# Richtech Robotics Inc.: Form 10-Q for the period ended Jun 30, 2024

- Company: [Richtech Robotics Inc.](/companies/rr.md) (CIK 1963685)
- Form: 10-Q
- Filed: 2024-08-15
- Accepted by EDGAR: Aug 14, 2024, 22:16 ET
- Period: 2024-06-30
- Accession: 0001213900-24-069231
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1963685/000121390024069231/ea0211245-10q_richtech.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1963685/000121390024069231/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $1.4m | us-gaap:Revenues |
| Revenue | 9 months, 2023-10-01 to 2024-06-30 | $3.7m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $429.0k | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-10-01 to 2024-06-30 | $1.4m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $1.0m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-10-01 to 2024-06-30 | $2.3m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-04-01 to 2024-06-30 | $386.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-10-01 to 2024-06-30 | $1.6m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$895.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-10-01 to 2024-06-30 | −$4.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | $317.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-10-01 to 2024-06-30 | $317.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$1.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-10-01 to 2024-06-30 | −$5.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.02 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-10-01 to 2024-06-30 | −$0.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.02 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-10-01 to 2024-06-30 | −$0.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 69,683,943 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-10-01 to 2024-06-30 | 69,683,943 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-10-01 to 2024-06-30 | −$2.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-06-30 | $9.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $12.7m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $13.4m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $3.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $4.3m | us-gaap:Liabilities |
| Short-term borrowings | at 2024-06-30 | $2.4m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-06-30 | $9.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,088 characters.

*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 filings with the Securities and Exchange Commission (the “SEC”). 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” in our 2023 Annual Report 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.

To further support our clients in optimizing the use of ADAM robots and enhancing the efficiency of their operations, we established a wholly-owned subsidiary, Alphamax Management LLC, in June 2024. Alphamax Management LLC provides business management and operational services to help our clients better integrate robots into their workflow. This initiative will initially focus on our partnerships with Ghost Kitchens, beginning with the Ghost Kitchen inside the Walmart in Dawsonville, GA, and the One Kitchen restaurant in a Walmart in Rockford, IL. We expect this business service to generate a steady and growing revenue stream, reflecting its impact in our financial results over the upcoming quarters.

### 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:

- 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;
- A recession could lead to a decline in customer demand in our robotic products and services;
- 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;
- We expect our general and administrative expenses to increase in the future due to the costs associated with operating as 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.
- 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 be re-evaluated on a regular basis.
- Rising interest rates will lead to higher borrowing costs. It will increase our costs 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 on our business and will reduce our customers’ purchasing power.
- We may adopt a new compensation plan that will introduce adjustments to executive compensation packages and will have a new vesting schedule. The potential impact of a new compensation plan may include increased costs associated with higher executive salaries and performance-based incentives. Additionally, a new vesting schedule may impact employee retention and talent acquisition strategies. The ultimate impact of the plan will be decided by the terms of the final plan, which are subject to approval by the Compensation Committee.

### Results of Operations

### Comparison of the nine and three months ended June 30, 2024 and 2023

The following table summarizes our results of operations (in thousands) for the nine months and three ended June 30, 2024 and 2023, together with the dollar change in those items from period to period:

|  | Nine months ended June 30, 2024 | 2023 | Change | Three months ended June 30, 2024 | 2023 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue, net | $3,715 | 3,364 | 351 | $1,443 | 1,310 | 133 |
| Cost of revenue, net | 1,411 | 1,520 | (109) | 429 | 612 | (183) |
| Gross profit | 2,304 | 1,844 | 460 | 1,014 | 698 | 316 |
| Operating expenses: |  |  |  |  |  |  |
| Research and development | 1,633 | 1,589 | 44 | 386 | 317 | 69 |
| Sales and marketing | 1,024 | 216 | 808 | 237 | 50 | 187 |
| General and administrative | 3,750 | 2,531 | 1,219 | 1,286 | 944 | 342 |
| Total operating expenses | 6,407 | 4,336 | 2,071 | 1,909 | 1,311 | 598 |
| Loss from operations | (4,103) | (2,492) | (1,611) | (895) | (613) | (282) |
| Other income (expense): |  |  |  |  |  |  |
| Interest expenses,net | (761) | (51) | (710) | (101) | (50) | (51) |
| Total other expenss | (761) | (51) | (710) | (101) | (50) | (51) |
| Loss before income tax expense | (4,864) | (2,543) | (2,321) | (996) | (663) | (333) |
| Income tax benefit/(expense) | (317) | - | (317) | (317) | - | (317) |
| Net loss | **$(5,181)** | **(2,543)** | **(2,639)** | **(1,313)** | **(663)** | **(651)** |

