Richtech Robotics Inc 10-K/A for FY2024
Richtech Robotics Inc. (RR)
About this 10-K/A
Richtech Robotics Inc filed this 10-K/A on February 7, 2025, covering the fiscal year ended September 30, 2024 (FY2024).
Headline figures
Fiscal year ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.24M
- down 51.6% from $8.76M a year earlier
- Net loss
- $8.14M
- compared with a net loss of $339K a year earlier
- Diluted EPS
- -$0.12
- compared with -$0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
For the fiscal year ended
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As of January 14, 2025, there were
Explanatory Note
Richtech Robotics Inc. (the “Company”, “we”, “our”, or “us”) is filing this Amendment No. 1 to its Annual Report on Form 10-K/A (the “Amendment”) to amend its Annual Report on Form 10-K for the fiscal year ended September 30, 2024 (the “2024 Form 10-K”), as filed with the Securities and Exchange Commission on January 14, 2025, to (i) correct a typographical error in the date of Report of Independent Registered Public Accounting Firm, (i) add disclosure regarding the Company’s policy related to recovery of erroneously awarded compensation and (iii) file a copy of the Company’s policy related to recovery of erroneously awarded compensation as Exhibit 97 hereto.
Except as described above, no other information included in the 2024 Form 10-K is being amended or updated by this Amendment and, other than as described herein, this Amendment does not purport to reflect any information or events subsequent to the 2024 Form 10-K. This Amendment continues to describe the conditions as of the date of the 2024 Form 10-K and, except as expressly contained herein, we have not updated, modified or supplemented the disclosures contained in the 2024 Form 10-K.
TABLE OF CONTENTS
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PART I
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Report”) contains forward-looking statements that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in our “Business,” “Risk Factors,” and “Management Discussion and Analysis of Financial Condition and Result of Operations” sections, as well as those discussed elsewhere in this Report. In some cases, you can identify these forward-looking statements by terms such as “anticipate,” “believe,” “continue,” “could,” “depends,” “estimate,” “expects,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms or other similar expressions, although not all forward-looking statements contain those words.
Our operations and business prospects are always subject to risks and uncertainties including, among others:
| ● | Our ability to secure raw materials and components to manufacture sufficient quantities of robots to match demand; |
| ● | Our ability to secure enterprise clients and deals in the face of growing competition; |
| ● | Assumptions around the speed of robotic adoption in service environments; |
| ● | Assumptions relating to the size of the market for our products and services; |
| ● | Unanticipated regulations of robots and automation that add barriers to adoption and have a negative effect on our business; |
| ● | Our ability to obtain and maintain intellectual property protection for our products; |
| ● | Our estimates of expenses, future revenue, capital requirements and our needs for, or ability to obtain, additional financing. |
The forward-looking statements in this Report represent our views as of the date of this Report. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention to do so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Report.
Unless the context requires otherwise, references in this Report to “we,” “us,” “our,” “our company,” “the Company,” “Richtech” or similar terminology refer to Richtech Robotics Inc., including its consolidated subsidiaries.
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ITEM 1. Business
Overview
We are a developer of advanced robotic technologies focused on transforming labor-intensive services in hospitality and other sectors currently experiencing unprecedented labor shortages. With a global R&D team based out of China and the United States, we design, manufacture and sell robots to restaurants, hotels, senior living centers, casinos, factories, movie theaters and other businesses. Our robots perform a variety of services including restaurant running and bussing, hotel room service delivery, floor scrubbing and vacuuming, and beverage and food preparation. We design our robots to be friendly, customizable to client environments, and extremely reliable. For example, our food service delivery robots typically make over 1000 deliveries every month in busy environments, while our medical robots are utilized for tasks such as delivering medications and supplies in hospitals, enhancing operational efficiency. Our current customer base includes major hotel brands, national chain restaurants, leading senior care facilities, and top casino management companies, and prominent healthcare institutions.
Our mission is to integrate robotics and automation into our everyday lives. We envision ourselves becoming the first robotics “Super-operator,” where thousands of our robots are deployed out in the field and managed by Richtech’s AI Cloud Platform (ACP). As a Super-operator, our robotic fleet will be performing a wide variety of tasks within a business, from completing deliveries and scrubbing floors to cooking noodles, preparing drinks, and supporting logistics in hospitals. Our ACP platform will allow businesses to plug in their robots and immediately leverage an immense amount of data to optimize workflows, lower management complexity, and minimize labor dependency.
Recent Developments
Ghost Kitchens Letter of Intent
On October 16, 2024, we entered into a binding Letter of Intent (the “LOI”) with Ghost Kitchens America. Under the terms of the LOI, the parties agreed to enter into a franchise agreement, pursuant to which the Company will acquire exclusive rights to operate 20 Walmart-located “One Kitchen” restaurants in Arizona, Colorado, and Texas. These restaurants will be directly managed by the Company’s subsidiary, AlphaMax Management LLC, with the aim of optimizing restaurant operations through robotics and AI cloud technology. The foregoing summary of the terms of the LOI are subject to, and qualified in their entirety by, the LOI, a copy of which is filed as Exhibit 10.1 to this Report and are incorporated herein by reference.
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Registered Offering
On August 29, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors” and, together with the retail purchasers who purchased securities in the Offering (as defined below) pursuant to the Company’s prospectus, dated August 29, 2024, as filed with the Securities and Exchange Commission (the “SEC”) on August 30, 2024 (the “Prospectus”), the “Purchasers”). Pursuant to the terms of the Purchase Agreement and the Prospectus, the Company agreed to sell, in a public offering (the “Offering”), (i) an aggregate of 13,242,963 shares (the “Shares”) of the Company’s Class B common stock, (ii) pre-funded warrants to purchase up to 2,312,594 shares of Class B common stock (the “Pre-Funded Warrants”), and (iii) warrants to purchase up to 15,555,557 shares of Class B common stock (the “Common Warrants”), at a purchase price per Share and accompanying Common Warrant of $1.35. The Pre-Funded Warrants were exercisable immediately on the date of issuance at an exercise price of $0.00001 per share and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. The Common Warrants are exercisable immediately on the date of issuance at an exercise price of $1.35 per share and will expire five years from the date of issuance. The Offering closed on September 3, 2024.
Rodman & Renshaw LLC acted as the exclusive placement agent (the “Placement Agent”) for the Company, on a “reasonable best efforts” basis, in connection with the Offering. Pursuant to an engagement letter dated June 4, 2024, the Placement Agent received a cash fee equal to 7.0% of the aggregate gross proceeds of the Offering. The Company also paid the Placement Agent certain out-of-pocket expenses, including its legal counsel, in the amount of $80,000 and an additional $15,950 for its clearing expenses. The Placement Agent also received warrants (the “Placement Agent Warrants”) to purchase a number of shares of Common Stock equal to 7.0% of the aggregate number of Shares and Pre-Funded Warrants sold in the Offering. The Placement Agent Warrants have substantially the same terms as the Common Warrants, except that the Placement Agent Warrants have an exercise price of 125% of the combined offering price per Share and accompanying Common Warrant and have an expiration date of five years from the commencement of sales in the Offering.
The net proceeds to the Company from the Offering, after deducting the Placement Agent’s fees and expenses but before paying the Company’s estimated offering expenses, were approximately $19.4 million. The Company intends to use the net proceeds from the Offering for working capital, general corporate purposes, including the further development of its product candidates, and the procurement of inventory, specifically for robotic hardware.
The Shares, Pre-Funded Warrants, Common Warrants, Placement Agent Warrants and the shares of Class B common stock issuable upon exercise of the Pre-Funded Warrants, Common Warrants, Placement Agent Warrants were offered and sold by the Company pursuant to the Prospectus, which formed a part of the Company’s registration statement on Form S-1 (File No. 333-281789), filed with the SEC on August 27, 2024 and subsequently declared effective on August 29, 2024, and an additional registration statement on Form S-1MEF filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, which became automatically effective on August 29, 2024.
The forms of the Purchase Agreement, the Pre-Funded Warrant, the Common Warrant, and the Placement Agent Warrant are filed as Exhibits 10.17, 4.3, 4.4, and 4.5, respectively, to this Report. The foregoing summaries of the terms of these documents are subject to, and qualified in their entirety by, such documents, which are incorporated herein by reference.
As of the date of this Report, the Investors have exercised their Pre-Funded Warrants in full, at an exercise price of $0.00001 per share, for an aggregate of 2,312,594 shares of Class B common stock. The Company received aggregate gross proceeds of $23.13 in connection with the exercises of the Pre-Funded Warrants. As of the date of this Report, the Investors have exercised Common Warrants for an aggregate of 9,788,278 shares of Class B common stock, for aggregate proceeds of approximately $13.2 million. The Placement Agent is entitled to 7% of the proceeds generated from warrant exercises.
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Corporate History and Corporate Structure
We were originally founded as Richtech Creative Displays LLC in Nevada in July 2016, and we converted to Richtech Robotics Inc., a Nevada corporation, in June 2022. We completed our initial public offering on November 21, 2023, and shares of our Class B common stock began trading on the Nasdaq Capital Market on November 17, 2023 under the symbol “RR.”
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.
Our Products and Services
Our products are categorized into three kinds of service automation: indoor transport and delivery, sanitation, and food and beverage automation. Our target market is the hospitality sector, which includes restaurants, hotels, casinos, resorts, senior care, hospitals, and movie theaters. We also plan to leverage our expertise in food automation to bring services directly to the consumer with the ADAM system which is described below.
The majority of our robots can be characterized as Autonomous Mobile Robots (“AMRs”), meaning that our robots can understand and move through its environment independently. AMRs differ from their predecessors, Autonomous Guided Vehicles (“AGVs”), which rely on tracks or predefined paths and often require operator oversight. Our AMRs understand their environment through an array of advanced sensors, with the primary sensor being a LiDAR which stands for Light Detection and Ranging. The LiDAR is able to create a 2D map of the environment by sending out laser pulses and measuring the time it takes to bounce back, similar to sonar but far more accurate. Secondary sensors such as RGBD cameras that detect color and depth of images, ultrasonic proximity sensors, and standard AI machine vision that can recognize objects are used in sync to create an in-depth understanding of the robot’s environment. These sensors, combined with a robust navigation software stack based on AI algorithms, provides our robots the ability to perform dynamic path planning through their environments.
Our ACP service is a business optimization tool that allows customers to benefit from the rich operational data generated by the robots. Each AMR can operate independently in the real world and report data up to the ACP. The ACP can then utilize the data to optimize workflows, enhance guest experiences, and minimize waste. The ACP will store robot utilization metrics for analyses and reporting, providing clients with detailed operational data. Lastly, one of the most important features of the ACP is that it allows multiple types of robots to operate in the same environment, utilizing the same integrations and providing data back to a centralized point.
Indoor Transport and Delivery
In the transport and delivery category we have four main product lines, the Matradee line of server assistant robots geared towards restaurants and restaurant-like environments, the Medbot line designed specifically for hospital deliveries, the Titan line for heavy duty payloads in central distribution facilities and general transport duties, and the Skylark line of service robots customized for hotel and room service applications.
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Matradee is a robot designed for dining spaces that can be used for bussing, serving, hosting, advertising, and entertaining. For example, Matradee will transport food from the kitchen to the table where a waiter can come by and serve the guests. The waiter could then load the Matradee with dirty plates and send it to the dish washing zone in the kitchen. This keeps the waiter on the floor serving guests and reduces physical stress on the waiter. The robot is designed to operate in narrow and busy environments, navigating around tables and people in order to get to its destination. Typically, a Matradee will perform over 1000 deliveries per month in a busy restaurant. On the ACP, clients can review number of deliveries, distance traveled, hours of operation, utilization patterns over time, and manage their robotic fleet.
Matradee was designed to have a large carrying capacity and to be able to carry as much food as three to four waiters combined per trip. The robot is designed to be extremely stable so that it can carry wine glasses and delicate food items without spilling. It can also be used to greet guests at the reception area and lead them to their table. With a battery life of eight to fourteen-hours between charges, the Matradee can run for the entire day without taking a break. When multiple robots are deployed in the same space, the robots communicate over short-range radio waves to coordinate and make way for each other.
One of the biggest advantages of the Matradee is the ease of deployment and reliability. Standard deployments involving full installation and staff training are typically completed within three to four hours. The robot is not connectivity dependent and can operate fully offline. These features decrease the difficulty of deployments and dramatically increase the variety of environments in which the Matradee can be deployed successfully. This allows more deployments, lower costs, and faster scaling.
The Matradee is currently deployed in restaurants, hotels, casinos, senior living homes, and factories. Many of these businesses have either restaurants or have restaurants-like businesses so the primary task the robot performs is delivering food from the kitchen to the tables, and bussing dirty dishes back to the dishpit. Some factory clients also utilize the Matradee for delivery of parts by making use of the remote summoning feature to call the robot to specific stations to pick up items for delivery.
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Medbot is designed specifically for secure and efficient deliveries in hospitals and other healthcare spaces. This line of robots is a rebranding of the Richie/Robbie robotic line to help customers better associate the robot to specific applications. The robot has 4 secured compartments that can be configured to deliver items to up to 4 different destinations per trip. Through our ACP, the Medbot can travel on elevators and through secure doors providing a fully autonomous delivery solution in extremely dynamic environments. The Medbot has a very robust suite of sensors that allows it to be very nimble and intelligent when navigating highly complex unstructured environments around people as well as large obstructions like hospital beds and trash bins. From our deployments in the field, a fleet of 5 Medbots can make around 8,000 deliveries per month, traveling over 600 miles, with over 600 hours of active runtime between them. This alleviates one of the toughest tasks on hospital staff, and provides a very strong return on investment (“ROI”) for the hospital. We expect to launch multiple pilot installations in fiscal year 2025.
Titan is the newest addition to our delivery robot lineup, adding an option for customers looking for more heavy duty AMR delivery options. The current version of Titan can carry between 330 to 440 pounds, with additional models able to carry over 1,000 pounds in development. Titan was designed with modularity and ease of implementation in mind, as it can lift any rack as long as the rack meets a certain set of general parameters. This provides Titan with a very large addressable market in and outside the hospitality space. For example, factories and warehouses can utilize Titan for delivery of large objects over large spaces, up and down elevators and through secure doors. Titan broadens the applications where we can apply our AMR technology to improve efficiency and solve labor challenges. We believe that Titan will play a large role in increasing the total number of robots deployed due to its broad applicability.
Skylark represents a set of robots that are designed specifically for hotel and applications where room service is an element of the client’s business. This product’s addressable market primarily consists of hotels, senior living, and apartment buildings. The design of Skylark revolves around modularity, and adaptability to the environment it is deployed in. The system consists of a base navigation module and several modular attachments specialized for specific tasks such as delivery or cleaning. Currently, the Skylark has a cleaning attachment for vacuuming and mopping floors, and a enclosed delivery attachment for room service and package delivery. Additional attachments are scheduled for release in the future, including a security and laundry attachment. One important element of Skylark is that all attachments are customized specifically for the hotel environment. This means the design accounts for common issues such as door width, elevator navigation, and specific low-obstacle avoidance problems not common in other AMR application scenarios. The modular Skylark robot provides an all-in-one solution that emphasizes ROI and ease-of-use.
Sanitation
DUST-E is our autonomous commercial cleaning robot product line that features two distinct models the S and MX.
The S is designed for medium sized environments under 100,000 sq. ft. The primary use case for the S is in open commercial spaces such as lobbies of hotels and more challenging surfaces such as those of restaurants where there may be food debris and spills. The S utilizes a high-power vacuum and multi-roller system that categorizes the debris it picks up for a one-pass cleaning efficiency. The S comes with a number of advanced features including a charging station, scheduled cleaning functions, and precise localization that brings down the wall gap to just three centimeters.
Future models are expected to include an AI driven categorization system that adjusts the cleaning routine according to the type and intensity of the mess being cleaned.
The MX is our largest unit capable of cleaning spaces up to 500,000 sq ft. Designed with professional cleaning in mind, the MX is a floor scrubber tailored to large industrial and commercial spaces such as warehouses, factories, large hotel floors, event spaces, schools and universities, and department stores. The MX comes in a variety of configurations that accommodate different floor types from bare concrete to more sensitive vinyl tiles. Designed for heavy-duty cleaning, the MX comes with a 30-gallon water tank, weighs over 600 lbs., and provides a brush pressure of 13.2g/cm2.
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Data collected by the ACP provide clients with utilization metrics as well as a cleaning map which show the path the robot took during its cleaning routine. The ACP is expected to provide reminders for routine replacement of consumable and renewable components, and preemptive maintenance alerts for all robots.
Food and Beverage Automation
ADAM is our food and beverage automation robot developed on the NVIDIA Jetson Orin platform. The core concept of ADAM is to develop a fully independent food and beverage business based entirely on robots and automation. The dual six-degree-of-freedom robotic arms are designed to provide the same level of flexibility as a human arm, allowing ADAM to easily emulate human movements. We designed ADAM to be friendly and approachable by giving it a white and round exterior, and designed it to look more like a robot than a human to avoid the “uncanny valley” effect. (The uncanny valley is a concept that suggests that humanoid objects that imperfectly resemble actual human beings provoke uncanny or strangely familiar feelings of uneasiness and revulsion in observers. “Valley” denotes a dip in the human observer’s affinity for the replica, a relation that otherwise increases with the replica’s human likeness.) Future features are expected to include adding natural language processing to allow customers to directly speak their orders to the robot as they would with an employee.
ADAM is capable of making a wide variety of beverages including coffee, craft cocktails, and Boba tea autonomously. ADAM is currently serving customers at various venues across the country including inside supermarkets, stadiums, hospitals, and coffee shops across the country. Since 2022, we have rented the ADAM system out for corporate and celebrity events. Clients included global tech firms, accounting firms, global alcoholic beverage companies, and U.S. celebrities. In fiscal year 2024, we accomplished $857,000 in revenue from leasing ADAM for events.
Scorpion is a new product for 2025, developed on the same architecture as ADAM, Scorpion can perform many of ADAM’s AI functions at a lower cost and smaller footprint. Additional AI camera systems allow for new features such as gesture and face recognition. These additional features, along with the smaller footprint, provide a more intimate experience for guests. Scorpion also has the unique ability to personalize any traditional cocktail recipe. Just tell Scorpion what mood you are in, and it will craft a totally unique cocktail based on your input and information collected through its sensors. The smaller footprint allows for this intelligent AI bartender to be deployed in a wider variety of environments, providing a more engaging and unique experience, while significantly improving ROI and affordability.
On October 17, 2024, we announced our plans to launch 20 robotic restaurant locations in Walmart stores across the country. As of the date of this Report, two locations have been secured via franchise agreements: (1) on September 10, 2024, the Company signed a franchise agreement for a new location in Peachtree City, Georgia. This location, slated to commence operations in January 2025, will be operated by Alphamax Management LLC, a wholly-owned subsidiary of the Company; and (2) on August 20, 2024, the Company amended an existing franchise agreement originally intended for Clovis, California, relocating the franchise to Oceanside, California.
Clouffee & Tea
Clouffee & Tea is our first self-owned restaurant brand. The concept behind Clouffee & Tea is to seamlessly blend innovative technology with a vibrant coffee and tea culture to create an engaging customer experience. Robotic operation presents a uniquely scalable franchise model, which we plan to demonstrate as a successful blueprint for integrating robotics into coffee and tea shop operations. Beyond redefining the beverage experience, Clouffee & Tea will serve as a dynamic platform for technological application and iteration. It will allow us to utilize real-world scenarios for testing new robotic technologies while opening an additional revenue growth channel for the Company. Clouffee & Tea, will open its inaugural franchise store in Las Vegas, Nevada in late January 2025, adding another dimension to our growth strategy
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Our Industry
Our product family was designed to provide labor-intensive businesses with robotic automation solutions. Hospitality is one of the most labor-intensive industries, which is why we have deployed our robots across restaurants, hotels, casinos, hospitals, bars, event spaces, and senior living homes.
The nonindustrial service robotics sector includes warehouse picker robots, self-driving floor scrubbers, customer service robots, delivery robots, surgery robots, food harvesting robots for agriculture, underground and underwater inspection robots, security robots, military defense robots, robots for healthcare logistics, drug research robots and others. 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 is expected to be the ongoing trend to automate menial or non-value-adding-tasks. These tasks include cleaning, transport and delivery, hospital logistics, and food preparation.
Market Opportunities
The primary market for our robots and automation tools are businesses that cannot find affordable or reliable labor to perform certain task. We believe that the current economic environment provides conditions that should drive growth. As of September 2024, there were 13.7 million job openings in the United States, surpassing the number of unemployed Americans. Two key markets for our service robots—restaurants and hotels—present significant opportunities. The American Hotel and Lodging Association reports that the lodging industry encompasses over 55,900 properties nationwide, with 1 in 25 U.S. jobs tied to this sector. The industry contributes an impressive $660 billion annually to the nation’s GDP. Meanwhile, the restaurant sector, the second-largest private employer in the country, employs 1 in 10 Americans. According to the National Restaurant Association, eating and drinking establishments add $1.4 trillion to the U.S. economy in 2024, representing approximately 6% of real GDP.
The healthcare sector is also experiencing an unprecedent shortage of workers. According to the American Hospital Association, there will be a shortage of 100,000 critical health care workers by 2028. There is a large market opportunity in solving operational challenges within hospitals due to the critical nature of patient care.
An October 2024 report released by the McKinsey Global Institute estimates that 40% of physical work done by people will be automated in less than 20 years. According to the report, the primary benefits of robotics is in addressing labor shortages, increasing throughput, decreasing downtime, and creating safer work environments. Our products not only provide a solution to the labor challenges faced by businesses today, but also a way to improve guest experience, lower operation costs and complexity, and provide a long-term path to stable growth. We believe the excitement around robotics and automation will help accelerate customer adoption of our solutions.
Future Growth Opportunities
Since becoming a public company in November of 2023, we at Richtech have been focused on executing on our business objectives. The company has made a full transition to offer primarily RaaS products to build a sustainable and scalable business model. We have deployed our restaurant robotic concepts at strategic high-visibility locations. Our diverse customer base and pipeline spans businesses from healthcare to automotive. At Richtech, we continue to lean into our competitive advantages to bring exceptional value to end users. As we continue to drive innovation and expand our market presence, we are strategically positioned to capitalize on multiple growth avenues across our business. Below are the key components of our future growth strategy:
Expansion of RaaS Customer Base and Sales Pipeline
2024 has been a momentous year for us, with plenty of transitions, new products and new verticals. Our foray into the healthcare space over the last year has been brief but fruitful. We have signed an agreement for a multi-unit deployment at one of the most prestigious hospitals in the country, with several pilot installations scheduled for Q1 2025 at a few of the largest health systems in the southeast. We have opened conversations with over 15 integrated delivery networks (IDNs) representing over 300 individual acute care hospitals across the country. Our vision is to become one of the largest holistic provider of hospital robotic automation systems in the country by 2026. Combining our technical expertise with a sophisticated understanding of how to generate value in healthcare has meant that we are offering cutting-edge services. Interest in automation within this vertical is very high and we plan to continue expanding in this space.
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Automotive will also be a key vertical for us in the next few quarters. Adoption of our Titan robot has been rapid, challenging our teams to add on additional staffing to cope with implementation demand. Our current customer pipeline represents over 1,000 end users. We believe this market will have the highest number of robot deployments over the next few quarters.
Within all the verticals we work in, Richtech’s objective is to solve issues efficiently, bringing value through innovative robotic solutions that are reliable and cost effective. We continue to innovate, listen to our customers, and deliver competitive and quality solutions to the market.
Operational Robotics Restaurants and Partnership with Ghost Kitchens
In the restaurant sector, our collaboration with Ghost Kitchens and operations in high-foot-traffic locations like Walmart represent a significant growth opportunity. We have already secured 20 Walmart locations, with the first restaurant set to launch in December 2024. These robot-powered restaurants integrate beverage preparation, food delivery, and other automated services, offering a unique customer experience and cost-efficiency. To support this initiative, we have established Alphamax Management LLC, a wholly owned subsidiary dedicated to standardizing operations and creating scalable models. These frameworks will serve as a blueprint for other operators, enabling us to monetize operational expertise in the future. Additionally, our first self-owned brand, Clouffee & Tea, will open its inaugural franchise store in late January 2025, adding another dimension to our growth strategy.
Strategic Partnerships and New Initiatives
We continue to expand our partnerships to drive innovation and market penetration. Starting in 2025, we plan to launch a food trailer project with our partners, targeting mobile food services. Through Zipphaus Plus LLC, our joint venture established in 2024, we have secured partnerships with Peet’s Coffee and Kaiser Permanente to operate robotic coffee shops, further diversifying our revenue streams and enhancing brand visibility.
Global Expansion Across Key Markets
As part of our long-term growth plan, we are actively expanding our presence in international markets, including Asia, Australia, and Europe. Leveraging joint ventures and distributor networks, we aim to establish a strong foothold in these regions. We expect these efforts to contribute significantly to our revenue growth in fiscal year 2025 and beyond, reinforcing our position as a global leader in robotics solutions.
