the grant date of any award, awards granted under the Plan and any award agreements, the exercise price of options, the base value of stock appreciation rights, and the maximum number of shares of common stock will be equitably adjusted or substituted, as to the number, price or kind of a share of common stock or other consideration subject to such awards to the extent necessary to preserve the economic intent of such award. in the case of adjustments unless the committee specifically determines that such adjustment is in the best interests of the company or its affiliates, the committee shall, in the case of incentive stock options, ensure that any adjustments will not constitute a modification, extension or renewal of the incentive stock options within the meaning of Section 424(h)(3) of the Code and in the case of Non-Qualified Stock Options, ensure that any adjustments will not constitute a modification of such Non-Qualified Stock Options within the meaning of Section 409A of the Code.
Effect Of a Change in Control
In the event of a Change in Control, the Plan administrator may, but shall not be obligated to (i) accelerate, vest or cause the restrictions to lapse with respect to all or any portion of any award, (ii) cancel awards and cause to be paid to the holders of vested awards the value of such awards, if any, as determined by the committee, in its sole discretion, it being understood that in the case of any option with an exercise price that equals or exceeds the price paid for a share of common stock in connection with the change in control or any stock appreciation right with a base value that equals or exceeds the price paid for a share of common stock in connection with the change in control, the committee may cancel the option or stock appreciation right, as applicable, without the payment of consideration therefor, (iii) provide for the issuance of substitute awards or the assumption or replacement of such awards, or (iv) provide written notice to participants that for a reasonable period prior to the change in control, such awards shall be exercisable, to the extent applicable, as to all shares of common stock subject thereto and upon the occurrence of the change in control, any awards not so exercised shall terminate and be of no further force and effect. The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to all or substantially all of the assets and business of the Company and its affiliates, taken as a whole.
Restrictions on Transfer
No Award under the Plan or any award agreement and no rights or interests therein, shall or may be assigned, transferred, sold, exchanged, encumbered, pledged or otherwise hypothecated or disposed of by a participant except (i) by will or by the laws of descent and distribution, or (ii) except for an incentive stock option, in the sole discretion of the Plan administrator, by gift to any family member of the participant. An award may be exercisable during the lifetime of the participant only by such participant or by the participant’s guardian or legal representative unless it has been transferred by gift to a family member of the participant, in which case it shall be exercisable solely by such transferee. Notwithstanding any such transfer, the participant shall continue to be subject to the tax withholding obligations set forth in the award agreement.
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The Plan and the awards granted under the Plan are intended to comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan and award agreements shall be interpreted and administered to be in compliance therewith. Any payments described in the Plan that are due within the “short-term deferral period” as defined in Section 409A of the Code shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan or any award agreement, to the extent required to avoid accelerated taxation and tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six-month period immediately following the “separation from service” (within the meaning of Section 409A of the Code) of a Participant who is a “specified employee” (within the meaning of Section 409A of the Code) shall instead be paid on the first payroll date after the six-month anniversary of such Participant’s separation from service (or such Participant’s death, if earlier). Notwithstanding the foregoing, neither the Company nor the Committee shall have any obligation to take any action to prevent the assessment of any additional tax or penalty on any Participant under Section 409A of the Code, and neither the Company nor the Committee will have any liability to any Participant for such tax or penalty.
Outstanding Equity Awards at December 31, 2024
Other than as set forth below, there were no outstanding unexercised options, unvested stock, and/or equity incentive plan awards issued to our executive officers and directors as of December 31, 2024, after giving effect to the Reverse Stock Split retrospectively for all periods presented.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||
| Name | Grant Date | Number of securities underlying unexercised options (#) exercisable (1) | Number of securities underlying unexercised options (#) unexercisable | Equity incentive plan awards: number of securities underlying unexercised unearned options (#) | Option exercise price ($) | Option expiration date | Number of shares of restricted stock # | Market value of shares of restricted stock ($) | ||||||||||||||||||||||
| Mark Hamm | 6/1/22 | 120,085 | 72,051 | 192,136 | 0.82 | 5/31/32 | — | — | ||||||||||||||||||||||
| Todd Pepmeier | 8/16/23 | 391 | 859 | — | 0.76 | 8/15/33 | — | — | ||||||||||||||||||||||
| Todd Pepmeier | 11/13/23 | 19,531 | 42,969 | 62,500 | 0.76 | 11/12/33 | — | — | ||||||||||||||||||||||
| Lora O’Toole | 12/28/23 | 12,500 | 37,500 | — | 0.76 | 12/27/33 | — | — | ||||||||||||||||||||||
| Lora O’Toole | 4/1/24 | — | 1,755 | — | 0.76 | 3/31/34 | — | — | ||||||||||||||||||||||
| Neerav Shah | 4/1/24 | — | 30,000 | — | 0.76 | 3/31/34 | — | — | ||||||||||||||||||||||
| (1) | This option is 100% vested. |
Director Compensation
We intend to establish a director compensation policy after the consummation of the company’s listing. It is currently expected that the non-management directors of the board of directors will be paid an annual directors’ fee, consisting of both cash and equity or other compensation of similar value. Fees to independent directors may be made by issuance of common shares, based on the value of such common share at the date of issuance, rather than in cash, provided that any such issuance does not prevent such director from being determined to be independent. We expect that any of our executive officers who also serve as directors, however, will not be separately compensated by us for their service as directors. We expect that all members of the board of directors will be reimbursed for reasonable costs and expenses incurred in attending meetings of our board of directors.
Fiscal Year 2024 Director Compensation
Kevin McAdams and William Stafford were each granted 2,842 shares of common stock (after giving effect to the Reverse Stock Split retrospectively for all periods presented) for their service to the Board in 2024. These shares vested quarterly and were fully vested as of December 31, 2024.
John Gallina was granted 1,592 shares of common stock (after giving effect to the Reverse Stock Split retrospectively for all periods presented) for his service to the Board in the second half of 2024. These shares vested quarterly and were fully vested as of December 31, 2024.
Fiscal Year 2023 Director Compensation
Kevin McAdams and William Stafford were each granted 4,375 shares of common stock (after giving effect to the Reverse Stock Split retrospectively for all periods presented) for their service to the Board in 2023. These shares vested quarterly and were fully vested as of December 31, 2023.
Former director, Greg Beriault, was granted 625 shares of common stock (after giving effect to the Reverse Stock Split retrospectively for all periods presented) for his service as an interim director on October 2, 2023. These shares were fully vested as of December 31, 2023.
Fiscal Year 2022 and 2021 Director Compensation
John Callan (former director) was awarded 33,333 shares of common stock in 2021. These shares vested quarterly, with 6,667 shares of common stock vested in 2021, 13,333 shares of common stock vested in 2022, 13,333 shares of common stock vested as of December 2023, after giving effect to the Reverse Stock Split retrospectively for all periods presented. This award is fully vested.
No other directors received compensation for their service as members of the Board in 2022 or 2021.
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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
The following is a description of transactions since 2020, including currently proposed transactions to which Arrive has been a party in which the amount involved exceeded or will exceed $120,000, and in which any of Arrive AI’s directors (including nominees), executive officers or beneficial holders of more than 5% of Arrive AI’s capital stock, or their immediate family members or entities affiliated with them, had or will have a direct or indirect material interest. We believe the terms and conditions set forth in such agreements are reasonable and customary for transactions of this type.
Exclusive Patent License Agreement
Arrive executed an exclusive patent license agreement on May 26, 2020 with its CEO, the licensor and sole owner of all right, title and interest in certain technology consisting of inventions, know-how, patents and patents applications, technology to be patented and trademarks relating to secured drone delivery ALM mailboxes and receiving containers for residential and commercial applications, collectively the products which are described in more detail in the table below. The Company, as licensee, has the exclusive right to sell, manufacture, and otherwise commercialize the technology and the products worldwide in exchange for a pre-revenue monthly fee equal to $10,000.00. Additionally, once revenue from sales, rentals, and leases begin and exceeds $10,000.00 a month, then the licensee must pay licensor a fee per unit or product sold, rented or leased equal to $25.00. The agreement also includes a provision where the Arrive must commence development and marketing of the products within 36 months of the execution of the agreement in order to remain in force, otherwise at the end of the 36 months, all rights shall revert to licensor with no further rights for such product or obligations of licensor to licensee, however if no action is taken by the licensor, the agreement has a term of seven years, a period which may be extended upon mutual consent and in the best interest for both parties. Although Arrive has commenced development of its products, it has not started conducting commercial operations nor the Company has provided the services or marketing during the agreed upon timeframe. This license agreement also contains other customary representations and covenants of agreements of similar type and scope. Through December 31, 2024, the total of payments made to the CEO under the license agreement is $540,000, The Company estimates that the approximate value of the license agreement once the Company starts generating revenue from commercial operations is approximately $17 million over the course of ten years, this is using the formula of $25 per each installed unit and based on management’s internal sales projections of approximately 675,000 units over that period. The foregoing description of the license agreement is not complete and is qualified in its entirety by reference to the text of such document, which is filed as an exhibit to this registration statement.
Products and intellectual property covered by the exclusive patent license agreement with our CEO:
| Item | Patent No. | Title | Issue Date | App. No. | Inventor | App. Date | ||||||
| 1 | US9,840,340B2 | Drone Docking Station and delivery system | December 12 2017 | 14/55,418 | Daniel O’Toole | December 9, 2014 | ||||||
| 2 | US10,457,421B2 | Drone Docking Station and delivery system | October 29, 2019 | 15/328,027 | Daniel O’Toole | January 21, 2017 | ||||||
| 3 | Pending–PubNoWO2016/094067 June 16, 2016 | Drone Docking Station and delivery system | --- | PCT/US15/62034 | Daniel O’Toole | November 21, 2015 | ||||||
| 4 | Trademark App 88522545 | DRONEDEK | Pending | 88522545 | Daniel O’Toole | July 18, 2019 | ||||||
| 5 | TBD | Special Expanding Floor Accordion drone docking station called a Dronedeck | Pending | 63012824 | Daniel O’Toole | April 20, 2020 | ||||||
| 6 | TBD | Special Expanding Floor Accordion drone docking station called a Dronedeck Temperature Control Device | Pending | 63012824 | Daniel O’Toole | April 20, 2020 | ||||||
| 7 | TBD | Commercial Dronedeck receiving device and system | TBD | TBD | Daniel O’Toole |
On December 10, 2024, the Company and its CEO, Mr. O’Toole, entered into the First Amendment to the Exclusive Patent License Agreement, whereby the term of such agreement was extended beyond the original seven years to perpetuity for the full life of the covered patents. If the Company materially defaults in performing any terms of the agreement and does not cure timely to Mr. O’Toole’s satisfaction, Mr. O’Toole may terminate the agreement upon proper notice. Subsequent to the termination of the agreement, the Company agrees to not engage in the use, sale, or other commercialization of the intellectual properties and not sell related products. The foregoing description of the license agreement is not complete and is qualified in its entirety by reference to the text of such document, which is filed as an exhibit to this registration statement.
On March 10, 2025, the Company and its CEO, Mr. O’Toole, entered into the Second Amendment to the Exclusive Patent License Agreement. The Second Amendment extends the license to perpetuity, covering the full term and life of the patents, and incorporates all terms from the original Agreement and the First Amendment. In the event of a default, the defaulting party has 60 days to cure. If the default is not cured, the license transitions to a non-exclusive license, allowing both parties to seek additional licensees or sources for similar technology, while royalty payments continue into perpetuity or until the 20-year patent term ends. The Second Amendment also removes prior restrictions on the Company’s use, sale, or commercialization of the technology after termination, permitting the sale of remaining inventory for up to 90 days post-termination, provided all required reports and payments are made under the Agreement. The foregoing description of the license agreement is not complete and is qualified in its entirety by reference to the text of such document, which is filed as an exhibit to this registration statement.
PRINCIPAL AND REGISTERED STOCKHOLDERS
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of March 21, 2025:
| ● | certain information regarding the beneficial ownership of our common stock as of March 21, 2025 by (a) each stockholder who is known to us to own beneficially 5% or more of our outstanding common stock; (b) all directors; (c) our executive officers, and (d) all executive officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their common stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their common stock; and | |
| ● | the number of shares of our common stock held by and registered for resale by means of this prospectus for the Registered Stockholders. |
The Stockholders include substantially all holders of our common stock, including (i) affiliates of the Company and certain other stockholders with “restricted securities” (as defined in Rule 144 under the Securities Act) who, because of their status as affiliates pursuant to Rule 144 or because they acquired their common stock from an affiliate or the Company within the prior 12 months, would be unable to sell their securities pursuant to Rule 144 until the Company has been subject to the reporting requirements of Section 13 or Section 15(d) the Exchange Act for a period of at least 90 days and (ii) our employees. All outstanding shares as of the date of this prospectus represent one hundred percent (100%) of the company’s currently issued and outstanding common stock, all of such outstanding shares as of the date of this prospectus may be freely sold upon the effective date of this registration statement. None of such outstanding shares as of the date of this prospectus and registered herein may be freely sold in reliance on an exemption from registration such as Rule 144 at this time. The Stockholders may, or may not, elect to sell their common stock through transactions on Nasdaq at prevailing market prices. As such, the Company will have no input if and when any Stockholder may, or may not, elect to sell their common stock or the prices at which any such sales may occur. See “Plan of Distribution.”
Information concerning the Stockholders may change from time to time and any changed information will be set forth in supplements to this prospectus, if and when necessary. Because the Stockholders may sell all, some, or none of the common stock covered by this prospectus, we cannot determine the number of common stock that will be sold by the Stockholders, or the amount or percentage of shares of common stock that will be held by the Stockholders upon consummation of any particular sale. In addition, the Stockholders listed in the table below may have sold, transferred, or otherwise disposed of, or may sell, transfer, or otherwise dispose of, at any time and from time to time, our common stock in transactions exempt from the registration requirements of the Securities Act, after the date on which they provided the information set forth in the table below.
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The Stockholders are not entitled to any registration rights with respect to the common stock. However, we currently intend to use our reasonable efforts to keep the registration statement effective for a period of 90 days after the effectiveness of the registration statement. We are not party to any arrangement with any Stockholder or any broker-dealer with respect to sales of common stock by the Stockholders. See “Plan of Distribution.”
In accordance with the rules of the SEC, beneficial ownership includes voting or investment power with respect to securities and includes the common stock issuable pursuant to options and warrants that are exercisable or settled within 60 days. Shares of common stock issuable pursuant to options and warrants are deemed outstanding for computing the percentage of the class beneficially owned by the person holding such securities but are not deemed outstanding for computing the percentage of the class beneficially owned by any other person. The percentage of beneficial ownership for the following table is based on total shares of common stock outstanding as of March 21, 2025 (after giving effect to the Reverse Stock Split).
The Stockholders have not, nor have they within the past three years had, any position, office, or other material relationship with us, other than as disclosed in this prospectus. See “Management’s Discussion & Analysis of Financial Results and Condition” and “Certain Relationships and Related Party Transactions” for further information regarding the Registered Stockholders. The business address of each Stockholder is c/o Arrive AI Inc., formerly Arrive Technology Inc., 651 N. Broad St., Suite 206, Middletown, DE 19709, unless otherwise indicated below.
| Name and address of Beneficial Owner | Shares Beneficially Owned(2) | Total Voting % | Shares of Common Stock Being Registered(2) | |||||||||
| 5% Stockholders: | ||||||||||||
| Dan O’Toole, CEO | 23,578,581 | 78.1 | 23,578,581 | |||||||||
| Named Executive Officers and Directors | ||||||||||||
| Daniel O’Toole | 23,578,581 | 78.1 | 23,578,581 | |||||||||
| Todd Pepmeier | 27,813 | (3) | 0.1 | |||||||||
| Mark Hamm | 132,093 | (4) | 0.4 | |||||||||
| Lora O’Toole | 20,708 | (5) | 0.1 | 4,644 | ||||||||
| Neerav Shah | 147,525 | (6) | 0.5 | 140,025 | ||||||||
| John Ritchison | 1,375,000 | 4.6 | 1,375,000 | |||||||||
| Kevin McAdams | 7,217 | 0.0 | 7,217 | |||||||||
| Bill Stafford | 7,217 | 0.0 | 7,217 | |||||||||
| John Gallina | 1,592 | 0.0 | 1,592 | |||||||||
| Directors and Executive Officers as a Group (9 persons) | 25,297,746 | (7) | 83.8 | 25,114,276 | ||||||||
| Other Stockholders: | ||||||||||||
| Non-Executive Officer Employees, Consultants and Service Providers | 199,557 | (8) | 0.7 | 128,327 | ||||||||
| Maxim Partners LLC | 532,913 | 1.8 | 532,913 | |||||||||
| All Other Stockholders | 4,152,813 | (1)(9) | 13.8 | 4,052,530 | ||||||||
| Total Number of Shares | 30,183,029 | 100.0 | 29,828,046 | |||||||||
| (1) | 552,484 shares held by affiliates to the Company or considered insiders, all of whom are family members of our CEO. Less than 2%. 525,000 shares are held by Stacia O’Toole, 25,000 shares are held by Lois O’Toole, 1,250 shares are held by Steve O’Toole, 1,000 shares are held by Michelle O’Toole, 128 shares are held by Bryce O’Toole, and 106 shares are held by Reese O’Toole. |
| (2) | After giving effect to the Reverse Stock Split retrospectively for all periods presented. |
| (3) | Includes 27,813 shares of common stock issuable upon the exercise of outstanding options by Todd Pepmeier within 60 days of this prospectus (of which such issuable shares are not registered under this registration statement). |
| (4) | Includes 132,093 shares of common stock issuable upon the exercise of outstanding options by Mark Hamm within 60 days of this prospectus (of which such issuable shares are not registered under this registration statement). |
| (5) |
Includes (i) 4,644 shares of common stock held by Lora O’Toole; and (ii) 16,064 shares of common stock issuable upon the exercise of outstanding options within 60 days of this prospectus (of which such issuable shares are not registered under this registration statement). |
| (6) | Includes (i) 140,025 shares of common stock held by Neerav Shah; and (ii) 7,500 shares of common stock issuable upon the exercise of outstanding options within 60 days of this prospectus (of which such issuable shares are not registered under this registration statement). |
| (7) | Includes (i) 25,114,276 shares of common stock held by the Directors and Executive Officers as a group; and (ii) 183,470 shares of common stock issuable upon the exercise of outstanding options within 60 days of this prospectus (of which such issuable shares are not registered under this registration statement). |
| (8) | Includes (i) 128,327 shares of common stock held by the Non-Executive Officer Employees, Consultants and Service Providers as a Group; and (ii) 71,230 shares of common stock issuable upon the exercise of outstanding warrants or options within 60 days of this prospectus (of which such issuable shares are not registered under this registration statement). |
| (9) | Includes (i) 4,052,530 shares of common stock held by All Other Stockholders as a Group; and (ii) 100,283 shares of common stock issuable upon the exercise of outstanding warrants or options within 60 days of this prospectus (of which such issuable shares are not registered under this registration statement). |
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The following descriptions are summaries of the material terms of our certificate of incorporation and bylaws. Reference is made to the more detailed provisions of, and the descriptions are qualified in their entirety by reference to, the certificate of incorporation and bylaws, forms of which are filed with the SEC as exhibits to the registration statement of which this prospectus is a part, and applicable law.
General
Our authorized capital stock consists of 200,000,000 shares of common stock, par value $0.0002 per share, of which 29,828,046 are issued and outstanding as of March 21, 2025, after giving effect to the Reverse Stock Split retrospectively for all periods presented.
Common Stock
As of March 21, 2025, there were 29,828,046 shares of our common stock outstanding held by approximately 4,800 stockholders of record.
Preferred Stock
Our current certificate of incorporation does not permit the issuance of preferred stock and so we have no preferred stock outstanding at the date hereof. Although we do not currently intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future.
Certain Anti-takeover Provisions of Delaware Law, our Certificate of Incorporation and Bylaws
As a Delaware corporation, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally has an anti-takeover effect for transactions not approved in advance by our Board. This may discourage takeover attempts that might result in payment of a premium over the market price for the shares of common stock held by stockholders. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the time that such stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes, among other things, a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more of the Company’s voting stock.
Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:
| ● | before the stockholder became interested, the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; or | |
| ● | upon consummation of the transaction which resulted in the stockholder becoming an interested outstanding, shares owned by: |
| ● | persons who are directors and also officers, and | |
| ● | employee stock plans, in some instances; or | |
| ● | at or after the time the stockholder became interested, the business combination was approved by the board of directors are authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. |
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Exclusive Forum for certain lawsuits
Our current certificate of incorporation provides, that unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, or (iv) any action asserting a claim governed by the internal affairs doctrine, shall be a state or federal court located within the state of Delaware, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the above forum exclusivity provisions. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation and bylaws has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable.
The forum selection provision is intended to apply “to the fullest extent permitted by applicable law,” subject to certain exceptions. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, the exclusive forum provision will not apply to actions brought under the Securities Act, or the rules and regulations thereunder.
Special meeting of stockholders
Our bylaws further provide that special meetings of our stockholders may be called by the Chairman of the Board, the Board, President of Arrive AI Inc., formerly Arrive Technology Inc., or by the Board upon written request by the holders of a majority of the voting authority of Arrive AI Inc.
Removal of directors
Our bylaws provide that a member of our Board may be removed from service as a director, with or without cause, only by the affirmative vote of the holders of a majority of the shares of voting stock then outstanding and entitled to vote in an election of directors.
Limitation of Liability and Indemnification of Directors and Officers
Our bylaws provide that our directors and officers will be indemnified by us to the fullest extent authorized by Delaware law.
These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We believe that these provisions, insurance and the indemnity agreements are necessary to attract and retain talented and experienced directors and officers.
We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification, except as disclosed below. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
We are currently engaged in legal proceedings which may require us to indemnify certain officers and directors if the outcome of either proceeding is adverse to our interests. Please see the section of this prospectus titled “Legal Proceedings.”
Listing
We have applied to list our common stock on the Nasdaq Global Market under the symbol “ARAI”.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Odyssey Transfer and Trust Company. The transfer agent and registrar’s address is 2155 Woodlane Drive, Suite 100, Woodbury, MN 55125. The transfer agent and registrar can be contacted by phone at: (612) 482-5100 or (888) 290-1175.
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All the shares covered in this registration statement represent 100% of the company’s currently issued and outstanding common stock. All such shares being registered under this prospectus may be freely sold upon effectiveness of this registration statement. None of the Company’s outstanding shares may be freely sold in reliance on an exemption from registration such as Rule 144 at this time. The shares of common stock beneficially owned by the Registered Stockholders covered by this prospectus may be offered and sold from time to time by the Registered Stockholders. The term “Registered Stockholders” includes donees, pledgees, transferees or other successors in interest selling securities received after the date of this prospectus from a Registered Stockholder as a gift, pledge, partnership distribution or other transfer. We will not receive any of the proceeds from the sale of the securities by the Registered Stockholders. The Registered Stockholders will not be involved in Nasdaq’s price-setting mechanism, including any decision to delay or proceed with trading, nor will they control or influence the advisor in carrying out its role as a financial adviser. We will not be involved in the price setting process. Additionally, the price of our shares in prior private transactions may have little or no relation to the opening price and subsequent public price of our stock on Nasdaq. The Registered Stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. The Registered Stockholders may offer, sell or distribute all or a portion of the securities hereby registered publicly at prevailing market prices. We are not party to any arrangement with any Registered Stockholder or any broker-dealer with respect to sales of shares of common stock by the Registered Stockholders. As such, we do not anticipate receiving notice as to if and when any Registered Stockholder may, or may not, elect to sell their shares of common stock or the prices at which any such sales may occur, and there can be no assurance that any Registered Stockholders will sell any or all of the shares of common stock covered by this prospectus.
On the day that our shares of common stock are initially listed on Nasdaq, Nasdaq will begin accepting, but not executing, pre-opening buy and sell orders and will begin to continuously generate the indicative Current Reference Price (as defined below) on the basis of such accepted orders. The Current Reference Price is calculated each second and, during a 10-minute “Display Only” period, is disseminated, along with other indicative imbalance information, to market participants by Nasdaq on its NOII and BookViewer tools. Following the “Display Only” period, a “Pre-Launch” period begins, during which the Maxim Group LLC (the “Advisor” or “Maxim”), in its capacity as our financial advisor, must notify Nasdaq that our shares are “ready to trade.” Once the Advisor has notified Nasdaq that our shares of common stock are ready to trade, Nasdaq will confirm the Current Reference Price for our shares of common stock, in accordance with the Nasdaq rules. If the Advisor then approves proceeding at the Current Reference Price, the applicable orders that have been entered will then be executed at such price and regular trading of our shares of common stock on Nasdaq will commence, subject to Nasdaq conducting validation checks in accordance with the Nasdaq rules.
Under the Nasdaq rules, the Current Reference Price means: (i) the single price at which the maximum number of orders to buy or sell can be matched; (ii) if there is more than one price at which the maximum number of orders to buy or sell can be matched, then it is the price that minimizes the imbalance between orders to buy or sell (i.e. minimizes the number of shares that would remain unmatched at such price); (iii) if more than one price exists under (ii), then it is the entered price (i.e. the specified price entered in an order by a customer to buy or sell) at which our shares of common stock will remain unmatched (i.e. will not be bought or sold); and (iv) if more than one price exists under (iii), a price determined by Nasdaq in consultation with the Advisor in its capacity as our financial advisor. In the event that more than one price exists under (iii), the Advisor will exercise any consultation rights only to the extent that it can do so consistent with the anti-manipulation provisions of the federal securities laws, including Regulation M, or applicable relief granted thereunder.
In determining the Current Reference Price, Nasdaq’s cross algorithms will match orders that have been entered into and accepted by Nasdaq’s system. This occurs with respect to a potential Current Reference Price when orders to buy shares of common stock at an entered bid price that is greater than or equal to such potential Current Reference Price are matched with orders to sell a like number of shares of common stock at an entered asking price that is less than or equal to such potential Current Reference Price. To illustrate, as a hypothetical example of the calculation of the Current Reference Price, if Nasdaq’s cross algorithms matched all accepted orders as described above, and two limit orders remained — a limit order to buy 500 shares of common stock at an entered bid price of $10.01 per share and a limit order to sell 200 shares of common stock at an entered asking price of $10.00 per share — the Current Reference Price would be selected as follows:
● Under clause (i), if the Current Reference Price is $10.00, then the maximum number of additional shares that can be matched is 200. If the Current Reference Price is $10.01, then the maximum number of additional shares that can be matched is also 200, which means that the same maximum number of additional shares would be matched at the price of either $10.00 or $10.01.
● Because more than one price under clause (i) exists, under clause (ii), the Current Reference Price would be the price that minimizes the imbalance between orders to buy or sell (i.e. minimizes the number of shares that would remain unmatched at such price). Selecting either $10.00 or $10.01 as the Current Reference Price would create the same imbalance in the limit orders that cannot be matched, because at either price 300 shares would not be matched.
● Because more than one price under clause (ii) exists, under clause (iii), the Current Reference Price would be the entered price at which orders for shares of common stock at such entered price will remain unmatched. In such case, choosing $10.01 would cause 300 shares of the 500 share limit order with the entered price of $10.01 to remain unmatched, compared to choosing $10.00, where all 200 shares of the limit order with the entered price of $10.00 would be matched, and no shares at such entered price remain unmatched. Thus, Nasdaq would select $10.01 as the Current Reference Price, because orders for shares at such entered price will remain unmatched. The above example (including the prices) is provided solely by way of illustration.
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The Advisor will determine when our shares of common stock are ready to trade and approve proceeding at the Current Reference Price primarily based on considerations of volume, timing and price. In particular, the Advisor will determine, based primarily on pre-opening buy and sell orders, when a reasonable amount of volume will cross on the opening trade such that sufficient price discovery has been made to open trading at the Current Reference Price. If the Advisor does not approve proceeding at the Current Reference Price (for example, due to the absence of adequate pre-opening buy and sell interest), the Advisor will request that Nasdaq delay the opening until such a time that sufficient price discovery has been made to ensure that a reasonable amount of volume crosses on the opening trade. Further, in the highly unlikely event that Nasdaq consults with the Advisor as described in clause (iv) of the definition of Current Reference Price, the Advisor would request that Nasdaq delay the opening to ensure a single opening price within clauses (i), (ii) or (iii) of the definition of the Current Reference Price. The Registered Stockholders will not be involved in Nasdaq’s price-setting mechanism, and will not coordinate or be in communication with the Advisor including with respect to any decision by the Advisor to delay or proceed with trading.
Similar to a Nasdaq-listed firm-commitment underwritten initial public offering, in connection with the listing of our shares of common stock, buyers and sellers who have subscribed will have access to Nasdaq’s Order Imbalance Indicator (the “Net Order Imbalance Indicator”), a widely available, subscription-based data feed, prior to submitting buy or sell orders. Nasdaq’s electronic trading platform simulates auctions every second to calculate a Current Reference Price, the number of shares of common stock that can be paired off the Current Reference Price, the number of shares of common stock that would remain unexecuted at the Current Reference Price and whether a buy-side or sell-side imbalance exists, or whether there is no imbalance, to disseminate that information continuously to buyers and sellers via the Net Order Imbalance Indicator data feed.
Pursuant to the terms of our engagement with Maxim, for a period of 12 months beginning on the date this registration statement is effective, we have granted Maxim the right of first refusal to act as exclusive underwriter and book running manager, exclusive placement or sales agent, or our exclusive advisor, as applicable, in connection with any and all public offerings of our securities on a US stock exchange, private placement of our securities or other such financing during such 12 month period. Such right of first refusal is subject to our termination of our engagement with Maxim for gross negligence, willful misconduct or an uncured material breach of our engagement with Maxim.
However, because this is not an initial public offering being conducted on a firm-commitment underwritten basis, there will be no traditional book building process. Moreover, prior to the opening trade, there will not be a price at which underwriters initially sold shares of common stock to the public, as there would be in a firm-commitment underwritten initial public offering. The lack of an initial public offering price could impact the range of buy and sell orders collected by Nasdaq from various broker-dealers. Consequently, the public price of our shares of common stock may be more volatile than in an initial public offering underwritten on a firm-commitment basis and could, upon being listed on Nasdaq, decline significantly and rapidly. See “Risk Factors—Risks Related to Ownership of Our Common Stock — Our shares of common stock currently have no public market. An active trading market may not develop or continue to be liquid and the market price of our shares of common stock may be volatile.”
In addition, to list on Nasdaq, we are also required to have at least three registered and active market makers. We expect that the Advisor will act as a registered and active market maker and will engage other market makers.
In addition to sales made pursuant to this prospectus, the shares of common stock covered by this prospectus may be sold by the Registered Stockholders in private transactions exempt from the registration requirements of the Securities Act.
Under the securities laws of some states, shares of common stock may be sold in such states only through registered or licensed brokers or dealers.
If any of the Registered Stockholders utilize a broker-dealer in the sale of the shares of common stock being offered by this prospectus, such broker-dealer may receive commissions in the form of discounts, concessions or commissions from such Registered Stockholder or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal.
We have engaged Maxim as our financial advisor to advise and assist us with respect to certain matters relating to our listing. The services expected to be performed by the Advisor will include providing advice and assistance with respect to defining objectives, analyzing, structuring and planning the listing and developing and assisting with our investor communication strategy in relation to this listing.
However, the Advisor will not be engaged to otherwise facilitate or coordinate price discovery activities or sales of shares of our common stock in consultation with us, and will not be permitted to, and will not be instructed by us to, plan or actively participate in any investor education activities, except as described herein.
Prior to the financial advisory services provided by the Advisor to the Company in connection with the listing of our securities, neither the Advisor nor any affiliates of the Advisor have provided services of any kind to the Company. However, the Advisor is a full service financial institution engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The Advisor and their affiliates may, from time to time, perform financial advisory and investment banking services for us, for which they would receive customary fees, discounts and customary payments including but not limited to certain expense reimbursements.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the listing of our common stock on Nasdaq, there has been no public market for our common stock. Sales of a substantial number of shares our common stock in the public market following our listing on Nasdaq, or the perception that such sales could occur, could adversely affect the public price of our common stock and may make it more difficult for you to sell your shares at a time and price that you deem appropriate. We will have no input if and when any Stockholders may, or may not, elect to sell their shares or the prices at which any such sales may occur.
Upon our registration, a total of 29,828,046 shares of common stock will be outstanding, and 29,828,046 shares will be registered under this registration statement, constituting substantially all of our outstanding shares of common stock. Any shares not registered hereunder will be “restricted securities,” as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act, including, but not limited to, the shares registered hereunder, or if they qualify for an exemption from registration, including under Rules 144 or 701 under the Securities Act, which are summarized below. Restricted securities also may be sold outside of the United States to non-U.S. persons in accordance with Rule 904 of Regulation S. Substantially all of our common stock may be sold after our initial listing on Nasdaq by the Registered Stockholders pursuant to this prospectus.
