Item 1A. Risk Factors
An investment in our common stock involves a high degree of risk. You should carefully consider the following risks, together with all other information contained in this Annual Report on Form 10-K, including our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If any of the following risks occur, our business, financial condition, results of operations, and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose all or part of your investment. These risks are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially affect our business, financial condition, results of operations and prospects.
Summary of Risk Factors
The following is a summary of the principal risks that could adversely affect our business, financial condition, results of operations, and the market price of our common stock. This summary does not contain all of the information that may be important to you. You should read it together with the full discussion of each risk factor set forth below, as well as our financial statements and related notes and the other information contained in this Annual Report on Form 10-K.
Risks Related to Our Early-Stage Commercial Operations and Financial Condition
We are an early-stage commercial company with a limited operating history and a history of losses.
We have experienced negative operating cash flow and will require additional capital.
We will need to raise substantial additional funds in the future, which funds may not be available or, if available, may not be available on acceptable terms.
Raising additional capital may directly or indirectly cause dilution to our existing stockholders or restrict our commercial operations.
We are highly dependent on our management team, and the loss of key personnel could materially adversely affect our business.
Our insurance coverage may not adequately protect us against future operating risks.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.
Product development is a long, expensive and uncertain process.
Rapid technological changes may adversely affect the market acceptance of our products and services and could adversely affect our business, financial condition and results of operations.
We may face competition from other Smart Mailbox for Automation companies, many of which have substantially greater resources.
If the drone and mobile robot automated delivery and pickup services do not experience significant growth, if we cannot create and expand our customer base, or if our products and these services do not achieve broad acceptance, then we may not be able to achieve our anticipated level of growth.
If our marketing efforts are unsuccessful, we may not generate sufficient revenue to become profitable.
Risks Related to the Streeterville Purchase Agreement
Triggering Events May Require Substantial Monthly Cash Repayments That Could Materially Impair Our Liquidity.
We may not have access to the full $40 million commitment pursuant to the securities purchase agreement with Streeterville Capital, LLC.
Repayment mechanics could result in substantial dilution and downward pressure on our stock price.
Hedging or other market activities may adversely affect our stock price.
Risks Related to Intellectual Property and Related-Party Arrangements
Our business depends on intellectual property licensed from our Chief Executive Officer.
We may become reliant on our intellectual property; failure to protect our intellectual property could negatively affect our business, financial condition or results of operations.
We may be forced to litigate to defend our intellectual property rights, or to defend against claims by third parties against us relating to intellectual property rights.
Other companies may claim that we infringe their intellectual property, which could materially increase our costs and harm our ability to generate future revenue and profit.
We engage in related-party transactions with our officers, directors or significant stockholders that may create actual or potential conflicts of interest.
Risks Related to Our Technology, AI Initiatives, and SaaS Platform
Our commercial operations will be exposed to the risk of rapid technological advancements in the development and deployment of our products, which could render our existing infrastructure obsolete and adversely impact our financial performance.
The adoption, use, and commercialization of AI technology, and the continued rapid pace of developments in the AI field, are inherently uncertain. Failure by our potential customers to continue to adopt infrastructure to support AI use cases in their systems, or our ability to keep up with evolving AI infrastructure requirements, could have a material adverse effect on our business, financial condition, and results of operations.
We may not be successful in our artificial intelligence initiatives, which could adversely affect our business, reputation, or financial results.
We may face a shortage of talent or professionals with the appropriate experience and training in AI technology.
Our SaaS model exposes us to recurring revenue risks.
Product Development and Quality Control Risks
A significant failure or deterioration in our quality control systems could have a material adverse effect on our business and operating results.
We may experience physical breaches of security at our facilities; any security breaches could result in loss of sensitive information as well as loss as a result of any such breach.
Our technology may contain third-party open-source software components, third-party commercial software, and proprietary software that we develop in-house. Failure to comply with the terms of these underlying software licenses could restrict our ability to provide our offered products and services.
Failures in internet infrastructure or interference with internet or Wi-Fi access could cause prospective users to believe that our systems are unreliable, potentially leading our customers to decline to renew their subscriptions.
Risks Related to Third Parties and Supply Chain
The Company’s future performance depends in part on support from third-party software developers.
Our dependence on suppliers and service partners for the parts and components in our Arrive Points and for automation operational needs of our customers once we start conducting commercial operations.
If we or our future third-party service providers experience a security breach, or if unauthorized parties otherwise obtain access to our potential customers’ data, our reputation may be harmed, demand for services may be reduced, and we may incur significant liabilities.
For certain of the components and services included in our products there may be a limited number of suppliers we can rely upon and if we are unable to obtain these components and services when needed we could experience delays in the manufacturing of our products and delivering our services, and our financial results could be adversely affected.
We may pursue strategic transactions in the future, which could be difficult to implement, disrupt our business or change our business profile significantly.
Our software platform may be at risk of unexpected technical failure due to the unavailability of third-party information and infrastructure services such as communications, data processing, compute, software as a service (“SaaS”), and other information and infrastructure services or technical issues with our third party dependent data and software platform.
Risks Related to Information Systems, Privacy and Cybersecurity
A disruption of our information technology systems could impair our operations, harm our reputation, and have a material adverse effect on our business, financial condition and results of operations.
Cybersecurity threats and data breaches could result in unauthorized access to our systems and data, financial losses, reputational harm, legal liability, and disruption to our business.
We are subject to evolving and expanding privacy and data security laws and regulations. Compliance with these requirements is costly, and any failure to comply could result in material liability, regulatory penalties, and harm to our business.
Risks Related to Regulation and Compliance
Operating in highly regulated businesses requires significant resources.
The growth of our business will be subject to potential new and changing federal, state, and local laws and regulations.
Our support of automated delivery strategies and technologies by other companies using our smart mailboxes for automation is dependent upon our ability to successfully mitigate unique technological, operational, and regulatory risks.
We will be subject to rapidly changing and increasingly stringent laws, regulations, industry standards, and other obligations relating to privacy, data protection, and data security. The restrictions and costs imposed by these requirements, or our actual or perceived failure to comply with them, could harm our business and commercial operations.
We and our future third-party suppliers must comply with environmental, health and safety laws and regulations, which can be expensive and restrict how we do, or interrupt, our business.
Our future business partners and customers’ operation of drones and mobile robotics in work, campus, residential, suburban, and urban environments may be subject to regulation and operational risks, such as accidental collisions and transmission interference, which may limit demand for our smart mailbox service in such environments and harm our business and operating results.
The Company is subject to ongoing litigation and may be subject to more including securities litigation, which is expensive and could divert management attention, including securities class action and derivative lawsuits which could result in substantial costs.
Risks Related to Our Public Company Status and Common Stock
The public trading market may not continue to be liquid and the market price of our shares of common stock may be volatile.
You may be diluted by future issuances of preferred stock or additional common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.
Failure to maintain Nasdaq listing could harm us.
We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses or if we identify additional material weaknesses in the future, we may not be able to accurately or timely report our financial results, which could result in a loss of investor confidence and adversely affect our stock price.
There is substantial doubt about our ability to continue as a going concern. If we are unable to continue as a going concern, our stockholders would likely lose all or a substantial portion of their investment.
General Economic and Geopolitical Risks
Our growth and financial health are subject to a number of economic risks including extreme volatility in securities prices.
The ongoing conflict between Ukraine and Russia could adversely affect our business, consolidated financial condition, and results of operations.
Geopolitical conditions, including direct or indirect acts of war or terrorism, could have an adverse effect on our operations and financial results.
We may be exposed to the effects of changing energy prices, and interruptions in supplies of this commodity.
Risks Related to Our Early-Stage Commercial Operations and Financial Condition
We are an early-stage commercial company with a limited operating history and a history of losses.
We were founded in 2020 and began generating limited commercial revenue in 2025. For the twelve months ending December 31, 2025, we reported $113,250 in revenue. For fiscal years prior to 2025, we generated no revenue. We have incurred significant operating losses since inception and expect to continue incurring losses as we expand product development, sales, marketing, compliance, and infrastructure. Our limited operating history makes it difficult to evaluate our business model, predict future performance, and assess the long-term viability of our products and services.
We may not successfully scale our commercial operations, achieve sufficient market adoption, or generate sustainable revenue. If we fail to achieve profitability, the value of our business and our common stock could decline substantially. As a result of the foregoing, an investment in our common stock necessarily involves uncertainty about the stability of our operating results.
We have experienced negative operating cash flow and will require additional capital.
We have historically generated negative operating cash flow and may continue to do so. We had negative operating cash flow of $(8,253,348) for the twelve months ended December 31, 2025, and $(2,289,273) for the twelve months ended December 31, 2024. As of December 31, 2025, the Company had $2,104,004 cash on hand to support an average cash burn rate of approximately $1,000,000 per month. As discussed in the going-concern risk factor below and Note 4 to the financial statements, there is substantial doubt about our ability to continue as a going concern. Our business plan requires substantial capital expenditures, including product development, regulatory compliance, commercialization, hiring, and infrastructure buildout. If we cannot raise capital on acceptable terms, or at all, we may be required to delay or scale back operations, which could materially adversely affect our business. There can be no assurance that we will be able to generate positive cash flow from our operations, that additional capital or other types of financing will be available when needed or that these financings will be on terms to us.