Our Competitive Strengths
We believe we are one of the current leaders in the service robotics market for the following reasons:
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First Mover Advantage: The nonindustrial service robotics market has no clearly defined market leader. Our Matradee robot is one of the earliest restaurant service robots to launch in the U.S. market, and we believe we are recognized by customers and competitors as an established brand in the restaurant service robotics space. We believe that there is only one other competitive product that was launched for room service delivery prior to our Richie and Robbie (now rebranded as Medbot) being introduced to the market. Based on our extensive knowledge of the service robotics industry, we believe ADAM to be one of the earliest commercialized humanoid robots in the U.S. that can be utilized to serve both food and beverages in a real-world environment. We have not seen any other dual-arm humanoid robot such as ADAM with full AI capabilities that has come to market and been deployed at any scale in the United States. | |
| ● | Deployment Experience and Market Knowledge: The accumulation of experience operating in the US robotics sector gives us an upper hand against new market entrants. Our understanding of market dynamics and operational practices built up over the last several years puts us ahead of our competitors. This knowledge also allows us to be nimble and focus in on non-obvious profit centers and verticals. We understand what models work and why they work, allowing our team to build long-term strategic plans with minimized risks. Together with our technology advantage, business experience advantage, and operational efficiency advantage, we can execute on aggressive expansion plans in nascent markets with relatively low risk. |
| ● | Reliable Technology: Our reliable AI navigation and obstacle recognition algorithms provides our robots with what we believe is best-in-class reliability and performance. The combination of advanced sensors and redundant obstacle avoidance protocols makes our robots extremely safe and intelligent. The ACP maximizes the potential of the data generated by these robots to provide clients a level of insight into the day-to-day operation of their businesses. Advanced features of the ACP include robot control and analysis systems, preemptive maintenance systems, and business optimization systems. One of the key advantages of the ACP is that it allows our AMRs to reliability navigate elevators in multi-floor buildings. The ACP will prioritize and manage the movement of our AMRs inside these buildings, avoiding congested areas and continuously learning how to optimize travel from point A to point B. |
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| ● | Broad Product Offerings and Synergies: Unlike our competitors that only provide one robot or one type of robot, we have a breadth of robotic solutions to deploy depending on a client’s needs. This is very advantageous as we can bring in new customers from a variety of different use cases and attempt to encourage customers to consider our other robotic solutions, providing a holistic approach to our client’s needs. If a hotel client is having difficulty finding servers for their restaurants, they are most likely also experiencing shortages in cleaning staff, front desk staff, room service staff, cooks, greeters, bartenders etc. Having a variety of products not only provides clients with a one-stop-shop for their service robotic needs, it also creates the impression that we are a reliable resource to consult as they approach the general adoption and implementation of robotic solutions across different sectors of their business. A broad product offering also opens opportunity for cross-selling and upselling within the same customer base. |
| ● | Distribution: We have an extensive network of distribution channels with over 30 regional and national distributors. These distribution partners span across a broad array of sectors including healthcare, senior living, hotels, and restaurants. Distribution partners are engaged after a review of market opportunities they bring to Richtech and their company’s capabilities as a distributor. During this engagement process distribution terms are discussed and a distribution agreement is eventually signed. |
| ● | Enterprise Partnerships: We have executed Master Service Agreements (“MSAs”) with several large enterprise customers that in total represent over 9,000 restaurants and hotels. Our enterprise customers represent the largest players in the restaurant, hotel, senior living, and casino industries. We believe our ability to form enterprise level partnerships will be a major differentiating factor between us and competitors over the next two-three years. |
| ● | Business Model: Richtech is at the forefront of the service robotics market with its current technology and resources to launch a robotics-based franchise business. We believe this is the best way to capitalize on our technology allowing us to produce food and beverage delivery products at a lower cost than competitors. This business model also solves for two of the significant problems the hospitality industry currently faces, labor and quality control. With our transition to Robot-as-a-service (“RaaS”) for our AMR fleet, we are looking to build long-term relationships with Clients, guarantee strong recurring revenue, and create upsell potential for additional services. Our goal is to build a large base of RaaS and franchise customers that will allow us to leverage economies of scale as a competitive advantage. |
| ● | Market Coverage: Richtech currently provides deployment and maintenance services to the entire continental United States and Hawaii. We have deployments in over 40 states and anticipate adding more on a monthly basis. Our ability to maximize the addressable market should accelerate the growth of our business. With a larger market share, we can utilize economies of scale to better compete against our competitors. |
Our Strategies
We intend to establish ourselves as the leading provider of service robotic solutions by developing, manufacturing, and deploying novel products that address the growing need for automation across all key target sectors. The key components to our growth strategy include:
| ● | Building our commercial organization: We plan to expand our sales teams to increase our coverage across specific target verticals. Currently, we are in the process of building sales and fulfillment teams specializing in specific target verticals such as healthcare, hotels, F&B and others. Sales teams will be guided by specific KPIs and sales goals aimed to achieve high quantity robot deployments. Support and fulfillment teams will continue to be scaled along with the number of deployments. |
| ● | Penetrate the hotel market with Medbot and Titan: The focus of our marketing and sales efforts will be on expanding our market share in high-value nascent market niches. This strategy is centered around tackling priority markets where there are currently few or no competitors. With our RaaS model, we plan to build a strong long-term customer base that we can leverage as we launch additional services in that niche. The goal is to to increase our market share and occupy a leading position in a short period of time. |
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| ● | Launch and scale our robotics franchise brand: Our first robotic franchise location is expected to open in early 2025 in Las Vegas for our Clouffee & Tea Robotic restaurant brand. We expect to expand this business with additional franchisees through fiscal year 2025. These locations will be in addition to our corporate owned robotic restaurant locations in Walmarts around the country. All restaurant operations will be done through our subsidiary hospitality management company, Alphamax Management LLC. A robotics-based restaurant business addresses the two biggest challenges facing franchisees of traditional restaurants today, which are labor and quality consistency. This opens the way for a wide variety of scalable businesses based on the ADAM system. We expect that the franchise robotic restaurant business will generate significant recurring revenue. |
| ● | Establish enterprise partnerships: We plan to continue to place strong emphasis on forming enterprise relationships all target sectors. We see enterprise adoption as the biggest stepping stone towards our success. By securing enterprise clients, we will be able to represent ourselves as the most qualified vendor in the service robotic market. |
| ● | Expanding our R&D team: We intend to continue to invest heavily in the technical development of new robots and expand our service offerings. This will require us to form additional technical teams to support this development. This new line of robotics will be focused on alleviating skilled nursing duties and substituting for strenuous repetitive tasks that are necessary to keep elderly guests healthy. |
| ● | International Expansion: We are in the process of concluding talks with parties located in Europe, Korea, China and Australia to establish joint ventures (“JVs”) for the purpose of bringing our products to international markets. These JVs will be primarily run by our partners in those regions. The primary objective of the JVs will be to sell and distribute products, develop new region-specific or vertical-specific solutions, and tap into international resources for market expansion. |
Pivot to Raas Business Model
In fiscal year 2025, we are moving to a RaaS business model for the majority of our mainstream robot solutions. The Robot-as-a-Service model offers a more flexible, cost-effective, and scalable solution compared to outright robot purchases, making it the smarter choice for both Richtech and our customers. For customers, RaaS eliminates the need for large upfront investments, turning capital expenses into manageable operational costs. It minimizes financial risks, enables seamless upgrades to the latest technology, and ensures ongoing maintenance and support of the technology. For Richtech, RaaS creates a predictable, recurring revenue stream rather than relying on sporadic, high-stakes sales cycles. This subscription-based model supports long-term planning, reduces reliance on constantly finding new customers, and fosters lasting customer relationships that drive loyalty and feedback loops for product improvement.
In industries with evolving needs, like automotive dealerships, RaaS aligns the goals of both the customer and the provider, transforming robotics from a one-time transaction into a sustainable and profitable partnership. Through these partnerships, we plan to deepen our understanding of the markets we serve and develop new high-value solutions that are tailored to customer needs. In the long run, this approach will enhance the value of our robotic solutions, enabling us to create an integrated ecosystem that addresses broader business challenges and deliver greater value to our customers.
While the transition to RaaS will require Richtech to take on additional risk when deploying robots due to the upfront investment in the robot itself and setup costs, we believe that the benefits far outweigh the risks. We are already seeing an increase in deployment numbers and customer adoption since the transition in September 2024. Over a five-year period, RaaS delivers at minimum a 34% boost in customer lifetime value. We believe that customers feel safer signing a RaaS compared to an outright purchase when it comes to adopting new technologies. For Richtech, this facilitates our goal in building a scalable and sustainable business model with a loyal base of customers.
Our Challenges
The challenges the Company currently faces include the following:
| ● | Market Competition: Like with all companies, we face pressure from competitors particularly in the restaurant space. This puts pressure on our margins and increases marketing and sales costs. These competitors are listed in the next section. |
| ● | Customer Education and Adoption: Since service robotics is still very new, customers are slow to make decisions and must go through a testing process to ensure the robots work for their business. This slows down the sales process which increases the cost of sales. |
| ● | Service Coverage and Costs: Our customers are spread across the country, and we have not yet reached the scale where we can support a nation-wide maintenance network. Therefore, currently have to rely on local third-party resources which are costlier. |
| ● | Labor Shortage: Even though we are a robotics company, we are not immune to the labor shortage. It has been challenging to staff certain technical and non-technical positions. It has also gotten costlier to attract good talent. |
| ● | Rising Cost of Raw Materials: 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. |
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Competition
The service robotics market is new so there is only a limited number of competitors. With the quality of our products, first mover advantages, enterprise partnerships, and a holistic approach to customer needs, we believe we are in a strong position to win a large portion of the market and establish ourselves as the premier provider of service robotics in the hospitality space. Our ACP platform also provides a unique advantage as we believe no competitor is able to match the breadth of information we can collect through implementing robots in multiple sectors of a client’s business.
The companies which pose the greatest competitive challenges to us, by product line, are listed below:
| ● | Matradee |
| ● | Bear Robotics, Inc.: Bear Robotics, based in Redwood City, California, offers the Servi robot. This robot is a round restaurant robot that is smaller, costlier to own, and less reliable than our Matradee. This is because Bear only offers customers a Robot-as-a-Service pricing model while we offer customers the ability to own the robot. The tray on our Matradee is 40% larger and we have one extra tray, which means our robot provides 60% more capacity than Servi. Additionally, Matradee is network independent while Servi requires constant network connectivity to function reliably. |
| ● | Pudu Technology Inc.: Pudu is robotics company based out of China that manufactures a variety of delivery robots. While Pudu robots are cheaper, they only operate in the United States through a distributor network and have no direct customer support or service network. |
| ● | Medbot |
| ● |
Savioke, Inc.: Founded in 2014, their Relay robot performs similar room service delivery tasks as Medbot. However, their robot has continued to face technical challenges which has stifled their growth. Our robots have larger carrying capacities and accessory functions such as the AVM which we believe provides more value to customers. Savioke was acquired by Relay Robotics Inc. in May 2022.
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| ● | Aethon: A long-time player in hospital delivery automation, established in 1997, the company is currently owned by the Singaporean sovereign wealth fund. While it has enjoyed being the only solution provider in the space for a number of decades, it has failed to impress customers, leaving most users looking for other solutions when contracts come to term. The technology they use is also outdated, their robots get lost, break down often, and cannot navigate around hallway obstacles. |
| ● | Titan |
| ● | Pudu Technology Inc.: Pudu is a robotics company based out of China that manufactures a variety of delivery robots. While Pudu robots are cheaper, they only operate in the United States through a distributor network and have no direct customer support or service network. While they have a similar robot to Titan, their product development teams are not as agile in providing custom solutions to customers. |
| ● | Skylark |
| ● | Savioke, Inc.: Savioke/Relay Robotics is the largest provider of hotel room service robotics in the US. Relay only provides one type of solution, while Skylark is multi-functional by design. The value of Skylark to the customer is higher than what is provided by Relay’s product. |
| ● | DUST-E |
| ● | Avidbots Corp: Avidbots is a Canadian company that designs and manufactures Neo, which is a functional equivalent of the DUST-E MX. The MX offers similar functionality for over $10,000 less, and lower maintenance costs. Avidbots do not manufacture any other models of cleaning robots outside of Neo, limiting their ability to compete with us to only large public and commercial spaces. |
| ● | Tennant Company: Based in Minnesota, Tennant’s T7AMR and equivalent robotic ride-on floor scrubbers are direct competitors to the MX. Tennent does not provide smaller cleaning robots limiting their ability to compete with us to only large public and commercial spaces. Additionally, the T7AMR is extremely bulky as it is designed to have a seat for the rider which severely limits its applications in environments that have narrow hallways such as schools, hospitals, and universities. |
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| ● | ADAM |
| ● | Miso Robotics Inc.: Miso Robotics produces single robotic arm food restaurant automation robot, Flippy. Miso has only a handful of live deployments, and the majority of deployments they do have are in test environments with partners. We expect that ADAM will be serving hundreds of real customers every day before Flippy gets out of development and testing. |
| ● | Cafe X Technologies, Inc.: A Silicon Valley startup, Cafe X is a robotics coffee bar company that has implemented two robotic kiosks inside the San Francisco airport and one inside a museum in Dubai. ADAM is able to provide a wider array of food and beverage choices to customers. |
Our Operations
The Company is organized in a functional structure with sales, marketing, tech support, customer service, product development, creative design, manufacturing, procurement, accounting, and administration departments. Executive decisions are communicated to department managers to execute. The CEO directly oversees the product development, creative design, and administration teams. He also provides directives to other departments and executives as he sees fit. The COO has primary responsibility over the sales, marketing, tech support, and customer service teams as well as the coordination of different departments on large-scale projects. The CFO has primary responsibility for procurement, manufacturing, and accounting departments.
Product development teams carry out research and development tasks and are organized according to product category. Each development team is comprised of several engineers linked with a product manager, and work closely with the creative design and manufacturing teams. Employees may belong to multiple product development teams at the same time as there is significant technical overlap in AMR development. The development teams are overseen directly by the CEO and is responsible for the ideation, engineering, and testing of new robots.
Customer facing departments which include sales, marketing, tech support, and customer service utilize a variety of technology tools to keep clear customer records and respond to customer requests. These tools include Hubspot CRM, ClickUp, Apollo.io, Jotform, and Google Workspace. Hubspot is used as the preferred CRM for sales recordkeeping. ClickUp and Jotform are used by the customer service and tech support team to keep track of customer requests and schedule robot installations. LinkedIn Sales Navigator and Apollo.io are utilized for lead generation by the sales and marketing teams. Google Workspace is used across the company for meetings, email, and filesharing. The technical support department also provides feedback to the product development team regarding any issues customers experience with the robots out in the field, as well as requests for additional features.
Internal departments which include procurement, manufacturing, and accounting are overseen by the CFO. The manufacturing and procurement departments primary focus is maintaining supply chains and delivery timelines specified by the CFO based on projections made according to sales data. The accounting team processes accounts payables and receivables, audits internal accounting records, and generate financial reports.
Our Revenue Model
Our business model is currently a combination of direct sales and robotics-as-a-service. We both sell and lease our robots to customers and provide accompanying services such as deployment, maintenance, and warranty services. To provide an effective comparison, the table below shows the sales made under Richtech.
| FY2024 | FY2023 | |||||||
| Product Sale | 32.0 | % | 91.0 | % | ||||
| Service Sale | 43.3 | % | 5.7 | % | ||||
| Lease | 18.6 | % | 2.3 | % | ||||
| Other | 6.1 | % | 1.0 | % | ||||
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Our Customers
The majority of our customer base is within the hospitality sector, which is an extremely diversified B2B market where the clients range from individual mom and pop restaurants to large national or global enterprises. We have deployed close to 300 robots over the last several fiscal years. These robots are currently operating in the field across over 40 states and territories in the U.S., providing services in diverse environments including restaurants, casinos, hotels, factories, schools, senior living, hospitals, stadiums and others.
Heading into fiscal year 2025, we are focused on executing expansion into additional market sectors beyond hospitality. We will focus on market sectors where robotic-assisted operations present a very strong ROI equation with low deployment complexity. The goal will be maximizing the number of robots deployed under the RaaS model in 2025.
Clients come from four main sources: one is our inbound website and phone line from online marketing, the second is outbound sales activity such as via emails, phone calls, LinkedIn, door-knocking, the third is through conventions and networking, the fourth being referrals and word-of-mouth.
Customers are often referred to us by other companies because of our proven track record of successful robotic deployments. For example, when we deployed 28 robots for Flix Brewhouse, we were asked to perform an integration with their ticket management system which was operated by another vendor. This integration was a success, which led to this vendor inviting us as a speaker to their annual customer conference in February 2023. Another example of this is with a tax consulting firm. After meeting through a mutual customer, they invited us to speak in front of their customers about the implications of robotics and how they could leverage robots in their businesses. There is significant interest in robotics at the moment, companies often see us as a useful resource to provide value to their clients.
While our current customer base is in the B2B sector, we are actively expanding into the consumer sector with the launch of the ADAM robotic franchises. These include our One Kitchen franchises within Walmart stores around the country and our Clouffee & Tea store in Las Vegas. We plan to grow our customer base in both the B2B and B2C markets by making full use of our strategic advantages in each sector and leveraging relationships within our distribution network.
Customer Services
As a company, we place strong emphasis on providing a positive customer experience for the client and their customers. We provide nationwide installation, shipping, maintenance, and warranty services. Shipping and installation are coordinated with the client by our customer service and technician teams. Maintenance services are provided for customers to prolong the longevity of the robots including onsite assistance as needed. Maintenance visits typically encompass an overall health check on the robot, removal of debris and cleaning, edits to mapping or settings, and training of client staff.
For warranty claims, our customer service department works with the customer to verify the validity of the warranty claim, and if valid, schedules for the exchange of the robot as quickly as possible. We endeavor to complete all exchanges within five business days.
The customer service team also reaches out to our clients on a regular basis to ensure they are enjoying their use of their robot, and to inquire about any service requests they may have.
All robots support remote diagnostic functions so our technicians can provide quick and effective remote troubleshooting. All customers are provided lifetime remote customer support.
Customer satisfaction also depends on whether a client is getting a product that is right for them and suits their space. To this end, we have a full in-house design team that provide customers with custom wrap designs, graphical user interfaces (GUIs), creates 3D renderings of buildouts, and promotional materials for their staff and customers.
Suppliers (Materials, Products and Other Supplies)
Richtech has more than 20 major suppliers primarily located in the United States and China. For the Matradee, MedBot and DUST-E products, Richtech outsources manufacturing to contract factories. These factories manufacture the robots to our specifications and installs our software. For the ADAM system, the finished body components are manufactured in China and shipped to the United States where it is assembled. These assembled components are then combined with materials purchased in the United States to complete the system.
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Our largest current supplier, SUNWING INDUSTRIES LIMITED, provided $1,766,048.24 in materials in 2024. The second largest was UFACTORY TECHNOLOGY, with a purchase amount of $203,400 in 2024. The third was NANJING YUDINGXIN ELECTRONIC, with a purchase amount of $97,875 in 2024. The fourth was INCH TECHNOLOGY CO., LTD, with a purchase amount of $75,473.50 in 2024. The fifth was Maanshan Yushan Huigu design studio, in 2024 with a purchase amount of $59,025.
We depend on sole source suppliers for certain components in our products, such as batteries and touchscreens. In many cases, we do not have long-term supply agreements with these suppliers. Instead, our contract manufacturers typically purchase the components required to manufacture our products on a purchase order basis. See “Risk Factors — Risks Related to Our Industry and Business — Our products incorporate certain components from sole source suppliers, and if our contract manufacturers are unable to source these components on a timely basis, due to fabrication capacity issues or other material supply constraints, or if there are interruptions in our, or our contract manufacturers’, relationships with these third-party suppliers, we may not be able to deliver our products to our distributors and customers, which may adversely impact our business.” and “Risk Factors — Risks Related to Our Industry and Business — We rely on third party manufacturers/suppliers and expect to continue to do so for the foreseeable future. This reliance on third parties increases the risk that we will not have sufficient quantities of our products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.”
Marketing and Sales, Distribution and Logistics
Our sales strategies aim to scale revenue as quickly as possible without relying on high expenditure of capital or human resources. These strategies involve forming relationships, leveraging partner resources, and finding the most effective methods to grow revenue. First, we form relationships with companies that have the most influence and resources in each of the restaurant, hotel, and senior living sectors. For restaurants, this means companies like major food distribution and point-of-sale companies that have a large distributed sales force and a massive customer network in the United States. Hotel and senior living sectors are much more concentrated, so we primarily focus on companies that set industry standards, and leverage our success with these companies to promote our brand and products. Second, we build out networks of referral agents, independent sales agents, and distributors that provide high penetration into the market at a local and regional level. Companies that wish to become our distributors or resellers must provide evidence they have the technical know-how and financial capability to effectively represent our brand. Potential distributors are asked to provide evidence of strong sales revenue, adequate technical support capabilities, and a list of customers they will be approaching with our product. Distributors are only certified once we find that their customer base is a good fit for our products and they have the capabilities to represent our brand. We currently have 12 certified distributors operating in the U.S., 35 certified independent sales agents, and an internal enterprise sales team of 5. Third, we build and retain a professional internal enterprise sales force that is creative, driven, and believes in the mission and values of the company. This sales force is our liaison with our partners and customers, who foster these relationships and build a solid foundation for the company.
We market our products primarily through digital marketing, sales outreach, industry exhibitions, and client referrals. Direct online inquiries are the main source of our leads. Over the last two years, we have exhibited at national conferences such as the Consumer Electronics Show (CES), National Restaurant Association Show, Future Travel Experience Global, Leading Age Annual Expo, Leading Age Leadership Conference, National Restaurant Association Leadership Conference, and the Bar and Restaurant Exhibition. We also hosted sessions at these shows to educate attendees on the value preposition around service robotics.
Client referrals and testimonials have also been a strong accelerant to our growth. At one of our recent conventions, we hosted a session where two of our clients went on stage and spoke about the positive impacts of our robots. This included statistics such as how each robot was saving them $36,856 per year in labor costs. As we mentioned, many of our clients also come through referrals from other companies we meet via mutual customers. These companies introduce us to their clients as a resource for customers to learn about robotics and automation, and how they can apply these solutions to their business.
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Order processing and logistics is managed internally. We currently have five people on our sales team. The sales team earns a flat 5% gross sales commission on top of base salary and bonuses. Orders are created by the sales team and approved for shipping by the Office General Manager. The Office General Manager checks that the order has been paid for, address information has been entered correctly, all required documentation and approvals are uploaded, and generally ensures all proper procedure have been followed before placing into queue. When an order is placed into queue, our logistics team is made aware of the order and move to ready the products for shipping. All robots are quality control tested before packaging and leaving our warehouse. When fully packaged, a robot typically weighs between 200 to 700 pounds so a freight carrier is used. We utilize a selection of freight carriers including FedEx, TrumpCard, and Pegasus Logistics Group among others for shipping. Tracking information and freight costs are uploaded into our system by the logistics team to ensure this data is readily available if needed.
Research and Development
In fiscal year 2024, fiscal year 2023 and fiscal year 2022, we spent $2,021 thousand, $1,980 thousand and $1,772 thousand on R&D, respectively. Our R&D efforts in 2024 primarily focused on developing and testing innovative solutions tailored to various market verticals for our humanoid and AMR robotic platforms. We remain committed to enhancing our competitive edge by creating groundbreaking solutions, advancing at a pace ahead of our competitors, and capturing maximum market share in the emerging service robotics industry.
In 2024, we have continued to upgrade and iteratively develop ADAM. During the development process, we leveraged generative AI technology to optimize efficiency and utilized NVIDIA’s ISAAC simulation training platform to enhance the efficiency of robot installation and deployment in various commercial environments. In addition to ADAM, the dual-arm robot, we have developed a single-arm robot, Scorpion, designed for more compact and lightweight applications compared to ADAM. A mobile platform has been created for Scorpion, enabling its use in various work scenarios such as desktops and vehicles. It also supports real-time low-latency natural language conversations and voice control for seamless interactions with customers.
We have continued to add features and optimize the robotic cloud management platform to provide better management and data support, along with operational data-based analysis capabilities. The management of robotic solutions under one umbrella continues to be one of our major competitive advantages. As businesses expand their adoption of robotic solutions throughout their operations, the ACP allows simple and easy implementation of new robotic workflows.
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For delivery robots, we have focused on developing and refining hardware, software features, and workflows to suit specific needs in blue ocean verticals. We continue to work closely with our customers to understand problems from their perspective and develop solutions that maximize the value of our AMRs in their business case.
The rapid evolution of artificial intelligence, particularly in real-time image and voice processing, continues to redefine the capabilities of modern robotics. These advancements enable robots to perform complex tasks with greater accuracy, adaptability, and speed, pushing the boundaries of automation. Real-time image processing enhances robots’ ability to navigate dynamic environments, recognize objects, and make instantaneous decisions, while advancements in real-time voice processing improve natural language interaction, expanding applications in customer service, healthcare, and beyond. These technological trends underscore our commitment to integrating cutting-edge AI solutions into our product offerings, ensuring our robots remain at the forefront of innovation.
Production/Manufacturing
Our product manufacturing process starts with finding suitable suppliers. The company’s internal product development and procurement teams will search for suppliers according to technical requirements and consultation with existing suppliers. We require all prospective suppliers to sign confidentiality agreements before discussing details of the products and parts requirements. The procurement team performs a comprehensive comparison of suppliers based on product specifications, reputation, delivery cycle, price and other factors. Through this process, we identify a preferred supplier and two alternative suppliers as backup. Once suppliers are confirmed and contracted, we move to the next step.
The next step in our manufacturing process is the selection of a manufacturing partner. Richtech does not own and operate our own manufacturing plants, instead we use Original Design Manufacturer (ODM) and Original Equipment Manufacturer (OEM) partners that manufacture the products according to our specifications. We identify and contact factories that qualify as potential OEM and ODM partner candidates to discuss product of prototypes of our products. Factories are qualified by our procurement team using a process similar to how we select suppliers, checking the capabilities, reputation, quality, delivery cycle, and price of these factories. Our product development and procurement teams work with the factory to finalized the Bill of Materials (BOM) list, and provide technical specifications and other requirements to these factories for the production of several prototypes. These prototypes are then rigorously tested by our development teams and we go through an iterative process to refine the prototypes to make sure they meet our production standards. Both the software and hardware of the robots go through multiple rounds of stress testing, with a final round of testing in a real-world application. Once the prototypes pass internal stress tests, the product is then ready for the mass production stage.