Rule 144
In general, under Rule 144 as currently in effect, once we have been subject to and in compliance with public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, an eligible shareholder is entitled to sell such shares without complying with the manner of sale, volume limitation, or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. To be an eligible shareholder under Rule 144, such shareholder must not be deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares of common stock proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates. If such a person has beneficially owned the shares of common stock proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling common stock on behalf of our affiliates are entitled to sell shares 90 days after we become a reporting company. Within any three-month period, such shareholders may sell a number of shares that does not exceed the greater of:
| ● | 1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after our registration; or | |
| ● | the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
Sales under Rule 144 by our affiliates or persons selling shares of common stock on behalf of our affiliates also are subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
As described herein, substantially all of our outstanding shares of our common stock will be registered under this registration statement and need not be sold under Rule 144.
Rule 701
Rule 701 generally allows a shareholder who was issued shares under a written compensatory plan or contract and who is not deemed to have been an affiliate of our Company during the immediately preceding 90 days, to sell these shares in reliance on Rule 144, but without being required to comply with the public information, holding period, volume limitation, or notice provisions of Rule 144. Rule 701 also permits affiliates of our Company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after we become a reporting company before selling those shares under Rule 701.
As described herein, substantially all of our outstanding shares of our common stock will be registered under this registration statement and need not be sold under Rule 701.
Registration Statements on Form S-8
We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock subject to outstanding stock options or reserved for issuance under our stock incentive plan, as soon as permitted under the Securities Act. Such registration statements will automatically become effective upon filing with the SEC. However, shares registered on Form S-8 may be subject to the volume limitations and the manner of sale, notice, and public information requirements of Rule 144.
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SALE PRICE HISTORY OF COMMON STOCK
We intend to apply to list our common stock on Nasdaq. Prior to the initial listing, no public market existed for our common stock. Our common stock has a limited history of trading in private transactions. During 2023, we issued in a private placement 5,715 shares of common stock at a price of $7.00 per share, 83,873 shares of common stock at an average price of $10.60 per share, 50,815 shares of common stock at a price of $11.20 per share and 28,071 shares of common stock at a price of $12.16 per share, after giving effect to the Reverse Stock Split. In January, March, July and August 2024, we issued in private placements 13,643 shares of common stock at a price of $11.20 per share, after giving effect to the Reverse Stock Split. From January through October 2024, we issued in private placements 197,515 shares of common stock at a price of $12.16 per share. In November 2024, we issued in private placements 28,291 shares of common stock at a price of $13.00 per share, after giving effect to the Reverse Stock Split. From January 2025 through the date of this document, we issued in private placements 33,846 shares of common stock at a price of $13.00 per share. While the Advisor is expected to consider this price in connection with setting the opening public price of our common stock, this information may have little or no relation to broader market demand for our common stock and thus the opening public price and subsequent public price of our common stock on Nasdaq. As a result, you should not place undue reliance on this historical private sale price as it may differ materially from the opening public price and subsequent public price of our common stock on Nasdaq. See “Risk Factors— Risks Related to this Direct Listing and Ownership of Our Common Stock”
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material U.S. federal income tax considerations with respect to the acquisition, ownership and disposition of shares of our Common Stock issued pursuant to this Offering. This summary does not provide a complete analysis of all potential U.S. federal income tax considerations relating thereto. The information provided below is based upon provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder, administrative rulings, and judicial decisions currently in effect. These authorities may change at any time, possibly retroactively, or the Internal Revenue Service (the “IRS”) might interpret the existing authorities differently. In either case, the tax considerations of owning or disposing of our Common Stock could differ from those described below. As a result, we cannot assure you that the tax consequences described in this discussion will not be challenged by the IRS or will be sustained by a court if challenged by the IRS.
This summary does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws, except to the limited extent provided below. In addition, this discussion does not address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:
| ● | banks, insurance companies or other financial institutions; | |
| ● | partnerships or entities or arrangements treated as partnerships or other pass-through entities for U.S. federal tax purposes (or investors in such entities); | |
| ● | corporations that accumulate earnings to avoid U.S. federal income tax; | |
| ● | persons subject to the alternative minimum tax or Medicare contribution tax on net investment income; | |
| ● | tax-exempt organizations or tax-qualified retirement plans; | |
| ● | controlled foreign corporations or passive foreign investment companies; | |
| ● | dealers in securities or currencies; | |
| ● | traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; | |
| ● | persons that own, or are deemed to own, more than 5% of our capital stock (except to the extent specifically set forth below); | |
| ● | certain former citizens or former long-term residents of the United States; | |
| ● | persons who hold our Common Stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction; | |
| ● | persons who do not hold our Common Stock as a capital asset within the meaning of Section 1221 of the Code (generally, for investment purposes); or | |
| ● | persons deemed to sell our Common Stock under the constructive sale provisions of the Code. |
In addition, if a partnership or entity classified as a partnership for U.S. federal income tax purposes is a beneficial owner of our Common Stock, the tax treatment of a partner in the partnership or an owner of the entity will depend upon the status of the partner or other owner and the activities of the partnership or other entity. Accordingly, this summary does not address tax considerations applicable to partnerships that hold our Common Stock, and partners in such partnerships should consult their tax advisors.
INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FOREIGN, STATE OR LOCAL LAWS, AND TAX TREATIES.
Consequences to U.S. Holders
The following is a summary of the U.S. federal income tax consequences that will apply to a U.S. holder of our securities. For purposes of this discussion, you are a U.S. holder if, for U.S. federal income tax purposes, you are a beneficial owner of our securities, other than a partnership, that is:
| ● | an individual citizen or resident of the United States; | |
| ● | a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States, any State thereof or the District of Columbia; | |
| ● | an estate trust whose income is subject to U.S. federal income tax regardless of its source; or | |
| ● | a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) who have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a “United States person.” |
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Distributions
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. However, if we do make distributions in cash or other property on our common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent our distributions exceed both our current and our accumulated earnings and profits, the excess will constitute a return of capital that will first reduce your basis in our common stock, but not below zero, and then will be treated as gain from the sale or other disposition of stock as described below under “—Sale, Exchange or Other Taxable Disposition of Common Stock.”
Dividend income may be taxed to an individual U.S. holder at rates applicable to long-term capital gains, provided that a minimum holding period and other limitations and requirements are satisfied with certain exemptions. Any dividends that we pay to a U.S. holder that is a corporation will qualify for the dividends received deduction if the requisite holding period is satisfied, subject to certain limitations. U.S. holders should consult their own tax advisors regarding the holding period and other requirements that must be satisfied in order to qualify for the reduced tax rate on dividends or the dividends-received deduction.
Sale, Exchange or Other Taxable Disposition of Common Stock
A U.S. holder will generally recognize capital gain or loss on the sale, exchange or other taxable disposition of our common stock. The amount of gain or loss will equal the difference between the amount realized on the sale and such U.S. holder’s adjusted tax basis in such common stock. The amount realized will include the amount of any cash and the fair market value of any other property received in exchange for such common stock. A U.S. holder’s adjusted tax basis in its common stock will generally equal the U.S. holder’s acquisition cost or purchase price, less any prior distributions treated as a return of capital. Gain or loss will be long-term capital gain or loss if the U.S. holder has held the common stock for more than one year. Long-term capital gains of non-corporate U.S. holders are generally taxed at preferential rates. The deductibility of capital losses is subject to certain limitations.
Information Reporting and Backup Withholding
In general, information reporting requirements may apply to dividends paid to a U.S. holder and to the proceeds of the sale or other disposition of our common stock, unless the U.S. holder is an exempt recipient. Backup withholding may apply to such payments if the U.S. holder fails to provide a taxpayer identification number, a certification of exempt status or has been notified by the IRS that it is subject to backup withholding (and such notification has not been withdrawn).
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a U.S. holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.
Unearned Income Medicare Tax
A 3.8% Medicare contribution tax will generally apply to all or some portion of the net investment income of a U.S. holder that is an individual with adjusted gross income that exceeds a threshold amount ($200,000, or $250,000 if married filing jointly).
Consequences to Non-U.S. Holders
The following is a summary of the U.S. federal income tax consequences that will apply to a non-U.S. holder of our securities. For purposes of this summary, a Non-U.S. Holder is any beneficial owner of our Common Stock, other than a partnership, that is not:
| ● | an individual who is a citizen or resident of the United States; | |
| ● | a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state therein or the District of Columbia; | |
| ● | a trust if it (i) is subject to the primary supervision of a U.S. court and one of more U.S. persons have authority to control all substantial decisions of the trust or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or | |
| ● | an estate whose income is subject to U.S. income tax regardless of source. |
If you are a non-U.S. citizen that is an individual, you may, in many cases, be treated as a resident alien, as opposed to a non-resident alien, by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For these purposes, all the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year are counted. Resident aliens are subject to U.S. federal income tax as if they were U.S. citizens. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the ownership or disposition of our Common Stock.
Dividends
As discussed under “Dividend Policy” above, we do not currently expect to declare or pay dividends to our Common Stockholders in the foreseeable future. In the event that we do make distributions of cash or other property on our Common Stock, those distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital, which will first reduce a Non-U.S. Holder’s adjusted tax basis in shares of our Common Stock, but not below zero. Any remaining excess will be treated as gain realized on the sale or other disposition of our Common Stock and will be treated as described below under “Gain on Sale or Other Taxable Disposition of Our Common Stock.”
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Subject to the discussion below on effectively connected income, dividends paid to a Non-U.S. Holder of our Common Stock that is not effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States will generally be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable or successor form) certifying the Non-U.S. Holder’s qualification for the lower treaty rate). A Non-U.S. Holder that does not timely furnish the required documentation, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty. If the Non-U.S. Holder holds the stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to the agent. The holder’s agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty, you may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS in a timely manner.
If dividends paid to a Non-U.S. Holder are effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base maintained by the Non-U.S. Holder in the United States), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States.
Any such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the regular rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted for certain items. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.
Gain on Sale or Other Taxable Disposition of Our Common Stock
Subject to the discussion below under “Information Reporting and Backup Withholding” and “Foreign Account Tax Compliance Act,” a Non-U.S. Holder will generally not be subject to U.S. federal income tax on any gain realized upon the sale, exchange, or other taxable disposition of our Common Stock unless:
| ● | the gain (i) is effectively connected with the conduct by the Non-U.S. Holder of a U.S. trade or business, and (ii) if required by an applicable income tax treaty between the United States and the Non-U.S. holder’s country of residence, is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States (in which the special rules described below apply); | |
| ● | the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the sale, exchange or other disposition of our Common Stock, and certain other requirements are met (in which case the gain would be subject to a flat 30% tax, or such reduced rate as may be specified by an applicable income tax treaty, which may be offset by certain U.S. source capital losses, even though the individual is not considered a resident of the United States); or | |
| ● | the rules of the Foreign Investment in Real Property Tax Act (“FIRPTA”) treat the stock as a “U.S. real property interest” as defined in Section 897 of the Code. |
The FIRPTA rules may apply to a sale, exchange or other disposition of our Common Stock if we are, or were within the shorter of the five-year period preceding the disposition and the Non-U.S. Holder’s holding period, a “U.S. real property holding corporation” (a “USRPHC”), as defined in Section 897 of the Code. In general, we would be a USRPHC if interests in U.S. real estate comprised at least half of the value of our business assets. We do not believe that we are a USRPHC and we do not anticipate becoming one in the future. Even if we become a USRPHC, as long as our Common Stock is regularly traded on an established securities market, such Common Stock will be treated as U.S. real property interests only if beneficially owned by a Non-U.S. Holder that actually or constructively owned more than 5% of our outstanding Common Stock at sometime within the five-year period preceding the disposition.
If any gain from the sale, exchange or other disposition of our Common Stock (1) is effectively connected with a U.S. trade or business conducted by a Non-U.S. Holder, and (2) if required by an applicable income tax treaty between the United States and the Non-U.S. Holder’s country of residence, is attributable to a permanent establishment maintained by such Non-U.S. Holder in the United States, then the gain generally will be subject to U.S. federal income tax at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. If the Non-U.S. Holder is a corporation, under certain circumstances, that portion of its earnings and profits that is effectively connected with its U.S. trade or business, subject to certain adjustments, generally would be subject also to a “branch profits tax.” The branch profits tax rate is 30% unless reduced by applicable income tax treaty.
Non-U.S. Holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
U.S. Federal Estate Tax
The estates of non-resident alien individuals generally are subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our Common Stock will be U.S. situs property and therefore will be included in the taxable estate of a non-resident alien decedent, unless an applicable estate tax treaty between the United States and the decedent’s country of residence provides otherwise.
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Informational Reporting and Backup Withholding
The Code and the Treasury regulations require those who make specified payments to report the payments to the IRS. Among the specified payments are dividends and proceeds paid by brokers to their customers. The required information returns enable the IRS to determine whether the recipient properly included the payments in income. This reporting regime is reinforced by “backup withholding” rules. These rules require the payors to withhold tax from payments subject to information reporting if the recipient fails to cooperate with the reporting regime by failing to provide his taxpayer identification number to the payor, furnishing an incorrect identification number, or failing to report interest or dividends on his returns. The backup withholding tax rate is currently 24%. The backup withholding rules do not apply to payments to corporations, whether domestic or foreign, provided they establish such exemption.
Payments to Non-U.S. Holders of dividends on our Common Stock generally will not be subject to backup withholding, and payments of proceeds made to Non-U.S. Holders by a broker upon a sale of Common Stock will not be subject to information reporting or backup withholding, in each case so long as the Non-U.S. Holder certifies its status as a Non-U.S. Holder (and we or our paying agent do not have actual knowledge or reason to know the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied) or otherwise establishes an exemption. The certification procedures to claim treaty benefits described under “Distributions” will generally satisfy the certification requirements necessary to avoid the backup withholding tax. We must report annually to the IRS any dividends paid to each Non-U.S. Holder and the tax withheld, if any, with respect to these dividends. Copies of these reports may be made available to tax authorities in the country where the Non-U.S. Holder resides. However, under the Treasury regulations, information returns are required to be filed with the IRS in connection with any dividends on our Common Stock paid to the Non-U.S. Holder, regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of our Common Stock within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting, if the beneficial owner certifies, under penalties of perjury, among other things, its status as a Non-U.S. Holder (and the broker does not have actual knowledge or reason to know the holder is a U.S. person) or otherwise establishes an exemption. The payment of proceeds from the disposition of shares of our Common Stock by a Non-U.S. Holder made to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting, except as noted below. Information reporting, but not backup withholding, will apply to a payment of proceeds, even if that payment is made outside of the United States, if you sell our Common Stock through a non-U.S. office of a broker that is:
| ● | a U.S. person (including a foreign branch or office of such person); | |
| ● | a “controlled foreign corporation” for U.S. federal income tax purposes; | |
| ● | a foreign person 50% or more of whose gross income from certain periods is effectively connected with a U.S. trade or business; or | |
| ● | a foreign partnership if at any time during its tax year (a) one or more of its partners are U.S. persons who, in the aggregate, hold more than 50% of the income or capital interests of the partnership or (b) the foreign partnership is engaged in a U.S. trade or business, unless the broker has documentary evidence that the beneficial owner is a Non-U.S. Holder and certain other conditions are satisfied, or the beneficial owner otherwise establishes an exemption (and the broker has no actual knowledge or reason to know to the contrary). |
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Foreign Account Tax Compliance Act
A U.S. federal withholding tax of 30% may apply to dividends and the gross proceeds of a disposition of our Common Stock paid to a foreign financial institution (as specifically defined by the applicable rules) unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). This U.S. federal withholding tax of 30% will also apply to dividends and the gross proceeds of a disposition of our Common Stock paid to a non-financial foreign entity unless such entity provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity. The 30% federal withholding tax described in this paragraph cannot be reduced under an income tax treaty with the United States or by providing an IRS Form W-8BEN or similar documentation. The withholding tax described above will not apply if the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from the rules and certifies as such on a Form W-8BEN-E (or any successor of such form). Under certain circumstances, a Non-U.S. Holder might be eligible for refunds or credits of such taxes. Holders should consult with their own tax advisors regarding the possible implications of the withholding described herein.
The withholding provisions described above generally apply to proceeds from a sale or other disposition of Common Stock and to payments of dividends on our Common Stock.
THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
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The validity of the shares of common stock offered hereby will be passed upon for us by Lucosky Brookman LLP, 101 Wood Avenue South, 5th Floor, Woodbridge, New Jersey.
Assurance Dimensions, independent registered public accounting firm, has audited the financial statements of Arrive AI Inc., formerly Arrive Technology Inc. for the year ended December 31, 2024 and for the year ended December 31, 2023, as set forth in their report included herein. The report of Assurance Dimensions contains an explanatory paragraph about the ability of Arrive AI Inc. to continue as a going concern. The 2024 and 2023 financial statements of Arrive AI Inc. are included in this prospectus and elsewhere in this registration statement in reliance of Assurance Dimensions report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the shares of common stock being offered by this prospectus. This prospectus, which constitutes part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement.
Immediately upon the effectiveness of the registration statement of which this prospectus forms a part, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. We also maintain a website at ArriveAI.com. Upon the effectiveness of the registration statement of which this prospectus forms a part, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
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ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
FINANCIAL STATEMENTS
| F-1 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
TABLE OF CONTENTS
| Page(s) | |
| INDEPENDENT AUDITORS’ REPORT | F-3 |
| FINANCIAL STATEMENTS | F-4 |
| Balance Sheets | F-4 |
| Statements of Operations | F-5 |
| Statements of Changes in Stockholders’ Equity (Deficit) | F-6 |
| Statements of Cash Flows | F-7 |
| Notes to Financial Statements | F-8 - F-30 |
| F-2 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Arrive AI, Inc. (formerly Arrive Technology, Inc.)
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Arrive AI, Inc. (formerly Arrive Technology, Inc.) (the Company) as of December 31, 2024 and 2023, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has an accumulated deficit of $15,920,555 and a net loss for the current year of $4,537,901. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
We determined that there were no critical audit matters.
We have served as the Company’s auditor since 2022.
Coral Springs, FL
March 12, 2025
ASSURANCE DIMENSIONS, LLC
also d/b/a McNAMARA and ASSOCIATES, LLC
TAMPA BAY: 4920 W Cypress Street, Suite 102 | Tampa, FL 33607 | Office: 813.443.5048 | Fax: 813.443.5053
JACKSONVILLE: 7800 Belfort Parkway, Suite 290 | Jacksonville, FL 32256 | Office: 888.410.2323 | Fax: 813.443.5053
ORLANDO: 1800 Pembrook Drive, Suite 300 | Orlando, FL 32810 | Office: 888.410.2323 | Fax: 813.443.5053
SOUTH FLORIDA: 3111 N. University Drive, Suite 621 | Coral Springs, FL 33065 | Office: 754.800.3400 | Fax: 813.443.5053 www.assurancedimensions.com
“Assurance Dimensions” is the brand name under which Assurance Dimensions, LLC including its subsidiary entities McNamara and Associates, LLC (referred together as “AD LLC”) and AbitOs Advisors, LLC (“AbitOs Advisors”), provide professional services. AD LLC and AbitOs Advisors practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable laws, regulations, and professional standards. AD LLC is a licensed independent CPA firm that provides attest services to its clients, and AbitOs Advisors provides tax and business consulting services to their clients. AbitOs Advisors, and its subsidiary entities are not licensed CPA firms.
| F-3 |
ARRIVE AI INC. (FORMERLY ARRIVE TECHNOLOGY INC.)
| December 31, 2024 and 2023 | |||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 129,318 | $ | 325,472 | ||||
| Prepaid expenses | 55,867 | 9,143 | ||||||
| Deferred offering costs | 427,898 | - | ||||||
| Other current assets | 4,179 | - | ||||||
| Total current assets | 617,262 | 334,615 | ||||||
| LONG-TERM ASSETS | ||||||||
| Property and equipment, net | 95,425 | 85,573 | ||||||
| Patents, net | 273,601 | 197,913 | ||||||
| Security deposit | 1,500 | 1,500 | ||||||
| Long-term assets | 370,526 | 284,986 | ||||||
| TOTAL ASSETS | $ | 987,788 | $ | 619,601 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 1,868,689 | $ | 1,025,007 | ||||
| Accrued liabilities | 79,556 | 7,925 | ||||||
| Credit card payable | 3,636 | 37,399 | ||||||
| Current portion of note payable | 8,524 | 7,950 | ||||||
| Total current liabilities | 1,960,405 | 1,078,281 | ||||||
| NONCURRENT LIABILITIES | ||||||||
| Note payable, net of current portion | 10,558 | 19,086 | ||||||
| Total liabilities | 1,970,963 | 1,097,367 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 10) | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Common stock, $0.0002 par value, 200,000,000 shares authorized, 29,120,905 shares and 28,844,643 issued and outstanding at December 31, 2024, and December 31 2023, respectively, net of treasury stock, 2,500,000 shares at cost | 5,822 | 5,769 | ||||||
| Additional paid-in capital, net of offering costs | 14,984,561 | 10,924,624 | ||||||
| Subscription receivable | (53,003 | ) | (25,505 | ) | ||||
| Accumulated deficit | (15,920,555 | ) | (11,382,654 | ) | ||||
| Total stockholders’ equity | (983,175 | ) | (477,766 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 987,788 | $ | 619,601 | ||||
| F-4 |
ARRIVE AI INC. (FORMERLY ARRIVE TECHNOLOGY INC.)
STATEMENTS OF OPERATIONS
| For the Years Ended December 31, 2024 and 2023 | |||||
| 2024 | 2023 | |||||||
| REVENUE | $ | - | $ | - | ||||
| GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||
| Salaries and wages - office | 2,384,925 | 2,610,407 | ||||||
| Impairment losses | - | 1,824,923 | ||||||
| Legal and professional fees | 629,690 | 1,645,678 | ||||||
| Research and development | 395,386 | 214,493 | ||||||
| Outside services | 364,650 | 266,225 | ||||||
| Marketing | 189,076 | 207,234 | ||||||
| Licensing fee - related party | 120,000 | 120,000 | ||||||
| Office supplies and software | 99,008 | 106,011 | ||||||
| Insurance | 83,270 | 67,005 | ||||||
| Taxes and licenses | 67,708 | 69,852 | ||||||
| Rent | 65,840 | 40,550 | ||||||
| Travel | 45,305 | 68,325 | ||||||
| Meals and entertainment | 31,801 | 35,634 | ||||||
| Depreciation | 28,303 | 13,106 | ||||||
| Shipping and freight | 27,243 | 12,271 | ||||||
| Transportation | 14,188 | 13,428 | ||||||
| Utilities | 6,801 | 4,000 | ||||||
| Bank charges and fees | 3,011 | 709 | ||||||
| Interest | 1,635 | 2,937 | ||||||
| Amortization | 812 | 287 | ||||||
| Repairs and maintenance | 197 | - | ||||||
| Total general and administrative expenses | 4,558,849 | 7,323,075 | ||||||
| OTHER INCOME (EXPENSES) | ||||||||
| Other income | 39,482 | 1,941 | ||||||
| Other expense | (18,534 | ) | - | |||||
| Total other income (expenses) | 20,948 | 1,941 | ||||||
| NET LOSS | $ | (4,537,901 | ) | $ | (7,321,134 | ) | ||
| NET LOSS PER SHARE: | ||||||||
| Basic and diluted | $ | (0.16 | ) | $ | (0.25 | ) | ||
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
| Basic and diluted | 28,971,543 | 29,680,228 | ||||||
| F-5 |
ARRIVE AI INC. (FORMERLY ARRIVE TECHNOLOGY INC.)
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
| For the Years Ended December 31, 2024 and 2023 | ||||||||||
| Additional | ||||||||||||||||||||||||||||
| Common | Paid-In Capital, | Note | Total | |||||||||||||||||||||||||
| Number of | Stock ($) | Net of Offering | Subscription | Receivable from | Accumulated | Stockholders’ | ||||||||||||||||||||||
| Shares | Par Value | Costs ($) | Receivable ($) | Stockholder ($) | Deficit ($) | Equity | ||||||||||||||||||||||
| Balance at December 31, 2022 | 29,604,530 | $ | 5,921 | $ | 6,508,746 | $ | (85,405 | ) | $ | - | $ | (4,061,520 | ) | $ | 2,367,742 | |||||||||||||
| Issuance of common stock for cash, net | 172,096 | 34 | 1,636,876 | 59,900 | - | - | 1,696,810 | |||||||||||||||||||||
| Issuance of common stock for Airbox purchase | 94,573 | 19 | 1,047,844 | - | - | - | 1,047,863 | |||||||||||||||||||||
| Stock-based compensation | 98,444 | 20 | 1,730,933 | - | - | - | 1,730,953 | |||||||||||||||||||||
| Cancellation of common stock | (1,125,000 | ) | (225 | ) | 225 | - | - | - | - | |||||||||||||||||||
| Net loss | - | - | - | - | - | (7,321,134 | ) | (7,321,134 | ) | |||||||||||||||||||
| Balance at December 31, 2023 | 28,844,643 | 5,769 | 10,924,624 | (25,505 | ) | - | (11,382,654 | ) | (477,766 | ) | ||||||||||||||||||
| Issuance of common stock and warrants for cash, net | 243,423 | 47 | 2,671,077 | (27,498 | ) | - | - | 2,643,626 | ||||||||||||||||||||
| Stock-based compensation | 32,839 | 6 | 1,388,860 | - | - | - | 1,388,866 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (4,537,901 | ) | (4,537,901 | ) | |||||||||||||||||||
| Balance at December 31, 2024 | 29,120,905 | $ | 5,822 | $ | 14,984,561 | $ | (53,003 | ) | $ | - | $ | (15,920,555 | ) | $ | (983,175 | ) | ||||||||||||
| F-6 |
ARRIVE AI INC. (FORMERLY ARRIVE TECHNOLOGY INC.)
STATEMENTS OF CASH FLOWS
| For the Years Ended Decmber 31, 2024 and 2023 | |||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (4,537,901 | ) | $ | (7,321,134 | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities | ||||||||
| Stock-based compensation | 1,388,866 | 1,730,953 | ||||||
| Impairment charges | - | 1,824,923 | ||||||
| Depreciation and amortization | 29,115 | 13,393 | ||||||
| Changes in operating assets and liabilities | ||||||||
| (Increase) decrease in | ||||||||
| Prepaid expenses | (46,724 | ) | (8,886 | ) | ||||
| Other current assets | (4,179 | ) | 5,692 | |||||
| Increase (decrease) in | ||||||||
| Accounts payable | 843,682 | 918,562 | ||||||
| Accrued liabilities | 71,631 | - | ||||||
| Credit card payable | (33,763 | ) | 19,706 | |||||
| Total adjustments | 2,248,628 | 4,504,343 | ||||||
| Net cash used in operating activities | (2,289,273 | ) | (2,816,791 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Construction in progress | - | (104,991 | ) | |||||
| Purchase of property and equipment | (38,155 | ) | - | |||||
| Patent filing costs | (76,500 | ) | - | |||||
| Net cash used in investing activities | (114,655 | ) | (104,991 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net proceeds from the issuance of stock and warrants | 2,643,626 | 1,696,810 | ||||||
| Deferred offering costs | (427,898 | ) | - | |||||
| Payments on note payable | (7,954 | ) | (6,652 | ) | ||||
| Net cash provided by financing activities | 2,207,774 | 1,690,158 | ||||||
| NET DECREASE IN CASH | (196,154 | ) | (1,231,624 | ) | ||||
| CASH, BEGINNING OF YEAR | 325,472 | 1,557,096 | ||||||
| CASH, END OF YEAR | $ | 129,318 | $ | 325,472 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | 1,635 | $ | 2,937 | ||||
| Income taxes | $ | - | $ | - | ||||
| NONCASH TRANSACTIONS | ||||||||
| Issuance of shares for AirBox asset purchase | $ | - | $ | 1,047,863 | ||||
| F-7 |
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS
December 31, 2024 and 2023
| 1. | NATURE OF OPERATIONS |
Arrive AI Inc. (formerly Arrive Technology Inc.) (the Company) was incorporated on April 30, 2020, in the State of Delaware as Dronedek Corporation. On July 27, 2023, Dronedek Corporation changed its name to Arrive Technology Inc. On September 27, 2024, Arrive Technology Inc. changed its name to Arrive AI Inc. The Company is a developmental technology company with a focus on designing and implementing a commercially viable smart mailbox for drone, robotic and human package receiving and storage.
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
Basis of Accounting
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP).
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment and makes adjustments when facts and circumstances dictate. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from those estimates.
Cash
Cash is defined as currency on hand and on-demand deposits. Cash equivalents are unrestricted highly liquid cash investments purchased with a maturity of three (3) months or less. There were no cash equivalents at December 31, 2024 and 2023.
Concentration of Credit Risk
The Company maintains its cash balances at one financial institution. The account is insured by the Federal Deposit Insurance Corporation (FDIC) up to a specified limit. The Company’s balances at the financial institutions periodically exceed federally insured limits. At December 31, 2024 and 2023, the Company’s uninsured cash balances totaled approximately $0 and $75,000, respectively.
| F-8 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Concentration of Credit Risk (continued)
Management believes that the Company is not exposed to any significant risk concerning its cash balances. To date, the Company has not recognized any losses caused by uninsured balances.
Property and Equipment
The property and equipment is recorded at cost. The Company’s policy is to depreciate the cost of the property and equipment using the straight-line method over the estimated useful life of the asset. The costs of maintenance and repairs are charged to expense when incurred (none noted in the current or prior year as it relates to the vehicle). The useful life of the property and equipment for purposes of computing depreciation is:
| Useful Life | |
| Vehicle and Equipment | 3-5 years |
Intangible Assets – Patents
The Company capitalizes external costs, such as filing fees, registration documentation, and attorney fees associated with the application and issuance of patents. The Company expenses costs associated with maintaining and defending patents subsequent to issuance in the period incurred. The Company amortizes capitalized patent costs for internally generated patents on a straight-line basis over 20 years or the period in which the goods associated with the patent will be revenue-generating, which represents the estimated useful lives of the patents. The estimated useful lives for internally generated patents are based on the assessment of the following factors: the integrated nature of the patent portfolios being licensed (including the ability of the patent to generate viable goods and revenues), the overall makeup of the patent portfolio over time, and the length of license agreements for such patents. The Company assesses the potential impairment of all capitalized patent costs when events or changes in circumstances indicate that the carrying amount of the Company’s patent portfolio may not be recoverable.
Impairment of Long-Lived Assets
Intangibles and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any long-lived asset may not be fully recoverable. In the event that facts and circumstances indicate that the carrying amount of any long-lived assets may be impaired, an evaluation of recoverability is performed. If an evaluation was required, the estimated future undiscounted cash flows associated with the asset (or group of assets) would be compared to the assets’ (or group of assets’) carrying amount to determine if a write-down to fair value is required on the basis of the assets’ associated undiscounted cash flows. In 2023, certain capital costs included in construction-in-progress were identified as items with no future estimated cash flows,
| F-9 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Impairment of Long-Lived Assets (continued)
accordingly, the carrying costs of those items were identified as impaired and charged off as period cost.
The Company has three types of long-lived assets: property and equipment, including a vehicle, aerial drones; construction-in-progress (CIP), and intangible patent assets including those acquired by the acquisition of Airbox Technology in 2023. The vehicle and drone hexacopter were evaluated for impairment, and no impairments were considered necessary as of December 31, 2024.
In order to evaluate CIP for impairment, the accumulated costs were analyzed and categorized according to the specific generation of product to which they applied. It was determined that $630,657 was accumulated for the original mock-up unit in 2020, and the first 21 “Gen 1” units, and $196,403 was accumulated for “Gen 2.0/2.1”. These projects were fully complete in 2023 and are considered obsolete. The form and functionality of these early units have been superseded by the Company’s current “Gen 3” production Arrive Point units. As a result of this analysis, the Company decided to write-off the accumulated cost of the prototype, Gen 1 and Gen 2 units as of December 31, 2023. Total impairment losses recognized on CIP amounted to $827,060 in 2023.
The Company acquired three “Gen 3” Arrive Point units in December 2024 for approximately $38,000. The units are expected to enter commercial service in early 2025. The Company believes the cost of the Gen 3 Arrive Point units have an alternative future use and the cost of these units and associated installation costs were capitalized but had not been placed into service as of December 31, 2024. These units will be placed into service once accepted by the end customer or tested for impairment within twelve months. No impairment loss on these units was recognized as of December 31, 2024.
