ARAI 10-Q/A
Arrive AI Inc. (ARAI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Amendment No. 1)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip code) |
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.
| ☒ | No | ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
| ☒ | No | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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 | ☐ | ☒ | |
| 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 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | ☐ | No |
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
The number of shares of the registrant’s common stock, par value $ per share, outstanding as of August 14, 2025, was .
EXPLANATORY NOTE
Background of Restatement
Subsequent to the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2025, management, in consultation with the Company’s independent registered public accounting firm, identified errors in the accounting for certain hybrid financial instruments issued pursuant to the Securities Purchase Agreement, dated March 21, 2025, with Streeterville Capital, LLC.
Specifically, the Company determined that certain embedded conversion features should have been bifurcated from the related host instruments and accounted for as derivative liabilities at fair value in accordance with ASC 815. In addition, the Company determined that the original issue discount and debt issuance costs associated with the host instruments were not properly accreted using the effective interest method over the appropriate accretion period.
Accordingly, the Company is filing this Amendment No. 1 on Form 10-Q/A to restate its unaudited condensed financial statements as of and for the quarter ended June 30, 2025. The Company’s Audit Committee, in consultation with management, concluded that the previously issued financial statements included in the Original Form 10-Q should no longer be relied upon. See Note 1 to the unaudited condensed financial statements for additional information regarding the restatement and its impact on the Company’s financial statements.
See Part I, Item 4, Controls and Procedures, for information regarding management’s conclusions on disclosure controls and procedures and internal control over financial reporting.
Items Amended in this Quarterly Report on Form 10-Q/A
This Form 10-Q/A amends and restates the following items of the Original Form 10-Q:
| · | Part I, Item 1 – Financial Statements: The condensed balance sheet as of June 30, 2025, the condensed statements of operations and comprehensive loss, the condensed statements of stockholders’ equity (deficit), and the condensed statements of cash flows for the three and six months ended June 30, 2025, and the related notes to the condensed financial statements, have each been restated to reflect the corrections described above. |
| · | Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations: Updated to reflect and discuss the restated financial results and the impact of the restatement on the Company’s financial condition, results of operations, and liquidity. |
| · | Part I, Item 4 – Controls and Procedures: Updated to reflect management’s revised conclusions regarding the effectiveness of disclosure controls and procedures and ICFR as of June 30, 2025, including disclosure of the material weakness identified in connection with the restatement. |
| · | Part II, Item 6 – Exhibits: Updated to include currently dated certifications of the Company’s principal executive officer and principal financial officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. |
Except as described above, this Form 10-Q/A does not amend, modify, or update any other disclosures contained in the Original Form 10-Q. This Form 10-Q/A continues to speak as of the date of the Original Form 10-Q, and the Company has not updated the disclosures contained herein to reflect events that occurred after the filing of the Original Form 10-Q, except as required to reflect the restatement described herein.
TABLE OF CONTENTS
| - 2 - |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ARRIVE AI INC.
CONDENSED BALANCE SHEETS
(Unaudited)
| June 30, 2025 | December 31, 2024 | |||||||
| (As Restated) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Deferred offering costs | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| LONG-TERM ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Patents, net | ||||||||
Deferred offering costs | ||||||||
| Security deposit | ||||||||
| Long-term assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Credit card payable | ||||||||
| Convertible note payable, net of discount and debt issuance costs of $ | ||||||||
Derivative liabilities | ||||||||
| Current portion of note payable | ||||||||
| Total current liabilities | ||||||||
| NONCURRENT LIABILITIES | ||||||||
| Note payables, net of current portion | ||||||||
| Total long term liabilities | | |||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (See Note 12) | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Common stock, $ par value, shares authorized, shares and issued and outstanding at June 30, 2025, and December 31, 2024, respectively | ||||||||
| Additional paid-in capital, net of offering costs | ||||||||
| Subscription receivable | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
See accompanying condensed notes to unaudited financial statements.
| - 3 - |
ARRIVE AI INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months | Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| (As Restated) | (As Restated) | |||||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| OTHER INCOME (EXPENSES) | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest expense and bank charges | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Change in fair value of derivative liabilities | ||||||||||||||||
Amortization of debt discount | ( | ) | ( | ) | ||||||||||||
| Total other income (expenses) | ||||||||||||||||
| NET LOSS BEFORE TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| PROVISION FOR INCOME TAXES | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER SHARE: | ||||||||||||||||
| Basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
See accompanying condensed notes to unaudited financial statements.
| - 4 - |
ARRIVE AI INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the Six Months Ended June 30, 2025 and 2024 (Unaudited)
| Number
of Common Shares | Common Stock ($) | Number of Treasury Shares | Treasury Stock ($) | Additional Paid-In Capital, Net of Offering Costs ($) | Subscription Receivable ($) | Accumulated Deficit ($) | Total Stockholders’ Equity (Deficit) ($) | |||||||||||||||||||||||||
| BALANCE, JANUARY 1, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Issuance of common stock, net | - | |||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | - | |||||||||||||||||||||||||||||||
| Issuance of common stock for deferred offering costs | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCE, MARCH 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Issuance of common stock, net | - | |||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | - | |||||||||||||||||||||||||||||||
| Issuance of common stock for options exercise | - | |||||||||||||||||||||||||||||||
| Issuance of common stock for settlement of debt | - | |||||||||||||||||||||||||||||||
| Reclassification of deferred offering costs | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Issuance of common stock for commitment fee | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCE, JUNE 30, 2025 (As Restated) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| BALANCE, JANUARY 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Issuance of common stock, net | - | ( | ) | |||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCE, MARCH 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Issuance of common stock and warrants for cash, net | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCE, JUNE 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
See accompanying condensed notes to unaudited financial statements.
| - 5 - |
ARRIVE AI INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2025 and 2024 (Unaudited)
| 2025 | 2024 | |||||||
| (As Restated) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
Change in fair value of derivative liabilities | ( | ) | ||||||
| Amortization of discount on convertible debt | ||||||||
Amortization of debt issuance costs | ||||||||
| Changes in operating assets and liabilities | ||||||||
| (Increase) decrease in | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Other current assets | ||||||||
| Increase (decrease) in | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities | ( | ) | ||||||
| Credit card payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Construction in progress | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of common stock, net | ||||||||
| Proceeds from the exercise of warrants, net | ||||||||
| Repayments of note payables | ( | ) | ( | ) | ||||
| Proceeds from issuance of convertible debt | ||||||||
Debt issuance costs | ||||||||
| Deferred offering costs | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION | ||||||||
| Common stock issued as payment of offering costs | $ | $ | ||||||
| Common stock issued as settlement of legal expenses | $ | $ | ||||||
| Deferred offering costs recognized as additional paid-in capital | $ | $ | ||||||
| Cashless exercise of stock options | $ | $ | ||||||
See accompanying condensed notes to unaudited financial statements.
| - 6 - |
ARRIVE AI INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
For the six months ended June 30, 2025
(Unaudited)
| 1. | NATURE OF OPERATIONS (AS RESTATED) |
Business and nature of operations
Arrive AI 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.
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.
Restatement of previously issued financial statements
Subsequent to the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2025, management, in consultation with the Company’s independent registered public accounting firm, identified errors in the accounting for certain hybrid financial instruments issued pursuant to the Securities Purchase Agreement, dated March 21, 2025, by and between the Company and Streeterville Capital, LLC.
Specifically, management determined that certain embedded conversion features contained in the Pre-Paid Purchases issued under the Securities Purchase Agreement should have been bifurcated from the related host instruments and accounted for as derivative liabilities at fair value at inception in accordance with ASC 815. In addition, management determined that the original issue discount and debt issuance costs associated with the host instruments were not properly accreted using the effective interest method over the appropriate accretion period. Management also determined that Commitment Shares issued in connection with the Pre-Paid Purchases should have been reflected in the determination of the carrying value of the related host instruments, rather than recognized immediately as general and administrative expense.
As a result of these errors, the Company understated derivative liabilities, misstated the carrying amount of the related host instruments, and incorrectly recorded certain related non-cash expenses in its previously issued unaudited condensed financial statements as of and for the quarter ended June 30, 2025. Accordingly, the Company has restated its unaudited condensed financial statements as of June 30, 2025 and for the three and six months then ended.
The following tables summarize the effect of the restatement on the Company’s previously issued unaudited condensed financial statements for the periods presented.