A production schedule is formed around sales projections on a rolling three-month window. These sales projections are assembled by the COO and sent to the CEO for approval. Once the schedule is approved, the procurement team reviews pricing according to the BOM list, clarifies delivery timelines, signs the purchase contracts, and sends payments. After the production of the product is completed, our procurement team will conduct an on-site quality inspection before the product is packaged and shipped to our warehouse in Las Vegas, NV. Once the product arrives at our warehouse, the technical department will conduct a last round of software and hardware quality control checks. This is to ensure nothing was damaged in shipping and that all elements of the product meet our requirements before delivery to customers.
Global Operations
Our business operations are based mainly in the U.S, except for some of our R&D work, which is based in China. We currently employ a team of 20 engineers through a third-party human resource company in China for R&D work. The majority of our ODM and OEM partners are also located in China.
Intellectual Property
We currently have 9 pending patents and 3 approved patents. Additionally, we will continue to file patent applications for our innovative inventions. We also hold two registered trademarks, have four trademarks pending approval, and own and operate three domain names.
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Patents
| APPLICATION NUMBER | TITLE | COUNTRY | FILING DATE | STATUS | ||||
| 17549815 | TRAY STABILIZER SYSTEM FOR FOOD DELIVERY ROBOTS | U.S. | December 13, 2021 | Published | ||||
| 29790385 | SERVICE ROBOT | U.S. | November 24, 2021 | Published | ||||
| 29790387 | CLEANING ROBOT | U.S. | November 24, 2021 | Pending | ||||
| 17817639 | AUTONOMOUS CLEANING ROBOT SYSTEM AND METHOD | U.S. | August 4, 2022 | Published | ||||
| 29846011 | VENDING MACHINE ASSEMBLY FOR AN AUTONOMOUS DELIVERY ROBOT | U.S. | July 12, 2022 | Pending | ||||
| 29791849 | CLEANING ROBOT | U.S. | February 12, 2022 | Pending | ||||
| 29836627 | DEBRIS GATHERING BRUSH ASSEMBLY FOR A CLEANING ROBOT | U.S. | April 28, 2022 | Pending | ||||
| 29908343 | SINGLE ARM ROBOT | U.S. | January 11, 2024 | Pending | ||||
| 29924731 | POWDER MIXER | U.S. | January 19, 2024 | Pending | ||||
| 29924728 | MIXER | U.S. | January 19, 2024 | Pending | ||||
| 29948962 | Gripper For A Robotic Arm | U.S. | June 24, 2024 | Pending | ||||
| 29948968 | Gripper For A Robotic Arm | U.S. | June 24, 2024 | Pending |
Trademarks
| Trademark | Application Number | Status | Jurisdiction | |||
| RICHTECH | 90869957 | Registered | U.S. | |||
| RICHTECH ROBOTICS | 97553162 | Registered | U.S. | |||
| ADAM | 97734824 | Pending | U.S. | |||
| CLOUFFEE | 97834429 | Pending | U.S. | |||
| CLOUFFEE & TEA | 98418565 | Pending | U.S. | |||
| BREW BEAR | 98705998 | Pending | U.S. |
Domain Names
The company currently owns and operates three domain names:
| ● | www.richtechrobotics.com |
| ● | www.richtechrobot.com |
| ● | www.richtechsystem.com |
Employees
As of September 30, 2024, we had 57 full-time employees, of which 20 were dispatched workers accounting for 35.1% of our total workforce. These dispatched workers are employees we have contracted through a third-party and are managed directly by us. We believe that we maintain a good working relationship with our employees and to date, we have not experienced any labor disputes.
All employees are located in three different office locations: Las Vegas 29, California 1, Florida 1, Illinois 2, Georgia 1, Austin 1, New York 1, China 20.
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The following table provides a breakdown of our employees by function as of September 30, 2024:
| Function | Number of Employees | % of Total | ||||||
| R&D | 36 | 63.1 | % | |||||
| Tech Support & Customer Service | 3 | 5.3 | % | |||||
| Sales & Marketing | 8 | 14 | % | |||||
| Business Operation | 5 | 8.8 | % | |||||
| Administration | 5 | 8.8 | % | |||||
| Total | 57 | |||||||
Properties
We lease office facilities under noncancelable operating lease agreements. We lease space for our corporate headquarters in Las Vegas, Nevada through August 2027. We had a lease for a second office space in Austin, Texas through April 2024, which was terminated on April 30, 2024.
The Company formerly leased retail space in Las Vegas, Nevada, for the operation of its “ClouTea” store. This lease agreement, which was set to expire in January 2025, was terminated effective July 31, 2024.
On October 4, 2024, the Company entered into a new lease agreement for retail space located at Space No. B187 in Town Square Las Vegas, 6587 Las Vegas Boulevard South, Las Vegas, Nevada 89119. This location will operate under the name “Clouffee and Tea.” The lease has a term of five (5) years and encompasses approximately 1,000 square feet. The store will be opened in late January 2025, at which time the lease rental commencement date will be confirmed.
The following table sets forth information as to the real property currently leased by us:
| Lessor | Lessee | Location | Area (Square Feet) | Annual Rent FY2025 | Current Term Expires | Use | ||||||||||
| Cameron Industrial Park, LLC | Richtech Robotics Inc. | 4175 Cameron St, Ste 1 & 2 & A1 &A2 & C & 5, Las Vegas, NV 89103 | 15,792 | $ | 209,041.68 | August 31, 2027 | HQ | |||||||||
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Insurance
Richtech is insured by Kaercher Insurance for Commercial General Liability (General Aggregate: $3,000,000), Automobile Liability ($1,000,000), Umbrella Liability ($2,000,000), Workers Compensation ($1,000,000), Property ($870,000), and Directors & Officers ($1,000,000).
Material Contracts
Richtech expects to derive significant revenue from sales to enterprise customers as part of our long-term strategy. We define “enterprise” customers as companies with annual revenues of over $1 billion. From 2022 through 2024, we have proven the value proposition and reliability of our robots to many of our enterprise clients by running extended pilot programs. We are currently running pilot programs with ten enterprises that represent over 40,000 locations. These pilot programs aim to allow larger or enterprise customers to experience the benefits of adding automation and robotics to their operations. The concept of robotics is foreign to the vast majority of operators in the hospitality space, so a method is needed to build client confidence in our product. Under the pilot program, we grant to our customers a limited, revocable, non-exclusive, non-transferable license to use our robotic products and related software for the purpose of a limited evaluation of their features and operations. The evaluation period is typically between 14 to 30 days. At the end of the pilot period, the customers must return all robots or face additional charges. The Company has a strict no-free-trial policy. Given the complexity and time required to execute a successful enterprise pilot, customers are required to commit capital to show actual interest in our products. The amount we have charged for each pilot program ranges between $500 and $17,000, depending on the product and services involved. Pilot programs are run typically close to cost, and the amount charged to the client roughly covers our employee travel and product shipping expenses. We may not charge the client for additional site visits that may be required (e.g. for product maintenance or support), but the Company incurs no additional material costs to run these pilot programs. At the end of the pilot period, customers will decide whether they want to enter into a longer-term contract with us for our products, either for purchase and/or lease to purchase programs. Purchase orders placed after the pilot program constitute market orders reflecting fully commercialized products at market pricing. Several of our pilot clients have already chosen to move forward with large scale purchase or lease orders following the pilot program.
The usage of service robots is a very new concept in the United States, and currently many companies are taking a wait-and-see approach to adoption. Larger corporations and national franchises in particular generally take more time to test out and vet the application of new technologies such as service robots. However, in spite of these challenges, we were still able to close several MSAs with national chain enterprises (as described below) due to the necessity of our products for their operations. The majority of companies that have adopted the service robot technology are smaller businesses that have a much shorter chain of command and make decisions faster. As a result, the vast majority (over 90%) of our existing revenue currently result from purchase or lease contracts from smaller companies. Contracts generally fall into the following categories: (i) lease agreements (with and without trials, straight lease and lease-to-purchase), (ii) purchase agreements, and (iii) maintenance service agreements (for maintenance service on our products). Due to the diversity of our client base, no single customer constitutes greater than 10% of our revenue, and as a result, we are not financially dependent on any one customer.
During fiscal 2024, we executed a strategic transition to RaaS agreements, which resulted in a material decrease in recognized revenue. However, as discussed above, this pivot will provide many long-term benefits for the company which include boosting sales volumes and ensuring a predictable recurring revenue stream. For more information on our strategic pivot to RaaS as our business model, see “Item 1 – Business – Our Strategies.”
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Part of our long-term strategy as we scale up is to secure MSAs with larger corporations and franchises that operate multiple locations, so that we can roll out our products and services across numerous locations. Percentage of sales attributable to our enterprise customers in fiscal year 2024, 2023 and 2022 were 8.08%, 3.82% and 2.06%, respectively. Percentage of sales attributable to our MSA customers in fiscal year 2024, 2023 and 2022 were 7.9%, 3.4% and 0.77%, respectively.
We currently have two MSAs in place, all from successful pilot programs. In September 2022, we entered into an MSA with one of the top casino companies in the United States (the “Gaming MSA”), for the purchase of our Matradee L and other robots. As of the date of this Report, we have recognized $344,270 in revenue under this MSA. $328,411 is reflected in our financials as of September 30, 2024. We received additional purchase orders totaling $127,626 under this MSA during the remainder of 2024. We expect more purchase orders to come in 2025. The current term of the Gaming MSA terminates on the later of December 31, 2026 or the completion of services under the agreement. Either party may terminate the agreement in the event of breach or default and failure to cure such breach or default within 30 days after receiving written notice of such breach or default Pursuant to the Gaming MSA, we have granted to the customer a perpetual, non-revocable, fully paid license (or fully paid sub-license, as the case may be) to allow the customer to use our intellectual property that may be embedded in or associated with any work product delivered under the agreement.
In January 2023, we executed an MSA with a major hotel brand with over 5,000 properties worldwide (the “Hotel MSA”) for purchases of our Matradee L robot. We anticipate that the products covered under the Hotel MSA will expand to our other robots, such as cleaning and room service robots, and a nationwide rollout of our products to the other hotel locations in the rest of 2023. As of the date of this Report, we have not yet received any orders under the Hotel MSA. Under the Hotel MSA, we have agreed to offer the customer prices, charges, benefits, warranties and terms at least as favorable of those offered to any other customer within the first 24 months of the agreement term. We agreed to grant to the customer and its affiliates a non-exclusive, irrevocable, perpetual, royalty-free, fully paid-up, transferable, unrestricted, worldwide license for internal and external purposes, to use, modify, copy, display, support, and operate the Company’s products, software or intellectual property. The term of the Hotel MSA is perpetual until terminated by either party. The customer may terminate the Hotel MSA at any time with or without cause upon 30 days’ prior written notice to us; the Company may only terminate the agreement upon written notice for the customer’s failure to make payment under the agreement (and failure to cure within 30 days following receipt of written notice of non-payment). Under the Hotel MSA, we provide a one-year manufacturer’s limited product warranty, with option to extend to two or three years for additional payments.
We had a third MSA with one of the nation’s largest restaurant chains with over 2,000 locations in the United States (the “Restaurant MSA”). The Restaurant MSA had a term of two years beginning in September 2022 and expired in September 2024. We expect to sign new MSAs in fiscal year 2025.
On October 16, 2024, we entered into a binding LOI with Ghost Kitchens America. Under the terms of the LOI, the parties agreed to enter into a franchise agreement, pursuant to which the Company will acquire exclusive rights to operate 20 Walmart-located “One Kitchen” restaurants. These restaurants will be directly managed by the Company’s subsidiary, AlphaMax Management LLC, with the aim of optimizing restaurant operations through robotics and AI cloud technology. As of the date of this Report, two locations have been secured, one of which is anticipated to be opened in early 2025.
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Government Regulation
Our operations are subject to numerous governmental laws and regulations, including those governing antitrust and competition, the environment, collection, recycling, treatment and disposal of covered electronic products and components.
In addition, a number of data protection laws impact, or may impact, the manner in which we collect, process and transfer personal data. U.S. laws that have been applied to protect user privacy (including laws regarding unfair and deceptive practices) may be subject to evolving interpretations or applications in light of privacy developments. Compliance with enhanced data protection laws requires additional resources and efforts, and noncompliance with personal data protection regulations could result in increased regulatory enforcement and significant monetary fines and costs.
Available Information
Our website is located at www.richtechrobotics.com, and our investor relations website is located at ir.richtechrobotics.com. Access to copies of our SEC filings, corporate governance information, and other items that may be material or of interest to our investors is available via our investor relations website. The contents of our websites are not incorporated by reference into this Report or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
ITEM 1A. Risk Factors
Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this Report, before deciding to invest in our securities. If any of the following risks materialize, our business, financial condition, results of operation and prospects will likely be materially and adversely affected. In that event, the market price of our Class B common stock could decline, and you could lose all or part of your investment.
An investment in our Class B common stock involves a high degree of risks. You should carefully consider all of the information in this Report, including the risks and uncertainties described below, before making an investment in our Class B common stock. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our Class B common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Industry and Business
We operate in an emerging market, which make it difficult to evaluate our business and prospects. If markets for service robotics develop more slowly than we expect, or long-term end-customer adoption rates and demand are slower than we expect, our operating results and growth prospects could be harmed.
While robots have been applied to applications like industrial manufacturing and domestic in-home cleaning, the concept of commercial service robots is relatively new and rapidly evolving, making our business and prospects difficult to evaluate. The growth and profitability of the service robotics market depends on the increasing level of demand and acceptance of collaborative robots that operate alongside employees. We cannot be certain that this will happen. If there is pushback against the adoption of robotics in everyday commercial applications, then this market may develop more slowly than we expect, which could adversely impact our operating results and our ability to grow the business.
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We operate in an emerging industry that is subject to rapid technological change and will experience increasing competition.
Our product offerings compete in a broad competitive landscape that include incumbent actors, and emerging players in the service robotics space, particularly in the cleaning and indoor delivery automation. Our competitor base may develop new technologies or products that provide superior features or are less expensive than our products. Our competitors may respond more quickly to new or emerging technologies, undertake more extensive marketing campaigns, have greater financial, marketing, manufacturing and other resources than we do, or may be more successful in attracting potential customers, employees and strategic partners. If we are not able to compete effectively, our business, prospects, financial condition, and operating results will be negatively impacted.
Our business plans require a significant amount of capital. Future capital needs may require us to sell additional equity or debt securities that may dilute its stockholders.
While we are near profitability today, we intend to expand operations outside the United States and continue to invest in the research and development of our AI Cloud Platform. We anticipate that we will continue to incur expenses for the foreseeable future as we continue to advance our products and services, expand our corporate infrastructure, including the costs associated with being a public company and further our research and development initiatives for our products. We are subject to all of the risks typically related to the development of robotics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We believe that our existing cash will fund our current operating plans through at least the next twelve months. We anticipate that we will need additional funding in connection with our continuing operations after twelve months. Until we can generate a sufficient amount of revenue from the commercialization of our products and services, if ever, we expect to finance our future cash needs through 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 have limited experience in operating our robots in a variety of environments. Unforeseen safety issues with our products could result in injuries to people which could result in adverse effects on our business and reputation.
Our robots operate autonomously in environments, such as restaurants, hotels, casinos, and healthcare facilities, that are surrounded by various moving and stationary physical obstacles and by human and vehicles. Such environments are prone to collisions, unintended interactions and various other incidents, regardless of our technology. Therefore, there is a possibility that our robots may be involved in a collision with any number of such obstacles or even a human being. Our robots are equipped with advanced sensors that are designed to effectively prevent any such incidents and are intended to stop any motion at the detection of intervening objects. Nevertheless, real-life environments, especially those in crowded areas, are unpredictable and situations may arise in which our robots may not perform as intended. A highly publicized incident of our autonomous robots causing injuries to people could lead to negative publicity and subject us to lawsuits. Such lawsuits or adverse publicity would negatively affect our band and harm our business, prospects, financial condition and operating results.
We currently have and target many customers, suppliers and production counterparties that are large corporations with substantial negotiating power, exacting product, quality and warranty standards and potentially competitive internal solutions. If we are unable to sell our products to these customers or are unable to enter into agreements with customers, suppliers and production counterparties on satisfactory terms, our prospects and results of operations will be adversely affected.
Several of our customers and potential customers are large, multinational corporations with substantial negotiating power relative to us. These large, multinational corporations are also aware of competitor products and are actively engaging with competitors to determine which products they like better. Meeting the requirements and securing contracts with any of these companies will require a substantial investment of our time and resource. We cannot assure you that our products will be the one these companies will choose, or that we will generate meaningful revenue from the sales of our products to these key potential customers. If our products are not selected by these large corporations or if these corporations decide to go with a competitor, it will have an adverse effect on our business.
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We must successfully manage product introductions and transitions in order to remain competitive.
We must continually develop new and improved robotic solutions that meet changing consumer demands. Moreover, the introduction of new products is a complex task involving significant expenditures in research and development, promotion and sales channel development, and management of existing inventories to reduce the cost associated with returns and slow moving inventory. We must introduce new robotic solutions in a timely and cost-effective manner, and we must secure production orders for those solutions from our contract manufacturers and component suppliers. The development of new robotic solutions is a highly complex process, and while we have a large number of product introductions coming, the successful development and introduction of new robotic solutions depends on a number of factors, including the following:
| ● | the accuracy of our forecasts for market requirements beyond near term visibility; |
| ● | our ability to anticipate and react to new technologies and evolving consumer trends; |
| ● | our development, licensing or acquisition of new technologies; |
| ● | our timely completion of new designs and development; |
| ● | the ability of our contract manufacturers to cost-effectively manufacture our new robotic solutions; |
| ● | the availability of materials and key components used in the manufacture of our new robotic solutions; and |
| ● | our ability to attract and retain world-class research and development personnel. |
If any of these or other factors becomes problematic, we may not be able to develop and introduce new robotic solutions in a timely or cost-effective manner, and our business may be harmed.
Our international expansion plans, if implemented, will subject us to a variety of risks that may harm our business.
We have limited experience managing the administrative aspects of a global organization. While we intend to continue to explore opportunities to expand our business in international service robotics markets in which we see compelling opportunities, we may not be able to create or maintain international market demand for our products. In addition, as we expand our operations internationally, our support organization will face additional challenges, including those associated with delivering support, training and documentation in languages other than English. We may also be subject to new statutory restrictions and risks. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and financial condition may be harmed.
In the course of expanding our international operations and operating overseas, we will be subject to a variety of risks, including:
| ● | differing regulatory requirements, including tax laws, trade laws, labor regulations, tariffs, export quotas, custom duties or other trade restrictions; |
| ● | greater difficulty supporting and localizing our products; |
| ● | challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, compensation and benefits and compliance programs; |
| ● | differing legal and court systems, including limited or unfavorable intellectual property protection; |
| ● | risk of change in international political or economic conditions; |
| ● | restrictions on the repatriation of earnings; and |
| ● | working capital constraints. |
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We continue to implement strategic initiatives designed to grow our business. These initiatives may prove costlier than we currently anticipate and we may not succeed in increasing our revenue in an amount sufficient to offset the costs of these initiatives and to achieve and maintain profitability.
We continue to make investments and implement initiatives designed to grow our business, including:
| ● | investing in research and development; |
| ● | expanding our sales and marketing efforts to attract new customers across industries; |
| ● | investing in new applications and markets for our products; |
| ● | further enhancing our manufacturing processes and partnerships; and |
| ● | investing in legal, accounting, and other administrative functions necessary to support our operations as a public company. |
These initiatives may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue, if at all, in an amount sufficient to offset these higher expenses and to achieve and maintain profitability. The market opportunities we are pursuing are at an early stage of development, and it may be many years before the end markets we expect to serve generate significant demand for our products at scale, if at all.
Our reputation and brand recognition is crucial to our business. Any harm to our reputation or failure to enhance our brand recognition may materially and adversely affect our business, financial condition and results of operations.
Our reputation and brand recognition, which depends on earning and maintaining the trust and confidence of our current or potential clients, is critical to our business. We strive to enhance our brand recognition, to attract new customers and to maintain existing customers by consistently delivering high quality products as well as superior customer experiences. Our reputation and brand are vulnerable to many threats that could be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries or investigations, lawsuits initiated by clients or other third parties, employee misconduct, perceptions of conflicts of interest and rumors, among other things, could substantially damage our reputation, even if they are baseless or satisfactorily addressed. We may choose to or be compelled to undertake product recalls or take other similar actions, which could subject us to adverse publicity, damage our brand and expose us to financial liability. Moreover, any negative media publicity about our industry in general or product or service quality problems of other companies in our industry, including our competitors, may also negatively impact our reputation and brand. If we are unable to maintain a good reputation or further enhance our brand recognition, our ability to attract and retain customers and key employees could be harmed and, as a result, our business and revenues would be materially and adversely affected.
We rely on third party manufacturers/suppliers and expect to continue to do so for the foreseeable future. This reliance on third parties increases the risk that we will not have sufficient quantities of our products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We rely, and expect to continue to rely, on third party manufacturers/suppliers. This reliance on third party manufacturers/suppliers increases the risk that we will not have sufficient quantities of our products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts. Additionally, we may be unable to establish or continue any agreements with third-party manufacturers/suppliers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers/suppliers, reliance on third-party manufacturers/suppliers entails additional risks, including:
| ● | failure of third-party manufacturers/suppliers to comply with regulatory requirements and maintain quality assurance; |
| ● | breach of the manufacturing/supply agreement by the third party; |
| ● | failure to manufacture/supply our product according to our specifications; |
| ● | failure to manufacture/supply our product according to our schedule or at all; |
| ● | misappropriation of our proprietary information, including our trade secrets and know-how; and |
| ● | termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. |
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If our current or future third-party manufacturers/suppliers cannot perform as agreed, we may be required to replace such manufacturers/suppliers and we may be unable to replace them on a timely basis or at all. Our current and anticipated future dependence upon third party manufacturers/suppliers may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
Our products incorporate certain components from sole source suppliers, and if our contract manufacturers are unable to source these components on a timely basis, due to fabrication capacity issues or other material supply constraints, or if there are interruptions in our, or our contract manufacturers’, relationships with these third-party suppliers, we may not be able to deliver our products to our distributors and customers, which may adversely impact our business.
We depend on sole source suppliers for certain components in our products, such as batteries and touchscreens. We have strategically chosen to sole source some of our supplies in order to ensure the best quality at the best prices. While we believe none of our sole source suppliers are irreplaceable and that our business is not substantially dependent on any one supplier, a small degree of risk may still exist in terms of cost and delay involved in switching to new suppliers. For example, these sole source suppliers could be constrained by fabrication capacity issues or material supply issues, stop producing such components, cease operations or be acquired by, or enter into exclusive arrangements with, our competitors or other companies. In many cases, we do not have long-term supply agreements with these suppliers. Instead, our contract manufacturers typically purchase the components required to manufacture our products on a purchase order basis. As a result, most of these suppliers can stop selling to us at any time, requiring us to find another source, or can raise their prices, which could impact our gross margins. Any such interruption or delay may force us to seek similar components from alternative sources, which may cause a delay in our product shipments. In the event we are unable to procure components from our current supplier, we may switch to a different supplier and our products can be redesigned to work with different components. Such redesign may involve engineering changes and time and effort, which may cause delays in shipment of our products and adversely affect our operating results. We plan to continue to diversify our suppliers and implement contingency plans in order to minimize any potential supply disruptions.
Our reliance on sole source suppliers involves a number of additional risks, including risks related to:
| ● | supplier capacity constraints; |
| ● | price increases; |
| ● | timely delivery; |
| ● | component quality; and |
| ● | delays in, or the inability to execute on, a supplier roadmap for components and technologies. |
We have a global supply chain and global pandemics, the military conflicts in Ukraine and in the Middle East and other macroeconomic factors may adversely affect our ability to source components in a timely or cost-effective manner from our third-party suppliers due to, among other things, work stoppages or interruptions. In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantities and delivery schedules. We have in the past experienced, and may in the future experience, component shortages and price fluctuations of key components and materials, and the predictability of the availability and pricing of these components may be limited. Component shortages or pricing fluctuations could be material in the future. In the event of a component shortage, supply interruption, or a material pricing change from suppliers of these components, we may not be able to develop alternate sources in a timely manner, or at all, especially in the case of sole or limited source items. Developing alternate sources of supply for these components may be time-consuming, difficult, and costly and we may not be able to source these components on terms that are acceptable to us, or at all, which may undermine our ability to meet our requirements or to fill customer orders in a timely manner. Any interruption or delay in the supply of any parts or components, or the inability to obtain parts or components from alternate sources at acceptable prices and within a reasonable amount of time, would adversely affect our ability to meet our scheduled product deliveries to our customers. This could adversely affect our relationships with our customers and partners and could cause delays in shipment of our products and adversely affect our operating results.
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Components used in our sensors may fail as a result of manufacturing, design or other defects over which we have no control and render our devices permanently inoperable.
We rely on third-party component suppliers to provide certain functionalities needed for the operation and use of our devices. Any errors or defects in such third-party technology could result in errors in our sensors that could harm our business. If these components have a manufacturing, design or other defect, they can cause our sensors to fail and render them permanently inoperable. As a result, we may have to replace these sensors at our sole cost and expense. Should we have a widespread problem of this kind, our reputation in the market could be adversely affected and our replacement of these sensors would harm our business.
Our robots are highly technical and could be vulnerable to hardware errors or software bugs, which may harm our reputation and our business.