#### Revenue

The total revenue for the nine months ended June 30, 2024, and 2023, was approximately $3,715 thousand and $3,364 thousand, respectively. The approximate $351 thousand, or 11%, increase in revenue in the nine months ended June 30, 2024 was a combined result of our continuous expansion of customer base and changing of our sales mode. Our revenue (in thousands) by product for the nine months ended June 30 is shown below:

| Robotics | Nine months ended June 30, 2024 | 2023 | Change | Three months ended June 30, 2024 | 2023 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Product revenue | $1,252 | $2,767 | $(1,515) | $582 | $1,144 | $(562) |
| Service revenue | 1,510 | 258 | 1,252 | 611 | 1 | 610 |
| Leasing revenue | 604 | 146 | 458 | 115 | 25 | 90 |
| Total Robotics revenue | 3,366 | 3,171 | 195 | 1,308 | 1,170 | 138 |
| Smart hardware | 16 | 1 | 15 | - | - | - |
| Interactive system | 101 | 167 | (66) | 61 | 115 | (54) |
| ClouTea\* | 232 | 25 | 207 | 74 | (25) | 99 |
| Total | $3,715 | $3,364 | $351 | $1,443 | $1,260 | $183 |

#### Notes:

\* 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.

For the nine months ended June 30, 2024 and 2023, our overall robotics revenue was approximately $3,366 thousand and $3,171 thousand, respectively. The increase of approximately $195 thousand, or 7%, was brought on primarily by our increased service revenue of approximately $1,252 thousand, or 485% and leasing revenue of $458 thousand, or 314%, partially offset by the decrease in product revenue of approximately $1,515 thousand, or 55%. We are currently upgrading our product line to ensure we remain at the forefront of robotics technology. The Robotics as a Service (RaaS) model allows us to build stronger customer relationships, generate recurring revenue streams, and potentially achieve higher margins through premium services. We anticipate a temporary decrease in product sales during this transition to a RaaS model, which we expect to last for the remainder of this year. This will be mitigated by the launch of our new product line later this year.

For the three months ended June 30, 2024 and 2023, our gross revenue was $1,443 thousand and $1,310 thousand, respectively, the increase was mainly due to the increase in Service and ClouTea revenue, partially offset by the decrease in product revenue.

In the quarter ended June 30, 2024, we achieved significant progress in our commercial robot business development. Specifically, the deployment of our ADAM robot at Ghost Kitchens in Dawsonville, Georgia, marked the beginning of a planned expansion to 240 locations across the United States. ADAM’s advanced AI capabilities are set to improve operational efficiency and customer experience by automating beverage preparation, thereby addressing key challenges in the hospitality sector, such as consistency and labor shortages.

Additionally, we launched Medbot, an elevator-enabled medical delivery robot, to enhance operational efficiency in healthcare facilities. Medbot’s secure, 24/7 medication delivery services address the critical shortage of pharmacy staff, reduce operational costs, and improve patient care. This initiative highlights our commitment to utilizing robotic technology to streamline operations and improve service quality in various sectors.

We believe these advancements highlight the strategic value of our robotic solutions, establishing them as key drivers of future revenue growth. Our continuous innovations in both the hospitality and healthcare sectors are expected to play a pivotal role in the company’s financial performance and market expansion.

#### Cost of Revenue, Net

Cost of revenue, net, was approximately $1,411 thousand and approximately $1,520 thousand for the nine months ended June 30, 2024 and 2023, respectively. The approximately $109 thousand decrease, or 7%, was primarily due to the increase of our robotics service revenue in 2024. Robotic service revenue has a higher margin compared to other revenue streams. Cost of revenue, net, was approximately $429 thousand and $612 thousand for the three months ended June 30, 2024 and 2023, respectively. The approximately $183 thousand decrease was also primarily due to the increase of our robotics service revenue in 2024.

#### Gross Profit

Gross profit as a percentage of total revenue was approximately 62% for the nine months ended June 30, 2024 compared to approximately 55% for the nine months ended June 30, 2023. Gross profit as a percentage of total revenue was approximately 70% for the three months ended June 30, 2024 compared to approximately 53% for the nine months ended June 30, 2023.