We will need to raise substantial additional funds in the future, which funds may not be available or, if available, may not be available on acceptable terms.
Changing circumstances may cause us to consume capital more rapidly than we currently anticipate. The continued growth of our business, including the development, regulatory approval and commercialization of our products, will significantly increase our expenses going forward, regardless of our ability to generate revenue. As a result, we are required to seek substantial additional funds to continue our business and scale our commercial operations. Our future capital requirements will depend on many factors, including:
the cost of developing our products and services;
obtaining and maintaining regulatory clearance or approvals;
the costs associated with commercializing our products and services;
any change in our development priorities;
the revenue generated by sales of our products and services;
the costs associated with expanding our sales and marketing infrastructure for commercialization of our products and services;
any change in our plans regarding the manner in which we choose to commercialize any product or service in the United States or internationally;
the cost of ongoing compliance with regulatory requirements;
expenses we incur in connection with potential litigation or governmental investigations;
the costs to develop additional intellectual property;
anticipated or unanticipated capital expenditures; and
unanticipated general and administrative expenses.
We may need to raise additional funds in the future to support our commercial operations. If we are required to secure additional financing, such additional fundraising efforts may divert our management from our day-to-day activities. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be prevented from carrying out our business plan. This would have a material adverse effect on our business, financial condition and results of operations.
Raising additional capital may directly or indirectly cause dilution to our existing stockholders or restrict our commercial operations.
We may seek additional capital through a variety of means, including through equity, debt financings, or other sources. We may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences and anti-dilution protections that adversely affect your rights as a stockholder.
Such financing may also result in imposition of debt covenants, increased fixed payment obligations or other restrictions that may adversely affect our ability to conduct our business. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that are not favorable to us.
We are highly dependent on our management team, and the loss of key personnel could materially adversely affect our business.
Our success depends heavily on the continued services of our senior management team, particularly our Chief Executive Officer, who has been instrumental in developing our intellectual property, capital raising efforts, strategic partnerships, and operational leadership. We compete for highly skilled personnel in artificial intelligence, robotics, automation systems, SaaS development, cybersecurity, and emerging technologies. Competition for such talent is intense, and compensation costs may increase.
If we lose key personnel and are unable to replace them in a timely manner, our product development, customer relationships, strategic direction, and capital-raising efforts could suffer. Leadership transitions may also result in disruption, loss of institutional knowledge, reduced morale, and strategic uncertainty. The loss of the services of any senior executive or other key personnel, or the inability to recruit and retain qualified personnel in the future, could have a material adverse effect on our business, financial condition or results of operations. In addition, to attract and retain personnel with appropriate skills and knowledge to support our business, we may offer a variety of benefits, which could reduce our earnings or have a material adverse effect on our business, financial condition or results of operations.
Our insurance coverage may not adequately protect us against future operating risks.
We maintain insurance coverage that we believe is customary for companies at our stage, including general liability and directors’ and officers’ insurance. However, our policies contain exclusions and coverage limits that may not fully protect us from claims relating to product liability, cybersecurity incidents, intellectual property disputes, regulatory investigations, workplace incidents, or other operational risks.
Insurance coverage for emerging technology companies, including those operating in AI-enabled and automation-adjacent industries, may be expensive, limited, or unavailable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur such liability at a time when we are not able to obtain liability insurance, our business, results of operations and financial condition could be materially adversely affected. Additionally, the cost of insurance coverage may increase as our operations scale, and such increase may have a negative impact on our business and financial position. Our limited commercial operating history in an emerging area may make it difficult to obtain insurance policies at competitive rates. Insurance that is otherwise readily available, such as workers’ compensation, general liability, title insurance and directors’ and officers’ insurance, is more difficult for us to find and more expensive because of our involvement in emerging areas. There are no guarantees that we will be able to find insurance coverage at otherwise competitive, or even economically viable terms.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.
Accounting principles generally accepted in the United States (“U.S. GAAP”) and related pronouncements, implementation guidelines and interpretations with regard to a wide variety of matters that are relevant to our business, such as, but not limited to, revenue recognition, stock-based compensation, trade promotions, and income taxes, are highly complex and involve many subjective assumptions, estimates and judgments by our management. Changes to these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported results.
Product development is a long, expensive and uncertain process.
The product development process is a costly, complex and time-consuming process, and investments in product development often involve a long wait until a return, if any, can be achieved on such an investment. We might face difficulties or delays in the development process that will result in our inability to timely offer products that satisfy the market, which might allow competing companies offering similar products and services to emerge during the development and certification process. We anticipate making significant investments in research and development relating to our products and services, but such investments are inherently speculative and require substantial capital expenditures. Any unforeseen technical obstacles and challenges that we encounter in the research and development process could result in delays in or the abandonment of product commercialization, which may substantially increase development costs to be able to manufacture products and services which would be competitive and sustainable for our potential customers, and these potential costs may affect our results of operations.
Rapid technological changes may adversely affect the market acceptance of our products and services and could adversely affect our business, financial condition and results of operations.
The Smart Mailbox for Automation (“SMA”) market is subject to technological changes, introduction of new products, change in customer demands and evolving industry standards. Our future success will depend upon our ability to keep pace with technological developments and to timely address the increasingly sophisticated needs of our customers by supporting existing and new technologies and by developing and introducing enhancements to our current products and new products in our future commercial operations. We may not be successful in developing and marketing our products in response to technological change, evolving industry standards or customer requirements. In addition, we may experience difficulties internally or in conjunction with key vendors and partners that could delay or prevent successful development, introduction and sale of our products. Our services may not adequately meet the requirements of the market and may not achieve any significant degree of market acceptance. If release dates of our new products or services are delayed or, if when released, they to market acceptance, our business, operating results and financial condition may be affected as we would incur additional costs associated with developing products that would effectively obtain market acceptance and demand, in addition to any other potential costs incurred to find viable alternatives in the event any of our future third party providers to keep up with the market demand for our potential products and services or become in the industry.
We may face competition from other Smart Mailbox for Automation companies, many of which have substantially greater resources.
The SMA industry is evolving rapidly and is highly competitive. There are many Smart Lockerbox and Smart Mailbox companies. What largely distinguishes our offerings is our focus and patents for Smart Mailboxes that support Automation, like drones and mobile robotics, in the delivery and pickup from our mailboxes. Our direct competitors include, but are not limited to, Matternet, and Valqari. Carriers like FedEx and UPS and retailers like Walmart and CVS have automation efforts underway as well but they are prospective customers for us. Some of these competitive firms have substantially greater financial, management, research and marketing resources than we have. Our Smart Mailbox for Automation business may also face competition from smaller businesses. Our competitors may be able to provide customers with different or greater capabilities or benefits than we can provide in areas such as technical qualifications, past contract performance, geographic presence, price and the availability of key professional personnel, including those with security clearances. Furthermore, our competitors may be able to utilize their substantially greater resources and economies of scale to develop competing products, services, and technologies more efficiently, divert sales away from us by broader contracts, or hire away our employees by offering more compensation packages. The market for drone and robotic delivery is expanding, and competition is intensifying, which both provides an for our Smart Mailboxes but also may create additional competitors to enter the market, and current competitors expand their product and service lines. In order to secure contracts when competing with larger, well-financed companies, we may be to agree to contractual terms that provide for lower aggregate payments to us over the life of our future contracts, which could affect our margins as we scale our commercial operations. In addition, larger diversified competitors serving as prime contractors may be to supply underlying products and services from affiliated entities, which would prevent us from competing for subcontracting on these contracts. Our to compete effectively with respect to any of these or other factors could have a material effect on our business, prospects, financial condition or operating results.
If the drone and mobile robot automated delivery and pickup services do not experience significant growth, if we cannot create and expand our customer base, or if our products and these services do not achieve broad acceptance, then we may not be able to achieve our anticipated level of growth.
We cannot accurately predict the future growth rates or sizes of the markets for our products and future services. Demand for our products and services may not increase, or may decrease, either generally or in specific markets, for particular types of products and services or during particular time periods. We believe the SMA, drone, and mobile robotics markets for automated delivery and pickup are all nascent, and we cannot assure you that our continued efforts to further increase our sales to customers will be successful. The expansion of these markets in general, and the market for our products and services in particular, depends on a number of factors, including the following:
customer satisfaction with drone delivery and pickup as an alternative solution;
customer satisfaction with mobile robotic delivery and pickup as an alternative solution;
our ability to technologically reduce the friction of handoffs between people, robots, and drones;
the cost, performance and reliability of our products and products offered by our competitors;
customer perceptions regarding the effectiveness and value of our system and its inter-operability with drone, robotic, and customers’ business and operational systems;
obtaining timely automation regulatory approvals, including: access to airspace and wireless spectrum; and
marketing efforts and publicity regarding these types of systems and services.