Bugs and errors could diminish performance, create security vulnerabilities, affect data quality in logs or interfere with interpretation of data, or even cause personal injury accidents. Some errors may only be detected under certain circumstances or after extended use. We update our software and firmware on a regular basis, in spite of extensive quality screening, if a bug were to occur in the process of an update, it could result in devices becoming permanently disabled or operate incorrectly.
We offer a limited warranty on all products and any such defects discovered in our products could result in loss of revenue or delay in revenue recognition, loss of customer goodwill and increased service costs, any of which could harm our business, operating results and financial condition. We could also face claims for product or information liability, tort or breach of warranty. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect the market’s perception of us and our devices. In addition, if our business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business could be harmed.
We may incur significant direct or indirect liabilities in connection with our product warranties which could adversely affect our business and operating results.
We typically offer a limited product warranty that requires our products to conform to the applicable specifications and be free from defects in materials and workmanship for a limited warranty period. As a result of increased competition and changing standards in our target markets, we may be required to increase our warranty period length and the scope of our warranty. To be competitive, we may be required to implement these increases before we are able to determine the economic impact of an increase. Accordingly, we may be at risk that any such warranty increase could result in foreseeable and unforeseeable losses for the company.
Our future success depends in part on recruiting and retaining key personnel and if we fail to do so, it may be more difficult for us to execute our business strategy. The economy is currently experiencing a labor shortage and we will need to hire additional qualified personnel to effectively implement our strategic plan, and if we are unable to attract and retain highly qualified employees, we may not be able to continue to grow our business.
Our ability to compete and grow depends in large part on the efforts and talents of our employees. Our employees, particularly engineers and other product developers, are in high demand, and we devote significant resources to identifying, hiring, training, successfully integrating and retaining these employees. As competition with other companies increases, we may incur significant expenses in attracting and retaining high quality software and hardware engineers and other employees. The loss of employees or the inability to hire additional skilled employees as necessary to support the growth of our business and the scale of our operations could result in significant disruptions to our business, and the integration of replacement personnel could be time-consuming and expensive and cause additional disruptions to our business.
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We believe a critical component to our success and our ability to retain our best people is our culture. As we continue to grow, we may find it difficult to maintain our entrepreneurial, execution-focused culture.
Our insurance coverage strategy may not be adequate to protect us from all business risks.
We have limited liability insurance coverage for our products and business operations. It is possible that an adverse product liability claim could arise in excess of our coverage. If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected. In addition, we do not have any business disruption insurance. Any business disruption event could result in substantial cost to us and diversion of our resources.
Additionally, insurance rates have in the past been subject to wide fluctuation and may be unavailable on terms that we or our customers believe are economically acceptable. Reductions in coverage, changes in the insurance markets and accidents affecting our industry may result in further increases in our cost and higher deductibles and retentions in future years and may also result in reduced activity levels in certain markets. As a result, we may not be able to continue to obtain insurance on commercially reasonable terms. Any of these events could have an adverse impact on our business, financial condition and results of operations.
Risks Related to Our Intellectual Property
If we fail to protect or enforce our intellectual property or proprietary rights, our business and operating results could be harmed.
We currently own the rights to all of our intellectual property, including three approved patents and nine pending patents. We regard the protection of our patents, trade secrets, copyrights, trademarks, trade dress, domain names and other intellectual property or proprietary rights as critical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We seek to protect our confidential proprietary information, in part, by entering into confidentiality agreements and invention assignment agreements with all our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology. However, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual property or who had access to our proprietary information, nor can we be certain that our agreements will not be breached. Any party with whom we have executed such an agreement could potentially breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. We cannot guarantee that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Detecting the disclosure or misappropriation of a trade secret and enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, time- consuming and could result in substantial costs and the outcome of such a claim is unpredictable. Further, the laws of certain foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property or proprietary rights both in the United States and abroad. If we are unable to prevent the disclosure of our trade secrets to third parties, or if our competitors independently develop any of our trade secrets, we may not be able to establish or maintain a competitive advantage in our market, which could harm our business.
We have three approved technology patents and nine technology patents pending and will in the future file patent applications on inventions that we deem to be innovative. Our ownership of the patents and pending patents are not subject to restrictions or any other arrangements with third parties. However, there is no guarantee that our patent applications will be issued as granted patents, that the scope of the protection gained will be sufficient or that an issued patent may subsequently be deemed invalid or unenforceable. Patent laws, and scope of coverage afforded by them, have recently been subject to significant changes, such as the change to “first-to-file” from “first-to-invent” resulting from the Leahy-Smith America Invents Act. This change in the determination of inventorship may result in inventors and companies having to file patent applications more frequently to preserve rights in their inventions, which may favor larger competitors that have the resources to file more patent applications. Another change to the patent laws may incentivize third parties to challenge any issued patent in the United States Patent and Trademark Office (the “USPTO”), as opposed to having to bring such an action in U.S. federal court. Any invalidation of a patent claim could have a significant impact on our ability to protect the innovations contained within our devices and could harm our business.
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The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions to maintain patent applications and issued patents. We may fail to take the necessary actions and to pay the applicable fees to obtain or maintain our patents. Non-compliance with these requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to use our technologies and enter the market earlier than would otherwise have been the case.
We pursue the registration of our domain names, trademarks and service marks in the United States and in certain locations outside the United States. We are seeking to protect our trademarks, patents and domain names in an increasing number of jurisdictions, a process that is expensive and time-consuming and may not be successful or which we may not pursue in every location.
Litigation may be necessary to enforce our intellectual property or proprietary rights, protect our trade secrets or determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs, adverse publicity or diversion of management and technical resources, any of which could adversely affect our business and operating results. If we fail to maintain, protect and enhance our intellectual property or proprietary rights, our business may be harmed.
In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, designs, experiences, work flows, data, processes, software and know-how.
We rely on proprietary information (such as trade secrets, know-how and confidential information) to protect intellectual property that may not be patentable or subject to copyright, trademark, trade dress or service mark protection, or that we believe is best protected by means that do not require public disclosure. We generally seek to protect this proprietary information by entering into confidentiality agreements, or consulting, services or employment agreements that contain non-disclosure and non-use provisions with our employees, consultants, contractors and third parties. However, we may fail to enter into the necessary agreements, and even if entered into, these agreements may be breached or may otherwise fail to prevent disclosure, third-party infringement or misappropriation of our proprietary information, may be limited as to their term and may not provide an adequate remedy in the event of unauthorized disclosure or use of proprietary information. We have limited control over the protection of trade secrets used by our current or future manufacturing partners and suppliers and could lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, our proprietary information may otherwise become known or be independently developed by our competitors or other third parties. To the extent that our employees, consultants, contractors, advisors and other third parties use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection for our proprietary information could adversely affect our competitive business position. Furthermore, laws regarding trade secret rights in certain markets where we operate may afford little or no protection to its trade secrets.
We also rely on physical and electronic security measures to protect our proprietary information, but we cannot provide assurance that these security measures will not be breached or provide adequate protection for our property. There is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. We may not be able to detect or prevent the unauthorized use of such information or take appropriate and timely steps to enforce our intellectual property rights.
Under a certain number of our agreements, we are required to provide indemnification in the event our technology causes harm to third parties.
In certain of our agreements, we indemnify our customers and manufacturing partners. We could incur significant expenses defending these partners if they are sued for patent infringement based on allegations related to our technology. In addition, if a partner were to lose a lawsuit and in turn seek indemnification from us, we could be subject to significant monetary liabilities. While such contracts typically give us multiple remedies for addressing instances of infringements, such remedies (e.g. product modification, purchase of licenses) could be expensive and difficult to administer.
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Risks Related to Compliance
We may become subject to new or changing governmental regulations relating to the design, manufacturing, marketing, distribution, servicing, or use of its products, and a failure to comply with such regulations could lead to withdrawal or recall of our products from the market, delay our projected revenues, increase cost, or make our business unviable if it is unable to modify its products to comply.
We may become subject to new or changing international, federal, state and local regulations, including laws relating to the design, manufacturing, marketing, distribution, servicing or use of its products. Such laws and regulations may require us to pause sales and modify its products, which could result in a material adverse effect on its revenues and financial condition. Such laws and regulations can also give rise to liability such as fines and penalties, property damage, bodily injury and cleanup costs. Capital and operating expenses needed to comply with laws and regulations can be significant, and violations may result in substantial fines and penalties, third-party damages, suspension of production or a cessation of our operations. Any failure to comply with such laws or regulations could lead to withdrawal or recall of our products from the market.
We may become involved in legal and regulatory proceedings and commercial or contractual disputes, which could have an adverse effect on our profitability and financial position.
We may be, from time to time, involved in litigation, regulatory proceedings and commercial or contractual disputes that may be significant. These matters may include, without limitation, disputes with our suppliers and customers, intellectual property claims, stockholder litigation, government investigations, class action lawsuits, personal injury claims, environmental issues, customs and Value Added Tax (VAT) disputes and employment and tax issues. In addition, we have in the past and could face in the future a variety of labor and employment claims against us, related to, but not limited to, general employment practices and wrongful acts. In such matters, private parties or other entities may seek to recover from us indeterminate amounts in penalties or monetary damages. These types of lawsuits could require significant management time and attention or could involve substantial legal liability, and/or substantial expenses to defend. Often these cases raise complex factual and legal issues and create risks and uncertainties. No assurances can be given that any proceedings and claims will not have a material adverse impact on our consolidated financial position or that our established reserves or our available insurance will mitigate this impact.
We are subject to, and must remain in compliance with, numerous laws and governmental regulations across various jurisdictions concerning the manufacturing, use, distribution and sale of our products.
We manufacture and sell products that contain electronic components, and such components may contain materials that are subject to government regulation in both the locations where we manufacture and assembles our products, as well as the locations where we sell our products. For example, certain regulations limit the use of lead in electronic components. Since we operate on a global basis, this is a complex process which requires continuous monitoring of regulations and an ongoing compliance process to ensure that we, and our suppliers, are in compliance with all existing regulations. If there is an unanticipated new regulation that significantly impacts our use of various components or requires more expensive components, that regulation could materially adversely affect our business, results of operations and financial condition.
We are subject to U.S. and foreign anti-corruption and anti-money laundering laws and regulations. We can face criminal liability and other serious consequences for violations, which can harm our business.
We are subject to the U.S. Foreign Corrupt Practices Act, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the Money Laundering Control Act 18 U.S.C. §§ 1956 and 1957, and other anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors and other collaborators from authorizing, promising, offering or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector, and require that we keep accurate books and records and maintain internal accounting controls designed to prevent any such actions. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors and other collaborators, even if we do not explicitly authorize or have actual knowledge of such activities.
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As we increase our international cross-border business and expand our operations abroad, we may continue to engage with business partners and third-party intermediaries to market our services and to obtain necessary permits, licenses and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners and agents, even if we do not explicitly authorize such activities. We cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. As we increase our international business, our risks under these laws may increase.
Detecting, investigating and resolving actual or alleged violations of anti-corruption laws can require a significant diversion of time, resources and attention from management. In addition, non-compliance with anti- corruption or anti-bribery laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties, injunctions, suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage and other collateral consequences. If any subpoenas are received or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding, our business, operating results and financial condition could be materially harmed.
We are subject to governmental export controls and sanctions laws and regulations that could impair our ability to compete in international markets and subject us to liability if we are not in compliance with applicable laws. Changes to such laws and regulations, as well as changes to trade policy, import laws, and tariffs, may also have a material adverse effect on our business, financial condition and results of operations.
Exports of our products are subject to export controls and sanctions laws and regulations imposed by the U.S. government and administered by the U.S. Departments of State, Commerce, and Treasury. U.S. export control laws may require a license or other authorization to export products to certain destinations and end users. In addition, U.S. economic sanctions laws include restrictions or prohibitions on engaging in any transactions or dealings, including receiving investment or financing from, or engaging in the sale or supply of products and services to, U.S. embargoed or sanctioned countries, governments, persons and entities. Obtaining export authorizations can be difficult, costly and time- consuming and we may not always be successful in obtaining such authorizations, and our failure to obtain required export approval for our products or limitations on our ability to export or sell our products imposed by export control or sanctions laws may harm our revenues and adversely affect our business, financial condition, and results of operations. Non-compliance with these laws could have negative consequences, including government investigations, penalties and reputational harm.
Further, any changes in global political, regulatory and economic conditions, such as the military conflict involving Russia and Ukraine and the sanctions imposed by the United States, United Kingdom, European Union, and other jurisdictions on Russia in response to such conflict, or in laws and policies governing import/export control, economic sanctions, manufacturing, development and investment in the territories or countries where we currently purchase our components, sell our products, or conduct our business could result in the decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers. Any decreased use of our products or limitation on our ability to export or sell our products would adversely affect our business, results of operations and growth prospects. The United States has recently instituted or proposed changes in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the United States, economic sanctions on individuals, corporations or countries, and other government regulations affecting trade between the United States and other countries where we conduct our business. A number of other nations have proposed or instituted similar measures directed at trade with the United States in response. As a result of these developments, there may be greater restrictions and economic disincentives on international trade that could adversely affect our business. It may be time-consuming and expensive for us to alter our business operations to adapt to or comply with any such changes, and any failure to do so could have a material adverse effect on our business, financial condition and results of operations.
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Failures, or perceived failures, to comply with privacy, data protection, and information security requirements in the variety of jurisdictions in which we operate may adversely impact our business, and such legal requirements are evolving, uncertain and may require improvements in, or changes to, our policies and operations.
Our current and potential future operations and sales subject us to laws and regulations addressing privacy and the collection, use, storage, disclosure, transfer and protection of a variety of types of data. For example, the European Commission has adopted the General Data Protection Regulation and California enacted the California Consumer Privacy Act of 2018, both of which provide for potentially material penalties for non-compliance. These regimes may, among other things, impose data security requirements, disclosure requirements, and restrictions on data collection, uses, and sharing that may impact our operations and the development of our business. While, generally, we do not have access to, collect, store, process, or share information collected by our solutions unless our customers choose to proactively provide such information to us, our products may evolve both to address potential customer requirements or to add new features and functionality. Therefore, the full impact of these privacy regimes on our business is rapidly evolving across jurisdictions and remains uncertain at this time.
We may also be affected by cyber-attacks and other means of gaining unauthorized access to its products, systems, and data. For instance, cyber criminals or insiders may target us or third-parties with which we have business relationships in an effort to obtain data, or in a manner that disrupts our operations or compromises our products or the systems into which our products are integrated.
We are assessing the continually evolving privacy and data security regimes and measures we believe are appropriate in response. Since these data security regimes are evolving, uncertain and complex, especially for a global business like ours, we may need to update or enhance our compliance measures as our products, markets and customer demands further develop and these updates or enhancements may require implementation costs. The compliance measures we do adopt may prove ineffective. Any failure, or perceived failure, by us to comply with current and future regulatory or customer-driven privacy, data protection, and information security requirements, or to prevent or mitigate security breaches, cyber-attacks, or improper access to, use of, or disclosure of data, or any security issues or cyber-attacks affecting us, could result in significant liability, costs (including the costs of mitigation and recovery), and a material loss of revenue resulting from the adverse impact on our reputation and brand, loss of proprietary information and data, disruption to our business and relationships, and diminished ability to retain or attract customers and business partners. Such events may result in governmental enforcement actions and prosecutions, private litigation, fines and penalties or adverse publicity, and could cause customers and business partners to lose trust in us, which could have an adverse effect on our reputation and business.
If we fail to comply with the laws and regulations relating to the collection of sales tax and payment of income taxes in the various states in which we do business, we could be exposed to unexpected costs, expenses, penalties and fees as a result of our non-compliance, which could harm our business.
By engaging in business activities in the United States, we become subject to various state laws and regulations, including requirements to collect sales tax from our sales within those states, and the payment of income taxes on revenue generated from activities in those states. A successful assertion by one or more states that we were required to collect sales or other taxes or to pay income taxes where we did not could result in substantial tax liabilities, fees and expenses, including substantial interest and penalty charges, which could harm our business.
General Risks Associated with Our Company
Our limited operating history and evolving business make it difficult to evaluate our current business and future prospects.
Our limited operating history and the evolution of our business and our industry make it difficult to accurately assess our future prospects. It may not be possible to discern fully the economic and other business trends that we are subject to. Elements of our business strategy are new and subject to ongoing development as our operations mature. In addition, it may be difficult to evaluate our business because many of the other companies that offer the same or a similar range of solutions, products and services as us also have limited operating histories and evolving businesses.
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If we were to lose the services of members of our senior management team, we may not be able to execute our business strategy.
Our success depends in large part upon the continued service of key members of our senior management team. In particular, each of our Chief Executive Officer and co-founder, Zhenwu Huang, Chief Financial Officer and co-founder, Zhenqiang Huang, and Chief Operations Officer, Phil Zheng, President, Matt Casella, is critical to our overall management, as well as the continued development of our robotics technology, our culture and our strategic direction. All of our executive officers are at will employees, and we do not maintain any key person life insurance policies. The loss of any member of our senior management team could harm our business.
We may pursue acquisitions, which involve a number of risks, and if we are unable to address and resolve these risks successfully, such acquisitions could harm our business.
We have acquired and may in the future acquire businesses, products or technologies to expand our offerings and capabilities and business. We have evaluated, and expect to continue to evaluate, a wide array of potential strategic transactions. Any acquisition could be material to our financial condition and results of operations and any anticipated benefits from an acquisition may never materialize. In addition, the process of integrating acquired businesses, products or technologies may create unforeseen operating difficulties and expenditures. Acquisitions in international markets would involve additional risks, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries. We may not be able to address these risks successfully, or at all, without incurring significant costs, delays or other operational problems and if we were unable to address such risks successfully our business could be harmed.
Our ability to effectively manage our anticipated growth and expansion of our operations will also require us to enhance our operational, financial and management controls and infrastructure, human resources policies and reporting systems. These enhancements and improvements will require significant capital expenditures and allocation of valuable management and employee resources.
We expect to experience significant growth in the scope and nature of our operations. Our ability to manage our operations and future growth will require us to continue to improve our operational, financial and management controls, compliance programs and reporting systems. We may not be able to implement improvements in an efficient or timely manner and may discover deficiencies in existing controls, programs, systems and procedures, which could have an adverse effect on our business, reputation and financial results. Additionally, rapid growth in our business may place a strain on our human and capital resources. Furthermore, we expect to continue to conduct our business internationally and anticipate increased business operations in the United States, Europe, Asia and elsewhere. These diversified, global operations place increased demands on our limited resources and require us to substantially expand the capabilities of our administrative and operational resources and to attract, train, manage and retain qualified management, technical, manufacturing, engineering, sales and other personnel. As our operations expand domestically and internationally, we will need to continue to manage multiple locations and additional relationships with various customers, partners, suppliers and other third parties across several markets.
We are an “emerging growth company,” and will be able take advantage of reduced disclosure requirements applicable to “emerging growth companies,” which could make our Class B common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act and, for as long as we continue to be an “emerging growth company,” we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Class B common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
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We intend to take advantage of these reporting exemptions described above until we are no longer an “emerging growth company.” Under the JOBS Act, “emerging growth companies” can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
We cannot predict if investors will find our Class B common stock less attractive if we choose to rely on these exemptions. If some investors find our Class B common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our Class B common stock and the price of our Class B common stock may be more volatile.
We are a “controlled company” within the meaning of the Nasdaq Stock Market Rules and, as a result, may rely on exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.
We are a “controlled company” as defined under the Nasdaq Stock Market Rules, as our co-founder and Chief Executive Officer, Zhenwu (Wayne) Huang, beneficially owns over 50% of the total voting power of our issued and outstanding shares of common stock as of the date of this Report. For so long as we remain a “controlled company” under that definition, we are permitted to elect to rely on, and may rely on, certain exemptions from corporate governance rules, including an exemption from the rule that a majority of our board of directors must be independent directors. As a result, you may not have the same protection afforded to stockholders of companies that are subject to these corporate governance requirements.
We incur significantly increased costs as a result of and devote substantial management time to operating as a public company.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we are subject to the reporting requirements of the Exchange Act and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC, including the establishment and maintenance of effective disclosure and financial controls, changes in corporate governance practices and required filing of annual, quarterly and current reports with respect to our business and operating results. These requirements have increased our legal and financial compliance costs and make some activities more time-consuming and costly. In addition, our management and other personnel need to divert attention from operational and other business matters to devote substantial time to these public company requirements. We may also need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and will need to maintain an internal audit function. Operating as a public company means it is more expensive for us to maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. This could also make it more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers. In addition, after we no longer qualify as an “emerging growth company,” as defined under the JOBS ACT we expect to incur additional management time and cost to comply with the more stringent reporting requirements applicable to companies that are deemed accelerated filers or large accelerated filers, including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We are in the process of compiling the system and processing documentation needed to comply with such requirements. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion.
We cannot predict or estimate the amount of additional costs we may incur as a result of continuing to be a public company or the timing of such costs.
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Our business is subject to the risks of earthquakes, fire, floods and other natural catastrophic events, global pandemics, and interruptions by man-made problems, such as network security breaches, computer viruses or terrorism. Material disruptions of our business or information systems resulting from these events could adversely affect our operating results.
We and some of the third-party service providers on which we depend for various support functions are vulnerable to damage from catastrophic events, such as power loss, natural disasters, terrorism, pandemics, and similar unforeseen events beyond our control.
If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, damaged critical infrastructure, or otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place are unlikely to provide adequate protection in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business.
Furthermore, integral parties in our supply chain are operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events, such as a global pandemic. If such an event were to affect our supply chain, it could have a material adverse effect on our business.
Our ability to use our net operating loss carryforwards may be limited.
As of September 30, 2024, we had $6,780 thousand U.S. federal net operating loss carryforwards. Under legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (the “TCJA”) as modified in 2020 by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), unused U.S. federal net operating losses generated in tax years beginning after December 31, 2017, will not expire and may be carried forward indefinitely, but the deductibility of such federal net operating loss carryforwards in taxable years beginning after December 31, 2020, is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the TCJA or the CARES Act. In addition, our ability to utilize any federal net operating loss carryforwards may be limited under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). The limitations apply if we experience an “ownership change,” which is generally defined as a greater than 50 percentage point change (by value) in the ownership of our equity by certain stockholders or groups of stockholders over a rolling three-year period. Similar provisions of state tax law may also apply to limit the use of any state net operating loss carryforwards. We have not yet completed a Section 382 analysis, and therefore, there can be no assurances that any previously experienced ownership changes have not materially limited our utilization of affected net operating loss carryforwards. Future changes in our stock ownership, which may be outside of our control, may trigger an ownership change that materially impacts our ability to utilize any pre-change net operating loss carryforwards. In addition, there may be periods during which the use of net operating loss carryforwards is suspended or otherwise limited.
Our management has limited experience in operating a public company.
Some of our executive officers have limited experience in the management of a publicly traded company subject to significant regulatory oversight and reporting obligations under federal securities laws. Our management team may not successfully or effectively manage our transition to a public company. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will result in less time being devoted to our management and growth. We may not be able to maintain adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal controls over financial reporting required of public companies in the United States. It is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public company, which will increase our operating costs in future periods.
Risks Related to Ownership of Our Class B Common Stock
An active trading market for our Class B common stock may not develop or be sustained.
If an active trading market for our Class B common stock does not develop, you may not be able to sell your shares quickly or at the market price. Our ability to raise capital to continue to fund operations by selling shares of our Class B common stock and our ability to acquire other companies or technologies by using shares of our Class B common stock as consideration may also be impaired.
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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 an intra-day low of $0.30 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 The Nasdaq Stock Market LLC (“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.
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The dual-class structure of our common stock has the effect of concentrating voting power, which may limit your ability to influence the outcome of important transactions, including a change in control.
Our Class B common stock has one (1) vote per share, and our Class A common stock has ten (10) votes per share. Our issued and outstanding share capital consisted of 39,934,846 shares of Class A common stock and 72,117,398 shares of Class B common stock as of January 10, 2025. Our Chief Executive Officer and co-founder, Zhenwu Huang, and our Chief Financial Officer and co-founder, Zhenqiang Huang, beneficially own an aggregate of approximately 81.02% of the voting power of our outstanding shares of common stock as of September 30, 2024, and as such, these stockholders, individually or together, may be able to significantly influence matters submitted to our stockholders for approval, including the election of directors, amendments of our articles of incorporation, as amended, and any merger or other major corporate transactions that require stockholder approval. See “Principal Stockholders” Our existing stockholders, including Zhenwu Huang and Zhenqiang Huang, individually or together, may vote in a way with which you disagree and which may be adverse to your interests. This concentrated voting power may, by changing the directors of the Company, have the ultimate effect of delaying, preventing or deterring a change in control of our Company, could deprive our stockholders of an opportunity to receive a premium for their shares of common stock as part of a sale of our company and might ultimately materially and adversely affect the market price of our Class B common stock.
Future transfers by the holders of shares of Class A common stock may result in those shares converting into shares of Class B common stock. Each share of Class A common stock is convertible into one share of Class B common stock at any time at the option of the holder, but Class B common stock shall not be convertible into Class A common stock under any circumstances. However, as long as at least 7,211,740 shares of Class A common stock remain outstanding, and without giving effect to any future issuances, the holders of our Class A common stock will hold a majority of the outstanding voting power and will continue to control the outcome of matters submitted to stockholders’ approval. Our second amended and restated articles of incorporation will generally not prohibit us from issuing additional shares of Class A common stock, and any future issuance of shares of Class A common stock may be dilutive to holders of Class B common stock.
The dual-class structure of our common stock may adversely affect the trading market for our Class B common stock.
