Serve Robotics Inc. /DE/ (SERV)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the financial statements and the notes to those statements included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Some of the information contained in this discussion and analysis including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risk, uncertainties and assumptions. You should read Part I, Item 1A. Risk Factors of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Note about Forward-Looking Statements

This Annual Report on Form 10-K includes statements that constitute “forward-looking statements.” These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “intends,” “plans,” “expects,” or “anticipates,” and do not reflect historical facts.

Specific forward-looking statements contained in this portion of the report include, but are not limited to: (i) statements that are based on current projections and expectations about the markets in which we operate, (ii) statements about current projections and expectations of general economic conditions, (iii) statements about specific industry projections and expectations of economic activity, (iv) statements relating to our future operations, prospects, results, and performance, and (v) statements that the cash on hand and additional cash generated from operations together with potential sources of cash through issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months.

Forward-looking statements involve risks, uncertainties, and other factors, which may cause our actual results, performance, or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results, future performance and capital requirements and cause them to materially differ from those contained in the forward-looking statements include those identified in the “Cautionary Note Regarding Forward-Looking Statements” and the Part 1, Item 1A. Risk Factors in this report, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.

In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Any information contained on our website www.serverobotics.com or any other websites referenced in this report are not part of this report.

Our Company

We are on a mission to deliver a sustainable future by transforming how goods move among people. Serve has developed an advanced, AI-powered robotics mobility platform, with last-mile delivery in cities as its first application. We are an operating company which has experienced losses since our inception. Our sources of cash to date have been capital investments by stockholders.

The following discussion contains forward-looking statements, as discussed above. Please see the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and Part I, Item 1A. Risk Factors in this report for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.

Our principal offices are located at 730 Broadway, Redwood City, CA 94063, our telephone number is (818) 860-1352 and our corporate website (which does not form part of this report) is located at www.serverobotics.com.

Overview

On July 31, 2023, Patricia Acquisition Corp., Acquisition Sub, and Serve entered into a Merger Agreement. Pursuant to the terms of the Merger Agreement, on the Closing Date, Acquisition Sub merged with and into Serve, with Serve continuing as the surviving corporation and our wholly owned subsidiary. As a result of the Merger, we acquired the business of Serve and will continue the existing business operations of Serve as a public reporting company under the name Serve Robotics Inc. On the Closing Date, Serve’s predecessor was renamed Serve Operating Co.

The Merger was treated as a recapitalization and reverse acquisition for us for financial reporting purposes, and Serve is considered the acquirer for accounting purposes. As a result of the Merger and the change in our business and operations, a discussion of the past financial results of Patricia Acquisition Corp. is not pertinent, and under applicable accounting

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principles, the historical financial results of Serve, the accounting acquirer, prior to the Merger are considered our historical financial results.

Our discussion and analysis are organized as follows:

•Executive Summary – Summary analysis of financial and other highlights to provide context for the discussion and analysis.

•Results of Operations – An analysis of our financial results.

•Liquidity, and Capital Resources – An analysis of changes in our balance sheets and cash flows and a discussion of our financial condition and potential sources of liquidity.

•Critical Accounting Estimates – Accounting estimates that management believes are the most important to understanding the assumptions and judgments incorporated in our financial results and forecasts and involve a significant level of estimation uncertainty.

Serve Robotics

Serve is shaping the future of sustainable, self-driving delivery. We design, develop, and operate low-emissions robots that serve people in public spaces, starting with food delivery. Starting in 2017, our core technology was developed by our co-founders and a majority of our product and engineering team in San Francisco, California as a special project within Postmates, one of the pioneering food delivery startups in the United States.

Because we started this project within a food delivery company, our team comes with a depth of combined expertise in food delivery, automation, and robotics.

Our expertise positions us to service the growing on-demand delivery market, including food delivery, where approximately half of all deliveries are less than 2.5 miles and well-suited to delivery by sidewalk robots. We provide a robotic delivery experience that delights customers, improves reliability for merchants, and reduces traffic congestion and eliminates vehicle emissions. At scale, our delivery robots can complete deliveries at lower cost than human couriers, making on-demand delivery more affordable and accessible in areas we operate.

Recent Developments

Securities Purchase Agreement

On January 7, 2025, the Company entered into a securities purchase agreement with a certain institutional investor pursuant to which the Company agreed to issue and sell, in a registered direct offering an aggregate of 4,210,525 shares of the Company’s common stock, $0.0001 par value per share at a price of $19.00 per Share. The gross proceeds to the Company from the Registered Direct Offering were approximately $80 million, before deducting the placement agents’ fees and other offering expenses payable by the Company.

Public Offering and Uplisting to Nasdaq

On April 17, 2024, we entered into an underwriting agreement with Aegis Capital Corp. (“Aegis”) in connection with the public offering of 10,000,000 shares of our common stock, par value $0.0001, at a public offering price of $4.00 per share (the “Offering”). The Company’s net proceeds from the Offering, after deducting the underwriting discount and other estimated offering expenses payable by the Company, were approximately $35.8 million. As a result of the Offering, the Company’s common stock was approved for listing on The Nasdaq Capital Market and commenced trading under the ticker symbol “SERV” beginning on April 18, 2024.

License and Services Agreement

On February 20, 2024, Serve entered into a License and Services Agreement (the “LSA”) with Magna as a part of a strategic partnership with Magna. Pursuant to the LSA, Serve, as an independent contractor of Magna, agreed to (i) grant a non-exclusive royalty-free license to the Serve AMR Technology in the Licensed Fields of Use (each as defined in the LSA) to Magna and its affiliates and (ii) provide all reasonable engineering, technical and related support services that Magna may request from time to time in writing and in furtherance of commercialization of the Serve AMR Technology and products (including software) using, practicing, or incorporating the Serve AMR Technology, and manufactured using,

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practicing or incorporating the Serve AMR Technology (such services and support, the “Development Services”). Except as expressly set forth in the LSA, any Development Services shall be provided under the MSA (as defined below) and, if expired or terminated, under terms and conditions that are consistent with the terms therein. The term of the LSA will continue unless terminated by either party pursuant to and in accordance with the terms and conditions set forth in the LSA.

Master Services Agreement

On February 1, 2024, Serve entered into a Master Services Agreement (the “MSA”) with Magna, retroactively effective as of January 15, 2024 (the “Effective Date”). Pursuant to the MSA, Serve agreed to provide certain services to Magna as described in one or more statements of work (“SOWs”). Such SOWs will contain a description of the scope, the time to be spent on performance, the fees to be paid to Serve, the functional requirements and technical specifications and, to the extent applicable, the timetable, schedule or milestones for the performance of the requested services. Serve and Magna entered into the first SOW on the Effective Date. The term of the MSA commenced on the Effective Date and will continue for a term of three months, unless terminated earlier or mutually extended in accordance with its terms.

In connection with the strategic partnership with Magna, on February 7, 2024, we issued the Magna Warrant to purchase up to 2,145,000 shares of our common stock, subject to adjustments as provided therein, at an exercise price of $0.01 per share. The Magna Warrant was issued pursuant to a production agreement executed in connection with the MSA between the parties in April 2024 whereby Magna will assist the Company in assembly of robotic delivery vehicles.

The Magna Warrant is exercisable in two equal tranches: (i) the first tranche became exercisable on in May 2024; and (ii) the second tranche became exercisable in December 2024.

The Magna Warrant Shares that may be issued pursuant to the exercise of the Magna Warrant were offered and sold in a transaction exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act.

Convertible Promissory Notes Offering

At an initial closing on January 2, 2024 and subsequent closings on January 12, 2024, January 22, 2024 and January 26, 2024, we issued to certain accredited investors convertible promissory notes, for which the Company received an aggregate of $5 million in proceeds. The convertible promissory notes bear interest at a rate of 6% per year, compounded annually, due and payable upon request by each investor on or after the 12-month anniversary of the original issuance date of each note. The Company may not prepay or repay the notes in cash without the consent of the investors.

Outlook And Challenges Facing Our Business

There are a number of industry factors that affect our business which include, among others:

Overall Demand for Last-mile Delivery on Partner Platforms.

Our potential for growth depends significantly on continued demand for last-mile delivery of food and other items on our partner platforms. This demand can fluctuate based on various market cycles and weather and local community health conditions, as well as evolving competitive dynamics. Our largest stream of projected revenue comes from maximizing utilization of our robots to perform deliveries on our partner platforms. Matching algorithms on these platforms as well as the extent of their merchant and end-customer participation in robotic delivery directly impacts the utilization rate of our robots, both of which can be challenging to predict. These uncertainties make demand difficult to forecast for us and our partners.

Customer Concentration.

We currently have a limited number of customers. Sales to Magna and Uber represented 65% and 26% of our revenues for the year ended December 31, 2024, respectively. If Magna or Uber were to breach, cancel, or amend our agreements, it may have an outsized effect on our revenue, cash on hand, and profitability. Our business development team is actively pursuing new delivery and branding customers to diversify our customer base.

Inflation and Market Considerations; Availability of Materials, Labor & Services.

We consider most on-demand purchases as discretionary spending for consumers, and we are therefore susceptible to changes in discretionary spending patterns and economic slowdowns in the geographic areas in which merchants on our partners’ platforms operate and in the economy at large. Discretionary consumer spending can be impacted by general

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economic conditions, unemployment, consumer debt, inflation, rising gasoline prices, interest rates, consumer confidence, and other macroeconomic factors. Inflation can lead to increased cost of material and labor for restaurants and merchants who may in turn raise prices on the item they sell and result in a reduction in demand for those items. To the extent inflation reduces economic activity and consumer demand for items we deliver, it could negatively impact our financial results. Continued uncertainty in or a worsening of the economy, generally or in a number of our markets, and consumers’ reactions to these trends could adversely affect our business and cause us to, among other things, reduce the number and frequency of new market openings or cease operations in existing markets. It is important to note, however, that inflation can also serve as a tailwind that would accelerate the adoption of automated robotic last-mile delivery as labor becomes more expensive and drives up the cost of delivery by humans.

Intellectual Property.