CONDENSED BALANCE SHEETS — Effect of Restatement as of June 30, 2025
| As Reported | Adjustments | As Restated | ||||||||||
| ASSETS | ||||||||||||
| Deferred offering costs | $ | $ | $ | |||||||||
| Total current assets | ( | ) | ||||||||||
| Deferred offering costs | ||||||||||||
| Long-term assets | ||||||||||||
| Total assets | ( | ) | ||||||||||
| LIABILITIES | ||||||||||||
| Accounts payable | ||||||||||||
| Convertible note payable, net of discount and debt issuance costs of $ | ( | ) | ||||||||||
| Derivative liabilities | ||||||||||||
| Total current liabilities | ( | ) | ||||||||||
| Total liabilities | ( | ) | ||||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||
| Additional paid-in capital, net of offering costs | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||
| Total stockholders’ equity (deficit) | ||||||||||||
| Total liabilities and stockholders’ equity (deficit) | ( | ) | ||||||||||
CONDENSED STATEMENTS OF OPERATIONS — Effect of Restatement For the Three Months Ended June 30, 2025
| As Reported | Adjustments | As Restated | ||||||||||
| General and administrative | $ | $ | ( | ) | $ | |||||||
| Total operating expenses | ( | ) | ||||||||||
| Interest expense and bank charges | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative liabilities | ||||||||||||
| Amortization of debt discount | ( | ) | ( | ) | ||||||||
| Total other income (expense), net | ( | ) | ||||||||||
| Net loss before income taxes | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ||||||||
| Net loss per share — basic and diluted | ) | ) | ||||||||||
| - 7 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 1. | NATURE OF OPERATIONS (AS RESTATED) (Continued) |
CONDENSED STATEMENTS OF OPERATIONS — For the Six Months Ended June 30, 2025
| As Reported | Adjustments | As Restated | ||||||||||
| General and administrative | $ | $ | ( | ) | $ | |||||||
| Total operating expenses | ( | ) | ||||||||||
| Interest expense and bank charges | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative liabilities | ||||||||||||
| Amortization of debt discount | ( | ) | ( | ) | ||||||||
| Total other income (expense), net | ( | ) | ||||||||||
| Net loss before income taxes | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ||||||||
| Net loss per share — basic and diluted | ) | ) | ||||||||||
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) — Effect of Restatement For the Three and Six Months Ended June 30, 2025
| Additional paid-in capital, net of offering costs | $ | $ | $ | |||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||
| Total stockholders’ equity (deficit) | ||||||||||||
CONDENSED STATEMENTS OF CASH FLOWS — Effect of Restatement For the Six Months Ended June 30, 2025
| As Reported | Adjustments | As Restated | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Stock-based compensation | ( | ) | ||||||||||
| Change in fair value of derivative liabilities | ( | ) | ( | ) | ||||||||
| Amortization of discount on convertible debt | ( | ) | ||||||||||
| Amortization of debt issuance costs | ||||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Proceeds from issuance of convertible debt | ( | ) | ||||||||||
| Deferred offering costs | ( | ) | ( | ) | ||||||||
| Net cash provided by financing activities | ||||||||||||
There was no impact to total cash and cash equivalents as of June 30, 2025 as a result of the restatement. The restatement had no effect on the Company’s revenue for any period presented.
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
Basis of Accounting
The financial statements (unaudited) have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and with the instructions to Form 10-Q of Regulation S-K. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements and related notes thereto for the year ended December 31, 2024. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the fiscal year ended December 31, 2024, have been omitted.
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.
| - 8 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
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 June 30, 2025 and December
31, 2024, the Company’s uninsured cash balances totalled approximately $
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.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are customer obligations due under normal trade terms, which are typically due upon receipt of the invoice. Credit is extended based on evaluation of a customer’s financial condition and collateral is not required. Accounts receivable are stated at amounts due from customers net of an allowance for credit losses. The Company recognizes an allowance for expected credit losses at each balance sheet date. This estimate is derived from a review of the Company’s historical losses based on the aging of receivables. Receivables with similar risk characteristics are pooled for the estimation of expected credits losses. Management adjusts its historical estimate based on its assessment of current conditions, reasonable and supportable forecasts regarding future events, and any other factors deemed relevant by the Company. At each reporting date, the Company updates its estimate of expected credit losses to reflect any changes in credit risk since the receivable was initially recorded.
The Company writes off receivables when there is information that indicates the debtor is facing significant financial difficulty and there is no possibility of recovery. If any recoveries are made from any accounts previously written off, they will be recognized in earnings in the year of recovery, in accordance with the entity’s accounting policy election. The Company has not incurred material write-offs as a whole for the six months ended June 30, 2025. Based upon the information available, no allowances for credit losses has been recorded as the Company believes the balance is fully collectable.
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 |
| - 9 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
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
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.
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 June 30, 2025.
The Company acquired three “Gen 3” (or “AP3”) Arrive Point units in December 2024, and four in April 2025. These units are recorded as construction in progress until they are placed into service. Six units have been delivered to customer sites, one of which has been placed into revenue service in April 2025 and is being depreciated on a straight-lined basis over two years. No impairment loss on these units was recognized as of June 30, 2025.
| - 10 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. Revenue is derived from consulting and implementation services provided to clients and recurring subscription services for access to the Arrive Point network. Revenue is recognized over time as services are performed, based on the transfer of control to the customer. Contracts are typically short-term in nature and do not contain significant variable consideration or multiple performance obligations.
Disaggregated revenue as of the three and six months ended June 30, 2025 is as follows:
| Revenue source | ||||
| Consulting services | $ | |||
| Installation services | ||||
| Subscription fees | ||||
| TOTAL REVENUE | $ | |||
| Timing of Revenue Recognition | ||||
| Services transferred over time | $ | |||
| Services transferred at a point in time | ||||
| TOTAL REVENUE | $ | |||
Various economic factors affect the recognition of revenue and cash flows including availability of skilled labor and prompt payment by customers. The Company did not generate revenue during the three or six months ended June 30, 2024. As such, no comparative disaggregation is presented for that period.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the balance sheet. The Company may request advances or deposits from customers before revenue is recognized, which results in contract liabilities. These contract liabilities are released as the performance obligations are satisfied. As of June 30, 2025, there were no such liabilities or contract assets included within the balance sheet. The beginning and ending contract balances were as follows:
| June 30, 2025 | January 1, 2025 | |||||||
| Accounts receivable | $ | $ | ||||||
| - 11 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Significant Judgments and Estimates
There are no significant judgments involved in the recognition of revenue from the services provided by the Company.
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 may 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.
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 shares eligible for issuance under the outstanding warrants were registered under the Securities Act of 1933, on July 28, 2025.
The Company follows FASB ASC 260, “Earnings per Share,” resulting in the presentation of basic and diluted earnings per share. Because the Company reported a net loss in 2025 and 2024, common stock equivalents, including stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share were the same.
Comprehensive Loss
The Company follows FASB ASC 220.10, “Reporting Comprehensive Income (Loss).” Comprehensive loss is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net loss. Since the Company has no items of other comprehensive loss, comprehensive loss is equal to net loss.
| - 12 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
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.
During the three and six months ended June 30, 2025, the Company recognized $
During the six months
ended June 30, 2025, the Company raised gross proceeds of $
The remaining deferred offering costs are included as current asset on the balance sheet and will be recognized as a reduction to additional paid-in capital upon completion of the related equity offerings.
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 three and six months ended June 30, 2025 and
2024, the Company had R&D costs totalling $
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 $
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.
| - 13 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Stock-Based Compensation (Continued)
The average fair value of one (1) share of the Company’s common stock was determined to be $ for the period of January 1, 2025 to May 15, 2025 and $ as of December 31, 2024. On May 15, 2025, the Company completed its initial public offering and its common stock began trading on the Nasdaq Stock Exchange. Subsequent to May 15, 2025, the price of the Company’s common stock was determined by the Nasdaq daily closing stock price.
Prior to May 15, 2025, the fair value of common stock is based on the prior Company’s transaction method. 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, prior to May 15, 2025, the Company’s stock was 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
There is income tax benefit for the losses for the three and six months ended June 30, 2025 and 2024 since management has determined that the realization of the net deferred tax asset is not assured and has created a valuation allowance for the entire amount of such benefits.