We cannot predict whether our dual-class structure will result in a lower or more volatile market price of our Class B common stock or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on companies with dual-class or multi-class share structures in their indices. In July 2017, S&P Dow Jones and FTSE Russell announced changes to their eligibility criteria for the inclusion of shares of public companies on certain indices, including the Russell 2000, the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, to exclude companies with multiple classes of shares from being added to these indices. Beginning in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. As a result, our dual class capital structure would make us ineligible for inclusion in any of these indices, and mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not be investing in our Class B common stock. These policies are still relatively new and it is as of yet unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included. Furthermore, we cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones or FTSE Russell in the future. Exclusion from indices could make our Class B common stock less attractive to investors and, as a result, the market price of our Class B common stock could be adversely affected.
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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our Class B common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If no securities or industry analysts cover our company, the trading price for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
Future sales of our Class B common stock or securities convertible into our Class B common stock may depress our stock price.
Sales of a substantial number of shares of our Class B common stock or securities convertible into our Class B common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Class B common stock. For example, we have registered an aggregate of 14,311,215 shares of Class B common stock issuable under our Amended and Restated 2023 Stock Option Plan on a Registration Statement on Form S-8, filed with the SEC on December 11, 2023, as amended by Post-Effective Amendment No. 1 to Form S-8, filed with the SEC on November 7, 2023, and such shares can be freely sold in the public market upon issuance (unless issued to an affiliate of the Company). If a large number of shares of our Class B common stock or securities convertible into our Class B common stock are sold in the public market after they become eligible for sale, the sales could reduce the trading price of our Class B common stock and impede our ability to raise future capital.
There can be no assurance that we will continue to be able to comply with the continued listing standards of Nasdaq.
Our continued eligibility to maintain the listing of our Class B common stock on Nasdaq depends on a number of factors, including the price of our Class B common stock. On October 25, 2024, the Company received a notice from Nasdaq notifying the Company that, because the closing bid price for the Company’s Class B common stock had fallen below $1.00 per share for 30 consecutive business days, the Company no longer complies with the minimum bid price requirement for continued listing on the Nasdaq Capital Market under Rule 5550(a)(2) of Nasdaq Listing Rules. Nasdaq’s notice had no immediate effect on the listing of the Company’s Class B common stock on the Nasdaq Capital Market. Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided an initial compliance period of 180 calendar days, or until April 23, 2025, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of the Company’s Class B common stock must meet or exceed $1.00 per share for a minimum of 10 consecutive business days prior to April 23, 2025. On January 6, 2024, the Company received a notice from Nasdaq that the Company has regained compliance with the minimum bid price requirement and the matter is closed.
However, there is no guarantee that the Company will be able to remain in compliance with the continued listing standards of Nasdaq. If Nasdaq delists our securities from trading on its exchange for failure to meet its listing standards, and we are not able to list such securities on another national securities exchange, then our Common Stock could be quoted on an over-the-counter market. If this were to occur, we and our stockholders could face significant material adverse consequences, including:
| ● | a limited availability of market quotations for our securities; |
| ● | reduced liquidity for our securities; |
| ● | a determination that our Class B common stock is a “penny stock,” which will require brokers trading our Class B common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of our Class B common stock; |
| ● | a limited amount of news and analyst coverage; and |
| ● | a decreased ability for us to issue additional securities or obtain additional financing in the future. |
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Our directors, executive officers and principal stockholders have substantial control over us and could delay or prevent a change of corporate control.
Our directors, executive officers and holders of more than 5% of our Class B common stock, together with their affiliates, beneficially own, in the aggregate, approximately 81.35% of our outstanding common stock as of January 10, 2025. As a result, these stockholders, acting together, have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership could harm the market price of our Class B common stock by:
| ● | delaying, deferring or preventing a change of control of us; |
| ● | impeding a merger, consolidation, takeover or other business combination involving us; or |
| ● | discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of us. |
See “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” below for more information regarding the ownership of our outstanding stock by our executive officers, directors and holders of more than 5% of our Class B common stock, together with their affiliates.
Anti-takeover provisions contained in our second amended and restated articles of incorporation and second amended and restated bylaws, as well as provisions of Nevada law, could impair a takeover attempt.
Our second amended and restated articles of incorporation, second amended and restated bylaws and Nevada law contain provisions which could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:
| ● | classifying our board of directors into three classes; |
| ● | authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend, and other rights superior to our Class B common stock; |
| ● | limiting the liability of, and providing indemnification to, our directors and officers; |
| ● | limiting the ability of our stockholders to call and bring business before special meetings; |
| ● | requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; |
| ● | controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; and |
| ● | providing our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings. |
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
Nevada law, Nevada Revised Statutes (“NRS”) Sections 78.411 through 78.444, regulate business combinations with interested stockholders. Nevada law defines an interested stockholder as a beneficial owner (directly or indirectly) of 10% or more of the voting power of the outstanding shares of the corporation. Pursuant to Sections NRS 78.411 through 78.444, combinations with an interested stockholder remain prohibited for three years after the person became an interested stockholder unless (i) the transaction is approved by the board of directors or the holders of a majority of the outstanding shares not beneficially owned by the interested party, or (ii) the interested stockholder satisfies certain fair value requirements. NRS 78.434 permits a Nevada corporation to opt-out of the statute with appropriate provisions in its articles of incorporation.
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NRS Sections 78.378 through 78.3793 regulates the acquisition of a controlling interest in an issuing corporation. An issuing corporation is defined as a Nevada corporation with 200 or more stockholders of record, of which at least 100 stockholders have addresses of record in Nevada and does business in Nevada directly or through an affiliated corporation. NRS Section 78.379 provides that an acquiring person and those acting in association with an acquiring person obtain only such voting rights in the control shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of the stockholders. Stockholders who vote against the voting rights have dissenters’ rights in the event that the stockholders approve voting rights. NRS Section 78.378 provides that a Nevada corporation’s articles of incorporation or bylaws may provide that these sections do not apply to the corporation. Our second amended and restated articles of incorporation provide that these sections do not apply.
We have never paid dividends on our capital stock, and we may not pay any dividends in the foreseeable future.
We have never declared nor paid cash dividends on our capital stock. We may pay dividends in the future if the Company realizes good profits and the board of directors determines that dividends are advisable, taking into account the Company’s financial and development needs. However, it is also possible that we may retain any future earnings to finance the operation and expansion of our business, and we may not declare or pay any dividends in the foreseeable future. Consequently, stockholders may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
ITEM 1B. Unresolved Staff Comments
Not Applicable
ITEM 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
Our Company has a dedicated internal IT department with cybersecurity engineers who oversee various aspects of cybersecurity. These engineers specialize in different areas, including ensuring security during product development, particularly in the domains of cloud management platforms and network interactions, as well as managing cybersecurity for daily office communications.
In the event of an unexpected cybersecurity incident, the engineers immediately report to the Company’s management. They are equipped with pre-established response plans to address such situations effectively and mitigate potential risks.
Currently, our cybersecurity risk management relies primarily on internal resources. However, as the Company continues to expand, we anticipate engaging third-party consultants to assist in enhancing our cybersecurity management processes and addressing evolving threats.
While we do not currently have third-party collaborations, the Company plans to implement a process for selecting and evaluating third-party service providers in the future. This will include comparing services, signing security agreements, and having our internal engineers assess the third parties’ achievement of security objectives.
In the past three years, our Company has not experienced any material cybersecurity risks. To ensure robust protection against potential threats, we have implemented the following security measures:
| ● | Regularly updating and changing critical passwords. |
| ● | Periodically modifying communication interfaces to enhance security. |
| ● | Assigning development tasks in a modular fashion to minimize exposure. |
| ● | Utilizing dual-factor authentication for system access. |
| ● | Implementing tiered authorization levels for critical network operations. |
| ● | Conducting routine security training and awareness programs for employees. |
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Cybersecurity Governance
Currently, the Company’s board of directors does not oversee cybersecurity risks directly. However, plans are in place to introduce such oversight in the future. The Audit Committee of the Board will assume responsibility for cybersecurity risk oversight, with a plan to review cybersecurity matters on a quarterly basis. This initiative will ensure that the Company maintains robust oversight mechanisms to address evolving cybersecurity threats effectively.
The responsibility for assessing and managing cybersecurity risks within the Company lies with the managers of the R&D department and the IT department. Both individuals possess relevant expertise in their respective fields, ensuring a high level of competence in identifying and mitigating cybersecurity risks. Their duties include monitoring potential threats, implementing security protocols, and responding to incidents to safeguard company assets and operations.
In the event of cybersecurity incidents or abnormal alerts, the relevant department managers immediately intervene and manage the situation. All logs and records related to such events are preserved for future analysis. Cybersecurity testing is incorporated into every stage of product development, ensuring that vulnerabilities are identified and addressed proactively. Additionally, server security patches are regularly updated to mitigate potential threats.
ITEM 2. Properties
Our principal executive offices are located at 4175 Cameron St Ste 1, Las Vegas, NV 89103. We lease office facilities under a noncancelable operating lease agreement through August 2027.
On October 4, 2024, the Company entered into a new lease agreement for retail space located at Space No. B187 in Town Square Las Vegas, 6587 Las Vegas Boulevard South, Las Vegas, Nevada 89119. This location will operate under the name “Clouffee and Tea.” The lease has a term of five (5) years and encompasses approximately 1,000 square feet. The store will be opened in late January 2025, at which time the lease rental commencement date will be confirmed.
The following table sets forth information as to the real property currently leased by us:
| Lessor | Lessee | Location | Area (Square Feet) | Annual Rent FY2025 | Current Term Expires | Use | ||||||||||
| Cameron Industrial Park, LLC | Richtech Robotics Inc. | 4175 Cameron St, Ste 1 & 2 & A1 &A2 & C & 5, Las Vegas, NV 89103 | 15,792 | $ | 209,041.68 | August 31, 2027 | HQ | |||||||||
ITEM 3. Legal Proceedings
From time to time, we may be subject to legal proceedings, investigations and claims incidental to the conduct of our business. As of September 30, 2024, other than as set forth below, we are not a party to, nor are we aware of, any legal proceedings, investigations or claims which, in the opinion of our management, are likely to have a material adverse effect on our business, financial condition or results of operations.
On December 13, 2024, the Company received a Notice of Breach from AC Sunshine Securities LLC (“ACSS”), pursuant to which ACSS alleges that the Company breached an exclusivity provision in that certain Follow-On Offering Engagement Letter, by and between the Company and ACSS, and ACSS is seeking payment of fees and expenses. The Company is currently assessing the merits of ACSS’s claim.
ITEM 4. Mine and Safety Disclosure
Not applicable.
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PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our Class B common stock trades on the Nasdaq Stock Market under the symbol “RR.”
Holders of Record
As of January 10, 2025, we had approximately 3 holders of record of our Class A common stock and 14 holders of record of our Class B common stock.
Dividend Policy
We have never paid or declared any cash dividends on our Class B common stock. We may pay dividends in the future if the Company realizes good profits and the board of directors determines that dividends are advisable, taking into account the Company’s financial and development needs. However, we may instead retain any future earnings to finance the operation, development and expansion of our business, and we may not declare or pay any dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, business prospects, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.
Under NRS 78.288, the directors of a corporation may authorize, and the corporation may make, distributions (including cash dividends) to stockholders, but no such distribution may be made if, after giving it effect:
| ● | the corporation would not be able to pay its debts as they become due in the usual course of business; or |
| ● | the corporation’s total assets would be less than the sum of (x) its total liabilities plus (y) the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution. |
The NRS prescribes the timing of the determinations above depending on the nature and timing of payment of the distribution. For cash dividends paid within 120 days after the date of authorization, the determinations above must be made as of the date the dividend is authorized. When making their determination that a distribution is not prohibited by NRS 78.288, directors may consider:
| ● | financial statements prepared on the basis of accounting practices that are reasonable in the circumstances; |
| ● | a fair valuation, including, but not limited to, unrealized appreciation and depreciation; and/or |
| ● | any other method that is reasonable in the circumstances. |
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Securities Authorized for Issuance under Equity Compensation Plan
The following table sets forth information concerning securities authorized under equity compensation plans as of September 30, 2024.
| Plan Category | Number of securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options | Number of granted restricted stock unit awards outstanding | Number of securities remaining available for future issuance under equity compensation plans | ||||||||||||
| Equity compensation plans approved by security holders | - | $ | - | - | 525,274 | |||||||||||
| Equity compensation plans not approved by security holders | - | - | - | - | ||||||||||||
| - | $ | - | - | 525,274 | ||||||||||||
Recent Sales of Unregistered Securities
None that have not already been disclosed in a prior Quarterly Report on Form 10-Q or Current Report on Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6. Reserved
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
Richtech Robotics, Inc. is a leading innovator and provider of advanced robotics solutions designed to address the growing need for automation in the service industry. We develop, manufacture, and deploy cutting-edge robots that streamline operations, enhance efficiency, and alleviate labor shortages across a diverse range of sectors, including restaurants, hotels, casinos, senior living facilities, and retail centers. Our commitment to technological advancement and customer-centric solutions has positioned us as a key player in the rapidly evolving robotics landscape.
Key Business Highlights for Fiscal Year 2024
| ● | Strategic Transition to Robotics-as-a-Service: The Company has embarked on a strategic transition from a traditional product sales model to a RaaS model. This shift is aimed at generating a more predictable and recurring revenue stream over the long term, enhancing customer accessibility to our advanced technologies, and aligning with prevailing industry trends. |
| ● | Significant RaaS Contracts Secured: As of September 30, 2024, the Company has secured significant RaaS contracts, including a notable agreement for the deployment of 25 ADAM units, representing a total contract value of $5,250,000.00, to be recognized over a 60-month period. These contracts, totaling $5,862,765.00, will contribute to revenue generation incrementally over lease terms ranging from 36 to 72 months. |
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| ● | Continued Investment in Research and Development: Richtech Robotics remains dedicated to innovation and technological advancement, as evidenced by the increase in research and development expenses during fiscal year 2024. These investments are focused on expanding our product portfolio, enhancing existing offerings, and maintaining our competitive edge in the dynamic robotics market. |
| ● | Expansion of Sales and Marketing Efforts: To support the RaaS model and drive customer acquisition, the Company has significantly increased its investment in sales and marketing initiatives. These efforts are crucial for educating potential customers about the benefits of leasing robotics solutions, building brand awareness, and cultivating new customer relationships. |
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 will 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 anticipate that our general and administrative expenses will continue to 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. |
| ● | 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. |
| ● | 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. |
Results of Operations
Comparison of the fiscal years ended September 30, 2024 and 2023
The following table summarizes our results of operations (in thousands) for the fiscal years ended September 30, 2024 and 2023, together with the dollar change in those items from period to period:
| Year ended September 30, | ||||||||||||
| 2024 | 2023 | Change | ||||||||||
| Revenue, net | $ | 4,240 | $ | 8,759 | $ | (4,519 | ) | |||||
| Cost of revenue, net | 1,520 | 2,744 | (1,224 | ) | ||||||||
| Gross profit | 2,720 | 6,015 | (3,295 | ) | ||||||||
| Operating expenses: | ||||||||||||
| Research and development | 2,021 | 1,979 | 42 | |||||||||
| Sales and marketing | 1,315 | 238 | 1,077 | |||||||||
| General and administrative | 6,457 | 3,509 | 2,948 | |||||||||
| Total operating expenses | 9,793 | 5,726 | 4,067 | |||||||||
| Gain/(loss) from operations | (7,073 | ) | 289 | (7,362 | ) | |||||||
| Non-operating income(expense): | ||||||||||||
| Investment Income | 13 | - | 13 | |||||||||
| Interest expenses, net | (762 | ) | (734 | ) | (28 | ) | ||||||
| Total other expenses | (749 | ) | (734 | ) | (15 | ) | ||||||
| Loss before income tax expense | (7,822 | ) | (445 | ) | (7,377 | ) | ||||||
| Income tax benefit/(expense) | (318 | ) | 106 | (424 | ) | |||||||
| Net loss | $ | (8,140 | ) | $ | (339 | ) | $ | (7,801 | ) | |||
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Revenue
The total revenue for the fiscal year ended September 30, 2024 and 2023, was $4,240 thousand and $8,759 thousand, respectively. The $4,519 thousand decrease, or 51%, for fiscal year 2024 is primarily attributed to the strategic transition to the RaaS model, which impacts the timing of revenue recognition. While this transition may initially reduce revenue, it is expected to generate a more predictable and recurring revenue stream over the long term.
| Year ended September 30, | ||||||||||||
| 2024 | 2023 | Change | ||||||||||
| Robotics | ||||||||||||
| Product revenue | $ | 1,251 | $ | 5,665 | $ | (4,414 | ) | |||||
| Service revenue | 1,830 | 2,602 | (772 | ) | ||||||||
| Leasing revenue | 786 | 197 | 589 | |||||||||
| Total Robotics revenue | 3,867 | 8,464 | (4,597 | ) | ||||||||
| Smart hardware | 16 | 7 | 9 | |||||||||
| Interactive system | 101 | 198 | (97 | ) | ||||||||
| Cloutea* | 256 | 90 | 166 | |||||||||
| Total | $ | 4,240 | $ | 8,759 | $ | (4,519 | ) | |||||
| * | Cloutea is the revenue generated from our boba tea store opened in May, 2023. We opened this store as a model to further develop the concept of an interactive robot barista utilizing our ADAM robot. Cloutea has been rebranded “Clouffee and Tea,” which will open in a new location in Las Vegas in January 2025. |
In 2024, the Company generated $4.2 million in total revenue, a decrease from $8.8 million in 2023. This decrease was primarily driven by a decline in product revenue within our Robotics category, partially offset by an increase in leasing revenue. The shift towards service and leasing reflects the ongoing transition to our Robot-as-a-Service model, which is expected to generate more predictable and recurring revenue streams in the long term. The following table summarizes the RaaS sales numbers (in thousand):
| Current Sales | (RaaS adjusted to sale model) | |||||||
| FY24 | FY24 | |||||||
| Sales | ||||||||
| Product revenue | $ | 1,235 | $ | 7,208 | ||||
| Service revenue | 1,830 | 1,830 | ||||||
| Leasing revenue | 786 | 742 | ||||||
| Others | 389 | 389 | ||||||
| Total | $ | 4,240 | $ | 10,168 | ||||
| * | If the RaaS revenue is treated as product sales, the gross revenue for fiscal year 2024 would be $10,210. |
| * | This transition aligns with the Company’s long-term growth strategy, aiming to create a more stable and recurring revenue stream while reducing the upfront financial burden for our customers. We believe the RaaS model enhances customer retention and positions the Company competitively in an evolving market. |
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Cost of Revenue
Our gross profit decreased significantly in 2024, declining by 55% from $6.0 million in 2023 to $2.7 million in 2024, our gross margin remained relatively stable. Our gross margin was 64% in 2024, compared to 69% in the prior year. This slight decrease in gross margin is primarily attributed to adjustments and write-offs related to our inventory. During the year, we conducted a thorough review of our inventory and identified certain obsolete and slow-moving items that required adjustments and write-offs. These adjustments impacted on our cost of goods sold and, consequently, our gross margin. We have implemented measures to improve our inventory management practices and minimize the risk of future inventory obsolescence.
Despite this slight margin compression, we are pleased with the overall stability of our gross margin, which reflects the inherent profitability of our business model. We believe that our strategic shift towards an RaaS model, with its higher-margin recurring revenue streams, will further enhance our profitability in the long term.
Gross Profit
Despite the decrease in revenue, our gross profit remained relatively stable, decreasing from $6.0 million in 2023 to $2.7 million in 2024. This resulted in a gross margin of 64% in 2024, compared to 69% in the prior year. This slight decrease in gross margin is primarily attributed to a shift in our revenue mix. As we transition towards a Robot-as-a-Service (RaaS) model, a higher proportion of our revenue is now generated from service and leasing arrangements. These arrangements generally have lower gross margins compared to product sales, as they involve ongoing service costs and the amortization of the robot’s cost over the contract term. However, we believe this strategic shift towards RaaS will benefit us in the long run by creating more predictable recurring revenue streams and fostering stronger customer relationships.
Research and Development Expenses
We remain committed to investing in research and development to drive innovation and maintain our competitive edge. R&D expenses increased from $1.9 million in 2023 to $2.0 million in 2024 was due primarily to our increased expenditure in developing new products.
Sales and Marketing Expenses
Our sales and marketing expenses increased significantly, from $238,000 in 2023 to $1.3 million in 2024. This increase is directly related to our strategic initiatives to expand our market reach and promote our RaaS (Robot-as-a-Service) offerings.
General and Administrative Expenses
As a newly public company, we incurred higher general and administrative expenses, which increased from $3.5 million in 2023 to $6.4 million in 2024. This increase is primarily due to an increase in professional service fees associated with operating as a public company.
Other Income (Expense)
Our total other expenses increased in 2024, rising from $734,000 in 2023 to $749,000 in 2024. This increase is mainly attributed to higher interest expenses incurred on outstanding debt. As we scaled our operations and invested in working capital to support our growth, our interest expense increased. However, we made a strategic decision to prioritize debt reduction and paid off a significant portion of our outstanding loans in the middle of 2024. This proactive approach to debt management will reduce our interest burden going forward, improve our overall financial position, and provide us with greater financial flexibility to pursue future growth opportunities
Income Tax Benefit/(Expense)
We recorded an income tax expense of $318 thousand in 2024. This is primarily driven by the removal of deferred tax benefits. Management determined that it is more likely than not that the Company will be unable to realize the benefits of these deductible temporary differences in the future.
Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, which consist of cash on hand and short-term investments that are readily convertible to cash. As of September 30, 2024, our cash and cash equivalents totaled $14.6 million. This represents a significant increase from $433,000 at the end of the prior fiscal year. The substantial increase in our cash position is primarily attributable to the net proceeds of $40.2 million received from our initial public offering completed in November 2023 and subsequent financing as described in “ITEM 1. Business – Recent Developments – Registered Offering.” These proceeds significantly strengthened our balance sheet and provided us with the financial flexibility to invest in our growth initiatives, including the expanding our R&D team, purchase of property and equipment to support our expanding operations. This increase was partially offset by cash used in operating activities, primarily due to our net loss and investments in working capital.
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Comparison of the years ended September 30, 2024 and 2023
The following table summarizes our cash flow information (in thousands) for the years ended September 30, 2024 and 2023, together with the dollar change in those items from period to period:
| Year ended September 30, | ||||||||||||
| 2024 | 2023 | Change | ||||||||||
| Net Cash provided by (used in): | ||||||||||||
| Operating activities | $ | (5,061 | ) | $ | (2,896 | ) | (2,165 | ) | ||||
| Investing activities | (22,731 | ) | (26 | ) | (22,705 | ) | ||||||
| Financing Activities | 41,925 | 3,028 | 38,897 | |||||||||
| Net increase (decrease) in cash | $ | 14,133 | $ | 106 | 14,027 | |||||||
Operating Activities
Net cash used in operating activities for the year ended September 30, 2024 was $5,061 thousand, primarily due to a net loss of $8,140 thousand an increase of $3,079 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 accounts receivable of $4,217 thousand, deferred tax asset of $518 thousand and operating lease liabilities of $404 thousand, partially offset by decreases in accounts payable of $976 thousand, tax payable of $456 thousand, right-of-use asset of $405 thousand and increase in inventory of $326 thousand respectively.
Net cash used in operating activities for the year ended September 30, 2023 was $2,896 thousand, primarily due to a net loss of $339 thousand and a decrease of $2,557 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 $951thousand 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.
Investing Activities
Net cash used for investing activities was $22,731 thousand net cash used for investing activities for year ended September 30, 2024, primarily driven by $15,940 thousand on purchase of short-term investments, $5,470 thousand on purchase of intangible assets, $730 thousand on purchase of long-term investments and $725 thousand on purchase of equipment.
Net cash used for investing activities was $26 thousand net cash used for investing activities for year ended September 30, 2023, primarily consisted of cash used for lending to related parties, and cash collected from loan to related parties
Financing Activities
Net cash provided by financing activities totaled $41,925 thousand for the year ended September 30, 2024. We received $33,566 thousand from issuance of common stock, raised approximately $9,286 thousand from issuance of ordinary shares, received loans with a net balance of $3,102 from third parties, offset by $238 thousand payment of related party debt.
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 loans with a net balance of $845 from third parties as of September 30, 2023, offset by $247 thousand payment of related party debt.
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, 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.
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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 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.
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.
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk
As a “smaller reporting company” we are not required to provide information required by this Item.
ITEM 8. Financial Statements and Supplementary Data
Reference is made to pages F-1 through F-17 comprising a portion of this Report, which are incorporated herein by reference.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this Report, our management conducted an assessment of the effectiveness of our internal controls over financial reporting as of the end of the period covered by this report (under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)). Based on that assessment, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were effective.
Management’s Annual Report on Internal Controls over Financial Reporting
Our internal control over financial reporting is a process designed by, or under the supervision of, our CEO and CFO and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our Board and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Under the supervision and participation of our management, including our CEO, we evaluated the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control - Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. As part of our assessment of the effectiveness of our internal control over financial reporting as of September 30, 2024, management has performed adequate testing to conclude that the material weakness identified in the prior fiscal year has been remediated as of September 30, 2024. Management had identified a material weakness in the prior year related to the Company’s IT general controls over third-party information systems and applications. This material weakness was related to:
| ● | Complementary User Entity Controls: Controls were not fully documented responding to all of the Complementary User Entity Controls forwarded through Software as a Service vendor audit reports in the design and implementation of suggested controls. |
| ● | Information Produced by the Entity (IPE): There were not always appropriate IT controls related to information produced by the entity (IPE), including spreadsheets, that are relevant to the preparation of our consolidated financial statements. |
Management has taken the following actions to remediate this material weakness:
| ● | 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. |
| ● | Improved Access Management: Implemented a role-based access control system for all IT systems, including regular reviews of user access rights and timely removal of access for terminated employees. This ensures that only authorized personnel have access to sensitive financial data. |
These remediation actions have been in place for a sufficient period of time, and management has performed adequate testing to conclude that the material weakness has been remediated as of September 30, 2024.
