10-K: Exceed World, Inc. Reports Fiscal Year 2024 Results with Increased Net Income Despite Revenue Dip

Exceed World, Inc. reports a net income of $1.17 million for fiscal year 2024, a significant turnaround from the previous year's net loss, despite a slight decrease in overall revenue.

Summary

• Exceed World, Inc. reported a net income of $1,171,377 for the fiscal year ended September 30, 2024, compared to a net loss of $551,747 in the previous year.
• The company's revenue decreased to $24,383,053 in 2024 from $25,922,721 in 2023, which management attributes to reduced promotional activities.
• Operating cash flow improved significantly, with inflows of $2,724,235 in 2024 compared to outflows of $6,160,633 in 2023.
• The company's working capital was $13,800,283 as of September 30, 2024, down from $14,738,700 the previous year.
• Advertising expenses decreased to $1,053,125 in 2024 from $2,437,156 in 2023, also due to reduced promotional activities.
• The company settled seven legal cases related to contract cancellations for approximately $783,000 during the fiscal year and one additional case for approximately $24,000 after the fiscal year end.
• As of the filing date, there were four pending legal cases with estimated settlement costs of approximately $36,000.
• The company had approximately 60 shareholders of record and 32,700,000 shares of common stock issued and outstanding as of the fiscal year end.

Sentiment

Score: 6

Explanation: The document shows a positive turnaround in profitability and cash flow, but there are concerns about revenue decline, legal issues, and internal control weaknesses. The sentiment is cautiously optimistic.

Positives

• The company successfully turned a net loss into a net income of $1.17 million.
• Operating cash flow improved significantly, indicating better operational efficiency.
• The company reduced its advertising expenses, which contributed to the increase in net income.
• The company has sufficient cash to fund operations without the need for additional funding.

Negatives

• The company experienced a decrease in revenue, which was attributed to reduced promotional activities.
• Working capital decreased from $14.74 million to $13.80 million.
• The company settled legal cases related to contract cancellations for approximately $783,000 during the fiscal year and one additional case for approximately $24,000 after the fiscal year end.
• The company has four pending legal cases with estimated settlement costs of approximately $36,000.

Risks

• The company faces ongoing legal challenges related to contract cancellations, which could result in further financial liabilities.
• The decrease in revenue due to reduced promotional activities may indicate a need to re-evaluate marketing strategies.
• The company's internal controls over financial reporting are deemed ineffective, which could lead to potential misstatements in future financial reports.
• The company is dominated by a single individual without adequate compensating controls, which is a material weakness.
• The company lacks a majority of outside directors on the board and does not have a functioning audit committee, which is a material weakness.
• The company has inadequate segregation of duties, which is a material weakness.
• The company lacks well-established procedures to identify, approve and report related party transactions, which is a material weakness.
• The company lacks sufficient accounting and finance personnel or written policies and procedures with respect to the understanding and application of US GAAP and SEC reporting requirements, which is a material weakness.

Future Outlook

The company intends to focus on expanding its sales network and implementing various sales promotion plans to enhance business activities over the next twelve months.

Management Comments

• Management attributes the decrease in revenue to a decrease in promotional activities.
• Management believes the increase in net income is due to a decrease in operating expenses.
• Management believes the increase in operating cash flow is mainly attributed to an increase in net income, a decrease in accrued expenses and other payables, a decrease in inventories and a decrease in income tax recoverable.

Industry Context

The company operates in the e-learning sector in Japan, competing with established players like Recruit Marketing Partners, JustSystem Corporation, Benesse Corporation, and SuRaLa Net Co., Ltd. The company's business model includes both online and offline educational services, as well as a multi-level marketing approach.

Comparison to Industry Standards

• The company's revenue of $24.38 million is relatively small compared to major players in the Japanese e-learning market such as Benesse Corporation which reported revenues of ¥470.8 billion (approximately $3.1 billion USD) in 2023.
• The company's shift to profitability is a positive sign, but its reliance on a multi-level marketing model may present challenges in terms of scalability and sustainability compared to more traditional direct sales models used by competitors.
• The company's investment in software development, with a net book value of $2.98 million, is a significant asset, but it needs to be compared to the technology investments of its competitors to assess its competitiveness.
• The company's legal issues related to contract cancellations are not uncommon in the MLM industry, but the company needs to manage these risks effectively to avoid reputational damage and financial losses.

Legal Proceedings

• The company settled seven legal cases related to contract cancellations for approximately $783,000 during the fiscal year.
• The company settled one additional legal case for approximately $24,000 after the fiscal year end.
• The company has four pending legal cases with estimated settlement costs of approximately $36,000.

Related Party Transactions

• The company has significant related party transactions, including amounts due to directors and related parties.
• Force Internationale paid expenses on behalf of the company in the amount of $312,738 during the year ended September 30, 2024.
• Tomoo Yoshida provided guarantees for the company's office leases.

Stakeholder Impact

• Shareholders will be pleased with the improved profitability, but may be concerned about the revenue decline and internal control issues.
• Employees may be affected by the company's efforts to expand its sales network and implement new sales promotion plans.
• Customers may be impacted by changes in the company's marketing strategies and product offerings.
• Suppliers may be affected by the company's financial performance and its ability to pay for goods and services.
• Creditors may be concerned about the company's legal liabilities and internal control weaknesses.

Next Steps

• The company intends to expand its sales network.
• The company plans to continuously carry out various sales promotion plans.

Key Dates

Keywords

e-learning, education services, multi-level marketing, Force Club, financial results, net income, revenue, operating cash flow, legal proceedings, internal controls