The Company’s policy is to record
interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of January
1, 2025, the Company had no unrecognized tax benefits, or any tax related interest or penalties, and it does not expect significant changes
in the amount of unrecognized tax benefits to occur within the next twelve months. There were
With few exceptions, the U.S. and state income tax returns filed for the tax years ending on December 31, 2021 and thereafter are subject to examination by the relevant taxing authorities. Net operating loss (NOL) carryforwards are subject to examination in the year they are utilized regardless of whether the tax year in which they are generated has been closed by the statute. The amount subject to disallowance is limited to the NOL utilized. Accordingly, the Company may be subject to examination for prior NOLs generated as such NOLs are utilized.
| - 14 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Convertible Note Payable and Derivative Liabilities (As Restated)
The Company accounts for the convertible note in accordance with ASC 470, Debt, and ASC 815, Derivatives and Hedging. At issuance, the Company evaluates each convertible note to determine whether any embedded features must be bifurcated and accounted for separately as a derivative liability.
If an embedded conversion feature fails the indexed-to-own-stock test under ASC 815-40-15, because the conversion price is determined by a path-dependent formula rather than a fixed price or a current observable price, the conversion feature is bifurcated from the host debt instrument and recognized as a derivative liability at fair value on the issuance date. The host debt instrument is then recorded at an initial carrying value equal to the cash proceeds received, reduced by (i) the original issue discount (“OID”), (ii) the fair value of the bifurcated derivative liability at issuance, and (iii) debt issuance costs allocable to the host instrument.
When an embedded derivative is bifurcated from a convertible note at issuance, the Company initially records derivative liabilities at fair value, with the residual proceeds allocated to the host debt instrument, consistent with ASC 835-30 and ASC 815. Debt issuance costs are allocated consistently with this initial measurement approach. The portion of issuance costs allocated to derivative liabilities is expensed immediately in the period of issuance. The portion of issuance costs allocated to the host debt instrument is recorded as a contra-debt balance (debt issuance costs) and amortized to interest expense over the expected term of the note using the effective interest method (“EIM”).
The combined discount on each host debt instrument consisting of OID, the fair value of the bifurcated derivative at issuance, and allocated debt issuance costs is accreted to the face amount of the note using the EIM over the expected term of each note in accordance with ASC 835-30.
Where a convertible note has no stated maturity date, the Company estimates the expected term based on management’s best estimate of the period over which the debt is expected to remain outstanding, considering the economic substance of the instrument, the contractual terms, the expected timing and pattern of conversion or settlement, and other relevant facts and circumstances. The expected term used for accretion of the host debt instrument is applied consistently with the expected term used in valuing any bifurcated embedded derivative. This estimate is reassessed when facts and circumstances indicate a change may be warranted.
Bifurcated derivative liabilities are recognized at fair value on the issuance date of the applicable convertible note and are subsequently remeasured at fair value at each reporting date and at each conversion date, in accordance with ASC 815. Changes in fair value are recognized in earnings as a gain or loss on change in fair value of derivative liabilities and are presented as a separate line item within other income (expense) in the statement of operations.
When the conversion feature’s fair value cannot be estimated using a closed-form solution because the conversion price is based on a formula that incorporates path-dependent inputs, the Company estimates fair value using a Monte Carlo simulation model. The model simulates a large number of potential stock price paths and computes the expected present value of the conversion payoff under each path. The significant unobservable inputs used in the Monte Carlo simulation include the expected equity volatility, expected instrument term, risk-free rate, and debt discount rate. These instruments are classified within Level 3 of the fair value hierarchy established under ASC 820, Fair Value Measurement, because their valuation relies on significant unobservable inputs. See NOTE 5 for a description of the valuation methodology and significant assumptions.
When a noteholder elects to convert a portion or all of a convertible note into shares of common stock, the Company accounts for the conversion as follows:
The pro-rata portion of the carrying value of the host debt instrument, including the related pro-rata unamortized OID and pro-rata unamortized debt issuance costs, is derecognized upon conversion. If the carrying amount of the net host instrument differs from the consideration transferred, the difference is recognized as a gain or loss on conversion of debt in accordance with ASC 470-50.
The pro-rata portion of the bifurcated derivative liabilities attributable to the converted principal is remeasured to fair value as of the conversion date. The change in fair value from the most recent prior remeasurement date to the conversion date is recognized in earnings as a gain or loss on change in fair value of derivative liability. Upon conversion of the convertible note payable, the pro-rata portion of the remeasured fair value of the derivative liability is then derecognized from the balance sheet with a credit to additional paid-in capital.
| - 15 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Fair Value of Financial Instruments (As Restated)
The Company measures fair value in accordance with ASC 820, Fair Value Measurement, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The carrying values of the Company’s short-term financial instruments, including cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to their short-term nature.
The host portion of convertible note payable, excluding the separately recognized bifurcated derivative liability, are carried at amortized cost using the effective interest method as disclosed in NOTE 5. The bifurcated derivative liability associated with the convertible note is carried at fair value on a recurring basis and classified within Level 3 of the fair value hierarchy. See NOTE 5 for a full description of the fair value measurement methodology, significant unobservable inputs, and the roll-forward of the derivative liabilities balance.
The vehicle note payable is carried at amortized cost. The estimated fair value of this instrument approximates its carrying value due to the interest rate approximating current market rates for similar collateralized borrowings.
Recently Adopted Accounting Standard
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.
Recently Issued Accounting Standard Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, ASC Subtopic “Disaggregation of Income Statement Expenses (ASC 220-40): Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures”. The amendments require additional disclosure of the nature of expenses included in the income statement. The amendments in this update are effective for public business entities for fiscal years, beginning after December 15, 2026. Early adoption is permitted. The Company is currently assessing the impact of the adoption of this standard on its 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 evaluates the business as a whole and does not receive discrete financial information for separate business units. The CODM is responsible for evaluating financial results and making resource allocation decisions.
| - 16 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 3. | SEGMENT REPORTING (Continued) |
Significant Segment Expenses
The Company considers the following as significant expenses in evaluating its segment performance:
| ● | Research and Development: includes costs related to materials and supplies, prototype hardware development, and third-party consulting costs. |
| ● | General and Administrative: includes personnel costs, contractor expenses, and other overhead expenses. |
| ● | Legal and Professional Fees: includes the cost of legal services to expand and maintain the Company’s patent portfolio, fees associated with various business transactions, and compliance with regulatory requirements. |
Entity-Wide Disclosures
| ● | Geographic Revenue Information: For both the three and six months ended June 30, 2025, |
| ● | Major Customers: The Company has one customer that accounted for |
The Company did not generate revenue during the same periods in 2024.
| 4. | GOING CONCERN (AS RESTATED) |
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 if the Company is unable to continue as a going concern.
The Company has a minimum cash
balance available for payment of ongoing operating expenses. As of June 30, 2025, the Company has an accumulated deficit of $
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. These financial statements do not include any adjustments that might result from the Company’s inability to continue as a going concern.
| - 17 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 5. | FAIR VALUE MEASUREMENTS (AS RESTATED) |
The Company accounts for fair value measurements in accordance with ASC 820, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level hierarchy for inputs used in measuring fair value:
| ● | Level 1 — Quoted prices in active markets for identical assets or liabilities | |
| ● | Level 2 — Observable inputs other than quoted prices included in Level 1 | |
| ● | Level 3 — Unobservable inputs supported by little or no market activity |
The Company measures its bifurcated derivative liabilities associated with its convertible notes at fair value on a recurring basis, see NOTE 11. These instruments are classified within Level 3 of the fair value hierarchy because their valuation relies on significant unobservable inputs, including expected equity volatility, expected term, and debt discount rates.
The following table presents the Company’s financial liabilities measured at fair value on a recurring basis:
| Description | Level | June 30, 2025 | ||||||
| Derivative liabilities | 3 | $ | ||||||
The carrying amounts of cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short-term nature.
Derivative Liabilities
In connection with the convertible notes issued under the Securities Purchase Agreement with Streeterville Capital, LLC, as described in NOTE 11, the Company bifurcated the embedded conversion feature from the note and recognized it as a derivative liability under ASC 815. The derivative liabilities are initially recognized at fair value on the issuance date of the convertible note and is subsequently remeasured at fair value at each reporting date and each conversion date. Changes in fair value are recognized in the statement of operations.
The Company estimates the fair value of the derivative liability using a Monte Carlo simulation model, which simulates a large number of potential stock price paths and computes the expected present value of the conversion payoff under each path.
