Serve Robotics Inc. /DE/ (SERV)

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included in Part I, Item 1. “Financial Statements,” of this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our 2025 Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Please also see the sections titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and Part II, Item 1A, “Risk Factors” for a discussion of 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 and elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are engaged in developing and operating autonomous robotic systems designed to navigate and perform work in complex, human-centered environments. Serve has developed an advanced platform that combines proprietary hardware, artificial intelligence, computer vision, and cloud-based fleet management software to enable safe, reliable, and scalable autonomous operations across multiple physical domains. We design, engineer, deploy, and operate low-emission robotic systems built on this platform.

Serve operates autonomy systems across multiple domains spanning both outdoor and indoor environments. Our sidewalk delivery operations provide autonomous last-mile delivery services for restaurant and retail partners, while our healthcare operations, enabled through the acquisition of Diligent Robotics in 2026, deploy robots in hospital settings to support clinical staff through logistics and workflow automation.

As of March 31, 2026, our fleet consisted of over 2,000 autonomous delivery robots operating across a diverse set of environments, with a combined footprint spanning multiple cities and states. Our robots operate daily across these environments, generating proprietary data that continuously improves our AI models and enhances the performance, safety, and capabilities of the platform.

We maintain platform-level integrations with major delivery providers, including Uber Eats and DoorDash, enabling real-time order dispatch, robot coordination, and operational management. In addition to fleet-based service revenue, we are expanding our monetization model to include on-robot advertising and branding, software services, data-related offerings, and other recurring revenue streams.

Serve is shaping the future of Physical AI in real world environments. We are expanding our platform into adjacent markets, customer segments, and operating environments where autonomous mobility can address labor constraints, improve service levels, and reduce emissions. We intend to leverage our core autonomy stack, fleet management infrastructure, and operational expertise to support additional use cases across both outdoor and indoor settings.

Our core technology originated in 2017 as a specialized project within Postmates. Since then, we have expanded from a single-market deployment to a scaled, multi-market, and now multi-domain platform. We believe our ability to operate robots across different environments, combined with the data generated from those operations, strengthens our autonomy platform and supports the long-term development of a broader robotics ecosystem.

Financial Overview

For the three months ended March 31, 2026 and 2025, we generated revenues of $3.0 million and $0.4 million, respectively, and reported net losses of $49.0 million and $13.2 million, respectively.

As noted in our unaudited condensed consolidated financial statements, as of March 31, 2026, we had an accumulated deficit of $257.9 million.

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Recent Developments

Acquisition of Diligent Robotics, Inc.

On January 27, 2026, the Company acquired all of the issued and outstanding equity of Diligent, which was accounted for under the acquisition method of accounting. Refer to the “Liquidity and Capital Resources” section for discussion on the purchase price and the acquisition’s impact on Serve’s liquidity.

Acquisition of Vebu, Inc.

On February 17, 2026, the Company acquired all of the issued and outstanding equity of Vebu, which was accounted for under the acquisition method of accounting. Refer to the “Liquidity and Capital Resources” section for discussion on the purchase price and the acquisition’s impact on Serve’s liquidity.

Securities Purchase Agreement (October 2025)

On October 10, 2025, the Company entered into a securities purchase agreement with certain institutional investors pursuant to which the Company agreed to issue and sell, in a registered direct offering, an aggregate of 6,250,000 shares of the Company’s common stock, $0.0001 par value per share at a price of $16.00 per share. The gross proceeds to the Company from the registered direct offering were approximately $100.0 million, before deducting the placement agents’ fees and other offering expenses payable by the Company.

Acquisition of Vayu Robotics, Inc.

On August 15, 2025, the Company acquired all of the issued and outstanding equity of Vayu, which was accounted for under the acquisition method of accounting. Refer to the “Liquidity and Capital Resources” section for discussion of the purchase price and the acquisition’s impact on the Company’s liquidity.

