Quarterly Report for Quarter Ending March 31, 2025 (Form 10-Q)

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.

Recent Developments

Effectiveness of S-1 Registration Statement

On May 13, 2025, the Company's S-1 Registration Statement was declared effective, registering 29,978,212 shares of our common stock representing one hundred percent (100%) of the company's currently issued and outstanding common stock.

Initial Trading on Nasdaq Global Market

On May 15, 2025, the Company's common stock began trading on the Nasdaq Global Market under the ticker "ARAI".

Closing of Equity Line of Credit

On May 15, 2025, the Company closed a financing agreement with an investor. Per the terms of the agreement, the investor transferred $4,000,000 as the initial pre-paid advance. Shares to be issued under the share purchase agreement are included on a resale registration statement filed with the SEC.

New Independent Board Member

On June 2, 2025, the Company named Laurie Tucker as a new independent member of the Board of Directors. Ms. Tucker will serve an initial three-year term and also be the Chairperson of the Compensation Committee.

Results of Operations

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

		Three Months Ended March 31,								$				%
		2025				2024				Change				Change
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and wages - office		$	1,583,937			$	498,401			$	1,085,536				218	%
Legal and professional fees			200,201				174,916				25,285				14
Research and development			91,263				88,401				2,862				3
Licensing fee			30,000				30,000				-				-
Office supplies and software			22,154				26,741				(4,587	)			(17	)
Insurance			20,137				19,027				1,110				6
Rent			17,550				13,150				4,400				33
Taxes and licenses			9,651				23,193				(13,542	)			(58	)
Depreciation and amortization			7,391				7,255				136				2
Interest			321				461				(140	)			(30	)
All Other General and Administrative Expenses			11,622				34,704				(23,082	)			(67	)
Total general and administrative expenses		$	1,994,227			$	916,249			$	1,077,978				118	%
OTHER INCOME (EXPENSES)
Other income			16,915				-				16,915				-
Miscellaneous expense			(853	)			(504	)			(349	)			69
Total other income (expenses)		$	16,062			$	(504	)		$	16,566				3,287	%
NET LOSS BEFORE TAXES		$	(1,978,165	)		$	(916,753	)		$	(1,061,412	)			116	%
Provision for Income Taxes			-				-				-				-
NET LOSS		$	(1,978,165	)		$	(916,753	)		$	(1,061,412	)			116	%

Key Components of Our Results of Operations

Our first quarter results reflect continued investment in our products and services. Operating expenses were higher than the same period in 2024, due mainly to higher compensation expenses in the quarter.

Salaries and wages were higher by $1,085,536 (218%) compared to the same period in 2024. Base wages were lower by $16,097 (6%) due to fluctuations in the full-time workforce. Stock-based compensation increased $1,101,633, as the Company used equity instead of cash as compensation for services.

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

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

Rent expense was higher by $4,400 compared to the prior year period. In April 2024, the Company moved to a new, larger office space resulting in higher monthly rent expense.

Taxes and license expense was lower by $13,542 in the period, due mainly to lower payroll taxes. The Company deferred certain salaries and wages in the period, including the associated payroll taxes, to extend liquidity prior to closing the direct listing. These payroll taxes were accrued in salaries and wages.

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

Liquidity and Capital Resources

Our primary source of liquidity is cash on hand. As of March 31, 2025, our cash totalled $295,368. This represents an increase of $166,050 from the $129,318 on hand at the end of the prior fiscal year. This increase was primarily attributable to net proceeds received from the sales of stock totalling $717,628. These proceeds were used to fund general operating expenses, including salaries, professional services and research and development expenses.

Cash Flow and Liquidity

		Three Months Ended March 31,								$				%
		2025				2024				Change				Change
Net cash provided by (used in):
Operating activities		$	(546,671	)		$	(602,477	)		$	55,806				9	%
Investing activities			(2,832	)			-				(2,832	)			-
Financing activities			715,553				772,423				(56,870	)			(7	)
Net increase (decrease) in cash		$	166,050			$	169,946			$	(3,896	)			(2	)%

Operating Activities

Net cash used in operating activities was $546,671 for the three months ended March 31, 2025, compared to $602,477 for the same period in 2024. The decrease in cash outflows was primarily due to higher use of stock-based compensation in lieu of cash payments to employees, contractors and advisors. Stock-based compensation in the period increased by $1,101,633 compared to the same period in 2024, while the net loss was $1,061,412 higher compared to the prior year period, resulting in a net operating cash flow improvement of $40,221.

Changes in net operating assets and liabilities resulted in a net inflow of $75,858 in the period. This was primarily driven by increases in accrued liabilities ($133,468), prepaid expenses ($7,081), other current assets ($1,412), and credit card payable ($159), offset by a reduction of accounts payable of $66,262. The increase in accrued liabilities was due to an increase of deferred salaries and wages of $113,716 in the period and deferral of licensing fee payments of $20,000.

In the prior-year period, changes in net operating assets and liabilities resulted in a net inflow of $60,409. This was primarily driven by an increase in accrued liabilities ($87,676) and prepaid expenses ($4,377), offset by reductions in accounts payable ($3,554), and credit card payable ($28,090).

Non-cash adjustments to reconcile net loss to cash used in operating activities for the current period included depreciation and amortization of $7,391, compared to $7,255 for the prior year period.

Investing Activities

Net cash used for investing activities was $2,832 in the period. This was due to an increase in construction in progress for final installation costs related to an Arrive Point asset deployed to a customer location.

Financing Activities

Net cash provided by financing activities was $715,553 in the period. This was due to new equity issuances and conversion of outstanding warrants. Funds raised through a crowdfunding campaign included new gross equity investment ($288,002), a net release of funds from prior crowdfunding issuances ($40,219), offset by funding costs associated with the campaign ($59,468), resulting in new funds from crowdfunding of $268,753.

The Company also issued new shares to accredited investors for net proceeds of $152,000, and to an existing investor in exchange for a warrant conversion, resulting in net proceeds of $296,875. Payments made on an outstanding note for the company cargo van totalled $2,075 in the period.