Valuation Inputs and Basis of Significant Assumptions
The following inputs were used in the Monte Carlo simulation to measure the instrument at inception:
| Input | Convertible Note Inception | |||
| Assumed instrument term | ||||
| Stock price | $ | |||
| Selected equity volatility | % | |||
| Risk-free rate (continuous compounded, | % | |||
| Debt discount rate ( | % | |||
The following inputs were used in the Monte Carlo simulation to remeasure the derivative liability at each reporting date:
| Input | 6/30/2025 | |||
| Assumed instrument term | ||||
| Stock price | $ | |||
| Selected equity volatility | % | |||
| Risk-free rate (continuous compounded, | % | |||
| Debt discount rate ( | % | |||
As described in NOTE 11, the convertible note had no stated maturity. The Company estimated an expected term of three years based on the timing of expected draws from the SPA, the economic structure of the SPA, the conversion mechanics, and its assessment of expected noteholder conversion behavior. This estimate is reassessed at each remeasurement date.
The Company estimated expected equity volatility using the historical volatility of a peer group of comparable-stage companies operating in the autonomous vehicle, robotics, and AI/logistics technology industries, supplemented by the Company’s own limited trading history.
The risk-free rate was derived from the continuously compounded yield on U.S. Treasury securities with a remaining term approximately equal to the assumed instrument term, observed as of each measurement date.
The debt discount rate represents the Company’s estimated cost of non-convertible debt with terms comparable to the convertible note. This rate was calibrated using observable market data for similarly situated issuers in the Company’s industry and credit profile, adjusted for the specific terms of the SPA.
| - 18 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 5. | FAIR VALUE MEASUREMENTS (AS RESTATED) (Continued) |
Sensitivity of Level 3 Fair Value Measurements
Because derivative liabilities are valued using significant unobservable inputs, their fair value measurements are classified within Level 3. Changes in those inputs can have a material effect on the reported fair value. The table below describes the directional sensitivity of the derivative liability fair value to changes in the most significant unobservable inputs, holding all other inputs constant:
| Input | Direction of Change | Effect on Fair Value | ||
| Equity volatility | Increase (decrease) | Increase (decrease) | ||
| Expected term | Increase (decrease) | Increase (decrease) | ||
| Debt discount rate | Increase (decrease) | Decrease (increase) | ||
| Stock price | Increase (decrease) | Increase (decrease) |
Equity volatility is the most significant unobservable input. The conversion feature has an asymmetric payoff structure (the noteholder benefits from lower stock prices that produce a lower conversion price under the Lookback Formula, subject to the $ floor), and higher volatility generally increases the expected value of that optionality. A hypothetical 10 percentage point increase or decrease in assumed volatility, holding other inputs constant, would result in a directionally significant change in the fair value of the derivative liabilities; however, the magnitude of such change depends on the then-current stock price relative to the conversion price range and cannot be quantified without reference to the applicable simulation outputs. Management considers the volatility assumption to be the key source of estimation uncertainty in the Level 3 measurement.
Expected term affects the number of simulated conversion opportunities and the present value weighting of simulated payoffs; a longer term increases the value of the conversion optionality. Debt discount rate affects the discount applied to the simulated payoffs; a higher rate reduces present value.
The interrelationship between equity volatility and stock price should also be noted: at lower stock prices, the conversion discount embedded in the Lookback Formula produces larger absolute payoffs per share for the noteholder, and higher volatility amplifies this effect. The $ floor price limits downside exposure in scenarios where the stock price falls significantly.
Derivative Liabilities Roll-Forward
The following table provides a reconciliation of derivative liabilities measured at fair value using Level 3 inputs for the six months ended June 30, 2025:
Convertible Note | ||||
| Balance at January 1, 2025 | $ | |||
| Derivative liabilities recognized upon issuance of convertible note payable at fair value | ||||
| Change in fair value — period-end remeasurement (June 30, 2025) | ( | ) | ||
| BALANCE AT JUNE 30, 2025 | $ | |||
The
total net change in fair value of the derivative liabilities recognized in the statement of operations for the three and six months ended
June 30, 2025 was a gain of $
Amounts reclassified upon conversion represent the fair value of the pro-rata portion of the derivative liabilities, remeasured as of the applicable conversion date and derecognized in connection with the settlement of the related converted principal. The change in fair value through the conversion date is included in “Change in fair value of the derivative liabilities - conversion remeasurement”. For a description of the full conversion accounting policy, including the treatment of the host debt component upon conversion, see NOTE 11.
| 6. | PROPERTY AND EQUIPMENT |
Property and equipment consist of the following:
| June 30, 2025 | December 31, 2024 | |||||||
| Vehicle | $ | $ | ||||||
| Equipment | ||||||||
| Construction in progress | ||||||||
| Total property and equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| TOTAL PROPERTY AND EQUIPMENT, NET | $ | $ | ||||||
For the three and six months ended June
30, 2025 and 2024, total depreciation expense was $
| - 19 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 7. | PREPAID EXPENSES |
Prepaid expenses and other current assets consist of the following:
| June 30, 2025 | December 31, 2024 | |||||||
| Prepaid payroll wages | $ | $ | ||||||
| Prepaid insurance | ||||||||
| Prepaid software and other | ||||||||
| TOTAL PREPAID EXPENSES | $ | $ | ||||||
| 8. | DEFERRED OFFERING COSTS |
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.
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. The Company’s registration statement was declared effective and the stock began
trading on May 15, 2025. During the three months ended March 31, 2025, the Company issued shares of common stock in exchange for
investment banking advisory services with a fair value of $
| 9. | PATENTS, NET |
Patents consist of the following:
| June 30, 2025 | December 31, 2024 | |||||||
| Patents | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| TOTAL PATENTS | $ | $ | ||||||
As of June 30, 2025, six of the Company’s
fifty-seven international patents were issued and began being amortized over
| - 20 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 10. | NOTE PAYABLE |
Note payable consists of the following:
| June 30, 2025 | December 31, 2024 | |||||||
| Vehicle note payable for $ | $ | $ | ||||||
| Less current portion | ( | ) | ( | ) | ||||
| LONG-TERM PORTION | $ | $ | ||||||
The balance of the above debt matures as follows:
| Twelve Months Ending June 30, | Amount | |||
| 2026 | $ | |||
| 2027 | ||||
| TOTAL | $ | |||
Interest expense related to this note
payable for the three and six months ended June 30, 2025 and 2024, was $
| 11. | CONVERTIBLE NOTE PAYABLE (AS RESTATED) |
Overview of the Purchase Agreement
On
March 21, 2025, the Company entered into a Securities Purchase Agreement with Streeterville Capital, LLC (“Streeterville”).
The SPA closed on May 15, 2025, upon satisfaction of all condition precedents. The SPA provides for a maximum facility of $
The
convertible notes issued under the SPA bear interest at a rate of
Pre-Delivery Shares
Pursuant
to the SPA, Streeterville purchased shares of common stock (the “Pre-Delivery Shares”) at par value ($ per
share) in exchange for aggregate consideration of $
The Company has evaluated the Pre-Delivery Shares under ASC 480-10-25 and ASC 505-10-45 and concluded that equity classification is appropriate on the following basis: (i) the shares represent issued and legally outstanding common stock with full voting rights; (ii) the Company holds a right, but not an obligation, to repurchase the Pre-Delivery Shares at par value, which is a unilateral call option and does not, by itself, require liability classification; and (iii) the shares are not mandatorily redeemable and do not embody an unconditional obligation requiring the Company to transfer assets. Accordingly, the Pre-Delivery Shares are presented within stockholders’ equity and are included as issued and outstanding shares as of June 30, 2025.
The Pre-Delivery Shares are included in the weighted-average shares outstanding used in the computation of basic and diluted loss per share beginning on May 15, 2025, the date the SPA closed and the shares were issued, consistent with ASC 260-10-45. The Company considered whether the nominal issuance price and the Company’s repurchase right created any basis to exclude these shares from EPS and concluded that, because the shares are legally issued and outstanding with no outstanding contingency that would require their return, the Company’s inclusion is appropriate.
Conversion Feature and Bifurcation
Pursuant to ASC 815-40-15 and ASC 815-15-25, a conversion feature that fails the indexed-to-own-stock test must be bifurcated from the host instrument and accounted for separately as a derivative liability, measured at fair value at each reporting date, with changes in fair value recognized in earnings. Accordingly, the Company has bifurcated the conversion feature as a derivative liability at the inception of the note.