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 and Hospital-Based Automation

Our potential for growth depends significantly on continued demand for last-mile delivery of food and other items on our partner platforms and for automation solutions from our hospital customers. The demand for last-mile delivery can fluctuate based on various market cycles and weather and local community health conditions, as well as evolving competitive dynamics, and the demand for hospital-based automation solutions can fluctuate based on budget cycles, staffing levels, operational priorities, and broader healthcare industry conditions.

Our largest stream of projected revenue comes from maximizing utilization of our outdoor delivery robot fleet 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.

Our healthcare-related revenue depends on the continued utilization of robots within hospital workflows. The extent to which hospitals are able to support, operate, and scale robotic deployments directly impacts utilization rates, all of which can be challenging to predict. In addition, hospitals may face limitations in infrastructure, staffing, or internal support required to sustain robotic fleets. These uncertainties make demand difficult to forecast for us and our customers.

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Customer Concentration

A significant portion of our revenue is concentrated with a limited number of customers. The following table represents the concentration of revenue for all customers that accounted for more than 10% of our revenues for the three months ended March 31, 2026 and 2025:

A significant portion of our accounts receivable is concentrated with a limited number of customers. The following table represents the concentration of accounts receivable for all customers that account for more than 10% of our total accounts receivable as of March 31, 2026 and December 31, 2025:

There are inherent risks whenever a large percentage of total revenues and accounts receivable are concentrated with a limited number of customers. The loss of any or all of these customers could have a negative impact on our planned operations.

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, 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 items 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. However, inflation can also serve as a tailwind that may 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, to our knowledge, no actual or threatened litigation against us for patent-related matters, litigation or threatened litigation is a common method to enforce or protect intellectual property rights. Such action may be initiated by or against us and would require significant management time and expense.

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Supply Chain Constraints

We cannot be sure whether global supply chain shortages will affect 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 affect our cash runway and delays in the manufacturing of our robots would p

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included in Part II, Item 8. “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the sections titled “Cautionary Statement Regarding Forward-Looking Statements” and Part I, Item 1A. “Risk Factors,” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this Annual Report on Form 10-K.

Overview

We are engaged in developing technologies intended to enable sustainable, autonomous robotic solutions for public spaces. Serve has developed an advanced, AI-powered robotics mobility platform that integrates proprietary hardware, AI, computer vision, and cloud-based fleet management software to enable autonomous operation in complex, real-world environments. We design, engineer, deploy, and operate low-emission robotic systems built on this platform.

Serve is shaping the future of sustainable, self-driving delivery. While food delivery remains our primary commercial application, we are expanding our platform into adjacent markets, customer segments, and operating environments where autonomous mobility can address labor constraints, improve service levels, and reduce emissions. We intend to leverage our core autonomy stack, fleet management infrastructure, and operational expertise to support additional use cases across both outdoor and indoor settings.

Our core technology originated in 2017 as a specialized project within Postmates, one of the pioneering food delivery startups in the United States. As of December 31, 2025, our fleet consisted of over 2,000 sidewalk delivery robots. We maintain platform-level integrations with major food delivery platforms, including Uber Eats and DoorDash, enabling real-time order dispatch, robot status updates, and operational coordination.

In addition to delivery revenue, we are developing supplementary revenue streams, including on-robot advertising and branding, fleet data monetization, and software licensing opportunities.

We plan to extend our autonomous mobility platform into indoor environments, including healthcare and other commercial settings. These initiatives are intended to broaden our addressable market beyond outdoor food delivery and reflect our strategy to deploy our AI-enabled robotics platform across multiple verticals. We expect to leverage complementary

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technologies, domain expertise, and commercial relationships to enhance product capabilities, accelerate deployment opportunities, and support scalable, recurring revenue growth over time.

Financial Overview

For the year ended December 31, 2025 and 2024, we generated revenues of $2.7 million and $1.8 million, respectively, and reported net loss of $101.4 million and $39.2 million, respectively.

As noted in our consolidated financial statements, as of December 31, 2025, we had an accumulated deficit of $208.9 million.