Our products and services, and our automation partners’ products and services, may not adequately address market requirements and may not continue to gain market acceptance. If these types of systems generally, or our products and services specifically, do not gain wide market acceptance, then we may not be able to achieve our anticipated level of growth, and our revenue and results of operations would decline.
If our marketing efforts are unsuccessful, we may not generate sufficient revenue to become profitable.
Our future growth depends on our gaining market acceptance and regular production orders for our products and services. We plan to bring our technology and services to market with an initial focused market target of medical operations such as: hospitals, labs, clinics, doctors, pharmacies, and large assisted living businesses, which will then further expand to other market segments as we aim to eventually achieve ubiquity and business and residential density necessary for a future of pervasive automated logistics for everyone; we will use methods initially such as direct sales; automation partners as channel sales, tradeshows, publicized innovation research and projects with bellwether customers, white-papers, and targeted digital marketing campaigns and organic (search engine optimization, blogs). In the event we are not successful in obtaining a significant volume of early strategic innovation customers’ orders for our products and services, then we will face significant obstacles in expanding our business into an early adopters and mainstream market where the majority of future revenue would come from. We cannot give any assurance that our marketing efforts will be successful. If they are not, revenue may not be sufficient to cover our fixed costs and we may not become .
Risks Related to the Streeterville Purchase Agreement
Triggering Events May Require Substantial Monthly Cash Repayments That Could Materially Impair Our Liquidity
Under our Pre-paid Purchase Agreements with Streeterville Capital, LLC, certain triggering events may obligate the Company to make mandatory monthly cash repayments of $550,000 under Pre-paid purchase agreement 1, $550,000 under Pre-paid purchase agreement 2, $412,500 under Pre-paid purchase #3, and $1,375,000 under Pre-paid purchase #4, for a total of $2,887,500, plus all accrued and unpaid interest, beginning as soon as three Trading Days after the applicable trigger date. These triggering events include: (i) our volume weighted average price (VWAP) falling below the Floor Price of $0.25 per share for at least five Trading Days within any seven consecutive Trading Day period (a “Floor Price Trigger”), or (ii) our issuance of 90% or more of the Common Shares available under the applicable Exchange Cap (an “Exchange Cap Trigger”). There can be no assurance that our stock price will remain above the Floor Price or that we will not approach the Exchange Cap limit. If either triggering event occurs, we may be required to make substantial recurring cash payments that we may be unable to fund from existing cash reserves or operations, which could force us to seek additional financing on unfavorable terms, curtail business operations, or otherwise materially and adversely affect our financial condition and liquidity. While these repayment obligations may if our VWAP subsequently exceeds 120% of the Floor Price for five consecutive Trading Days (in the case of a Floor Price Trigger) or the Exchange Cap no longer applies (in the case of an Exchange Cap Trigger), there is no guarantee that either relief condition will occur in a timely manner or at all.
We may not have access to the full $40 million commitment pursuant to the securities purchase agreement with Streeterville Capital, LLC.
On March 21, 2025, we entered into a securities purchase agreement with Streeterville Capital, LLC pursuant to which Streeterville committed, subject to conditions, to purchase up to $40 million of our common stock through Pre-Paid Purchases.
Streeterville’s obligation to fund Pre-Paid Purchases is subject to conditions, including that our market capitalization meet specified thresholds (including a $100 million minimum), that an effective registration statement be available for resale of shares, that our book value meets a specified threshold ($4 million), a limitation on total outstanding indebtedness and that other customary conditions be satisfied. If we do not satisfy these conditions, we may not have access to committed capital when needed.
Streeterville’s beneficial ownership is subject to a 9.99% limitation, which may limit the number of shares issuable at a given time and restrict our access to funds.
Repayment mechanics could result in substantial dilution and downward pressure on our stock price.
Streeterville has discretion to receive repayment of Pre-Paid Purchases in shares of common stock. Under certain circumstances, including events of default or specified market conditions, shares may be issued pursuant to a formula with a floor as low as $0.25 per share. If our stock price declines or we trigger certain conditions, we may be required to issue a significantly larger number of shares, resulting in substantial dilution.
The number of shares issuable under the Streeterville Purchase Agreement may exceed currently registered amounts, and additional shares may need to be registered in the future.
Hedging or other market activities may adversely affect our stock price.
Streeterville or its counterparties may engage in hedging or other transactions involving our common stock. Such activities, whether or not intended to reduce risk exposure, may create downward pressure on the market price of our common stock.
Risks Related to Intellectual Property and Related-Party Arrangements
Our business depends on intellectual property licensed from our Chief Executive Officer.
We rely on patents licensed pursuant to our Exclusive Patent License Agreement. If we materially breach the Exclusive Patent License Agreement and fail to cure such breach timely and to Mr. O’Toole’s satisfaction, such license agreement will transition to a non-exclusive license agreement, and our business operation may be adversely affected or even essentially terminated. In the event that we are sixty (60) days late in any payment after it becomes due, or materially default in performing any of the other terms under the Exclusive Patent License Agreement otherwise, Mr. O’Toole has the right to give us a notice of such default and to ultimately transition to a non-exclusive license agreement if we to cure such within sixty (60) days after such notice to Mr. O’Toole’s . In the event that Mr. O’Toole the Patent License Agreement, our business would be affected and we may essentially some or all of our operations. If that occurs, investors could potentially a portion of or even the entire amount of their investment in our Company. In the second amendment executed on March 10, 2025, Mr. O’Toole also agreed that the Company could engage in the use, sale or other commercialization of the technologies otherwise licensed to us and we could sell related products with other technology agreements, provided however, the sale of remaining Mr. O’Toole’s-based inventory sold by Arrive AI may continue for up to 90 days post- of the O’Toole’s technology-based products. Because the licensor is our Chief Executive Officer, or under the agreement could create additional operational and governance .
We may become reliant on our intellectual property; failure to protect our intellectual property could negatively affect our business, financial condition or results of operations.
Our success will depend in part on our ability to use and develop new technologies that are accepted by the market in which we plan to operate. We may be vulnerable to competitors who develop competing technology, whether independently or as a result of acquiring access to the proprietary products and trade secrets of acquired businesses. In addition, effective future patent, copyright and trade secret protection may be unavailable or limited in the U.S. Our patents are usually protected for a term of twenty years, but in the event we fail to adequately maintain them, for example, a late payment of the maintenance fees due, we can face surcharges or even suspension of those patents. Failure to adequately maintain and enhance protection over our proprietary techniques and processes, as well as over our unregistered intellectual property, including policies, procedures and training manuals, could have a material effect on our business, financial condition or results of operations, if any such cost or additional expense related to finding a viable solution to protect our intellectual property is high and our expected income is not sufficient to cover such potential cost or expense.
We may be forced to litigate to defend our intellectual property rights, or to defend against claims by third parties against us relating to intellectual property rights.
We may be forced to litigate, to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of other parties’ proprietary rights. Any such litigation could be very costly and could distract our management from focusing on operating our business. The existence and/or outcome of any such litigation could harm our business and commercial operations.
Other companies may claim that we infringe their intellectual property, which could materially increase our costs and harm our ability to generate future revenue and profit.
We do not believe that our technologies will infringe on the proprietary rights of any third party but claims of infringement are becoming increasingly common and third parties may assert infringement claims against us. It may be difficult or impossible to identify, prior to receipt of notice from a third party, the trade secrets, patent position or other intellectual property rights of a third party, either in the United States or in foreign jurisdictions. Any such assertion may result in litigation or may require us to obtain a license for the intellectual property rights of third parties. If we are required to obtain licenses to use any third-party technology, we would have to pay royalties, which may significantly reduce any profit on our products and the services we plan to offer to our potential customers. In addition, any such litigation could be expensive and disruptive to our ability to generate revenue or enter into new market . If any of our products or services were found to other parties’ proprietary rights and we are to come to terms regarding a license with such parties, we may be to modify our products to make them non- or to production of such products altogether.
We engage in related-party transactions with our officers, directors or significant stockholders that may create actual or potential conflicts of interest.
We have entered into related-party arrangements, including intellectual property licensing and facility leasing. We may decide to make investments in one or more businesses affiliated with our officers, directors or significant stockholders. Such investment opportunities may compete with other opportunities for our investment dollars. Although we will not specifically focus on, or target, any particular transaction with any affiliates or affiliated entities, we would pursue such a transaction if we determined that such an affiliated investment was attractive from a risk-adjusted return perspective, and such transaction were approved by a majority of our independent and disinterested directors. Any such activity would involve actual or potential conflicts of interest. Although we are confident that we can navigate these conflicts consistent with best practices and applicable law, the existence or appearance of such conflicts of interest could make our publicly traded securities less attractive and thereby reduce their trading prices.