#### Research and Development Expenses

Research and development expenses were approximately $1,633 thousand for the nine months ended June 30, 2024, representing an increase of $44 thousand compared to the same period in 2023. Research and development expenses were approximately $386 thousand for the three months ended June 30, 2024, representing an increase of $69 thousand compared to the same period in 2023. This increase reflects our ongoing efforts to optimize R&D spending while continuing to invest in developing innovative new products.

#### Sales and Marketing Expenses

Sales and marketing expenses were approximately $1,024 thousand for the nine months ended June 30, 2024, increased by approximately $808 thousand, or 375%, compared to $216 thousand for the prior year period. Sales and marketing expenses were approximately $237 thousand for the three months ended June 30, 2024, increased by approximately $187 thousand, or 375%, compared to $50 thousand for the prior year period. The increase in marketing costs was primarily due to our increased expenditure in large screen advertisement and social media marketing for our products in November and December 2023.

#### General and Administrative Expenses

General and administrative expenses were approximately $3,750 thousand for the nine months ended June 30, 2024, increased by approximately $1,219 thousand, or 48%, compared to $2,531 thousand for the prior year period. General and administrative expenses were approximately $1,286 thousand for the three months ended June 30, 2024, increased by approximately $342 thousand, or 36%, compared to $944 thousand for the prior year period. The increase for both period was primarily due to an increase in professional service fees and related expenses to maintain a public company status.

#### Other Income (Expense)

Total other expenses were approximately $761 thousand for the nine months ended June 30, 2024, increased by approximately $710 thousand, compared to $51 thousand for the prior year period. Total other expenses were approximately $100 thousand for the three months ended June 30, 2024, increased by approximately $51 thousand, compared to $51 thousand for the prior year period. The net increase in total other expenses for both periods was primarily due to the interest expense incurred within the nine months ended June 30, 2024. In February, March and April 2024, we issued three Notes to the Investor, totaling $3,000,000, in connection with the Standby Equity Purchase Agreement. In April 2024, we issued 259,350 Commitment Shares to the Investor, settling the outstanding balance of approximately $2,053,000 on the Notes. The Notes were fully repaid in July 2024.

#### Income Tax Benefit/(Expense)

Income tax expense was $317 thousand and zero for the nine months ended June 30, 2024, and 2023, respectively. The increase in 2024 was due in part to the annual income tax amount owed to the states and the federal government, and in part to the reversal of a portion of our Deferred Tax Asset (“DTA”). This reversal was triggered by a change in our forecast, indicating a lower likelihood of future taxable income. The DTA was initially established due to prior net operating losses.

### 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. We had operating cash outflows of $2,121 thousand for the nine months ended June 30, 2024 and $2,265 thousand for the nine months ended June 30, 2023, our working capital is in net asset position with $8,835 thousand as of June 30, 2024 and $4,092 thousand as of September 30, 2023. 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, the financing arrangements described above, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. 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.

On February 15, 2024, we entered into a Standby Equity Purchase Agreement (the “Purchase Agreement”) with YA II PN, Ltd. (the “Investor”), pursuant to which the Investor has agreed to purchase up to $50 million of the Company’s shares of Class B common stock over the course of 24 month period.

The price of shares to be issued under the Purchase Agreement will be 96% of the lowest volume weighted average price (the “VWAP”) of the Company’s Class B common stock for the three trading days immediately following the delivery of each Advance notice by the Company (the “Pricing Period”). Each purchase by the Investor (an “Advance”) is subject to a daily limit of 100% of the average daily trading volume of our Class B common stock, as reported by Bloomberg L.P., during the five trading days preceding our notice.

With respect to each Advance, the Company has the option to notify the Investor of a minimum acceptable price (“MAP”) by specifying the amount within an Advance notice. During any trading day within a Pricing Period, two conditions will trigger an automatic reduction to the amount of the Advance by one-third: either (i) the VWAP of the Class B common stock is below the MAP specified in the Advance notice, or (ii) there is no VWAP available (each such day, an “Excluded Day”). On each Excluded Day, an automatic one-third reduction is applied to the specified Advance amount in the Advance notice and that day will be excluded from the Pricing Period.

Each Advance is subject to certain limitations, including that the Investor cannot purchase any shares that would result in it beneficially owning more than 4.99% of the Company’s outstanding voting power of number of shares of Class B common stock at the time of an Advance or acquiring more than 19.99% of the Company’s outstanding shares of Class B common stock as of the date of the Purchase Agreement (the “Exchange Cap”). The Exchange Cap will not apply under certain circumstances, including, where the Company has obtained stockholder approval to issue in excess of the Exchange Cap in accordance with the rules of The Nasdaq Stock Market (“Nasdaq”) or such issuances do not require stockholder approval under Nasdaq’s “minimum price rule.”