We rely on patented and non-patented proprietary information relating to product development, manufacturing capabilities, and other core competencies of our business. Protection of intellectual property is critical. Therefore, steps such as additional patent applications, confidentiality, and non-disclosure agreements, as well as other security measures are important. While we believe we have a strong patent portfolio and there is no actual or, to our knowledge, threatened litigation against us for patent-related matters, litigation or threatened litigation is a common method to effectively enforce or protect intellectual property rights. Such action may be initiated by or against us and would require significant management time and expenses.

Supply Chain Constraints.

We cannot be sure whether global supply chain shortages will impact our future robot build plans. In order to mitigate supply chain risks, we may need to incur higher costs to secure available inventory and place non-cancelable purchase commitments with our suppliers, which could introduce inventory risk if our forecasts and assumptions prove inaccurate. Higher costs of components would impact our cash runway and delays in the manufacturing of our robots would push out our revenue forecasts.

Governmental and Regulatory Conditions.

Our potential for growth depends on continued permission and acceptance by local governments and municipalities where our robots perform deliveries. Changes in regulations such as the imposition of a cap on the number of robots or technical requirements such as robot size and weight restrictions or limitations on autonomy within a certain geographic area could reduce or limit our ability to generate revenues and/or impact our unit economics in those markets.

Components of Results of Operations

Revenue

Revenue currently consists of (1) delivery revenues, (2) branding revenues and (3) software services revenues.

Cost of Revenue and Operating Expenses

Cost of revenue. Cost of revenue consists primarily of allocations of depreciation on robot assets used for revenue producing activities, personnel time related to revenue activities and costs related to data, software and similar costs that allow the robots to function as intended and for the Company to communicate with its robots while in service.

Operations. Operations expenses primarily consist of costs for field operations personnel.

Research and Development. Costs incurred in the research and development of the Company’s products are expensed as incurred. Research and development costs include product design, hardware and software costs.

Sales and Marketing. Sales and marketing expenses include personnel costs and public relations expenses. Advertising costs are expensed as incurred and included in sales and marketing expenses.

General and Administrative. General and administrative expenses primarily consist of personnel-related expenses for executive management and administrative functions, including finance and accounting, legal and human resources, as well as general corporate expenses and general insurance. General and administrative expenses also include depreciation on property and equipment as well as amortization of right of use assets.

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Interest Income (Expense), Net

Interest expense consists of stated rates of interest on financing instruments, fees incurred related to financing instruments or accretion of debt discounts.

Changes in Fair Value of future equity obligations

Changes in the fair value of the simple agreements for future equity (“SAFEs”) relate to updated assumptions and estimates are recognized within the statements of operations.

Other Income, Net

Other income, net of other expenses, consists primarily of income generated from our interest-bearing deposit account.

Financial Overview

For the year ended December 31, 2024 and 2023, we generated revenues of $1.81 million and $0.21 million, respectively, and reported net loss of $39.19 million and $24.81 million, respectively.

As noted in our consolidated financial statements, as of December 31, 2024, we had an accumulated deficit of $107.53 million.

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Results of Operations

Comparison of Results of Operations for the Year ended December 31, 2024 and 2023

The following table summarizes our operating results as reflected in our statements of operations during the year ended December 31, 2024 and 2023, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods.

Revenues increased $1.60 million to $1.81 million for the year ended December 31, 2024 from $0.21 million for the year ended December 31, 2023. The increase is due primarily to the $1.19 million in revenues generated from software services. The Company also recognized an increase in delivery and branding revenues of $0.44 million to $0.63 million for the year ended December 31, 2024, compared to $0.19 million for the same period in 2023.

Cost of revenues increased $0.16 million to $1.89 million for the year ended December 31, 2024, compared with $1.73 million for the year ended December 31, 2023, due primarily to an increase in headcount, partially offset by depreciation on robot assets in the prior year.

General and administrative expense increased $5.47 million to $10.09 million for the year ended December 31, 2024, compared with $4.62 million for the year ended December 31, 2023, due primarily to an increase in headcount of $0.85

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million, stock-based compensation expense of $2.77 million, legal fees of $0.97 million and increased investor relations expenses of $0.39 million .

Operations expense increased $0.72 million to $3.29 million for the year ended December 31, 2024, compared with $2.56 million for the year ended December 31, 2023, due primarily to an increase in headcount of $0.20 million and additional facility costs of $0.11 million.

Research and development expense increased $14.31 million to $24.26 million for the year ended December 31, 2024, compared with $9.95 million for the year ended December 31, 2023, due primarily to an increase in stock-based compensation expense of $11.07 million and headcount of $2.21 million.

Sales and marketing expenses decreased $0.03 million to $0.58 million for the year ended December 31, 2024, compared with $0.61 million for the year ended December 31, 2023, due primarily to a decrease in public relations expense offset by an increase in headcount and stock-based compensation.

During the prior year ended December 31, 2023, an impairment of long-lived asset expense of $1.47 million was recognized due to the carrying value being greater than the undiscounted flows over the remaining depreciable life.

Interest expense, net increased $1.58 million to $0.68 million for the year ended December 31, 2024, compared with $2.26 million for the year ended December 31, 2023, due primarily to interest earned on bank deposits of $1.22 million and by the decrease of interest expense from the repayment of the outstanding notes.

The change in fair value of derivative liability increased by $0.07 million to $0.22 million for the year ended December 31, 2024 compared to $0.15 million for the year ended December 31, 2023. The increase in expense was due to the valuation of of the derivatives associated with the 2024 Notes, which were converted into common shares upon the Offering..

There was no change in fair value of the simple agreements for future equity (“SAFEs”) for the year ended December 31, 2024, compared with $1.67 million for the same period in 2023. The decrease in expense is related to the SAFE agreements converting to common stock as a part of the merger.

Key metrics

We regularly review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions:

Daily Active Robots: We define daily active robots as the average number of robots performing daily deliveries during the period. Daily active robots reflect our operation team’s capacity to have active robots in the field performing deliveries and/or generating branding revenues. We closely monitor and strive to increase our daily active robots efficiently as we improve our autonomy and resultant human-to-robot ratios and increase the number of merchants and brand advertisers on our platform.

Daily Supply Hours: We define daily supply hours as the average number of hours our robots are ready to accept offers and perform daily deliveries during the period. Supply hours represent the aggregate number of robot hours per day during which we can utilize our robots for delivery. Supply hours increase as we add active robots and increase the operating window of those robots in a day. We closely monitor and strive to efficiently increase our fleet’s daily supply hours.

Liquidity and Capital Resources

As of December 31, 2024, we had current assets of $125.25 million and current liabilities of $6.81 million, which included $123.27 million in cash and cash equivalents. Cash and cash equivalents consisted of cash on deposit with banks as well as an institutional money market account.

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We have generated significant operating losses from our operations as reflected in our accumulated deficit of $107.53 million as of December 31, 2024. We have historically funded our operations from issuance of equity and debt securities, including our initial public offering in April 2024. To execute on our strategic initiatives to continue to grow our business, we may incur operating losses and generate negative cash flows from operations in the future, and as a result, we may require additional capital resources. We believe our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditures needs for at least the next 12 months.

Our future capital expenditures will depend on many factors, including, but not limited to our growth, our ability to attract and retain customers, the continuing market acceptance of our offerings, the time and extent of spending to support our efforts to develop our platform, and the expansion of sales and marketing activities, the timing and extent of spending for policy initiatives. Further, we may in the future enter into arrangements to acquire or invest in businesses, products, services, and technologies. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition, and results of operations could be adversely affected.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Operating Activities

Net cash used in operating activities was $21.54 million and $15.97 million for the years ended December 31, 2024 and 2023, respectively. The increase of $5.57 million primarily consisted of a net loss of $39.19 million, adjusted for certain non-cash items, which primarily includes $14.55 million of non-cash stock-based compensation expense, $0.31 million of depreciation expense, and $1.68 million of amortization of debt discount. The increase in cash used for 2024 compared to 2023 was mainly due to the increase in net loss and increased stock based compensation.

Investing Activities

Net cash used in investing activities was $10.32 million and $0.00 million for the years ended December 31, 2024 and 2023, respectively. The increase of $10.31 million was mainly due to robot build construction in-process.

Financing Activities

Net cash provided by financing activities was $155.12 million and $13.27 million for the years ended December 31, 2024 and 2023, respectively. The increase of $141.85 million was due to $77.60 million from Proceeds from issuance of common stock under the sales agreement and equity distribution agreement, net of offering costs, $35.85 million from proceeds of issuance of common stock pursuant to public offering, net of issuance costs, $17.12 million from proceeds from issuance of prefunded warrants to purchase common stock in connection with private placement, net of issuance costs, $22.45 million from proceeds from the exercise of warrants, partially offset by repayments of note payable and financinglease liability (as more fully described below).

Indebtedness

In March 2022, we entered into a term loan with Silicon Valley Bank for gross proceeds of $2.50 million with a maturity date of March 1, 2025. The loan accrues interest at the greater of 3.25% per annum or prime rate. Principal payments commenced on October 1, 2022, and the loan was repaid in full as of September 30, 2024.

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In June 2022, we entered into an equipment financing lease agreement with Farnam Street commencing November 2022, for the cost of building robots, calling for 24 monthly payments of approximately $0.19 million based on an expected total cost of $4.46 million of robot parts and manufacturing costs. In December 2023, the agreement was modified to require three monthly repayments of approximately $0.03 million each and 12 monthly repayments of approximately $0.19 million each, subject to certain terms and effective in January 2024.

Critical Accounting Policies and Estimates

Our consolidated financial statements and the related notes thereto included in this report are prepared in accordance with United States generally accepted accounting principles. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. Our most critical accounting estimates relate to impairment of long-lived assets and stock-based compensation. These estimates are critical as they require management judgment for inputs that are not observable. These estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operation, and cash flows will be affected. We believe that the accounting policies described below involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Revenue Recognition

We account for revenue in accordance with ASC 606 – Revenue from Contracts with Customers (“ASC 606”). We determine revenue recognition through the following steps:

•Identification of a contract with a customer;

•Identification of the performance obligations in the contract;

•Determination of the transaction price;

•Allocation of the transaction price to the performance obligations in the contract; and

•Recognition of revenue when or as the performance obligations are satisfied.

Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. As a practical expedient, we do not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less.