Risks Related to Our Technology, AI Initiatives, and SaaS Platform
Our commercial operations will be exposed to the risk of rapid technological advancements in the development and deployment of our products, which could render our existing infrastructure obsolete and adversely impact our financial performance.
Our industry is characterized by rapid technological change, with companies continually developing and deploying new equipment and techniques to enhance computational efficiency and reduce energy consumption. These advancements may outpace our ability to adapt, maintain, and upgrade our equipment, thereby negatively affecting our competitive position and operational efficiency. As a result, we may be required to make significant capital investments to acquire and implement new technology to maintain our competitiveness. If we are unable to anticipate or adapt to such advancements, or if we fail to allocate our resources efficiently, we may be forced to rely on outdated equipment that becomes increasingly inefficient and expensive to maintain. Additionally, there is a risk that our competitors, who may have greater financial resources and flexibility, will be positioned to adopt emerging technologies and a competitive . This could result in a in our market share, revenue, and . to manage these risks could have a material effect on our business, financial condition, and operating results.
The adoption, use, and commercialization of AI technology, and the continued rapid pace of developments in the AI field, are inherently uncertain. Failure by our potential customers to continue to adopt infrastructure to support AI use cases in their systems, or our ability to keep up with evolving AI infrastructure requirements, could have a material adverse effect on our business, financial condition, and results of operations.
As part of our growth strategy, we seek to attract and acquire customers focused on AI. We foresee emerging demand from companies that are dedicated to providing infrastructure for AI use cases, AI-dedicated data centers, and larger enterprises, as they begin to build systems to meet their unique requirements. However, AI has been developing at a rapid pace, and continues to evolve and change. If we are unable to keep up with the changing AI landscape or in developing products to meet our customers’ evolving AI needs, or if the AI landscape does not develop to the extent we or our customers expect, our business, and financial results may be adversely impacted. Additionally, our efforts in developing new AI infrastructure technology solutions are inherently risky and may not always succeed. We may incur significant costs and expect significant delays in developing new products or new generations of existing products to adapt to the changing AI landscape, and may not achieve a return on investment or capitalize on the opportunities presented by demand for AI solutions. Moreover, while AI-adoption is likely to continue and may accelerate, the long-term trajectory of this technological trend is uncertain.
We may not be successful in our artificial intelligence initiatives, which could adversely affect our business, reputation, or financial results.
The development of generative artificial intelligence (“AI”) technologies is complex, and there are technical challenges associated with achieving the desired level of accuracy, efficiency, and reliability. The algorithms and models utilized in generative AI systems may have limitations, including biases, errors, or inability to handle certain data types or scenarios. Furthermore, there is a risk of system failures, disruptions, or vulnerabilities that could compromise the integrity, security, or privacy of the generated content. These limitations or failures could result in reputational damage, legal liabilities, or loss of user confidence.
We intend to make investments in AI initiatives, including generative AI, to, among other things, develop new products, and develop new features for existing products. There are significant risks involved in development and deploying AI and there can be no assurance that the usage of AI will enhance our products or services or be beneficial to our business, including our efficiency or profitability. For example, our AI-related efforts may give rise to risks related to accuracy, intellectual property infringement or misappropriation, data privacy, and cybersecurity, among others. In addition, these risks include the possibility of new or enhanced governmental or regulatory scrutiny, litigation, or other legal liability, ethical concerns, negative consumer perceptions as to automation and AI, or other complications that could adversely affect our business, reputation, or financial results. Further, we face significant competition from other companies that are developing their own AI products and technologies. Those other companies may develop AI products and technologies that are similar or to our technologies or are more cost- to develop and deploy. We cannot guarantee that third parties will not use such AI technologies for purposes, including through the dissemination of content, intellectual property or , furthering cybersecurity attacks, data privacy , or to develop competing technologies. As such, it is not possible to predict all of the risks related to the use of AI and changes in laws, rules, directives, and regulations governing the use of AI may affect our ability to develop and use AI or subject us to legal liability.
We may face a shortage of talent or professionals with the appropriate experience and training in AI technology.
AI companies face intense competition for skilled data scientists, machine learning engineers, and AI researchers. A shortage of qualified talent could hinder our product development, delay innovation, or raise our labor costs significantly. Like many AI companies, we may be highly dependent on the expertise of a few key individuals who are critical to our intellectual property and model development. Losing these individuals could significantly impact the company’s competitive advantage.
Our SaaS model exposes us to recurring revenue risks.
Our Mailbox-as-a-Service model depends on customer adoption, subscription renewals, and predictable recurring revenue. Customer churn, pricing pressure, service outages, or inability to forecast accurately could materially affect results. We rely on third-party cloud providers, and disruptions or pricing changes by such providers could adversely impact operations.
Product Development and Quality Control Risks
A significant failure or deterioration in our quality control systems could have a material adverse effect on our business and operating results.
The quality and safety of our products and services will be critical to the success of our business and future commercial operations. As such, it is imperative that our and our future service providers’ quality control systems operate effectively and successfully. Quality control systems can be negatively impacted by the design of the quality control systems, the quality training programs and adherence by employees to quality control guidelines. Although we strive to ensure that all of our service providers have implemented and adhere to high-quality control systems, any significant failure or deterioration of such quality control systems could have a material adverse effect on our business and operating results.
The Company will offer complex hardware and software products and services that can be affected by design and manufacturing defects. Sophisticated operating system software and applications, such as those to be offered by the Company, often have issues that can unexpectedly interfere with the intended operation of hardware or software products. Defects can also exist in components and products the Company will purchase from third parties. Component defects could make the Company’s products unsafe and create a risk of environmental or property damage and personal injury. In addition, the Company’s service offerings could have quality issues and may from time to time experience outages, service slowdowns or errors. As a result, the Company’s services may from time to time not perform as anticipated and may not meet customer expectations. There can be no assurance the Company will be able to detect and fix all issues and in the hardware, software and services it offers. to do so can result in widespread technical and performance issues affecting the Company’s future products and services. In addition, the Company can be to product liability , , product replacements or modifications, write-offs of inventory, property, plant and equipment, and/or intangible assets, and significant warranty and other expenses, including costs and regulatory . Quality can also affect the experience for users of the Company’s products and services, and result in to the Company’s reputation, of competitive , market acceptance, reduced demand for products and services, in new product and service introductions and sales.
Rectifying product defects can incur substantial costs, and identifying suitable remedies may prove difficult. Moreover, errors or defects could result in financial damage to our customers, potentially leading to litigation. Product liability lawsuits, regardless of the outcome, may entail significant time and expenses for defense.
We may experience physical breaches of security at our facilities, any security breaches could result in loss of sensitive information as well as loss as a result of any such breach.
A physical security breach at one of our facilities could result in a significant loss of available products, expose us to additional liability under applicable regulations and to potentially costly litigation or increase expenses relating to the resolution and future prevention of these breaches and may deter potential customers from choosing our products and services, any of which could have an adverse effect on our business, financial condition and results of operations.
Our technology may contain third-party open-source software components, third-party commercial software, and proprietary software that we develop in-house. Failure to comply with the terms of these underlying software licenses could restrict our ability to provide our offered products and services.
We plan to use a combination of software modules licensed to us by third-party authors under “open source” licenses, third-party commercial software, and internally developed code in our platform. Although open-source software provides flexibility and cost advantages, use and distribution of open-source software may entail greater risks than use of third-party commercial software. Open-source licensors generally do not provide support, warranties, indemnification, or other contractual protections regarding infringement claims or the quality of the code. In addition, the public availability of such open-source code may make it easier for others to compromise our technology.
Some open-source licenses contain requirements that we make available the source code for any modifications or derivative works we create using that open-source software, or that we grant other licenses to our intellectual property. If we combine our proprietary code with open-source software in certain ways, we could, under specific open-source licenses, be required to release the source code of our proprietary software to the public. Such disclosure could allow competitors to develop similar offerings with less development effort or time, resulting in a potential loss of our competitive advantages. Alternatively, to avoid the public release of the affected portions of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our software.
Although we monitor our use of open-source software to avoid subjecting our technology to conditions we do not intend, the terms of many open-source licenses have not been interpreted by U.S. or foreign courts. As a result, there is a risk these licenses could be construed in ways that impose unanticipated conditions or restrictions on our ability to provide or distribute our technology. From time to time, companies that incorporate open-source software into their solutions have faced claims challenging the ownership of that software. Consequently, we could be subject to lawsuits by parties claiming ownership of what we believe to be open-source software.
Moreover, we cannot assure you that our processes for controlling our use of all third-party and open-source software in our technology will be effective. If we are found to have breached or failed to comply fully with the terms and conditions of an open-source or commercial software license, we could face infringement or other liability. We might also be required to seek costly licenses from third parties on terms that are not economically feasible, to re-engineer our technology, to discontinue or delay the provision of our offerings if re-engineering could not be accomplished on a timely basis, or to make generally available-in source code form-our proprietary code. Any of these outcomes could adversely affect our business, financial condition, and results of operations, and could cause the value of our securities to decline or become worthless.