The Purchase Agreement will terminate automatically on the earlier of February 16, 2025 or when the Investor has purchased an aggregate of $50 million of the Company’s shares of Class B common stock. The Company has the right to terminate the Purchase Agreement upon five trading days’ prior written notice to the Investor, subject to certain conditions.

In connection with and subject to the satisfaction of certain conditions set forth in the Purchase Agreement, upon the request of the Company, the Investor will pre-advance to the Company up to $3,000,000 of the $50,000,000 commitment amount (a “Pre-Advance”), with each Pre-Advance to be evidenced by a convertible promissory note (each, a “Note”). The first Pre-Advance, in the principal amount of $1,000,000, was advanced on February 15, 2024. The second Pre-Advance, in the principal amount of $1,000,000, was advanced on March 18, 2024. The third Pre-Advance, in the principal amount of $1,000,000, was advanced on April 15, 2024. Each Note is subject to a 4% discount to the principal amount of such Note.

Each Note will accrue interest on the outstanding principal balance at the rate of 8% per annum and has a maturity date of February 15, 2024 (as may be extended at the option of the Investor). Beginning in May 2024, the Company was required to pay, on a monthly basis, one-nineth of the outstanding principal amount of each Note, together with accrued and unpaid interest, either (i) in cash or (ii) by submitting an Advance notice pursuant to the Purchase Agreement and selling the Investor shares, or any combination of (i) or (ii) as determined by the Company. The initial repayment is due 90 days after the issuance of the first Note, followed by subsequent payments due every 30 days after the previous payment. Unless otherwise agreed to by the Investor, any funds received by the Company pursuant to the Purchase Agreement for the sale of shares will first be used to satisfy any payments due under an outstanding Note.

At the election of the Investor, all or a portion of the principal, interest, or other amounts outstanding under each Note (the “Conversion Amount”) may be converted into shares of Common Stock (the “Conversion Shares”), equal to: (x) the Conversion Amount, divided by (y) the Conversion Price. “Conversion Price” is defined as (i) $6.00 per share of Class B common stock, provided however, on May 28, 2024 (the “Reset Date”), the Conversion Price shall be adjusted (downwards only) to equal the average of the daily VWAPs for the 5 consecutive trading days immediately prior to the Reset Date, if such price is lower than the Conversion Price then in effect. The Conversion Shares are entitled to the registration rights set forth in the Purchase Agreement.

On March 14, 2024, the Company and the Investor entered into a letter agreement (the “Letter Agreement”) to amend the terms of each Note as follows: (i) the Company may redeem early a portion or all amounts (including principal and accrued and unpaid interest) outstanding under the Note with at least 10 trading days’ prior written notice by the Company to the Investor. The outstanding principal balance being redeemed by the Company shall be subject to a 10% cash redemption premium. After receipt of the Redemption Notice, the Investor shall have 10 trading days to elect to convert all or any portion of the Note; and (ii) the Conversion Price shall not be lower than $1.50 per share of Class B common stock.

The Company paid a subsidiary of the Investor a structuring fee in the amount of $25,000 and in April 2024, issued to the Investor 259.350 shares of Class B common stock (the “Commitment Shares”) as a commitment fee. The Company and the Investor made certain representations and warranties to each other that are customary for transactions similar to this one, subject to specified exceptions and qualifications. Each of the Company and the Investor also agreed to indemnify the other.

The foregoing descriptions of the Purchase Agreement and the Notes and the transactions contemplated thereby are qualified in their entirety by reference to the full text of the Purchase Agreement and the Notes, a copy or a form of which are attached hereto as Exhibits 10.1 and 4.1, respectively, each of which is incorporated herein in its entirety by reference.

### Comparison of the nine months ended June 30, 2024 and 2023

The following table summarizes our cash flow information (in thousands) for nine months ended June 30, 2024 and 2023, together with the dollar change in those items from period to period:

| Net cash provided by (used in): | Nine months ended June 30, 2024 | 2023 | Change |
| --- | ---: | ---: | ---: |
| Operating activities | $(2,121) | $(2,265) | (144) |
| Investing activities | 135 | (11) | 146 |
| Financing activities | 10,754 | 2,517 | 8,237 |
| Net change in cash and cash equivalents | $8,768 | $232 | 8,536 |

#### Operating Activities

Net cash used in operating activities for the nine months ended June 30, 2024 was approximately $2,121 thousand, primarily due to a net loss of approximately $5,181 thousand offset by an increase of approximately $3,060 thousand in net operating assets and liabilities. The cash flow impact from changes in net operating assets and liabilities was primarily driven by decreases in accounts receivable of approximately $2,448 thousand, decreases in deferred tax assets of $518 thousand and inventory of approximately $424 thousand, partially offset by the increase in tax payable of $197 thousands and accounts payable of $111 thousand.