This Report does not include an attestation report of our internal controls from our independent registered public accounting firm due to our status as an emerging growth company under the JOBS Act.
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Ongoing Monitoring
Management recognizes the importance of ongoing monitoring and continuous improvement of our internal control over financial reporting. We have established a process for regularly evaluating the effectiveness of our controls, including periodic self-assessments, internal audits, and ongoing monitoring activities. This process allows us to identify and address any emerging risks or control deficiencies in a timely manner.
Changes in Internal Control over Financial Reporting
During the fiscal year ended September 30, 2024, the Company underwent a significant transition as it became a publicly traded company. As a private company, we were not previously subject to the Sarbanes-Oxley Act of 2002, including the requirements for management’s assessment of internal control over financial reporting.
To comply with these new requirements, we have undertaken substantial efforts to develop and implement a comprehensive system of internal control over financial reporting in accordance with the 2013 Committee of Sponsoring Organizations of the Treadway Commission framework. These efforts included:
| ● | Documentation of key controls: We have documented our significant processes and controls, including those related to financial reporting, IT systems, and operational activities. |
| ● | Implementation of new controls: We have implemented new controls to address areas where deficiencies were identified, particularly in IT general controls and the use of spreadsheets in financial reporting. This includes enhanced controls over SaaS applications, improved IT governance, and increased data accuracy procedures. |
| ● | Testing of controls: We have performed testing of our controls to evaluate their design and operating effectiveness. |
While we believe that significant progress has been made in strengthening our internal control over financial reporting, these efforts are ongoing. We continue to evaluate and enhance our control environment to ensure its effectiveness and adaptability as the company grows and evolves.
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.
ITEM 9B.
Not Applicable.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not Applicable.
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PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
Listed below are the names of the directors and executive officers of the Company, their ages as of the date of this Annual Report, their positions held and the year they commenced service with the Company.
| Name | Age | Title | |||
| Zhenwu (Wayne) Huang | 48 | Chief Executive Officer and Director | |||
| Zhenqiang (Michael) Huang | 46 | Chief Financial Officer and Director | |||
| Phil Zheng | 31 | Chief Operating Officer | |||
| Matthew G. Casella | 46 | President | |||
| John Shigley | 68 | Director | |||
| Stephen Markscheid | 70 | Director | |||
| Saul Factor | 65 | Director | |||
Biographies of Executive Officers and Directors
Mr. Zhenwu (Wayne) Huang has served as our Founder, Chief Executive Officer and director since the founding of the Company in July 2016. Mr. Huang has 20 years of experience leading corporations across multiple technology industries. Mr. Huang directs the core focus of the company, formulates and implements business policies through the Company’s management team, and directly oversees R&D operations. He served as co-founder and Chief Executive Officer of Nanjing Rich Digital Technology Co. Ltd. from 2003 to 2007, a leading value-add service provider for telecommunications. There, he pioneered live interactive TV games based on smart computer vision. and had a peak audience of over 100 million subscribers. This success can be attributed to Mr. Huang’s understanding of customer centric design, utilizing technology to elevate the customer experience. Mr. Huang served was the co-founder and Chief Executive Officer of Richtech System Ltd. from 2007 to 2016, a global supplier of smart hardware and interactive multimedia systems to over 120 countries. Mr. Huang received a Bachelor in Computer Information Management from Huadong Finance and Economics College in July 2000. We believe that Mr. Huang’s extensive knowledge of our Company as co-founder and his experience in executive roles across multiple industries make him qualified to serve on our Board.
Mr. Zhenqiang (Michael) Huang has served as our co-founder, Chief Financial Officer and director since the founding of the Company in July 2016. He oversees the functions relating to finance, accounting, reporting and procurement. Mr. Huang was co-founder of Nanjing Rich Digital Technology Co. Ltd. from 2003 to 2007 where he oversaw international cooperation and partnerships. He served as co-founder and Chief Financial Officer of Richtech System Ltd. from 2007 to 2016, leading the company on its international expansion and business development. Mr. Huang holds a management training certificate from the Federal Ministry of Economics and Technology of Germany since 2012. He received his Bachelor’s Degree in Economics from Nanjing University in June 2000. We believe that Mr. Huang’s extensive knowledge of our Company as co-founder and his experience in finance and international business development make him qualified to serve on our Board.
Mr. Phil Zheng has served as our Chief Operating Officer since February 2020. He oversees the operations of the Company, including business development, marketing, product design, R&D process, market research, compliance, administration of standardized operating procedures, customer relations, and partnerships. Prior to that, he served as the Company’s Director of Operations from July 2017 to January 2019 and Chief Revenue Officer from February 2019 to January 2020, where he was tasked to build and scale company departments into effective business units and direct sales revenues strategies. He has a Bachelor of Arts from the University of California, Los Angeles, and a Juris Doctor from the University of California, Irvine, School of Law. We believe Mr. Zheng’s extensive knowledge of the Company’s internal operations qualifies him to be our Chief Operating Officer.
Mr. Matthew G. Casella has served as our President since August 2023. He has over 20 years of diverse experience in finance, hospitality, and technology. He has a proven track record in project management, strategic planning, and financial analysis. As a Co-Founder of Caravive, Inc. (from 2019 to 2023), an early-stage food tech development company, he collaborated with a diverse team of industry experts to explore and develop innovation in the restaurant sector. From 2015 to 2021, he served as CFO at PRG, LLC, a restaurant automation startup. From 2012 to 2015, he served as the Director of Training and Deployment at LYFE Kitchen, a restaurant chain, where he played an important role in growing the restaurant chain from one to 16 locations in under three years opening restaurants in New York, Tennessee, Chicago, Colorado, Texas and California. Mr. Casella received his Bachelor of Science degree in Finance from the University of Illinois Urbana-Champaign in 2001.
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Mr. John Shigley joined our board of directors as an independent director in November 2023. Mr. Shigley is a retired Nevada certified public accountant with over 30 years of executive experience in large casino-hotels. Mr. Shigley has held various positions in finance, marketing and operations, including Chief Financial Officer of Primadonna Resorts (1998 to 2000), President of Caesars Palace (2000 to 2001), Executive Vice President of New York, New York Hotel and Casino in Las Vegas (2002 to 2005), Executive Vice President (2005 to 2011) and Chief Financial Officer (2005 to 2008) of MGM Grand Hotel Las Vegas, President of MGM Vietnam (March 2011 to April 2013), Executive Vice President of MGM Macau (May 2013 to January 2014) and Chief Operating Officer of Gaming for MGM China (January 2014 to February, 2019). Mr. Shigley received his B.S. in Accountancy from Northern Illinois University and spent his early career with a large international certified public accounting firm. We believe that Mr. Shigley’s experience in financial and operational management and his established network in the hospitality industry make him a qualified candidate to serve on our Board.
Mr. Stephen Markscheid joined our board of directors as an independent director in November 2023. Mr. Markscheid has been the Managing Partner of Aerion Capital, a family office, since July 2022. He currently serves as independent non-executive director of four other publicly listed companies: Jinko Solar Inc. (NYSE: JKS), a solar panel manufacturer (since 2010); ConnectM Technology Solutions, Inc. (Nasdaq: CNTM), a technology company (since July 2024); Four Leaf Acquisition Corporation (Nasdaq: FORL), a special purpose acquisition company (since 2023); Charlton Aria Acquisition Corporation (Nasdaq: CHARU), a special purpose acquisition company (since October 2024); and Shepherd Avenue Acquisition Corporation (Nasdaq: SPHAU), a special purpose acquisition company (since December 2024). Mr. Markscheid previously served as a director on numerous public boards including Cenntro Inc. (Nasdaq CENN), an electric vehicle manufacturer from 2023 to 2024, UGE International (XTSX:UGE), a solar installation company from August 2019 to July 2023, Fanhua, Inc. (Nasdaq: FANH), a financial services provider from 2007 to 2024, Kingwisoft Technology Services Ltd. (HKSE: 8295.HK), an information technology company from 2016 to 2024, and several special purpose acquisition companies. He is also a trustee emeritus of Princeton-in-Asia. From 1998 to 2006, he worked for GE Capital. During his time with GE Capital, Mr. Markscheid led GE Capital’s business development activities in China and Asia Pacific, primarily acquisitions and direct investments. Prior to GE Capital, Mr. Markscheid worked with the Boston Consulting Group throughout Asia. He was a banker for ten years in London, Chicago, New York, Hong Kong and Beijing with Chase Manhattan Bank and First National Bank of Chicago. Mr. Markscheid began his career with the US-China Business Council, in Washington D.C. and Beijing. He earned a BA in East Asian Studies from Princeton University in 1976, an MA in international affairs from Johns Hopkins University in 1980, and an MBA from Columbia University in 1991, where he was class valedictorian. We believe that Mr. Markscheid’s extensive experience serving on public boards and working with technology companies makes him a qualified candidate to serve on our Board.
Mr. Markscheid was a consolidated defendant in his capacity as a director of ChinaCast Education Corporation (“ChinaCast”) in a securities lawsuit filed on May 2, 2012 in the U.S. District Court for the Central District of California, alleging misrepresentation of ChinaCast’s financial conditions and its failure to disclose cash transfers of $120 million to certain officers and directors of ChinaCast. On November 8, 2016, the district court ruled in favor of the class action plaintiffs, finding ChinaCast was liable for $65.8 million. On August 25, 2014, a securities complaint alleging similar violations was also filed in the Delaware Court of Chancery (the “Chancery Court”) by ChinaCast, where Mr. Markscheid was named a third-party defendant. On March 23, 2015, the Chancery Court entered a judgment in favor of the plaintiff, ordering a former director of ChinaCast with damages of $183.3 million caused by breach of fiduciary duty. The former director filed a third party complaint against the other directors, including Mr. Markscheid, which was settled in December 2022.
Mr. Markscheid was a defendant in his capacity as a director of JinkoSolar Holding Co. Ltd. (“JinkoSolar”) in a class action securities lawsuit filed in October 2011. The plaintiff alleged the JinkoSolar directors of making materially false and misleading statements regarding its compliance with environmental regulations. The case was settled in March 2016.
Mr. Markscheid was a defendant in his capacity as a director of China Integrated Energy, Inc. (“CBEH”) in a class action securities lawsuit filed on June 30, 2011, where the president, officers, directors of CBEH were alleged to have disseminated materially misleading statements and failed to disclose material information concerning the CBEH’s true financial condition and business prospects (“CBEH June 2011 Case”). Mr. Markscheid was also a defendant in his capacity as a director of CBEH in a class action securities lawsuit filed on July 8, 2011, where the officers of CBEH were alleged to have made improper statements regarding its financial results and business operations, caused it to enter into non-accretive acquisitions for entities that they knew were overvalued, failed to implement an effective system of internal and financial controls, and obstructed the CBEH’s audit committee’s independent investigation (“CBEH July 2011 Case”). CBEH June 2011 Case and CBEH July 2011 Case were later consolidated, which was settled in December 2015.
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Mr. Saul Factor joined our board of directors as an independent director in November 2023. Mr. Factor has over 20 years of experience as a healthcare and pharmaceuticals executive, with experience driving business operations across various countries around the world. Mr. Factor currently serves as president of Factor Healthcare Consulting, a pharmaceuticals consulting company, which he founded in 2020. Prior to that, he served in various roles at different pharmaceuticals and healthcare companies, including serving as president of Smith Drug Company (2017 to 2020), where he directed marketing, sales, operations, and financial functions; executive vice president of strategy at Accord Healthcare (2016 to 2017); president of global sourcing & procurement and senior vice president of Global Generics at McKesson Corporation (2006 to 2016); chief operating officer at RX America, LLC (2003 to 2006); and B2B Brand Manager and Leader at Eli Lily & Company (2000 to 2003). Mr. Factor received a Bachelor of Science in Pharmacy from Northeastern University and a Master of Business Administration (MBA) from the University of New Haven. We believe that Mr. Factor’s executive leadership experience and specialty in fostering corporate growth make him a qualified candidate to serve on our Board.
Our Advisory Board
We have an Advisory Board comprised of the following individuals:
| Name | Age | Title | ||
| Yman Vien | 64 | Advisory Board Nominee | ||
| Dr. Lingyun Gu | 47 | Advisory Board Nominee | ||
| Dr. Darryl T. Jenkins | 62 | Advisory Board Nominee | ||
| Michael Roberts | 73 | Advisory Board Nominee |
The following sets forth certain biographical information with respect to the members of our Advisory Board:
Ms. Yman Vien, an advisor of the Company, is a business consultant and financial advisor with 30 years of banking industry experience. Recognized by the American Bankers Association, she has served as Vice President Business Banker at Lakeside Bank where she was responsible for developing new business for deposits and lending activities, managing customer portfolios, and expanding other banking products and services relationships. For 30 years, Ms. Vien worked in the banking industry in various positions including auditor, accountant, president and chief executive officer at local Chicago community banks. Most recently, from 2015 to current, Ms. Vien serves as President at Lotus Financial Partners, which provides financial consulting services to local developers and business owners for raising private funding and obtaining bank financing for real estate development projects. Same time from 2021, Ms. Vien has helped to start an Adult Day Care Service center and In-Home Service programs to seniors. Ms. Vien also served as trustee and treasurer for Ravenswood Health Care Foundation from 2007 to 2018. Ms. Vien received her Bachelor’s Degree in Business Administration Managerial Accounting from Loyola University in 1985. She also received a diploma from the Graduate School of Banking, University of Wisconsin in 2000. She holds real estate and insurance licenses. She is the co-founder and current board member of Chinese Mutual Aid Association, a not for profit organization serving refugees and immigrants in Chicago since 1981.
Dr. Lingyun Gu, an advisor of the Company, focuses on the fields of AI, machine learning, and big data, he has published dozens of papers in international journals and has at least 15 invention patents in the United States and China. At the same time, he also has senior leadership experience in building AI companies, as well as TMT investment experience in VC companies, which enables him to combine academic research with business practice. He holds a PhD in School of Computer Science from Carnegie Mellon University.
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Dr. Darryl T. Jenkins, an advisor of the Company, is a business executive with 30+ years of professional experience building multiple products and companies. He is an experienced senior leader with a history of working in project management, diversity, equity and inclusion, marketing, sales, organizational leadership and information technology. Dr. Jenkins has extensive experience working with non-profit organizations, health care systems, and providers to promote greater health equity through education and research, with a focus in areas of chronic conditions. Dr. Jenkins currently serves as the President of the Judson University Board of Trustees of Elgin, Illinois and CEO of DLJ Consulting Group, a professional consulting firm working in corporate and non-profit sectors in Polarity Thinking™. He has held key leadership positions with Fortune 500 Companies and has led diverse information technology teams and network engineers in national and international project deployments, advanced systems and software integrations. Dr. Jenkins is also a published author. Dr. Jenkins has served on various public and private boards of directors. Dr. Jenkins holds a Bachelor’s Degree from the University of Illinois Chicago, a Masters and Doctorate degrees from Northern Seminary, Lisle, Illinois.
Michael Roberts, an advisor of the Company, is currently the President of Westside Holdings LLC, a marketing and brand development company since 2006, and the former Global President and Chief Operations Officer for McDonald’s Corporation (NYSE: MCD) (2004 to 2006), where he also served on the Board of Directors. As Global President for McDonald’s, Mr. Roberts was responsible for more than 31,000 restaurants in 118 countries. Before assuming this position in 2004, his previous positions at McDonald’s Corporation included Chief Executive Officer, McDonald’s USA (2001 to 2004); and President, West Division, McDonald’s USA (1997 to 2001). Mr. Roberts was the Co-Founder of LYFE Kitchen restaurants, where he created a transformational, socially responsible “lyfestyle” brand whose acronym stands for Love Your Food Everyday. In 2009, Mr. Roberts was the Vice Chairman and a Board Member of the Chicago 2016 Olympic Committee. He was responsible for overseeing marketing and communications activities for the bid from the board level. In addition, he was also active in areas of sponsorship, advertising, grassroots marketing and building the bid’s national and international presence in support of Chicago’s candidacy. Mr. Roberts is also on the Board of Directors of Lumen Technologies (NYSE: LUMN) (since 2011), a telecommunications company, and a former board member of W.W. Grainger, Inc. (NYSE: GWW), where he also served as Chair of the Compensation Committee and as a member of the Board Affairs and Nominating Committee. and of Lumen Technologies (f/k/a CenturyLink), where he also served as a member of the Nominating and Corporate Governance Committee. Mr. Roberts received his undergraduate degree from Loyola University of Chicago.
Family Relationships
There are no family relationships between or among any of the current directors, executive officers or persons nominated or charged to become directors or executive officers, except that Mr. Zhenqiang (Michael) Huang and Mr. Zhenwu Huang are brothers.
Board Composition
Our business and affairs are organized under the direction of our board of directors, which consists of five (5) members. Our directors hold office until the earlier of their death, resignation, removal, or disqualification, or until their successors have been elected and qualified. Our board of directors does not have a formal policy on whether the roles of Chief Executive Officer and chairman of our board of directors should be separate. The primary responsibilities of our board of directors are to provide oversight, strategic guidance, counseling, and direction to our management. Our board of directors meets on a regular basis.
In addition, in accordance with the terms of our second amended and restated articles of incorporation and amended and restated bylaws, our board of directors is divided into three (3) classes with only one class of directors being elected in each year and each class (except for those directors appointed prior to our first annual meeting of stockholders) serving a three-year term. The term of office of the first class of directors, which consists of Stephen Markscheid, will expire at our first annual meeting of stockholders. The term of office of the second class of directors, which consists of Saul Factor and John Shigley, will expire at the second annual meeting of stockholders. The term of office of the third class of directors, which consists of Zhenwu Huang and Zhenqiang Huang, will expire at the third annual meeting of stockholders. We expect that any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control.
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Our second amended and restated articles of incorporation and second amended and restated bylaws provide that the authorized number of directors may be changed only by resolution of our board of directors. Our second amended and restated articles of incorporation and second amended and restated bylaws also provide that our directors may be removed only for cause, and only by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the total voting power of the outstanding shares of capital stock of the Company entitled to vote in the election of directors, voting together as a single class, and that any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office.
Director Independence
The Nasdaq Marketplace Rules require a majority of a listed company’s board of directors to be comprised of independent directors within one year of listing. In addition, the Nasdaq Marketplace Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act.
Under Rule 5605(a)(2) of the Nasdaq Marketplace Rules, a director will only qualify as an “independent director” if, in the opinion of our board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3 of the Exchange Act, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries.
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Our board of directors has reviewed the composition of our board of directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that each of John Shigley, Stephen Markscheid and Saul Factor is an “independent director” as defined under Rule 5605(a)(2) of the Nasdaq Marketplace Rules and that John Shigley, Stephen Markscheid and Saul Factor are “independent directors.” Our board of directors also determined that John Shigley, Stephen Markscheid and Saul Factor, who are members of our audit committee, Stephen Markscheid and Saul Factor, who are members of our compensation committee, and Stephen Markscheid and Saul Factor, who are members of our nominating and corporate governance committee, satisfy the independence standards for such committees established by the SEC and the Nasdaq Marketplace Rules, as applicable. In making such determinations, our board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining independence, including the beneficial ownership of our capital stock by each non-employee director.
Board Committees
Our board of directors has established three standing committees — audit, compensation and nominating and corporate governance — each of which operates under a charter that has been approved by our board of directors. Copies of each committee’s charter are posted on the Investor Relations section of our website, which is located at www.richtechrobotics.com. Each committee has the composition and responsibilities described below. Our board of directors may from time to time establish other committees.
Audit Committee
Our audit committee consists of John Shigley, who is the chair of the audit committee, Stephen Markscheid and Saul Factor. Our board of directors has determined that each of the members of our audit committee satisfies the Nasdaq Marketplace Rules and SEC independence requirements. The functions of this committee include, among other things:
| ● | evaluating the performance, independence and qualifications of our independent auditors and determining whether to retain our existing independent auditors or engage new independent auditors; |
| ● | reviewing and approving the engagement of our independent auditors to perform audit services and any permissible non-audit services; |
| ● | reviewing our annual and quarterly financial statements and reports, including the disclosures contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and discussing the statements and reports with our independent auditors and management; |
| ● | reviewing with our independent auditors and management significant issues that arise regarding accounting principles and financial statement presentation and matters concerning the scope, adequacy and effectiveness of our financial controls; |
| ● | reviewing our major financial risk exposures, including the guidelines and policies to govern the process by which risk assessment and risk management is implemented; and |
| ● | reviewing and evaluating on an annual basis the performance of the audit committee, including compliance of the audit committee with its charter. |
Our board of directors has determined that John Shigley qualifies as an “audit committee financial expert” within the meaning of applicable SEC regulations and meets the financial sophistication requirements of the Nasdaq Marketplace Rules. In making this determination, our board has considered extensive financial experience and business background. Both our independent registered public accounting firm and management periodically meet privately with our audit committee.
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Compensation Committee
Our compensation committee consists of Stephen Markscheid, who is the chair of the compensation committee, and Saul Factor. Our board of directors has determined that each of the members of our compensation committee is an outside director, as defined pursuant to Section 162(m) of the Code, and satisfies the Nasdaq Marketplace Rules independence requirements. The functions of this committee include, among other things:
| ● | reviewing, modifying and approving (or if it deems appropriate, making recommendations to the full board of directors regarding) our overall compensation strategy and policies; |
| ● | reviewing and approving the compensation, the performance goals and objectives relevant to the compensation, and other terms of employment of our executive officers; |
| ● | reviewing and approving (or if it deems appropriate, making recommendations to the full board of directors regarding) the equity incentive plans, compensation plans and similar programs advisable for us, as well as modifying, amending or terminating existing plans and programs; |
| ● | reviewing and approving the terms of any employment agreements, severance arrangements, change in control protections and any other compensatory arrangements for our executive officers; |
| ● | reviewing with management and approving our disclosures under the caption “Compensation Discussion and Analysis” in our periodic reports or proxy statements to be filed with the SEC; and |
| ● | preparing the report that the SEC requires in our annual proxy statement. |
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Saul Factor, who is the chair of the compensation committee, and Stephen Markscheid. Our board of directors has determined that each of the members of this committee satisfies the Nasdaq Marketplace Rules independence requirements. The functions of this committee include, among other things:
| ● | identifying, reviewing and evaluating candidates to serve on our board of directors consistent with criteria approved by our board of directors; |
| ● | evaluating director performance on the board and applicable committees of the board and determining whether continued service on our board is appropriate; |
| ● | evaluating, nominating and recommending individuals for membership on our board of directors; and |
| ● | evaluating nominations by stockholders of candidates for election to our board of directors. |
The compensation committee will take into account may factors in determining recommendations for persons to serve on the board of directors, including the following:
| ● | personal and professional integrity, ethics and values; |
| ● | experience in corporate management, such as serving as an officer or former officer of a publicly-held company; |
| ● | experience as a board member or executive officer of another publicly-held company; |
| ● | strong finance experience; |
| ● | diversity of expertise and experience in substantive matters pertaining to our business relative to other board members; |
| ● | diversity of background and perspective including, without limitation, with respect to age, gender, race, place of residence and specialized experience; |
| ● | experience relevant to our business industry and with relevant social policy concerns; and |
| ● | relevant academic expertise or other proficiency in an area of our business operations. |
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Attendance
There were eight (8) meetings, exclusive of action by unanimous written consent, of the board of directors held during fiscal year 2024. Each of our directors attended all of the meetings of the board of directors held during fiscal year 2024, while such director was a member of the board of directors.
There were four (4) meetings, exclusive of action by unanimous written consent, of the Audit Committee held during fiscal year 2024. Each of the committee members attended all of the meetings of the Audit Committee held during fiscal year 2024 while such committee member served on the Audit Committee.
There was one (1) meeting, exclusive of action by unanimous written consent, of the Compensation Committee held during fiscal year 2024. Each of the committee members attended such meeting of the Compensation Committee held during fiscal year 2024.
There were zero (0) meetings, exclusive of action by unanimous written consent, of the Nominating and Corporate Governance Committee held during fiscal year 2024.
Director Attendance at Annual Meeting of Stockholders
We do not have a formal policy regarding the attendance of our board members at our annual meetings of stockholders, but we expect all directors to make every effort to attend any meeting of stockholders.
Role of Board in Risk Oversight Process
Our co-founder and Chief Executive Officer, Zhenwu (Wayne) Huang, beneficially owns approximately 64.28% of the voting power of our common stock as of December 31, 2024. Periodically, our board of directors assesses these roles and the board of directors leadership structure to ensure the interests of the Company and our stockholders are best served. Our board of directors has determined that its current leadership structure is appropriate. Zhenwu (Wayne) Huang, as one of our founders and as our Chief Executive Officer, has extensive knowledge of all aspects of the Company, our business and risks.
While management is responsible for assessing and managing risks to the Company, our board of directors is responsible for overseeing management’s efforts to assess and manage risk. This oversight is conducted primarily by our full board of directors, which has responsibility for general oversight of risks, and standing committees of our board of directors. Our board of directors satisfies this responsibility through full reports by each committee chair regarding the committee’s considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within our company. Our board of directors believes that full and open communication between management and the board of directors is essential for effective risk management and oversight.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves, or in the past has served, as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our board of directors or our compensation committee. None of the members of our compensation committee is, or has ever been, an officer or employee of our company.
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Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics that applies to our employees, officers and directors. A current copy of the code is posted on the Corporate Governance section of our website, which is located at www.richtechrobotics.com. We intend to disclose future amendments to certain provisions of our code of business conduct and ethics, or waivers of such provisions applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and our directors, on our website identified above or in filings with the SEC.