Failures in internet infrastructure or interference with internet or Wi-Fi access could cause prospective users to believe that our systems are unreliable, potentially leading our customers to decline to renew their subscriptions.
Our platform depends on our users’ internet access. Increasing numbers of users on our platform and increasing bandwidth requirements may degrade the performance of our products or platform due to capacity constraints and other internet infrastructure limitations. If internet service providers and other third parties providing internet services have outages or deteriorations in their quality of service, our users may not have access to our platform or may experience a decrease in the quality of our products. Furthermore, as the rate of adoption of new technologies increases, the networks our platform relies on may not be able to sufficiently adapt to any increased demand for our products. Frequent or persistent interruptions, including those from increased AI-driven demand or other capacity constraints, could cause prospective users to believe that our platform is unreliable, leading them to switch to any competitors, which could materially adversely affect our business, financial condition, results of operations, and prospects. Users who access our platform must have an internet or Wi-Fi connection to use our products. Currently, this access is provided by a limited number of companies. These providers could take measures that , , or increase the cost of user access to third-party services, including our platform, by charging increased fees to third parties or the users of third-party services, any of which would make our platform less to customers and reduce our revenue.
Risks Related to Information Systems, Privacy and Cybersecurity
A disruption of our information technology systems could impair our operations, harm our reputation, and have a material adverse effect on our business, financial condition and results of operations.
Information technology systems are critical to every aspect of our business. We use a variety of technology systems to collect, process, transmit and store significant amounts of confidential information relating to our customers, employees, business operations, plans and strategies, and to manage our customer relationships and general ledger. Our computer systems, data management processes and internal controls, as well as those of our third-party service providers, are integral to our operational performance.
Our IT systems may be disrupted by a wide range of events, including equipment failures, power outages, shutdowns, human errors, natural disasters, damaging weather events, public health crises such as pandemics or epidemics, civil unrest, terrorism, workplace violence, or other events outside our control. We may also experience disruptions during the implementation, upgrade or subsequent operation of new IT systems, including as we work to integrate or support legacy systems. Upgrades to our IT systems may be expensive undertakings, may not succeed, or may be abandoned entirely. If upgraded or replacement systems fail to operate as intended or are unable to support our growth, our business operations could be and we could be required to make significant additional expenditures to remedy any such . experienced by our suppliers, subcontractors, service providers and customers could similarly our ability to deliver services. The impact of any such is to predict but could lead to operational , of management attention and resources, of customers, or other impacts on our operations and financial results.
Additionally, our IT systems may be susceptible to disruption from physical security threats to our facilities and personnel. Any breach of the physical security of our premises could result in loss of equipment, exposure of confidential data, and reputational harm, as well as potential regulatory liability. Insurance coverage may not be available for losses resulting from IT disruptions, or where available, such losses may exceed applicable policy limits.
Cybersecurity threats and data breaches could result in unauthorized access to our systems and data, financial losses, reputational harm, legal liability, and disruption to our business.
We face significant and evolving cybersecurity risks. In the ordinary course of our business, we collect and store sensitive data, including proprietary business information, intellectual property, and personally identifiable information (“PII”) of our customers and employees. We also use computer systems embedded in our products and services. This data and these systems are subject to the risk of unauthorized access, modification, exfiltration, destruction, or denial of access from a broad range of actors and methods, including computer viruses, malicious or destructive code, phishing and social engineering attacks, ransomware, crypto mining attacks, denial-of-service attacks, supply chain compromises of third-party systems and software, and other security breaches. Cybersecurity threats can originate from uncoordinated individual actors, organized criminal groups, and sophisticated state-sponsored organizations deploying advanced persistent threats. Because the techniques used to cause security change frequently and often are not identified until after they have been launched, we may be to address emerging or implement adequate preventive measures in a timely manner.
We also rely on third-party providers, including cloud storage and infrastructure providers, whose security practices we do not directly control. We may provide confidential, proprietary and personal information to these third parties when necessary to pursue business objectives. Although we seek assurances from such providers and, where appropriate, monitor their security practices, the confidentiality of data held or processed by third parties may be compromised despite those efforts. The risk extends to the subcontractors and vendors those providers in turn engage.
Employee misconduct or error represents a further source of risk. Our systems and the confidential information stored on them may be compromised by improper employee actions, carelessness in the handling of sensitive data, or inadvertent disclosure of PII to unintended recipients. In addition, errors or biases in our machine learning and AI models could affect the integrity of operational data and metrics we use to manage our business. If our performance metrics prove inaccurate or our algorithms produce unreliable outputs, our understanding of our business performance could be materially impaired, which could harm our longer-term strategy and financial results.
A material cybersecurity incident could result in one or more of the following: unauthorized access to, disclosure, modification, misuse, loss, or destruction of company, customer, or third-party data or systems; theft of sensitive, regulated, or confidential data including personal information and intellectual property; the loss of access to critical data or systems through ransomware or other destructive means; business delays, service disruptions, or denials of service; reputational damage and loss of customer confidence; litigation with third parties; regulatory investigations, penalties and ; and increased costs of cybersecurity protection and remediation. Data occur across companies of all sizes and levels of sophistication, including companies with far resources and security measures than our own. The of a can be , time-consuming and to our reputation, regardless of the cause.
To date, we have not experienced any cyber-attacks or other cybersecurity incidents that, individually or in the aggregate, have resulted in a material adverse effect on our business, operating results or financial condition. However, as cybersecurity threats continue to evolve and grow in sophistication, we may be required to devote additional resources to develop, implement and maintain protective measures, which could have a material adverse effect on our business, financial condition or results of operations. The potential liabilities associated with a material incident could exceed the insurance coverage we maintain.
We are subject to evolving and expanding privacy and data security laws and regulations. Compliance with these requirements is costly, and any failure to comply could result in material liability, regulatory penalties, and harm to our business.
We collect, store, use, transmit and otherwise process significant amounts of personally identifiable information (“PII”) and other sensitive data through our platform and smart mailbox network. Privacy and data security have become significant regulatory and commercial issues, and the legal framework governing the handling of personal information continues to expand and evolve rapidly at the federal, state and international level.
In the United States, the Federal Trade Commission and state regulators enforce data privacy obligations as unfair or deceptive acts or practices under the Federal Trade Commission Act and analogous state laws. At the state level, the California Consumer Privacy Act of 2018 (the “CCPA”), as amended and expanded by the California Privacy Rights Act of 2020 (the “CPRA”, effective January 1, 2023), imposes significant obligations on covered businesses, including requirements to disclose data collection, use and sharing practices; respond to consumer requests to access, delete, correct or opt out of certain uses of their personal information; and enter into specific contractual provisions with service providers that process California resident data. The CPRA also restricts the retention of personal information, expands the types of data breaches subject to private rights of action, increases penalties for violations involving consumers under the age of 16, and established the California Privacy Protection Agency to administer and enforce the law. Aspects of the CCPA and CPRA and their interpretation and enforcement remain uncertain and subject to ongoing development.
A growing number of other states have enacted or are enacting comprehensive privacy legislation that may apply to our business, including Virginia’s Consumer Data Protection Act, Colorado’s Privacy Act, and laws in numerous additional states, each of which may differ from the CCPA and CPRA in scope, definitions, individual rights, and enforcement mechanisms. All U.S. states and the District of Columbia have enacted data breach notification laws that may require us to notify customers, employees, regulators or the public in the event of unauthorized access to or disclosure of personal or confidential information experienced by us or our service providers. These notification obligations vary by state, are subject to frequent amendment, and compliance following a widespread breach may be complex and costly. In addition to government regulation, privacy advocates and industry groups have proposed, and may continue to propose, self-regulatory standards that may legally or contractually apply to us.
If we expand our operations internationally, we may become subject to additional data protection requirements in the jurisdictions in which we operate or have customers, including the General Data Protection Regulation 2016/679 (the “GDPR”) and the UK General Data Protection Regulation and Data Protection Act of 2018 in Europe, as well as comparable laws in other jurisdictions. These international requirements can be more restrictive and rigorous than U.S. standards, may impose significant penalties, and may impose additional obligations on the cross-border transfer of personal data.
The costs of compliance with applicable privacy and data security laws and regulations are significant and require ongoing management attention. Failure or perceived failure to comply with any applicable requirement could result in regulatory inquiries, investigations, proceedings or enforcement actions by governmental entities; civil litigation, including class action lawsuits, which may seek statutory damages and could result in significant monetary judgments; fines and civil or criminal penalties; demands that we modify or cease existing business practices; restrictions on our ability to operate in certain jurisdictions or offer certain products or services; negative publicity; and erosion of customer and investor trust. Even in the absence of actual non-compliance, the perception of inadequate data protection practices could reduce demand for our products and services and our competitive position.