The Company acquired intangible assets as part of the Airbox asset purchase in the form of a patent portfolio. As of December 31, 2023, two patents were issued, one was imminent (awarded February 2024), and two were pending. The acquisition was completed on December 5, 2023, management performed a detailed analysis of the estimated future cash flows related to the above-mentioned tangible and intangible assets and recognized an impairment of $997,863, as of December 31, 2023. No impairment loss on the other patents was recognized in 2024 or 2023. As of December 31, 2024 and 2023, total impairment charges were $0 and $1,824,923, respectively.
Accounts Payable and Accrued Liabilities
Payables are obligations to pay for materials or services that have been acquired or have been rendered in the ordinary course of business from suppliers or vendors. Payables and accrued liabilities are classified as current if payment is due within one year.
| F-10 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Equity Financing
The Company engages in equity financing transactions to obtain the funds necessary to continue operations and develop a commercially viable drone delivery system. These equity financing transactions involve the issuance of common stock and at times, if the cash investment by each investor exceeds $250,000, include equity warrants.
Equity warrants are instruments that bestow upon the holder of the instrument the right to buy a particular stock at a predetermined price within a stipulated time frame. Under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 480, the Company classified the warrants as equity instruments and carries the warrants at the grant date fair market value.
Depending on the terms and conditions of each equity financing transaction, the warrants are exercisable into additional common shares at an agreed-upon price, as defined in the Stock and Warrant Purchase Agreement (“the agreement”) prior to the expiration of the warrants as stipulated by the terms of the transaction in the agreement. The fair value of the stock purchase warrants issued is determined by using the Black-Scholes-Merton (“Black-Scholes”) model. The Black-Scholes model requires the use of highly subjective and complex assumptions, which determine the fair value of warrants, including the warrants’ expected terms and the price volatility of the underlying stocks. The Company calculates the fair value of warrants granted by using the Black-Scholes pricing model with the following assumptions:
Expected Volatility: The Company estimated volatility for warrants by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the warrant for a term that is approximately equal to the warrants’ expected terms.
Expected Term: The expected term of the Company’s warrants represents the period that the warrants are expected to be outstanding (typically, to expiration). The Company used the time remaining to the expiration of the warrants (contractual expiration) to compute the expected term, as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.
Risk-Free Interest Rate: The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a term that is equal to the warrants’ expected terms at the grant date.
Dividend Yield: The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero.
| F-11 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Equity Financing (continued)
The warrants have not been registered under the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, or qualified under any state or foreign securities laws and may not be offered for sale, sold, pledged, hypothecated, or otherwise transferred or assigned unless (i) a registration statement covering such shares is effective under the act and is qualified under applicable state and foreign law or (ii) the transaction is exempt from the registration and prospectus delivery requirements under the act and the qualification requirements under applicable state and foreign law and, if the corporation requests, an opinion satisfactory to the corporation to such effect has been rendered by counsel. The Company registered with the Security and Exchange Commission (SEC) on July 16, 2021, however, is not yet traded on the public market.
Loss per share
Basic loss per share is computed by dividing net loss by weighted average number of shares of common stock outstanding during each period. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
The Company had 910,189 and 652,857 warrants outstanding as of December 31, 2024 and 2023, respectively. The weighted average exercise price for these warrants is $2.52 and $2.38 per share, respectively. These warrants are excluded from the weighted average number of shares because they are considered anti-dilutive. The warrants (on a post-reverse split basis), if exercised, will convert on a 4 to 1 per share basis.
The Company had 614,704 and 569,331 options outstanding (on a post-reverse split basis) as of December 31, 2024 and 2023, respectively, with grant date fair values of $10.30 to $11.94 per share (as adjusted for the 1-for-4 reverse split). The weighted average exercise price for these options is $0.80 per share. These options are excluded from the weighted average number of shares because they are considered anti-dilutive. Refer to Note 17 for additional information on the stock split.
Offering Costs
The Company complies with the requirements of FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - Expenses of Offering. For the years ended December 31, 2024 and 2023, there were $229,994 and $126,512 of offering costs, respectively. Accumulated offering costs were $577,634 and $347,640 as of December 31, 2024 and 2023, respectively. These offering costs consisted of professional, regulatory, and other costs; all of which were charged to additional paid-in capital for all funding campaigns (crowdfunding, seed series, StartEngine, PicMii, etc.) held by the Company.
| F-12 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Offering Costs (Continued)
Deferred offering costs related to the proposed public offerings, see Note 7, totaled $427,898 and $0 as of December 31, 2024 and 2023, respectively.
General and Administrative Expenses
General and administrative expenses include general compensation (including stock compensation), compensation for executive management, employee benefits, finance administration, and human resources, facility costs (including rent and common area maintenance charges), professional service fees, and other general overhead costs to support the Company’s operations.
Research and Development
Research and development (R&D) costs, that do not meet the criteria for capitalization are expensed as incurred. Research and development expenses include fees paid to outside suppliers for the Company’s proprietary technology. For the years ended December 31, 2024 and 2023, the Company had R&D costs totaling $395,386 and $214,493, respectively.
Marketing Expenses
The Company uses various marketing methods to create brand awareness to promote and alert the public about future product and service offerings to generate future capital or revenue when a viable product is created. The Company’s policy is to charge marketing costs to expenses in the period they are incurred. Marketing expenses were $189,076 and $207,234 for the years ended December 31, 2024 and 2023, respectively.
Stock-Based Compensation
The Company measures and records the expense related to stock-based payment awards based on the fair value of those awards as determined on the date of the grant. The Company recognizes stock-based compensation expense over the requisite service period of the individual grant, generally equal to the vesting period, and uses the straight-line method to recognize stock-based compensation, as applicable. For stock-based compensation with performance conditions, the Company records compensation expenses when the performance condition is met. The Company uses the Black-Scholes model to estimate the fair value of stock options and forfeitures are accounted for when incurred.
The average price of one (1) share of the Company’s common stock (as adjusted for the 1-for-4 reverse split), which was determined to be $12.00 and $11.08 as of December 31, 2024 and 2023, respectively.
| F-13 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Stock-Based Compensation (continued)
The prior company transaction method utilizes actual transactions in the Company’s non-controlling, non-marketable private company equity interests. Therefore, the result is reflective of a non-controlling, non-marketable private company value and no discount for lack of control or marketability was considered necessary in the application of this methodology. As part of this methodology, there are a number of limiting assumptions, however, management believes it appropriately represents the fair market value indication for one (1) share of the Company’s common stock. Since the Company’s stock is not publicly traded, the expected volatility is based on the historical and implied volatility of similar companies whose stock or option prices are publicly available, after considering the industry, stage of the life cycle, size, market capitalization, and financial leverage of the other companies.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating loss, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2024 and 2023, the Company has recorded a full valuation allowance against its deferred tax assets (see Note 17). The Company evaluates uncertain income tax positions in order to determine if it is more likely than not that they would be sustained upon examination. As the Company was incorporated in 2020, the Company’s Federal income tax returns for all years of operation are subject to examination by the Internal Revenue Service.
Fair Value Measurements
Fair value accounting is applied for all assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company follows established frameworks for measuring fair value and expands disclosures about fair value measurements (Note 4).
| F-14 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Recently Adopted Accounting Guidance
In June 2016, the FASB issued guidance (FASB ASC 326) which significantly changed how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through earnings. The most significant change in this standard is a shift from the incurred loss model to the expected loss model. Under the standard, disclosures are required to provide users of the financial statements with useful information in analyzing an entity’s exposure to credit risk and the measurement of credit losses. Financial assets held by the Company that are subject to the guidance in FASB ASC 326 were subscription receivable. The Company adopted the standard effective January 1, 2023. The impact of the adoption was not considered material to the financial statements.
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires incremental disclosures about reportable segments but does not change the definition of a segment or the guidance for determining reportable segments. The requirements are effective for annual reporting periods beginning on January 1, 2024, and are required to be applied retrospectively. The Company has adopted the additional disclosure requirements under ASU 2023-07. The additional requirements did not have a material impact on the financial statements.
| 3. | SEGMENT REPORTING |
The Company’s principal business is described in Note 1. The Company has determined that it operates in a single operating and reportable segment. The Company’s Chief Financial Officer is designated as the chief operating decision maker (“CODM”). The CODM manages operations and reviews the financial information as a single operating segment at the entity level for the purposes of allocating resources and evaluating its financial performance.
| 4. | GOING CONCERN |
The Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustment relating to recoverability and classification of recorded amounts of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company has a minimum cash balance available for payment of ongoing operating expenses. As of December 31, 2024, the Company has an accumulated deficit of $15,920,555 and a net loss for the current year of $4,537,901. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. The Company is subject to a number of risk similar to those of other companies of similar size in its industry, including,
| F-15 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 4. | GOING CONCERN (Continued) |
but not limited to, the need for successful development of products, the need for additional capital (or financing) to fund operating losses, competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, dependence on key individuals, and risks associated with changes in information technology.
The Company’s continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance that the necessary debt or equity financing will be available or will be available on terms acceptable to the Company.
| 5. | FAIR VALUE MEASUREMENTS |
The Company reports all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access at the measurement date.
Level 2: Inputs to the valuation methodology other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as:
| a. | Quoted prices for similar assets or liabilities in active markets, |
| b. | Quoted prices for identical or similar assets or liabilities in inactive markets, |
| c. | Inputs other than quoted prices that are observable for the asset or liability, and Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
| F-16 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 5. | FAIR VALUE MEASUREMENTS (Continued) |
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The financial statements as of and for the 12 months ended December 31, 2024 and 2023, do not include any nonrecurring fair value measurements relating to assets or liabilities.
The Company measures the warrants using Level 3 unobservable inputs within the Black-Scholes pricing model, as described in Note 2. The Company used various key assumptions, such as the fair value of the common stock, volatility, the risk-free interest rate, and expected term (remaining contractual term of the warrants).
| 6. | PROPERTY AND EQUIPMENT |
Property and equipment consist of the following:
| 2024 | 2023 | |||||||
| Vehicle | $ | 58,443 | $ | 58,443 | ||||
| Equipment | 50,000 | 50,000 | ||||||
| Construction in progress | 38,155 | - | ||||||
| Total property and equipment | 146,598 | 108,443 | ||||||
| Less: accumulated depreciation | (51,173 | ) | (22,870 | ) | ||||
| TOTAL PROPERTY AND EQUIPMENT, NET | $ | 95,425 | $ | 85,573 | ||||
For the years ended December 31, 2024 and 2023, total depreciation expense was $28,303 and $13,106, respectively. In December 2023, the Company acquired fixed assets as part of an asset purchase agreement. See details in Note 15.
| 7. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current assets consist of the following:
| 2024 | 2023 | |||||||
| Deferred offering costs | $ | 427,898 | $ | - | ||||
| Prepaid payroll wages | $ | 38,271 | $ | - | ||||
| Prepaid insurance | 10,017 | 1,714 | ||||||
| Prepaid software and other | 7,579 | 7,429 | ||||||
| TOTAL PREPAID EXPENSES | $ | 483,765 | $ | 9,143 | ||||
| F-17 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 7. | PREPAID EXPENSES AND OTHER CURRENT ASSETS (Continued) |
Pursuant to ASC 340-10-S99-1, costs directly attributable to an offering of equity securities are deferred and would be charged against the gross proceeds of the offering as a reduction of additional paid-in capital. Deferred offering costs consist of underwriting, legal, accounting, and other expenses incurred through the balance sheet date that are directly related to the proposed public offering. Should the proposed public offering prove to be unsuccessful, these deferred costs, as well as additional expenses to be incurred, will be expensed. The Company filed its S-1 Registration Statement on December 23, 2024 and an amended S-1/A on January 27, 2025. The Company is working to resolve all remaining inquiries before the registration can become effective.
| 8. | PATENTS, NET |
Patents consist of the following:
| 2024 | 2023 | |||||||
| Patents | $ | 274,700 | $ | 198,200 | ||||
| Total patents | 274,700 | 198,200 | ||||||
| Less: accumulated amortization | (1,099 | ) | (287 | ) | ||||
| TOTAL PATENTS | $ | 273,601 | $ | 197,913 | ||||
As of December 31, 2024, five (5) of the Company’s fifty-nine (59) patents were approved and began being amortized over twenty years. As of December 31, 2023, three (3) patents were approved by the countries in which the patent applications were filed. During the year ended December 31, 2024 the Company filed for thirteen (13) patents for a total filing fee of $76,500. Amortization expense was $812 and $287 for the years ended December 31, 2024 and 2023, respectively.
| 9. | NOTE PAYABLE |
Note payable consists of the following:
| 2024 | 2023 | |||||||
| Vehicle note payable entered into during 2022 for $40,248 with monthly installment payments of $799, including interest at 6.99% per annum. The loan is collateralized by the respective vehicle and is due in February 2027. | $ | 19,082 | $ | 27,036 | ||||
| Total long-term debt | 19,082 | 27,036 | ||||||
| Less current portion | (8,524 | ) | (7,950 | ) | ||||
| LONG-TERM PORTION | $ | 10,558 | $ | 19,086 | ||||
| F-18 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 9. | NOTE PAYABLE (Continued) |
The balance of the above debt matures as follows:
| Year Ended December 31, | Amount | |||
| 2025 | $ | 8,524 | ||
| 2026 | 9,140 | |||
| 2027 | 1,418 | |||
| TOTAL LONG-TERM DEBT | $ | 19,082 | ||
Interest expense related to this note payable for the years ended December 31, 2024 and 2023, was $1,635 and $2,937, respectively.
| 10. | COMMITMENTS AND CONTINGENCIES |
On January 29, 2024, the Company was included in the SEC Form F-4 filed by Brüush Oral Care, Inc. to register the intent of the parties to merge into a new public company, per the signed Merger Agreement of December 15th. Bruush failed to remedy several deficiencies cited by Nasdaq in a timely manner, and was officially de-listed from the Nasdaq exchange on or about June 28, 2024.
As a direct consequence of the delisting of Bruush shares, the merger was terminated. The terms of the merger included a termination fee of $250,000 in the event either party caused the termination. The Company assessed the collection of the termination fee as not probable, thus a receivable has not been recorded.
Lease Obligation
Effective April 1, 2024, the Company expanded its leased office space. The new term is nine months, and thereafter a month-to-month lease which can be canceled with a 90-day written notice and agreement to suitable terms by both parties. Under this lease, base rent is $3,600 per month. The Company is required to pay insurance, listing the property owner as an additional insured, and normal maintenance costs for certain of this leased property.
Under FASB ASU No. 2016-02, Topic 842, Leases, allows companies to elect certain policies for short-term leases. To qualify as a short-term lease, a lease must have an initial term of 12 months or less and not include renewal options or a purchase option that the lessee is reasonably certain to exercise.
The lease arrangement is a month-to-month arrangement that can be canceled with a 30-day written notice and agreement of suitable terms and does not include a purchase option. Due to the insignificant nature of the lease transaction, the Company has not recorded the potential right-of-use asset and the related lease liability and has recorded lease expenses on a straight-line basis.
| F-19 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 10. | COMMITMENTS AND CONTINGENCIES (Continued) |
Litigation
From time to time, the Company may become involved in various legal proceedings in the ordinary course of its business and may be subject to third-party infringement claims. In the normal course of business, the Company may agree to indemnify third parties with whom it enters into contractual relationships, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters.
The Company has agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, other third-party claims that the Company’s products, when used for their intended purposes, infringe the intellectual property rights of such other third parties, or other claims made against certain parties. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim. On February 7, 2024, the Company entered into a settlement agreement to resolve a long-standing dispute. The settlement relates to a case brought against the Company’s CEO in 2020, prior to the formation of the Company, by a contractor hired to perform certain services for the Company. As a result of the agreement, on February 8, 2024 a payment of $18,500 was made in exchange for full settlement and mutual release of all claims in the matter. The payment is included in other expense on the statement of operations.
| 11. | RELATED-PARTY TRANSACTIONS |
On May 26, 2020, the Company entered into a 3-year agreement with a stockholder of the Company for the use of patents. Beginning June 1, 2020, the Company began paying the stockholder a monthly license fee of $10,000. Once revenue from sales, rentals, and leases begins, the Company is required to pay $25.00 per unit sold. If the Company does not sell 400 units per month (or $10,000), the original fixed $10,000 is paid. Accordingly, the Company recorded licensing fee costs in the amount of $120,000 for the years ended December 31, 2024 and 2023.
On December 10, 2024, the Company amended the agreement to extend the term from seven years to perpetuity for the full term and life of the patents. The Company rents a warehouse from an officer and shareholder for $2,250 a month on a month-to-month basis.
| 12. | STOCKHOLDERS’ EQUITY |
Common Stock
As of April 30, 2020 (date of incorporation), the Company had 100,000,000 shares of common stock, with a par value of $0.0001, authorized and available to issue for purposes of satisfying any future transactions. No other class of stock has been authorized or is available for issuance.
| F-20 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 12. | STOCKHOLDERS’ EQUITY (Continued) |
Common Stock (Continued)
Effective September 15, 2021, the Company authorized a 2-for-1 stock split, with 200,000,000 shares authorized and available, with a par value of $0.00005, to issue for purposes of satisfying any future transactions.
Effective November 25, 2024, the Company authorized a 1-for-4 reverse stock split, with 200,000,000 shares authorized and available to issue for purposes of satisfying any future transactions. The par value is now $0.0002.
For the year ended December 31, 2024, the Company issued 276,262 shares of common stock as follows (on a post-reverse split basis):
| a) | 68,743 shares, of which 41,119 shares are inclusive of warrants issued and deemed as equity, as described in Note 12, in January, April, July, August, September, October, November and December 2024 with accredited investors in exchange for cash of $825,000 at an average of $12.00 per share (as adjusted for the 1-for-4 reverse split). |
| b) | 174,680 shares issued through a crowdfunding campaign with other investors in March, June, July, August, September, October and November 2024 in exchange for net cash of $1,818,626, at an average of $10.41 per share (as adjusted for the 1-for-4 reverse split). |
| c) | 32,839 shares issued with employees or consultants via stock awards, recognized as compensation expense, valued at an average of $12.50 per share (as adjusted for the 1-for-4 reverse split), for a total of $410,632, based on the price per stock issued to investors for cash during the year ended December 31, 2024. |
For the year ended December 31, 2023, the Company issued and cancelled 365,113 and 1,125,000 shares of common stock, respectively, as follows (on a post-reverse split basis):
| a) | 13,334 restricted shares, subject to a time-based vesting schedule which began July 1, 2021, with shares vesting quarterly (3,333 per quarter), recognized as compensation expense, valued at $0.84 per share (as adjusted for the 1-for-4 reverse split) based on the prevailing fair market value report at the grant date. |
| b) | 76,360 shares issued with employees or consultants via stock awards, subject to a performance threshold and time-based vesting schedule, recognized as compensation expense, valued at $11.08 per share (as adjusted for the 1-for-4 reverse split) based on the average price per stock issued to investors for cash in 2023. |
| c) | 8,750 restricted shares in January 2023, subject to a milestone-based vesting schedule, with shares vesting ratably over seven milestones, recognized as compensation expense. The shares were valued at $11.08 per share (as adjusted for the 1-for-4 reverse split) based on the average price per stock issued to investors for cash in 2023. |
| F-21 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 12. | STOCKHOLDERS’ EQUITY (Continued) |
Common Stock (Continued)
| d) | 34,800 shares during 2023 (January, May, July, August, and October) with accredited investors in exchange for $389,753 at $11.20 per share (as adjusted for the 1-for-4 reverse split). |
| e) | 5,715 shares in June 2023 with an accredited investor in exchange for cash of $40,002 at $7.00 per share (as adjusted for the 1-for-4 reverse split). |
| f) | 87,495 shares through a crowdfunding campaign with other investors in 2023 in exchange for net cash and services in kind of $881,969 and $34,679, respectively, at an average of $10.52 per share (as adjusted for the 1-for-4 reverse split). |
| g) | 44,086 shares issued through a crowdfunding campaign with other investors in November 2023 in exchange for net cash of $520,708, at an average of $11.80 per share (as adjusted for the 1-for-4 reverse split). |
| h) | 94,573 shares issued as consideration for an asset purchase agreement with AirBox executed on December 5, 2023, based on the average price per stock of $11.08 (as adjusted for the 1-for-4 reverse split) issued to investors for cash in 2023, for a total consideration of $1,047,863. |
| i) | Cancelled 1,125,000 shares issued to a founding member on April 30, 2020, which were issued at $0.00096 per share (as adjusted for the 1-for-4 reverse split). |
Treasury Stock
The Company recognizes treasury stock based on the amount paid to repurchase its shares and is recorded as a reduction of stockholders’ equity on the balance sheets. As treasury stock is not considered outstanding for share count purposes, it is excluded from average common shares outstanding for basic and diluted earnings per share. As of December 31, 2024 and 2023, the Company had 2,500,000 shares (on a post-reverse split basis) in treasury with a cost of $500.
Stock-Based Compensation - Employees and Non-Employees
Substantially all stock-based compensation, on the date of grant, is fully vested. In certain instances, there may be performance or service requirements in order to vest. As of December 31, 2024, all stock issued as stock-based compensation were fully vested, except for the individuals discussed below. As there are no other classes of stock, all awards are in exchange for common stock.
In October 2023, an officer of the Company was issued 192,136 non-qualified stock option units (on a post-reverse split basis), with 60,043 units (on a post-reverse split basis) vesting immediately, and 12,008 units (on a post-reverse split basis) vesting quarterly commencing from December 1, 2023, with the remaining units vesting on June 1, 2026. The fair market value of these stock option units on the grant date, which was determined by using the Black-Scholes model, was $10.784 (as adjusted for the 1-for-4 reverse split). As of
| F-22 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 12. | STOCKHOLDERS’ EQUITY (Continued) |
Stock-Based Compensation - Employees and Non-Employees (Continued)
December 31, 2024, total unvested units are 72,051 units (on a post-reverse split basis) with related unrecognized compensation expense of $776,998.
The same officer was also issued an additional 192,136 incentive stock option units (on a post-reverse split basis), subject to both time and performance vesting criteria. The fair market value of these stock option units on the grant date, which was determined by using the Black-Scholes model, was $10.784 (as adjusted for the 1-for-4 reverse split). As of December 31, 2024, none of these units have vested, therefore the total unvested units and the related unrecognized compensation expense was 192,136 (on a post-reverse split basis) and $2,071,995, respectively.
At December 31, 2024, twelve other employees were issued 230,432 stock option units (on a post-reverse split basis), subject to a time-based or time and performance-based vesting schedule. The fair market value of these stock option units on the grant date, which was determined by using the Black-Scholes model, range from $10.304 to $11.936 (as adjusted for the 1-for-4 reverse split). As of December 31, 2024, total unvested units are 188,688 units (on a post-reverse split basis) with related unrecognized compensation expense of $2,081,686.
For the year ended December 31, 2024, total compensation expense related to stock options was $978,234. As of December 31, 2024, total unvested units are 452,875 (on a post-reverse split basis) with related unrecognized compensation expense of $4,930,679.
| 13. | WARRANTS |
Warrants are issued in connection with the issuance of common stock and included in the statement of changes in stockholders’ equity as a component of additional paid-in capital, net of offering costs. During the year ended December 31, 2024, the Company issued warrants with a fair value of $405,580 in combination with common stock as described in Note 11. The warrants will become exercisable on the fourth anniversary of the date of the individual agreement. The fair market value, on the date of grant, for each of the warrants issued below, was determined based on the methodologies described in Notes 2 and 4. The warrants (on a post-reverse split basis) convert on a 4 to 1 per share basis.
| F-23 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 13. | WARRANTS (Continued) |
| Number of Warrants Outstanding | Weighted Average Exercise Price | Number of Warrants Exercisable | ||||||||||
| BALANCE, JANUARY 1, 2023 | 652,857 | $ | 2.38 | 652,857 | ||||||||
| Issued | - | - | - | |||||||||
| BALANCE, DECEMBER 31, 2023 | 652,857 | $ | 2.38 | 652,857 | ||||||||
| BALANCE, JANUARY 1, 2024 | 652,857 | $ | 2.38 | 652,857 | ||||||||
| Issued | 257,332 | $ | 2.87 | 257,332 | ||||||||
| BALANCE, DECEMBER 31, 2024 | 910,189 | $ | 2.52 | 910,189 | ||||||||
The following table reflects the warrants outstanding as at December 31, 2024:
| Expiration Date | Type | Exercise Price | Weighted Average Life Remaining | Warrants Outstanding | Black-Scholes Value | |||||||||||||
| March 11, 2025 | Warrant | $ | 2.38 | 0.19 years | 250,000 | $ | 240,250 | |||||||||||
| May 11, 2025 | Warrant | 2.38 | 0.36 years | 260,000 | 253,240 | |||||||||||||
| June 8, 2026 | Warrant | 2.38 | 1.44 years | 142,857 | 184,857 | |||||||||||||
| April 29, 2028 | Warrant | 2.81 | 1.33 years | 175,095 | 251,962 | |||||||||||||
| September 9, 2028 | Warrant | 3.02 | 3.69 years | 82,237 | 153,619 | |||||||||||||
| $ | 2.52 | 0.97 years | 910,189 | $ | 1,083,928 | |||||||||||||
The following table reflects the warrants outstanding at December 31, 2023:
| Expiration Date | Type | Exercise Price | Weighted Average Life Remaining | Warrants Outstanding | Black-Scholes Value | |||||||||||||
| March 11, 2025 | Warrant | $ | 2.38 | 1.19 years | 250,000 | $ | 240,250 | |||||||||||
| May 11, 2025 | Warrant | 2.38 | 1.36 years | 260,000 | 253,240 | |||||||||||||
| June 8, 2026 | Warrant | 2.38 | 2.44 years | 142,857 | 184,857 | |||||||||||||
| $ | 2.38 | 4.99 years | 652,857 | $ | 678,347 | |||||||||||||
| F-24 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 13. | WARRANTS (Continued) |
The following table sets forth the assumptions used to estimate the fair values of the warrants for the year ended December 31:
| 2024 | 2023 | |||||||
| Expected term | 1.5 – 3.7 years | 1.2 – 2.4 years | ||||||
| Expected volatility | 95 | % | 150 | % | ||||
| Risk-free interest rate | 3.6% – 4.5% | 4.2% – 4.4% | ||||||
| Expected dividend yield | 0.0 | % | 0.0 | % | ||||
| Fair value on the date of grant | $1.44 – $1.87 | $0.96 – $1.29 | ||||||
| 14. | EQUITY INCENTIVE PLAN |
The Company created the 2023 Equity Incentive Plan (the Plan) on April 27, 2023, under which shares of common stock became available for issuance not to exceed 1,500,000 (on a post-reverse split basis). The Stock Plan is designed to attract, retain, and motivate key employees. Currently, the fair value is recognized as an expense over the vesting period of the award. Option awards are generally granted with an exercise price equal to the fair market value, as adjusted for the 1-for-4 reverse split, of the Company’s stock at the date of grant, vest over a five-year period, and expire after ten years. There are certain situations that may accelerate the vesting or termination of all outstanding options, such as a change in control. As of December 31, 2024, 885,296 shares (on a post-reverse split basis) were available for grant. The compensation expenses related to incentive units is included in general and administrative expenses with a corresponding increased to additional paid-in-capital.
The assumptions used to calculate the fair value of options (on a post-reverse split basis) granted during the year ended December 31, 2024 are as follows:
| Weighted-average volatility | 95.00 | % | ||
| Risk-free rate | 3.81 | % | ||
| Dividend yield | 0.00 | % | ||
| Expected term years | 10 |
The following is an analysis of options to purchase shares of the Company’s stock issued and outstanding (on a post-reverse split basis) as of December 31, 2024:
| Share Options | Weighted Average Exercise Price | |||||||
| OUTSTANDING – DECEMBER 31, 2023 | 569,331 | $ | 0.80 | |||||
| Granted | 45,565 | 0.76 | ||||||
| Cancelled | (192 | ) | 0.76 | |||||
| OUTSTANDING – DECEMBER 31, 2024 | 614,704 | $ | 0.80 | |||||
| F-25 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 14. | EQUITY INCENTIVE PLAN (Continued) |
The following is a summary of share options (on a post-reverse split basis) vested and exercisable at December 31, 2024:
| Share Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life-Years | Aggregate Intrinsic Value | |||||||||
| 169,829 | $ | 0.80 | 8.9 | $ | 2,056,845 | |||||||
The following is a summary of the changes in nonvested share options (on a post-reverse split basis) as of December 31, 2024:
| Share Options | Weighted Average Grant Date Fair Value | |||||||
| NONVESTED SHARE OPTIONS - DECEMBER 31, 2023 | 494,105 | $ | 10.80 | |||||
| Granted | 45,565 | 11.80 | ||||||
| Vested | (86,665 | ) | 10.89 | |||||
| Cancelled | (130 | ) | 10.30 | |||||
| NONVESTED SHARE OPTIONS - DECEMBER 31, 2024 | 452,875 | $ | 10.89 | |||||
There were 45,565 options (on a post-reverse split basis) granted during the year ended December 31, 2024 and each option had an average grant date fair value of $11.80 per share (as adjusted for the 1-for-4 reverse split). As of December 31, 2024, there was $4,930,679 unrecognized compensation expense related to nonvested stock options to be recognized over the remaining vesting period. Total compensation expense related to stock options during the year ended December 31, 2024 was $978,234. No options were exercised during the year ended December 31, 2024.
| 15. | RESEARCH AND DEVELOPMENT CREDITS |
Under the Internal Revenue Service (IRS) Form 6765, the Company is eligible to claim a credit related to research and development expenses. The research credit is generally allowed for expenses paid or incurred for qualified research. Qualified research means research for which expenses may be treated as section 174 expenses. This research must be undertaken for discovering information that is technological in nature, and its application must be intended for use in developing a new or improved business component of the taxpayer. The payroll tax credit election is an annual election made by a qualified small business specifying the amount of research credit, not to exceed $250,000, that may be used against the employer portion of social security liability. The credit is the smallest of
| F-26 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 15. | RESEARCH AND DEVELOPMENT CREDITS (Continued) |
the current year’s research credit, an elected amount not to exceed $250,000, or the general business credit carryforward for the tax year. As of December 31, 2024, the Company continues to earn tax credits under this program to be used against future employment tax obligations.
| 16. | ASSET ACQUISITION |
On December 5, 2023, the Company acquired certain assets of AirBox Technologies (“AirBox”), in an all-stock transaction. In addition to certain tangible assets, the acquisition includes AirBox’s patent portfolio, which Arrive believes will broaden the capabilities of its high-tech mailbox system designed for autonomous and conventional package delivery.
In addition to acquiring the above mentioned assets, AirBox’s CEO Brandon Pargoe joined the Arrive AI team as Vice President of Product Operations. In consideration for the asset purchase, the Company issued 94,573 shares (on a post-reverse split basis) at a price of $11.08 per share (as adjusted for the 1-for-4 reverse split), which was determined based on the average price per stock (as adjusted for the 1-for-4 reverse split) of $11.08 issued to investors for cash in 2023. The assets acquired for which the related purchase price was allocated were as follows:
| Assets Acquired | Amount | |||
| Drone Hexacopter | $ | 50,000 | ||
| Patents | 997,863 | |||
| Total Purchase Price | $ | 1,047,863 | ||
A drone Hexacopter was presented as part of the property and equipment. The patents were subsequently determined to be fully impaired at December 31, 2023. See detailed discussion in Note 2.
| 17. | RECLASSIFICATIONS |
The Company executed a 1-for-4 reverse stock split on November 25, 2024. This reverse split is considered a recognized subsequent event; accordingly, certain amounts in prior periods have been reclassified to reflect the impact of the reverse split.
The Company’s number of warrants remain the same as previously reported and as a result of the reverse split, if exercised, will convert on a 4 to 1 per share basis.
