10-Q: Exceed World Inc. Reports Mixed Results in Q3 2024, Revenue Declines but Net Income Improves

Exceed World Inc. experienced a decrease in revenue but an increase in net income for the three months ended June 30, 2024, compared to the same period in 2023.

Summary

• Exceed World Inc. reported a revenue of $8,357,749 for the three months ended June 30, 2024, an increase from $6,998,555 in the same period of 2023.
• However, for the nine months ended June 30, 2024, revenue decreased to $19,544,418 from $21,152,440 in the corresponding period of 2023.
• The company recorded a net income of $47,602 for the three months ended June 30, 2024, compared to a net loss of $494,752 for the same period in 2023.
• For the nine months ended June 30, 2024, the company reported a net loss of $393,586, which is an increase from the net loss of $162,093 in the same period of 2023.
• The company's cash balance was $19,534,471 as of June 30, 2024, compared to $18,165,169 as of September 30, 2023.
• The company had cash inflows from operations of $3,091,926 for the nine months ended June 30, 2024, compared to cash outflows of $4,902,952 for the same period in 2023.
• The company's working capital was $12,472,588 as of June 30, 2024, compared to $14,738,700 as of September 30, 2023.

Sentiment

Score: 4

Explanation: The sentiment is mixed due to improved net income in the quarter but a decrease in revenue and a larger net loss for the nine-month period, coupled with identified internal control weaknesses. The company's future plans are positive but the current financial performance and control issues raise concerns.

Positives

• The company experienced an increase in revenue for the three months ended June 30, 2024.
• The company achieved a net income for the three months ended June 30, 2024, compared to a net loss in the same period of 2023.
• The company's cash flow from operations improved significantly for the nine months ended June 30, 2024.
• The company's cash balance increased compared to the end of the previous fiscal year.

Negatives

• The company's revenue decreased for the nine months ended June 30, 2024, compared to the same period in 2023.
• The company reported a net loss for the nine months ended June 30, 2024, which was larger than the net loss in the same period of 2023.
• The company's working capital decreased compared to the end of the previous fiscal year.
• The company identified material weaknesses in its internal controls.

Risks

• The company's internal controls are deemed ineffective due to material weaknesses including domination of management by a single individual, lack of outside directors, inadequate segregation of duties, and lack of an audit committee.
• The company is involved in ongoing legal proceedings related to contract cancellations.
• The company's revenue is dependent on recruitment activities of premium Force Club members, which have decreased.
• The company's future performance is subject to risks and uncertainties including changes in economic conditions, legislative/regulatory changes, and competition.

Future Outlook

The company plans to focus on expanding its sales network and providing benefits and incentives to premium members over the next twelve months.

Management Comments

• The increase in revenue for the three months ended June 30, 2024 is mainly attributed to an increase in promotional activities.
• The decrease in revenue for the nine months ended June 30, 2024 is primarily attributed to a decrease in recruitment activities of premium Force Club members.
• The increase in net income for the three months ended June 30, 2024 is attributed to an increase in income taxes credit.
• The increase in net loss for the nine months ended June 30, 2024 is attributed to a decrease in revenue.
• The increase in operating cash inflow is mainly attributed to a decrease in settlement of account payable, accrued expenses, deferred income and inventories and increase in refund of income tax recoverable.

Industry Context

The company operates in the educational services sector, utilizing a multi-level marketing model through its Force Club platform. The results reflect the challenges and opportunities inherent in this business model, including the need for consistent recruitment and promotional activities to drive revenue growth.

Comparison to Industry Standards

• It is difficult to directly compare Exceed World's results to industry standards due to its unique MLM business model and focus on educational services.
• Many educational service companies do not use a MLM model, making direct comparisons challenging.
• Companies like Coursera or Udemy, which offer online educational content, have different revenue models and cost structures.
• Direct selling companies like Herbalife or Amway, which use MLM models, operate in different product categories, making comparisons difficult.
• The company's reliance on recruitment activities for revenue generation is a key differentiator from traditional educational service providers.

Corporate Governance

Legal Proceedings

• The company settled six legal cases for approximately $693,500 related to contract cancellations during the nine months ended June 30, 2024.
• As of the filing date, the company had four pending legal cases with a total claim of approximately $110,200 related to contract cancellations.
• The company has accrued a liability of approximately $44,000 for the estimated settlement of the pending legal cases.

Related Party Transactions

• The company has significant balances due to related parties, including a director and the majority shareholder.
• Force Internationale paid expenses on behalf of the company in the amount of $263,650 during the nine months ended June 30, 2024.
• Tomoo Yoshida provided guarantees for the company's office leases.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and the larger net loss for the nine-month period.
• Shareholders may be concerned about the identified material weaknesses in internal controls.
• Employees may be affected by the company's performance and any potential restructuring.
• Customers may be impacted by changes in the company's offerings or business model.
• Creditors may be concerned about the company's financial performance and ability to meet its obligations.

Next Steps

• The company will focus on expanding its sales network.
• The company will provide benefits and incentives to premium members as value-added services.

Key Dates

Keywords

educational services, Force Club, MLM, multi-level marketing, financial results, internal controls, legal proceedings, revenue, net income, cash flow