Note Issuance Summary
The
convertible note issued was bifurcated as follows. The initial host carrying value for each note represents the cash proceeds received,
reduced by
| - 21 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 11. | CONVERTIBLE NOTE PAYABLE (AS RESTATED) (Continued) |
In
connection with the issuance of the note, the Company incurred debt issuance costs equal to
Although the note has no stated maturity date, the Company estimated an expected term of three years for purposes of both the EIM accretion schedule and the Monte Carlo valuation of the bifurcated derivative. This expected term was determined based on (i) the Company’s expected timing of draws under the SPA (ii) the economic terms and structure of the SPA, including the conversion mechanics and the absence of a mandatory redemption date, (iii) the Company’s assessment of the expected conversion behavior of the noteholder based on the Lookback Formula, and (iv) the provisions of the SPA governing the noteholder’s conversion rights. The use of an expected term rather than a contractual maturity is consistent with ASC 820-10-35-24C, which requires that fair value reflect market participant assumptions. Management applied the same three-year expected term in both the EIM accretion model and the Monte Carlo valuation model based on its estimate of the period over which the note is expected to remain outstanding. The three-year assumption will be reassessed each reporting period in connection with the fair value remeasurement of the derivative liability.
| Convertible Note | ||||
| Issuance date | ||||
| Face amount | $ | |||
| Original issue discount | ( | ) | ||
| Cash proceeds | ||||
| Debt issuance costs (contra-liability) | ( | ) | ||
| Derivative discount (initial fair value of bifurcated derivative) | ( | ) | ||
| Commitment shares (discount) | ( | ) | ||
| INITIAL HOST CARRYING VALUE | $ | |||
Host Convertible Note Roll-Forward
The following table sets forth the activity in the carrying value of the host portion of the convertible note for the 6 months ended June 30, 2025. Discount accretion is computed using the EIM applied to the initial carrying value of the note over its estimated three-year expected term. Upon conversion, the face amount converted and the pro-rata unamortized discount and issuance costs attributable to the converted portion are removed from the carrying value.
| Convertible Note | ||||
| Balance at January 1, 2025 | $ | |||
| Note issuance — initial host carrying value | ||||
| EIM accretion of debt discount and issuance costs | ||||
| HOST CARRYING VALUE AT JUNE 30, 2025 | $ | |||
Conversion Accounting
See NOTE 2, Convertible Notes Payable and Derivative Liabilities for details on accounting for the conversion of convertible notes payable.
For a summary of derivative liability activity during the six months ended 2025, including amounts derecognized upon conversion, refer to NOTE 5.
Other income and expenses related to convertible note
Other
income and expenses related to the convertible note recognized during the three and six months ended June 30, 2025 consisted of accretion
of debt discount and accretion of debt issuance costs of $
The bifurcated derivative liabilities associated with the convertible notes is classified as a Level 3 instrument and remeasured at fair value at each reporting date using a Monte Carlo simulation model. For a full description of the valuation methodology, significant unobservable inputs (including the expected term, volatility, and risk-free rate assumptions), a roll-forward of the derivative liabilities balance, and the amounts of unrealized gains or losses recognized in earnings during 2025, refer to NOTE 5.
| - 22 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 12. | COMMITMENTS AND CONTINGENCIES |
Lease Obligation
Effective April
1, 2024, the Company expanded its leased office space. The new term is
FASB ASU No. 2016-02, Topic 842, Leases, allows companies to elect certain policies for short-term leases. The Company has elected not to recognize right-of-use assets and lease liabilities arising from short-term leases with an initial term of 12 months or less
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.
| - 23 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 13. | 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 $
On March 10, 2025, the Company entered into the second amendment to the Exclusive Patent License Agreement of May 26, 2020. The Second Amendment extends the license to perpetuity, covering the full term and life of the patents, and cures in the event of default. 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.
| 14. | STOCKHOLDERS’ EQUITY (AS RESTATED) |
Common Stock
As of April 30, 2020 (date of incorporation), the Company had shares of common stock, with a par value of $, 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.
Effective September 15, 2021, the Company
authorized a
During the six months ended June 30, 2025, the Company issued shares of common stock as follows:
| a) | shares with accredited investors in exchange for cash of $ | |
| b) | shares with an accredited investor in exchange for cash of $ | |
| c) | warrants exercised, for shares in exchange for cash of $ | |
| d) | shares issued through a crowdfunding campaign with other investors in exchange for net cash of
$ |
| - 24 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 14. | STOCKHOLDERS’ EQUITY (Continued) |
Common Stock (Continued)
| e) | shares issued to employees and consultants, recognized as compensation expense, fair valued at
$ per share, for a total fair value of $ | |
f) | shares issued to Streeterville Capital, LLC as commitment shares pursuant to the SPA, fair valued at $ | |
| g) | shares issued in June 2025 to employees or consultants via stock awards, recognized as compensation
expense, for a total of $ | |
| h) | shares issued to a consultant via stock awards, recognized as deferred offering costs, fair valued
at $ per share, for a total of $ | |
| i) | shares issued with a consultant as settlement of legal expenses incurred in prior periods, fair
valued at $ per share, for a total of $ |
| 15. | WARRANTS |
The following table summarizes the warrants outstanding for the six months ended June 30, 2025:
| Warrants Outstanding | Weighted Average Exercise Price | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | ||||||||||||||||
| BALANCE, DECEMBER 31, 2024 | $ | $ | $ | |||||||||||||||||
| Granted | ||||||||||||||||||||
| Exercised | ( | ) | - | - | ||||||||||||||||
| Cancelled/Expired | ( | ) | - | - | ||||||||||||||||
| BALANCE, JUNE 30, 2025 | $ | $ | $ | |||||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $ for the Company’s common shares on June 30, 2025 and the closing stock price of $ for the Company’s common shares on December 31, 2024.
| - 25 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 16. | 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
| Share Options Outstanding | Weighted Average Exercise Price | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | ||||||||||||||||
| BALANCE, DECEMBER 31, 2024 | $ | $ | $ | |||||||||||||||||
| Exercised | ( | ) | - | - | ||||||||||||||||
| Canceled/Expired | ( | ) | - | |||||||||||||||||
| BALANCE, JUNE 30, 2025 | $ | $ | $ | |||||||||||||||||
| EXERCISABLE, JUNE 30, 2025 | $ | $ | $ | |||||||||||||||||
| Nonvested Share Options | Weighted Average Exercise Price | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | ||||||||||||||||
| BALANCE, DECEMBER 31, 2024 | $ | $ | $ | |||||||||||||||||
| Vested | ( | ) | ||||||||||||||||||
| Canceled/Expired | ( | ) | - | - | ||||||||||||||||
| BALANCE, JUNE 30, 2025 | $ | $ | $ | |||||||||||||||||
| - 26 - |
ARRIVE AI INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
| 16. | EQUITY INCENTIVE PLAN (Continued) |
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying share options and the closing stock price of $ for the Company’s common shares on June 30, 2025 and the closing stock price of $ for the Company’s common shares on December 31, 2024.
There were options granted during the six months ended June 30, 2025. As of June 30, 2025, there was $ 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 three and six months ended June 30, 2025 and June 30, 2024 was $ and $ and $ and $, respectively. During the six months ended June 30, 2025 there were 1,094 options exercised in a cashless exchange for 690 shares.
| 17. | RESEARCH AND DEVELOPMENT TAX CREDITS |
The Company qualifies as a small business under Internal Revenue Code Section 41(h) and has elected to apply a portion of its federal research and development (R&D) credit against the employer portion of Social Security payroll taxes, in accordance with IRS Form 6765.
As of June 30, 2025, the Company had
$
| 18. | SUBSEQUENT EVENTS |
On July 2, 2025, subsequent to the end of the reporting period, Congress enacted the Taxpayer Fairness and Growth Act of 2025, which includes significant amendments to the Internal Revenue Code. Key provisions include:
| ● | A reduction in the federal corporate income tax rate from |
| ● | Limitations on the deductibility of certain interest and R&D expenses; |
| ● | Modifications to the foreign-derived intangible income (“FDII “) and global intangible low-taxed income (“GILTI”) regimes. |
The Company is currently evaluating the impact of the legislation on its consolidated financial statements, including deferred tax assets and liabilities. Because the enactment occurred after the end of the reporting period and before issuance of these financial statements, the effects have not been recognized in the accompanying condensed consolidated financial statements as of and for the period ended June 30, 2025, consistent with ASC 740 and ASC 855.
The Company expects the corporate rate reduction to have no material impact on its effective tax rate beginning in fiscal 2026. However, remeasurement of deferred tax balances and the application of new limitations may result in non-cash tax charges in future periods. The Company will continue evaluating the impact and recognize any required adjustments in the period of enactment.
