Pixie Dust Technologies(PXDT) - 2023 Q2 - Quarterly Report

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements subject to significant risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements regarding future results, strategies, and growth opportunities[8] - These statements are subject to significant risks and uncertainties that could cause actual results to differ materially[8] - Key risk factors include, but are not limited to: - Ability to successfully develop and commercialize technologies and products[9] - Market acceptance and the ability to build a sales and marketing infrastructure[9] - Reliance on collaborators and the ability to secure future financing[9] - Ability to protect intellectual property[9] - Impact of general economic conditions[9] - Risks associated with being an emerging growth company and a foreign private issuer[12] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Business Overview The company commercializes wave technology products in personal care and digital transformation, shifting revenue from R&D to product sales, now 75% of total revenue - The company operates in two principal fields: - Personal Care & Diversity: Applying wave control technology to vision, hearing, and touch, with products including SonoRepro (scalp care), VUEVO (for DHH individuals), and kikippa (acoustic speaker)[3][17][21] - Workspace & Digital Transformation: Applying metamaterials and solutions for offices and construction sites, with products including iwasemi (sound-absorbing material)[3][17][21] - The company's revenue source is transitioning from primarily commissioned R&D services to product sales, with product revenue accounting for about 75% of total revenue for the six months ended October 31, 2023[24] Financial Metrics | Financial Metric | Six Months Ended Oct 31, 2022 (JPY) | Six Months Ended Oct 31, 2023 (JPY) | Six Months Ended Oct 31, 2023 (USD) | | :--- | :--- | :--- | :--- | | Total Revenue | 158,639 thousand | 299,139 thousand | 1,975 thousand | | Net Loss | (885,000) thousand | (1,150,027) thousand | (7,593) thousand | Key Financial Definitions This section defines the company's major revenue sources and cost components, emphasizing a future focus on product commercialization and sales - Major revenue sources include commissioned R&D, solution services, guest speaker services, membership services, and product sales[26] - Product sales for the period were primarily comprised of SonoRepro, iwasemi, and kikippa, with revenue recognized upon transfer of control, typically at the point of delivery[28] - Key cost components are defined as: - Cost of services: Outsourcing, depreciation, supplies, and personnel for services[29] - Cost of products: Material, outsourcing, depreciation, and personnel for production[29] - Research and development costs: Personnel, lab supplies, and fees to third-party researchers[30] - Selling, general and administrative (SG&A) expenses: Advertising, marketing, and corporate personnel costs[31] Factors Impacting Operating Results Operating results are impacted by product commercialization, market acceptance, sales infrastructure, customer concentration, and rising public company costs - Key performance factors include the commercial success of products like SonoRepro, kikippa, VUEVO, and iwasemi, market acceptance, and the ability to establish a sales and distribution infrastructure[35] - The company has significant customer concentration risk, with one customer accounting for approximately 48.3% of total revenue for the six months ended October 31, 2023[35] - General and administrative expenses are anticipated to increase due to costs associated with being a public company, including compliance, legal, and accounting fees[36] Operating Results Revenue increased 88.6% to ¥299.1 million driven by product sales, but net loss widened 29.9% to ¥1,150.0 million due to increased SG&A and product costs Operating Results Summary | (in thousands JPY) | Six Months Ended Oct 31, 2022 | Six Months Ended Oct 31, 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | 158,639 | 299,139 | 88.6% | | Service Revenue | 121,866 | 73,430 | (39.7%) | | Product Revenue | 36,773 | 225,709 | 513.8% | | Total Cost and Expenses | 1,030,349 | 1,474,762 | 43.1% | | Cost of Products | 24,053 | 126,820 | 427.3% | | R&D Expenses | 339,283 | 279,436 | (17.6%) | | SG&A Expenses | 643,892 | 1,051,796 | 63.3% | | Loss from Operations | (871,710) | (1,175,623) | 34.9% | | Net Loss | (885,000) | (1,150,027) | 29.9% | - The increase in product sales was primarily attributable to the launches of SonoRepro (November 2022) and kikippa (April 2023)[37] - The increase in SG&A expenses was driven by higher advertising and marketing costs for new products, increased personnel expenses, and higher rent for the new headquarters[41] Liquidity and Capital Resources IPO proceeds boosted cash, but current liquidity is insufficient for the next 12 months, raising going