To date, we have generated initial revenues from our delivery services as well as branding fees. For delivery services, we satisfy our performance obligation when the delivery is complete, which is the point in time control of the delivered product transfers to the customer. We recognize branding fees over time as performance obligations are completed over the term of the agreement.

The Company recognizes revenue on its software services over time. The Company utilizes labor hours as a measure of progress to estimate the percentage of completion of the performance obligation at each reporting period. Service fees that have been invoiced or paid but performance obligations have not been met are recorded as deferred revenue.

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. We measure all stock-based awards granted to employees, directors and non-employee consultants based on the fair value on the date of the grant and recognizes compensation expense for those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. For awards with service-based vesting conditions, we record the expense for using the straight-line method. For awards with performance-based vesting conditions, we record the expense if and when we conclude that it is probable that the performance condition will be achieved.

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We classify stock-based compensation expenses in our statement of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. We historically have been a private company and lacks company-specific historical and implied volatility information for our stock. Therefore, we estimate our expected stock price volatility based on the historical volatility of publicly traded peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded stock price. The expected term of our stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends on common stock and do not expect to pay any cash dividends in the foreseeable future. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expenses could be materially different for future awards.

Emerging Growth Company and Smaller Reporting Company Status

We are an “emerging growth company,” as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to either early adopt or delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We are also a “smaller reporting company” meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operation

The following discussion of the financial condition
and results of operations of the Company should be read in conjunction with the financial statements and the notes to those statements
included in this Annual Report on Form 10-K for the period ended December 31, 2023. Some of the information contained in this discussion
and analysis including information with respect to our plans and strategy for our business, includes forward-looking statements that involve
risk, uncertainties and assumptions. You should read Part I, Item 1A. Risk Factors of this report for a discussion of important factors
that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained
in the following discussion and analysis.

Note about Forward-Looking Statements

This Annual Report on Form 10-K includes statements
that constitute “forward-looking statements.” These forward-looking statements are often characterized by the terms “may,”
“believes,” “projects,” “intends,” “plans,” “expects,” or “anticipates,”
and do not reflect historical facts.

Specific forward-looking statements contained
in this portion of the report include, but are not limited to: (i) statements that are based on current projections and expectations about
the markets in which we operate, (ii) statements about current projections and expectations of general economic conditions, (iii) statements
about specific industry projections and expectations of economic activity, (iv) statements relating to our future operations, prospects,
results, and performance, and (v) statements that the cash on hand and additional cash generated from operations together with potential
sources of cash through issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months.

Forward-looking statements involve risks, uncertainties,
and other factors, which may cause our actual results, performance, or achievements to be materially different from those expressed or
implied by such forward-looking statements. Factors and risks that could affect our results, future performance and capital requirements
and cause them to materially differ from those contained in the forward-looking statements include those identified in the “Cautionary
Note Regarding Forward-Looking Statements” and the Part 1, Item 1A. Risk Factors in this report, as well as other factors
that we are currently unable to identify or quantify, but that may exist in the future.

In addition, the foregoing factors may generally
affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statements
were made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Any information contained
on our website www.serverobotics.com or any other websites referenced in this report are not part of this report.

Our Company

We are an operating company which has experienced
losses since our inception. Our sources of cash to date have been capital invested by shareholders and venture capital investors/lenders.

The following discussion contains forward-looking
statements, as discussed above. Please see the sections entitled “Cautionary Note Regarding Forward-Looking Statements”
and Part I, Item 1A. Risk Factors in this report for a discussion of the uncertainties, risks and assumptions associated with these
forward-looking statements.

Our principal offices are located at 730 Broadway,
Redwood City, CA 94063, our telephone number is (818) 860-1352 and our corporate website (which does not form part of this report) is
located at www.serverobotics.com.

Overview

On July 31, 2023, Patricia Acquisition Corp.,
Acquisition Sub, and Serve entered into a Merger Agreement. Pursuant to the terms of the Merger Agreement, on the Closing Date, Acquisition
Sub merged with and into Serve, with Serve continuing as the surviving corporation and our wholly owned subsidiary. As a result of the
Merger, we acquired the business of Serve and will continue the existing business operations of Serve as a public reporting company under
the name Serve Robotics Inc. On the Closing Date, Serve’s predecessor was renamed Serve Operating Co.

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The Merger was treated as a recapitalization and
reverse acquisition for us for financial reporting purposes, and Serve is considered the acquirer for accounting purposes. As a result
of the Merger and the change in our business and operations, a discussion of the past financial results of Patricia Acquisition Corp.
is not pertinent, and under applicable accounting principles, the historical financial results of Serve, the accounting acquirer, prior
to the Merger are considered our historical financial results.

Our discussion and analysis are organized as follows:

Serve Robotics

Serve is shaping the future of sustainable, self-driving
delivery. We design, develop, and operate low-emissions robots that serve people in public spaces, starting with food delivery. Starting
in 2017, our core technology was developed by our co-founders and a majority of our product and engineering team in San Francisco, California
as a special project within Postmates, one of the pioneering food delivery startups in the United States. By the end of 2020, the
team had developed a fleet of sidewalk robots that had successfully performed over 10,000 commercial deliveries for Postmates in
California, augmenting Postmates’ fleet of human couriers. Postmates was acquired by Uber in 2020, and in February of 2021, Uber’s
leadership team agreed to contribute the intellectual property developed by the team and assets relating to this project to Serve. In
return for this contribution and an investment of cash into the Company, Uber acquired a minority equity interest in the business. By
the end of the first quarter of 2021, the majority of the team that had worked on this project at Postmates joined Serve as full time
employees.

Because we started this project within a food
delivery company, our team comes with a depth of combined expertise in food delivery, automation, and robotics. Our expertise positions
us to service the growing on-demand delivery market, including food delivery, where approximately half of all deliveries are less than
2.5 miles and well-suited to delivery by sidewalk robots. We provide a robotic delivery experience that delights customers, improves
reliability for merchants, and reduces traffic congestion and eliminates vehicle emissions. At scale, our delivery robots can complete
deliveries at lower cost than human couriers, making on-demand delivery more affordable and accessible in areas we operate.

Recent Developments

License and Services Agreement

On February 20, 2024, Serve entered into a License
and Services Agreement (the “LSA”) with Magna as a part of a strategic partnership with Magna. Pursuant to the LSA, Serve,
as an independent contractor of Magna, agreed to (i) grant a non-exclusive license to the Serve AMR Technology in the Licensed Fields
of Use (each as defined in the LSA) to Magna and its affiliates and (ii) provide all reasonable engineering, technical and related support
services that Magna may request from time to time in writing and in furtherance of commercialization of the Serve AMR Technology and products
(including software) using, practicing, or incorporating the Serve AMR Technology, and manufactured using, practicing or incorporating
the Serve AMR Technology (such services and support, the “Development Services”). Except as expressly set forth in the LSA,
any Development Services shall be provided under the MSA (as defined below) and, if expired or terminated, under terms and conditions
that are consistent with the terms therein. The term of the LSA will continue unless terminated by either party pursuant to and in accordance
with the terms and conditions set forth in the LSA.

Master Services Agreement

On February 1, 2024, Serve entered into a Master
Services Agreement (the “MSA”) with Magna, retroactively effective as of January 15, 2024 (the “Effective Date”).
Pursuant to the MSA, Serve agreed to provide certain services to Magna as described in one or more statements of work (“SOWs”).
Such SOWs will contain a description of the scope, the time to be spent on performance, the fees to be paid to Serve, the functional requirements
and technical specifications and, to the extent applicable, the timetable, schedule or milestones for the performance of the requested
services. Serve and Magna entered into the first SOW on the Effective Date. The term of the MSA commenced on the Effective Date and will
continue for a term of three months, unless terminated earlier or mutually extended in accordance with its terms.

In connection with the strategic partnership with
Magna, on February 7, 2024, we issued the Magna Warrant to purchase up to 2,145,000 shares of our common stock, subject to adjustments
as provided therein, at an exercise price of $0.01 per share.

The Magna Warrant will be exercisable in two equal
tranches: (i) the first tranche will become exercisable no later than May 15, 2024, subject to certain conditions; and (ii) the second
tranche will become exercisable upon Magna’s achievement of a certain manufacturing milestone as set forth in a production and purchase
agreement to be entered into with respect to the contract manufacturing of our autonomous delivery robots by Magna or its affiliates.
Notwithstanding the foregoing, the Magna Warrant Shares will vest and become exercisable upon any “change of control” (as
defined in the Magna Warrant).

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The Magna Warrant Shares that may be issued pursuant to the exercise
of the Magna Warrant were offered and sold in a transaction exempt from registration under the Securities Act in reliance on Section 4(a)(2)
of the Securities Act.

Convertible Promissory Notes Offering

At an initial closing on January 2, 2024 and subsequent closings
on January 12, 2024, January 22, 2024 and January 26, 2024, we issued to certain accredited investors convertible promissory notes, for
which the Company received an aggregate of $5.0 million in proceeds. The convertible promissory notes bear interest at a rate of 6.00%
per year, compounded annually, due and payable upon request by each investor on or after the 12-month anniversary of the original issuance
date of each note. The Company may not prepay or repay the notes in cash without the consent of the investors.

Note Payable – Related Party

On December 27, 2023, Serve issued a senior
secured promissory note to its Chief Executive Officer for which Serve received $70,000 in proceeds. The note bore interest at 7.67% per
annum. The agreement contained a clause that the terms would be updated if subsequent notes were issued at a more favorable term. Serve
repaid the note on January 3, 2024.

Merger Agreement

On July 31, 2023, the Company, our wholly-owned
subsidiary, Serve Acquisition Co., a corporation formed in the State of Delaware on July 10, 2023 (“Acquisition Sub”), and
Serve entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”). Pursuant to the terms of the
Merger Agreement, on July 31, 2023 (the “Closing Date”), Acquisition Sub merged with and into Serve, with Serve continuing
as the surviving corporation and our wholly-owned subsidiary (the “Merger”).