As a result of the 1-for-4 reverse stock split, the number of option awards under its equity incentive plan have been adjusted on a 4 to 1 per option basis. Accordingly, the exercise price is increased to 4 times the original stated price.
| F-27 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 17. | RECLASSIFICATIONS (Continued) |
The table below presents the effect of the reverse split on prior year financial statement amounts and disclosures.
| December 31, 2023 | ||||||||
| Financial Statement Element | Pre-Reverse Split | Post-Reverse Split | ||||||
| Par value of common stock, per share | $ | 0.00005 | $ | 0.0002 | ||||
| Shares authorized | 200,000,000 | 200,000,000 | ||||||
| Shares issued and outstanding | 115,378,570 | 28,844,643 | ||||||
| Treasury stock | 10,000,000 | 2,500,000 | ||||||
| 18. | INCOME TAXES |
The net deferred tax amounts in the accompanying balance sheets include the following components:
| 2024 | 2023 | |||||||
| FEDERAL | ||||||||
| Deferred tax assets | $ | 3,284,218 | $ | 2,213,108 | ||||
| Deferred tax assets valuation allowance | (3,284,218 | ) | (2,213,108 | ) | ||||
| NET DEFERRED FEDERAL TAX ASSETS, NET OF ALLOWANCE | $ | - | $ | - | ||||
| STATE | ||||||||
| Deferred tax assets | $ | 666,140 | $ | 504,101 | ||||
| Deferred tax assets valuation allowance | (666,140 | ) | (504,101 | ) | ||||
| NET DEFERRED STATE TAX ASSETS, NET OF ALLOWANCE | $ | - | $ | - | ||||
The income tax benefit consists of the following for the years ended December 31:
| 2024 | 2023 | |||||||
| Federal | $ | 1,071,110 | $ | 1,380,691 | ||||
| State | 162,039 | 315,933 | ||||||
| Valuation allowance | (1,233,149 | ) | (1,696,624 | ) | ||||
| INCOME TAX BENEFIT | $ | - | $ | - | ||||
| F-28 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 18. | INCOME TAXES (Continued) |
The change in the valuation allowance of the following at December 31:
| 2024 | 2023 | |||||||
| Beginning balance, January 1 | $ | 2,717,209 | $ | 1,020,585 | ||||
| Change in valuation allowance | 1,233,149 | 1,696,624 | ||||||
| VALUATION ALLOWANCE | $ | 3,950,358 | $ | 2,717,209 | ||||
In assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to the future realization of the deferred tax assets and has therefore established a full valuation allowance. The valuation allowance on deferred tax assets has increased by $1,233,149 during the year ended December 31, 2024.
A reconciliation of the statutory tax rate to the Company’s effective tax rates as of December 31, 2024 and 2023 is as follows:
| 2024 | 2023 | |||||||
| Statutory federal income tax rate | 21.0 | % | 21.0 | % | ||||
| State taxes | 3.9 | % | 5.0 | % | ||||
| Change in valuation allowance | (24.9 | %) | (26.0 | %) | ||||
| INCOME TAX BENEFIT | 0.0 | % | 0.0 | % | ||||
Economic Development for a Growing Economy (EDGE) Tax Credit
The EDGE Tax Credit (the Credit) provides an incentive to businesses to support job creation, capital investment and to improve the standard of living for Indiana residents. The refundable corporate income tax credit is calculated as a percentage (not to exceed 100%) of the expected increased tax withholdings generated from new job creation. The credit certification is phased in annually for up to ten years based on the employment ramp-up outlined by the business.
| F-29 |
ARRIVE AI INC.
(FORMERLY ARRIVE TECHNOLOGY INC.)
NOTES TO FINANCIAL STATEMENTS (Continued)
| 18. | INCOME TAXES (Continued) |
Economic Development for a Growing Economy (EDGE) Tax Credit (Continued)
As identified in Note 1, the Company is not expected to have taxable income within the next operating year from the date these financial statements are issued, therefore, the Credit is classified as a long-term asset to be used against future Indiana taxable income. For the years ended December 31, 2024 and 2023, the Company was eligible for the Credit in the amount of $17,103 and $17,073, respectively. For the years ended December 31, 2024 and 2023, the Company recorded a valuation allowance against the available Credit as State taxable income is not expected.
| 19. | SUBSEQUENT EVENTS |
Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are issued or are available to be issued. These events and transactions either provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing the financial statements (that is, recognized subsequent events), or provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date (that is, non-recognized subsequent events).
The Company continues to raise capital from external investors. Since December 31, 2024, the Company has issued 17,225 shares (on a post-reverse split basis) for $223,925 on a crowdfunding platform, as well as 4,000 shares (on a post-reverse split basis) to two accredited investors for $52,000. The Company has also awarded 610,221 shares (on a post-reverse split basis) to directors and consultants in exchange for services.
The Company has evaluated subsequent events through March 12, 2025, which was the date that these financial statements were available for issuance.
| F-30 |
INDEX TO FINANCIAL STATEMENTS
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK Corporation)
FINANCIAL STATEMENTS
| F-31 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
TABLE OF CONTENTS
| Page(s) | |
| INDEPENDENT AUDITORS’ REPORT | F-33 |
| FINANCIAL STATEMENTS | F-35 |
| Balance Sheets | F-35 |
| Statements of Operations | F-36 |
| Statements of Changes in Stockholders’ Equity | F-37 |
| Statements of Cash Flows | F-38 |
| Notes to Financial Statements | F-39 |
| F-32 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Arrive Technology Inc. (formerly Dronedek Corporation)
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Arrive Technology Inc. (formerly Dronedek Corporation) (the Company) as of December 31, 2023 and 2022, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has an accumulated deficit of $11,382,654 and a net loss for the current year of $7,321,134. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
ASSURANCE DIMENSIONS CERTIFIED PUBLIC ACCOUNTANTS & ASSOCIATES
also d/b/a McNAMARA and ASSOCIATES, PLLC
TAMPA BAY: 4920 W Cypress Street, Suite 102 | Tampa, FL 33607 | Office: 813.443.5048 | Fax: 813.443.5053
JACKSONVILLE: 4720 Salisbury Road, Suite 223 | Jacksonville, FL 32256 | Office: 888.410.2323 | Fax: 813.443.5053
ORLANDO: 1800 Pembrook Drive, Suite 300 | Orlando, FL 32810 | Office: 888.410.2323 | Fax: 813.443.5053 SOUTH FLORIDA: 2000 Banks Road, Suite 218 | Margate, FL 33063 | Office: 754.800.3400 | Fax: 813.443.5053
www.assurancedimensions.com
| F-33 |
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
We determined that there were no critical audit matters.
We have served as the Company’s auditor since 2022.
Margate, Florida
April 24, 2024, except for Note 16 on the reverse stock split, as to which the date is December 23, 2024
ASSURANCE DIMENSIONS, LLC
also d/b/a McNAMARA and ASSOCIATES, LLC
TAMPA BAY: 4920 W Cypress Street, Suite 102 | Tampa, FL 33607 | Office: 813.443.5048 | Fax: 813.443.5053
JACKSONVILLE: 7800 Belfort Parkway, Suite 290 | Jacksonville, FL 32256 | Office: 888.410.2323 | Fax: 813.443.5053
ORLANDO: 1800 Pembrook Drive, Suite 300 | Orlando, FL 32810 | Office: 888.410.2323 | Fax: 813.443.5053
SOUTH FLORIDA: 3111 N. University Drive, Suite 621 | Coral Springs, FL 33065 | Office: 754.800.3400 | Fax: 813.443.5053 www.assurancedimensions.com
“Assurance Dimensions” is the brand name under which Assurance Dimensions, LLC including its subsidiary McNamara and Associates, LLC (referred together as “AD LLC”) and AD Advisors, LLC (“AD Advisors”), provide professional services. AD LLC and AD Advisors practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable laws, regulations, and professional standards. AD LLC is a licensed independent CPA firm that provides attest services to its clients, and AD Advisors provide tax and business consulting services to their clients. AD Advisors, and its subsidiary entities are not licensed CPA firms.
| F-34 |
ARRIVE TECHNOLOGY INC. (FORMERLY DRONEDEK CORPORATION)
December 31, 2023 and 2022
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 325,472 | $ | 1,557,096 | ||||
| Prepaid expenses | 9,143 | 257 | ||||||
| Other current assets | - | 5,692 | ||||||
| Total current assets | 334,615 | 1,563,045 | ||||||
| PROPERTY AND EQUIPMENT, NET | 85,573 | 48,679 | ||||||
| CONSTRUCTION-IN-PROGRESS | - | 722,069 | ||||||
| PATENTS, NET | 197,913 | 198,200 | ||||||
| OTHER LONG-TERM ASSETS | ||||||||
| Security deposit | 1,500 | 1,500 | ||||||
| Long-term assets | 284,986 | 970,448 | ||||||
| TOTAL ASSETS | $ | 619,601 | $ | 2,533,493 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 1,025,007 | $ | 106,446 | ||||
| Accrued liabilities | 7,925 | 7,924 | ||||||
| Credit card payable | 37,399 | 17,693 | ||||||
| Current portion of note payable | 7,950 | 7,415 | ||||||
| Total current liabilities | 1,078,281 | 139,478 | ||||||
| NONCURRENT LIABILITIES | ||||||||
| Note payable, net of current portion | 19,086 | 26,273 | ||||||
| Total liabilities | 1,097,367 | 165,751 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 8) | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Common stock, $0.0002 par value, 200,000,000 shares authorized, 28,844,643 shares and 29,604,530 issued and outstanding at December 31, 2023, and December 31 2022, respectively, net of treasury stock, 2,500,000 shares at cost | 5,769 | 5,921 | ||||||
| Additional paid-in capital, net of offering costs | 10,924,624 | 6,508,746 | ||||||
| Subscription receivable | (25,505 | ) | (85,405 | ) | ||||
| Accumulated deficit | (11,382,654 | ) | (4,061,520 | ) | ||||
| Total stockholders’ equity | (477,766 | ) | 2,367,742 | |||||
| TOTAL LIABILITIES AND | ||||||||
| STOCKHOLDERS’ EQUITY | $ | 619,601 | $ | 2,533,493 | ||||
See accompanying notes to financial statements.
| F-35 |
ARRIVE TECHNOLOGY INC. (FORMERLY DRONEDEK CORPORATION)
For the Years Ended December 31, 2023 and 2022
| 2023 | 2022 | |||||||
| REVENUE | $ | - | $ | - | ||||
| GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||
| Salaries and wages - office | 2,610,407 | 1,193,731 | ||||||
| Impairment losses | 1,824,923 | - | ||||||
| Legal and professional fees | 1,645,678 | 339,747 | ||||||
| Outside services | 266,225 | 9,892 | ||||||
| Research and development | 214,493 | 177,873 | ||||||
| Marketing and trade show | 207,234 | 197,545 | ||||||
| Licensing fee | 120,000 | 120,000 | ||||||
| Office supplies and software | 106,011 | 73,413 | ||||||
| Taxes and licenses | 69,852 | 31,561 | ||||||
| Travel | 68,325 | 85,692 | ||||||
| Insurance | 67,005 | 53,914 | ||||||
| Rent | 40,550 | 19,732 | ||||||
| Meals, entertainment and employee benefits | 35,634 | 19,680 | ||||||
| Transportation | 13,428 | 2,434 | ||||||
| Depreciation | 13,106 | 9,764 | ||||||
| Shipping and freight | 12,271 | 8,934 | ||||||
| Utilities | 4,000 | 3,558 | ||||||
| Bank charges and fees | 709 | 2,676 | ||||||
| Amortization | 287 | - | ||||||
| Employee benefits | - | 18,203 | ||||||
| Donations | - | 5,290 | ||||||
| Recruiting | - | 1,083 | ||||||
| Total general and administrative expenses | 7,320,138 | 2,374,722 | ||||||
| OTHER EXPENSES | ||||||||
| Interest expense | 2,937 | 1,571 | ||||||
| Miscellaneous expense | (1,941 | ) | 3,126 | |||||
| Total other expenses | 996 | 4,697 | ||||||
| LOSS FROM OPERATIONS BEFORE TAXES | (7,321,134 | ) | (2,379,419 | ) | ||||
| TAXES | ||||||||
| EDGE tax credit expense (benefit) | - | (9,195 | ) | |||||
| NET LOSS | $ | (7,321,134 | ) | $ | (2,388,614 | ) | ||
| NET LOSS PER SHARE: | ||||||||
| Basic and diluted | $ | (0.25 | ) | $ | (0.08 | ) | ||
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
| Basic and diluted | 29,680,228 | 29,505,369 | ||||||
See accompanying notes to financial statements.
| F-36 |
ARRIVE TECHNOLOGY INC. (FORMERLY DRONEDEK CORPORATION)
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2023 and 2022
| Additional | ||||||||||||||||||||||||||||
| Common | Paid-In | Note | Total | |||||||||||||||||||||||||
| Number of | Stock ($) | Capital, Net of | Subscription | Receivable from | Stockholders’ | |||||||||||||||||||||||
| Shares | Par Value | Offering Costs ($) | Receivable ($) | Stockholder ($) | Accumulated Deficit ($) | Equity | ||||||||||||||||||||||
| Balance at December 31, 2021 | 31,905,396 | $ | 6,381 | $ | 4,978,277 | $ | - | $ | (152,250 | ) | $ | (1,672,906 | ) | $ | 3,159,502 | |||||||||||||
| Issuance of common stock, net | 157,856 | 32 | 1,223,863 | (85,405 | ) | 12,000 | - | 1,150,490 | ||||||||||||||||||||
| Stock-based compensation | 61,314 | 12 | 446,352 | - | - | - | 446,364 | |||||||||||||||||||||
| Cancellation of promissory note receivable | (20,036 | ) | (4 | ) | (140,246 | ) | - | 140,250 | - | - | ||||||||||||||||||
| Less: treasury stock, at cost | (2,500,000 | ) | (500 | ) | 500 | - | - | - | - | |||||||||||||||||||
| Net loss | - | - | - | - | - | (2,388,614 | ) | (2,388,614 | ) | |||||||||||||||||||
| Balance at December 31, 2022 | 29,604,530 | 5,921 | 6,508,746 | (85,405 | ) | - | (4,061,520 | ) | 2,367,742 | |||||||||||||||||||
| Issuance of common stock, net | 172,096 | 34 | 1,636,876 | 59,900 | - | - | 1,696,810 | |||||||||||||||||||||
| Issuance of common stock for Airbox purchase | 94,573 | 19 | 1,047,844 | - | - | - | 1,047,863 | |||||||||||||||||||||
| Stock-based compensation | 98,444 | 20 | 1,730,933 | - | - | - | 1,730,953 | |||||||||||||||||||||
| Cancellation of common stock | (1,125,000 | ) | (225 | ) | 225 | - | - | - | - | |||||||||||||||||||
| Net loss | - | - | - | - | - | (7,321,134 | ) | (7,321,134 | ) | |||||||||||||||||||
| Balance at December 31, 2023 | 28,844,643 | $ | 5,769 | $ | 10,924,624 | $ | (25,505 | ) | $ | - | $ | (11,382,654 | ) | $ | (477,766 | ) | ||||||||||||
See accompanying notes to financial statements.
| F-37 |
ARRIVE TECHNOLOGY INC. (FORMERLY DRONEDEK CORPORATION)
For the Years Ended Decmber 31, 2023 and 2022
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (7,321,134 | ) | $ | (2,388,614 | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities | ||||||||
| Stock-based compensation | 1,730,953 | 446,364 | ||||||
| Impairment charges | 1,824,923 | - | ||||||
| Depreciation and amortization | 13,393 | 9,764 | ||||||
| Changes in operating assets and liabilities | ||||||||
| (Increase) decrease in | ||||||||
| Prepaid expenses | (8,886 | ) | 2,910 | |||||
| Other current assets | 5,692 | - | ||||||
| EDGE tax credit receivable | - | 9,195 | ||||||
| Increase (decrease) in | ||||||||
| Accounts payable | 918,562 | 86,355 | ||||||
| Accrued liabilities | - | (21,377 | ) | |||||
| Credit card payable | 19,706 | 17,693 | ||||||
| Total adjustments | 4,504,343 | 550,904 | ||||||
| Net cash used in operating activities | (2,816,791 | ) | (1,837,710 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Construction in progress | (104,991 | ) | (209,741 | ) | ||||
| Patent filing costs | - | (198,200 | ) | |||||
| Purchases of property and equipment | - | (18,195 | ) | |||||
| Net cash used in investing activities | (104,991 | ) | (426,136 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net proceeds from the issuance of stock | 1,696,810 | 1,150,490 | ||||||
| Payments on note payable | (6,652 | ) | (6,560 | ) | ||||
| Net cash provided by financing activities | 1,690,158 | 1,143,930 | ||||||
| NET DECREASE IN CASH | (1,231,624 | ) | (1,119,916 | ) | ||||
| CASH, BEGINNING OF YEAR | 1,557,096 | 2,677,012 | ||||||
| CASH, END OF YEAR | $ | 325,472 | $ | 1,557,096 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | 2,937 | $ | 1,571 | ||||
| Income taxes | $ | - | $ | - | ||||
| NONCASH TRANSACTIONS | ||||||||
| Borrowings for purchase of vehicle | $ | - | $ | 40,248 | ||||
| Subscription receivable | $ | - | $ | 85,405 | ||||
| Issuance of shares for AirBox asset purchase | $ | 1,047,863 | $ | - | ||||
| Cancellation and issuance of promissory note receivable | $ | - | $ | 140,250 | ||||
See accompanying notes to financial statements.
| F-38 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
1. NATURE OF OPERATIONS
Arrive Technology Inc. (formerly DRONEDEK Corporation) (the Company) was incorporated on April 30, 2020, in the State of Delaware. In 2023, DRONEDEK Corporation changed its name to Arrive Technology Inc. On May 19, 2023, and July 27, 2023, the Company filed documentation for this name change with the State of Indiana and the State of Delaware, respectively. The Company is a developmental technology company with a focus on designing and implementing a commercially viable smart mailbox for drone package receiving and storage.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (USGAAP).
Use of Estimates
The preparation of financial statements in conformity with USGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment and makes adjustments when facts and circumstances dictate. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from those estimates.
Cash
Cash is defined as currency on hand and on-demand deposits. Cash equivalents are unrestricted highly liquid cash investments purchased with a maturity of three (3) months or less. There were no cash equivalents at December 31, 2023 and 2022.
Concentration of Credit Risk
The Company maintains its cash balances at one financial institution. The account is insured by the Federal Deposit Insurance Corporation (FDIC) up to a specified limit. The Company’s balances at the financial institutions periodically exceed federally insured limits. At December 31, 2023 and 2022, the Company’s uninsured cash balances totaled approximately $75,000 and $1,307,000, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentration of Credit Risk (Continued)
Management believes that the Company is not exposed to any significant risk concerning its cash balances. To date, the Company has not recognized any losses caused by uninsured balances.
Property and Equipment
The property and equipment is recorded at cost. The Company’s policy is to depreciate the cost of the property and equipment using the straight-line method over the estimated useful life of the asset. The costs of maintenance and repairs are charged to expense when incurred (none noted in the current or prior year as it relates to the vehicle). The useful life of the property and equipment for purposes of computing depreciation is:
| Useful Life | ||
| Vehicle and Equipment | 3-5 years |
| F-39 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
Construction-In-Progress
Construction-in-progress assets are measured at cost and consist of the costs accumulated to produce, develop and test the Company’s prototype “smart” mailbox units (also called Arrive Points). Construction-in-progress assets are not depreciated until completed, commissioned, and ready for use. The cost of an item consists of the purchase price, any costs directly attributable to bringing the asset to the location, and conditions necessary for its intended use. Construction-in-progress are assessed periodically for project viability and impairment, and adjusted as considered necessary. As of December 31, 2023 and 2022, there were no contracts with future commitments.
Intangible Assets – Patents
The Company capitalizes external costs, such as filing fees, registration documentation, and attorney fees associated with the application and issuance of patents. The Company expenses costs associated with maintaining and defending patents subsequent to issuance in the period incurred. The Company amortizes capitalized patent costs for internally generated patents on a straight-line basis over 20 years or the period in which the goods associated with the patent will be revenue-generating, which represents the estimated useful lives of the patents. The estimated useful lives for internally generated patents are based on the assessment of the following factors: the integrated nature of the patent portfolios being licensed (including the ability of the patent to generate viable goods and revenues), the overall makeup of the patent portfolio over time, and the length of license agreements for such patents. The Company assesses the potential impairment of all capitalized patent costs when events or changes in circumstances indicate that the carrying amount of the Company’s patent portfolio may not be recoverable.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived Assets
Intangibles and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any long-lived asset may not be fully recoverable. In the event that facts and circumstances indicate that the carrying amount of any long-lived assets may be impaired, an evaluation of recoverability is performed. If an evaluation was required, the estimated future undiscounted cash flows associated with the asset (or group of assets) would be compared to the assets’ (or group of assets’) carrying amount to determine if a write-down to fair value is required on the basis of the assets’ associated undiscounted cash flows. In 2023, certain capital costs included in construction-in-progress were identified as items with no future estimated cash flows, accordingly, the carrying costs of those items were identified as impaired and charged off as period cost.
The Company currently has the following types of long-lived assets: property and equipment, including a vehicle and aerial drones; construction-in-progress (CIP); and intangibles (patents). The vehicle and aerial drones were evaluated for impairments, and no impairments on those assets was considered necessary as of December 31, 2023.
In order to evaluate CIP for impairment, the accumulated costs were analyzed and categorized according to the specific generation of product to which they applied. It was determined that $630,657 was accumulated for the original mock-up unit in 2020, and the first 21 “Gen 1.0” units. These projects were fully complete by March 2023, and are now considered obsolete. The form and functionality of these prototypes have been superseded by “Gen 2.0”, starting in April 2023. As a result of this analysis, the Company has decided to write-off the accumulated cost of the prototype and Gen 1.0 units as of December 31, 2023. The remaining CIP balance consists of Gen 2.0 and 2.1 costs were also analyzed and determined to be impaired. Hence, the carrying cost of CIP related to Gen 2.0 and 2.1 amounting to $196,403 were written off as of December 31, 2023. Total impairment losses recognized on CIP amounted to $827,060 in 2023. No impairment was recognized in 2022.
| F-40 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
The Company acquired intangible assets as part of the Airbox asset purchase in the form of a patent portfolio. As of December 31, 2023, two patents are issued, one was imminent (awarded February 2024), and two are pending. The acquisition was completed on December 5, 2023, management performed a detailed analysis of the estimated future cash flows related to the above-mentioned tangible and intangible assets and recognized an impairment of $997,863, as of December 31, 2023. No impairment loss on the other patents was recognized in 2023 and 2022.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived Assets (continued)
As of December 31, 2023 and 2022, total impairment charges were $1,824,923 and $0, respectively.
Accounts Payable and Accrued Liabilities
Payables are obligations to pay for materials or services that have been acquired or have been rendered in the ordinary course of business from suppliers or vendors. Payables and accrued liabilities are classified as current if payment is due within one year.
Equity Financing
The Company engages in equity financing transactions to obtain the funds necessary to continue operations and develop a commercially viable drone delivery system. These equity financing transactions involve the issuance of common stock and at times, if the cash investment by each investor exceeds $250,000, include equity warrants.
Equity warrants are instruments that bestow upon the holder of the instrument the right to buy a particular stock at a predetermined price within a stipulated time frame. Under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 480, the Company classified the warrants as equity instruments and carries the warrants at the grant date fair market value.
Depending on the terms and conditions of each equity financing transaction, the warrants are exercisable into additional common shares at an agreed-upon price, as defined in the Stock and Warrant Purchase Agreement (“the agreement”) prior to the expiration of the warrants as stipulated by the terms of the transaction in the agreement. The fair value of the stock purchase warrants issued is determined by using the Black-Scholes-Merton (“Black-Scholes”) model. The Black-Scholes model requires the use of highly subjective and complex assumptions, which determine the fair value of warrants, including the warrants’ expected terms and the price volatility of the underlying stocks. The Company calculates the fair value of warrants granted by using the Black-Scholes pricing model with the following assumptions:
Expected Volatility: The Company estimated volatility for warrants by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the warrant for a term that is approximately equal to the warrants’ expected terms.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Equity Financing (continued)
Expected Term: The expected term of the Company’s warrants represents the period that the warrants are expected to be outstanding (typically, to expiration). The Company used the time remaining to the expiration of the warrants (contractual expiration) to compute the expected term, as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.
| F-41 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
Risk-Free Interest Rate: The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a term that is equal to the warrants’ expected terms at the grant date.
Dividend Yield: The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero.
The warrants have not been registered under the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, or qualified under any state or foreign securities laws and may not be offered for sale, sold, pledged, hypothecated, or otherwise transferred or assigned unless (i) a registration statement covering such shares is effective under the act and is qualified under applicable state and foreign law or (ii) the transaction is exempt from the registration and prospectus delivery requirements under the act and the qualification requirements under applicable state and foreign law and, if the corporation requests, an opinion satisfactory to the corporation to such effect has been rendered by counsel. The Company registered with the Security and Exchange Commission (SEC) on July 16, 2021, however, is not yet traded on the public market.
Loss per share
Basic loss per share is computed by dividing net loss by weighted average number of shares of common stock outstanding during each period. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
The Company had 652,857 warrants outstanding as of December 31, 2023 and 2022, with exercise prices of $2.38 per share. The weighted average exercise price for these warrants is $2.38 per share. These warrants are excluded from the weighted average number of shares because they are considered anti-dilutive. The warrants (on a post-reverse split basis), if exercised, will convert on a 4 to 1 per share basis.
| F-42 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss per share (Continued)
The Company had 569,331 options outstanding (on a post-reverse split basis) as of December 31, 2023, with exercise prices of $0.76 and $0.82 per share (as adjusted for the 1-for-4 reverse split). The weighted average exercise price for these options is $0.80 per share (as adjusted for the 1-for-4 reverse split). These options are excluded from the weighted average number of shares because they are considered anti-dilutive.
Offering Costs
The Company complies with the requirements of FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - Expenses of Offering. For the years ended December 31, 2023 and 2022, total offering costs were $126,512 and $24,640, respectively. Accumulated offering costs were $425,275 and $298,763 as of December 31, 2023 and 2022, respectively. These offering costs consisted of professional, regulatory, and other costs; all of which were charged to additional paid-in capital for all funding campaigns (crowdfunding, seed series, StartEngine, PicMii, etc.) held by the Company.
General and Administrative Expenses
General and administrative expenses include general compensation (including stock compensation), compensation for executive management, employee benefits, finance administration, and human resources, facility costs (including rent and common area maintenance charges), professional service fees, and other general overhead costs to support the Company’s operations.
Research and Development
Research and development (R&D) costs, that do not meet the criteria for capitalization are expensed as incurred. Research and development expenses include fees paid to outside consultants for the Company’s proprietary technology. For the years ended December 31, 2023 and 2022, the Company had R&D costs totaling $214,493 and $177,873, respectively.
Marketing Expenses
The Company uses various marketing methods to create brand awareness to promote and alert the public about future product and service offerings to generate future capital or revenue when a viable product is created. The Company’s policy is to expense marketing costs in the period they are incurred. Marketing expenses were $207,234 and $197,545 for the years ended December 31, 2023 and 2022, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation
The Company measures and records the expense related to stock-based payment awards based on the fair value of those awards as determined on the date of the grant. The Company recognizes stock-based compensation expense over the requisite service period of the individual grant, generally equal to the vesting period, and uses the straight-line method to recognize stock-based compensation, as applicable. For stock-based compensation with performance conditions, the Company records compensation expenses when the performance condition is met. The Company uses the Black-Scholes model to estimate the fair value of stock options and forfeitures are accounted for when incurred.
| F-43 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
The average price of one (1) share of the Company’s common stock (as adjusted for the 1-for-4 reverse split), which was determined to be $11.08 and $7.28 as of December 31, 2023 and 2022, respectively.
The prior company transaction method utilizes actual transactions in the Company’s non-controlling, non-marketable private company equity interests. Therefore, the result is reflective of a non-controlling, non-marketable private company value and no discount for lack of control or marketability was considered necessary in the application of this methodology. As part of this methodology, there are a number of limiting assumptions, however, management believes it appropriately represents the fair market value indication for one (1) share of the Company’s common stock. Since the Company’s stock is not publicly traded, the expected volatility is based on the historical and implied volatility of similar companies whose stock or option prices are publicly available, after considering the industry, stage of the life cycle, size, market capitalization, and financial leverage of the other companies.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating loss, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2023 and 2022, the Company has recorded a full valuation allowance against its deferred tax assets (see Note 14). The Company evaluates uncertain income tax positions in order to determine if it is more likely than not that they would be sustained upon examination.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
As the Company was incorporated in 2020, the Company’s Federal income tax returns for all years of operation are subject to examination by the Internal Revenue Service.
Fair Value Measurements
Fair value accounting is applied for all assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company follows established frameworks for measuring fair value and expands disclosures about fair value measurements (reference Note 4).
Recently Adopted Accounting Guidance
In June 2016, the FASB issued guidance (FASB ASC 326) which significantly changed how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through earnings. The most significant change in this standard is a shift from the incurred loss model to the expected loss model. Under the standard, disclosures are required to provide users of the financial statements with useful information in analyzing an entity’s exposure to credit risk and the measurement of credit losses. Financial assets held by the Company that are subject to the guidance in FASB ASC 326 were subscription receivable. The Company adopted the standard effective January 1, 2023. The impact of the adoption was not considered material to the financial statements.
| F-44 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which supersedes existing guidance for accounting for leases under Topic 840, Leases. The FASB also subsequently issued the following additional ASUs, which amend and clarify Topic 842: ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU 2018-11, Leases (Topic 842): Targeted Improvements; ASU No. 2018-20, Narrow-scope Improvements for Lessors; and ASU No. 2019-01, Leases (Topic 842): Codification Improvements. The Company elected to adopt certain of these ASUs, effective January 1, 2022, as disclosed in Note 8.
3. GOING CONCERN
The Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustment relating to recoverability and classification of recorded amounts of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company has a minimum cash balance available for payment of ongoing operating expenses. As of December 31, 2023, the Company has an accumulated deficit of $11,382,654 and a net loss for the current year of $7,321,134. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. The Company is subject to a number of risk similar to those of other companies of similar size in its industry, including, but not limited to, the need for successful development of products, the need for additional capital (or financing) to fund operating losses, competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, dependence on key individuals, and risks associated with changes in information technology.
The Company’s continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance that the necessary debt or equity financing will be available or will be available on terms acceptable to the Company.
4. FAIR VALUE MEASUREMENTS
The Company reports all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access at the measurement date.
Level 2: Inputs to the valuation methodology other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as:
4. FAIR VALUE MEASUREMENTS (Continued)
| a. | Quoted prices for similar assets or liabilities in active markets, |
| b. | Quoted prices for identical or similar assets or liabilities in inactive markets, |
| c. | Inputs other than quoted prices that are observable for the asset or liability, and |
| d. | Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
| F-45 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The financial statements as of and for the twelve months ended December 31, 2023 and 2022, do not include any nonrecurring fair value measurements relating to assets or liabilities.
The Company measures the warrants using Level 3 unobservable inputs within the Black-Scholes pricing model, as described in Note 2. The Company used various key assumptions, such as the fair value of the common stock, volatility, the risk-free interest rate, and expected term (remaining contractual term of the warrants).
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| 2023 | 2022 | |||||||
| Vehicle | $ | 58,443 | $ | 58,443 | ||||
| Drone hexacopter | 50,000 | - | ||||||
| Total property and equipment | 108,443 | 58,443 | ||||||
| Less: accumulated depreciation | (22,870 | ) | (9,764 | ) | ||||
| TOTAL PROPERTY AND EQUIPMENT, NET | $ | 85,573 | $ | 48,679 | ||||
For the years ended December 31, 2023 and 2022, total depreciation expenses were $13,106 and $9,764, respectively. In December 2023, the Company acquired fixed assets as part of an asset purchase agreement. See details in Note 15.
5. PROPERTY AND EQUIPMENT (Continued)
CONSTRUCTION-IN-PROGRESS:
As of December 31, 2023 and 2022, balance of construction-in-progress was $0 and $722,069, respectively. The balance of construction-in-progress was assessed for impairment in 2023 and adjusted as detailed in Note 2.
6. PATENTS, NET
Patents consist of the following:
| 2023 | 2022 | |||||||
| Patents | $ | 1,196,063 | $ | 198,200 | ||||
| Total patents | 1,196,063 | 198,200 | ||||||
| Less: impairment | (997,863 | ) | - | |||||
| Less: accumulated amortization | (287 | ) | - | |||||
| TOTAL PATENTS | $ | 197,913 | $ | 198,200 | ||||
| F-46 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
In 2023, three (3) of the Company’s forty-six (46) patents were approved and began being amortized over twenty years. As of December 31, 2022, there were no patents approved by the countries in which the patent applications were filed. In December 2023, the Company acquired patents as part of an asset purchase agreement. During the annual impairment assessment performed by the Company at December 31, 2023, these acquired patents were determined to be fully impaired. See details in Note 15.
Amortization expense was $287 for the year ended December 31, 2023. There was no amortization expense for the year ended December 31, 2022.