Recent Developments

Securities Purchase Agreement (October 2025)

On October 10, 2025, the Company entered into a securities purchase agreement with certain institutional investors pursuant to which the Company agreed to issue and sell, in a registered direct offering, an aggregate of 6,250,000 shares of the Company’s common stock, $0.0001 par value per share at a price of $16.00 per share. The gross proceeds to the Company from the registered direct offering were approximately $100.0 million, before deducting the placement agents’ fees and other offering expenses payable by the Company.

Acquisition of Vayu Robotics, Inc.

On August 15, 2025, the Company acquired all of the issued and outstanding equity of Vayu, which was accounted for under the acquisition method of accounting. Refer to the “Liquidity and Capital Resources” section for discussion of the purchase price and the acquisition’s impact on the Company’s liquidity.

Acquisition of Voysys AB

On April 1, 2025, the Company acquired from Phantom Auto Inc. all of the issued and outstanding equity of Voysys AB (“Voysys”), which was accounted for under the acquisition method of accounting. Refer to the “Liquidity and Capital Resources” section for discussion of the purchase price and the acquisition’s impact on the Company’s liquidity.

Securities Purchase Agreement (January 2025)

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 $80.0 million, before deducting the placement agents’ fees and other offering expenses payable by the Company.

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.

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Customer Concentration

A significant portion of our revenue is concentrated with a limited number of customers. The following table represents the concentration of revenue for all customers that accounted for more than 10% of our revenues for the years ended December 31, 2025 and 2024:

A significant portion of our accounts receivable is concentrated with a limited number of customers. The following table represents the concentration of accounts receivable for all customers that account for more than 10% of our total accounts receivable as of December 31, 2025 and 2024:

There are inherent risks whenever a large percentage of total revenues and accounts receivable are concentrated with a limited number of customers. The loss of any or all of these customers could have a negative impact on our planned operations.

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, 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 items 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. However, inflation can also serve as a tailwind that may 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, to our knowledge, no actual or threatened litigation against us for patent-related matters, litigation or threatened litigation is a common method to enforce or protect intellectual property rights. Such action may be initiated by or against us and would require significant management time and expense.

Supply Chain Constraints

We cannot be sure whether global supply chain shortages will affect 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

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commitments with our suppliers, which could introduce inventory risk if our forecasts and assumptions prove inaccurate. Higher costs of components would affect 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 or impact our unit economics in those markets.

Components of Results of Operations

Revenue

Our revenue consists of fleet services, which includes revenue generated from delivery services, branding services, and data monetization; and software services, which includes revenue generated from licensing software to customers, and engineering and development projects.

Cost of Revenue

Cost of revenue consists primarily of allocations of depreciation on robot assets used for revenue producing activities, allocations of network costs, allocation of 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.

Research and Development Expenses

Research and development expenses primarily consist of costs incurred by research and development functions. These costs are expensed as incurred.

General and Administrative Expenses

General and administrative expenses primarily consist of costs incurred by general and administrative functions, including executive management and administrative functions, including finance and accounting, legal and human resources.

Operations Expenses

Operations expenses primarily consist of costs incurred by field operations functions.

Sales and Marketing Expenses

Sales and marketing expenses primarily consist of costs incurred by sales and marketing functions.

Other Income (Expense), Net

Other income (expense), net primarily includes the following items:

•Interest income, which consists primarily of interest earned on our cash and cash equivalents and marketable securities.

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

•Realized gain (loss) on foreign currency translation, which consists primarily of remeasurement of transactions and monetary assets and liabilities denominated in currencies other than the functional currency at the end of the period.

•Realized gain (loss) from the sale or maturity of marketable securities.

•Change in fair value of derivative liability.

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•Other income (expense), net.

Results of Operations

Comparison of Results of Operations for the Years ended December 31, 2025 and 2024

The following table summarizes our operating results as reflected in our statements of operations during the years ended December 31, 2025 and 2024, respectively, and provides information regarding the dollar and percentage increase or decrease during such periods (in thousands).