As a result of the Merger, we acquired the business
of Serve, a leading autonomous sidewalk delivery company based in Redwood City, California. See Part I, Item 1. Business of this
report. At the time the certificate of merger reflecting the Merger was filed with the Secretary of State of Delaware (the “Effective
Time”), each of Serve’s shares of capital stock issued and outstanding immediately prior to the closing of the Merger was
converted into the right to receive 0.8035 of a share of our common stock (in the case of shares held by accredited investors), with the
maximum number of shares of our common stock issuable to the former holders of Serve’s capital stock equal to 20,948,917 shares
after adjustments due to rounding for fractional shares. Immediately prior to the Effective Time, an aggregate of 3,500,000 shares
of our common stock owned by our stockholders prior to the Merger were forfeited and canceled (the “Stock Forfeiture”).

In addition, pursuant to the Merger Agreement,
(i) options to purchase 1,984,951 shares of Serve’s common stock issued and outstanding immediately prior to the closing
of the Merger under the Serve Plan were assumed and converted into options to purchase 1,594,800 shares of our common stock, (ii) warrants
to purchase 160,323 shares of Serve’s Series Seed preferred stock issued and outstanding immediately prior to the closing of
the Merger were assumed and converted into warrants to purchase 128,819 shares of our common stock, and (iii) warrants to purchase
17,314 shares of Serve’s common stock issued and outstanding immediately prior to the closing of the Merger were assumed and
converted into warrants to purchase 13,911 shares of our common stock and (iv) SAFEs totaling $15,551,953 were converted into
4,372,613 shares of our common stock.

Private Placement

Following the Effective Time of the Merger, we
sold 3,183,671 shares of our common stock pursuant to a private placement offering in multiple closings (the “Private Placement”).
We also issued 937,961 shares of our common stock to convert the outstanding principal and interest of outstanding Bridge Notes in
connection with the consummation of the Merger.

Each investor in the Private Placement was required
to represent that, at the time of the applicable closing, it (i) has a substantive, pre-existing relationship with us, or has direct
contact with us or the Placement Agents or other enumerated parties outside of the Private Placement and (ii) did not independently
contact us as a result of general solicitation by means of this report, any press release or any other public disclosure disclosing the
material terms of the Private Placement.

Note Payable – Related Party

In June and July 2023, the Company issued
a senior secured promissory note with its Chief Executive Officer for which the Company received $449,000 in proceeds. The note bore interest
at 7.67% per annum and matured upon the Merger. The agreement contained a clause that the terms would be updated if subsequent notes were
issued at a more favorable term. Accordingly, based on loans in July 2023, notes were issued that contained a 16% exit fee. Serve
repaid the notes upon the closing of the Merger.

Secured Subordinated Promissory Notes

On July 6, 2023, Serve issued Secured Subordinated
Promissory Notes (the “Promissory Notes”) to accredited investors in an aggregate principal loan amount of $750,000. Pursuant
to the Promissory Notes, the loans accrued interest on the unpaid principal amount at a rate of 18.00% per annum, computed as simple interest.
Each holder of the Promissory Notes was entitled to an exit fee equal to 16% of the stated principal amount of such holder’s Promissory
Note, less the total amount of interest that accrued on such Promissory Note prior to the closing of the Merger (the “Exit Fee”).
Serve repaid the Promissory Notes and the Exit Fee upon the closing of the Merger.

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Outlook And Challenges Facing Our Business

There are a number of industry factors that affect
our business which include, among others:

Overall Demand for Last-mile Delivery on Partner
Platforms.

Our potential for growth depends significantly
on continued demand for last-mile delivery of food and other items on our partner platforms. This demand can fluctuate based on various
market cycles and weather and local community health conditions, as well as evolving competitive dynamics. Our largest stream of projected
revenue comes from maximizing utilization of our robots to perform deliveries on our partner platforms. Matching algorithms on these platforms
as well as the extent of their merchant and end-customer participation in robotic delivery directly impacts the utilization rate of our
robots, both of which can be challenging to predict. These uncertainties make demand difficult to forecast for us and our partners.

Customer Concentration.

We currently have a limited number of customers.
Sales to Uber represented 71% of our revenues for the year ended December 31, 2023, and if Uber were to breach, cancel, or amend
our agreement, it may have an outsized effect on our revenue, cash on hand, and profitability. Our business development team is actively
pursuing new delivery and branding customers to diversify our customer base.

Inflation and Market Considerations; Availability
of Materials, Labor & Services.

We consider most on-demand purchases as discretionary
spending for consumers, and we are therefore susceptible to changes in discretionary spending patterns and economic slowdowns in the geographic
areas in which merchants on our partners’ platforms operate and in the economy at large. Discretionary consumer spending can be
impacted by general economic conditions, unemployment, consumer debt, inflation, rising gasoline prices, interest rates, consumer confidence,
and other macroeconomic factors. Inflation can lead to increased cost of material and labor for restaurants and merchants who may in turn
raise prices on the item they sell and result in a reduction in demand for those items. To the extent inflation reduces economic activity
and consumer demand for items we deliver, it could negatively impact our financial results. Continued uncertainty in or a worsening of
the economy, generally or in a number of our markets, and consumers’ reactions to these trends could adversely affect our business
and cause us to, among other things, reduce the number and frequency of new market openings or cease operations in existing markets. It
is important to note, however, that inflation can also serve as a tailwind that would accelerate the adoption of automated robotic last-mile
delivery as labor becomes more expensive and drives up the cost of delivery by humans.

Intellectual Property.

We rely on patented and non-patented proprietary
information relating to product development, manufacturing capabilities, and other core competencies of our business. Protection of intellectual
property is critical. Therefore, steps such as additional patent applications, confidentiality, and non-disclosure agreements, as well
as other security measures are important. While we believe we have a strong patent portfolio and there is no actual or, to our knowledge,
threatened litigation against us for patent-related matters, litigation or threatened litigation is a common method to effectively enforce
or protect intellectual property rights. Such action may be initiated by or against us and would require significant management time and
expenses.

Supply Chain Constraints.

The global supply shortage of electrical components,
including semiconductor chips and other hardware components essential to the manufacturing and maintenance of our robots, continued to
impact our supply chain throughout 2023. As a result, we experienced increases in our lead times and costs for certain components to build
our robots. Although our supply chain normalized during 2023, we cannot be sure whether global supply chain shortages will impact our
future robot build plans. In order to mitigate supply chain risks, we would need to incur higher costs to secure available inventory and
place non-cancellable purchase commitments with our suppliers, which could introduce inventory risk if our forecasts and assumptions prove
inaccurate. Higher costs of components would impact our cash runway and delays in the manufacturing of our robots would push out our revenue
forecasts.

Governmental and Regulatory Conditions.

Our potential for growth depends on continued
permission and acceptance by local governments and municipalities where our robots perform deliveries. Changes in regulations such as
the imposition of a cap on the number of robots or technical requirements such as robot size and weight restrictions or limitations on
autonomy within a certain geographic area could reduce or limit our ability to generate revenues and/or impact our unit economics in those
markets.

Future Prospects.

We anticipate that we will continue to experience
operating losses in 2023 and 2024 as we seek to implement our long-term strategic plan, using the net proceeds from the Private Placement
to accelerate our development through increased research and development spending, scale our robotic fleet, expand our sales and business
development efforts, and increase our overall headcount in order to achieve efficiencies through scaled growth. Our goal over the next
two years is to scale our operating fleet by a factor of 10 and expand our geographic coverage to new markets beyond our current operating
area in Los Angeles. With such an increase, we anticipate proportional increases in capital costs, overhead, and operating expenses.
We aim to initially achieve profitability in 2025, with increased profitability thereafter; however, doing so is dependent upon numerous
factors, including the development of revenues, general business and economic conditions, and other risks and uncertainties, including
those listed under Part 1, Item 1A. Risk Factors.

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Components of Results of Operations

Revenue

Our revenue currently consists primarily of (1) delivery
revenues and (2) revenues from branding.

Operating Expenses

Cost of revenue. Cost of revenue consists
primarily of allocations of depreciation on robot assets used for revenue-producing activities, personnel time related to revenue-producing
activities, and costs related to data, software and similar costs that allow the robots to function as intended and for the Company to
communicate with the robots while in service.

Operations. Operations expenses primarily
consist of costs for field operations personnel.

Research and Development. Costs incurred
in the research and development of the Company’s products are expensed as incurred. Research and development costs include product
design, hardware and software costs.

Sales and Marketing. Sales and marketing
expenses include personnel costs and public relations expenses. Advertising costs are expensed as incurred and included in sales and marketing
expenses.

General and Administrative. General and
administrative expenses primarily consist of personnel-related expenses for executive management and administrative functions, including
finance and accounting, legal, and human resources, as well as general corporate expenses and general insurance. General and administrative
expenses also include depreciation on property and equipment as well as amortization of right of use assets. These costs are expensed
as incurred.

Interest Expense

Interest expense consists of stated rates of interest
on financing instruments, fees incurred related to financing instruments or accretion of debt discounts.

Changes in Fair Value of future equity obligations

Changes in the fair value of the simple agreements
for future equity (“SAFEs”) relate to updated assumptions and estimates are recognized within the statements of operations.

Other Income, Net

Other income, net of other expenses, consists
primarily of income generated from our interest-bearing deposit account.

Financial Overview

For the year ended December 31, 2023 and 2022,
we generated revenues of $0.21 million and $0.11 million, respectively, and reported net loss of $24.81 million and $21.86 million,
respectively.

As noted in our consolidated financial statements,
as of December 31, 2023, we had an accumulated deficit of $68.33 million.

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Results of Operations

Comparison of Results of Operations for the
Year ended December 31, 2023 and 2022

The following table summarizes our operating results
as reflected in our unaudited statements of operations during the year ended December 31, 2023 and 2022, respectively, and provides information
regarding the dollar and percentage increase (or decrease) during such periods.

Revenues were $0.21 million for the year ended
December 31, 2023, compared with $0.11 million for the year ended December 31, 2022. The increase was because 2023 had a full year of
operations, whereas 2022 had partial year, which resulted in more delivery fees.

Cost of revenues was $1.73 million for the year
ended December 31, 2023, compared with $1.15 million for the year ended December 31, 2022. The increase was because 2023 had a full year
of operations, whereas 2022 had partial year, which resulted in more costs.

General and administrative expense increased $0.83
million to $4.62 million for the year ended December 31, 2023 from $3.79 million for the year ended December 31, 2022, due primarily to
an increase in costs related to administrative functions, including finance and accounting, legal, and human resources, as well as general
corporate expenses.