Insider Trading Policy
We have adopted a formal policy against insider trading which provides guidelines to all of our directors, officers, employees, and consultants with respect to trading in our securities, as well as the securities of publicly traded companies with whom we have a business relationship. This policy has been designed to prevent insider trading or even allegations of insider trading.
Compensation Recovery and Clawback Policy
Under the Sarbanes-Oxley Act, in the event of misconduct that results in a financial restatement that would have reduced a previously paid incentive amount, we can recoup those improper payments from our executive officers. The SEC also recently adopted rules which direct national stock exchanges to require listed companies to implement policies intended to recoup bonuses paid to executives if the company is found to have misstated its financial results.
On November 13, 2023, our Board of Directors approved the adoption of the Executive Compensation Clawback Policy (the “Clawback Policy”), with an effective date of October 2, 2023, in order to comply with the final clawback rules adopted by the SEC under the Rule, and the listing standards, as set forth in the Nasdaq Listing Rule 5608 (the “Final Clawback Rules”).
The Clawback Policy provides for the mandatory recovery of erroneously awarded incentive-based compensation from our current and former executive officers as defined in the Rule (“Covered Officers”) in the event that we are required to prepare an accounting restatement, in accordance with the Final Clawback Rules. The recovery of such compensation applies regardless of whether a Covered Officer engaged in misconduct or otherwise caused or contributed to the requirement of an accounting restatement. Under the Clawback Policy, our Board of Directors may recoup from the Covered Officers erroneously awarded incentive compensation received within a lookback period of the three completed fiscal years preceding the date on which we are required to prepare an accounting restatement.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and ten percent stockholders to file initial reports of ownership and reports of changes in ownership of our common stock with the Commission. Directors, executive officers and ten percent stockholders are also required to furnish us with copies of all Section 16(a) forms that they file. Based solely on our review of such forms furnished to us and written representations from certain reporting persons, we believe that during the year ended September 30, 2024, all reports applicable to our executive officers, directors and greater than 10% beneficial owners were filed in a timely manner in accordance with Section 16(a) of the Exchange Act, except as set forth below:
| ● | King Bliss Limited, a ten percent stockholder, failed to timely file its Form 4 once. |
| ● | John Shigley, a director, failed to timely file its Form 4 once.
| |
| ● | Stephen Markscheid, a director, failed to timely file its Form 4 once.
| |
| ● | Saul Factor, a director, failed to timely file its Form 4 once. |
ITEM 11. Executive Compensation
This section discusses the material components of the executive compensation program for our named executive officers for the years ended September 30, 2024 and 2023. Individuals we refer to as our “named executive officers” include our Chief Executive Officer and our two other most highly compensated executive officers whose salary and bonus for services rendered in all capacities exceeded $100,000 during the fiscal year ended September 30, 2024.
Our named executive officers are:
| ● | Zhenwu (Wayne) Huang | Chief Executive Officer | |
| ● | Matthew Casella | President | |
| ● | Phil Zheng | Chief Operating Officer | |
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Summary Compensation Table
The following table presents the compensation awarded to or earned by or paid to our named executive officers during the fiscal years ended September 30, 2024 and 2023.
| Name and Principal Position | Year (FY) | Salary ($) | Bonus ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||
| Zhenwu (Wayne) Huang | 2024 | 120,000 | — | — | — | — | 120,000 | |||||||||||||||||||||||||
| CEO | 2023 | 120,016 | 800 | — | — | — | — | 120,816 | ||||||||||||||||||||||||
Phil Zheng | 2024 | 133,717 | — | — | — | — | — | 133,717 | ||||||||||||||||||||||||
| COO | 2023 | 60,000 | — | — | — | — | — | 60,000 | ||||||||||||||||||||||||
| Matthew Casella | 2024 | 168,654 | — | — | — | — | 180,000 | |||||||||||||||||||||||||
| President | 2023 | --- | — | — | — | — | --- | |||||||||||||||||||||||||
Narrative to Summary Compensation Table
Employment Agreements
For the fiscal year ended September 30, 2023, the Company maintained employment agreements with its Chief Executive Officer, Chief Operating Officer and President. Each of the agreements provide for paid holidays, health insurance eligibility, and severance as required by applicable law. Following termination of employment, the executives agreed to refrain from (i) hiring or attempting to hire any current employees of the Company; and (ii) solicit business from current clients or clients who have retained the Company in the 6-month period immediately preceding the employment termination.
Agreement with Chief Executive Officer
The CEO employment agreement was entered as of July 1, 2016. Initially, the CEO annual base salary was $120,000, and for the fiscal year ended September 30, 2024, the annual base salary for Mr. Zhenwu (Wayne) Huang was $120,000. Upon termination of employment without cause, the Company is required to pay to Mr. Zhenwu (Wayne) Huang an amount as required by the Employment Standards Act 2000 or other such legislation as may be in effect at the time of termination. This payment shall constitute the employee’s entire entitlement arising from said termination. The agreement provides for a non-solicitation period of six (6) months following the termination of employment.
Agreement with Chief Operating Officer
The COO employment agreement was entered as of July 2, 2020. Initially, Mr. Zheng was paid an hourly rate of $50 per hour, and for the fiscal year ended September 30, 2024, the annual base salary for Mr. Zheng was $133,717. On November 20, 2024, Mr. Zheng was granted 200,000 shares of Class B common stock. Upon termination of employment without cause, the Company is required to pay to Mr. Zheng an amount as required by the Employment Standards Act 2000 or other such legislation as may be in effect at the time of termination. This payment shall constitute the employee’s entire entitlement arising from said termination. The agreement provides for a non-solicitation period of six (6) months following the termination of employment.
On November 20, 2024, Mr. Zheng was granted 200,000 shares of Class B common stock
Agreement with President
The employment agreement with Matt Casella August 15, 2023. For the fiscal year ended September 30, 2023, the annual base salary for Mr. Casella was $168,654. Under the terms of the agreement, the annual stock option grant will follow a “50+70” plan, where 50,000 shares will be granted as vested stock options after one year of service, and an additional 70,000 shares will be granted based on the completion of annual performance targets. On November 20, 2024, Mr. Casella was granted 60,000 shares of Class B common stock. Upon termination of employment without cause, the Company is required to pay to Mr. Casella an amount as required by the Employment Standards Act 2000 or other such legislation as may be in effect at the time of termination. This payment shall constitute the employee’s entire entitlement arising from said termination. The agreement provides for a non-competition and non-solicitation period of twelve (12) months following the termination of employment.
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Outstanding Equity Awards at Fiscal Year-End Table
The following table summarizes the number of shares of common stock underlying outstanding equity incentive plan awards for each named executive officer as of September 30, 2024.
| Name | Number of Securities Underlying Unexercised Options (# exercisable) |
Number of Securities Underlying Unexercised Options (# unexercisable) |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options |
Option Exercise Price |
Option Expiration Date |
Number of shares or units of stock that have not yet vested |
||||||||||||||||||
| Zhenwu (Wayne) Huang CEO |
— | — | — | — | — | — | ||||||||||||||||||
Phil Zheng |
— | — | — | — | — | — | ||||||||||||||||||
| Matthew Casella President |
— | — | — | — | — | — | ||||||||||||||||||
Incentive Plan
On September 26, 2024, our Board and the holders of a majority of the voting power of the outstanding Class B common stock of the Company adopted resolutions by written consent to approve and adopted the Amended and Restated Richtech Robotics Inc. 2023 Stock Option Plan (the “Incentive Plan”), pursuant to the Company’s second amended and restated bylaws and Nevada law. The principal purposes of the Incentive Plan are to: (a) attract and retain the best available personnel for positions of substantial responsibility; (b) provide additional incentive to employees, directors, and consultants; and (c) promote the success of the business of the Company. The following description of the principal terms of the Incentive Plan is a summary of the terms of the Incentive Plan and is qualified in its entirety by the full text of the Incentive Plan.
Administration of the Incentive Plan
Our Board or a committee appointed by the Board will administer the Incentive Plan. The plan administrator has broad authority to:
| ● | select participants and determine the types of awards that they are to receive; |
| ● | determine the number of shares that are to be subject to awards and the terms and conditions of awards, including the price (if any) to be paid for the shares or the award and establish the vesting conditions (if applicable) of such shares or awards; |
| ● | cancel, modify, or waive our rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding awards, subject to any required consents; |
| ● | reduce the exercise price of an option if the fair market value of shares covered by such option has declined since the date the option was granted; |
| ● | determine whether an option will be settled in cash instead of shares; and |
| ● | construe and interpret the terms of the Incentive Plan and any agreements relating to the Incentive Plan. |
Shares Subject to the Incentive Plan
An aggregate of 6,000,000 shares was initially reserved under the original Incentive Plan. An aggregate of 14,311,215 shares of Class B common stock was reserved for issuance under the amended and restated Incentive Plan (including the 6,000,000 shares originally reserved). As of September 30, 2024, 525,274 shares remain available for issuance under the Incentive Plan. If an option should expire or become unexercisable for any reason without having been exercised in full or no shares are issued with respect to an award, the shares underlying that award will again become available for issuance under the Incentive Plan. All of the shares available under the Incentive Plan may be issued upon the exercise of incentive stock options.
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Participation
Employees, directors, and consultants that provide services to us or one of our subsidiaries may be selected to receive awards under the Incentive Plan. Incentive stock options may only be granted under the Incentive Plan to persons who, at the time of the grant, are employees of our Company or our subsidiaries.
Types of Awards
The Incentive Plan permits the granting of awards in the form of stock options and stock purchase rights, which include restricted stock awards and restricted stock units.
Stock Options. A stock option entitles the recipient to purchase shares of Class B common stock at a fixed exercise price. The exercise price per share will be determined by the plan administrator in the applicable award agreement in its sole discretion at the time of the grant. The exercise price can be paid in cash, check, net exercise, any consideration permissible under applicable law, or any combination of the foregoing. The maximum term of each stock option shall be fixed by the plan administrator, but in no event shall an option be exercisable more than ten (10) years after the date such option is granted.
The plan administrator may grant share options that qualify as “incentive stock options,” as described in Section 422 of the Code. The exercise price per share for an incentive stock option may not be less than 100% of the fair market value of a share of Class B common stock on the date of the grant. However, for an incentive stock option granted to a person possessing more than 10% of the total combined voting power of all classes of our shares, the exercise price may not be less than 110% of the fair market value of a share of Class B common stock on the date of grant and the option term may not exceed five (5) years. The aggregate fair market value of all shares with respect to which incentive stock options are exercisable by any one individual participant for the first time during any calendar year (under all of the plans of the Company, including the Incentive Plan), measured at the date of the grant, may not exceed $100,000.
Restricted Stock. A restricted stock award is an award of Class B common stock that vests in accordance with the terms and conditions established by the plan administrator. The plan administrator will determine the persons to whom grants of restricted stock are made, the number of shares to be awarded, the price (if any) to be paid for the restricted stock, the time or times within which awards of restricted stock may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and all other terms and conditions of restricted stock awards.
Restricted Stock Units. Restricted stock units are the right to receive shares of Class B common stock at a future date in accordance with the terms of such grant upon the attainment of certain conditions specified by the plan administrator. Restrictions or conditions could include, but are not limited to, the attainment of performance goals, continuous service with our Company, the passage of time, or other restrictions or conditions. The plan administrator determines the persons to whom grants of restricted stock units are made, the number of restricted stock units to be awarded, the time or times within which awards of restricted stock units may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the restricted stock unit awards.
The holders of restricted stock units will have no voting rights. Prior to settlement or forfeiture, restricted stock units awarded under the Incentive Plan may, at the plan administrator’s discretion, provide for a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all dividends paid on one share of Class B common stock while each restricted stock unit is outstanding. Dividend equivalents may be converted into additional restricted stock units. Settlement of dividend equivalents may be made in the form of cash, shares, other securities, other property, or a combination of the foregoing. Prior to distribution, any dividend equivalents shall be subject to the same conditions and restrictions as the restricted stock units to which they are payable.
Equitable Adjustments
In the event of a stock split, reverse stock split, stock dividend, combination, recapitalization or reclassification of shares of Class B common stock, the maximum number and kind of shares reserved for issuance or with respect to which awards may be granted under the Incentive Plan will be adjusted to reflect such event, and the plan administrator will make such adjustments as it deems appropriate and equitable in the number, kind, and exercise price of shares covered by outstanding awards made under the Incentive Plan.
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Change in Control
In the event of any proposed change in control (as described in the Incentive Plan), the plan administrator will take any action as it deems appropriate, which action may include, without limitation, the following: (i) the continuation of any award, if the Company is the surviving corporation; (ii) the assumption of any award by the surviving corporation or its parent or subsidiary; (iii) the substitution by the surviving corporation or its parent or subsidiary of equivalent awards; or (iv) accelerated vesting of the award and a limited period during which to exercise the award prior to closing of the change in control.
Transferability
An award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner, other than by will or by the laws of descent or distribution, and may be exercised or purchased during the lifetime of the participant, only by the participant.
Term
The Incentive Plan became effective upon adoption by the Board on November 16, 2023 and, unless terminated, the Incentive Plan will continue in effect for a term of ten (10) years.
Amendment and Termination
Our Board may amend, alter, suspend, or discontinue the Incentive Plan at any time. Any such termination will not affect outstanding awards. No amendment, alteration, suspension, or discontinuation of the Incentive Plan will impair the rights of any participant without the participant’s consent.
Director Compensation
Following our initial public offering, our non-employee directors and members of our Advisory Board will each receive an initial award of 6,427 restricted shares of Class B common stock. Such shares would vest ratably on an annual basis over four years beginning on the first anniversary of the initial public offering. Non-employee directors will also receive additional annual awards of restricted shares of Class B common stock equal to the number of shares granted in the initial award. Such subsequent awards may be adjusted by the compensation committee of the board of directors based on then-current market conditions considering the size of the Company. We will also reimburse our non-employee directors for certain expenses incurred in connection with their duties as directors of the Company.
The following table shows the compensation paid to our non-employee directors during the year ended September 30, 3024. On July 1, 2024, the Company issued 12,000 shares of its Class B common stock to each of its non-employee directors as compensation for their services on the Board of Directors. The shares were issued at the closing market price of the Company’s common stock on the date of grant. The total value of the stock issued to each director was $14,640.
| Name | Fees Earned or Paid in Cash ($) |
Stock Awards ($) |
Option Awards ($) |
Nonequity incentive plan compensation ($) |
Nonqualified deferred compensation earnings ($) |
All other compensation ($) |
Total ($) |
|||||||||||||||||||||
| John Shigley | $ | - | 14,640 | - | - | - | - | $ | 14,640 | |||||||||||||||||||
| Stephen Markscheid | - | 14,640 | - | - | - | - | 14,640 | |||||||||||||||||||||
| Saul Factor | - | 14,640 | - | - | - | - | 14,640 | |||||||||||||||||||||
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Limitation of Liability and Indemnification Matters
The Company’s second amended and restated articles of incorporation and second amended and restated bylaws limit the directors’ liability and may indemnify directors and officers to the fullest extent permitted under the NRS 78.7502-NRS 78.751.
Nevada law, NRS 78.138, provides that the Company’s directors and officers will not be personally liable to us, our stockholders or our creditors for damages for any act or omission in his or her capacity as a director or officer other than in circumstances where the director or officer breaches his or her fiduciary duty to us or our stockholders and such breach involves intentional misconduct, fraud or a knowing violation of law and the trier of fact determines that the presumption that he or she acted in good faith, on an informed basis and with a view to the interests of the corporation has been rebutted, or with respect to payment of dividends in violation of the NRS. While Nevada law allows the articles of incorporation of a corporation to provide for greater liability of the corporation’s directors and officers, our second amended and restated articles of incorporation does not provide for greater liability of our officers and directors than is provided under Nevada law.
Nevada law allows a corporation to indemnify officers and directors for actions pursuant to which a director or officer either would not be liable pursuant to the limitation of liability provisions of Nevada law or where he or she acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to our best interests, and, in the case of an action not by or in the right of the corporation and with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful.
As permitted by Nevada law or our second amended and restated articles of incorporation, our second amended and restated bylaws (a) include provisions that eliminate the personal liability of our directors or officers for damages resulting from certain breaches of fiduciary duties as a director or officer; (b) require the Company to indemnify and hold harmless any officer or director against all expense, liability and loss (including, without limitation, attorneys’ fees, judgments, fines, taxes, penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by the indemnitee in connection with any threatened, pending, or completed action, suit or proceeding (including, without limitation, an action, suit or proceeding by or in the right of the company), whether civil, criminal, administrative, or investigative; and (c) require us to advance expenses of the indemnitee as such expenses are incurred upon receipt of an undertaking by or on behalf of the indemnitee to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she is not entitled to be indemnified by the Company.
The effect of these provisions is to restrict our rights and the rights of our stockholders in derivative suits to recover damages against a director or officer for breach of fiduciary duties as a director or officer. In addition, the Company pays the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
These limitations of liability do not apply to liabilities arising under federal securities laws and do not affect the availability of equitable remedies such as injunctive relief or recession.
We have obtained a directors’ and officers’ insurance policy pursuant to which our directors and officers are insured against liability for actions taken in their capacities as directors and officers.
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ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information concerning the ownership of our Class A common stock and Class B common stock as of the date of this Report, with respect to: (i) each person, or group of affiliated persons, known to us to be the beneficial owner of more than five percent of our Class A common stock and Class B common stock; (ii) each of our directors; (iii) each of our named executive officers; and (iv) all of our current directors and executive officers as a group.
Applicable percentage ownership is based on an aggregate of 112,052,244 shares of our common stock, consisting of (i) 39,934,846 shares of our Class A common stock and (ii) 72,117,398 shares of our Class B common stock outstanding as of January 10, 2025. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to such securities. In addition, pursuant to such rules, we deemed outstanding shares of Class B common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of the date of this Report. We did not deem such shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the beneficial owners named in the table below have sole voting and investment power with respect to all shares of our Class A common stock and Class B common stock that they beneficially own, subject to applicable community property laws.
| Name of Beneficial Owner(1) | Shares of Class A Common Stock | Shares of Class B Common Stock | % of Total Voting Power | |||||||||
| Executive Officers and Directors | ||||||||||||
| Zhenwu Huang | 30,308,000 | — | 64.28 | % | ||||||||
| Zhenqiang Huang | 7,892,000 | — | 16.74 | % | ||||||||
| Phil Zheng | — | 1,400,000 | * | |||||||||
| Matthew G. Casella | — | 60,000 | * | |||||||||
| John Shigley | — | 22,000 | * | |||||||||
| Stephen Markscheid | — | 22,000 | * | |||||||||
| Saul Factor | — | 22,000 | * | |||||||||
| All officers and directors as a group (7 individuals) | 38,200,000 | 1,526,000 | 81.35 | % | ||||||||
| 5% Stockholders | ||||||||||||
| N/A | ||||||||||||
| * | Less than 1% |
| (1) | Unless noted otherwise, the address of all listed stockholder is 4175 Cameron St Ste 1, Las Vegas, NV 89103. Each of the stockholder listed has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise. |
Changes in Control
None.
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ITEM 13. Certain Relationships and Related Transactions, and Director Independence
During the year ended September 30, 2024, the Company repaid all outstanding loans from related parties. These loans, which were previously disclosed in our Form 10-K for the year ended September 30, 2023, were obtained to support the Company’s operations and growth. The repayment of these loans demonstrates the Company’s commitment to sound financial management and reducing its reliance on related party financing.
In addition, we had the following related party balances:
| As of | As of | |||||||||
| September 30, | September 30, | |||||||||
| Notes | 2024 | 2023 | ||||||||
| Amounts due from related parties: | ||||||||||
| Uplus Academy LLC | (i) | - | 118 | |||||||
| Uplus Academy NLV LLC | (i) | - | 16 | |||||||
| - | 108 | |||||||||
| As of | As of | |||||||||
| September 30, | September 30, | |||||||||
| Notes | 2024 | 2023 | ||||||||
| Amounts due to related parties: | ||||||||||
| Bison Systems LLC | (ii) | - | 85 | |||||||
| Zhenwu Huang | (iii) | - | 113 | |||||||
| Phil Zheng | (iv) | - | 40 | |||||||
| - | 238 | |||||||||
| (i) | Uplus Academy LLC and Uplus Academy NLV LLC were both former subsidiaries of the Company that were disposed of on December 31, 2021. As of September 30, 2024, loans to Uplus Academy LLC and Uplus Academy NLV LLC were fully repaid. |
| (ii) | Bison Systems LLC was 100% owned by Zhenwu Huang, CEO and controlling stockholder of the Company and Zhenqiang Huang, CFO and major stockholder of the Company. As of September 30, 2024, the loans from Bison Systems LLC were fully repaid. |
| (iii) | Zhenwu Huang, CEO and controlling stockholder of the Company, made multiple interest-free and non-maturity loans to the Company since the inception of the business to support the Company’s operations. As of September 30, 2024, the loans from Zhenwu Huang were fully repaid. |
| (iv) | Phil Zheng has served as the Company’s COO since February 2020. Phil Zheng made an interest-free and non-maturity loan to the Company in May 2023. As of September 30, 2024, the loan from Phil Zheng was fully repaid. |
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ITEM 14. Principal Accounting Fees and Services
The following table sets forth the fees billed by our independent accountants, Bush & Associates CPA LLC (“Bush & Associates”) for the years ended September 30, 2024 and 2023.
| Year Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Audit fees | $ | 36,400 | $ | 42,500 | ||||
| Audit-related fees | $ | 15,600 | $ | 18,000 | ||||
| Tax fees | $ | - | $ | - | ||||
| All other fees | $ | - | $ | - | ||||
Audit Fees
Audit fees consist of fees for professional services rendered for the audit of our year-end financial statements and services that are normally provided by Bush & Associates in connection with regulatory filings. The aggregate fees of Bush & Associates for professional services rendered for the audit of our annual financial statements, review of the financial information include in our filings with the SEC for the years ended September 30, 2024 and 2023 totaled approximately $36,400 and $42,500, respectively. The above amounts include interim procedures and audit fees, as well as attendance at audit committee meetings.
Audit-Related Fees
Audit-related fees consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. We paid Bush & Associates $15,600 and $18,000 for consultations concerning financial accounting and reporting standards for the years ended September 30, 2024 and 2023, respectively.
Tax Fees
We did not pay Bush & Associates for tax services, planning or advice for the years ended September 30, 2024 and 2023.
All Other Fees
We did not pay Bush & Associates for any other services for the years ended September 30, 2024 and 2023.
Procedures For Board of Directors Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor
Our audit committee was formed upon the consummation of our initial public offering. As a result, the audit committee did not pre-approve all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit).
67
PART IV
ITEM 15. Exhibits and Financial Statements Schedules
| (a) | The following documents are filed as part of this Report: |
| (1) | Financial Statements |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Richtech Robotics, Inc.
Las Vegas, Nevada
OPINION ON THE FINANCIAL STATEMENTS
We have audited the accompanying consolidated balance sheets of Richtech Robotics, Inc. and Subsidiaries (the “Company”) as of September 30, 2024, and the related consolidated statements of operations and comprehensive income, changes in stockholders’ deficit, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
BASIS FOR OPINION
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
CRITICAL AUDIT MATTERS
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
CRITICAL AUDIT MATTER: REVENUE RECOGNITION.
Description of the Matter:
We identified revenue recognition as a critical audit matter. Richtech Robotics Inc. generates revenue primarily through direct sales of branded robotic products to customers. The Company also generates revenue from Robots-as-a-Service (RaaS). which provide customers with ongoing access to our robotic solutions under long-term contracts. For RaaS agreements, revenue is recognized over time on a monthly basis as the services are provided and the customer benefits from the use of the robotic solutions.
The transaction price is typically fixed and allocated evenly across the contract term unless specific usage-based considerations are included. Revenue recognition begins once the robots are installed and operational at the customer’s site.
For the fiscal year ended September 30, 2024, the Company reported revenue of approximately $4,240 thousand, representing a 52% decrease from the previous year.
The Company’s revenue recognition process involves significant judgment in several areas:
| 1. | Identifying performance obligations in customer contracts |
| 2. | Determining the timing of control transfer to customers |
| 3. | Measuring and allocating the transaction price |
| 4. | Assessing the probability of collecting consideration from customers |
Given the complexity of the Company’s revenue recognition policy, which adheres to ASC 606, and the significant decrease in revenue, auditing revenue recognition required extensive audit effort and a high degree of auditor judgment
How the Critical Audit Matter Was Addressed in the Audit
Auditor’s Evaluation:
| 1. | Evaluating the Company’s revenue recognition policy for compliance with ASC 606 |
| 2. | Analyzing a sample of customer contracts to assess proper identification of performance obligations |
| 3. | Testing the timing of revenue recognition by examining shipping documents and delivery terms |
| 4. | Performing substantive analytical procedures to identify unusual revenue trends |
| 5. | Assessing the Company’s disclosures related to revenue recognition in the financial statements |
/s/
We have served as the Company’s auditor since 2024.
January 14, 2025
PCAOB ID Number 6797
F-3
RICHTECH ROBOTICS INC.
Balance Sheets
September 30, 2024 and 2023
(In thousands, except share and per share data)
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short term investment | ||||||||
| Accounts receivable, (net of allowance for doubtful accounts) | ||||||||
| Amount due from related parties, current | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Deferred tax assets, net | ||||||||
| Operating lease right-of-use-assets | ||||||||
| Intangible assets, Net | ||||||||
| Other assets, non-current | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Amount due to related parties, current | ||||||||
| Accrued expenses | ||||||||
| Short-term loan | ||||||||
| Tax payables | ||||||||
| Operating lease liabilities, current | ||||||||
| Total current liabilities | ||||||||
| Long-term payables | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Total liabilities | ||||||||
| Commitments and contigencies | ||||||||
| Stockholders’ equity: | ||||||||
| Class A Common stock, $ | $ | $ | ||||||
| Class B Common stock, $ | ||||||||
| Additional Paid-in Capital | ||||||||
| Retained earnings | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities, preferred stock and stockholder's equity | $ | $ | ||||||
See accompanying Notes to Financial Statements
F-4
RICHTECH ROBOTICS INC.