Revenues increased by $0.8 million, or 46%, to $2.7 million, for the year ended December 31, 2025, compared with $1.8 million for the year ended December 31, 2024. This increase is due to strong operational execution and robot fleet expansion resulting in an increase of $1.0 million in fleet services revenue.

Cost of revenues increased by $16.1 million to $18.0 million for the year ended December 31, 2025, compared with $1.9 million for the year ended December 31, 2024, due primarily to the substantial expansion of our robot fleet, which drove an approximately 430% increase in headcount and an overall increase in scale-up related costs during the year.

Research and development expense increased by $21.0 million to $45.3 million for the year ended December 31, 2025, compared with $24.3 million for the year ended December 31, 2024, due primarily to an increase in headcount of approximately 130%, higher software-related expenses driven by expanded cloud platform usage, and increased depreciation expense.

General and administrative expense increased by $27.0 million to $37.1 million for the year ended December 31, 2025, compared with $10.1 million for the year ended December 31, 2024, due primarily to an approximately 175% increase in

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headcount, higher stock-based compensation expense, and increased professional fees largely related to acquisition activities.

Operations expense increased by $8.8 million to $12.1 million for the year ended December 31, 2025, compared with $3.3 million for the year ended December 31, 2024. The increase was primarily attributable to an approximately 105% increase in headcount, higher depreciation expense associated with the expansion of our robot fleet, and increased facility costs related to our entry into new markets.

Sales and marketing expenses increased by $2.3 million to $2.9 million for the year ended December 31, 2025, compared with $0.6 million for the year ended December 31, 2024. This increase was primarily due to an increase in headcount of approximately 365%.

Interest income increased by $6.0 million to $7.3 million for the year ended December 31, 2025, compared with $1.3 million for the year ended December 31, 2024, as a result of interest earned from cash on hand and marketable securities.

Interest expense decreased $2.0 million to $3.4 thousand for the year ended December 31, 2025, from the expense of $2.0 million for the year ended December 31, 2024. The prior year expense was primarily related to amortization of debt discount.

Realized gain on foreign currency translation had a negligible increase for both periods. Such gains resulted from the translation of the Company’s non-U.S. transactions to U.S. dollars.

Realized gain on investments increased by $0.4 million for the year ended December 31, 2025, compared with no realized gains for the year ended December 31, 2024, as a result of sales of marketable securities.

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 or generating branding revenues. We closely monitor and strive to efficiently increase our daily active robots 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, 2025, we had current assets of $241.1 million and current liabilities of $13.3 million, including $106.2 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. Marketable securities consist of commercial paper, corporate bonds, U.S. government agency securities and U.S. Treasury securities.

We have generated significant operating losses from our operations as reflected in our accumulated deficit of $208.9 million as of December 31, 2025. Historically, we have funded our operations through issuance of equity and debt securities. To execute on our strategic initiatives and continue growing 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

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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. If 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 (in thousands):

Operating Activities

Net cash used in operating activities was $80.2 million and $21.5 million for the years ended December 31, 2025 and 2024, respectively. The increase in cash used in operating activities of $58.7 million was primarily driven by a net loss of $101.4 million, adjusted for certain non-cash items, including $21.3 million of stock-based compensation expense, and $8.2 million of depreciation expense.

Investing Activities

Net cash used in investing activities was $198.0 million and $10.3 million for the years ended December 31, 2025 and 2024, respectively. The increase of $187.7 million was primarily due to $152.3 million of net purchases of marketable securities during the year, as well as, purchases of property and equipment related to fleet construction.

Financing Activities

Net cash provided by financing activities was $261.2 million and $155.1 million for the years ended December 31, 2025 and 2024, respectively. The increase of $106.1 million was due to $170.8 million in proceeds from the issuance of common stock pursuant to a public offering, net of issuance costs, $78.7 million in proceeds from the issuance of pre-funded warrants to purchase common stock in connection with a private placement, net of issuance costs, and $11.4 million in proceeds from the exercise of warrants.