On July 28, 2025 the Company’s resale registration statement on Form S-1 was declared effective by the SEC registering up to shares of common stock for resale by selling shareholders. This includes shares issuable under the Steeterville Purchase Agreement, shares issuable upon exercise of warrants ( of which have since expired), and shares issued after the initial registration.
On August 11, 2025, the Company entered into a Pre-Paid Purchase No. 2 with Streeterville (the “Pre-Paid Purchase
No. 2”) pursuant to the Streeterville Purchase Agreement dated March 21, 2025. Under the Pre-Paid Purchase No. 2, the Investor paid
$
| - 27 - |
Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited financial statements and the notes presented herein included in this Form 10-Q and the audited financial statements and the other information set forth in the Prospectus that forms a part of our Registration Statement on Form S-1 (File No. 333-284042) which was filed with the Securities and Exchange Commission on December 23, 2024 and amended on Form S-1/A on May 13, 2025. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties.
Company Overview
Arrive AI pioneered the smart mailbox for drone deliveries, evolving into a leader in the Autonomous Last Mile (“ALM”). Today, we’re transforming last-mile logistics by enabling secure, seamless exchanges between drones, robots, and people. Our mission is to connect these systems through a universal ALM network of Arrive Points™—smart lockers and mini-cross-docks—powered by an AI-driven ALM platform. This network unlocks exceptional efficiency, accelerating adoption in medical, retail, e-commerce, and beyond, making Arrive AI the intelligent choice for the final inch of automated delivery.
Our patented Arrive Points™ deliver a smart, secure, and seamless solution for automated last-mile delivery. These innovative docks streamline exchanges by eliminating manual intervention and technical barriers, ensuring efficient data validation and synchronization. With robust security, precise tracking, and support for diverse goods—including temperature-controlled options for food and medicine—Arrive Points enhance chain of custody and product integrity. By bridging physical and digital interfaces, they are paving the way for scalable, fully autonomous delivery networks.
We expect to have three primary revenue streams:
1. The Company is currently generating revenue through subscription services for Arrive Points, along with installation, support, and infrastructure agreements with customers. We provide our ALM Access Points to both businesses and consumers through monthly and annual subscription fees. This turnkey service includes hardware, software, support, maintenance, installation/uninstallation, and financing for long-term deployed assets. In Q4 of 2024 we installed third generation Arrive Points (“AP3” units), which began revenue operation in 2025.
2. Data monetization via models and insights generated by machine learning and artificial intelligence (“ML” and “AI”). Machine learning facilitates our systems’ ability to learn and improve from experience using data patterns, while artificial intelligence encompasses broader capabilities and models to simulate human intelligence and decision-making. We plan to use both technologies distinctly:
a. Machine learning: Primarily deployed in our fourth and fifth generation Access Points (“AP4” and “AP5” units) for local IoT (Internet of Things) data processing, edge computing (inferencing) for environment and transactional models, and interactions models for drones and robots.
b. Artificial intelligence: Used more broadly to analyze and derive insights from our network’s transactional and environmental data through complex AI models, but we will also leverage foundational AI models like ChatGPT or LAMA for device-based human interactions.
3. Operational platform fees. Our network of Access Points, the supporting software and AI plus ML, collectively create a platform that is intended to provide valuable services and insights to all stakeholders in the ALM ecosystem. For example, our automated delivery marketplace (“ADM”) will use a Google-AdSense-like market to help prioritize and optimize high-demand access schedules and space availability for our access point network. This platform will provide a broad array of critical functions for the ALM ecosystem including arrival/departure scheduling, space optimization, smart delivery notifications, micro weather conditions, local restrictions, transactional status updates, and automation issues/obstacles. These advanced capabilities will be introduced in our AP5 development and pilot program currently in development.
We differentiate ourselves through a comprehensive, integrated solution:
● Universal Compatibility: Our multi-generational Arrive Points (AP3, AP4, AP5) are being developed for universal support of all drone and robotic delivery systems, overcoming a major hurdle for widespread ALM adoption.
● End-to-End Solution: We combine advanced hardware with a powerful software platform and AI/ML capabilities, offering a complete ecosystem for automated exchange.
● Early Market Penetration: We have already secured pilot programs with significant customers, including a specialty pharmaceutical delivery company, demonstrating early validation and learning opportunities for sustainable economics.
| - 28 - |
Recent Developments
Hancock Health Deployment
On May 19, 2025, we announced a two-year agreement to deploy patented Arrive Points at Hancock Health, a regional hospital located in Greenfield, Indiana. Under this agreement, Arrive Points will serve as a reliable, chain-of-custody compliant hub for the drop-off and pickup of biospecimens from the cancer center. The first deployment installed two third generation Arrive Points (“AP3”) in conjunction with ground robots in a single route. Initial revenue was recorded in this quarter for the engineering, development and consulting on the project. Recurring subscription service for access to the Arrive network and rolling robots began in August 2025. Additional delivery routes, including drone operations, are being evaluated for expansion in future stages.
Go2Delivery Partnership
On May 20, 2025, we announced a partnership with Go2 Delivery, a Virginia-based courier, to autonomously deliver high-risk, high-value specialty pharmacy products using Arrive AI technology. Go2 Delivery is rolling out Arrive Points initially in Virginia Beach, Virginia. The companies have been testing the process for several months, with the initial units delivered in 2024. We recognized revenue this quarter from the installation of the units and began subscription revenue service in April 2025.
Patents Issued
On June 10, 2025, we announced the issuance of a new U.S. patent. The new patent (US12304671B2) is for the Arrive Points’ ability to heat and cool items on demand and brings our total issued U.S. patents to eight.
Skye Air Mobility Partnership
On June 24, 2025, we announced a new global customer, Skye Air Mobility. Skye Air is India’s dominant and rapidly expanding hyperlocal drone delivery platform, making about 6,000 deliveries per day. Under the terms of the agreement, the two companies will collaborate to deploy up to 500 Arrive Points in India, including the capital of New Delhi. The first Arrive Point units are expected to be delivered to Skye Air by the end of 2025.
Filing of S-8 Registration Statement
On June 13, 2025, we filed a registration statement on Form S-8 to register 1,500,000 shares of common stock, which includes (i) 886,799 shares which may be issued under the Company’s 2023 Equity Incentive Plan (the “2023 Plan”), and (ii) 613,201 shares that may be issued upon exercise of outstanding options granted under the 2023 Plan. The 2023 Plan was adopted by the Company’s board of directors on April 27, 2023, and approved by Daniel S. O’Toole, the Company’s majority shareholder, on April 27, 2023.
Issuance of Shares Under the Equity Incentive Plan
From June 19, 2025 through July 18, 2025, we issued 36,079 fully vested shares under the 2023 Plan to employees, directors, and consultants. A total of 25,932 shares were issued to independent Directors, 4,111 shares were issued to employees, and 6,036 shares were issued to advisors and consultants.
Effectiveness of S-1 Registration Statement
On July 28, 2025, our resale registration statement was declared effective by the SEC registering up to 8,125,779 shares of common stock for resale by selling shareholders. This includes 8,000,000 shares under the Streeterville Purchase Agreement, 114,421 shares issuable upon exercise of outstanding warrants (6,680 of which have since expired), and 11,358 shares issued after the effectiveness of our registration statement on Form S-1 in connection with our direct listing.
| - 29 - |
Results of Operations
Comparison of the Three Months Ended June 30, 2025, and June 30, 2024
Revenues:
| Three Months Ended June 30, | $ | % | |||||||||||||
| 2025 | 2024 | Change | Change | ||||||||||||
| Consulting services | $ | 89,000 | $ | - | $ | 89,000 | NM | % | |||||||
| Installation | 1,500 | - | 1,500 | NM | |||||||||||
| Subscription | 225 | - | 225 | NM | |||||||||||
| $ | 90,725 | $ | - | $ | 90,725 | NM | % | ||||||||
During the three months ended June 30, 2025, we recognized total revenues of $90,725. Of this, $89,000 was for design and consulting services, $1,500 for installation fees, and $225 for monthly subscriptions. Consulting services, and installation fees are typically project-based and non-recurring in nature. Subscription services are recurring and paid either up-front or monthly for an annual term. We anticipate these revenue streams to continue in future quarters while we develop new revenue models for the autonomous delivery marketplace and AI data insight monetization.
As a development stage company, during the three months ended June 30, 2024, we had no revenues. Percentage change from the prior year period is therefore not meaningful (“NM”).
