RICHTECH ROBOTICS INC. (RR) FY 2023 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
ITEM 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion should be read in
conjunction with our consolidated financial statements and the related notes contained elsewhere in this Report and
in our other Securities and Exchange Commission filings. The following discussion may contain predictions, estimates, and other forward-looking
statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors” and elsewhere
in this Report. These risks could cause our actual results to differ materially from any future performance suggested
below.
Overview
We are a leading provider
of service robotic solutions by developing, manufacturing, and deploying novel products that address the growing need for automation
in the service industry. We develop and provide service automation solutions that directly address the labor shortage problem
affecting the US service industry. Our solutions include delivery, commercial cleaning, food & beverage service, and
customization and development service, which has been implemented in more than 80 cities across the United States in
restaurants, hotels, casinos, senior living homes, factories and retail centers. Our solutions automate repetitive and
time-consuming tasks which allows clients to reallocate labor hours to more value-creating roles. Many of our clients see
our robotic solutions as crucial to expanding and scaling their businesses.
Our product family was designed
to provide labor-intensive businesses with robotic automation solutions. Hospitality is the most labor-intensive industry, which is why
we have deployed our robots across restaurants, hotels, casinos, hospitals, bars, event spaces, and senior living homes. The market is
currently in the phase where end-users and system integrators are still gaining experience in adoption and implementation of nonindustrial
service robots. In North America, the primary driver for adoption will be the ongoing trend to automate menial or non-value-adding-tasks.
These tasks include cleaning, transport and delivery, and food preparation.
Factors and Trends Affecting Our Business and
Results of Operations
The following trends and uncertainties
either affected our financial performance historically or are likely to impact our results of operations in the future:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | As our robotic products market potential is seen by others, more competitors enter the market, which will lead to price competition and a decline in profit margins; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | A recession will lead to a decline in customer demand in our robotic products and services; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Some of the products are currently assembled by suppliers in China, which may delay the supply if they are affected by international shipping, epidemic, geopolitical conflicts and other factors; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | We anticipate that our general and administrative expenses will increase in the future as a result of increased costs associated with being a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, attorneys, and accountants, and personnel-related stock-based compensation costs, among other expenses, and, in the case of public company-related expenses, services associated with strengthening our internal control over financial reporting, maintaining compliance with Nasdaq listing and SEC reporting requirements, director and officer liability insurance costs, and investor and public relations costs, among other expenses. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Inflationary pressures are also a concern as it is difficult to make reliable projections for the cost of components. This means profit margins could be affected, and our pricing would need to re-evaluated on a regular basis. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | The rising interest rate will lead to a higher borrowing cost. It will increase our cost for any potential future borrowing and financing activities. Higher interest rates reduce consumer spending and business investment, causing the economy to contract, which will impact our business and will reduce our customers’ purchasing power. |
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Results of Operations
Comparison of the years ended September 30,
2023 and 2022
The following table summarizes
our results of operations (in thousands) for the years ended September 30, 2023 and 2022, together with the dollar change in
those items from period to period:
| Year ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | Change | ||||||||||
| Revenue, net | $ | 8,759 | $ | 6,049 | $ | 2,710 | ||||||
| Cost of revenue, net | 2,744 | 2,098 | 646 | |||||||||
| Gross profit | 6,015 | 3,951 | 2,064 | |||||||||
| Operating expenses: | ||||||||||||
| Research and development | 1,979 | 1,772 | 207 | |||||||||
| Sales and marketing | 238 | 297 | (59 | ) | ||||||||
| General and administrative | 3,509 | 2,258 | 1,251 | |||||||||
| Total operating expenses | 5,726 | 4,327 | 1,399 | |||||||||
| Loss from operations | 289 | (376 | ) | 665 | ||||||||
| Other income (expense): | ||||||||||||
| Interest expense, net | (734 | ) | (18 | ) | (716 | ) | ||||||
| Total other expense | (734 | ) | (18 | ) | (716 | ) | ||||||
| Loss before income tax expense | (445 | ) | (394 | ) | (51 | ) | ||||||
| Income tax benefit/(expense) | 106 | (113 | ) | 219 | ||||||||
| Net loss | $ | (339 | ) | $ | (507 | ) | $ | 168 |
Revenue
The
total revenue for the fiscal years ended September 30, 2023, and 2022, was $8,759 thousand and $6,049 thousand, respectively.