Operations expense increased $0.53 million to
$2.56 million for the year ended December 31, 2023, compared with $2.04 million for the year ended December 31, 2022, due primarily to
servicing the larger scale of the robot fleet.

Research and development expense, which represented
51.8% and 68.1% of total operating expenses for the years ended December 31, 2023 and 2022, respectively, decreased $3.62 million to $9.95
million for the year ended December 31, 2023 from $13.57 million for the year ended December 31, 2022, due primarily to a reduction in
workforce effective December 2022.

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Sales and marketing expenses increased $0.08 million
to $0.61 million for the year ended December 31, 2023 from $0.53 million for the year ended December 31, 2022, due primarily to an increase
in personnel costs and public relations expenses.

For the year ended December 31, 2023 an impairment
of long-lived asset expense of $1.47 million was recognized. Based on evaluating the forecasted cash flows through the assets' remaining
useful life, and technology becoming obsolete once a new generation of robots is expected to launch, in 2024, management concluded to
record a full impairment of the assets. Due to the discounted cash flows being negative through the remaining useful life (November 2024)
and the technology becoming obsolete once a new generation of robots is launched, it was determined that there was an impairment and the
expense recognized.

Operating expense decreased $0.71 million to $19.20
million for the year ended December 31, 2023 from $19.91 million for the year ended December 31, 2022, due primarily to a reduction in
workforce effective December 2022.

Interest expense increased $1.63 million to $2.26
million for the year ended December 31, 2023 compared to $0.64 million for the year ended December 31, 2022. This increase is related
to the accretion of debt discounts which is a result of debts entered into that contained redemption features requiring derivative accounting
and warrants issued with debt that discounted the debts. The majority of the increase is due to accretion and to a lesser extent, the
interest on the Farnam Lease.

The change in fair value of future equity obligations
increased by $1.41 million to $1.67 million for the year ended December 31, 2023 compared to $0.27 million for the year ended December
31, 2022 primarily due to the revaluation of SAFEs immediately prior to conversion into common stock.

The change in fair value of derivative liability
increased by $0.15 million to $0.15 million for the year ended December 31, 2023 compared to $0.00 million for the year ended December
31, 2022 primarily due to the revaluation of derivative immediately prior to conversion into common stock, and there was no such derivative
in the prior year.

Other expenses were $4.09 million and $0.9 million
for each of the years ended December 31, 2023 and 2022, respectively primarily due to the increases in interest expense described above.

Net loss increased $2.96 million to $24.81 million
for the year ended December 31, 2023 from $21.86 million for the same period in 2022. The increase in net loss was primarily attributed
to other expenses such as conversion of SAFEs and derivative liability into common stock as well as the impairment on the robot asset
in 2023.

Key metrics

We regularly review the following key business
metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make
strategic decisions:

Daily Active Robots: We define daily active
robots as the average number of robots performing daily deliveries during the period. Daily active robots reflect our operation team’s
capacity to have active robots in the field performing deliveries and/or generating branding revenues. We closely monitor and strive to
increase our daily active robots efficiently as we improve our autonomy and resultant human-to-robot ratios and increase the number of
merchants and brand advertisers on our platform.

Daily Supply Hours: We define daily supply
hours as the average number of hours our robots are ready to accept offers and perform daily deliveries during the period. Supply hours
represent the aggregate number of robot hours per day during which we can utilize our robots for delivery. Supply hours increase as we
add active robots and increase the operating window of those robots in a day. We closely monitor and strive to efficiently increase our
fleet’s daily supply hours.

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Liquidity and Capital Resources

Net cash generated by financing activities is
our primary source of liquidity. As of December 31, 2023, we had current assets of $1.46 million and current liabilities of $6.39 million,
which included $0.01 million in cash and cash equivalents.

We plan to raise additional working capital to
fund operations through the issuance of stock to investors and/or issuance of notes payable. We believe, but there is no assurance, that
the net proceeds of approximately $10 million from the initial closing of the Private Placement and our existing cash and cash equivalents
will be sufficient to fund our current operating plans.

Our ability to continue as a going concern is
dependent on our ability to raise adequate capital to fund operating losses until we can generate liquidity from our business operations.
To the extent sufficient financing is not available, we may not be able to, or may be delayed in, developing our offerings and meeting
our obligations. We will continue to evaluate our projected expenditures relative to our available cash and evaluate financing alternatives
in order to satisfy our working capital and other cash requirements.

Cash Flows

As of December 31, 2023, our cash and cash equivalents
were $0.01 million. The following table shows a summary of our cash flows for the periods presented in millions:

Operating Activities

Net cash used in operating activities was $15.97
and $21.40 million for the years ended December 31, 2023 and 2022, respectively. The decrease of $5.43 million was attributable primarily
to a decrease in operating expenses including headcount and personnel costs, research and development, and support to revenue-producing
activities.

Investing Activities

Net cash used in investing activities was $0.00
and $4.06 million for the years ended December 31, 2023 and 2022, respectively. The usage of cash in 2022 related to the build of our
second-generation robots, whereas in 2023, there were no new builds of robots.

Financing Activities

Net cash provided by financing activities was
$13.27 and $20.21 million for the years ended December 31, 2023 and 2022, respectively. The decrease of $6.95 million was attributable
primarily to reduced proceeds from SAFEs in 2023 compared to 2022, and lower proceeds from Silicon Valley Bank loan in 2022.

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Indebtedness

In March 2022, we entered into a term loan
with Silicon Valley Bank for gross proceeds of $2.50 million with a maturity date of March 1, 2025. The loan accrues interest
at the greater of 3.25% or prime rate. Principal payments commenced on October 1, 2022, and the loan is repayable in 30 installments
of principal and accrued interest.

We also entered into an equipment financing lease
agreement with Farnam in June 2022, commencing November 2022, for the cost of building robots, calling for 24 monthly payments
of approximately $0.19 million based on an expected total cost of $4.46 million of robot parts and manufacturing costs. In December
2023, the agreement was modified for three monthly payments of approximately $0.03 million and 12 monthly payments of approximately $0.19
million, subject to certain terms and effective in 2024.

Contractual Obligations and Commitments

The following is a summary of our significant
contractual obligations as of December 31, 2023.

On December 31, 2021, we entered into a strategic
supply agreement with a manufacturer of component parts used for our robot assets. The agreement calls for a minimum of $2.30 million
in purchases over a two-year period ending December 2023. At the end of the two-year period, the vendor may invoice us for any shortfall
in orders. As of December 31, 2023, the minimum purchase commitment was extended one year.

We have minimum spend agreements related to simulation
software and storage services. The purchase commitments extend for a period of two to three years.

Off-Balance Sheet Transactions

We did not have during the periods presented,
and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial
partnerships, such as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes.

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Critical Accounting Policies and Estimates

Our consolidated financial statements and the
related notes thereto included in this report are prepared in accordance with United States generally accepted accounting principles.
The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue, costs and expenses, and related disclosures. Our most critical accounting estimates relate to impairment
of long-lived assets, valuation of SAFEs, stock-based compensation and right of use assets and liabilities. These estimates are critical
as they require management judgment for inputs that are not observable. These estimates are developed based on historical experience and
various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the
estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial
statement presentation, financial condition, results of operation, and cash flows will be affected. We believe that the accounting policies
described below involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are most critical
to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Revenue Recognition

We account for revenue in accordance with ASC 606
– Revenue from Contracts with Customers (“ASC 606”). We determine revenue recognition through the following steps:

Revenue is recognized when control of the promised
goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for
those goods or services. As a practical expedient, we do not adjust the transaction price for the effects of a significant financing component
if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less.

To date, we have generated initial revenues from
our delivery services as well as branding fees. For delivery services, we satisfy our performance obligation when the delivery is complete,
which is the point in time control of the delivered product transfers to the customer. We recognize branding fees over time as performance
obligations are completed over the term of the agreement.

Lease Recognition

We account for leases under ASC 842 – Leases.
We do not apply the recognition requirements for leases with a term of twelve months or less. We determine if an arrangement is a lease,
or includes an embedded lease, at inception for each contract or agreement. A contract is or contains an embedded lease if the contract
meets all of the below criteria:

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Our operating lease agreements include office
and warehouse space. Right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term and operating
lease liabilities represent the obligation to make payments arising from the lease or embedded lease. Operating lease ROU assets and operating
lease liabilities are recognized at commencement date based on the present value of the future minimum lease payments over the lease term.
As most leases do not provide an implicit rate, we use an incremental borrowing rate that is based on the estimated rate of interest for
a collateralized borrowing of a similar asset, using a similar term as the lease payments at the commencement date. Indirect capital costs
are capitalized and included in the ROU assets at commencement.

The operating lease ROU assets and operating lease
liabilities include any lease payments made, including any variable amounts that are based on an index or rate, and exclude lease incentives.
Variability that is not due to an index or rate, such as payments made based on hourly rates, are excluded from the lease liability. Lease
terms may include options to extend or terminate the lease.

Renewal option periods are included within the
lease term and the associated payments are recognized in the measurement of the operating ROU asset and operating lease liability when
they are at our discretion and considered reasonably certain of being exercised. Over the lease term, we use the effective interest rate
method to account for the lease liability as lease payments are made and the ROU asset is amortized in a manner that results in straight-line
expense recognition.

We have elected the practical expedient not to
recognize leases with an initial term of 12 months or less on our balance sheets and lease expense is recognized on a straight-line
basis over the term of the short-term lease.

Stock-Based Compensation

We account for stock-based compensation in accordance
with ASC 718, Compensation - Stock Compensation. We measure all stock-based awards granted to employees, directors and non-employee
consultants based on the fair value on the date of the grant and recognizes compensation expense for those awards, net of estimated forfeitures,
over the requisite service period, which is generally the vesting period of the respective award. For awards with service-based vesting
conditions, we record the expense for using the straight-line method. For awards with performance-based vesting conditions, we record
the expense if and when we conclude that it is probable that the performance condition will be achieved.

We classify stock-based compensation expenses
in our statement of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award
recipient’s service payments are classified.