Operating Expenses:
| Three Months Ended June 30, | $ | % | ||||||||||||||
| 2025 (Restated) | 2024 | Change | Change | |||||||||||||
| General and administrative | $ | 3,474,059 | $ | 803,311 | $ | 2,670,748 | 332 | % | ||||||||
| Research and development | 293,468 | 452,538 | (159,070 | ) | (35 | ) | ||||||||||
| Sales and marketing | 49,602 | 226,289 | (176,687 | ) | (78 | ) | ||||||||||
| $ | 3,817,129 | $ | 1,482,138 | $ | 2,334,991 | 158 | % | |||||||||
Our second quarter results reflect continued investment in product development and marketing activities. This quarter’s general and administrative expenses include one-time costs related to the direct listing and financing transaction.
General and administrative expenses increased by $2,670,748 for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024. Primary components of general and administrative expenses were:
| ● | Salaries and benefits in total were $2,726,090, an increase of $2,122,872 from the prior year period. This was driven by $1,866,531 one-time success bonuses paid upon completion of the public listing in May 2025, and higher stock-based compensation in the period. | |
| ● | Excluding the one-time bonus costs, base salaries for the period were $167,127, a reduction of $77,088 from the same period in the prior year due to vacancies. | |
| ● | Stock-based compensation for the period was $684,479, an increase of $325,478 from the same period in the prior year. | |
| ● | Legal and professional service fees were $511,439, an increase of $433,855 from the same period in the prior year due to higher spend on legal fees related to the direct listing ($249,875), investor relations ($65,815), consulting services ($47,440), transfer agent fees ($18,769) and patent expenses ($15,131). | |
| ● | Insurance expense was $54,495, an increase of $38,251 from the same period in the prior year, due to higher directors and officers insurance premiums. |
| - 30 - |
Research and Development expenses were $293,468 for the three months ended June 30, 2025, a decrease of $159,070 as compared to the same period in the prior year. This is due to the timing of vendor engineering projects (lower by $345,845), offset by higher independent contractor spend ($68,525) and one-time success bonuses for independent contractors ($118,250).
Marketing expenses were $49,602 for the three months ended June 30, 2025, a decrease of $176,687 from the same period in the prior year. The decrease is due to one-time expenses in the prior year period for television advertising ($200,000), offset by higher travel and miscellaneous expenses in the current quarter.
Other Income/Expenses:
| Three Months Ended June 30, | $ | % | ||||||||||||||
2025 (Restated) | 2024 | Change | Change | |||||||||||||
| Other income | $ | 43,151 | $ | 24,089 | $ | 19,062 | 79 | % | ||||||||
| Interest expense and bank charges | (168,080 | ) | (1,053 | ) | (167,027 | ) | 15,862 | |||||||||
| Change in fair value of derivative liabilities | 190,000 | - | 190,000 | NM | ||||||||||||
| Amortization of debt discount | (27,738 | ) | - | (27,738 | ) | NM | ||||||||||
| $ | 37,333 | $ | 23,036 | $ | 14,297 | 62 | % | |||||||||
Other income for the three months ended June 30, 2025 was $43,151. Income was recognized from payroll tax refunds earned under the federal R&D tax credit program of $42,857, and interest income of $294.
Interest expense of $168,080 was comprised primarily of immediate expensing of the debt issuance costs associated with the bifurcated derivative of $164,013, the amortization of the debt issue costs on the Streeterville convertible note of $1,856, and other miscellaneous interest of $2,211.
During the three months ended June 30, 2024, we recognized income from the Indiana EDGE tax credit of $24,089 and no federal R&D tax refunds. Interest expense for the prior-year period was $1,053.
Change in fair value of derivative liabilities resulted in a non-cash gain of $190,000 for the three months ended June 30, 2025, with no comparable amount in 2024. The embedded conversion feature of the convertible note was bifurcated as a derivative liability at issuance under ASC 815. Each derivative is remeasured at fair value using a Monte Carlo simulation model at each reporting and conversion date, with changes recognized in earnings. The gain reflects the decline in the Company’s stock price from issuance, which reduced the expected value of the noteholder’s conversion optionality.
Amortization of debt discount resulted in a non-cash charge of $27,738 in the three months ended June 30, 2025, with no comparable amount in 2024, representing effective interest method amortization of the combined discount on the host convertible note instruments, consisting of original issue discount, the fair value of each bifurcated derivative at issuance, and allocable debt issuance costs, over the estimated three-year expected term of the note.
Comparison of the Six Months Ended June 30, 2025, and June 30, 2024
Revenues:
During the six months ended June 30, 2025, we recognized total revenues of $90,725. Of this, $89,000 was for design and consulting services, $1,500 for installation fees, and $725 for monthly subscriptions.
As a development stage company, during the six months ended June 30, 2024, we had no revenues.
Operating Expenses:
| Six Months Ended June 30, | $ | % | ||||||||||||||
2025 (Restated) | 2024 | Change | Change | |||||||||||||
| General and administrative | $ | 5,369,038 | $ | 1,604,242 | $ | 3,764,796 | 235 | % | ||||||||
| Research and development | 384,731 | 540,939 | (156,208 | ) | (29 | ) | ||||||||||
| Sales and marketing | 57,263 | 252,746 | (195,483 | ) | (77 | ) | ||||||||||
| $ | 5,811,032 | $ | 2,397,927 | $ | 3,413,105 | 142 | % | |||||||||
Our first half results reflect continued investment in product development and marketing activities. General and administrative expenses include one-time costs related to the direct listing and financing transaction.
General and administrative expenses increased by $3,764,796 for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024. Primary components of general and administrative expenses were:
| ● | Salaries and benefits in total increased by $4,020,908 from the prior year period. This was driven by $1,866,531 one-time success bonuses paid upon completion of the public listing in May 2025. |
| - 31 - |
| ● | Excluding the one-time bonus costs, base salaries for the period were $399,186, a reduction of $96,817 from the same period in the prior year due to vacancies. | |
| ● | Stock-based compensation for the period was $2,032,723, an increase of $1,427,108 from the same period in the prior year. | |
| ● | Legal and professional service fees were $711,641, an increase of $459,140 from the same period in the prior year due to higher spend on legal fees related to the direct listing ($249,875), investor relations ($65,815), compensation consulting ($47,440), transfer agent ($26,589) and higher patent expenses ($27,540). | |
| ● | Insurance expense was $74,631, an increase of $39,360 from the same period in the prior year, due to higher directors and officers insurance premiums. |
Research and Development expenses were $384,731 for the six months ended June 30, 2025, a decrease of $156,208 as compared to the same period in the prior year. This is due to the timing of vendor engineering projects (lower by $387,864), offset by higher independent contractor spend ($113,406) and one-time success bonuses for independent contractors ($118,250).
Marketing expenses were $57,263 for the six months ended June 30, 2025, a decrease of $195,483 from the same period in the prior year. The decrease is due to one-time expenses in the prior year period for television advertising ($200,000), offset by higher travel and miscellaneous expenses in the current quarter.
Other Income/Expenses:
| Six Months Ended June 30, | $ | % | ||||||||||||||
2025 (Restated) | 2024 | Change | Change | |||||||||||||
| Other income | $ | 60,066 | $ | 24,089 | $ | 35,977 | 149 | % | ||||||||
| Interest expense and bank charges | (169,257 | ) | (2,017 | ) | (167,240 | ) | 8,292 | |||||||||
| Change in fair value of derivative liabilities | 190,000 | - | 190,000 | NM | ||||||||||||
| Amortization of debt discount | (27,738 | ) | (27,738 | ) | NM | |||||||||||
| $ | 53,071 | $ | 22,072 | $ | 30,999 | 140 | % | |||||||||
Other income for the six months ended June 30, 2025 was $60,066. Income was recognized from payroll tax refunds earned under the federal R&D tax credit program of $42,857, state tax refund from the EDGE credit of $16,915, and interest income of $294.
Interest expense of $169,257 was comprised primarily of immediate expensing of the debt issuance costs associated with the bifurcated derivative of $164,013, the amortization of the debt issue costs on the Streeterville convertible note of $1,856, and other miscellaneous interest of $3,388.
Change in fair value of derivative liabilities resulted in a non-cash gain of $190,000 for the six months ended June 30, 2025, with no comparable amount in 2024. The embedded conversion feature of the convertible note was bifurcated as a derivative liability at issuance under ASC 815. Each derivative is remeasured at fair value using a Monte Carlo simulation model at each reporting and conversion date, with changes recognized in earnings. The gain reflects the decline in the Company’s stock price from issuance, which reduced the expected value of the noteholder’s conversion optionality.