The $2,710 thousand increase, or 45%, increase in revenue in 2023 was a result of the continuous expansion of our customer base and increased
revenue from existing customers. Our revenue (in thousands) by product for the fiscal years ended September 30 is shown below:
| Year ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | Change | ||||||||||
| Robotics | ||||||||||||
| Product revenue | $ | 5,665 | $ | 2,981 | $ | 2,684 | ||||||
| Service revenue | 2,602 | 1,876 | 726 | |||||||||
| Leasing revenue | 197 | 441 | (244 | ) | ||||||||
| Total Robotics revenue | 8,464 | 5,298 | 3,166 | |||||||||
| Smart hardware | 7 | 562 | (555 | ) | ||||||||
| Interactive system | 198 | 189 | 9 | |||||||||
| Cloutea* | 90 | — | 90 | |||||||||
| Total | $ | 8,759 | $ | 6,049 | $ | 2,710 |
Notes:
| Column 1 | Column 2 |
|---|---|
| * | Cloutea is the revenue generated from our boba tea store opened in May 2023, in order to further develop our business model. This is our model store of interactive robot barista by utilizing our ADAM robot. |
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For
the fiscal years ended September 30, 2023 and 2022, our overall robotics revenue was $8,464 thousand and $5,298 thousand, respectively.
The $3,166 thousand increase, or 60%, was brought on by the official launch of our ADAM robot,
the culmination of several enterprise deals, and the generally increased adoption rate among medium to small business.
Cost of Revenue, Net
Cost
of revenue, net was $2,744 thousand and $2,098 thousand for the years ended September 30, 2023 and 2022, respectively. The
$646 thousand increase, or 31%, was due primarily to the increase of our robotics revenue in 2023.
Gross Profit
Gross profit as a percentage
of total revenue was 69% for the year ended September 30, 2023 compared to 65% for the year ended September 30, 2022. The increase
in the gross profit percentage in 2023 was driven primarily by the occurrence and recognition of our robotic service revenue, which has
a higher margin.
Research and Development Expenses
Research and development expenses
were $1,979 thousand and $1,772 thousand for the years ended September 30, 2023 and 2022, respectively. The $207 thousand increase, or
12%, from 2022 to 2023 was due primarily to our increased expenditure in developing new products.
Sales and Marketing Expenses
Sales and marketing expenses
were $238 thousand and $297 thousand for the years ended September 30, 2023 and 2022, respectively. This reduction of $59, or
20%, in marketing costs was primarily due to better efficiency in our ability to target ideal customers by concentrating marketing efforts
on the highest return on investment (ROI) activities. In addition, the success of our marketing efforts in 2022 had already put us at
capacity in terms of manufacturing and installations for 2023.
General and Administrative Expenses
General and administrative
expenses were $3,509 thousand and $2,258 thousand for the years ended September 30, 2023 and 2022, respectively. The $1,251
thousand increase, or 55%, from 2022 to 2023 was due primarily to an increase in professional service fees related to prepare for the
initial public offering, and an increase in commission expenses caused by the higher sales.
Other Income (Expense)
Total other expense was
$734 thousand and $18 thousand for the years ended September 30, 2023 and 2022, respectively. The $716 thousand, or
3,978%, net increase in total other expense was primarily due to the interest expense occurred incurred within the twelve months
ended September 30, 2023. During 2023, we entered into ten short-term loan agreements with different financial entities for the
total principal amount of $1,853. As of September 30, 2023, the short-term loan balance was $845. The majority of these loans have
been paid off, and the remaining balance was $55 as of the reporting date.
Income Tax Benefit/(Expense)
There was an income tax benefit
of $106 thousand for the year ended September 30, 2023, and there was an income tax expense of $113 thousand, for the years
ended September 30, 2022. The $219 thousand difference was primarily due to the loss before income tax generated in 2023. The income
tax benefit and/or expenses recorded for both of the year ended September 30, 2023 and 2022 differ from the U.S. federal statutory
tax rate of 21% due primarily to the tax impact of state income taxes, non-deductible officers’ compensation, and transportation
fringe benefits.
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Liquidity and Capital Resources
We believe that our existing
cash as of the date of this Report will fund our current operating plans through at least the next twelve months from the date of this
Report. Although we have operating cash outflows of $2,909 thousand for the year ended September 30, 2023 and $2,646 thousand for the
year ended September 30, 2022, our working capital is in net asset position with $4,092 thousand as of September 30, 2023 and 2,764 thousand
as of September 30, 2022. We launched a new line of robotics products at the end of 2021, which increased our accounts receivable to $5,576
thousand as of September 30, 2023 and $1,656 thousand as of September 30, 2022. We expect to collect the majority of these cash payments
within the next twelve months from the date of this Report. In addition, if needed, we expect to finance our future cash needs within
the next twelve months from the date of this Report through founder investment, public or private equity or debt financings, third-party
(including government) funding and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing
arrangements, or any combination of these approaches.
We will continue seeking
additional capital to expand our operations, advance our products and scale our sales and marketing
capabilities. We will continue seeking additional financing sources to meet our working capital requirements, make investment in
research and development and make capital expenditures needed to maintain and expand our business. If we raise additional funds
through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and
any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock,
including shares of common stock sold in this offering.