The fair value of each stock option grant is estimated
on the date of grant using the Black-Scholes option-pricing model. We historically have been a private company and lacks company-specific
historical and implied volatility information for our stock. Therefore, we estimate our expected stock price volatility based on the historical
volatility of publicly traded peer companies and expect to continue to do so until such time as we have adequate historical data regarding
the volatility of our own traded stock price. The expected term of our stock options has been determined utilizing the “simplified”
method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S.
Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.
Expected dividend yield is based on the fact that we have never paid cash dividends on common stock and do not expect to pay any cash
dividends in the foreseeable future. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions.
The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent
uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions,
stock-based compensation expenses could be materially different for future awards.

Emerging Growth Company and Smaller Reporting
Company Status

We are an “emerging growth company,”
as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period
for complying with new or revised accounting standards. This provision allows an emerging growth company to either early adopt or delay
the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the
extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively
and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable
to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We are also a “smaller reporting company”
meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100
million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value
of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently
completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting
company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements
that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two
most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies,
smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operation. Overview of our Business.

Patricia Acquisition Corp. was incorporated in
the State of Delaware on November 9, 2020. Since inception, the Company has been engaged in organizational efforts and obtaining initial
financing. The Company was formed as a vehicle to pursue a business combination and has focused its efforts to identify a possible business
combination. No revenue has been generated by the Company since inception. It is unlikely the Company will have any revenues unless it
is able to effect an acquisition or merger with an operating company, of which there can be no assurance. The Company’s plan of
operation for the remainder of the fiscal year shall be to continue its efforts to locate suitable acquisition candidates. Our principal
business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through a combination with
a business rather than immediate, short-term earnings. The Company will not restrict our potential candidate target companies to any specific
business, industry or geographical location and, thus, may acquire any type of business.

The Company is currently considered to be a “blank
check” company. The SEC defines those companies as “any development stage company that is issuing a penny stock, within the
meaning of Section 3(a)(51) of the Exchange Act, and that has no specific business plan or purpose, or has indicated that its business
plan is to merge with an unidentified company or companies.” Many states have enacted statutes, rules and regulations limiting the
sale of securities of “blank check” companies in their respective jurisdictions. The Company is also a “shell company,”
defined in Rule 12b-2 under the Exchange Act as a company with no or nominal assets (other than cash) and no or nominal operations. Management
does not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully
concluded a business combination. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long
as we are subject to those requirements.

In addition, the Company is an “emerging
growth company,” as defined in the JOBS Act, and may take advantage of certain exemptions from various reporting requirements that
are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being
required to comply with the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act, and exemptions from the requirements
of Sections 14A(a) and (b) of the Exchange Act to hold a nonbinding advisory vote of shareholders on executive compensation and any golden
parachute payments not previously approved.

The Company has also elected to use the extended
transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows
us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until
those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies
that comply with public company effective dates.

7

We will remain an “emerging growth company”
until the earliest of (1) the last day of the fiscal year during which our revenues exceed $1.235 billion, (2) the date on which we issue
more than $1 billion in non-convertible debt in a three year period, (3) the last day of the fiscal year following the fifth anniversary
of the date of the first sale of our common equity securities pursuant to an effective registration statement filed pursuant to the Securities
Act, or (4) when the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day
of our most recently completed second fiscal quarter. To the extent that we continue to qualify as a “smaller reporting company,”
as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an emerging growth company, certain of the
exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company, including:
(1) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act; (2) scaled executive
compensation disclosures; and (3) the requirement to provide only two years of audited financial statements, instead of three years.

The Company has not conducted any active operations
since inception, except for its efforts to locate suitable acquisition candidates. No revenue has been generated by the Company since
inception. It is unlikely the Company will have any revenues unless it is able to effect an acquisition or merger with an operating company,
of which there can be no assurance. The Company’s plan of operation for the remainder of the fiscal year shall be to continue its
efforts to locate suitable acquisition candidates. Our principal business objective for the next 12 months and beyond such time will be
to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. The Company will
not restrict our potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire
any type of business.

The Company does not currently engage in any business
activities that provide cash flow. The costs of investigating and analyzing business combinations for the next 12 months and beyond such
time will be paid with funds to be loaned to or invested in us by our stockholders, management or other investors.

The Company currently does not engage in any business
activities that provide cash flow. During the next twelve months, we anticipate incurring costs related to:

We believe we will be able to meet these costs
through use of funds to be loaned by or invested in us by our stockholders, management or other investors. There are no assurances that
such funds will be advanced or that the Company will be able to secure any additional funding as needed. As of December 31, 2022 and 2021,
the Company had cash of $457 and $271, respectively. On November 13, 2020, in connection with advances made in connection with costs incurred
by the Company, the Company issued a promissory note to Mark Tompkins, a stockholder and director of the Company, pursuant to which the
Company agreed to repay Mr. Tompkins the sum of any and all amounts that Mr. Tompkins may advance to the Company on or before the date
that the Company consummates a business combination with a private company or reverse takeover transaction or other transaction after
which the Company would cease to be a shell company (as defined in Rule 12b-2 under the Exchange Act). The Company has used the proceeds
from the note to cover its expenses. Although Mr. Tompkins has no obligation to advance funds to the Company under the terms of the note,
it is anticipated that he may advance funds to the Company as fees and expenses are incurred in the future. As a result, the Company issued
the note in anticipation of such advances. Interest shall not accrue on the outstanding principal amount of the note except if an Event
of Default (as defined in the note) has occurred. In the event of an Event of Default, the entire note shall automatically become due
and payable (the “Default Date”) and starting from five (5) days after the Default Date, the interest rate on the note shall
accrue at the rate of eighteen percent (18%) per annum. As of December 31, 2022, the total amount due under the note was $114,000. The
note is filed herewith as Exhibit 10.1. We currently have no other agreements or specific arrangements in place with our stockholders,
management or other investors.

8

Our ability to continue as a going concern is
dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and
repay our liabilities arising from normal business operations when they come due. Our ability to continue as a going concern is also dependent
on our ability to find a suitable target company and enter into a possible reverse merger with such company. Management’s plan includes
obtaining additional funds by equity financing through a reverse merger transaction and/or related party advances, however there is no
assurance of additional funding being available.

The Company, as of December 31, 2022 had $457
in cash and has not earned any revenues from operations to date. In the next 12 months, we expect to incur expenses equal to approximately
$40,000 related to legal, accounting, audit, and other professional service fees incurred in relation to the Company’s Exchange
Act filing requirements. The costs related to the acquisition of a business combination target company vary widely and are dependent on
a variety of factors including, but not limited to, the amount of time it takes to complete a business combination, the location of the
target company, the size and complexity of the business of the target company, whether stockholders of the Company prior to the transaction
will retain equity in the Company, the scope of the due diligence investigation required, the involvement of the Company’s auditors
in the transaction, possible changes in the Company’s capital structure in connection with the transaction, and whether funds may
be raised contemporaneously with the transaction. Therefore, we believe such costs are unascertainable until the Company identifies a
business combination target. These conditions raise substantial doubt about our ability to continue as a going concern. The Company is
currently devoting its efforts to locating merger candidates. The Company’s ability to continue as a going concern is dependent
upon our ability to develop additional sources of capital, locate and complete a merger with another company, and ultimately, achieve
profitable operations.

The Company may consider acquiring a business
which has recently commenced operations, is a developing company in need of additional funds for expansion into new products or markets,
is seeking to develop a new product or service, or is an established business which may be experiencing financial or operating difficulties
and is in need of additional capital. Our management believes that the public company status that results from a combination with the
Company will provide such company greater access to the capital markets, increase its visibility in the investment community, and offer
the opportunity to utilize its stock to make acquisitions. There is no assurance that we will in fact have access to additional capital
or financing as a public company. In the alternative, a business combination may involve the acquisition of, or merger with, a company
which does not need substantial additional capital, but which desires to establish a public trading market for its shares, while avoiding,
among other things, the time delays, significant expense, and loss of voting control which may occur in a public offering.

Any target business we select for a potential
business combination may be a financially unstable company or an entity in its early stages of development or growth, including entities
without established records of sales or earnings. In that event, we will be subject to numerous risks inherent in the business and operations
of financially unstable and early stage or potential emerging growth companies. In addition, we may effect a business combination with
an entity in an industry characterized by a high level of risk, and, although our management will endeavor to evaluate the risks inherent
in a particular target business, there can be no assurance that we will properly ascertain or assess all significant risks.

Our management anticipates that it will likely
be able to effect only one business combination, due primarily to our limited financing and the dilution of interest for present and prospective
stockholders, which is likely to occur as a result of our management’s plan to offer a controlling interest to a target business
in order to achieve a tax-free reorganization. This lack of diversification should be considered a substantial risk in investing in us,
because it will not permit us to offset potential losses from one venture against gains from another.

The Company anticipates that the selection of
a business combination will be complex and extremely risky. While the Company is in a competitive market with a small number of business
opportunities, through information obtained from industry professionals including attorneys, investment bankers, and other consultants
with experience in the reverse merger industry, our management believes that there are opportunities for a business combination with firms
seeking the perceived benefits of becoming a publicly traded corporation. Such perceived benefits of becoming a publicly traded corporation
include, among other things, facilitating or improving the terms on which additional equity financing may be obtained, providing liquidity
for the principals of and investors in a business, creating a means for providing incentive stock options or similar benefits to key employees,
and offering greater flexibility in structuring acquisitions, joint ventures and the like through the issuance of stock. Potentially available
business combinations may occur in many different industries and at various stages of development, all of which will make the task of
comparative investigation and analysis of such business opportunities extremely difficult and complex.

9

We do not currently intend to retain any entity
to act as a “finder” to identify and analyze the merits of potential target businesses. However, we contemplate that Montrose
Capital may introduce business combination opportunities to us. There are currently no agreements or preliminary agreements between us
and Montrose Capital.

We have not established a specific timeline nor
have we created a specific plan to identify an acquisition target and consummate a business combination. We expect that our management
and the Company, through its various contacts and affiliations with other entities, including Montrose Capital, will locate a business
combination target. We expect that funds in the amount of approximately $40,000 will be required in order for the Company to satisfy its
Exchange Act reporting requirements during the next 12 months, in addition to any other funds that will be required in order to complete
a business combination. Such funds can only be estimated upon identifying a business combination target. Our management and stockholders
have indicated an intent to advance funds on behalf of the Company as needed in order to accomplish its business plan and comply with
its Exchange Act reporting requirements, however, there are no agreements in effect between the Company and our management or stockholders
specifically requiring they provide any funds to the Company. Therefore, there are no assurances that the Company will be able to obtain
the required financing as needed in order to consummate a business combination transaction.