7. NOTE PAYABLE
Note payable consists of the following:
| 2023 | 2022 | |||||||
| Vehicle note payable entered into during 2022 for $40,248 with monthly installment payments of $799, including interest at 6.99% per annum. The loan is collateralized by the respective vehicle and is due in February 2027. | $ | 27,036 | $ | 33,688 | ||||
| Less current portion | (7,950 | ) | (7,415 | ) | ||||
| LONG-TERM PORTION | $ | 19,086 | $ | 26,273 | ||||
7. NOTE PAYABLE (Continued)
The balance of the above debt matures as follows:
| Year Ended December 31, | Amount | |||
| 2024 | $ | 7,950 | ||
| 2025 | 8,524 | |||
| 2026 | 9,140 | |||
| 2027 | 1,422 | |||
| TOTAL | $ | 27,036 | ||
Interest expense related to this note payable for the years ended December 31, 2023 and 2022, was $2,937 and $1,571, respectively.
8. COMMITMENTS AND CONTINGENCIES
Lease Obligation
Effective April 17, 2023, the Company expanded its leased office space. The initial term was six months, and thereafter a month-to-month lease which can be canceled with a 30-day written notice and agreement to suitable terms by both parties. Under this lease, base rent is $1,600 per month.
The Company is required to pay insurance, listing the property owner as an additional insured, and normal maintenance costs for certain of this leased property.
As discussed in Note 2, FASB, under ASU No. 2016-02, Topic 842, Leases, allows companies to elect certain policies for short-term leases. To qualify as a short-term lease, a lease must have an initial term of 12 months or less and not include renewal options or a purchase option that the lessee is reasonably certain to exercise.
The lease arrangement is a month-to-month arrangement that can be canceled with a 30-day written notice and agreement of suitable terms and does not include a purchase option. Due to the insignificant nature of the lease transaction, the Company has not recorded the potential right-of-use asset and the related lease liability and has recorded lease expenses on a straight-line basis.
| F-47 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
Litigation
From time to time, the Company may become involved in various legal proceedings in the ordinary course of its business and may be subject to third-party infringement claims. In the normal course of business, the Company may agree to indemnify third parties with whom it enters into contractual relationships, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters.
8. COMMITMENTS AND CONTINGENCIES (Continued)
The Company has agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, other third-party claims that the Company’s products, when used for their intended purposes, infringe the intellectual property rights of such other third parties, or other claims made against certain parties. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim.
9. RELATED-PARTY TRANSACTIONS
On May 26, 2020, the Company entered into a 3-year agreement with a stockholder of the Company for the use of a patent. Beginning June 1, 2020, the Company began paying the stockholder a monthly license fee of $10,000. Once revenue from sales, rentals, and leases begins, the Company is required to pay $25.00 per unit sold. If the Company does not sell 400 units per month (or $10,000), the original fixed $10,000 is paid. Accordingly, for the years ended December 31, 2023 and 2022, the Company recorded licensing fee costs in the amount of $120,000 each year.
Although the contract expired in 2023, no new agreement has been executed as of the date of this report. The Company has constructively extended the contract by continuing to pay licensing fees in accordance with the agreement dated May 26, 2020.
The Company rents a warehouse from an officer and shareholder for $2,250 a month on a month-to-month basis.
10. STOCKHOLDERS’ EQUITY
Common Stock
As of December 31, 2023 (on a post-reverse split basis), the Company has 200,000,000 common shares authorized with 28,844,643 shares being issued and outstanding. The par value is $0.0002. No other class of stock has been authorized or is available for issuance.
For the year ended December 31, 2023, the Company issued and cancelled 365,113 and 1,125,000 shares of common stock, respectively, as follows (on a post-reverse split basis):
| a) | 13,334 restricted shares, subject to a time-based vesting schedule which began July 1, 2021, with shares vesting quarterly (3,333 per quarter), recognized as compensation expense, valued at $0.84 per share (as adjusted for the 1-for-4 reverse split) based on the prevailing fair market value report at the grant date. |
10. STOCKHOLDERS’ EQUITY (Continued)
Common Stock (Continued)
| b) | 76,360 shares issued with employees or consultants via stock awards, subject to a performance threshold and time-based vesting schedule, recognized as compensation expense, valued at $11.08 per share (as adjusted for the 1-for-4 reverse split) based on the average price per stock issued to investors for cash in 2023. |
| F-48 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
| c) | 8,750 restricted shares in January 2023, subject to a milestone-based vesting schedule, with shares vesting ratably over seven milestones, recognized as compensation expense. The shares were valued at $11.08 per share (as adjusted for the 1-for-4 reverse split) based on the average price per stock issued to investors for cash in 2023. |
| d) | 34,800 shares during 2023 (January, May, July, August, and October) with accredited investors in exchange for $389,753 at $11.20 per share (as adjusted for the 1-for-4 reverse split). |
| e) | 5,715 shares in June 2023 with an accredited investor in exchange for cash of $40,002 at $7.00 per share (as adjusted for the 1-for-4 reverse split). |
| f) | 87,169 shares through a crowdfunding campaign with other investors in 2023 in exchange for net cash and services in kind of $881,969 and $34,679, respectively, at an average of $10.52 per share (as adjusted for the 1-for-4 reverse split). |
| g) | 44,086 shares issued through a crowdfunding campaign with other investors in November 2023 in exchange for net cash of $520,708, at an average of $11.80 per share (as adjusted for the 1-for-4 reverse split). |
| h) | 94,573 shares issued as consideration for an asset purchase agreement with AirBox executed on December 5, 2023, based on the average price per stock of $11.08 (as adjusted for the 1-for-4 reverse split) issued to investors for cash in 2023, for a total consideration of $1,047,863. |
| i) | Cancelled 1,125,000 shares issued to a founding member on April 30, 2020, which were issued at $0.00096 per share (as adjusted for the 1-for-4 reverse split). |
For the year ended December 31, 2022, the Company issued 219,170 shares of common stock, with 20,036 removed from outstanding stock, as follows (on a post-reverse split basis):
| a) | In January 2022, because of a cancellation and termination of an existing arrangement (including the promissory note receivable), 20,036 shares were removed from outstanding stock (not canceled) and made available for issuance (reference below for further details). |
| b) | 13,333 restricted shares, subject to a time-based vesting schedule which began July 1, 2021, with shares vesting quarterly (3,333 per quarter), recognized as compensation expense, valued at $7.28 per share (as adjusted for the 1-for-4 reverse split) based on the price per stock issued to investors for cash during 2022. |
| F-49 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
10. STOCKHOLDERS’ EQUITY (Continued)
Common Stock (Continued)
| c) | 41,481 shares issued throughout 2022 with employees or consultants via stock awards, recognized as compensation expense, valued at $7.28 per share (as adjusted for the 1-for-4 reverse split) based on the price per stock issued to investors for cash during 2022. |
| d) | 6,500 restricted shares in February 2022, subject to a time-based vesting schedule, with 1,500 immediately awarded, with the residual balance of 5,000 vesting over the next 10 months (500 shares a month), fully vested as of December 31, 2022, recognized as compensation expense. The shares were valued at $7.28 (as adjusted for the 1-for-4 reverse split) based on the price per stock issued to investors for cash during 2022. |
| e) | 82,037 shares throughout 2022 (January, June, July, August, September, October, and December) with accredited investors in exchange for $586,254 at $7.00 per share (as adjusted for the 1-for-4 reverse split). |
| f) | 35,714 shares in June 2022 with an accredited investor in exchange for cash of $250,000 at $7.00 (as adjusted for the 1-for-4 reverse split). Additionally, as this individual met the required investment threshold, stock warrants were granted (142,857 warrants), but not yet exercised, as disclosed in Note 11. |
| g) | 3,906 shares in October 2022 with an accredited investor in exchange for cash of $35,000 at $8.96 per share (as adjusted for the 1-for-4 reverse split). |
| h) | 31,263 shares through a funding campaign with accredited investors in December 2022 in exchange for cash of $152,052 at $9.72 per share (as adjusted for the 1-for-4 reverse split). |
| i) | 4,936 shares through a funding campaign with accredited investors in December 2022, with monies due in the future (received in January and February 2023; recorded as a receivable as of December 31, 2022) of $85,406 at $17.32 per share (as adjusted for the 1-for-4 reverse split). |
Treasury Stock
The Company recognizes treasury stock based on the amount paid to repurchase its shares and is recorded as a reduction of stockholders’ equity on the balance sheets. As treasury stock is not considered outstanding for share count purposes, it is excluded from average common shares outstanding for basic and diluted earnings per share. As of December 31, 2023 and 2022, the Company had 2,500,000 shares (on a post-reverse split basis) in treasury with a cost of $500.
| F-50 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
10. STOCKHOLDERS’ EQUITY (Continued)
Promissory Note
Effective November 19, 2021, the Company entered into a promissory note with a stockholder to issue 21,750 shares (on a post-reverse split basis) for $152,250 ($7.00 per share (as adjusted for the 1-for-4 reverse split)), which was receivable to the Company in thirty-seven (37) equal payment of $4,000 and one (1) final payment of $4,250, beginning January 2022 through March 2025. There is no interest assessed against the outstanding balance.
After three monthly payments of $4,000 were made (a total of $12,000) in exchange for 1,714 (on a post-reverse split basis) shares of stock, the Agreement was terminated with no cancellation or termination fees. Because the Agreement was canceled, the remaining shares were no longer deemed issued and outstanding. Because of the cancellation of this Agreement, within the statements of changes in stockholders’ equity, the shares purchased by this individual are included in the “issuance of common stock” line item as if the individual were a market investor.
Stock-Based Compensation - Employees and Non-Employees
Substantially all stock-based compensation, on the date of grant, is fully vested. In certain instances, there may be performance or service requirements in order to vest. As of December 31, 2023, all stocks issued as stock-based compensation were fully vested, except the three individuals, as discussed below. As there are no other classes of stock, all awards are in exchange for common stock.
Effective July 1, 2021, one individual was awarded 33,333 restricted shares, with 3,333 vesting quarterly (time-based) until December 31, 2023. At the grant date, the fair market value of these awarded shares was $27,333. As of December 31, 2023, the employee was fully vested. As of December 31, 2023, there was no unvested stock compensation to be expensed in future periods.
Effective January 1, 2023, two employees were issued 8,750 restricted shares, subject to a milestone-based vesting schedule, with shares vesting ratably over seven milestones. At the grant date, the fair market value of these awarded shares was $96,950. As of December 31, 2023, the employees were fully vested. As of December 31, 2023, the Company had no unvested stock compensation to be expensed in future periods.
| F-51 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
10. STOCKHOLDERS’ EQUITY (Continued)
In October 2023, an officer of the Company was issued 192,136 non-qualified stock option units (on a post-reverse split basis), with 60,043 units (on a post-reverse split basis) vesting immediately, and 12,008 units (on a post-reverse split basis) vesting quarterly commencing from December 1, 2023, with the remaining units vesting on June 1, 2026. The fair market value of these stock option units on the grant date, which was determined by using the Black-Scholes model, was $10.80 (as adjusted for the 1-for-4 reverse split). For the year ended December 31, 2023, total compensation expense was $776,998. As of December 31, 2023, total unvested units and the related unrecognized compensation expense was 120,084 (on a post-reverse split basis) and $1,294,997, respectively.
The same officer was also issued an additional 192,136 (on a post-reverse split basis) incentive stock option units, subject to both time and performance vesting criteria. The fair market value of these stock option units on the grant date, which was determined by using the Black-Scholes model, was $10.80 (as adjusted for the 1-for-4 reverse split). As of December 31, 2023, none of these units have vested, therefore the total unvested units and the related unrecognized compensation expense was 192,136 (on a post-reverse split basis) and $2,071,995, respectively.
During 2023, nine other employees were issued 185,059 (on a post-reverse split basis) stock option units, subject to a time-based or time and performance-based vesting schedule. As of December 31, 2023, none of these units have vested, and the total related unrecognized compensation expense was $2,008,255.
Stock-based compensation expense for employees and non-employees was $1,730,953 and $446,364 for the years ended December 31, 2023 and 2022, respectively. All transactions for employees and non-employees are described above.
11. WARRANTS
The warrants are exercisable at any time until the fourth anniversary of the date of the individual agreement. The fair market value, on the date of grant, for each of the warrants issued below, was determined based on the methodologies described in Notes 2 and 4. The warrants (on a post-reverse split basis) covert on a 4 to 1 per share basis.
| Number of Warrants Outstanding | Weighted Average Exercise Price | Number of Warrants Exercisable | ||||||||||
| BALANCE, JANUARY 1, 2022 | 510,000 | 2.38 | 510,000 | |||||||||
| Issued | 142,857 | 2.38 | 142,857 | |||||||||
| BALANCE, DECEMBER 31, 2022 | 652,857 | $ | 2.38 | 652,857 | ||||||||
11. WARRANTS (Continued)
| BALANCE, JANUARY 1, 2023 | 652,857 | 2.38 | 652,857 | |||||||||
| Issued | - | - | - | |||||||||
| BALANCE, DECEMBER 31, 2023 | 652,857 | $ | 2.38 | 652,857 |
| F-52 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
The following table reflects the warrants outstanding as at December 31, 2023:
| Expiration Date | Type | Exercise Price | Weighted Average Life Remaining | Warrants Outstanding | Black-Scholes Value | |||||||||||
| March 11, 2025 | Warrant | $ | 2.38 | 1.20 years | 250,000 | $ | 24,375 | |||||||||
| May 11, 2025 | Warrant | 2.38 | 1.36 years | 260,000 | 27,040 | |||||||||||
| June 8, 2026 | Warrant | 2.38 | 2.44 years | 142,857 | 39,143 | |||||||||||
| $ | 2.38 | 1.54 years | 652,857 | $ | 90,558 | |||||||||||
The following table reflects the warrants outstanding as at December 31, 2022:
| Expiration Date | Type | Exercise Price | Weighted Average Life Remaining | Warrants Outstanding | Black-Scholes Value | |||||||||||
| March 11, 2025 | Warrant | $ | 2.38 | 2.20 years | 250,000 | $ | 24,375 | |||||||||
| May 11, 2025 | Warrant | 2.38 | 2.36 years | 260,000 | 27,040 | |||||||||||
| June 8, 2026 | Warrant | 2.38 | 3.44 years | 142,857 | 39,143 | |||||||||||
| $ | 2.38 | 2.54 years | 652,857 | $ | 90,558 | |||||||||||
The following table sets forth the assumptions used to estimate the fair values of the warrants for the years ended December 31:
| 2023 | 2022 | |||||||
| Expected term | 1.2 – 2.4 years | 2.2 – 3.4 years | ||||||
| Expected volatility | 150.00 | % | 150.00 | % | ||||
| Risk-free interest rate | 4.2% – 4.4% | 4.2% – 4.4% | ||||||
| Expected dividend yield | 0.0 | % | 0.0 | % | ||||
| Fair value on the date of grant | $ 0.26 – $0.27 | $ 0.26 – $0.27 | ||||||
11. WARRANTS (Continued)
For the year ended December 31, 2023 and 2022, no warrants were exercised. As of December 31, 2023 and 2022, there is no expected unvested warrant compensation to be expensed in future periods.
12. EQUITY INCENTIVE PLAN
The Company created the 2023 Equity Incentive Plan (the Plan) on April 27, 2023, under which shares of common stock became available for issuance not to exceed 1,500,000 (on a post-reverse split basis). The Stock Plan is designed to attract, retain, and motivate key employees. Currently, the fair value is recognized as an expense over the vesting period of the award. Option awards are generally granted with an exercise price equal to the fair market value, as adjusted for the 1-for-4 reverse split, of the Company’s stock at the date of grant, vest over a five-year period, and expire after ten years. There are certain situations that may accelerate the vesting or termination of all outstanding options, such as a change in control. As of December 31, 2023, 930,669 (on a post-reverse split basis) shares were available for grant.
The compensation expenses related to incentive units is included in general and administrative expenses with a corresponding increased to additional paid-in-capital.
| F-53 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
The assumptions used to calculate the fair value of options (on a post-reverse split basis) granted during the year ended December 31, 2023 are as follows:
| Weighted-average volatility | 95.00 | % | ||
| Risk-free rate | 3.88 | % | ||
| Dividend yield | 0.00 | % | ||
| Expected term years | 10 | |||
The following is an analysis of options to purchase shares of the Company’s stock issued and outstanding (on a post-reverse split basis) as of December 31, 2023:
| Share Options | Weighted
Average Exercise Price | |||||||
| OUTSTANDING – DECEMBER 31, 2022 | - | $ | - | |||||
| Granted | 569,331 | 0.80 | ||||||
| Exercised | - | - | ||||||
| OUTSTANDING – DECEMBER 31, 2023 | 569,331 | $ | 0.80 | |||||
| F-54 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
12. EQUITY INCENTIVE PLAN (Continued)
The following is a summary of share options (on a post-reverse split basis) vested and exercisable at December 31, 2023:
| Share Options | Weighted
Average Exercise Price | Weighted Average Remaining Contractual Life-Years | Aggregate Intrinsic Value | |||||||||||
| 72,051 | $ | 0.84 | 8.6 | $776,998 | ||||||||||
The following is a summary of the changes in nonvested share options (on a post-reverse split basis) as of December 31, 2023:
| Share Options | Weighted
Average Grant Date Fair Value | |||||||
| NONVESTED SHARE OPTIONS - DECEMBER 31, 2022 | - | $ | - | |||||
| Granted | 569,331 | 10.80 | ||||||
| Vested | (72,051 | ) | 10.80 | |||||
| NONVESTED SHARE
OPTIONS - DECEMBER 31, 2023 | 497,280 | $ | 10.80 | |||||
The weighted average grant date fair value of stock options issued during the year ended December 31, 2023 was $10.80 per share (as adjusted for the 1-for-4 reverse split). As of December 31, 2023, there was $5,375,246 unrecognized compensation expense related to nonvested stock options to be recognized over the remaining vesting period. No options were exercised during the year ended December 31, 2023.
13. RESEARCH AND DEVELOPMENT CREDITS
Under the Internal Revenue Service (IRS) Form 6765, the Company is eligible to claim a credit related to research and development expenses. The research credit is generally allowed for expenses paid or incurred for qualified research. Qualified research means research for which expenses may be treated as section 174 expenses. This research must be undertaken for discovering information that is technological in nature, and its application must be intended for use in developing a new or improved business component of the taxpayer. The payroll tax credit election is an annual election made by a qualified small business specifying the amount of research credit, not to exceed $250,000, that may be
| F-55 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
13. RESEARCH AND DEVELOPMENT CREDITS (Continued)
used against the employer portion of social security liability. The credit is the smallest of the current year’s research credit, an elected amount not to exceed $250,000, or the general business credit carryforward for the tax year. For the years ended December 31, 2023 and 2022, the Company had available R&D credits totaling $77,193.
14. INCOME TAXES
The net deferred tax amounts in the accompanying balance sheet include the following components:
| 2023 | 2022 | |||||||
| FEDERAL | ||||||||
| Deferred tax assets | $ | 2,213,108 | $ | 832,417 | ||||
| Deferred tax assets valuation allowance | (2,213,108 | ) | (832,417 | ) | ||||
| NET DEFERRED FEDERAL
TAX ASSETS, NET OF ALLOWANCE | $ | - | $ | - | ||||
| STATE | ||||||||
| Deferred tax assets | $ | 504,101 | $ | 188,168 | ||||
| Deferred tax assets valuation allowance | (504,101 | ) | (188,168 | ) | ||||
| NET DEFERRED STATE
TAX ASSETS, NET OF ALLOWANCE | $ | - | $ | - | ||||
The income tax benefit consists of the following for the years ended December 31, 2023 and 2022:
| 2023 | 2022 | |||||||
| Federal | $ | 1,380,691 | $ | 509,817 | ||||
| State | 315,933 | 71,768 | ||||||
| Valuation allowance | (1,696,624 | ) | (581,585 | ) | ||||
| INCOME TAX BENEFIT | $ | - | $ | - | ||||
The change in the valuation allowance of the following at December 31, 2023 and 2022:
| 2023 | 2022 | |||||||
| Beginning balance, January 1 | $ | 1,020,585 | $ | 439,000 | ||||
| Change in valuation allowance | 1,696,624 | 581,585 | ||||||
| VALUATION ALLOWANCE | $ | 2,717,209 | $ | 1,020,585 | ||||
| F-56 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
14. INCOME TAXES (Continued)
In assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to the future realization of the deferred tax assets and has therefore established a full valuation allowance.
A reconciliation of the statutory tax rate to the Company’s effective tax rates as of December 31, 2023 and 2022 is as follows:
| 2023 | 2022 | |||||||
| Statutory federal income tax rate | 21.0 | % | 21.0 | % | ||||
| State taxes | 5.0 | % | 5.0 | % | ||||
| Change in valuation allowance | (26.0 | %) | (26.0 | %) | ||||
| INCOME TAX BENEFIT | 0.0 | % | 0.0 | % | ||||
Economic Development for a Growing Economy (EDGE) Tax Credit
The EDGE Tax Credit (the Credit) provides an incentive to businesses to support job creation, capital investment and to improve the standard of living for Indiana residents. The refundable corporate income tax credit is calculated as a percentage (not to exceed 100%) of the expected increased tax withholdings generated from new job creation. The credit certification is phased in annually for up to ten years based on the employment ramp-up outlined by the business.
As identified in Note 1, the Company is not expected to have taxable income within the next operating year from the date these financial statements are issued, therefore, the Credit is classified as a long-term asset to be used against future Indiana taxable income. For the years ended December 31, 2023 and 2022, the Company was eligible for the Credit in the amount of $17,073 and $14,924, respectively. For the years ended December 31, 2023 and 2022, the Company recorded a valuation allowance against the available Credit as State taxable income is not expected.
| F-57 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
15. ASSET ACQUISITION
On December 5, 2023, the Company acquired certain assets of AirBox Technologies (“AirBox”), in an all-stock transaction. In addition to certain tangible assets, the acquisition includes AirBox’s patent portfolio, which Arrive believes will broaden the capabilities of its high-tech mailbox system designed for autonomous and conventional package delivery. In addition to acquiring the above mentioned assets, AirBox’s CEO Brandon Pargoe has joined the Arrive team as Vice President of Product Operations. In consideration for the asset purchase, the Company issued 94,573 shares (on a post-reverse split basis) at a price of $11.08 per share (as adjusted for the 1-for-4 reverse split), which was determined based on the average price per stock (as adjusted for the 1-for-4 reverse split) of $11.08 issued to investors for cash in 2023. The assets acquired for which the related purchase price was allocated were as follows:
| Assets Acquired | Amount | |||
| Drone Hexacopter | $ | 50,000 | ||
| Patents | 997,863 | |||
| Total Purchase Price | $ | 1,047,863 | ||
A drone Hexacopter was presented as part of the property and equipment. The patents were subsequently determined to be fully impaired at December 31, 2023. See detailed discussion in Note 2.
16. RECLASSIFICATIONS
As disclosed in Note 17, the Company executed a 1-for-4 reverse stock split on November 25, 2024. This reverse split is considered a recognized subsequent event; accordingly, certain amounts in prior periods have been reclassified to reflect the impact of the reverse split.
The Company’s number of warrants remain the same as previously reported and as a result of the reverse split, if exercised, will convert on a 4 to 1 per share basis.
As a result of the 1-for-4 reverse stock split, the number of option awards under its equity incentive plan have been adjusted on a 4 to 1 per option basis. Accordingly, the exercise price is increased to 4 times the original stated price.
| F-58 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
16. RECLASSIFICATIONS (Continued)
The table below presents the effect of the reverse split on financial statements amounts and disclosures.
| December 31, 2023 | ||||||||
| Financial Statement Element | Pre-Reverse Split | Post-Reverse Split | ||||||
| Par value of common stock, per share | $ | 0.00005 | $ | 0.0002 | ||||
| Shares authorized | 200,000,000 | 200,000,000 | ||||||
| Shares issued and outstanding | 115,378,570 | 28,844,643 | ||||||
| Treasury stock | 10,000,000 | 2,500,000 | ||||||
| Net loss per share, basic and diluted | $ | (0.06 | ) | $ | (0.25 | ) | ||
| Weighted-average common shares outstanding, basic and diluted | 118,720,913 | 29,680,228 | ||||||
| December 31, 2022 | ||||||||
| Financial Statement Element | Pre-Reverse Split | Post-Reverse Split | ||||||
| Par value of common stock, per share | $ | 0.00005 | $ | 0.0002 | ||||
| Shares authorized | 200,000,000 | 200,000,000 | ||||||
| Shares issued and outstanding | 118,418,121 | 29,604,530 | ||||||
| Treasury stock | 10,000,000 | 2,500,000 | ||||||
| Net loss per share, basic and diluted | $ | (0.02 | ) | $ | (0.08 | ) | ||
| Weighted-average common shares outstanding, basic and diluted | 118,021,476 | 29,505,369 | ||||||
17. SUBSEQUENT EVENTS
Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are issued or are available to be issued. These events and transactions either provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing the financial statements (that is, recognized subsequent events), or provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date (that is, non-recognized subsequent events).
On January 29, 2024, the Company was included in an SEC Form F-4 filed by Brüush Oral Care, Inc., a Canadian domiciled entity, to register the intent of the parties to merge into a new public company, per the signed Merger Agreement of December 15th. Under the terms of the merger agreement, Brüush and Arrive will conduct a business combination in
| F-59 |
ARRIVE TECHNOLOGY INC.
(FORMERLY DRONEDEK CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
17. SUBSEQUENT EVENTS (Continued)
the form of a reverse triangular merger (“Merger”) via an all-stock transaction. Brüush (“PubCo”) through its wholly owned subsidiary (“Merger Sub”) will merge with and into Arrive (“Target Company”) with Target Company continuing under the name of Arrive Technology Inc. and as a wholly owned subsidiary of PubCo.
Upon completion of the Merger, the outstanding shares of Target Company’s common stock, will be exchanged for common shares of PubCo representing upon issuance, 94.5% of PubCo’s issued and outstanding common shares on a fully diluted basis. The legacy shareholders of PubCo will own shares of PubCo common shares representing 5.5% of PubCo’s issued and outstanding common shares on a fully diluted basis. The merger has been approved by the board of directors of both companies and is expected to close in the second quarter of 2024, subject to customary closing conditions.
On February 7, 2024, the Company settled a long-standing legal matter with Mr. Justin McGinnis. The terms of the agreement are confidential.
The Company continues to raise capital via Crowdfunding, issuing 64,089 shares (on a post-reverse split basis) in exchange for $778,645 since December 31, 2023. In addition, the Company has raised $130,000 through issuance of 11,255 shares (on a post-reverse split basis) from direct, accredited investors.
On October 24, 2024 the Board of Directors approved a resolution authorizing a 1-for-4 reverse stock split. This reverse split became effective November 25, 2024, which is before the effective date of the Company’s registration statement. Accordingly, this change in capital structure is considered a recognized subsequent event and is given retroactive effect in these financial statements as further described in Note 16.
The Company has evaluated subsequent events through April 24, 2024, which was the date that these financial statements were available for issuance.
| F-60 |
Shares
ARRIVE AI INC.
PROSPECTUS
[●]
_____________, 2025
Through and including March [ ], 2025, 25 days after the date of this prospectus, all dealers that effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
| Item 13. | Other Expenses of Issuance and Distribution |
The following table sets forth all costs and expenses paid or payable by us in connection with the sale of the common stock being registered. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and the listing fee for the Nasdaq Global Market.
| SEC registration fee | $ | * | ||
| FINRA filing fee | * | |||
| Nasdaq listing fee | * | |||
| Accounting fees and expenses | * | |||
| Legal fees and expenses | * | |||
| Blue sky fees and expenses | * | |||
| Miscellaneous expenses | * | |||
| Total | $ | * | ||
* To be filed by amendment.
| Item 14. | Indemnification of Directors and Officers |
We are incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law (“DGCL”) provides that a Delaware corporation may indemnify any persons who are, or are threatened to be made, parties to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was an officer, director, employee, or agent of such corporation, or is or was serving at the request of such person as an officer, director, employee, or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit, or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. Our bylaws include such provisions related to our authority to indemnify a director, officer, employee, fiduciary, or agent.
Section 145 of the DGCL also provides that Delaware corporation may indemnify any person who is, or is threatened to be made, a party to any threatened, pending, or completed action or suit by or in the right of the corporation by reason of the fact that such person was a director, officer, employee, or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee, or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation.
Under the DGCL, where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses which such officer or director has actually and reasonably incurred. Article VI, Section 6.1 of our bylaws contains a mandatory indemnification provision, which requires us to indemnify a person in the defense of any proceeding to which the person was a party because the person is or was a director or officer, against reasonable expenses incurred by him or her in connection with the proceeding.
Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except for liability for any:
| ● | breach of a director’s duty of loyalty to the corporation or its stockholders; | |
| ● | act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; | |
| ● | unlawful payment of dividends, stock purchase or redemption of shares; or | |
| ● | transaction from which the director derives an improper personal benefit. |
| II-1 |
Pursuant to Article VI, Section 6.2 of our bylaws, expenses incurred by any officer or director in defending any proceeding in advance of its final disposition shall be paid by us upon delivery to us of an undertaking by or on behalf of such director or officer, to repay all amounts advanced if it should ultimately be determined that such director or officer is not entitled to be indemnified by us.
Section 174 of the DGCL provides, among other things, that a director, who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, may be held liable for such actions. A director who was either absent when the unlawful actions were approved, or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered on the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.
We have an insurance policy covering our officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act, or otherwise.
| Item 15. | Recent Sales of Unregistered Securities |
From April 30, 2020 through March 21, 2025, we issued an aggregate of 1,089,972 shares of Common Stock to investors in Regulation Crowdfunding offerings, at an average price of $6.98 for gross proceeds of $7,612,659 (after giving effect to the Reverse Stock Split). The sales of the foregoing securities were issued pursuant to the exemption from registration provided by Section 4(a)(6) of the Securities Act. All communications and offers and sales took place through an SEC registered funding portal. The Company will continue to engage in crowdfunding campaigns until the effectiveness of this registration statement.
Additionally, as of March 21, 2025, Arrive has received $4,053,735 in funding from private investors in exchange for 705,923 shares of common stock, and Arrive issued 94,573 shares of common stock in consideration for the acquisition of Airbox Inc. in December of 2023 (after giving effect to the Reverse Stock Split).