The development and maintenance of the systems, controls and processes necessary to satisfy these requirements is costly and requires continuous monitoring and updating as applicable laws evolve and as efforts to circumvent security measures grow more sophisticated. Our third-party vendors and service providers process data on our behalf and have access to our information systems, and we may be held responsible for their failures. Although we seek contractual protections from our service providers, those protections may not be sufficient to fully protect us from liability arising from a breach or compliance failure by a third party. Despite our efforts, the possibility of a data breach, privacy violation, or compliance failure cannot be eliminated entirely, and any such event could have a material adverse effect on our business, financial condition or results of operations.
Risks Related to Regulation and Compliance
Operating in highly regulated businesses requires significant resources.
We operate in highly regulated businesses. As a result, we expect a significant amount of our management’s time and external resources to be used to comply with the laws, regulations and guidelines that impact our business, and changes thereto, and such compliance may place a significant burden on our management and other resources. Additionally, we may be subject to a variety of local laws, regulations and guidelines in each of the jurisdictions in which we plan to operate, which may differ among these various jurisdictions. Complying with multiple regulatory regimes will require additional resources and may impair our ability to expand into certain jurisdictions.
The growth of our business will be subject to potential new and changing federal, state, and local laws and regulations.
Although the majority of regulations directly affect our potential third-party service providers, such regulations may also ultimately affect our business as our third-party service providers may not be able to comply or may incur additional costs in order to be in compliance with such regulations, which in turn would result in additional expenses for our Company. Additionally, changes in applicable federal, state, and local regulations, including zoning restrictions, environmental requirements, Federal Aviation Administration (the “FAA”) and the Federal Communications Commission (the “FCC”) compliance, security requirements, or permitting requirements and fees, could restrict the products and services we may offer or impose additional compliance costs on us. Violations of applicable laws, or allegations of such violations, could disrupt our future business and result in a material adverse effect on our commercial operations and financial results. We cannot predict the nature of any future laws, regulations, interpretations or applications, including local, state or federal, and it is possible that regulations may be enacted in the future that will be materially adverse to our business or which would have materially significant costs of compliance which could impact our business and commercial operations.
Our support of automated delivery strategies and technologies by other companies using our smart mailboxes for automation, is dependent upon our ability to successfully mitigate unique technological, operational, and regulatory risks.
Automated and autonomous delivery and pickup are new and evolving capabilities and markets, which makes it difficult to predict their acceptance, growth, the magnitude and timing of necessary investments, and other trends. This aspect of our business strategy and our partners’ and customers’ strategies who utilize our SMA services may be subject to a variety of risks inherent with the development of new technologies, including the ability to continue to develop automated and autonomous delivery and pickup software and hardware; access to sufficient capital; our ability to develop and maintain necessary partnerships; risks related to the manufacture of automated and autonomous devices; and significant competition from other companies, some of which may have more resources and capital to devote to automated and autonomous delivery and pickup technologies than we do. In addition, we may face risks related to the commercial deployment of our SMA technology and services and associated automated and autonomous delivery and pickup devices on our targeted timeline or at all, including consumer acceptance; achievement of adequate safety and other performance standards; and compliance with uncertain, evolving, and potentially conflicting federal and state regulations. To the extent accidents, cybersecurity breaches, or other adverse events associated with our autonomous delivery devices occur, we could be subject to liability, government , further regulation, and reputational . Any of the foregoing could impact our results of operations, financial condition, and growth prospects.
We will be subject to rapidly changing and increasingly stringent laws, regulations, industry standards, and other obligations relating to privacy, data protection, and data security. The restrictions and costs imposed by these requirements, or our actual or perceived failure to comply with them, could harm our business and commercial operations.
We will be collecting, using, and disclosing personal information of customers, personnel, business contacts, and others in the course of operating our business. These activities will or may become regulated by a variety of domestic and foreign laws and regulations relating to privacy, data protection, and data security, which are complex, rapidly evolving, and increasingly stringent.
State legislatures have begun to adopt comprehensive privacy laws. For example, the California Consumer Privacy Act of 2018, which took effect on January 1, 2020, gives California residents expanded rights related to their personal information, including the right to access and delete their personal information, and receive detailed information about how their personal information is used and shared. Similar laws have been passed or been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States. The enactment of such laws could have potentially conflicting requirements that would make compliance challenging.
Also, in our early market focus involving placing our products and providing services to medical facilities, we must also comply with the Health Insurance Portability and Accountability Act (HIPAA) if we handle protected health information (PHI) in the course of our commercial business operations. HIPAA imposes strict requirements for the use, disclosure, and safeguarding of PHI, including specific administrative, physical, and technical safeguards to protect the confidentiality, integrity, and availability of PHI. Failure to comply with HIPAA can result in severe penalties, including substantial fines and even criminal charges. Therefore, we may need to take appropriate measures to ensure our HIPAA compliance and protect the privacy and security of PHI in our possession. Any non-compliance with HIPAA could result in regulatory action, loss of customer trust, negative publicity, and financial damage.
Finally, the services we provide to our customers involve the processing, storage, or transmission of their data, and we may be required to comply with certain industry standards and regulations, such as SOC 2 (Service Organization Controls 2). SOC 2 is a widely recognized auditing standard developed by the American Institute of Certified Public Accountants (AICPA) that evaluates the effectiveness of a service provider’s controls over the security, availability, processing integrity, confidentiality, and privacy of customers’ data. To maintain SOC 2 compliance, we must undergo regular audits and assessments by independent auditors to demonstrate that our controls are designed and operating effectively to achieve the desired outcomes. Any deficiencies identified during the audit could result in remediation requirements, reputational damage, and potential impacts on our customers. Any non-compliance with SOC 2 could result in harm to our business, including regulatory action, loss of customer trust, negative publicity, and financial damage.
Despite our best efforts, we may not be successful in complying with the rapidly evolving privacy, data protection, and data security requirements discussed above. Any actual or perceived non-compliance with such requirements could result in litigation and proceedings against us by governmental entities or individuals, fines, civil or criminal penalties, limited ability or inability to operate our business, offer services, or market our platform in certain jurisdictions, negative publicity and harm to our brand and reputation. Such occurrences could have a material adverse effect on our business, financial condition or results of operations.
We and our future third-party suppliers must comply with environmental, health and safety laws and regulations, which can be expensive and restrict how we do, or interrupt, our business.
Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the generation, use, storage and disposal of hazardous materials. For example, we may work with refrigerant substances used in our temperature-controlled Arrive Points to preserve a steady temperature and protect the products temporarily stored within them. Our future operations may also produce waste products. Accordingly, we and our third-party manufacturers and future suppliers are subject to federal, state, local and foreign environmental, health and safety laws and regulations, and permitting and licensing requirements, including those governing the use, manufacture, storage, handling, transportation, disposal of, and exposure to, these products or materials, as well as worker health and safety. We cannot eliminate the risk of contamination or injury resulting from such products or materials. We also cannot guarantee that the procedures utilized by our third-party manufacturers for handling and disposing of hazardous materials comply with all applicable environmental, health and safety laws and regulations. As a result, we may be held liable for any resulting damages, costs or liabilities, including clean-up costs and liabilities, which could be significant, or our commercialization, research and development efforts and business operations may be restricted or interrupted. Environmental, health and safety laws and regulations are complex, change frequently and have tended to become more . Compliance with such laws and regulations is expensive, and current or future environmental, health and safety laws and regulations may restrict our operations. If we do not comply with applicable environmental health and safety laws and regulations, and permitting and licensing requirements, we may be subject to , , a of our business or other sanctions. Changes in the technology regulatory environment, technological that render our technologies , availability of resources product trials, acceptance of technologies into the community, and competition from larger, more well-funded companies could also restrict our operations or affect our financial results.
Our future business partners and customers’ operation of drones and mobile robotics in work, campus, residential, suburban, and urban environments may be subject to regulation and operational risks, such as accidental collisions and transmission interference, which may limit demand for our smart mailbox service in such environments and harm our business and operating results.
Work, campus, residential, suburban, and urban environments may present certain challenges to our smart mailbox service partners and customers. Automation may accidentally collide with other aircraft, robots, persons or property, which could result in injury, death or property damage and significantly damage the reputation of and support for automation in general. As the usage of drone and robot automation has increased by casual users and by businesses, the danger of such collisions and other risks have increased. Furthermore, the incorporation of our new technology into our smart mailboxes for automation may increase the demand for the number of vehicles operating simultaneously in a given area and with this increase has come an increase in the risk of accidental collision. In addition, obstructions to effective transmissions in urban and other environments, such as large buildings, may limit the ability of the operator to utilize the aircraft for its intended purpose. The risks or of operating drones and robots in urban and other environments may limit their value to partners and customers, which may limit demand for our smart mailbox services and consequently materially our business and operating results.