Off-Balance Sheet Transactions

During the periods presented, we did not have, and we do not currently have, off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities, to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

Our consolidated financial statements and the related notes thereto included in this Annual Report on Form 10-K are prepared in accordance with U.S. GAAP. 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 require management’s 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

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results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows may be affected. We believe that the accounting policies described below involve a greater degree of judgment and complexity, and are most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Revenue Recognition

The Company accounts for revenue in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”). The Company determines 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 measured based on the consideration we expect to receive, which is based on the amount specified in the contract with our customer. Revenue is recognized when the performance obligations under the terms of the contract are satisfied, which generally occurs as control of the promised goods or services is transferred to customers. If appropriate under ASC 606, we allocate the transaction price to individually distinct performance obligations based on the relative standalone selling prices of the distinct good or service. As a practical expedient, the Company does 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.

The Company recognizes revenue from its fleet services when the performance obligation is satisfied. The fleet performs delivery services, branding services, and data monetization. For delivery services, the Company satisfies its performance obligation when the delivery is complete, which is the point in time control of the delivered product transfers to the customer. The Company’s performance obligation for branding services is to continually promote a brand over the duration of the contractual term, which is typically less than one year. The Company primarily recognizes revenue as branding services are rendered, based on the amount that it has the right to invoice. For data monetization arrangements, the Company satisfies its performance obligation upon the customer’s acceptance of the data transfer, at which time control of the data is deemed to have transferred to the customer.

The Company recognizes revenue from 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. Due to the nature of certain performance obligations, the estimation of progress based on expected overall labor hours requires judgment. The consideration that we expect to receive may include both fixed and variable amounts. Service fees that have been invoiced or paid prior to the related performance obligations being met are recorded as deferred revenue.

Cost of Revenue

Cost of revenue consists primarily of depreciation and network costs allocated to on-duty robot assets, direct labor, and other direct costs related to data, software, and services required for the robots to operate as intended.

The Company allocates the portion of depreciation expense and network costs recognized during each period based on fleet utilization. Fleet utilization is determined using the number of hours that a robot is actively completing a delivery compared to the total hours a robot is available for delivery. Fully depreciated assets are excluded from the calculation of utilization.

Direct labor costs are allocated to cost of revenue based on departments or resource with direct contact involvement. Each contract is assessed to determine which personnel will be directly involved in delivery of performance obligations. Direct labor typically includes roles in fleet management, hardware operations, and software engineering.

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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 recognize 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 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 statements 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 estimate the volatility of common stock on the date of grant based on the weighted-average historical stock price volatility of our own shares or comparable publicly traded companies in our industry group. The expected term of our stock options has been determined using 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 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.

Business Combinations

The Company accounts for business combinations using the purchase method of accounting. The Company allocates the purchase consideration to the assets acquired and liabilities assumed generally based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed is recorded as goodwill. During the measurement period, the Company may obtain information to assist in determining the fair value of net assets acquired, which may differ from preliminary estimates. The Company applies any measurement period adjustments in the reporting period in which the adjustment amounts are determined. The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on estimates and assumptions, as well as other information compiled by the Company, including valuations that use customary valuation procedures and techniques.

Certain of our acquisitions may include other forms of consideration, including mandatorily redeemable liabilities and other earn-out arrangements. As of the acquisition date, we record such consideration, as applicable, at the estimated fair value of the expected future payments associated with the obligation. Any changes to the recorded fair value of the consideration are recognized in earnings in the period in which they occur.

Transaction expenses are recognized separately from the business combination and are expensed as incurred. These expenses primarily include direct third-party professional fees for advisory and consulting services and other incremental costs related to the acquisition.

Recent Accounting Pronouncements

See Note 2 Summary of Significant Accounting Policies, to the consolidated financial statements included in Part II, Item 8. “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

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 on which we (i) are no longer an emerging growth company or (ii)

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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,” as defined in Item 10(f) of Regulation S-K, and we will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our common stock held by non-affiliates equals or exceeds $250 million as of the prior June 30, or (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year or the market value of our common stock held by non-affiliates equals or exceeds $700 million as of the prior June 30.

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. Similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.