Amortization of debt discount resulted in a non-cash charge of $27,738 for the six months ended June 30, 2025, with no comparable amount in 2024, representing effective interest method amortization of the combined discount on the host convertible note instruments, consisting of original issue discount, the fair value of each bifurcated derivative at issuance, and allocable debt issuance costs, over the estimated three-year expected term of the note.
During the six months ended June 30, 2024, we recognized income from the Indiana EDGE tax credit of $24,089 and no federal R&D tax refunds. Interest expense for the prior-year period was $2,017.
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, and the Streeterville Purchase Agreement. As of June 30, 2025, our cash was $607,496. This represents an increase of $478,178 from $129,318 on hand at the end of the prior fiscal year. Proceeds from the sales of common stock and the convertible note were used to fund general operating expenses, including salaries, professional services and research and development expenses. Cash flow was also impacted by significant one-off expenditures related to the public listing, as described in the discussion of operating expenses.
Cash Flow and Liquidity
| Six Months Ended June 30, | $ | % | ||||||||||||||
| 2025 | 2024 | Change | Change | |||||||||||||
| Net cash provided by (used in): | ||||||||||||||||
| Operating activities | $ | (3,799,494 | ) | $ | (1,353,985 | ) | $ | (2,445,509 | ) | (181 | )% | |||||
| Investing activities | (47,827 | ) | - | (47,827 | ) | - | ||||||||||
| Financing activities | 4,325,499 | 1,197,328 | 3,128,171 | 261 | ||||||||||||
| Net increase (decrease) in cash | $ | 478,178 | $ | (156,657 | ) | $ | 634,835 | (405 | )% | |||||||
| - 32 - |
Operating Activities (Restated)
Net cash used in operating activities was $3,799,494 for the six months ended June 30, 2025, compared to $1,353,985 for the same period in 2024. The increase in cash outflows of $2,445,509 was primarily due to our net loss of $5,667,236 and the change in fair value of derivative liabilities of $190,000, offset by non-cash items of stock-based compensation expense of $2,032,723, depreciation and amortization expense of $17,118, the amortization of a discount on the convertible debt of $27,738, and amortization of debt issuance costs of $165,869.
Other working capital movements in the period resulted in a net cash outflow of $185,706, primarily due to an increase in prepaid expenses of $141,431, accounts receivable of $89,075, and a reduction of accrued liabilities of $27,245. This outflow was partially offset by increases in accounts payable of $61,131 and the credit card payable of $9,943.
For the six months ended June 30, 2024, operating cash flow was comprised of our net loss of $2,375,855, offset by non-cash items of stock-based compensation expense of $605,615 and depreciation and amortization of $14,469. Working capital movements in the prior-year period resulted in net cash inflows of $401,786 due to an increase in accounts payable of $344,817, accrued liabilities of $85,136 offset by outflows due to prepaid expenses ($3,381) and the credit card payable ($24,786).
Investing Activities
Net cash used for investing activities was $47,827 for the six months ended June 30, 2025. This was due to an increase in fixed assets for new Arrive Points placed into service or waiting final installation. No production Arrive Point units or other fixed assets were recorded during the six months ended June 30, 2024.
Financing Activities (Restated)
Net cash provided by financing activities was $4,325,499 for the six months ended June 30, 2025. On May 15, 2025, we closed the initial pre-paid purchase under the Streeterville Purchase Agreement, resulting in proceeds from issuance of convertible debt of $4,000,000. We received net proceeds of $444,360 from other sales of common stock and $573,896 from exercise of outstanding warrants, prior to the direct listing. These cash inflows were offset by payments made on an outstanding note payable of $4,187 and payments for deferred offering costs of $688,570.
For the six months ended June 30, 2024, net cash provided by financing activities was $1,197,328, which included $1,201,233 from sales of common stock, offset by payments made on the note payable of $3,905.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is not required to provide the information required by this Item because it is a “smaller reporting company.”
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10Q/A, we carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2025, our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting described below.
Management identified a material weakness in internal control over financial reporting related to the identification, evaluation, and accounting for certain embedded conversion features that should have been bifurcated from the related host instruments and accounted for as derivative liabilities at fair value in accordance with ASC 815, and the accretion of original issue discount and debt issuance costs associated with the host instruments using the effective interest method over the appropriate accretion period. As a result of this material weakness, management concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2025.
Remediation Plan for the Material Weakness
Management is in the process of implementing remediation measures to address the material weakness discovered in connection with the preparation of this Form 10-Q/A, including enhancing its accounting review procedures for complex financial instruments, engaging additional external resources with expertise in derivative valuations, internal procedures to evaluate accounting treatment under ASC 815, and strengthening its controls around the review and approval of significant accounting estimates and elections. Management may determine to take additional measures to address the material weakness or modify the remediation efforts described above. The material weakness will be considered remediated after applicable controls operate for a sufficient period of time, and management has concluded that the controls are effective.
Changes in Internal Controls over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) was identified in the evaluation required by Rule 13a-15(d) or 15d-15(d) under the Exchange Act during the quarter ended June 30, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| - 33 - |
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, Arrive AI Inc. (the “Company) 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. 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. 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 demand includes 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.
| - 34 - |
Item 1A. Risk Factors
As a smaller reporting company under Rule 12b-2 of the Exchange Act, the Company is not required to provide risk factors in this report. For our current risk factors relating to our operations see the section entitled “Risk Factors” contained in our Registration Statement on Form S-1 filed with the SEC on December 23, 2024, and amended Form S-1/A filed with the SEC on May 13, 2025.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
| - 35 - |
Item 5. Other Information
On August 11, 2025, the Company entered into a Pre-Paid Purchase No. 2 with Streeterville (the “Pre-Paid Purchase No. 2”) pursuant to the Streeterville Purchase Agreement dated March 21, 2025. Under the Pre-Paid Purchase No. 2, the Investor paid $4,000,000 to the Company, representing the purchase price for an unsecured promissory note with an original principal balance of $4,320,000, which included a $320,000 original issue discount. The instrument bears interest at 8% per annum, compounded daily, and permits the Investor, at its discretion, to apply amounts outstanding toward the purchase of shares of common shares of the Company (“Purchase Shares”) at the lesser of (i) the initial listing reference price on the Company’s common stock on the Nasdaq Global Market, or (ii) 90% of the lowest VWAP over the ten trading days prior to a purchase notice (but not below a $0.25 floor). The issuance of Purchase Shares is subject to a 9.99% beneficial ownership limitation and must be free-trading under an effective registration statement or exemption. The Company may prepay amounts at 115% of the principal being repaid with five trading days’ notice, subject to restrictions, and is obligated to make monthly $550,000 cash repayments (plus accrued interest) upon certain “trigger” events, including sustained price declines below the floor price of $0.25 per share or the share issuance nearing the threshold above which shareholders’ approval is required under the exchange rules. Streeterville may accelerate the Company’s obligation to pay, with default interest at 15% and all outstanding balance becoming immediately due and payable in cash, upon the occurrence of certain events of default include nonpayment, insolvency, covenant breaches, and certain corporate transactions. The Company closed this Pre-Paid Purchase No. 2 on August 11, 2025, and received $4,000,000 in proceeds. The foregoing description of the Pre-Paid Purchase No. 2 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 quarterly report on Form 10-Q.
Maxim Group LLC (“Maxim”) acted as placement agent for the Pre-Paid Purchase No. 2 and will receive a cash fee equal to 6.0% of the gross proceeds received by us in connection with this transaction. Maxim will also receive a cash fee equal to 6.0% of the gross proceeds from any future pre-paid purchases made pursuant to the Streeterville Purchase Agreement.
Item 6. Exhibits
The following exhibits are filed as part of this Report.
EXHIBIT INDEX
| * | Filed herewith |
| ** | Submitted electronically herewith. Attached as Exhibit 101 are the following materials from Quarterly Report on Form 10-Q for the quarter ended June 30, 2025, formatted in Inline eXtensible Business Reporting Language (“iXBRL”): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Equity; (iv) the Condensed Consolidated Statements of Cash Flows; (v) notes to these Condensed Consolidated Financial Statements; and (vi) the Cover Page to Quarterly Report on our Form 10-Q. |
| - 36 - |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: April 15, 2026 | ARRIVE AI INC. |
| /s/ Todd Pepmeier | |
| Todd Pepmeier | |
| Chief Financial Officer | |
| (On behalf of the Registrant and as principal financial officer) |
| - 37 - |