Comparison of the years ended September 30,
2023 and 2022
The following table summarizes
our cashflow information (in thousands) for the years ended September 30, 2023 and 2022, together with the dollar change in
those items from period to period:
| Year ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | Change | ||||||||||
| Net cash provided by (used in): | ||||||||||||
| Operating activities | $ | (2,909 | ) | $ | (2,646 | ) | (263 | ) | ||||
| Investing activities | (13 | ) | (44 | ) | 31 | |||||||
| Financing activities | 3,028 | 1,664 | 1,364 | |||||||||
| Net increase (decrease) in cash | $ | 106 | $ | (1,026 | ) | 1,132 |
Operating Activities
Net cash used in operating
activities for the year ended September 30, 2023 was $2,909 thousand, primarily due to a net loss of $339 thousand and a decrease
of $2,570 thousand in net operating assets and liabilities. The cash flow impact from changes in net operating assets and liabilities
was primarily driven by increases in accounts receivable of $3,919 thousand, deferred tax asset of $518 thousand and current operating
lease liabilities of $108 thousand, partially offset by decreases in inventory of $551 thousand, right-of-use asset of $67 thousand and
increase in accounts payable and tax payable of $951 thousand and $344 thousand, respectively. For the increase in accounts receivable of $3,919 thousand, we have collected majority of this amount as of the
report date.
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Net cash used in operating
activities for the year ended September 30, 2022 was $2,646 thousand, primarily due to a net loss of $507 thousand and a decrease
of $2,196 thousand in net operating assets and liabilities, partially offset by a non-cash item of $57 thousand. The cash flow impact
from changes in net operating assets and liabilities was primarily driven by increases in accounts receivable of $1,612 thousand, inventories
of $389 thousand, Right-of-use asset of $382 thousand and a decrease in accounts payable of $305 thousand, partially offset by increases
in current and non-current operating lease liabilities of $387 thousand and tax payable of $108 thousand. The non-cash adjustments to
net loss was an increase of $57 thousand of non-controlling interest.
Investing Activities
Net cash position for investing
activities were $13 thousand and $44 thousand net cash used for investing activities for year ended September 30, 2023 and 2022,
respectively. These amounts primarily consisted of payments made for purchase of property and equipment, sale of property and equipment,
cash used for lending to related parties, and cash collected from loan to related parties for both years.
Financing Activities
Net
cash provided by financing activities totaled $3,028 thousand for the year ended September 30, 2023. We raised $2,230 thousand from
issuance of ordinary shares, received proceeds of $200 thousand from related party debt, and obtained short-term loans with a net balance
of $845 from third parties as of September 30, 2023, offset by $247 thousand payment of related party debt.
Net cash provided by financing
activities totaled $1,664 thousand for the year ended September 30, 2022. We received $1,500 thousand from stockholder capital injection
and $190 thousand from related party debt. These sources of cash were offset by $26 thousand of payments for long-term loans.
Contractual Obligations
We are a smaller reporting
company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Trend Information
Other than as disclosed elsewhere
in this registration statement, particularly with respect to government regulations relating to nicotine and cannabis, we are not aware
of any trends, uncertainties, demands, commitments, or events that are reasonably likely to have a material effect on our net revenues,
income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not
necessarily to be indicative of future operating results or financial condition.
Seasonality
K
Seasonality does not materially
affect our business or the results of our operations.
Off-Balance Sheet Arrangements
We do not have off-balance
sheet arrangements.
Recent Accounting Pronouncements Not Yet Adopted
See Note 2 to our audited
financial statements included elsewhere in this Form 10-K for more information.
Critical Accounting Policies and Estimates
The preparation of the financial
statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Management
bases its estimates on historical experience, market and other conditions, and various other assumptions it believes to be reasonable.
See Note 2 to our audited financial statements included elsewhere in this Form 10-K for more information.
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JOBS Act
Section 107 of the JOBS
Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can
delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies. We have elected
to avail ourselves of this extended transition period.
For as long as we remain an
“emerging growth company” under the recently enacted JOBS Act, we will, among other things:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal controls over financial reporting; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act and instead provide a reduced level of disclosure concerning executive compensation; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements. |
Although
we are still evaluating the JOBS Act, we currently intend to take advantage of some or all of the reduced regulatory and reporting requirements
that will be available to us so long as we qualify as an “emerging growth company,” including the extension of time to comply
with new or revised financial accounting standards available under Section 102(b) of the JOBS Act. Among other things, this
means that our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness
of our internal control over financial reporting so long as we qualify as an emerging growth company, which may increase the risk that
weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an emerging
growth company, we may elect not to provide you with certain information, including certain financial information and certain information
regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC,
which may make it more difficult for investors and securities analysts to evaluate our company. As a result, investor confidence in our
company and the market price of our common stock may be materially and adversely affected.