concern doubt; management plans additional capital raises and spending controls Sources and Uses of Capital The company funds operations through equity/debt and revenue, with the August 2023 IPO raising $11.2 million in net proceeds primarily for R&D and marketing efforts - The company completed an Initial Public Offering (IPO) in August 2023, raising approximately $11.2 million in net proceeds after deducting offering costs[45] - Cash and cash equivalents increased from ¥2,135.5 million as of April 30, 2023, to ¥2,420.7 million as of October 31, 2023[44] - Primary use of capital has been for R&D, expanding marketing and sales, staffing, and securing intellectual property rights[48] Going Concern and Management Plans Substantial doubt exists about the company's ability to continue as a going concern due to recurring losses, negative cash flows, and a ¥1 billion loan maturing in February 2024 - Management has concluded there is substantial doubt about the company's ability to continue as a going concern for at least the next 12 months[50][101] - Key factors for this conclusion are recurring losses, negative cash flows, and a significant loan of ¥1 billion maturing on February 29, 2024[50][101] - Management plans to seek additional capital through a follow-on offering, other financing, or refinancing, and manage spending, though there are no assurances these plans will be successful[50][102] Cash Flows Net cash used in operating activities increased to ¥1,385.1 million, while net cash provided by financing activities was ¥1,698.0 million from the IPO, resulting in a net cash increase Cash Flow Summary | (in thousands JPY) | Six Months Ended Oct 31, 2022 | Six Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | (861,666) | (1,385,065) | | Net cash used in investing activities | (49,321) | (68,760) | | Net cash provided by financing activities | 2,389,980 | 1,698,030 | - The increase in cash used in operating activities was primarily due to a larger net loss and changes in working capital related to business expansion[57] - Net cash from financing activities was primarily due to net proceeds from the IPO in August 2023[59] Credit Facilities and Commitments As of October 31, 2023, outstanding loans totaled ¥1,027.8 million, with a significant ¥1 billion loan maturing on February 29, 2024, contributing to going concern uncertainty - Total outstanding bank loans were ¥1,027.8 million as of October 31, 2023[60] - A major loan of ¥1 billion carries a 3% interest rate and matures in a lump sum on February 29, 2024[61] Contractual Obligations | Contractual Obligations (in thousands JPY) | Total | Payment Due in FY2024 (remainder) | | :--- | :--- | :--- | | Long-term debt principal payments | 1,027,779 | 1,006,666 | | Operating Lease Obligation | 548,469 | 17,031 | Research and Development, Patents and Licenses The company invests in R&D and leverages academic and industry collaborations to develop and commercialize innovative products like SonoRepro, kikippa, VUEVO, and iwasemi - The company's strategy is to continue developing and commercializing products by applying its control wave technology through collaborations with academic and industry partners[65] - Key products such as SonoRepro, kikippa, VUEVO, and iwasemi have been developed under these collaborations[65] Trend Information & Critical Accounting Policies No undisclosed trends are expected to materially affect financial condition; no changes to critical accounting policies except for CECL adoption, which had no material impact - No undisclosed trends, uncertainties, or events are expected to have a material effect on financial results[66] - The company adopted ASU 2016-13 (CECL) on May 1, 2023, which introduced a new credit loss methodology, with the adoption having no material impact on the company's financial statements[69] CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED) Condensed Balance Sheets Total assets increased to ¥4,082.4 million as of October 31, 2023, primarily due to IPO cash, with total liabilities at ¥1,856.3 million and equity at ¥2,226.1 million Condensed Balance Sheets Summary | (in thousands JPY) | April 30, 2023 | October 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | 3,044,415 | 2,969,379 | | Cash and cash equivalents | 2,135,513 | 2,420,667 | | Total Assets | 3,717,654 | 4,082,407 | | Total Current Liabilities | 1,766,623 | 1,364,416 | | Current portion of long-term borrowings | 1,013,332 | 1,013,332 | | Total Liabilities | 1,819,228 | 1,856,334 | | Total Stockholders' Equity | 1,898,426 | 2,226,073 | Condensed Statements of Operations For the six months ended October 31, 2023, total revenue was ¥299.1 million and net loss was ¥1,150.0 million, with net loss per share at ¥85.47 Condensed Statements of Operations Summary | (in thousands JPY, except per share data) | Six Months Ended Oct 31, 2022 | Six Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Total Revenue | 158,639 | 299,139 | | Loss from Operations | (871,710) | (1,175,623) | | Net Loss | (885,000) | (1,150,027) | | Net loss per share, basic and diluted | (¥147.50) | (¥85.47) | Condensed Statements of Stockholders' Equity Stockholders' equity increased to ¥2,226.1 million by October 31, 2023, driven by ¥1,471.1 million in IPO proceeds, partially offset by the ¥1,150.0 million net loss Condensed Statements of Stockholders' Equity Summary | (in thousands JPY) | Amount | | :--- | :--- | | Balance, April 30, 2023 | 1,898,426 | | Issuance of common stock upon IPO, net | 1,471,085 | | Net loss | (1,150,027) | | Other (Stock-based comp, etc.) | 6,589 | | Balance, October 31, 2023 | 2,226,073 | Condensed Statements of Cash Flows Net cash used in operating activities was ¥1,385.1 million, while financing activities provided ¥1,698.0 million from the IPO, resulting in a ¥285.2 million net cash increase Condensed Statements of Cash Flows Summary | (in thousands JPY) | Six Months Ended Oct 31, 2022 | Six Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | (861,666) | (1,385,065) | | Net cash used in investing activities | (49,321) | (68,760) | | Net cash provided by financing activities | 2,389,980 | 1,698,030 | | Net increase in cash and cash equivalents | 1,478,993 | 285,154 | Notes to Condensed Interim Financial Statements The notes provide critical details supporting the financial statements, including IPO completion, U.S. GAAP basis, revenue recognition, and substantial doubt about going concern due to recurring losses and near-term debt maturity Note 1: Description of Business & IPO The company develops wave control technology products; its August 2023 IPO on Nasdaq raised ¥1,471.1 million ($9.7 million) in net proceeds - On August 3, 2023, the Company completed its IPO, issuing 1,666,667 ADSs at $9.00 per ADS[86] - Net proceeds from the IPO were ¥1,471,085 thousand ($9,713 thousand) after deducting underwriting discounts, commissions, and other offering costs[86] - The company agreed to issue warrants to underwriters to purchase 50,000 ADSs at an exercise price of $11.25 per ADS, exercisable for five years[87] Note 2: Summary of Significant Accounting Policies This note details U.S. GAAP basis, revenue recognition, and confirms substantial doubt about going concern due to recurring losses and a ¥1 billion loan maturity - The financial statements are prepared in accordance with U.S. GAAP[89] - The note explicitly states that conditions raise substantial doubt about the Company's ability to continue as a going concern, as cash on hand is not expected to fund operations and debt obligations for the next 12 months[101] - For the six months ended October 31, 2023, one customer accounted for approximately 48.3% of total revenue, highlighting significant customer concentration[108] Note 5: Leases A new five-year head office lease, commencing June 1, 2023, resulted in a ¥485.8 million increase to operating lease ROU asset and liability - A new head office lease was signed with a commencement date of June 1, 2023, and an expiration date of May 31, 2028[118] - The new lease resulted in an increase to the operating lease ROU asset and liability of ¥485,848 thousand[118] Note 6: Borrowings Total long-term borrowings were ¥1,027.8 million as of October 31, 2023, with a significant ¥1 billion unsecured loan maturing on February 29, 2024 Annual Maturities of Borrowings | Annual Maturities (in thousands) | JPY | USD | | :--- | :--- | :--- | | Year ending April 30, 2024 (remainder) | ¥ 1,006,666 | $ 6,646 | | Year ending April 30, 2025 | ¥ 13,332 | $ 88 | | Year ending April 30, 2026 | ¥ 7,781 | $ 51 | | Total | ¥ 1,027,779 | $ 6,785 | - Of the amount due in fiscal 2024, ¥1,000,000 thousand is due on February 29, 2024[123] Note 8: Revenue Recognition This note disaggregates revenue, showing a shift to product sales, which reached ¥225.7 million for the six months ended October 31, 2023 Disaggregated Revenue | Disaggregated Revenue (in thousands JPY) | Six Months Ended Oct 31, 2022 | Six Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Commissioned research and development | 86,980 | 45,699 | | Solution services | 14,186 | 12,595 | | Guest speaker services | 16,603 | 15,136 | | Membership services | 4,097 | — | | Product sales | 36,773 | 225,709 | | Total revenue | 158,639 | 299,139 | Note 11: Net Loss Per Share Basic and diluted net loss per share was ¥85.47 for the six months ended October 31, 2023, an improvement due to higher weighted-average shares Net Loss Per Share | (in thousands JPY, except share data) | Six Months Ended Oct 31, 2022 | Six Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Net loss attributable to stockholders | (885,000) | (1,150,027) | | Weighted average shares outstanding | 6,000,000 | 13,455,691 | | Net loss per share, basic and diluted | (¥147.50) | (¥85.47) | - All series of convertible preferred stock (A, AA, B, BB, and C) were converted to common stock on March 22, 2023[131]