During the period from January 1, 2025 through March 21, 2025, the Company issued the following (after giving effect to the Reverse Stock Split):
| ● | 11,332 shares of common stock at a purchase price of $13.00 per share, for gross cash proceeds of $152,000, to 3 accredited investors, with (i) 923 shares issued in January 2025, (ii) 3,077 shares issued in February 2025, and (iii) 7,332 shares in March 2025. | |
| ● | 62,500 shares of common stock at a purchase price of $4.75 per share, for gross cash proceeds of $296,875 to one warrant holder for exercise of previously issued warrants. | |
| ● | 22,154 shares of common stock from crowdfunding, at a price of $13.00 per share, with (i) 3,403 shares issued in January 2025, (ii) 13,822 shares issued in February 2025, and (iii) 4,929 shares issued in March 2025. |
During the period from January 1, 2024 through December 31, 2024, the Company issued the following (after giving effect to the Reverse Stock Split):
| ● | 12,949 shares of common stock at a purchase price of $11.20 per share, for gross cash proceeds of $145,000, to 5 accredited investors from between January and August 2024, with (i) 7,144 shares issued in January 2024, (ii) 2,333 shares issued in July 2024, and (iii) 3,572 shares in August 2024. | |
| ● | 53,870 shares of common stock at a purchase price of $12.16 per share, for gross cash proceeds of $655,000 to 9 accredited investors between January and October 2024, with (i) 4,112 shares issued in January 2024, (ii) 20,560 shares issued in April 2024, (iii) 823 shares issued in July 2024, (iv) 3,702 shares issued in August 2024, (v) 21,383 shares issued in September 2024, and (vi) 3,290 shares issued in October 2024. | |
| ● | 1,924 shares of common stock at a purchase price of $13.00 per share, for gross cash proceeds of $25,000 to 2 accredited investors in November 2024. | |
| ● | 697 shares of common stock from crowdfunding, at price of $11.20 per share in March 2024. | |
| ● | 143,653 shares of common stock from crowdfunding, at price of $12.16 per share from March through October 2024. | |
| ● | 26,368 shares of common stock from crowdfunding, at a price of $13.00 per share in November 2024 | |
| ● | 32,839 shares of common stock to employees, directors and consultants, at a fair value of $12.50 per share determined using the average purchase price of all shares sold in the period, from April through December 2024. |
During the year ended December 31, 2023, the Company issued the following (after giving effect to the Reverse Stock Split):
| ● | 34,800 shares of common stock at a purchase price of $11.20 per share, for gross cash proceeds of $389,753, to 13 accredited investors between January 2023 and October 2023, with (i) 3,125 shares issued in January 2023, (ii) 17,858 shares issued in May 2023, (iii) 3,125 shares issued in July 2023, (iv) 2,053 shares issued in August 2023, and (v) 8,640 shares issued in October 2023; | |
| ● | 5,715 shares of common stock at a purchase price of $7.00 per share, for gross cash proceeds of $40,002, to an accredited investor in June 2023; | |
| ● | 83,873 shares of common stock from crowdfunding, at an average price of $10.60 per share between January 2023 and August 2023, for gross proceeds of $888,672. | |
| ● | 16,015 shares of common stock from crowdfunding, at price of $11.20 per share in October 2023. | |
| ● | 28,071 shares of common stock from crowdfunding, at price of $12.16 per share between October 2023 and December 2023. | |
| ● | 3,295 shares of common stock for crowdfunding services rendered, at fair value at a fair value of $10.52 per share in August 2023 determined using the average purchase price of all shares sold in 2023. | |
| ● | 22,084 shares of common stock for services rendered, at a fair value of $11.08 per share (8,750 shares) determined using the average purchase price of all shares sold in the period and $0.82 per share (13,334 shares) based on the grant date fair value, to two current directors and one former director of the Company; | |
| ● | 36,840 shares of common stock for services rendered, at fair value at $10.52 per share determined using the average purchase price of all shares sold in 2023, to three officers of the Company, in January, October and December 2023; and | |
| ● | 39,521 shares of common stock for services rendered, at fair value at $10.52 per share determined using the average purchase price of all shares sold in 2023, to 15 employees and consultants in 2023. | |
| ● | 94,573 shares of common stock for the acquisition of the assets of Airbox, at fair value at $11.08 per share determined using the average purchase price of all shares sold in the period, in December 2023. |
| II-2 |
During the year ended December 31, 2022, the Company issued the following:
| ● | 123,372 shares of common stock for aggregate cash proceeds of $871,254 from sixteen accredited investors; | |
| ● | 36,524 shares of common stock for aggregate cash proceeds of $342,087 from crowdfunding; | |
| ● | 60,748 shares of common stock for services rendered, valued at $7.28 per share, including 50,548 shares to certain directors and officers of the Company |
During the year ended December 31, 2021, the Company issued the following:
| ● | 244,296 shares of common stock for aggregate cash proceeds of $1,204,502 from seventeen (17) individuals; | |
| ● | 729,531 shares of common stock for aggregate cash proceeds of $3,475,950 from crowdfunding; | |
| ● | 150,152 shares of common stock for services rendered, valued at $0.82 per share, including 61,667 shares to certain directors and officers of the Company |
During the period from April 30, 2020 (date of incorporation) to December 31, 2020, the Company issued the following:
| ● | 104,875 shares of common stock for services rendered, valued at $0.001 per share, including 100,000 shares to certain directors and officers of the Company; and | |
| ● | 176,543 shares of common stock at $2.42 per share, for cash proceeds of $426,600 to eight (8) individuals. |
The Company relied upon the exemption provided by Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act of 1933 in connection with issuance and sale of the securities described above. The persons who acquired these shares were sophisticated investors and were provided full information regarding the Company’s business and operations. There were no general solicitations in connection with the offer or sale of these securities. The persons who acquired these securities acquired them for their own accounts.
| Item 16. | Exhibits and Financial Statement Schedules |
Exhibits
See the Exhibit Index immediately preceding the signature page hereto for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.
Financial Statement Schedules
All financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or in the accompanying notes.
| Item 17. | Undertakings |
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission (the “Commission”) pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
Provided, however, that Paragraphs (a)(1)(i), (ii), and (iii) of this section do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are incorporated by reference in the registration statement.
| II-3 |
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act to any purchaser: If the registrant is subject to Rule 430C (§230.430C of this chapter), each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(e) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(f) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
| II-4 |
EXHIBIT INDEX
| Exhibit Index | Description | |
| 3.1 | Certificate of Incorporation | |
3.2 |
||
| 3.3 | Bylaws of the registrant | |
| 5.1* | Opinion of Lucosky Brookman LLP | |
| 10.1** | Executive Employment Agreement with chief financial officer (Todd Pepmeier) | |
| 10.2** | Executive Employment Agreement with chief operating officer (Mark D. Hamm) | |
| 10.3 | Design Engineering Services Agreement with HUSH Aerospace, LLC | |
| 10.4 | Memorandum of Understanding with Helium Systems Inc. | |
| 10.5** | Exclusive Patent License Agreement | |
| 10.6** | ||
10.7** |
||
10.8** |
||
| 10.9** | Service Agreement, dated November 29, 2023, by and between the Registrant and Brandon Pargoe | |
| 10.10 | Second Amendment to Exclusive Patent License Agreement | |
| 10.11 | Securities Purchase Agreement between Arrive AI Inc. and Streeterville Capital LLC | |
| 21.1 | List of subsidiaries of the registrant | |
| 23.1 | Consent of Assurance Dimensions | |
| 23.2* | Consent of Lucosky Brookman LLP (included in Exhibit 5.1) | |
| 24.1 | Power of Attorney (included on signature page) | |
| 107** | Filing Fee Table |
* To be filed by amendment.
** Previously filed
| II-5 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized on March 21, 2025.
| ARRIVE AI INC. | ||
| By: | /s/ Daniel S. O’Toole | |
| Name: | Daniel S. O’Toole | |
| Title: | Chief Executive Officer | |
| By: | /s/ Todd Pepmeier | |
| Name: | Todd Pepmeier | |
| Title: | Chief Financial Officer (Principal Financial and Accounting Officer) | |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John Ritchison, his true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to sign any registration statement for the same offering covered by the registration statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, his, hers or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
| Name | Title | Date | ||
/s/ Daniel S. O’Toole |
Chairman of the Board of Directors | March 21, 2025 | ||
| Daniel S. O’Toole | ||||
/s/ Daniel S. O’Toole |
Chief Executive Officer | March 21, 2025 | ||
| Daniel S. O’Toole | (Principal Executive Officer) | |||
/s/ Todd Pepmeier |
Chief Financial Officer | March 21, 2025 | ||
| Todd Pepmeier | (Principal Financial and Accounting Officer) | |||
| /s/ Mark Hamm | Chief Operating Officer, Director | March 21, 2025 | ||
| Mark Hamm | ||||
| /s/ Neerav Shah | Chief Strategy Officer, Director | March 21, 2025 | ||
| Neerav Shah | ||||
| /s/ John Ritchison | Director | March 21, 2025 | ||
| John Ritchison | ||||
| /s/ John Gallina | Director | March 21, 2025 | ||
| John Gallina | ||||
| /s/ Kevin McAdams | Director | March 21, 2025 | ||
| Kevin McAdams | ||||
| /s/ Bill Stafford | Director | March 21, 2025 | ||
| Bill Stafford |
| II-6 |
Exhibit 3.1
Exhibit 3.2
Exhibit 3.3
Exhibit 10.3
Exhibit 10.4
Exhibit 10.10
SECOND AMENDMENT TO EXCLUSIVE
PATENT LICENSE AGREEMENT
This is a Second Amendment to the Exclusive Patent License Agreement first executed May 26, 2020 and then Amended the first time on or around December 10, 2024 (“First Amendment”). This Second Amendment to the Agreement is made and is effective as of the 10th day of March, 2025 (the “Effective Date”) by and between Daniel S. O’Toole, an individual residing at 5856 E. 169th St, Noblesville, IN 46062 USA (“LICENSOR”), and ARRIVE AI INC (“ARRIVEAI” and LICENSEE ), formerly known as (f/k/a) Arrive Technology Inc. and f/k/a DRONEDEK, Corporation. ARRIVE AI, INC is a corporation organized and existing under the laws of the State of Delaware and having its principal offices at 12175 Visionary Way, Fishers, IN 46038 USA (“LICENSEE”). Arrive AI Inc is registered with the Indiana Secretary of State for a Foreign For-Profit Corporation.
Recitals:
Whereas the company ARRIVE AI INC (“ARRIVEAI” or “LICENSEE”) is in the process of becoming a publicly listed corporation on NASDAQ based in part upon the O’Toole patents and technology license as amended;
Whereas both Parties appreciate and understand that a coordinated and smooth continuation of any license from O’Toole to ARRIVEAI can be one of the considerations taken by a potential/ future shareholders; and
Whereas the LICENSEE and LICENSOR (ARRIVEAI and O’Toole) are both desirous of ArriveAI having an agreement in place wherein the terms and conditions in the License fully support a smooth transition for all parties should this technology license between O’Toole and ARRIVEAI be terminated. This desire is to provide a business with licensed technology in both both the US and Worldwide locations. This agreement license from O’Toole provides the Licensee with worldly exploitation rights to practice AND to utilize the O’Toole inventions, technology, know-how, patents, and patent applications, including to manufacture and market the Product
NOW, THEREFORE, in consideration for the mutual covenants and promises contained in this Agreement, the Parties agree as follows:
Terms and Conditions:
All of the Terms and Conditions of the License executed between the Parties on the original Agreement (5/26/2020) and the First Amendment (12/10/2024), are renewed, extended, and fully incorporated by reference here as part of this Second Amendment. Those Terms or Conditions of the original Agreement and First Amendment not expressly amended herein of this document are incorporated as if they were fully repeated in this Second Amendment.
Page 1 of 3 |
SECOND AMENDMENT TO EXCLUSIVE
PATENT LICENSE AGREEMENT
7. Amended Term and Termination
| a) | With respect to the rights granted herein, this Agreement shall commence upon the executing hereof and shall continue and is extended to perpetuity for the full term and life of the patents. Continuation of this license and Amendments shall not be unreasonably withheld unless there is a default under the full terms of the original agreement (5/26/2020), the First Amendment (12/10/2024), and this Second Amendment. |
In the event of a default by either party, the defaulting party (O’Toole and/or ARRIVEAI) has sixty (60) days to cure the default. If default is not cured (after timely notice) per the Exclusive License Agreement, as amended, then the terms and conditions and payments of any royalty continues into perpetuity or the completion of the 20-year term of qualifying patent.
After
60 days without cure, the Exclusive License transitions into a Non-exclusive license. This permits O’Toole to seek other and/or
additional Licensees for exploitation of similar technology. AND this and permits ARRIVE AI, Inc. to seek other sources. This
Second Amendment transitions the current requirement 7d) that: “Subsequent to the termination of this Agreement,
as provided or in sub-Sections 7a or 7b or 7c hereof, LICENSEE agrees that it will not engage in the use, sale, or other commercialization
of the TECHNOLOGY and that it will not sell the PRODUCTS.
Notwithstanding the foregoing, LICENSEE may, for up to ninety (90) days after the effective date of such termination, sell all PRODUCTS which may be in inventory and not sold; provided, however, LICENSEE provides any reports and payments required by Section 5 of this Agreement.”
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SECOND AMENDMENT TO EXCLUSIVE
PATENT LICENSE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first mentioned above.
| LICENSOR | LICENSEE | |||
| By | /s/ Daniel S. O’Toole | By | /s/ Todd Pepmeier | |
| Daniel S. O’Toole, | Todd Pepmeier, | |||
| Inventor and Owner | CFO Arrive AI Inc. | |||
| Witnessed: | /s/ John D. Ritchison | |
| John D Ritchison, | ||
| Attorney at Law #12066-48 |
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Exhibit 10.11
Securities Purchase Agreement
This Securities Purchase Agreement (this “Agreement”), dated as of March 21, 2025 (the “Effective Date”), is entered into by and between Arrive AI Inc., a Delaware corporation (“Company”), and Streeterville Capital, LLC, a Utah limited liability company, its successors and/or assigns (“Investor”). Capitalized terms used but not otherwise defined herein will have the meanings set forth in Section 11.
A. Company and Investor are executing and delivering this Agreement in reliance upon an exemption from securities registration afforded by the Securities Act of 1933, as amended (the “1933 Act”), and the rules and regulations promulgated thereunder by the United States Securities and Exchange Commission (the “SEC”).
B. Investor desires to purchase and Company desires to issue and sell, upon the terms and conditions set forth in this Agreement: (i) one or more Pre-Paid Purchases, in form substantially similar to that attached hereto as Exhibit A (each, a “Pre-Paid Purchase”), in the aggregate purchase amount of up to $40,000,000.00 (the “Commitment Amount”), for the purchase of shares of common stock, $0.0002 par value per share, of Company (the “Common Shares”), upon the terms and subject to the limitations and conditions set forth in such Pre-Paid Purchase; (ii) 62,500 Common Shares to be delivered by Company to Investor at Closing (as defined below) as a commitment fee for the Pre-Paid Purchases (the “Commitment Shares”); and (iii) 2,937,500 Common Shares to be delivered to Investor at Closing to be used as pre-delivery shares (the “Pre-Delivery Shares”).
C. This Agreement, the Pre-Paid Purchase(s), the Registration Rights Agreement (as defined below), and all other certificates, documents, agreements, resolutions and instruments delivered to any party under or in connection with this Agreement, as the same may be amended from time to time, are collectively referred to herein as the “Transaction Documents”.
D. For purposes of this Agreement: “Purchase Shares” means all Common Shares issuable pursuant to the Pre-Paid Purchases; and “Securities” means the Pre-Paid Purchase(s), the Commitment Shares, the Pre-Delivery Shares and the Purchase Shares.
NOW, THEREFORE, in consideration of the above recitals and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Company and Investor hereby agree as follows:
1. Purchase and Sale of Securities.
1.1. Initial Pre-Paid Purchase and Commitment Shares. At the Closing, Company shall issue and sell to Investor and Investor shall purchase from Company the Pre-Paid Purchase #1 in the original principal amount of $4,330,000.00 (the “Initial Pre-Paid Purchase”) and the Commitment Shares. In consideration thereof, Investor shall pay $4,000,000.00 (the “Initial Purchase Price”) to Company for the Initial Pre-Paid Purchase and the Commitment Shares.
1.2. Pre-Delivery Shares. At the Closing, Company shall issue and sell to Investor and Investor shall purchase from Company the Pre-Delivery Shares. In consideration thereof, Investor shall pay $587.50 to Company (the “Purchase Share Purchase Price”, and together with the Initial Purchase Price, the “Purchase Price”).
1.3. Form of Payment. On the Closing Date (as defined below), Investor shall pay: (i) the Initial Purchase Price to Company via wire transfer of immediately available funds against delivery of the Initial Pre-Paid Purchase and the Commitment Shares; and (ii) the Pre-Delivery Purchase Price against delivery of the Pre-Delivery Shares.
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1.4. Closing Date. Subject to the satisfaction (or written waiver) of the conditions set forth in Section 7 and Section 8 below, the date of the issuance and sale of the Initial Pre-Paid Purchase, the Commitment Shares and the Pre-Delivery Shares pursuant to this Agreement (the “Closing Date”) shall be a mutually agreed upon date following satisfaction of such conditions. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date by means of the exchange by email of signed .pdf documents, but shall be deemed for all purposes to have occurred at the offices of Hansen Black Anderson Ashcraft PLLC in Lehi, Utah.
1.5. Collateral for Pre-Paid Purchases. The Pre-Paid Purchases shall be unsecured.
1.6. Original Issue Discount; Transaction Expense Amount. The Initial Pre-Paid Purchase carries an original issue discount of $320,000.00 (“OID”). In addition, Company agrees to pay $10,000.00 to Investor to cover Investor’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of the Initial Pre-Paid Purchase (“Transaction Expense Amount”). The OID and Transaction Expense Amount will be included in the initial principal balance of the Initial Pre-Paid Purchase. The Initial Purchase Price is computed as follows: $4,330,000.00 initial principal balance, less the OID, less the Transaction Expense Amount. The OID for each subsequent Pre-Paid Purchase after the Initial Pre-Paid Purchase will be eight percent (8%) of the amount set forth in the applicable Request (as defined below) and each subsequent Pre-Paid Purchase will accrue interest at the rate of eight percent (8%) per annum.
1.7. Request for Pre-Paid Purchase. The parties hereby agree that Company may, at its sole and absolute discretion, at any time and from time to time during the Commitment Period (as defined below), subject to the satisfaction of the conditions set forth in Annex I attached hereto, request a Pre-Paid Purchase in an amount not less than the Minimum Purchase Amount and not more than the Maximum Purchase Amount from Investor by providing a written notice of such request to Investor (each, a “Request”). The closing of each Pre-Paid Purchase shall take place on or before the tenth (10th) Trading Day (as defined in the Initial Pre-Paid Purchase) following the date of such Request (the date of the closing of each Pre-Paid Purchase shall be referred to as the “Pre-Paid Purchase Date”). Subject to the satisfaction of the conditions set forth in Annex I attached hereto as of such Pre-Paid Purchase Date, Investor shall pay to Company the amount set forth in such Request (which amount shall serve as the purchase price of such Pre-Paid Purchase) in immediately available funds to an account designated by Company in writing on each Pre-Paid Purchase Date (except in respect of the Initial Pre-Paid Purchase, which shall be paid at Closing) immediately following delivery of the applicable fully executed Pre-Paid Purchase using the same form as the Initial Pre-Paid Purchase except as noted in this Section 1.7. With respect to each Pre-Paid Purchase issued hereunder after the Initial Pre-Paid Purchase: (i) the Floor Price (as defined in the applicable Pre-Paid Purchase) of such Pre-Paid Purchase will be twenty percent (20%) of the Nasdaq Minimum Price on the Trading Day immediately prior to the Pre-Paid Purchase Date; and (ii) the Fixed Price (as defined in the applicable Pre-Paid Purchase) of such Pre-Paid Purchase will be one hundred twenty percent (120%) of the Nasdaq Minimum Price on the Trading Day immediately prior to Pre-Paid Purchase Date. Each Pre-Paid Purchase will be considered a separate instrument with a separate outstanding balance and holding period.
2. Investor’s Representations and Warranties. Investor represents and warrants to Company that as of the Closing Date: (i) this Agreement has been duly and validly authorized; (ii) this Agreement constitutes a valid and binding agreement of Investor enforceable in accordance with its terms; (iii) to Investor’s knowledge, the execution and delivery of the Transaction Documents by Investor, and the consummation by Investor of the other transactions contemplated by the Transaction Documents do not and will not conflict with or result in a breach by Investor of any of the terms or provisions of, or constitute a default under (a) Investor’s formation documents or operating agreement, each as currently in effect, (b) any indenture, mortgage, deed of trust, or other material agreement or instrument to which Investor is a party or by which it or any of its properties or assets are bound, or (c) any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal, state or foreign regulatory body, administrative agency, or other governmental body having jurisdiction over Investor or any of Investor’s properties or assets; (iv) Investor is a limited liability company duly organized, validly existing and in good standing under the laws of its state of organization and has the requisite corporate power to own its properties and to carry on its business as now being conducted; (v) to Investor’s knowledge, no further authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders or any lender of Investor is required to be obtained by Investor for the entering into of the Transaction Documents; and (vi) Investor is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D of the 1933 Act.
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3. Company’s Representations and Warranties. Company represents and warrants to Investor that as of the Closing Date: (i) Company is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and has the requisite corporate power to own its properties and to carry on its business as now being conducted; (ii) Company is duly qualified to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary; (iii) Company has registered its Common Shares under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and is obligated to file reports pursuant to Section 13 or Section 15(d) of the 1934 Act; (iv) each of the Transaction Documents and the transactions contemplated hereby and thereby, have been duly and validly authorized by Company and all necessary actions have been taken; (v) each of the Transaction Documents has been duly executed and delivered by Company and constitute the valid and binding obligations of Company enforceable in accordance with their terms; (vi) to Company’s knowledge, the execution and delivery of the Transaction Documents by Company, the issuance of the Securities in accordance with the terms hereof, and the consummation by Company of the other transactions contemplated by the Transaction Documents do not and will not conflict with or result in a breach by Company of any of the terms or provisions of, or constitute a default under (a) Company’s formation documents or bylaws, each as currently in effect, (b) any indenture, mortgage, deed of trust, or other material agreement or instrument to which Company is a party or by which it or any of its properties or assets are bound, including, without limitation, any listing agreement for the Common Shares, or (c) any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal, state or foreign regulatory body, administrative agency, or other governmental body having jurisdiction over Company or any of Company’s properties or assets; (vii) to Company’s knowledge, no further authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders or any lender of Company is required to be obtained by Company for the issuance of the Securities to Investor or the entering into of the Transaction Documents; (viii) none of Company’s filings with the SEC contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading; (ix) the Company has filed all reports, schedules, forms, statements and other documents required to be filed by Company with the SEC under the 1934 Act on a timely basis or has received a valid extension of such time of filing and has filed any such report, schedule, form, statement or other document prior to the expiration of any such extension; (x) there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of Company, threatened against or affecting Company before or by any governmental authority or non-governmental department, commission, board, bureau, agency or instrumentality or any other person, wherein an unfavorable decision, ruling or finding would have a material adverse effect on Company or which would adversely affect the validity or enforceability of, or the authority or ability of Company to perform its obligations under, any of the Transaction Documents; (xi) Company has not consummated any financing transaction that has not been disclosed in a periodic filing or current report with the SEC under the 1934 Act; (xii) Company is not, nor has it been at any time in the previous twelve (12) months, a “Shell Company,” as such type of “issuer” is described in Rule 144(i)(1) under the 1933 Act; (xiii) with respect to any commissions, placement agent or finder’s fees or similar payments that will or would become due and owing by Company to any person or entity as a result of this Agreement or the transactions contemplated hereby (“Broker Fees”), any such Broker Fees will be made in full compliance with all applicable laws and regulations and only to a person or entity that is a registered investment adviser or registered broker-dealer; (xiv) Investor shall have no obligation with respect to any Broker Fees or with respect to any claims made by or on behalf of other persons for fees of a type contemplated in this subsection that may be due in connection with the transactions contemplated hereby and Company shall indemnify and hold harmless each of Investor, Investor’s employees, officers, directors, stockholders, members, managers, agents, and partners, and their respective affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorneys’ fees) and expenses suffered in respect of any such claimed Broker Fees; (xv) neither Investor nor any of its officers, directors, stockholders, members, managers, employees, agents or representatives has made any representations or warranties to Company or any of its officers, directors, employees, agents or representatives except as expressly set forth in the Transaction Documents and, in making its decision to enter into the transactions contemplated by the Transaction Documents, Company is not relying on any representation, warranty, covenant or promise of Investor or its officers, directors, members, managers, employees, agents or representatives other than as set forth in the Transaction Documents; (xvi) Company acknowledges that the State of Utah has a reasonable relationship and sufficient contacts to the transactions contemplated by the Transaction Documents and any dispute that may arise related thereto such that the laws and venue of the State of Utah, as set forth more specifically in Section 14.2 below, shall be applicable to the Transaction Documents and the transactions contemplated therein; (xvii) Company acknowledges that Investor is not registered as a ‘dealer’ under the 1934 Act; (xviii) Company has performed due diligence and background research on Investor and its affiliates and has received and reviewed the due diligence packet provided by Investor; and (xix) Company agrees that each Pre-Paid Purchase issued hereunder will be deemed to be a security under the 1933 Act for all purposes and agrees not to take a contrary position in any document, statement, setting, or situation. Company, being aware of the matters and legal issues described in subsections (xvii) and (xviii) above, acknowledges and agrees that such matters, or any similar matters, have no bearing on the transactions contemplated by the Transaction Documents and covenants and agrees it will not use any such information or legal theory as a defense to performance of its obligations under the Transaction Documents or in any attempt to avoid, modify, reduce, rescind or void such obligations.
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4. Company Covenants. Until all of Company’s obligations under all of the Transaction Documents are paid and performed in full, or within the timeframes otherwise specifically set forth below, Company will at all times following the Closing Date comply with the following covenants: (i) so long as Investor beneficially owns any of the Securities and for at least ten (10) Trading Days thereafter, Company will remain in good standing with Nasdaq and timely file on the applicable deadline all reports required to be filed with the SEC pursuant to Sections 13 or 15(d) of the 1934 Act, and will take all reasonable action under its control to ensure that adequate current public information with respect to Company, as required in accordance with Rule 144 of the 1933 Act, is publicly available, and will not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination; (ii) when issued, the Commitment Shares, the Pre-Delivery Shares and the Purchase Shares will be duly authorized, validly issued, fully paid for and non-assessable, free and clear of all liens, claims, charges and encumbrances; (iii) the Common Shares shall be listed or quoted for trading on NYSE, NYSE American, or remain listed on Nasdaq; (iv) trading in Company’s Common Shares will not be suspended, halted, chilled, frozen, reach zero bid or otherwise cease trading on Company’s principal trading market; (v) beginning on the Effective Date, Company will not make any Restricted Issuance (as defined below) without Investor’s prior written consent, which consent may be granted or withheld in Investor’s sole and absolute discretion; and (vi) beginning on the Effective Date, Company shall not enter into any agreement or otherwise agree to any covenant, condition, or obligation that locks up, restricts in any way or otherwise prohibits Company: (a) from entering into a variable rate transaction with Investor or any affiliate of Investor, or (b) from issuing Common Shares, preferred stock, warrants, convertible Pre-Paid Purchases, other debt securities, or any other Company securities to Investor or any affiliate of Investor. For purposes hereof, the term “Restricted Issuance” means the issuance, incurrence or guaranty of any debt obligations (including merchant cash advances, account receivable factoring, or other similar agreements) other than trade payables incurred in the ordinary course of business, or the issuance of any securities that (1) have or may have conversion rights of any kind, contingent, conditional or otherwise, in which the number of shares that may be issued pursuant to such conversion right varies with the market price of the Common Shares, (2) are or may become convertible into Common Shares (including without limitation convertible debt, warrants or convertible preferred shares), with a conversion price that varies with the market price of the Common Shares, even if such security only becomes convertible following an event of default, the passage of time, or another trigger event or condition; (3) have a fixed conversion price, exercise price or exchange price that is subject to being reset at some future date at any time after the initial issuance of such debt or equity security (A) due to a change in the market price of Company’s Common Shares since the date of the initial issuance or (B) upon the occurrence of specified or contingent events directly or indirectly related to the business of Company (including, without limitation, any “full ratchet” or “weighted average” anti-dilution provisions, but not including any standard anti-dilution protection for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction); or (4) are issued in connection with a Section 3(a)(9) exchange, a Section 3(a)(10) settlement, or any other similar settlement or exchange. For the further avoidance of doubt, Common Shares issued pursuant to any of the following will not be considered Restricted Issuances: (i) ATM facilities, or (ii) primary offerings without variable price mechanics.
5. Additional Covenants. Company covenants with Investor as follows, which covenants are for the benefit of Investor during the Commitment Period:
5.1. Registration Statement.
(a) The Registration Statement. Company will file, in accordance with the provisions of the 1933 Act and the rules and regulations thereunder, with the SEC within ten (10) days from the Closing Date a registration statement on Form S-1 (the “Initial Registration Statement”) registering a sufficient number of Common Shares for the Commitment Shares, the Pre-Delivery Shares and the Purchase Shares, including a base prospectus, with respect to the issuance and sale of securities by Company, including Common Shares, which contains, among other things a Plan of Distribution section disclosing the methods by which Company may sell the Common Shares. The number of Purchase Shares registrable under the Initial Registration Statement will be 8,000,000 Common Shares. Except where the context otherwise requires, the Initial Registration Statement, as amended when it becomes effective, including all documents filed as part thereof or incorporated by reference therein, and including any information contained in a Prospectus subsequently filed with the SEC pursuant to Rule 424(b) (a “Prospectus”) under the 1933 Act or deemed to be a part of the Initial Registration Statement pursuant to Rule 430B of the 1933 Act, is herein called the “Registration Statement.” Following effectiveness of the Initial Registration Statement, Company will use reasonable best efforts to maintain the effectiveness of the Registration Statement at all times Investor owns any of the Securities.
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(b) Initial Disclosure. Within four (4) Trading Days of the Effective Date, Company shall file with the SEC a current report on Form 8-K or such other appropriate form as determined by counsel to Company (the “Current Report”), relating to the transactions contemplated by this Agreement disclosing all information relating to the transaction contemplated hereby required to be disclosed therein.
(c) Delivery of Final Documents. Company shall furnish to Investor without charge, (i) at least one copy of each Registration Statement as declared effective by the SEC and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, all exhibits and each preliminary prospectus, (ii) at the request of Investor, at least one copy of the final prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as Investor may reasonably request) and (iii) such other documents as Investor may reasonably request from time to time in order to facilitate the disposition of the Common Shares owned by Investor pursuant to a Registration Statement. Filing of the foregoing with the SEC via its EDGAR system shall satisfy the requirements of this Section.
(d) Amendments and Other Filings. Company shall (i) prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the related prospectus used in connection with such Registration Statement, and (ii) all Periodic Reports as may be necessary to keep such Registration Statement effective at all times during the Commitment Period.
(e) Blue-Sky. To the extent legally required, Company shall use its commercially reasonable efforts to, if required by Applicable Laws, (i) register and qualify the Common Shares covered by a Registration Statement under such other securities or “blue sky” laws of such jurisdictions in the United States as Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Commitment Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Commitment Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Common Shares for sale in such jurisdictions. Company shall promptly notify Investor of the receipt by Company of any notification with respect to the suspension of the registration or qualification of any of the Common Shares for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.
5.2. Listing of Common Shares. As of each Purchase Notice Date, Company will use its commercially reasonable efforts to cause the Purchase Shares to be listed on the Principal Market.
5.3. Notice of Certain Events Affecting Registration; Suspension of Right to Request a Pre-Paid Purchase. Company will promptly notify Investor, and confirm in writing, upon its becoming aware of the occurrence of any of the following events in respect of a Registration Statement or related Prospectus (in each of which cases the information provided to Investor will be kept strictly confidential): (i) except for requests made in connection with SEC investigations, receipt of any request for additional information by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement or any request for amendments or supplements to the Registration Statement or related Prospectus; (ii) the issuance by the SEC or any other federal governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Common Shares for sale in any jurisdiction or the initiation or written threat of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or of the necessity to amend the Registration Statement or supplement a related Prospectus to comply with the 1933 Act or any other law; (v) Company’s reasonable determination that a post-effective amendment to the Registration Statement would be appropriate and Company will promptly make available to Investor any such supplement or amendment to the related Prospectus. Investor shall not deliver to Company any Purchase Notice, and Company shall not sell any Purchase Shares pursuant to any pending Purchase Notice, during the continuation of any of the foregoing events (each of the events described in the immediately preceding clauses (i) through (v), inclusive, a “Material Outside Event”). Company shall be obligated to cure any Material Outside Event within ten (10) Trading Days. Notwithstanding anything to the contrary contained herein this paragraph, consistent with Section 5.8, the Company may not disclose to the Investor any material information not yet publicly available or disclosed to other shareholders.
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5.4. Market Activities. Company will not, directly or indirectly, take any action designed to cause or result in, or that constitutes or might reasonably be expected to constitute, the manipulation of the price of any security of Company under Regulation M of the 1934 Act.
5.5. Current Report. From and after the filing of the Current Report with the SEC, Company shall have publicly disclosed all material, nonpublic information delivered to Investor (or Investor’s representatives or agents) by Company or any of its subsidiaries, or any of their respective officers, directors, employees, agents or representatives (if any) in connection with Company and any of its subsidiaries. Company understands and confirms that Investor will rely on the foregoing representations in effecting resales of Purchase Shares under the Registration Statement.
5.6. Use of Proceeds. The proceeds from Pre-Paid Purchases paid to Company by Investor or from the sale of the Purchase Shares by Company to Investor shall be used by Company in the manner as will be set forth in the Registration Statement (and any post-effective amendment thereto) thereto filed pursuant to this Agreement, and in accordance with the terms and conditions of this Agreement.
5.7. No Frustration. Company shall not enter into, announce or recommend to its stockholders any agreement, plan, arrangement or transaction in or of which the terms thereof would restrict, materially delay, conflict with or impair the ability or right of Company to perform its obligations under the Transaction Documents to which it is a party, including, without limitation, the obligation of Company to deliver the Purchase Shares to Investor in respect of a Purchase Notice.
5.8. Material Non-Public Information. Company covenants and agrees that, other than with Investor’s prior consent, it shall refrain from disclosing, and shall cause its officers, directors, employees and agents to refrain from disclosing, any material non-public information (as determined under the 1933 Act, the 1934 Act, or the rules and regulations of the SEC) to Investor without also disseminating such information to the public within a reasonable time period thereafter, unless prior to disclosure of such information Company identifies such information as being material non-public information and provides Investor with the opportunity to accept or refuse to accept such material non-public information for review.