Statements of Operations
For the years ended September 30, 2024 and 2023
(In thousands, except share and per share data)
| 2024 | 2023 | |||||||
| Revenue, net | $ | $ | ||||||
| Cost of revenue, net | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Research and development | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ||||||
| Non-operating income(expense): | ||||||||
| Investment Income | ||||||||
| Interest expenses, net | ( | ) | ( | ) | ||||
| Total other expenses | ( | ) | ( | ) | ||||
| Loss before income tax expense | ( | ) | ( | ) | ||||
| Income tax benefit/(expense) | ( | ) | ||||||
| Net loss | ( | ) | ( | ) | ||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per share of common stock | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares used to compute basic and diluted net loss per share | ||||||||
See accompanying Notes to Financial Statements.
F-5
RICHTECH ROBOTICS INC
Statements of Equity
For the years ended September 30, 2023 and 2024
(in thousands, except per share data)
| Common stock* | Additional | Retained earnings | Total | |||||||||||||||||||||||||
| Class A | Class B | Paid-in | (Accumulated | Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | deficit) | equity | ||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Common stock issued for cash | - | |||||||||||||||||||||||||||
| Common stock issued for future services | ||||||||||||||||||||||||||||
| Provision of Common stock issued for future services | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Conversion from class A to Class B common stock | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Initial Public offering related expenses | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock Issuance for initial public offering* | - | |||||||||||||||||||||||||||
| Issuance of Common shares for Loan Settlement | - | |||||||||||||||||||||||||||
| Issuance of Common Shares for Intangible Asset Acquisition | - | |||||||||||||||||||||||||||
| Shares Issued to Employees and Directors | - | |||||||||||||||||||||||||||
| Issuance of new shares for cash | - | |||||||||||||||||||||||||||
| Conversion from class A to Class B Common stock | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| * |
See accompanying Notes to Financial Statements.
F-6
RICHTECH ROBOTICS, INC.
STATEMENTS OF CASH FLOWS
For the year ended September 30, 2024 and 2023
(In thousands)
| 2024 | 2023 | |||||||
| Cash flows from operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Right-of-use asset | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Tax payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Deferred tax assets | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Operating lease liabilities, current | ( | ) | ( | ) | ||||
| Operating lease liabilities, non- current | ||||||||
| Net cash provided by operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of equipment | ( | ) | ||||||
| Purchase of intangible assets | ( | ) | ||||||
| Purchase of short-term investments | ( | ) | ||||||
| Purchase of long-term investments | ( | ) | ||||||
| Cash used for lending to related parties | ( | ) | ||||||
| Payment received from lending to related parties | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from the issuance of related party debt | ||||||||
| Payment of loans received from third parties | ( | ) | ||||||
| Loans received from third parties | ||||||||
| Loan Settlement | ||||||||
| Payment of related party debt | ( | ) | ( | ) | ||||
| Proceeds from issuance of ordinary shares | ||||||||
| Proceeds from stockholder capital injection | ||||||||
| Net Cash used in financing activities | ||||||||
| Net change in cash and cash equivalents | ||||||||
| Cash, cash equivalents and restricted cash at beginning of the period | $ | $ | ||||||
| Cash, cash equivalents and restricted cash at end of the period | $ | $ | ||||||
See accompanying Notes to Financial Statements.
F-7
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
(Dollars in thousands, unless otherwise stated)
NOTE 1: Nature of Business
Description of Business
Richtech Robotics Inc. (“we”, “us”, “our” or “Richtech”), is a Nevada C-Corporation registered in Nevada. Richtech was converted from Richtech Creative Displays, LLC on June 22, 2022, and is the predecessor of Richtech. Richtech Creative Displays, LLC was established on July 19, 2016 in Nevada.
We are a leading provider of service robotic solutions. We develop, manufacture, and deploy novel products that address the growing need for automation in the service industry 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 have 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 goal is to be a long-term partner to our clients, providing them with a range of robotic solutions to remedy their problems.
Risk and Uncertainties
The Company’s business and operations are sensitive to general business and economic conditions worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the world economy. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse developments in these general business and economic conditions could have a material adverse effect on the Company’s financial condition and the results of its operations. In addition, the Company will compete with many companies that currently have extensive and well-funded projects, marketing and sales operations. The Company may be unable to compete successfully against these companies. The Company’s industry is characterized by rapid changes in technology and market demands. As a result, the Company’s products, services, or expertise may become obsolete or unmarketable. The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer and market demands, and enhance its current technology under development.
Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.
We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we are (1) no longer an emerging growth company or (2) 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 the new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging
growth company until the earliest of (1) the last day of the first fiscal year (A) following the fifth anniversary of the completion of
November 17, 2023, (B) in which our total annual gross revenue is at least $
F-8
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
(Dollars in thousands, unless otherwise stated)
NOTE 2: Summary of Significant Accounting Policies
Basis of Presentation
These financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with 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.
Segment Reporting
Operating segments are identified
as components of an enterprise about which separate financial information is available for evaluation by the chief operating decision-maker
in making decisions regarding resource allocation and assessing performance. We view our operations and manage our business as
Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. We place our cash and cash equivalents in highly liquid instruments with, and in the custody of, financial institutions with high credit ratings.
Accounts Receivable
Our accounts receivable primarily consist of trade receivables, which represent amounts owed to us by customers for products and services provided. These receivables are presented net of any rebates, price protection adjustments, and an allowance for credit losses. In addition to trade receivables, our accounts receivable also include unbilled receivables. These primarily relate to work completed on development services and semi-custom products for which revenue has been recognized but not yet invoiced to customers. We expect these unbilled receivables to be billed and collected within twelve months.
We actively manage our exposure to customer credit risk through various measures, including credit limits, credit lines, ongoing monitoring procedures, and credit approvals. We perform in-depth credit evaluations of all new customers and periodically reassess the creditworthiness of existing customers. If deemed necessary, we may require letters of credit, bank or corporate guarantees, or advance payments to mitigate credit risk.
To account for potential
losses from uncollectible accounts, we maintain an allowance for credit losses. This allowance considers both specific troubled accounts
and an overall estimate of potential uncollectible receivables based on historical experience and current credit quality assessments.
As of September 30, 2024, the allowance for credit losses was $
F-9
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
(Dollars in thousands, unless otherwise stated)
NOTE 2: Summary of Significant Accounting Policies (cont.)
Inventories
We value inventory at standard cost, adjusted to approximate the lower of actual cost or estimated net realizable value using assumptions about future demand and market conditions. In determining excess or obsolescence reserves for our products, we consider assumptions such as changes in business and economic conditions, other-than-temporary decreases in demand for our products, and changes in technology or customer requirements. In determining the lower of cost or net realizable value reserves, we consider assumptions such as recent historical sales activity and selling prices, as well as estimates of future selling prices. We fully reserve for inventories and non-cancellable purchase orders for inventory deemed obsolete. We perform periodic reviews of inventory items to identify excess inventories on hand by comparing on-hand balances and non-cancellable purchase orders to anticipated usage using recent historical activity as well as anticipated or forecasted demand. If estimates of customer demand diminish further or market conditions become less favorable than those projected by us, additional inventory carrying value adjustments may be required.
| Year ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
Property, and Equipment, net
Property and equipment, net
is stated at cost less accumulated depreciation and amortization and is depreciated using the straight-line method over the estimated
useful lives of the assets. Estimated useful lives of equipment is
| Year ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Furniture, fixtures & equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expenses for 2024 and 2023 were $
Intangible Asset, net
The Company’s intangible assets consist of multiple
systems purchased for our robotic product. These assets are amortized using the straight-line method over their estimated useful life
of
F-10
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
(Dollars in thousands, unless otherwise stated)
NOTE 2: Summary of Significant Accounting Policies (cont.)
| Year ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Intangible Asset | $ | $ | ||||||
| Accumulated Amortization | ( | ) | ||||||
| Intangible Asset, net | $ | $ | ||||||
Amortization expenses for 2024 and 2023 were $
Stockholders’ Equity
According to ASC 505-10-S99-4,
changes in the capital structure of a reporting entity due to a stock dividend, stock split or reverse split occurring after the date
of the latest reported balance sheet but before the release of the financial statements (or the effective date of the registration statement,
whichever is later) should be given retroactive effect in the balance sheet. In such cases, appropriate disclosure should be made of the
retrospective treatment and the date the change became effective. For our Statements of Stockholders’ Equity, par value per share
and the number of shares has been retrospectively restated for the related period in connection with our
In accounting for the conversion of member units into common stock, we followed the relevant accounting guidance provided by the Financial Accounting Standards Board (“FASB”) in accordance with GAAP. According to ASC 805-50-15-6, an entity charters a newly formed entity and then transfers some or all of its net assets to that newly chartered entity is an example of common-control transactions. ASC 805-50-15-6 provides guidance on common control transactions, stating that such transactions involve transfers between entities under common control, where the control is not transitory. In the case of the conversion of member units into common stock, the entities involved are under common control by the same parent entity. This relationship satisfies the criteria for a common control transaction, as control is not transitory and the parent entity exercises significant influence over the entities involved. Financial statements reflect the members’ equity and that the reclassification of members’ equity during fiscal 2022 to paid-in-capital is properly accounted for, in accordance with ASC 805-50-45-4 and SAB Topic 4.B by analogy.
Listing on the Nasdaq Stock Market
Purchase of intangible assets
In the fourth quarter of
2024, the Company acquired intangible assets through a combination of cash and common stock. The total consideration included $
F-11
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
(Dollars in thousands, unless otherwise stated)
NOTE 2: Summary of Significant Accounting Policies (cont.)
Revenue Recognition
Revenue is recognized when we transfer promised goods or services to our customers, in amounts that reflect the consideration that we expect to receive in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under each agreement, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.
Product Revenue
We generate revenue through the sale of our branded robotic products directly to customers. We consider customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with our customers. There is a single performance obligation in all our contracts, which is our promise to transfer our product to customers based on specific payment and shipping terms in the arrangement. The entire transaction price is allocated to this single performance obligation. Product revenue is recognized when a customer obtains control of our product, which occurs at a point in time and may be upon shipment or delivery, based on the terms of the contract.
Revenue from Robots-as-a-Service (RaaS)
As part of our evolving business model, we generate revenue through our Robots-as-a-Service (RaaS) offerings, which provide customers with ongoing access to our robotic solutions under long-term contracts. For RaaS agreements, revenue is recognized over time on a monthly basis as the services are provided and the customer benefits from the use of the robotic solutions.
The transaction price is typically fixed and allocated evenly across the contract term unless specific usage-based considerations are included. Revenue recognition begins once the robots are installed and operational at the customer’s site.
Other Revenue Policies
Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.
We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised products to the customer will be one year or less, which is the case with substantially all customers.
We recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. These costs are included in selling expenses.
We account for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products.
We record the related costs within cost of goods sold.
F-12
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
(Dollars in thousands, unless otherwise stated)
NOTE 2: Summary of Significant Accounting Policies (cont.)
Research and Development Costs
Research and development costs primarily consist of employee-related expenses, including salaries and benefits, facilities costs, depreciation, and other allocated expenses. Research and development costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not some portion or all of a deferred tax asset will not be realized.
Tax positions are recognized
if it is more likely than not, based on the technical merits, the tax position will be realized or sustained upon examination. The term
“more likely than not” means a likelihood of more than
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
Recent Accounting Pronouncements
In February 2016, the FASB
issued Accounting Standards Update (“ASU”) 2016-02, Leases (“Topic 842”). The guidance in this ASU supersedes
the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities
on the balance sheet for all leases with terms longer than
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which amends the approaches and methodologies in accounting for income taxes during interim periods and makes changes to certain income tax classifications. The new standard allows certain exceptions, including an exception to the use of the incremental approach for intra-period tax allocation, when there is a loss from continuing operations and income or a gain from other items, and to the general methodology for calculating income taxes in an interim period, when a year-to-date loss exceeds the anticipated loss for the year. The standard also requires franchise or similar taxes partially based on income to be reported as income tax and to reflect the effects of enacted changes in tax laws or rates in the annual effective tax rate computation from the date of enactment. Lastly, in any future acquisition, we would be required to evaluate when the step-up in the tax basis of goodwill is part of the business combination and when it should be considered a separate transaction. The standard will be effective for us beginning January 1, 2022, with early adoption of the amendments permitted. The adoption of ASU 2019-12 did not have a material impact on our financial statements and disclosures.
In May 2020, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815- 40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another topic. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021. The Company has determined the adoption of ASU 2021-04 did not have a material impact on our financial statements and disclosures.
F-13
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
(Dollars in thousands, unless otherwise stated)
NOTE 3: Earnings per Share
Because we reported a net
loss for all periods presented, no potentially dilutive securities have been included in the computation of diluted net loss per share.
| Year ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Numerators: | ||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted Average ordinary shares used in computing | ||||||||
| Basis and diluted net loss per share (in each dollar) | $ | ( | ) | $ | ( | ) | ||
F-14
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
(Dollars in thousands, unless otherwise stated)
NOTE 4: Income Taxes
| Year ended September 30, 2024 | ||||
| Federal Statutory Rate | % | |||
| Effect of: | ||||
| Change in Valuation Allowance | ( | )% | ||
| RTP & Deferred True-up | % | |||
| Change in Rate | ( | )% | ||
| State Tax Benefit (Net of Fed) | % | |||
| M&E | ( | )% | ||
| TX Franchise tax | ( | )% | ||
| Others | % | |||
| Total provision effective rate | ( | )% | ||
| September 30, 2024 | ||||
| Deferred tax assets relating to: | ||||
| Net Operating loss carryforwards | $ | |||
| Research & development tax credit carryforward | ||||
| 174 Expenses | ||||
| Right of Use Liability | ||||
| Other deferred tax assets | ||||
| Total gross deferred tax assets | ||||
| Deferred tax liabilities relating to: | ||||
| Right of Use Asset | ||||
| Fixed Asset | ||||
| Other deferred tax liabilities | ||||
| Total Gross deferred tax liabilities | ||||
| Deferred assets less liabilities | ||||
| Less: valuation allowance | ( | ) | ||
| Net deferred tax asset (liability) | $ | |||
F-15
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
(Dollars in thousands, unless otherwise stated)
NOTE 4: Income Taxes (cont.)
In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income
(losses) and projections for future taxable income (losses) over the periods in which the deferred tax assets are deductible, management
believes it is more likely than not that the Company will not realize the benefits of these deductible differences in the future.
| Year incurred | Net Operating Loss | Research Activities Credit | ||||||
| 2023 | ||||||||
| 2024 | ||||||||
Note 5: Commitments and Contingencies
Lease
We lease office facilities under noncancelable operating lease agreements. We lease space for its corporate headquarters in Las Vegas, Nevada through August 2027, and we have closed our office space in Austin in April 2024.
| Operating leases | September 30, 2024 | September 30, 2023 | ||||||
| Operating lease right-of use assets | $ | $ | ||||||
| Operating lease liabilities, current portion | $ | $ | ||||||
| Operating lease liabilities, non-current portion | ||||||||
| Total operating lease liabilities | $ | | $ | | ||||
| Operating leases | Year Ended September 30, 2024 | Year Ended September 30, 2024 | ||||||
| Operating lease cost | $ | | $ | | ||||
| Year ending September 30, | Amount | |||
| 2025 | $ | | ||
| 2026 | ||||
| 2027 | ||||
| Total future minimum lease payments | $ | |||
F-16
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
(Dollars in thousands, unless otherwise stated)
Note 6: Subsequent Events
On October 16, 2024, we entered into a binding LOI with Ghost Kitchens America (DBA as One Kitchen). Under the terms of the LOI, the parties agreed to enter into a franchise agreement, pursuant to which the Company will acquire exclusive rights to operate 20 Walmart-located “One Kitchen” restaurants. These restaurants will be directly managed by the Company’s subsidiary, AlphaMax Management LLC. As of the date of this Report, two locations have been secured via franchise agreements: (1) on September 10, 2024, the Company signed a franchise agreement for a new location in Peachtree City, Georgia. This location, slated to commence operations in January 2025, will be operated by Alphamax Management LLC, a wholly-owned subsidiary of the Company; and (2) on August 20, 2024, the Company amended an existing franchise agreement originally intended for Clovis, California, relocating the franchise to Oceanside, California.
On October 25, 2024, the
Company received a notice from Nasdaq notifying the Company that, because the closing bid price for the Company’s Class B common
stock had fallen below $
| (2) | Financial Statement Schedules |
All financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes thereto beginning on page F-1 of this Report.
| (3) | Exhibits |
We hereby file as part of this Report the exhibits listed in the attached Exhibit Index. Exhibits that are incorporated herein by reference can be inspected on the SEC website at www.sec.gov.
F-17
ITEM 16. Form 10-K Summary.
Not applicable.
EXHIBIT INDEX
68
| * | Filed herewith. |
| ** | Furnished herewith |
| # | Certain portions of this exhibit have been omitted because the omitted information is (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. |
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
February 7, 2025 |
RICHTECH ROBOTICS INC. | |
| By: | /s/ Zhenwu Huang | |
| Zhenwu Huang | ||
| Chief Executive Officer | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Zhenwu Huang | Chief Executive Officer and Director | February 7, 2025 | ||
| Zhenwu Huang | (Principal Executive Officer) | |||
| /s/ Zhenqiang Huang | Chief Financial Officer and Director | February 7, 2025 | ||
| Zhenqiang Huang | (Principal Financial and Accounting Officer) | |||
| /s/ John Shigley | Director | February 7, 2025 | ||
| John Shigley | ||||
| /s/ Stephen Markscheid | Director | February 7, 2025 | ||
| Stephen Markscheid | ||||
| /s/ Saul Factor | Director | February 7, 2025 | ||
| Saul Factor | ||||
70
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) OF
THE
SECURITIES EXCHANGE ACT OF 1934
I, Zhenwu Huang, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K/A of Richtech Robotics Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| February 7, 2025 | /s/ Zhenwu Huang | |
| Name: | Zhenwu Huang | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
I, Zhenqiang Huang, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K/A of Richtech Robotics Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| February 7, 2025 | /s/ Zhenqiang Huang | |
| Name: | Zhenqiang Huang | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Richtech Robotics Inc. on Form 10-K/A for the fiscal year ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Zhenwu Huang, as Chief Executive Officer and principal executive officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of the undersigned’s knowledge and belief, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
| 2. | Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. |
| /s/ Zhenwu Huang | |
| Zhenwu Huang | |
| Chief Executive Officer and Principal Executive Officer | |
| Dated: February 7, 2025 |
This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Richtech Robotics Inc. on Form 10-K/A for the fiscal year ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Zhenqiang Huang, as Chief Financial Officer and principal financial officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of the undersigned’s knowledge and belief, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
| 2. | Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. |
| /s/ Zhenqiang Huang | |
| Zhenqiang Huang | |
| Chief Financial Officer and Principal Financial Officer |
| Dated: February 7, 2025 |
This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 97
RICHTECH ROBOTICS INC.
EXECUTIVE COMPENSATION CLAWBACK POLICY
Adopted as of November 13, 2023
The Board of Directors (the “Board”) of Richtech Robotics Inc. (the “Company”) has adopted the following executive compensation clawback policy (this “Policy”). This Policy shall supplement any other clawback or compensation recovery policy or policies adopted by the Company or included in any agreement between the Company, or any subsidiary of the Company, and a person covered by this Policy. If any such other policy or agreement provides that a greater amount of compensation shall be subject to clawback, such other policy or agreement shall apply to the amount in excess of the amount subject to clawback under this Policy.
This Policy shall be interpreted to comply with Securities and Exchange Commission (“SEC”) Rule 10D-1 and Listing Rule 5608 (the “Listing Rule”) of The Nasdaq Stock Market, LLC (“Nasdaq”), as may be amended or supplemented and interpreted from time to time by Nasdaq. To the extent this Policy is in any manner deemed inconsistent with the Listing Rule, this Policy shall be treated as having been amended to be compliant with the Listing Rule.
1. Definitions. Unless the context indicates otherwise the following definitions apply for purposes of this Policy:
(a) Executive Officer. An executive officer is the Company’s chief executive officer and/or president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president of the Company in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company. Executive officers of the Company’s parent(s) or subsidiaries are deemed executive officers of the Company if they perform such policy making functions for the Company. Policy-making function is not intended to include policy-making functions that are not significant. Identification of an executive officer for purposes of the Listing Rule would include at a minimum executive officers identified in the Listing Rule.
(b) Financial Reporting Measures. Financial reporting measures are measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures. Stock price and total shareholder return are also financial reporting measures. A financial reporting measure need not be presented within the financial statements or included in a filing with the SEC and may be such financial measures as may be determined by the Board or the Compensation Committee thereof (the “Compensation Committee”).
(c) Incentive-Based Compensation. Incentive-based compensation is any compensation that is granted, earned or vested based wholly or in part upon the attainment of a financial reporting measure.
(d) Received. Incentive-based compensation is deemed “received” in the Company’s fiscal period during which the financial reporting measure specified in the incentive-based compensation award is attained, even if the payment or grant of the incentive-based compensation occurs after the end of that period.
2. Application of this Policy. This recovery of Incentive-Based Compensation from an Executive Officer as provided for in this Policy shall apply only in the event that the Company is required to prepare an accounting restatement due to the material noncompliance of Company with any financial reporting requirement under the United States securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
3. Recovery Period.
(a) The Incentive-Based Compensation subject to recovery is the Incentive-Based Compensation Received during the three (3) completed fiscal years immediately preceding the date that the Company is required to prepare an accounting restatement as described in Section 2 above, provided that the person served as an Executive Officer at any time during the performance period applicable to the Incentive-Based Compensation in question. The date that the Company is required to prepare an accounting restatement shall be determined pursuant to the Listing Rule.
(b) Notwithstanding the foregoing, this Policy shall only apply if the Incentive-Based Compensation is Received (i) while the Company has a class of securities listed on Nasdaq and (ii) on or after October 2, 2023.
(c) The provisions of the Listing Rule shall apply with respect to Incentive-Based Compensation received during a transition period arising due to a change in the Company’s fiscal year.
4. Erroneously Awarded Compensation. The amount of Incentive-Based Compensation subject to recovery from the applicable Executive Officers under this Policy (“Erroneously Awarded Compensation”) shall be equal to the amount of Incentive-Based Compensation Received that exceeds the amount of Incentive Based-Compensation that otherwise would have been Received had it been determined based on the restated amounts and shall be computed without regard to any taxes paid. For Incentive-Based Compensation based on stock price or total shareholder return, where the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly from the information in an accounting restatement: (a) the amount shall be based on a reasonable estimate by the Company’s Chief Financial Officer (or principal accounting officer, if the office of Chief Financial Officer is not then filled) of the effect of the accounting restatement on the stock price or total shareholder return upon which the Incentive-Based Compensation was received, which estimate shall be subject to the review and approval of the Compensation Committee; and (b) the Company must maintain reasonable documentation of the determination of that reasonable estimate and provide such documentation to Nasdaq if requested. Notwithstanding the foregoing, if the proposed Incentive-Based Compensation recovery would affect compensation paid to the Company’s Chief Financial Officer, the determination shall be made by the Compensation Committee.
2
5. Timing of Recovery. The Company shall recover any Erroneously Awarded Compensation reasonably promptly except to the extent that the conditions of paragraphs (a), (b), or (c) below apply. The Compensation Committee shall determine the repayment schedule for each amount of Erroneously Awarded Compensation in a manner that complies with this “reasonably promptly” requirement. Such determination shall be consistent with any applicable legal guidance by the SEC, Nasdaq, judicial opinion, or otherwise. The determination of “reasonably promptly” may vary from case to case and the Compensation Committee is authorized to adopt additional rules or policies to further describe what repayment schedules satisfy this requirement.
(a) Erroneously Awarded Compensation need not be recovered if the direct expense paid to a third party to assist in enforcing (or making determinations in connection with the enforcement of) this Policy would exceed the amount to be recovered and the Compensation Committee has made a determination that recovery would be impracticable. Before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on expense of enforcement, the Company shall (i) make a reasonable attempt to recover such Erroneously Awarded Compensation, (ii) document such reasonable attempt or attempts to recover, and (iii) provide appropriate documentation to the Compensation Committee or Nasdaq, if requested.
(b) Erroneously Awarded Compensation need not be recovered if recovery would violate home country law where that law was adopted prior to November 28, 2022. Before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on a violation of home country law, the Company shall obtain an opinion of home country counsel, in form and substance that would be reasonably acceptable to Nasdaq, that recovery would result in such a violation and shall provide such opinion to Nasdaq, if requested.
(c) Erroneously Awarded Compensation need not be recovered if recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and the regulations thereunder (as such provision may be amended, modified or supplemented).
6. Compensation Committee Decisions. Decisions of the Compensation Committee with respect to this Policy shall be final, conclusive and binding on all Executive Officers subject to this Policy.
7. No Indemnification. Notwithstanding anything to the contrary in any other policy of the Company or any agreement between the Company and an Executive Officer, no Executive Officer shall be indemnified by the Company against the loss arising from the recovery of any Erroneously Awarded Compensation.
8. Agreement to Policy by Executive Officers. The Company shall take reasonable steps to inform Executive Officers of this Policy and obtain their express agreement to this Policy, which steps may constitute the inclusion of this Policy as an attachment to any award that is accepted by an Executive Officer. This Policy shall be deemed to apply to each employment or grant agreement between the Company or any of its subsidiaries and any Executive Officer subject to this Policy.
# # #
3