Net cash used in operating activities for the nine months ended June 30, 2023 was $2,265 thousand, primarily due to a net loss of $2,543 thousand and an increase of $268 thousand in net operating assets and liabilities. The cash flow impact from changes in net operating assets and liabilities was primarily driven by decrease in inventory of $687 thousand and increases in current operating lease liabilities of $81 thousand, partially offset by increases in accounts receivable of $70 thousand and prepaid expenses and other current assets of $162 thousand, and a decrease in accounts payable of $51 thousand, tax payable of $73 thousand, and non-current operating lease liabilities of $75 thousand.

#### Investing Activities

Net cash used for investing activities was approximately $135 thousand and approximately $11 thousand for the nine months ended June 30, 2024 and 2023, respectively. These amounts consisted of the cash used for lending to related parties slightly offset by sales of property in both periods.

#### Financing Activities

Net cash provided by financing activities totaled approximately $10,754 thousand for the nine months ended June 30, 2024. We raised approximately $9,278 thousand from issuance of Class B common stock and obtained short-term loans in the form of convertible Notes totaling $3 million from the Investor, as discussed above.

Net cash provided by financing activities totaled $2,517 thousand for the nine months ended June 30,2023. We raised $2,120 thousand from issuance of ordinary shares, received proceeds of $200 thousand from related party debt, and obtained $459 loans from third parties, offset by $140 thousand payment of related party debt and $122 thousand payment of loans from third parties.

### 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

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 unaudited financial statements included elsewhere in this Form 10-Q 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-Q for more information.

### 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:

- 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;
- 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
- 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.

## Controls and procedures

As filed, 5,258 characters.

(a) Evaluation of disclosure controls and procedures

In preparation for this Report, our management, under the supervision and with the participation of our CEO, CFO, and VP of Finance, assessed the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act). Based on this assessment, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report. The recent corrective actions addressing a previously disclosed material weakness have significantly improved the reliability of our financial reporting processes.

### Management’s Report on Internal Controls over Financial Reporting

Our internal control over financial reporting (ICFR) is a process designed by, or under the supervision of, our CEO, CFO, and VP of Finance. It is affected by our Board of Directors, management, and other personnel to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements in accordance with generally accepted accounting principles (GAAP). The addition of the VP of Finance has significantly strengthened our ICFR framework.

### These controls include policies and procedures that:

- Maintain records that accurately and fairly reflect transactions and dispositions of our assets.
- Ensure transactions are recorded as necessary for GAAP-compliant financial statement preparation.
- Authorize receipts and expenditures in accordance with our Board and management directives.
- Provide reasonable assurance regarding the prevention or timely detection of unauthorized actions that could materially affect our financial statements.

### Evaluation, Remediation, and Ongoing Improvement：

Under the supervision of our CEO, CFO, and VP of Finance, we continue to evaluate the effectiveness of our ICFR based on the 2013 COSO framework. We are committed to maintaining and improving our ICFR through ongoing monitoring and proactive measures.

In prior quarters, we successfully addressed a material weakness through the following actions:

- **Accounting Software Upgrade:** Implemented QuickBooks Online to centralize transaction documentation, automate key accounting processes, and enhance data security.
- **Inventory Management Enhancement:** Integrated QuickBooks’ inventory management module, improving real-time visibility, reducing calculation errors, and enhancing inventory accuracy.

Management believes the previously implemented measures, along with the following additional actions, have effectively addressed the material weakness identified in prior periods and significantly strengthened our overall internal control over financial reporting (ICFR):

- **Robust Controls for SaaS Reports:** Established more specific controls to effectively address Complementary User Entity Controls arising from SaaS vendor audits.
- **Enhanced IT Governance:** Expanded management oversight and controls within our IT systems.
- **Data Accuracy Focus:** Implemented specific controls to ensure the completeness and accuracy of information produced by the entity (IPE), especially spreadsheets used in financial statement preparation.
- **Improved Access Management:** Implemented enhanced controls for internal user access management, including provisioning, periodic review, and timely removal.