COVID-19

On March 11, 2020, the World Health Organization
officially declared the outbreak of the novel coronavirus COVID-19 a “pandemic.” A significant outbreak of COVID-19 and other
infectious diseases has resulted in a widespread health crisis that has significantly adversely affected businesses of all types, economies
and financial markets worldwide. The business of any potential target business with which we consummate a business combination could be
materially and adversely affected. Furthermore, we may be unable to complete a business combination if continued concerns relating to
COVID-19 restrict travel, limit the ability to have meetings with potential investors or the target company’s personnel, vendors
and services providers are unavailable to negotiate and consummate a transaction in a timely manner. The extent to which COVID-19 impacts
our search for a business combination will depend on future developments, which are highly uncertain and cannot be predicted, including
new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.
If the disruptions posed by COVID-19 or other matters of global concern continue for an extended period of time, our ability to consummate
a business combination, or the operations of a target business with which we ultimately consummate a business combination, may be materially
adversely affected.

Liquidity and Capital Resources

As of December 31, 2022, the Company had total
assets equal to $457 comprised exclusively of cash. The Company’s current liabilities as of December 31, 2022, totaled $124,000
comprised of amounts due under a note payable to a shareholder for $114,000 and accounts payable of $10,000. The Company can provide no
assurance that it can continue to satisfy its cash requirements for at least the next twelve months.

The following is a summary of the Company’s
cash flows provided by (used in) operating and financing activities for the years ended December 31, 2022, and December 31, 2021:

The Company has only cash assets and has generated
no revenues since inception. The Company is also dependent upon the receipt of capital investment or other financing to fund its ongoing
operations and to execute its business plan of seeking a combination with a private operating company. In addition, the Company is dependent
upon certain related parties to provide continued funding and capital resources. If continued funding and capital resources are unavailable
at reasonable terms, the Company may not be able to implement its plan of operations.

10

Issuance of Promissory Note to a Stockholder and Director

On November 13, 2020, the Company issued a promissory
note (the “Note”) to the majority stockholder of the Company, Mark Tompkins, a stockholder and director of the Company, pursuant
to which the Company agreed to repay Mr. Tompkins the sum of any and all amounts that Mr. Tompkins may advance to the Company on or before
the date that the Company consummates a business combination with a private company or reverse takeover transaction or other transaction
after which the Company would cease to be a shell company (as defined in Rule 12b-2 under the Exchange Act). The Company has used the
proceeds from the note to cover its expenses. Although Mr. Tompkins has no obligation to advance funds to the Company under the terms
of the note, it is anticipated that he may advance funds to the Company as fees and expenses are incurred in the future. As a result,
the Company issued the note in anticipation of such advances. Interest shall not accrue on the outstanding principal amount of the note
except if an Event of Default (as defined in the note) has occurred. In the Event of Default, the entire note shall automatically become
due and payable (the “Default Date”), and starting from five (5) days after the Default Date, the interest rate on the note
shall accrue at the rate of eighteen percent (18%) per annum. As of December 31, 2022, the total amount due under the note was $114,000.

Results of Operations

The Company has not conducted any active operations
since inception, except for its efforts to locate suitable acquisition candidates. No revenue has been generated by the Company from November
9, 2020 (Inception) through December 31, 2022. It is unlikely the Company will have any revenues unless it is able to effect an acquisition
or merger with an operating company, of which there can be no assurance. It is management’s assertion that these circumstances may
hinder the Company’s ability to continue as a going concern. The Company’s plan of operations for the next twelve months shall
be to continue its efforts to locate suitable acquisition candidates.

The Company, as of December 31, 2022 had $457
in cash and has not earned any revenues from operations to date. In the next 12 months, we expect to incur expenses equal to approximately
$40,000 related to legal, accounting, audit, and other professional service fees incurred in relation to the Company’s Exchange
Act filing requirements. The costs related to the acquisition of a business combination target company vary widely and are dependent on
a variety of factors including, but not limited to, the amount of time it takes to complete a business combination, the location of the
target company, the size and complexity of the business of the target company, whether stockholders of the Company prior to the transaction
will retain equity in the Company, the scope of the due diligence investigation required, the involvement of the Company’s auditors
in the transaction, possible changes in the Company’s capital structure in connection with the transaction, and whether funds may
be raised contemporaneously with the transaction. Therefore, we believe such costs are unascertainable until the Company identifies a
business combination target. These conditions raise substantial doubt about our ability to continue as a going concern. The Company is
currently devoting its efforts to locating merger candidates. The Company’s ability to continue as a going concern is dependent
upon our ability to develop additional sources of capital, locate and complete a merger with another company, and ultimately, achieve
profitable operations.

Critical Accounting Estimates

Accounting estimates are an integral part of the
financial statements prepared by management and are based on management’s knowledge and experience about past and current events
and assumptions about future events. Management’s estimate of the current portion of note payable - stockholder is based on the
possibility that within one year of the balance sheet date a transaction will occur that requires the Company to repay the note payable.
Management’s estimate of the deferred tax benefit arising from the net operating loss carry forwards available to reduce future
federal and state taxable income and the related valuation allowance in the same amount assumes that the Company will be acquired by a
target company and the benefit will not be realized.

11

Emerging Growth Company

As an “emerging growth company” under
the JOBS Act, the Company has elected to use the extended transition period for complying with new or revised accounting standards under
Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different
effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial
statements may not be comparable to companies that comply with public company effective dates.

Fiscal Year

Our fiscal year ends on December 31.

Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operation. Overview of our Business

Patricia Acquisition Corp. was incorporated in
the State of Delaware on November 9, 2020. Since inception, the Company has been engaged in organizational efforts and obtaining initial
financing. The Company was formed as a vehicle to pursue a business combination. The Company filed a registration statement on Form 10
with the SEC on January 4, 2021 as amended and filed on April 9, 2021, and since its effectiveness, the Company has focused its efforts
to identify a possible business combination.

The Company is currently considered to be a “blank
check” company. The SEC defines those companies as “any development stage company that is issuing a penny stock, within the
meaning of Section 3(a)(51) of the Exchange Act, and that has no specific business plan or purpose, or has indicated that its business
plan is to merge with an unidentified company or companies.” Many states have enacted statutes, rules and regulations limiting the
sale of securities of “blank check” companies in their respective jurisdictions. The Company is also a “shell company,”
defined in Rule 12b-2 under the Exchange Act as a company with no or nominal assets (other than cash) and no or nominal operations. Management
does not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully
concluded a business combination. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long
as we are subject to those requirements.

In addition, the Company is an “emerging
growth company,” as defined in the JOBS Act, and may take advantage of certain exemptions from various reporting requirements that
are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being
required to comply with the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act, and exemptions from the requirements
of Sections 14A(a) and (b) of the Exchange Act to hold a nonbinding advisory vote of shareholders on executive compensation and any golden
parachute payments not previously approved.

The Company has also elected to use the extended
transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows
us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until
those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies
that comply with public company effective dates.

7

We will remain an “emerging growth company”
until the earliest of (1) the last day of the fiscal year during which our revenues equal $1.07 billion or more, (2) the date on which
we issue more than $1 billion in non-convertible debt in a three year period, (3) the last day of the fiscal year following the fifth
anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement filed pursuant
to the Securities Act, or (4) when the market value of our common stock that is held by non-affiliates exceeds $700 million as of the
last business day of our most recently completed second fiscal quarter. To the extent that we continue to qualify as a “smaller
reporting company,” as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an emerging growth
company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting
company, including: (1) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley
Act; (2) scaled executive compensation disclosures; and (3) the requirement to provide only two years of audited financial statements,
instead of three years.

The Company has not conducted any active operations
since inception, except for its efforts to locate suitable acquisition candidates. No revenue has been generated by the Company since
inception. It is unlikely the Company will have any revenues unless it is able to effect an acquisition or merger with an operating company,
of which there can be no assurance. The Company’s plan of operation for the remainder of the fiscal year shall be to continue its
efforts to locate suitable acquisition candidates. Our principal business objective for the next 12 months and beyond such time will be
to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. The Company will
not restrict our potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire
any type of business.

The Company does not currently engage in any business
activities that provide cash flow. The costs of investigating and analyzing business combinations for the next 12 months and beyond such
time will be paid with funds to be loaned to or invested in us by our stockholders, management or other investors.

The Company currently does not engage in any business
activities that provide cash flow. During the next twelve months, we anticipate incurring costs related to:

We believe we will be able to meet these costs
through use of funds to be loaned by or invested in us by our stockholders, management or other investors. There are no assurances that
such funds will be advanced or that the Company will be able to secure any additional funding as needed. As of December 31, 2021, the
Company had $271 in cash. On November 13, 2020, in connection with advances made in connection with costs incurred by the Company, the
Company issued a promissory note to Mark Tompkins, a stockholder and director of the Company, pursuant to which the Company agreed to
repay Mr. Tompkins the sum of any and all amounts that Mr. Tompkins may advance to the Company on or before the date that the Company
consummates a business combination with a private company or reverse takeover transaction or other transaction after which the Company
would cease to be a shell company (as defined in Rule 12b-2 under the Exchange Act). The Company has used the proceeds from the note to
cover its expenses. Although Mr. Tompkins has no obligation to advance funds to the Company under the terms of the note, it is anticipated
that he may advance funds to the Company as fees and expenses are incurred in the future. As a result, the Company issued the note in
anticipation of such advances. Interest shall not accrue on the outstanding principal amount of the note except if an Event of Default
(as defined in the note) has occurred. In the event of an Event of Default, the entire note shall automatically become due and payable
(the “Default Date”), and starting from five (5) days after the Default Date, the interest rate on the note shall accrue at
the rate of eighteen percent (18%) per annum. As of December 31, 2021, the total amount due under the note was $64,960. We currently have
no other agreements or specific arrangements in place with our stockholders, management or other investors. We currently have no other
agreements or specific arrangements in place with our stockholders, management or other investors.