5.9. Exchange Cap. Notwithstanding anything to the contrary contained in this Agreement or the other Transaction Documents, Company and Investor agree that the total cumulative number of Common Shares issued to Investor under all Pre-Paid Purchases together with all other Transaction Documents may not exceed the requirements of Nasdaq Listing Rule 5635(d) (the “Exchange Cap”), except that such limitation will not apply following Approval (defined below). Prior to listing on Nasdaq Global Market, Company will seek stockholder approval of all Pre-Paid Purchases that have been or may be issued hereunder covering the full Commitment Amount and the issuance of Purchase Shares under all Pre-Paid Purchases in excess of the Exchange Cap (the “Approval”). If Company is unable to obtain such Approval: (a) it will continue seeking Approval every 90 days until the Approval is obtained; and (b) any remaining Pre-Paid Purchase Outstanding Balance after reaching the Exchange Cap must be repaid in cash. For the avoidance of doubt, failure to obtain the Approval shall not be considered a breach of this Agreement.
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5.10. Commitment Shares. In consideration for Investor’s execution and delivery of, and performance under this Agreement, the Company shall cause the Transfer Agent to issue the Commitment Shares to the Investor on the Closing Date. For the avoidance of doubt, all of the Commitment Shares shall be fully earned as of the Closing Date, and the issuance of the Commitment Shares is not contingent upon any other event or condition, including, without limitation, the effectiveness of the Initial Registration Statement and irrespective of any termination of this Agreement. If the Closing Trade Price on the date Company receives notice that the SEC has given its approval for the Registration Statement to be declared effective (the “Effectiveness Notice Date”) is less than the Reference Price, then Company will issue additional Commitment Shares to the Investor equal to the difference between the number of Commitment Shares calculated using the two (2) different prices multiplied by sixty percent (60%), and will file a pre-effective amendment to the Registration Statement to include such additional Commitment Shares in the Registration Statement. If the Closing Trade Price on the 120-day anniversary of the Effective Date is less than the Reference Price and the Effectiveness Notice Date has not yet occurred, then the Company, following a written request from the Investor, will issue additional Commitment Shares to the Investor equal to the difference between the number of Commitment Shares calculated as of the two (2) dates multiplied by sixty percent (60%) and include such additional shares on the Initial Registration Statement.
5.11. Lock-Up Agreements. In consideration for Investor’s execution and delivery of, and performance under this Agreement, the Company shall prohibit and restrict the individuals set forth in the following clauses and each such individual shall be prohibited and restricted for a period beginning on the date hereof and ending on the later of (i) ninety (90) days following the date hereof, and (ii) forty-five (45) days following the effective date of the Initial Registration Statement (the “Lock-Up Expiration Date”), as follows: (a) each executive-level officer of the Company shall not sell, dispose, or otherwise transfer his Common Shares of the Company at a price per share less than the Reference Price; (b) each executive-level officer of the Company shall not sell, dispose, or otherwise transfer his Common Shares of the Company during the first three (3) Trading Days that the Common Shares are trading on the Principal Market; (c) the chief executive officer shall not sell, dispose, or otherwise transfer in excess of ten (10%) percent of his Common Shares owned as of the date hereof; and (d) all executive-level officers, as a group, shall not sell, dispose, or otherwise transfer their Common Shares on any Trading Day in an aggregate amount in excess of twenty-five (25%) percent of the daily trading volume of the Common Shares on such Trading Day. For the purposes of clarity hereunder, the obligations set forth in this Section 5.11 shall automatically expire on the Lock-Up Expiration Date.
6. Indemnification.
6.1. Indemnification by Company. In consideration of Investor’s execution and delivery of this Agreement and acquiring the Pre-Paid Purchases hereunder, and in addition to all of Company’s other obligations under this Agreement, Company shall defend, protect, indemnify and hold harmless Investor and its officers, directors, managers, members, partners, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) and each person who controls Investor within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act (collectively, the “Investor Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and reasonable and documented expenses in connection therewith (irrespective of whether any such Investor Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable actual attorneys’ fees and actual disbursements (the “Indemnified Liabilities”), incurred by Investor Indemnitees or any of them as a result of, or arising out of, or relating to (a) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement for the registration of the Purchase Shares as originally filed or in any amendment thereof, or in any related prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to Company by or on behalf of Investor specifically for inclusion therein or Investor’s negligence, fraud or willful misconduct; (b) any material misrepresentation or breach of any material representation or material warranty made by Company in this Agreement or any other certificate, instrument or document contemplated hereby or thereby; or (c) any material breach of any material covenant, material agreement or material obligation of Company contained in this Agreement or any other certificate, instrument or document contemplated hereby or thereby. To the extent that the foregoing undertaking by Company may be unenforceable under Applicable Laws, Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under Applicable Laws. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 6.1 (Indemnification by Company) shall be the same as those set forth in the Registration Rights Agreement.
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6.2. Indemnification by Investor. In consideration of Company’s execution and delivery of this Agreement, and in addition to all of Investor’s other obligations under this Agreement, Investor shall defend, protect, indemnify and hold harmless Company and all of its officers, directors, shareholders, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) and each person who controls Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act (collectively, the “Company Indemnitees”) from and against any and all Indemnified Liabilities incurred by Company Indemnitees or any of them as a result of, or arising out of, or relating to (a) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement for the registration of the Purchase Shares as originally filed or in any amendment thereof, or in any related prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that Investor will only be liable for written information relating to Investor furnished to Company by or on behalf of Investor specifically for inclusion in the documents referred to in the foregoing indemnity, and will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to Investor by or on behalf of Company specifically for inclusion therein; (b) any misrepresentation or breach of any representation or warranty made by Investor in this Agreement or any instrument or document contemplated hereby or thereby executed by Investor; or (c) any breach of any covenant, agreement or obligation of Investor contained in this Agreement or any other certificate, instrument or document contemplated hereby or thereby executed by Investor. To the extent that the foregoing undertaking by Investor may be unenforceable under Applicable Laws, Investor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under Applicable Laws. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 6.2 (Indemnification by Investor) shall be the same as those set forth in the Registration Rights Agreement.
6.3. Notice of Claims. Promptly after receipt by an Investor Indemnitee or Company Indemnitee of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving an Indemnified Liability, such Investor Indemnitee or Company Indemnitee, as applicable, shall, if a claim for an Indemnified Liability in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof; but the failure to so notify the indemnifying party will not relieve it of liability under this Section 6 except to the extent the indemnifying party is prejudiced by such failure. The indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually reasonably satisfactory to the indemnifying party and Investor Indemnitee or Company Indemnitee, as the case may be; provided, however, that an Investor Indemnitee or Company Indemnitee shall have the right to retain its own counsel with the actual and reasonable third party fees and expenses of not more than one counsel for such Investor Indemnitee or Company Indemnitee to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of Investor Indemnitee or Company Indemnitee and the indemnifying party would be inappropriate due to actual or potential differing interests between such Investor Indemnitee or Company Indemnitee and any other party represented by such counsel in such proceeding. Investor Indemnitee or Company Indemnitee shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to Investor Indemnitee or Company Indemnitee which relates to such action or claim. The indemnifying party shall keep Investor Indemnitee or Company Indemnitee reasonably apprised as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of Investor Indemnitee or Company Indemnitee, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Investor Indemnitee or Company Indemnitee of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of Investor Indemnitee or Company Indemnitee with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received and payment therefor is due.
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7. Conditions to Company’s Obligation to Sell. The obligation of Company hereunder to issue and sell the Initial Pre-Paid Purchase to Investor at the Closing is subject to the satisfaction, on or before the Closing Date, of each of the following conditions:
7.1. Investor shall have executed this Agreement, the Initial Pre-Paid Purchase and the Registration Rights Agreement and delivered the same to Company.
7.2. Investor shall have delivered the Initial Purchase Price to Company in accordance with Section 1.2 above.
8. Conditions to Investor’s Obligation to Purchase. The obligation of Investor hereunder to purchase the Initial Pre-Paid Purchase at the Closing is subject to the satisfaction, on or before the Closing Date, of each of the following conditions, provided that these conditions are for Investor’s sole benefit and may be waived by Investor at any time in its sole discretion:
8.1. Company shall have executed this Agreement and the Initial Pre-Paid Purchase and delivered the same to Investor.
8.2. Company shall have issued the Commitment Shares and the Pre-Delivery Shares to Investor.
8.3. Company shall have completed the direct listing of its Common Shares on Nasdaq Global Market.
8.4. Company shall have executed a Registration Rights Agreement in substantially the form attached hereto as Exhibit B (the “Registration Rights Agreement”) and delivered the same to Investor.
8.5. Company shall have delivered to Investor a fully executed Irrevocable Letter of Instructions to Transfer Agent (the “TA Letter”) substantially in the form attached hereto as Exhibit C acknowledged and agreed to in writing by Company’s transfer agent (the “Transfer Agent”).
8.6. Company shall have delivered to Investor a fully executed Officer’s Certificate substantially in the form attached hereto as Exhibit D evidencing Company’s approval of the Transaction Documents.
8.7. Company shall have delivered to Investor a fully executed Share Issuance Resolution substantially in the form attached hereto as Exhibit E to be delivered to the Transfer Agent.
8.8. Company’s Common Shares are listed and trading on the Principal Market.
8.9. Company has issued the Commitment Shares and the Pre-Delivery Shares.
8.10. Company shall have received the Approval.
8.11. Company shall have delivered to Investor fully executed copies of all other Transaction Documents required to be executed by Company herein or therein.
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9. Reservation of Shares. On the date hereof, Company will reserve 3,000,000 Common Shares from its authorized and unissued Common Shares to provide for all issuances of Common Shares under this Agreement and all Pre-Paid Purchases (the “Share Reserve”). Company further agrees following receipt of the Approval to add additional Common Shares to the Share Reserve in increments of 100,000 shares as and when requested by Investor if as of the date of any such request the number of shares being held in the Share Reserve is less than two (2) times the number of Common Shares equal to the Pre-Paid Purchase Outstanding Balance divided by the Purchase Share Purchase Price (as defined in the Pre-Paid Purchases). Company shall further require the Transfer Agent to hold the Common Shares reserved pursuant to the Share Reserve exclusively for the benefit of Investor and to issue such shares to Investor promptly upon Investor’s delivery of a Purchase Notice under the Pre-Paid Purchase. Finally, Company shall require the Transfer Agent to issue Common Shares pursuant to the Pre-Paid Purchase to Investor out of its authorized and unissued shares, and not the Share Reserve, to the extent Common Shares have been authorized, but not issued, and are not included in the Share Reserve. The Transfer Agent shall only issue Common Shares out of the Share Reserve to the extent there are no other authorized shares available for issuance and then only with Investor’s written consent.
10. Most Favored Nation. So long as any Pre-Paid Purchase is outstanding, upon any issuance by Company of any security (including Pre-Paid Purchases issued after the Initial Pre-Paid Purchase) with any term more favorable solely with respect to the Market Price (as defined in the Initial Pre-Paid Purchase) or the Floor Price, then Company shall notify Investor of such more favorable term and such term, at Investor’s option, shall become a part of the Transaction Documents for the benefit of Investor. Additionally, if Company fails to notify Investor of any such more favorable term, but Investor becomes aware that Company has granted such a term to any third party, Investor may notify Company of such additional or more favorable term and such term shall become a part of the Transaction Documents retroactive to the date on which such term was granted to the applicable party.
11. Purchase Right. During the Commitment Period, Investor will have the right to purchase up to $2,000,000.00 in Pre-Paid Purchases, in one or more tranches, in its discretion, by submitting written notice of its election and the applicable purchase price to Company.
12. Pre-Delivery Shares. At such time as the Pre-Paid Purchase Outstanding Balance is zero and either (i) the Commitment Period has ended; or (ii) this Agreement has been terminated, Company may repurchase the Pre-Delivery Shares upon a written request, and within thirty (30) Trading Days of such written request from Company, Investor shall deliver to Company a number of Common Shares equal to the number of Pre-Delivery Shares (as adjusted for any share splits, share dividends, share combinations, recapitalizations or other similar transactions occurring after the date hereof) delivered to Investor hereunder, and Company will pay Investor $0.0002 for each such Pre-Delivery Share.
13. Certain Definitions.
13.1. “Applicable Laws” means all applicable laws, statutes, rules, regulations, orders, executive orders, directives, policies, guidelines and codes having the force of law, whether local, national, or international, as amended from time to time, including without limitation (i) all applicable laws that relate to money laundering, terrorist financing, financial record keeping and reporting, (ii) all applicable laws that relate to anti-bribery, anti-corruption, books and records and internal controls, including the United States Foreign Corrupt Practices Act of 1977, and (iii) any sanctions laws.
13.2. “Change of Control” means the transfer (whether by tender offer, merger, stock purchase, consolidation or other similar transaction), in one transaction or a series of related transactions, to a person or group of affiliated persons of the Company’s securities if, after such transfer, such person or group of affiliated persons would hold more than 50% of outstanding voting securities of the Company, or would otherwise have the power to control the Company or to direct the operations of the Company. For the avoidance of doubt, the termination of the Commitment Period will not effect Company’s obligations with respect to Pre-Paid Purchases issued prior to the termination of the Commitment Period.
13.3. “Closing Trade Price” means the closing trade price of the Common Shares on Company’s Principal Market a given date as reported by Bloomberg L.P.
13.4. “Commitment Period” means the period beginning on the Closing Date and ending on the earlier of: (i) the date that is three (3) years from the Closing Date, and (ii) the date Company has sold $40,000,000.00 in Pre-Paid Purchases hereunder. Notwithstanding the foregoing, in the event that a definitive agreement that contemplates a Change of Control is entered into after the Closing, the Commitment Period for any Pre-Paid Purchases shall automatically terminate immediately prior to the consummation of such Change of Control. The Company may waive this condition subsequent, at its sole discretion.
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13.5. “Minimum Purchase Amount” means $100,000.00.
13.6. “Maximum Purchase Amount” means $4,000,000.00 less the Pre-Paid Purchase Outstanding Balance.
13.7. “Nasdaq Minimum Price” means the lower of: (i) the Closing Trade Price on the Trading Day immediately preceding the applicable measurement date; or (ii) the average Closing Trade Price for the five (5) Trading Days immediately preceding the applicable measurement date.
13.8. “Periodic Reports” shall mean the Company’s (i) Annual Reports on Form 10-K, (ii) any current report to be filed on Form 10-Q and (iii) all other reports required to be filed by the Company with the SEC under applicable laws and regulations (including, without limitation, Regulation S-K); provided that all such Periodic Reports shall include, when filed, all information, financial statements, audit reports (when applicable) and other information required to be included in such Periodic Reports in compliance with all applicable laws and regulations.
13.9. “Pre-Paid Purchase Outstanding Balance” means the aggregate outstanding balance of all outstanding Pre-Paid Purchases.
13.10. “Principal Market” means the Nasdaq Global Market; provided however, that in the event Company’s Common Shares are ever listed or traded on the New York Stock Exchange, the NYSE American, the Nasdaq Capital Market, or the Nasdaq Global Select Market, then the “Principal Market” shall mean such other market or exchange on which Company’s Common Shares are then listed or traded.
13.11. “Purchase Notice” means a written notice in the form of Exhibit A to the Pre-Paid Purchase delivered by Investor to Company requiring Company to sell Purchase Shares to Investor.
13.12. “Purchase Notice Date” means each date Investor delivers to Company a Purchase Notice.
13.13. “Reference Price” means the initial listing reference price on the Common Shares on the Principal Market.
14. Miscellaneous. The provisions set forth in this Section 14 shall apply to this Agreement, as well as all other Transaction Documents as if these terms were fully set forth therein; provided, however, that in the event there is a conflict between any provision set forth in this Section 14 and any provision in any other Transaction Document, the provision in such other Transaction Document shall govern.
14.1. Arbitration of Claims. The parties shall submit all Claims (as defined in Exhibit F) arising under this Agreement or any other Transaction Document or any other agreement between the parties and their affiliates or any Claim relating to the relationship of the parties to binding arbitration pursuant to the arbitration provisions set forth in Exhibit F attached hereto (the “Arbitration Provisions”). For the avoidance of doubt, the parties agree that the injunction described in Section 14.3 below may be pursued in an arbitration that is separate and apart from any other arbitration regarding all other Claims arising under the Transaction Documents. The parties hereby acknowledge and agree that the Arbitration Provisions are unconditionally binding on the parties hereto and are severable from all other provisions of this Agreement. By executing this Agreement, Company represents, warrants and covenants that Company has reviewed the Arbitration Provisions carefully, consulted with legal counsel about such provisions (or waived its right to do so), understands that the Arbitration Provisions are intended to allow for the expeditious and efficient resolution of any dispute hereunder, agrees to the terms and limitations set forth in the Arbitration Provisions, and that Company will not take a position contrary to the foregoing representations. Company acknowledges and agrees that Investor may rely upon the foregoing representations and covenants of Company regarding the Arbitration Provisions.
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14.2. Governing Law; Venue. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the internal laws of the State of Utah, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Utah. Each party consents to and expressly agrees that the exclusive venue for arbitration of any dispute arising out of or relating to any Transaction Document or the relationship of the parties or their affiliates shall be in Salt Lake County, Utah. Without modifying the parties’ obligations to resolve disputes hereunder pursuant to the Arbitration Provisions, for any litigation arising in connection with any of the Transaction Documents (and notwithstanding the terms (specifically including any governing law and venue terms) of any transfer agent services agreement or other agreement between the Transfer Agent and Company, such litigation specifically includes, without limitation any action between or involving Company and the Transfer Agent under the TA Letter or otherwise related to Investor in any way (specifically including, without limitation, any action where Company seeks to obtain an injunction, temporary restraining order, or otherwise prohibit the Transfer Agent from issuing Common Shares to Investor for any reason)), each party hereto hereby (i) consents to and expressly submits to the exclusive personal jurisdiction of any state or federal court sitting in Salt Lake County, Utah, (ii) expressly submits to the exclusive venue of any such court for the purposes hereof, (iii) agrees to not bring any such action (specifically including, without limitation, any action where Company seeks to obtain an injunction, temporary restraining order, or otherwise prohibit the Transfer Agent from issuing Common Shares to Investor for any reason) outside of any state or federal court sitting in Salt Lake County, Utah, and (iv) waives any claim of improper venue and any claim or objection that such courts are an inconvenient forum or any other claim, defense or objection to the bringing of any such proceeding in such jurisdiction or to any claim that such venue of the suit, action or proceeding is improper. Finally, Company covenants and agrees to name Investor as a party in interest in, and provide written notice to Investor in accordance with Section 14.10 below prior to bringing or filing, any action (including without limitation any filing or action against any person or entity that is not a party to this Agreement, including without limitation the Transfer Agent) that is related in any way to the Transaction Documents or any transaction contemplated herein or therein, including without limitation any action brought by Company to enjoin or prevent the issuance of any Common Shares to Investor by the Transfer Agent, and further agrees to timely name Investor as a party to any such action. Company acknowledges that the governing law and venue provisions set forth in this Section 14.2 are material terms to induce Investor to enter into the Transaction Documents and that but for Company’s agreements set forth in this Section 14.2 Investor would not have entered into the Transaction Documents.
14.3. Specific Performance. Company acknowledges and agrees that Investor may suffer irreparable harm in the event that Company fails to perform any material provision of this Agreement or any of the other Transaction Documents in accordance with its specific terms. It is accordingly agreed that Investor shall be entitled to one or more injunctions to prevent or cure breaches of the provisions of this Agreement or such other Transaction Document and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which Investor may be entitled under the Transaction Documents, at law or in equity. Company specifically agrees that: (i) following an Event of Default under any Pre-Paid Purchase, Investor shall have the right to seek and receive injunctive relief from a court or an arbitrator prohibiting Company from issuing any of its Common Shares or preferred stock to any party unless the Pre-Paid Purchase Outstanding Balance is being paid in full simultaneously with such issuance; (ii) following a breach of Section 4(vi) above, Investor shall have the right to seek and receive injunctive relief from a court or arbitrator invalidating such lock-up; and (iii) if Company enters into a definitive agreement that contemplates a Fundamental Transaction (as defined in the Initial Pre-Paid Purchase), unless such agreement contains a closing condition that all outstanding Pre-Paid Purchases are repaid in full upon consummation of the transaction or Investor has provided its written consent in writing to such Fundamental Transaction, Investor shall have the right to seek and receive injunctive relief from a court or arbitrator preventing the consummation of such transaction. Company specifically acknowledges that Investor’s right to obtain specific performance constitutes bargained for leverage and that the loss of such leverage would result in irreparable harm to Investor. For the avoidance of doubt, in the event Investor seeks to obtain an injunction from a court or an arbitrator against Company or specific performance of any provision of any Transaction Document, such action shall not be a waiver of any right of Investor under any Transaction Document, at law, or in equity, including without limitation its rights to arbitrate any Claim pursuant to the terms of the Transaction Documents, nor shall Investor’s pursuit of an injunction prevent Investor, under the doctrines of claim preclusion, issues preclusion, res judicata or other similar legal doctrines, from pursuing other Claims in the future in a separate arbitration.
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14.4. Calculation Disputes. Notwithstanding the Arbitration Provisions, in the case of a dispute as to any determination or arithmetic calculation under the Transaction Documents, including without limitation, calculating the Outstanding Balance, Market Price, VWAP (each, as defined in the Initial Pre-Paid Purchase) or the number of Purchase Shares (each, a “Calculation”), Company or Investor (as the case may be) shall submit any disputed Calculation via email or facsimile with confirmation of receipt (i) within two (2) Trading Days after receipt of the applicable notice giving rise to such dispute to Company or Investor (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after Investor learned of the circumstances giving rise to such dispute. If Investor and Company are unable to agree upon such Calculation within two (2) Trading Days of such disputed Calculation being submitted to Company or Investor (as the case may be), then Investor will promptly submit via email or facsimile the disputed Calculation to Unkar Systems Inc. (“Unkar Systems”). Investor shall cause Unkar Systems to perform the Calculation and notify Company and Investor of the results no later than ten (10) Trading Days from the time it receives such disputed Calculation. Unkar Systems’ determination of the disputed Calculation shall be binding upon all parties absent demonstrable error. Unkar Systems’ fee for performing such Calculation shall be paid by the incorrect party, or if both parties are incorrect, by the party whose Calculation is furthest from the correct Calculation as determined by Unkar Systems. In the event Company is the losing party, no extension of the Delivery Date (as defined in the Initial Pre-Paid Purchase) shall be granted and Company shall incur all effects for failing to deliver the applicable shares in a timely manner as set forth in the Transaction Documents. Notwithstanding the foregoing, Investor may, in its sole discretion, designate an independent, reputable investment bank or accounting firm other than Unkar Systems to resolve any such dispute and in such event, all references to “Unkar Systems” herein will be replaced with references to such independent, reputable investment bank or accounting firm so designated by Investor.
14.5. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
14.6. Headings. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.
14.7. Severability. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.
14.8. Entire Agreement. This Agreement, together with the other Transaction Documents, contains the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither Company nor Investor makes any representation, warranty, covenant or undertaking with respect to such matters. For the avoidance of doubt, all prior term sheets or other documents between Company and Investor, or any affiliate thereof, related to the transactions contemplated by the Transaction Documents (collectively, “Prior Agreements”), that may have been entered into between Company and Investor, or any affiliate thereof, are hereby null and void and deemed to be replaced in their entirety by the Transaction Documents. To the extent there is a conflict between any term set forth in any Prior Agreement and the term(s) of the Transaction Documents, the Transaction Documents shall govern.
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14.9. Amendments. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by both parties hereto.
14.10. Notices. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of: (i) the date delivered, if delivered by personal delivery as against written receipt therefor or by email to an executive officer named below or such officer’s successor, or by facsimile (with successful transmission confirmation which is kept by sending party), (ii) the earlier of the date delivered or the third Trading Day after deposit, postage Pre-Paid, in the United States Postal Service by certified mail, or (iii) the earlier of the date delivered or the third Trading Day after mailing by express courier, with delivery costs and fees Pre-Paid, in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by five (5) calendar days’ advance written notice similarly given to each of the other parties hereto):
If to Company:
Arrive AI Inc.
Attn: Dan O’Toole
12175 Visionary Way
Fishers, Indiana 46038
With a copy to (which copy shall not constitute notice):
Lucosky Brookman LLP
Attn: Seth Brookman
101 Wood Avenue South
Woodbridge, NJ 08830
If to Investor:
Streeterville Capital, LLC
Attn: John M. Fife
297 Auto Mall Drive Suite #4
St. George, Utah 84770
With a copy to (which copy shall not constitute notice):
Hansen Black Anderson Ashcraft PLLC
Attn: Jonathan Hansen
3051 West Maple Loop Drive, Suite 325
Lehi, Utah 84043
14.11. Successors and Assigns. This Agreement or any of the severable rights and obligations inuring to the benefit of or to be performed by Investor hereunder may be assigned by Investor to a third party, including its affiliates, in whole or in part, without the need to obtain Company’s consent thereto. Company may not assign its rights or obligations under this Agreement or delegate its duties hereunder, whether directly or indirectly, without the prior written consent of Investor, and any such attempted assignment or delegation shall be null and void.
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14.12. Survival. The representations and warranties of Company and the agreements and covenants set forth in this Agreement shall survive the Closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of Investor. Company agrees to indemnify and hold harmless Investor and all its officers, directors, employees, attorneys, and agents for loss or damage arising as a result of or related to any breach or alleged breach by Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.
14.13. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
14.14. Investor’s Rights and Remedies Cumulative. All rights, remedies, and powers conferred in this Agreement and the Transaction Documents are cumulative and not exclusive of any other rights or remedies, and shall be in addition to every other right, power, and remedy that Investor may have, whether specifically granted in this Agreement or any other Transaction Document, or existing at law, in equity, or by statute, and any and all such rights and remedies may be exercised from time to time and as often and in such order as Investor may deem expedient.
14.15. Attorneys’ Fees and Cost of Collection. In the event any suit, action or arbitration is filed by either party against the other to interpret or enforce any of the Transaction Documents, the unsuccessful party to such action agrees to pay to the prevailing party all costs and expenses, including actual attorneys’ fees incurred therein, including the same with respect to an appeal. The “prevailing party” shall be the party in whose favor a judgment is entered, regardless of whether judgment is entered on all claims asserted by such party and regardless of the amount of the judgment; or where, due to the assertion of counterclaims, judgments are entered in favor of and against both parties, then the arbitrator shall determine the “prevailing party” by taking into account the relative dollar amounts of the judgments or, if the judgments involve nonmonetary relief, the relative importance and value of such relief. Nothing herein shall restrict or impair an arbitrator’s or a court’s power to award fees and expenses for frivolous or bad faith pleading. If (i) any Pre-Paid Purchase is placed in the hands of an attorney for collection or enforcement prior to commencing arbitration or legal proceedings, or is collected or enforced through any arbitration or legal proceeding, or Investor otherwise takes action to collect amounts due under the Pre-Paid Purchases or to enforce the provisions of the Pre-Paid Purchases, or (ii) there occurs any bankruptcy, reorganization, receivership of Company or other proceedings affecting Company’s creditors’ rights and involving a claim under the Pre-Paid Purchases; then Company shall pay the costs incurred by Investor for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees, expenses, deposition costs, and disbursements.
14.16. Waiver. No waiver of any provision of this Agreement shall be effective unless it is in the form of a writing signed by the party granting the waiver. No waiver of any provision or consent to any prohibited action shall constitute a waiver of any other provision or consent to any other prohibited action, whether or not similar. No waiver or consent shall constitute a continuing waiver or consent or commit a party to provide a waiver or consent in the future except to the extent specifically set forth in writing.
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14.17. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO DEMAND TRIAL BY JURY.
14.18. Time is of the Essence. Time is expressly made of the essence with respect to each and every provision of this Agreement and the other Transaction Documents.
14.19. Voluntary Agreement. Company has carefully read this Agreement and each of the other Transaction Documents and has asked any questions needed for Company to understand the terms, consequences and binding effect of this Agreement and each of the other Transaction Documents and fully understand them. Company has had the opportunity to seek the advice of an attorney of Company’s choosing, or has waived the right to do so, and is executing this Agreement and each of the other Transaction Documents voluntarily and without any duress or undue influence by Investor or anyone else.
14.20. Document Imaging. Investor shall be entitled, in its sole discretion, to image or make copies of all or any selection of the agreements, instruments, documents, and items and records governing, arising from or relating to any of Company’s loans, including, without limitation, this Agreement and the other Transaction Documents, and Investor may destroy or archive the paper originals. The parties hereto (i) waive any right to insist or require that Investor produce paper originals, (ii) agree that such images shall be accorded the same force and effect as the paper originals, (iii) agree that Investor is entitled to use such images in lieu of destroyed or archived originals for any purpose, including as admissible evidence in any demand, presentment or other proceedings, and (iv) further agree that any executed facsimile (faxed), scanned, emailed, or other imaged copy of this Agreement or any other Transaction Document shall be deemed to be of the same force and effect as the original manually executed document.