The Company is subject to ongoing litigation and may be subject to more including securities litigation, which is expensive and could divert management attention, including securities class action and derivative lawsuits which could result in substantial costs.
As discussed in detail under the “Item 3. Legal Proceedings ” section, we are subject to ongoing litigations, including an employment action which we are vigorously defending ourselves against. In addition, following the completion of our direct listing, our share price may be volatile and, in the past, companies that have experienced volatility in the market price of their stock or shares have been subject to securities litigation, including class action litigation. The Company may be the target of this type of litigation in the future. Litigation of this type and our ongoing litigation could result in substantial costs and diversion of management’s attention and resources, which could have a material adverse effect on our business, financial condition, and results of operations. Any adverse determination in could also subject the Company to significant liabilities. Even if the lawsuits are without merit, these can result in substantial costs and management time and resources. An judgment could result in monetary , which could have a , and sometimes insurmountable impact on our liquidity and financial condition. We can neither that we will prevail in our ongoing , nor predict whether any such lawsuits will be filed.
Risks Related to Our Public Company Status and Common Stock
The public trading market may not continue to be liquid and the market price of our shares of common stock may be volatile.
An active market for our shares of common stock may not be sustained, which could depress the market price of our shares of common stock and could affect the ability of our stockholders to sell our shares of common stock. In the absence of an active public trading market, investors may not be able to liquidate their investments in our shares of common stock. An inactive market may also impair our ability to raise capital by selling our shares of common stock, our ability to motivate our employees through equity incentive awards and our ability to acquire other companies, products or technologies by using our shares of common stock as consideration.
In addition, the market price of our shares of common stock may fluctuate significantly in response to various factors, some of which are beyond our control. In the absence of a prior active public trading market for our common stock, if the price of our common stock or our market capitalization falls below those required by Nasdaq’s eligibility standards, we may not be able to satisfy the ongoing listing criteria and may be required to delist.
Further, if the public price of our common stock is above the level that investors determine is reasonable for our common stock, some investors may attempt to short our common stock, which would create additional downward pressure on the public price of our common stock. To the extent that there is a lack of consumer awareness among retail investors, such a lack of consumer awareness could reduce the value of our common stock and cause volatility in the trading price of our common stock.
The public price of our common stock also could be subject to wide fluctuations in response to the risk factors described in this Annual Report on Form 10-K and others beyond our control, including:
the number of shares of our common stock publicly owned and available for trading;
overall performance of the equity markets and/or publicly-listed companies that offer competing services and products;
actual or anticipated fluctuations in our revenue or other operating metrics;
our actual or anticipated operating performance and the operating performance of our competitors;
changes in the financial projections we provide to the public or our failure to meet these projections;
failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet the estimates or the expectations of investors;
any major change in our Board, management, or key personnel;
the economy as a whole and market conditions in our industry;
rumors and market speculation involving us or other companies in our industry;
announcements by us or our competitors of significant innovations, new products, services, features, integrations or capabilities, acquisitions, strategic investments, partnerships, joint ventures, or capital commitments;
new laws or regulations or new interpretations of existing laws or regulations applicable to our business, in the U.S. or globally;
lawsuits threatened or filed against us;
other events or factors, including those resulting from war, incidents of terrorism, or responses to these events;
sales or expected sales of our common stock by us and our officers, directors and principal stockholders.
In addition, stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner often unrelated to the operating performance of those companies. These fluctuations may be even more pronounced given the limited trading history and relatively low volume of our common stock on Nasdaq. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and harm our business, results of operations and financial condition.
You may be diluted by future issuances of preferred stock or additional common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.
We could issue a significant number of shares of common stock in the future in connection with investments or acquisitions. Any of these issuances could dilute our existing stockholders, and such dilution could be significant. Moreover, such dilution could have a material adverse effect on the market price for the shares of our common stock.
The future issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of shares of our common stock, either by diluting the voting power of our common stock if the preferred stock votes together with the common stock as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote, even if the action were approved by the holders of our shares of our common stock.
The future issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in the common stock less attractive. For example, investors in the common stock may not wish to purchase common stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase common stock at the lower conversion price, causing economic dilution to the holders of common stock.
Failure to maintain Nasdaq listing could harm us.
If we fail to meet Nasdaq continued listing standards, our common stock may be delisted, which could reduce liquidity, impair capital-raising ability, and negatively affect our stock price.
We have received notices from Nasdaq regarding our failure to comply with certain continued listing requirements, and we may be delisted from The Nasdaq Global Market if we are unable to regain compliance.
On March 31, 2026, we received two separate notification letters from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that we are not in compliance with certain continued listing requirements of The Nasdaq Global Market.
The first notification letter advised that we are not in compliance with Nasdaq Listing Rule 5450(b)(2)(C), which requires a minimum Market Value of Publicly Held Shares (“MVPHS”) of $15,000,000 for continued listing on The Nasdaq Global Market, as we failed to meet the MVPHS requirement for a period of 30 consecutive business days from February 11, 2026 to March 31, 2026. The second notification letter advised that we are not in compliance with Nasdaq Listing Rule 5450(b)(2)(A), which requires a minimum Market Value of Listed Securities (“MVLS”) of $50,000,000 for continued listing on The Nasdaq Global Market, as we failed to meet the MVLS requirement for a period of 30 consecutive business days from February 10, 2026 to March 30, 2026.
Pursuant to Nasdaq Listing Rules 5810(c)(3)(D) and 5810(c)(3)(C), respectively, we have 180 calendar days from the date of each notification letter, or until September 28, 2026, to regain compliance with both the MVPHS Requirement and the MVLS Requirement. To regain compliance with the MVPHS Requirement, our MVPHS must be at least $15,000,000 for a minimum of 10 consecutive business days prior to September 28, 2026. To regain compliance with the MVLS Requirement, our MVLS must close at $50,000,000 or more for a minimum of 10 consecutive business days prior to September 28, 2026. The notification letters have no immediate effect on the listing or trading of our common stock, and our common stock continues to trade on Nasdaq under the symbol “ARAI.”
There can be no assurance that we will be able to regain compliance with the MVPHS Requirement or the MVLS Requirement within the prescribed 180-day period, or at all. If we do not regain compliance by September 28, 2026, Nasdaq will provide written notification that our securities are subject to delisting, at which time we may appeal the delisting determination to a Nasdaq Hearings Panel. We may also consider applying for a transfer of our listing to The Nasdaq Capital Market, provided we satisfy that market’s continued listing requirements and submit a timely transfer application; however, there can be no assurance that any such transfer would be approved.
A delisting of our common stock from Nasdaq could have material adverse consequences, including: a reduction in the liquidity and market price of our common stock; a diminished ability to raise equity capital on terms acceptable to us, or at all; a potential loss of institutional investor interest; reduced coverage by securities analysts; and certain stockholders being restricted from holding or acquiring our securities. In addition, delisting could impair our ability to provide equity-based incentives to our employees, consultants, and directors, which could harm our ability to retain key personnel. Any of these consequences could materially and adversely affect our business, financial condition, results of operations, and the trading price of our common stock.
We intend to actively monitor our MVPHS and MVLS and will consider all available options to regain compliance with the applicable Nasdaq listing rules, including through strategic, operational, or financing alternatives. However, we cannot guarantee that any actions we take will be sufficient to restore compliance within the required timeframe.
If we fail to maintain compliance with the continued listing standards of Nasdaq, our securities may be delisted, which could negatively affect the market price and liquidity of our securities. In such a case, we may seek to regain compliance by implementing a number of available options. If in the future our securities are delisted from Nasdaq, we could face significant material adverse consequences, including: limited availability of market quotations for our securities; reduced liquidity for our shares; a determination that our shares are “penny stock,” which will require brokers trading in our shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our shares; a limited amount of news and analyst coverage; and decreased ability to issue additional securities or obtain additional financing in the future. In addition, as long as our shares are listed on Nasdaq, U.S. federal law prevents or preempts the states from regulating their sale, although the law does allow the states to investigate companies if there is a of and, if there is a finding of activity, then the states can regulate or bar their sale. If we were no longer listed on Nasdaq, we would be subject to regulations in each state in which we offer our shares.
We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses or if we identify additional material weaknesses in the future, we may not be able to accurately or timely report our financial results, which could result in a loss of investor confidence and adversely affect our stock price.
As disclosed in Item 9A, “Controls and Procedures,” of this Annual Report on Form 10-K, management identified material weaknesses in our internal control over financial reporting in connection with the preparation of this report. Specifically, we did not maintain sufficient controls to ensure the proper identification, bifurcation, and fair value measurement of embedded derivatives in hybrid financial instruments, or to ensure that the effective interest method was applied over the accretion period for host debt instruments containing a discount. Additionally, two officers of the Company reported Section 16(b) trading violations during the year ended December 31, 2025. As a result of these material weaknesses, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2025.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. Our management is implementing corrective actions to address these material weaknesses, including enhancing technical accounting review procedures for complex financial instruments, engaging additional external resources with expertise in derivative accounting under ASC 815, strengthening controls around the review and approval of significant accounting estimates and elections, and modifying the Company’s Insider Trading Policy to emphasize restrictions on stock transactions within six months of a previous reported transaction. However, we cannot assure you that these measures will be sufficient to remediate the material weaknesses or prevent future material weaknesses from occurring.