8

Our ability to continue as a going concern is
dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and
repay our liabilities arising from normal business operations when they come due. Our ability to continue as a going concern is also dependent
on our ability to find a suitable target company and enter into a possible reverse merger with such company. Management’s plan includes
obtaining additional funds by equity financing through a reverse merger transaction and/or related party advances, however there is no
assurance of additional funding being available.

The Company, as of December 31, 2021 had $271
in cash and has not earned any revenues from operations to date. In the next 12 months, we expect to incur expenses equal to approximately
$40,000 related to legal, accounting, audit, and other professional service fees incurred in relation to the Company’s Exchange
Act filing requirements. The costs related to the acquisition of a business combination target company vary widely and are dependent on
a variety of factors including, but not limited to, the amount of time it takes to complete a business combination, the location of the
target company, the size and complexity of the business of the target company, whether stockholders of the Company prior to the transaction
will retain equity in the Company, the scope of the due diligence investigation required, the involvement of the Company’s auditors
in the transaction, possible changes in the Company’s capital structure in connection with the transaction, and whether funds may
be raised contemporaneously with the transaction. Therefore, we believe such costs are unascertainable until the Company identifies a
business combination target. These conditions raise substantial doubt about our ability to continue as a going concern. The Company is
currently devoting its efforts to locating merger candidates. The Company’s ability to continue as a going concern is dependent
upon our ability to develop additional sources of capital, locate and complete a merger with another company, and ultimately, achieve
profitable operations.

The Company may consider acquiring a business
which has recently commenced operations, is a developing company in need of additional funds for expansion into new products or markets,
is seeking to develop a new product or service, or is an established business which may be experiencing financial or operating difficulties
and is in need of additional capital. Our management believes that the public company status that results from a combination with the
Company will provide such company greater access to the capital markets, increase its visibility in the investment community, and offer
the opportunity to utilize its stock to make acquisitions. There is no assurance that we will in fact have access to additional capital
or financing as a public company. In the alternative, a business combination may involve the acquisition of, or merger with, a company
which does not need substantial additional capital, but which desires to establish a public trading market for its shares, while avoiding,
among other things, the time delays, significant expense, and loss of voting control which may occur in a public offering.

Any target business we select for a potential
business combination may be a financially unstable company or an entity in its early stages of development or growth, including entities
without established records of sales or earnings. In that event, we will be subject to numerous risks inherent in the business and operations
of financially unstable and early stage or potential emerging growth companies. In addition, we may effect a business combination with
an entity in an industry characterized by a high level of risk, and, although our management will endeavor to evaluate the risks inherent
in a particular target business, there can be no assurance that we will properly ascertain or assess all significant risks.

Our management anticipates that it will likely
be able to effect only one business combination, due primarily to our limited financing and the dilution of interest for present and prospective
stockholders, which is likely to occur as a result of our management’s plan to offer a controlling interest to a target business
in order to achieve a tax-free reorganization. This lack of diversification should be considered a substantial risk in investing in us,
because it will not permit us to offset potential losses from one venture against gains from another.

The Company anticipates that the selection of
a business combination will be complex and extremely risky. While the Company is in a competitive market with a small number of business
opportunities, through information obtained from industry professionals including attorneys, investment bankers, and other consultants
with experience in the reverse merger industry, our management believes that there are opportunities for a business combination with firms
seeking the perceived benefits of becoming a publicly traded corporation. Such perceived benefits of becoming a publicly traded corporation
include, among other things, facilitating or improving the terms on which additional equity financing may be obtained, providing liquidity
for the principals of and investors in a business, creating a means for providing incentive stock options or similar benefits to key employees,
and offering greater flexibility in structuring acquisitions, joint ventures and the like through the issuance of stock. Potentially available
business combinations may occur in many different industries and at various stages of development, all of which will make the task of
comparative investigation and analysis of such business opportunities extremely difficult and complex.

9

We do not currently intend to retain any entity
to act as a “finder” to identify and analyze the merits of potential target businesses. However, we contemplate that Montrose
Capital may introduce business combination opportunities to us. There are currently no agreements or preliminary agreements between us
and Montrose Capital.

We have not established a specific timeline nor
have we created a specific plan to identify an acquisition target and consummate a business combination. We expect that our management
and the Company, through its various contacts and affiliations with other entities, including Montrose Capital, will locate a business
combination target. We expect that funds in the amount of approximately $40,000 will be required in order for the Company to satisfy
its Exchange Act reporting requirements during the next 12 months, in addition to any other funds that will be required in order to complete
a business combination. Such funds can only be estimated upon identifying a business combination target. Our management and stockholders
have indicated an intent to advance funds on behalf of the Company as needed in order to accomplish its business plan and comply with
its Exchange Act reporting requirements, however, there are no agreements in effect between the Company and our management or stockholders
specifically requiring they provide any funds to the Company. Therefore, there are no assurances that the Company will be able to obtain
the required financing as needed in order to consummate a business combination transaction.

COVID-19

On March 11, 2020, the World Health Organization
officially declared the outbreak of the novel coronavirus COVID-19 a “pandemic.” A significant outbreak of COVID-19 and other
infectious diseases has resulted in a widespread health crisis that has significantly adversely affected businesses of all types, economies
and financial markets worldwide. The business of any potential target business with which we consummate a business combination could
be materially and adversely affected. Furthermore, we may be unable to complete a business combination if continued concerns relating
to COVID-19 restrict travel, limit the ability to have meetings with potential investors or the target company’s personnel, vendors
and services providers are unavailable to negotiate and consummate a transaction in a timely manner. The extent to which COVID-19 impacts
our search for a business combination will depend on future developments, which are highly uncertain and cannot be predicted, including
new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.
If the disruptions posed by COVID-19 or other matters of global concern continue for an extended period of time, our ability to consummate
a business combination, or the operations of a target business with which we ultimately consummate a business combination, may be materially
adversely affected.

Liquidity and Capital Resources

As of December 31, 2021, the Company had total
assets equal to $271 comprised exclusively of cash. The Company’s current liabilities as of December 31, 2021, totaled $72,460
comprised of amounts due under a note payable to a shareholder for $64,960 and accounts payable of $7,500. The Company can provide no
assurance that it can continue to satisfy its cash requirements for at least the next twelve months.

The following is a summary of the Company’s
cash flows provided by (used in) operating and financing activities for the year ended December 31, 2021, and for the period November
9, 2020 (inception) to December 31, 2020:

The Company has only cash assets and has generated
no revenues since inception. The Company is also dependent upon the receipt of capital investment or other financing to fund its ongoing
operations and to execute its business plan of seeking a combination with a private operating company. In addition, the Company is dependent
upon certain related parties to provide continued funding and capital resources. If continued funding and capital resources are unavailable
at reasonable terms, the Company may not be able to implement its plan of operations.

10

Issuance of Promissory Note to a Stockholder
and Director

On November 13, 2020, the Company issued a promissory
note (the “Note”) to the majority stockholder of the Company, Mark Tompkins, a stockholder and director of the Company, pursuant
to which the Company agreed to repay Mr. Tompkins the sum of any and all amounts that Mr. Tompkins may advance to the Company on or before
the date that the Company consummates a business combination with a private company or reverse takeover transaction or other transaction
after which the Company would cease to be a shell company (as defined in Rule 12b-2 under the Exchange Act). The Company has used the
proceeds from the note to cover its expenses. Although Mr. Tompkins has no obligation to advance funds to the Company under the terms
of the note, it is anticipated that he may advance funds to the Company as fees and expenses are incurred in the future. As a result,
the Company issued the note in anticipation of such advances. Interest shall not accrue on the outstanding principal amount of the note
except if an Event of Default (as defined in the note) has occurred. In the Event of Default, the entire note shall automatically become
due and payable (the “Default Date”), and starting from five (5) days after the Default Date, the interest rate on the note
shall accrue at the rate of eighteen percent (18%) per annum. As of December 31, 2021, the total amount due under the note was $64,960.

Results of Operations

The Company has not conducted any active operations
since inception, except for its efforts to locate suitable acquisition candidates. No revenue has been generated by the Company from
November 9, 2020 (Inception) through December 31, 2021. It is unlikely the Company will have any revenues unless it is able to effect
an acquisition or merger with an operating company, of which there can be no assurance. It is management’s assertion that these
circumstances may hinder the Company’s ability to continue as a going concern. The Company’s plan of operations for the next
twelve months shall be to continue its efforts to locate suitable acquisition candidates.

The Company, as of December 31, 2021 had $271
in cash and has not earned any revenues from operations to date. In the next 12 months, we expect to incur expenses equal to approximately
$40,000 related to legal, accounting, audit, and other professional service fees incurred in relation to the Company’s Exchange
Act filing requirements. The costs related to the acquisition of a business combination target company vary widely and are dependent
on a variety of factors including, but not limited to, the amount of time it takes to complete a business combination, the location of
the target company, the size and complexity of the business of the target company, whether stockholders of the Company prior to the transaction
will retain equity in the Company, the scope of the due diligence investigation required, the involvement of the Company’s auditors
in the transaction, possible changes in the Company’s capital structure in connection with the transaction, and whether funds may
be raised contemporaneously with the transaction. Therefore, we believe such costs are unascertainable until the Company identifies a
business combination target. These conditions raise substantial doubt about our ability to continue as a going concern. The Company is
currently devoting its efforts to locating merger candidates. The Company’s ability to continue as a going concern is dependent
upon our ability to develop additional sources of capital, locate and complete a merger with another company, and ultimately, achieve
profitable operations.

11

Critical Accounting Estimates

Accounting estimates are an integral part of the financial statements
prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about
future events. Management’s estimate of the current portion of note payable - stockholder is based on the possibility that within
one year of the balance sheet date a transaction will occur that requires the Company to repay the note payable. Management’s estimate
of the deferred tax benefit arising from the net operating loss carry forwards available to reduce future federal and state taxable income
and the related valuation allowance in the same amount assumes that the Company will be acquired by a target company and the benefit will
not be realized.

Emerging Growth Company

As an “emerging growth company” under
the JOBS Act, the Company has elected to use the extended transition period for complying with new or revised accounting standards under
Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different
effective dates for public and private companies until those standards apply to private companies. As a result of this election, our
financial statements may not be comparable to companies that comply with public company effective dates.

Fiscal Year

Our fiscal year ends on December 31.