We are committed to ongoing monitoring and improvement. We will continue to assess these measures to ensure a robust control environment. The material weakness will be considered remediated when the controls have operated effectively for a sufficient period and management has performed adequate testing.

### Changes in Internal Control over Financial Reporting

As of March 31, 2023, as a privately owned company, we were not subject to the Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC, or other corporate governance requirements applicable to public reporting companies with respect to the establishment of internal controls over financial reporting. As described within the remedial measures above, during the period ended June 30, 2024, we developed and commenced the implementation of internal controls over financial reporting, and we are continuing to develop and implement internal controls over financial reporting.

### Inherent Limitations on Internal Controls

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

(b) Changes in Internal Control over Financial Reporting

There has not been any change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended June 30, 2024 that has materially affected, or is likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 5,128 characters.

As a smaller reporting company under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in this Report. However, as of the date of this Report, other than as set forth below, there have been no material changes with respect to those risk factors previously disclosed in our (i) registration statement for our initial public offering and (ii) 2023 Annual Report. Any of these factors could result in a significant or material adverse effect on the results of our operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an initial business combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

***The market price and trading volume of our Class B common stock may continue to be highly volatile, which could lead to a loss of all or part of a stockholder’s investment.***

The market price and trading volume of our Class B common stock has fluctuated widely since the beginning of the calendar year. During the period from January 1, 2024 to the date of this Report, the trading price of our Class B common stock has fluctuated from an intra-day high of $12.29 on January 24, 2024 to a low of $0.37 on August 6, 2024.

The market price of our Class B common stock is affected by a variety of factors, including but not limited to:

- analyst reports that may be published about our company or our industry;
- our ability to execute our anticipated business plans and strategy;
- actual or anticipated fluctuations in our quarterly or annual operating results;
- our ability to obtain additional capital which will be necessary to continue our business and operations;
- changes in financial or operational estimates or projections;
- changes in the economic performance or market valuations of companies similar to ours;
- the impact of pandemics, inflation, war, other hostilities and other disruptive events on our business or that of our customers, partners, and supply chain or on the global economy; and
- our ability to comply with the continued listing requirements of Nasdaq and maintain our listing on Nasdaq.

In addition, the trading price and trading volume of our Class B common stock has very recently and at certain other times in the past exhibited, and may continue to exhibit, extreme volatility, including within a single trading day. Such volatility could cause purchasers of our Class B common stock to incur substantial losses. For example, on July 22, 2024, the trading price of our Class B common stock ranged from an intra-day high of $2.59 to an intra-day low of $1.31, on trading volume of approximately 100 million shares, and on August 7, 2024, the trading price of our Class B common stock ranged from an intra-day high of $0.728 to an intra-day low of $0.5413, on trading volume of approximately 188 million shares. With respect to certain such instances of trading volatility, we are not aware of any material changes in our financial condition or results of operations that would explain such price volatility or trading volume, which we believe reflect market and trading dynamics unrelated to our operating business or prospects and outside of our control. We are thus unable to predict when such instances of trading volatility will occur or how long such dynamics may last. Under these circumstances, we would caution you against investing in our Class B common stock unless you are prepared to incur the risk of incurring substantial losses.

A proportion of our Class B common stock may be traded by short sellers which may put pressure on the supply and demand for our Class B common stock, creating further price volatility. In particular, a possible “short squeeze” due to a sudden increase in demand of our Class B common stock that largely exceeds supply may lead to sudden extreme price volatility in our Class B common stock. Investors may purchase our Class B common stock to hedge existing exposure in our Class B common stock or to speculate on the price of our Class B common stock. Speculation on the price of our Class B common stock may involve long and short exposures. To the extent aggregate short exposure exceeds the number of shares of common stock available for purchase in the open market, investors with short exposure may have to pay a premium to repurchase our Class B common stock for delivery to lenders of our Class B common stock. Those repurchases may in turn dramatically increase the price of our Class B common stock until investors with short exposure are able to purchase additional common stock to cover their short position. This is often referred to as a “short squeeze.” Following such a short squeeze, once investors purchase the shares necessary to cover their short position, the price of our Class B common stock may rapidly decline. A short squeeze could lead to volatile price movements in our shares that are not directly correlated to the performance or prospects of our company and could cause purchasers of our common shares to incur substantial losses.

Filed Aug 15, 2024.
Source: SEC EDGAR, the filing index for accession 0001213900-24-069231. Last ingested by Listed: Oct 24, 2026, 15:16 ET. No prices; not investment advice.