If we are unable to successfully remediate these material weaknesses, or if we identify additional material weaknesses or significant deficiencies in our internal control over financial reporting in the future, we may be unable to accurately record, process, and report our financial results in a timely manner. This could cause our financial statements to contain material misstatements that are not prevented or detected on a timely basis, which could cause investors and other users to lose confidence in the accuracy and completeness of our financial reports, adversely affect our stock price and access to capital markets, and potentially subject us to litigation or regulatory investigations. In addition, if we fail to remediate material weaknesses or maintain effective disclosure controls and procedures and internal control over financial reporting, we may be to comply with the periodic reporting requirements of the SEC, which could result in or filings of our periodic reports with the SEC.
As an emerging growth company, we are not currently required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). A non-emerging growth company or non-smaller reporting company is required to have its auditor attest to, and report on, management’s assessment of the effectiveness of its internal controls over financial reporting. When we cease to be an emerging growth company and a smaller reporting company, we will be subject to independent auditor attestation requirements, which may expose material weaknesses that may not otherwise have been identified. We cannot assure you that, at that time, there will not be additional material weaknesses in our internal control over financial reporting. Our remediation efforts may not enable us to avoid material weaknesses in the future.
Our management has limited experience managing a public company, and we have had limited experience complying with public company obligations and the requirements of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the rules and regulations of the SEC and Nasdaq Stock Market. If our senior management is unable to manage these challenges effectively, there may be additional errors or delays in our financial reporting, which could result in additional regulatory scrutiny, civil or criminal sanctions, or stockholder litigation.
There is substantial doubt about our ability to continue as a going concern. If we are unable to continue as a going concern, our stockholders would likely lose all or a substantial portion of their investment.
The accompanying financial statements in this Annual Report on Form 10-K have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As disclosed in Note 4, “Liquidity and Going Concern,” to our financial statements and in our MD&A, the Company has incurred recurring operating losses and experienced negative cash flows from operations since inception and expects to continue to do so as it invests in product development, commercialization, and infrastructure. As of December 31, 2025, the Company had cash and cash equivalents of approximately $2.1 million. These conditions, considered in the aggregate, raise substantial doubt about our ability to continue as a going concern.
Our independent registered public accounting firm has included an explanatory paragraph in its audit report for the year ended December 31, 2025 expressing substantial doubt about our ability to continue as a going concern. An explanatory paragraph relating to substantial doubt about our ability to continue as a going concern was also included in the audit reports for the years ended December 31, 2024 and 2023.
Our ability to continue as a going concern depends on our ability to generate sufficient cash flows from operations, obtain additional financing, or some combination thereof. Management has developed plans to address these conditions, including utilizing existing cash and cash equivalents and the net proceeds from the January 2026 financing with Streeterville Capital, LLC, and potentially drawing additional amounts under the Securities Purchase Agreement with Streeterville, which provides up to an additional $19.0 million in gross borrowings, subject to certain conditions including a limitation on total outstanding indebtedness, a minimum market capitalization of $100 million and a minimum book value of $4 million at the time of each draw. However, there can be no assurance that we will be able to satisfy these conditions or that Streeterville will continue to extend funds. Accordingly, substantial doubt about our ability to continue as a going concern is not alleviated by management’s plans.
We will need to raise additional capital to fund our operations and to develop and commercialize our products. We may seek additional funding through public or private equity offerings, debt financings, collaborations, licensing arrangements, or other sources. However, such financing may not be available on acceptable terms, or at all. Our ability to obtain additional financing will depend on a number of factors, including general market conditions, investor acceptance of our business model, our financial condition and results of operations, and conditions in the debt and equity markets. If we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce, or eliminate our research and development programs or commercialization efforts, or to grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.
If we raise additional funds through the issuance of equity or equity-linked securities, our existing stockholders may experience significant dilution, and any new equity securities could have rights, preferences, and privileges superior to those of our existing common stockholders. If we raise additional funds through debt financing or preferred equity, we may become subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures, or declaring dividends. Our financial condition may limit our access to debt financing on favorable terms, or at all.
If we are unable to continue as a going concern, we may be forced to liquidate our assets or seek bankruptcy protection, and we may receive less than the value at which those assets are carried on our financial statements, and stockholders would likely lose all or a substantial portion of their investment in us. Our ability to raise additional capital may be adversely impacted by the perception of our financial condition, including the substantial doubt about our ability to continue as a going concern. Uncertainty about our ability to continue as a going concern may also materially and adversely affect the price of our common stock, make it more difficult for us to enter into or maintain relationships with customers, partners, and suppliers, and negatively impact employee morale and retention. Any of these factors could have a material effect on our business, financial condition, and results of operations.
General Economic and Geopolitical Risks
Our growth and financial health are subject to a number of economic risks including extreme volatility in securities prices.
The financial markets in the United States have experienced substantial uncertainty during recent years, including tariff and trade policy uncertainty, geopolitical instability, AI sector volatility, and interest rate normalization. This uncertainty has included, among other things, extreme volatility in securities prices, reduced liquidity and credit availability, rating downgrades of certain investments and declining values with respect to others. If capital and credit markets continue to experience uncertainty and available funds remain limited, we may not be able to obtain debt or equity financing or to refinance our existing indebtedness on favorable terms or at all, which could affect our planned strategic commercial operations and our financial performance and force modifications to our planned commercial operations. These conditions currently have not precluded us from accessing credit markets or financing our product development operations, but there can be no assurance that financial markets and confidence in major economies will not deteriorate. In addition, we are to changes in market preferences or other market changes, such as general economic conditions, and of , interest rates, tax rates and policies, and inflation. The U.S. and global economies have experienced, and may in the future experience, elevated inflation, and we may experience a compression in our margins as a result. The U.S. and global economies have in the past, and will in the future, experience periods and periods of economic . During such periods, our potential customers may choose not to expend the amounts that we anticipate based on our expectations with respect to the addressable market for the services we offer. There could also be a number of other effects from general business and economic conditions on our future business, including of any of our future third-party suppliers or contractors, decreased market confidence, decreased interest in autonomous delivery and logistics solutions, decreased discretionary spending and reduced customer demand for the services we offer, any of which could have a material effect on our business, financial condition and results of operations.
The ongoing conflict between Ukraine and Russia could adversely affect our business, consolidated financial condition, and results of operations.
Russia’s military actions against Ukraine have led to an unprecedented expansion of export restrictions and sanctions imposed by the United States, the European Union, the United Kingdom, and numerous other countries against Russia and Belarus. In addition, Russian authorities have imposed significant currency control measures, other sanctions, and imposed other economic and financial restrictions. The situation continues to evolve, and further sanctions and export restrictions could negatively impact the global economy and financial markets and could adversely affect our business, consolidated financial condition, and results of operations. The conflict may result in an increased likelihood of cyber-attacks that could directly or indirectly impact our operations. Any attempts by cyber attackers to disrupt our services or systems, or those of our vendors, suppliers, or customers, if successful, could harm our business both reputationally and financially. Measures to remediate such cyber-attacks may be costly and could have a material adverse effect on our business, financial condition and results of operations. We cannot predict the , outcome, or impact of the in Ukraine, as the and any resulting government reactions are beyond our control. We are monitoring the in Ukraine to assess its impact on our business, as well as on our potential vendors, suppliers, future customers, and other parties with whom we plan to do business.
Geopolitical conditions, including direct or indirect acts of war or terrorism, could have an adverse effect on our operations and financial results.
In addition to the above, conflicts involving Iran and instability in the Middle East have contributed to volatility in global financial markets, increases in energy prices and inflationary pressures. While we do not have operations, suppliers or customers in the affected regions, these developments could indirectly impact our business by increasing global energy and transportation costs and contributing to higher costs of materials and logistics across our global supply chain. In addition, such conditions could result in adverse capital markets conditions, including reduced liquidity and increased volatility, which could impair our ability to access capital on acceptable terms, or at all. Any of these factors could adversely affect our business, financial condition and results of operations.
We may be exposed to the effects of changing energy prices, and interruptions in supplies of this commodity.
We will not own nor operate the drones used by third parties in making deliveries to our mailboxes. However, such drones are electrically operated and changing energy costs may have a significant impact on the operations of such third parties. The service delivery vehicles operated by third parties are exposed to the risks associated with variations in the energy market price. Such third parties could experience a disruption in energy supplies as a result of any war, weather-related events or natural disasters, actions by producers (including as part of their own sustainability efforts) or other factors beyond our control, which could have a material adverse effect on us, such as increase in costs related to finding alternative third parties.