[Remainder of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, the undersigned Investor and Company have caused this Agreement to be duly executed as of the date first above written.
| INVESTOR: | ||
| Streeterville Capital, LLC | ||
| By: | /s/ John M. Fife | |
| John M. Fife, President | ||
| COMPANY: | ||
| Arrive AI Inc. | ||
| By: | /s/ Dan O’Toole | |
| Dan O’Toole, Chief Executive Officer | ||
[Signature Page to Securities Purchase Agreement]
ATTACHED EXHIBITS:
| Exhibit A | Initial Pre-Paid Purchase |
| Exhibit B | Registration Rights Agreement |
| Exhibit C | Irrevocable Transfer Agent Instructions |
| Exhibit D | Officer’s Certificate |
| Exhibit E | Share Issuance Resolution |
| Exhibit F | Arbitration Provisions |
annex I
CONDITIONS PRECEDENT TO INVESTOR’S OBLGATION TO PURCHASE A PRE-PAID PURCHASE
The obligation of Investor to purchase from Company a Pre-Paid Purchase hereunder on each Pre-Paid Purchase Date is subject to the satisfaction, as of the date of each Request for a Pre-Paid Purchase and each Pre-Paid Purchase Date, of each of the following conditions, provided that these conditions are for Investor’s sole benefit and may be waived by Investor at any time in its sole discretion by providing Company with prior written notice thereof:
| (a) | Company shall have duly executed and delivered to Investor each of the Transaction Documents to which it is a party. | |
| (b) | Investor shall have received an opinion of counsel to Company, dated as of the Pre-Paid Purchase Date, in the form reasonably acceptable to Investor. | |
| (c) | Company has received the Approval to issue Purchase Shares in excess of the Exchange Cap, and the Approval remains effective as of each applicable Pre-Paid Purchase Date. | |
| (d) | There is an effective Registration Statement pursuant to which Investor is permitted to utilize the prospectus thereunder to sell all of the Purchase Shares issuable pursuant to such Pre-Paid Purchase. The Current Report shall have been filed with the SEC and Company shall have filed with the SEC in a timely manner all reports, notices and other documents required under the 1934 Act and applicable SEC regulations during the twelve-month period immediately preceding the applicable Pre-Paid Purchase Date. | |
| (e) | No Material Outside Event shall have occurred and be continuing. | |
| (f) | The 20-day and 60-day median and average daily trading volume must be greater than or equal to $300,000.00, as reported by Bloomberg, L.P. | |
| (g) | Company shall be in full compliance with the Share Reserve requirements in Section 9 of the Agreement. | |
| (h) | The number of Common Shares that remain available for issuance under the Registration Statement shall be at least 200% of the maximum number of Common Shares issuable pursuant to all outstanding Pre-Paid Purchases (taking into account all Pre-Paid Purchases that will be outstanding upon the closing of the Pre-Paid Purchase requested and calculated based on the Purchase Share Purchase Price as of the date of determination without taking into account any of the limitations set forth herein). | |
| (i) | All of the Purchase Shares issuable pursuant to the applicable Pre-Paid Purchase shall have been duly authorized by all necessary corporate action of Company. All Purchase Shares relating to all prior Pre-Paid Purchases required to have been received by Investor under each Pre-Paid Purchase shall have been delivered to Investor in accordance with such Pre-Paid Purchase. | |
| (j) | Company shall have delivered to Investor a certificate evidencing the incorporation and good standing of Company as of a date within ten (10) days of the Pre-Paid Purchase Date. | |
| (k) | The board of directors of Company has approved the transactions contemplated by the Transaction Documents and the applicable Pre-Paid Purchase; said approval has not been amended, rescinded or modified and remains in full force and effect as of the date hereof, and a true, correct and complete copy of such resolutions duly adopted by the board of directors of Company shall have been provided to Investor. |
| (l) | Each and every representation and warranty of Company shall be true and correct in all material respects (other than representations and warranties qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of the date of the Pre-Paid Purchase Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specific date) and Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions set forth in each Transaction Document required to be performed, satisfied or complied with by Company at or prior to the applicable Pre-Paid Purchase Date. | |
| (m) | Trading in the Common Shares shall not have been suspended by the SEC, the Principal Market or FINRA, Company shall not have received any final and non-appealable notice that the listing or quotation of the Common Shares on the Principal Market shall be terminated on a date certain (unless, prior to such date certain, the Common Shares is listed or quoted on any subsequent Principal Market), nor shall there have been imposed any suspension of, or restriction on, accepting additional deposits of the Common Shares, electronic trading or book-entry services by DTC with respect to the Common Shares that is continuing, Company shall not have received any notice from DTC to the effect that a suspension of, or restriction on, accepting additional deposits of the Common Shares, electronic trading or book-entry services by DTC with respect to the Common Shares is being imposed or is contemplated (unless, prior to such suspension or restriction, DTC shall have notified Company in writing that DTC has determined not to impose any such suspension or restriction). | |
| (n) | Company shall have obtained all governmental, regulatory or third-party consents and approvals, if any, necessary for the sale of the Purchase Shares. | |
| (o) | To Company’s knowledge, no statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental entity of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents. | |
| (p) | Since the date of execution of this Agreement, no event or series of events shall have occurred that has resulted in or would reasonably be expected to result in a material adverse effect, or an Event of Default. | |
| (q) | The Pre-Paid Purchase Outstanding Balance shall be less than $4,000,000.00. | |
| (r) | The market capitalization of Company must be greater than or equal to $100,000,000.00. | |
| (s) | Company shall have notified the Principal Market of the issuance of all of the Purchase Shares hereunder, the Principal Market shall have completed its review of the related Listing of Additional Share form and Company shall have obtained approval of the Principal Market to list or designate for quotation (as the case may be) the maximum number of Common Shares issuable pursuant to such Pre-Paid Purchase. | |
| (t) | Company shall have delivered to Investor a compliance certificate executed by the chief executive officer of Company certifying that Company has complied with all of the conditions precedent to the applicable Pre-Purchase Purchase set forth herein and which may be relied upon by Investor as evidence of satisfaction of such conditions without any obligation to independently verify. | |
| (u) | Company and its subsidiaries shall have delivered to Investor such other documents, instruments or certificates relating to the transactions contemplated by this Agreement or the Pre-Paid Purchases as Investor or its counsel may reasonably request. | |
| (v) | Company’s book value as reported in its most recent Periodic Report must be at least $4,000,000.00. | |
| (w) | The Purchase Shares would be available for immediate resale by Investor in Investor’s brokerage account. |
Exhibit F
ARBITRATION PROVISIONS
1. Dispute Resolution. For purposes of these arbitration provisions (the “Arbitration Provisions”), the term “Claims” means any disputes, claims, demands, causes of action, requests for injunctive relief, requests for specific performance, liabilities, damages, losses, or controversies whatsoever arising from, related to, or connected with the transactions contemplated in the Transaction Documents and any communications between the parties related thereto, including without limitation any claims of mutual mistake, mistake, fraud, misrepresentation, failure of formation, failure of consideration, promissory estoppel, unconscionability, failure of condition precedent, rescission, and any statutory claims, tort claims, contract claims, or claims to void, invalidate or terminate the Agreement (or these Arbitration Provisions (defined below)) or any of the other Transaction Documents. For the avoidance of doubt, Investor’s pursuit of an injunction or other Claim pursuant to these Arbitration Provisions or with a court will not later prevent Investor under the doctrines of claim preclusion, issue preclusion, res judicata or other similar legal doctrines from pursuing other Claims in a separate arbitration in the future. The parties to the Agreement (the “parties”) hereby agree that the Claims may be arbitrated in one or more arbitrations pursuant to these Arbitration Provisions (one for an injunction or injunctions and a separate one for all other Claims). The term “Claims” specifically excludes a dispute over Calculations. The parties to the Agreement hereby agree that these Arbitration Provisions are binding on each of them. As a result, any attempt to rescind the Agreement (or these Arbitration Provisions) or declare the Agreement (or these Arbitration Provisions) or any other Transaction Document invalid or unenforceable for any reason is subject to these Arbitration Provisions. As a result, any attempt to rescind the Agreement (or these Arbitration Provisions) or any other Transaction Document) or declare the Agreement (or these Arbitration Provisions) or any other Transaction Document invalid or unenforceable pursuant to Section 29 of the 1934 Act or for any other reason is subject to these Arbitration Provisions. Any capitalized term not defined in these Arbitration Provisions shall have the meaning set forth in the Agreement.
2. Arbitration. Except as otherwise provided herein, all Claims must be submitted to arbitration (“Arbitration”) to be conducted exclusively in Salt Lake County, Utah and pursuant to the terms set forth in these Arbitration Provisions. Subject to the arbitration appeal right provided for in Paragraph 5 below (the “Appeal Right”), the parties agree that the award of the arbitrator rendered pursuant to Paragraph 4 below (the “Arbitration Award”) shall be (a) final and binding upon the parties, (b) the sole and exclusive remedy between them regarding any Claims, counterclaims, issues, or accountings presented or pleaded to the arbitrator, and (c) promptly payable in United States dollars free of any tax, deduction or offset (with respect to monetary awards). Subject to the Appeal Right, any costs or fees, including without limitation attorneys’ fees, incurred in connection with or incident to enforcing the Arbitration Award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. The Arbitration Award shall include default interest (as defined or otherwise provided for in the Pre-Paid Purchase, “Default Interest”) (with respect to monetary awards) at the rate specified in the Pre-Paid Purchase for Default Interest both before and after the Arbitration Award. Judgment upon the Arbitration Award will be entered and enforced by any state or federal court sitting in Salt Lake County, Utah.
3. The Arbitration Act. The parties hereby incorporate herein the provisions and procedures set forth in the Utah Uniform Arbitration Act, U.C.A. § 78B-11-101 et seq. (as amended or superseded from time to time, the “Arbitration Act”). Notwithstanding the foregoing, pursuant to, and to the maximum extent permitted by, Section 105 of the Arbitration Act, in the event of conflict or variation between the terms of these Arbitration Provisions and the provisions of the Arbitration Act, the terms of these Arbitration Provisions shall control and the parties hereby waive or otherwise agree to vary the effect of all requirements of the Arbitration Act that may conflict with or vary from these Arbitration Provisions.
4. Arbitration Proceedings. Arbitration between the parties will be subject to the following:
4.1 Initiation of Arbitration. Pursuant to Section 110 of the Arbitration Act, the parties agree that a party may initiate Arbitration by giving written notice to the other party (“Arbitration Notice”) in the same manner that notice is permitted under Section 14.10 of the Agreement (the “Notice Provision”); provided, however, that the Arbitration Notice may not be given by email or fax. Arbitration will be deemed initiated as of the date that the Arbitration Notice is deemed delivered to such other party under the Notice Provision (the “Service Date”). After the Service Date, information may be delivered, and notices may be given, by email or fax pursuant to the Notice Provision or any other method permitted thereunder. The Arbitration Notice must describe the nature of the controversy, the remedies sought, and the election to commence Arbitration proceedings. All Claims in the Arbitration Notice must be pleaded consistent with the Utah Rules of Civil Procedure.
4.2 Selection and Payment of Arbitrator.
(a) Within ten (10) calendar days after the Service Date, Investor shall select and submit to Company the names of three (3) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Services (http://www.utahadrservices.com) (such three (3) designated persons hereunder are referred to herein as the “Proposed Arbitrators”). For the avoidance of doubt, each Proposed Arbitrator must be qualified as a “neutral” with Utah ADR Services. Within five (5) calendar days after Investor has submitted to Company the names of the Proposed Arbitrators, Company must select, by written notice to Investor, one (1) of the Proposed Arbitrators to act as the arbitrator for the parties under these Arbitration Provisions. If Company fails to select one of the Proposed Arbitrators in writing within such 5-day period, then Investor may select the arbitrator from the Proposed Arbitrators by providing written notice of such selection to Company.
(b) If Investor fails to submit to Company the Proposed Arbitrators within ten (10) calendar days after the Service Date pursuant to subparagraph (a) above, then Company may at any time prior to Investor so designating the Proposed Arbitrators, identify the names of three (3) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Service by written notice to Investor. Investor may then, within five (5) calendar days after Company has submitted notice of its Proposed Arbitrators to Investor, select, by written notice to Company, one (1) of the Proposed Arbitrators to act as the arbitrator for the parties under these Arbitration Provisions. If Investor fails to select in writing and within such 5-day period one (1) of the three (3) Proposed Arbitrators selected by Company, then Company may select the arbitrator from its three (3) previously selected Proposed Arbitrators by providing written notice of such selection to Investor.
(c) If a Proposed Arbitrator chosen to serve as arbitrator declines or is otherwise unable to serve as arbitrator, then the party that selected such Proposed Arbitrator may select one (1) of the other three (3) Proposed Arbitrators within three (3) calendar days of the date the chosen Proposed Arbitrator declines or notifies the parties he or she is unable to serve as arbitrator. If all three (3) Proposed Arbitrators decline or are otherwise unable to serve as arbitrator, then the arbitrator selection process shall begin again in accordance with this Paragraph 4.2.
(d) The date that the Proposed Arbitrator selected pursuant to this Paragraph 4.2 agrees in writing (including via email) delivered to both parties to serve as the arbitrator hereunder is referred to herein as the “Arbitration Commencement Date”. If an arbitrator resigns or is unable to act during the Arbitration, a replacement arbitrator shall be chosen in accordance with this Paragraph 4.2 to continue the Arbitration. If Utah ADR Services ceases to exist or to provide a list of neutrals and there is no successor thereto, then the arbitrator shall be selected under the then prevailing rules of the American Arbitration Association.
(e) Subject to Paragraph 4.10 below, the cost of the arbitrator must be paid equally by both parties. Subject to Paragraph 4.10 below, if one party refuses or fails to pay its portion of the arbitrator fee, then the other party can advance such unpaid amount (subject to the accrual of Default Interest thereupon), with such amount being added to or subtracted from, as applicable, the Arbitration Award.
4.3 Applicability of Certain Utah Rules. The parties agree that the Arbitration shall be conducted generally in accordance with the Utah Rules of Civil Procedure and the Utah Rules of Evidence. More specifically, the Utah Rules of Civil Procedure shall apply, without limitation, to the filing of any pleadings, motions or memoranda, the conducting of discovery, and the taking of any depositions. The Utah Rules of Evidence shall apply to any hearings, whether telephonic or in person, held by the arbitrator. Notwithstanding the foregoing, it is the parties’ intent that the incorporation of such rules will in no event supersede these Arbitration Provisions. In the event of any conflict between the Utah Rules of Civil Procedure or the Utah Rules of Evidence and these Arbitration Provisions, these Arbitration Provisions shall control.
4.4 Answer and Default. An answer and any counterclaims to the Arbitration Notice shall be required to be delivered to the party initiating the Arbitration within twenty (20) calendar days after the Arbitration Commencement Date. If an answer is not delivered by the required deadline, the arbitrator must provide written notice to the defaulting party stating that the arbitrator will enter a default award against such party if such party does not file an answer within five (5) calendar days of receipt of such notice. If an answer is not filed within the five (5) day extension period, the arbitrator must render a default award, consistent with the relief requested in the Arbitration Notice, against a party that fails to submit an answer within such time period.
4.5 Related Litigation. The party that delivers the Arbitration Notice to the other party shall have the option to also commence concurrent legal proceedings with any state or federal court sitting in Salt Lake County, Utah (“Litigation Proceedings”), subject to the following: (a) the complaint in the Litigation Proceedings is to be substantially similar to the claims set forth in the Arbitration Notice, provided that an additional cause of action to compel arbitration will also be included therein, (b) so long as the other party files an answer to the complaint in the Litigation Proceedings and an answer to the Arbitration Notice, the Litigation Proceedings will be stayed pending an Arbitration Award (or Appeal Panel Award (defined below), as applicable) hereunder, (c) if the other party fails to file an answer in the Litigation Proceedings or an answer in the Arbitration proceedings, then the party initiating Arbitration shall be entitled to a default judgment consistent with the relief requested, to be entered in the Litigation Proceedings, and (d) any legal or procedural issue arising under the Arbitration Act that requires a decision of a court of competent jurisdiction may be determined in the Litigation Proceedings. Any award of the arbitrator (or of the Appeal Panel (defined below)) may be entered in such Litigation Proceedings pursuant to the Arbitration Act. In the event either party successfully petitions a court to compel arbitration, the losing party in such action shall be required to pay the prevailing party’s attorneys’ fees and costs incurred in connection with such action.
4.6 Discovery. Pursuant to Section 118(8) of the Arbitration Act, the parties agree that discovery shall be conducted as follows:
(a) Written discovery will only be allowed if the likely benefits of the proposed written discovery outweigh the burden or expense thereof, and the written discovery sought is likely to reveal information that will satisfy a specific element of a claim or defense already pleaded in the Arbitration. The party seeking written discovery shall always have the burden of showing that all of the standards and limitations set forth in these Arbitration Provisions are satisfied. The scope of discovery in the Arbitration proceedings shall also be limited as follows:
(i) To facts directly connected with the transactions contemplated by the Agreement.
(ii) To facts and information that cannot be obtained from another source or in another manner that is more convenient, less burdensome or less expensive than in the manner requested.
(b) No party shall be allowed (i) more than fifteen (15) interrogatories (including discrete subparts), (ii) more than fifteen (15) requests for admission (including discrete subparts), (iii) more than ten (10) document requests (including discrete subparts), or (iv) more than three (3) depositions (excluding expert depositions) for a maximum of seven (7) hours per deposition. The costs associated with depositions will be borne by the party taking the deposition. The party defending the deposition will submit a notice to the party taking the deposition of the estimated attorneys’ fees that such party expects to incur in connection with defending the deposition. If the party defending the deposition fails to submit an estimate of attorneys’ fees within five (5) calendar days of its receipt of a deposition notice, then such party shall be deemed to have waived its right to the estimated attorneys’ fees. The party taking the deposition must pay the party defending the deposition the estimated attorneys’ fees prior to taking the deposition, unless such obligation is deemed to be waived as set forth in the immediately preceding sentence. If the party taking the deposition believes that the estimated attorneys’ fees are unreasonable, such party may submit the issue to the arbitrator for a decision. All depositions will be taken in Utah.
(c) All discovery requests (including document production requests included in deposition notices) must be submitted in writing to the arbitrator and the other party. The party submitting the written discovery requests must include with such discovery requests a detailed explanation of how the proposed discovery requests satisfy the requirements of these Arbitration Provisions and the Utah Rules of Civil Procedure. The receiving party will then be allowed, within five (5) calendar days of receiving the proposed discovery requests, to submit to the arbitrator an estimate of the attorneys’ fees and costs associated with responding to such written discovery requests and a written challenge to each applicable discovery request. After receipt of an estimate of attorneys’ fees and costs and/or challenge(s) to one or more discovery requests, consistent with subparagraph (c) above, the arbitrator will within three (3) calendar days make a finding as to the likely attorneys’ fees and costs associated with responding to the discovery requests and issue an order that (i) requires the requesting party to prepay the attorneys’ fees and costs associated with responding to the discovery requests, and (ii) requires the responding party to respond to the discovery requests as limited by the arbitrator within twenty-five (25) calendar days of the arbitrator’s finding with respect to such discovery requests. If a party entitled to submit an estimate of attorneys’ fees and costs and/or a challenge to discovery requests fails to do so within such 5-day period, the arbitrator will make a finding that (A) there are no attorneys’ fees or costs associated with responding to such discovery requests, and (B) the responding party must respond to such discovery requests (as may be limited by the arbitrator) within twenty-five (25) calendar days of the arbitrator’s finding with respect to such discovery requests. Any party submitting any written discovery requests, including without limitation interrogatories, requests for production subpoenas to a party or a third party, or requests for admissions, must prepay the estimated attorneys’ fees and costs, before the responding party has any obligation to produce or respond to the same, unless such obligation is deemed waived as set forth above.
(d) In order to allow a written discovery request, the arbitrator must find that the discovery request satisfies the standards set forth in these Arbitration Provisions and the Utah Rules of Civil Procedure. The arbitrator must strictly enforce these standards. If a discovery request does not satisfy any of the standards set forth in these Arbitration Provisions or the Utah Rules of Civil Procedure, the arbitrator may modify such discovery request to satisfy the applicable standards, or strike such discovery request in whole or in part.
(e) Each party may submit expert reports (and rebuttals thereto), provided that such reports must be submitted within sixty (60) days of the Arbitration Commencement Date. Each party will be allowed a maximum of two (2) experts. Expert reports must contain the following: (i) a complete statement of all opinions the expert will offer at trial and the basis and reasons for them; (ii) the expert’s name and qualifications, including a list of all the expert’s publications within the preceding ten (10) years, and a list of any other cases in which the expert has testified at trial or in a deposition or prepared a report within the preceding ten (10) years; and (iii) the compensation to be paid for the expert’s report and testimony. The parties are entitled to depose any other party’s expert witness one (1) time for no more than four (4) hours. An expert may not testify in a party’s case-in-chief concerning any matter not fairly disclosed in the expert report.
4.6 Dispositive Motions. Each party shall have the right to submit dispositive motions pursuant Rule 12 or Rule 56 of the Utah Rules of Civil Procedure (a “Dispositive Motion”). The party submitting the Dispositive Motion may, but is not required to, deliver to the arbitrator and to the other party a memorandum in support (the “Memorandum in Support”) of the Dispositive Motion. Within seven (7) calendar days of delivery of the Memorandum in Support, the other party shall deliver to the arbitrator and to the other party a memorandum in opposition to the Memorandum in Support (the “Memorandum in Opposition”). Within seven (7) calendar days of delivery of the Memorandum in Opposition, as applicable, the party that submitted the Memorandum in Support shall deliver to the arbitrator and to the other party a reply memorandum to the Memorandum in Opposition (“Reply Memorandum”). If the applicable party shall fail to deliver the Memorandum in Opposition as required above, or if the other party fails to deliver the Reply Memorandum as required above, then the applicable party shall lose its right to so deliver the same, and the Dispositive Motion shall proceed regardless.
4.7 Confidentiality. All information disclosed by either party (or such party’s agents) during the Arbitration process (including without limitation information disclosed during the discovery process or any Appeal (defined below)) shall be considered confidential in nature. Each party agrees not to disclose any confidential information received from the other party (or its agents) during the Arbitration process (including without limitation during the discovery process or any Appeal) unless (a) prior to or after the time of disclosure such information becomes public knowledge or part of the public domain, not as a result of any inaction or action of the receiving party or its agents, (b) such information is required by a court order, subpoena or similar legal duress to be disclosed if such receiving party has notified the other party thereof in writing and given it a reasonable opportunity to obtain a protective order from a court of competent jurisdiction prior to disclosure, or (c) such information is disclosed to the receiving party’s agents, representatives and legal counsel on a need to know basis who each agree in writing not to disclose such information to any third party. Pursuant to Section 118(5) of the Arbitration Act, the arbitrator is hereby authorized and directed to issue a protective order to prevent the disclosure of privileged information and confidential information upon the written request of either party.
4.8 Authorization; Timing; Scheduling Order. Subject to all other sections of these Arbitration Provisions, the parties hereby authorize and direct the arbitrator to take such actions and make such rulings as may be necessary to carry out the parties’ intent for the Arbitration proceedings to be efficient and expeditious. Pursuant to Section 120 of the Arbitration Act, the parties hereby agree that an Arbitration Award must be made within one hundred twenty (120) calendar days after the Arbitration Commencement Date. The arbitrator is hereby authorized and directed to hold a scheduling conference within ten (10) calendar days after the Arbitration Commencement Date in order to establish a scheduling order with various binding deadlines for discovery, expert testimony, and the submission of documents by the parties to enable the arbitrator to render a decision prior to the end of such 120-day period.
4.9 Relief. The arbitrator shall have the right to award or include in the Arbitration Award (or in a preliminary ruling) any relief which the arbitrator deems proper under the circumstances, including, without limitation, specific performance and injunctive relief, provided that the arbitrator may not award exemplary or punitive damages.
4.10 Fees and Costs. As part of the Arbitration Award, the arbitrator is hereby directed to require the losing party (the party being awarded the least amount of money by the arbitrator, which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any party) to (a) pay the full amount of any unpaid costs and fees of the Arbitration, and (b) reimburse the prevailing party for all reasonable attorneys’ fees, arbitrator costs and fees, deposition costs, other discovery costs, and other expenses, costs or fees paid or otherwise incurred by the prevailing party in connection with the Arbitration.
4.11 Motion to Vacate. Following the entry of the Arbitration Award, if either party desires to file a Motion to Vacate the Arbitration Award with a court in Salt Lake County, Utah, it must do so within the earlier of: (a) thirty (30) days of entry of the Arbitration; and (b) in response to the prevailing party’s Motion of Confirm the Arbitration Award.
5. Arbitration Appeal.
5.1 Initiation of Appeal. Following the entry of the Arbitration Award, either party (the “Appellant”) shall have a period of thirty (30) calendar days in which to notify the other party (the “Appellee”), in writing, that the Appellant elects to appeal (the “Appeal”) the Arbitration Award (such notice, an “Appeal Notice”) to a panel of arbitrators as provided in Paragraph 5.2 below. The date the Appellant delivers an Appeal Notice to the Appellee is referred to herein as the “Appeal Date”. The Appeal Notice must be delivered to the Appellee in accordance with the provisions of Paragraph 4.1 above with respect to delivery of an Arbitration Notice. In addition, together with delivery of the Appeal Notice to the Appellee, the Appellant must also pay for (and provide proof of such payment to the Appellee together with delivery of the Appeal Notice) a bond in the amount of 110% of the sum the Appellant owes to the Appellee as a result of the Arbitration Award the Appellant is appealing. In the event an Appellant delivers an Appeal Notice to the Appellee (together with proof of payment of the applicable bond) in compliance with the provisions of this Paragraph 5.1, the Appeal will occur as a matter of right and, except as specifically set forth herein, will not be further conditioned. In the event a party does not deliver an Appeal Notice (along with proof of payment of the applicable bond) to the other party within the deadline prescribed in this Paragraph 5.1, such party shall lose its right to appeal the Arbitration Award. The Arbitration Award will be considered final until the Appeal Notice has been properly delivered and the applicable appeal bond has been posted (along with proof of payment of the applicable bond). The parties acknowledge and agree that any Appeal shall be deemed part of the parties’ agreement to arbitrate for purposes of these Arbitration Provisions and the Arbitration Act.
5.2 Selection and Payment of Appeal Panel. In the event an Appellant delivers an Appeal Notice to the Appellee (together with proof of payment of the applicable bond) in compliance with the provisions of Paragraph 5.1 above, the Appeal will be heard by a three (3) person arbitration panel (the “Appeal Panel”).
(a) Within ten (10) calendar days after the Appeal Date, the Appellee shall select and submit to the Appellant the names of five (5) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Services (http://www.utahadrservices.com) (such five (5) designated persons hereunder are referred to herein as the “Proposed Appeal Arbitrators”). For the avoidance of doubt, each Proposed Appeal Arbitrator must be qualified as a “neutral” with Utah ADR Services, and shall not be the arbitrator who rendered the Arbitration Award being appealed (the “Original Arbitrator”). Within five (5) calendar days after the Appellee has submitted to the Appellant the names of the Proposed Appeal Arbitrators, the Appellant must select, by written notice to the Appellee, three (3) of the Proposed Appeal Arbitrators to act as the members of the Appeal Panel. If the Appellant fails to select three (3) of the Proposed Appeal Arbitrators in writing within such 5-day period, then the Appellee may select such three (3) arbitrators from the Proposed Appeal Arbitrators by providing written notice of such selection to the Appellant.
(b) If the Appellee fails to submit to the Appellant the names of the Proposed Appeal Arbitrators within ten (10) calendar days after the Appeal Date pursuant to subparagraph (a) above, then the Appellant may at any time prior to the Appellee so designating the Proposed Appeal Arbitrators, identify the names of five (5) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Service (none of whom may be the Original Arbitrator) by written notice to the Appellee. The Appellee may then, within five (5) calendar days after the Appellant has submitted notice of its selected arbitrators to the Appellee, select, by written notice to the Appellant, three (3) of such selected arbitrators to serve on the Appeal Panel. If the Appellee fails to select in writing within such 5-day period three (3) of the arbitrators selected by the Appellant to serve as the members of the Appeal Panel, then the Appellant may select the three (3) members of the Appeal Panel from the Appellant’s list of five (5) arbitrators by providing written notice of such selection to the Appellee.
(c) If a selected Proposed Appeal Arbitrator declines or is otherwise unable to serve, then the party that selected such Proposed Appeal Arbitrator may select one (1) of the other five (5) designated Proposed Appeal Arbitrators within three (3) calendar days of the date a chosen Proposed Appeal Arbitrator declines or notifies the parties he or she is unable to serve as an arbitrator. If at least three (3) of the five (5) designated Proposed Appeal Arbitrators decline or are otherwise unable to serve, then the Proposed Appeal Arbitrator selection process shall begin again in accordance with this Paragraph 5.2; provided, however, that any Proposed Appeal Arbitrators who have already agreed to serve shall remain on the Appeal Panel.
(d) The date that all three (3) Proposed Appeal Arbitrators selected pursuant to this Paragraph 5.2 agree in writing (including via email) delivered to both the Appellant and the Appellee to serve as members of the Appeal Panel hereunder is referred to herein as the “Appeal Commencement Date”. No later than five (5) calendar days after the Appeal Commencement Date, the Appellee shall designate in writing (including via email) to the Appellant and the Appeal Panel the name of one (1) of the three (3) members of the Appeal Panel to serve as the lead arbitrator in the Appeal proceedings. Each member of the Appeal Panel shall be deemed an arbitrator for purposes of these Arbitration Provisions and the Arbitration Act, provided that, in conducting the Appeal, the Appeal Panel may only act or make determinations upon the approval or vote of no less than the majority vote of its members, as announced or communicated by the lead arbitrator on the Appeal Panel. If an arbitrator on the Appeal Panel ceases or is unable to act during the Appeal proceedings, a replacement arbitrator shall be chosen in accordance with Paragraph 5.2 above to continue the Appeal as a member of the Appeal Panel. If Utah ADR Services ceases to exist or to provide a list of neutrals, then the arbitrators for the Appeal Panel shall be selected under the then prevailing rules of the American Arbitration Association.
(d) Subject to Paragraph 5.7 below, the cost of the Appeal Panel must be paid entirely by the Appellant.
5.3 Appeal Procedure. The Appeal will be deemed an appeal of the entire Arbitration Award. In conducting the Appeal, the Appeal Panel shall conduct a de novo review of all Claims described or otherwise set forth in the Arbitration Notice. Subject to the foregoing and all other provisions of this Paragraph 5, the Appeal Panel shall conduct the Appeal in a manner the Appeal Panel considers appropriate for a fair and expeditious disposition of the Appeal, may hold one or more hearings and permit oral argument, and may review all previous evidence and discovery, together with all briefs, pleadings and other documents filed with the Original Arbitrator (as well as any documents filed with the Appeal Panel pursuant to Paragraph 5.4(a) below). Notwithstanding the foregoing, in connection with the Appeal, the Appeal Panel shall not permit the parties to conduct any additional discovery or raise any new Claims to be arbitrated, shall not permit new witnesses or affidavits, and shall not base any of its findings or determinations on the Original Arbitrator’s findings or the Arbitration Award.
5.4 Timing.
(a) Within seven (7) calendar days of the Appeal Commencement Date, the Appellant (i) shall deliver or cause to be delivered to the Appeal Panel copies of the Appeal Notice, all discovery conducted in connection with the Arbitration, and all briefs, pleadings and other documents filed with the Original Arbitrator (which material Appellee shall have the right to review and supplement if necessary), and (ii) may, but is not required to, deliver to the Appeal Panel and to the Appellee a Memorandum in Support of the Appellant’s arguments concerning or position with respect to all Claims, counterclaims, issues, or accountings presented or pleaded in the Arbitration. Within seven (7) calendar days of the Appellant’s delivery of the Memorandum in Support, as applicable, the Appellee shall deliver to the Appeal Panel and to the Appellant a Memorandum in Opposition to the Memorandum in Support. Within seven (7) calendar days of the Appellee’s delivery of the Memorandum in Opposition, as applicable, the Appellant shall deliver to the Appeal Panel and to the Appellee a Reply Memorandum to the Memorandum in Opposition. If the Appellant shall fail to substantially comply with the requirements of clause (i) of this subparagraph (a), the Appellant shall lose its right to appeal the Arbitration Award, and the Arbitration Award shall be final. If the Appellee shall fail to deliver the Memorandum in Opposition as required above, or if the Appellant shall fail to deliver the Reply Memorandum as required above, then the Appellee or the Appellant, as the case may be, shall lose its right to so deliver the same, and the Appeal shall proceed regardless.
(b) Subject to subparagraph (a) above, the parties hereby agree that the Appeal must be heard by the Appeal Panel within thirty (30) calendar days of the Appeal Commencement Date, and that the Appeal Panel must render its decision within thirty (30) calendar days after the Appeal is heard (and in no event later than sixty (60) calendar days after the Appeal Commencement Date).
5.5 Appeal Panel Award. The Appeal Panel shall issue its decision (the “Appeal Panel Award”) through the lead arbitrator on the Appeal Panel. Notwithstanding any other provision contained herein, the Appeal Panel Award shall (a) supersede in its entirety and make of no further force or effect the Arbitration Award (provided that any protective orders issued by the Original Arbitrator shall remain in full force and effect), (b) be final and binding upon the parties, with no further rights of appeal, (c) be the sole and exclusive remedy between the parties regarding any Claims, counterclaims, issues, or accountings presented or pleaded in the Arbitration, and (d) be promptly payable in United States dollars free of any tax, deduction or offset (with respect to monetary awards). Any costs or fees, including without limitation attorneys’ fees, incurred in connection with or incident to enforcing the Appeal Panel Award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. The Appeal Panel Award shall include Default Interest (with respect to monetary awards) at the rate specified in the Pre-Paid Purchase for Default Interest both before and after the Arbitration Award. Judgment upon the Appeal Panel Award will be entered and enforced by a state or federal court sitting in Salt Lake County, Utah.
5.6 Relief. The Appeal Panel shall have the right to award or include in the Appeal Panel Award any relief which the Appeal Panel deems proper under the circumstances, including, without limitation, specific performance and injunctive relief, provided that the Appeal Panel may not award exemplary or punitive damages.
5.7 Fees and Costs. As part of the Appeal Panel Award, the Appeal Panel is hereby directed to require the losing party (the party being awarded the least amount of money by the arbitrator, which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any party) to (a) pay the full amount of any unpaid costs and fees of the Arbitration and the Appeal Panel, and (b) reimburse the prevailing party (the party being awarded the most amount of money by the Appeal Panel, which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any part) the reasonable attorneys’ fees, arbitrator and Appeal Panel costs and fees, deposition costs, other discovery costs, and other expenses, costs or fees paid or otherwise incurred by the prevailing party in connection with the Arbitration (including without limitation in connection with the Appeal).
6. Miscellaneous.
6.1 Severability. If any part of these Arbitration Provisions is found to violate or be illegal under applicable law, then such provision shall be modified to the minimum extent necessary to make such provision enforceable under applicable law, and the remainder of the Arbitration Provisions shall remain unaffected and in full force and effect.
6.2 Governing Law. These Arbitration Provisions shall be governed by the laws of the State of Utah without regard to the conflict of laws principles therein.
6.3 Interpretation. The headings of these Arbitration Provisions are for convenience of reference only and shall not form part of, or affect the interpretation of, these Arbitration Provisions.
6.4 Waiver. No waiver of any provision of these Arbitration Provisions shall be effective unless it is in the form of a writing signed by the party granting the waiver.
6.5 Time is of the Essence. Time is expressly made of the essence with respect to each and every provision of these Arbitration Provisions.
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EXHIBIT 21.1
List of Subsidiaries
None.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this Registration Statement of Arrive AI, Inc. (formerly Arrive Technology Inc., the “Company”) on Form S-1/A2 of our report dated March 12, 2025, with respect to our audit of the Company’s financial statements as of and for the years ended December 31, 2024 and 2023. We also consent to the reference to our Firm under the caption “Experts” in such prospectus.
/s/ Assurance Dimensions, LLC
Assurance Dimensions
Coral Springs, FL
March 21, 2025