Yoshitsu (US:TKLF)2025-07-10 20:06PART I Item 3. Key Information This section details significant business and market-related risks, including competition, debt reliance, and ADS volatility Risks Related to Our Business The company faces intense market competition, reliance on short-term debt, supply chain vulnerabilities, and high dependency on the China market - The company operates in highly competitive and fragmented markets in Hong Kong, Japan, China, Thailand, Canada, the U.K., and the U.S., competing with a wide range of retailers from offline and online specialty stores to pharmacies and supermarkets24 - The COVID-19 pandemic had a significant adverse impact, causing total revenue to decrease by 27.7% and net income to fall by 305.1% (from a profit to a loss) in the fiscal year ended March 31, 202333 Short-Term Borrowings Outstanding | Fiscal Year End | Short-Term Borrowings | | :--- | :--- | | March 31, 2025 | $57.9 million | | March 31, 2024 | $53.2 million | | March 31, 2023 | $60.6 million | Supplier Concentration (FY2023-FY2025) | Fiscal Year Ended | Number of Key Suppliers | % of Total Purchases | | :--- | :--- | :--- | | March 31, 2025 | 2 | 28.2% and 18.5% | | March 31, 2024 | 2 | 22.5% and 21.2% | | March 31, 2023 | 3 | 18.2%, 16.3%, and 12.0% | Revenue Concentration from China Market | Fiscal Year Ended | % of Revenue from China | | :--- | :--- | | March 31, 2025 | 60.7% | | March 31, 2024 | 61.2% | | March 31, 2023 | 51.1% | Risks Relating to Our Ordinary Shares and the Trading Market Key risks include significant ADS price volatility, material weaknesses in internal controls, and potential PFIC classification - The closing price of the ADSs has been highly volatile, ranging from $2.0 to $295.2 per ADS on an adjusted basis since the IPO on January 13, 2022104 - Material weaknesses in internal control over financial reporting have been identified, including a lack of internal staff with appropriate U.S. GAAP and SEC reporting knowledge, and deficiencies in IT general controls107108 - The company received a notice of non-compliance with Nasdaq's minimum bid price rule in December 2023 but regained compliance by December 2, 2024131 - The company is a "controlled company" as the representative director, Mr. Mei Kanayama, owns a majority of the voting power and it follows Japanese home country governance practices, exempting it from certain Nasdaq requirements113114130 - There is a risk the company could be classified as a Passive Foreign Investment Company (PFIC) for its 2026 taxable year or later, which would result in adverse U.S. federal income tax consequences for U.S. taxpayers holding its shares135139 Item 4. Information on the Company This section provides an overview of the company's history, business model, product offerings, and strategic plans History and Development of the Company The company completed its IPO in 2022 and has since expanded through acquisitions, changed its name, and adjusted its ADS ratio - The company closed its initial public offering (IPO) on January 13, 2022, raising net proceeds of approximately $21.4 million143 - Acquired 100% of Tokyo Lifestyle Limited on July 27, 2022, for approximately US$2.84 million to expand into Southeast Asia and advance live streaming e-commerce144 - On October 31, 2024, the company's name was changed from Yoshitsu Co., Ltd to Tokyo Lifestyle Co., Ltd149 - On November 15, 2024, the company changed its ADS to Ordinary Share ratio from 1:1 to 1:10, effectively conducting a 1-for-10 reverse split on the ADSs148 Business Overview The company retails and wholesales Japanese products through a multi-channel network, with a focus on international expansion and private label development - The company offers a wide range of products, including approximately 64,800 SKUs of beauty products, 39,000 SKUs of health products, and 73,800 SKUs of sundry products156 - The company's growth strategy includes opening 10 additional directly-operated stores in the U.S. and adding 20 new franchise stores across various international markets over the next three years169 - The company is developing its own private label products, which currently include items like facial masks, toning lotion, and reusable shopping bags, with plans to expand the range171 Revenue by Distribution Channel (FY2023-FY2025) | Distribution Channel | FY2025 % | FY2024 % | FY2023 % | | :--- | :--- | :--- | :--- | | Directly-operated physical stores | 8.1% | 7.6% | 6.8% | | Online stores | 3.6% | 5.5% | 12.2% | | Franchise stores and wholesale customers | 88.3% | 86.9% | 81.0% | Revenue by Product Category (FY2023-FY2025) | Product Category | FY2025 % | FY2024 % | FY2023 % | | :--- | :--- | :--- | :--- | | Beauty products | 38.7% | 25.6% | 75.9% | | Health products | 3.3% | 2.5% | 11.0% | | Sundry products | 9.7% | 3.1% | 6.5% | | Luxury products | 16.8% | 46.1% | 0.0% | | Electronic products | 22.8% | 17.9% | 0.0% | | Collectible cards and trendy toys | 5.4% | 0.0% | 0.0% | | Other products | 3.3% | 4.8% | 6.6% | Item 5. Operating and Financial Review and Prospects This section analyzes financial performance, showing revenue growth but decreased net income in FY2025, alongside the company's liquidity and capital resources Operating Results FY2025 revenue grew 7.4% to $210.1 million, but net income fell 11.2% to $6.6 million due to higher operating expenses - In FY2025, revenue from directly-operated physical stores grew 14.4%, while online store revenue decreased by 30.0% due to the closure of underperforming online stores287288 - The significant decrease in operating expenses in FY2024 (down 38.5% YoY) was a key driver of the return to profitability, primarily due to a $5.5 million decrease in allowance for credit losses and a $4.1 million reduction in shipping expenses326327 Financial Performance Summary (FY2025 vs. FY2024) | Metric | FY 2025 | FY 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $210,119,238 | $195,681,315 | 7.4% | | Gross Profit | $23,917,299 | $23,375,007 | 2.3% | | Gross Margin | 11.4% | 11.9% | (0.5 p.p.) | | Income from Operations | $4,719,183 | $5,777,882 | (18.3)% | | Net Income | $6,638,488 | $7,478,936 | (11.2)% | Financial Performance Summary (FY2024 vs. FY2023) | Metric | FY 2024 | FY 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $195,681,315 | $169,724,346 | 15.3% | | Gross Profit | $23,375,007 | $29,430,927 | (20.6)% | | Gross Margin | 11.9% | 17.3% | (5.4 p.p.) | | Income from Operations | $5,777,882 | $823,839 | 601.3% | | Net Income (Loss) | $7,478,936 | $(8,048,822) | 192.9% | Liquidity and Capital Resources The company's liquidity is supported by cash and receivables but relies heavily on short-term and long-term debt financing - The company's short-term syndicated loans, totaling approximately $52.2 million as of March 31, 2025, have been extended to a new maturity date of March 31, 2026341342 Key Balance Sheet and Liquidity Metrics (as of March 31, 2025) | Metric | Amount | | :--- | :--- | | Cash | $4.8 million | | Accounts Receivable | $107.3 million | | Working Capital | $35.8 million | | Short-Term Borrowings | $57.9 million | | Long-Term Borrowings | $7.2 million | Cash Flow Summary (FY2023-FY2025) | Cash Flow Activity | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | Net cash from (used in) operating activities | $(598,739) | $1,911,955 | $(25,738,414) | | Net cash from (used in) investing activities | $(964,193) | $2,713,914 | $(743,271) | | Net cash from (used in) financing activities | $3,967,618 | $(1,781,306) | $12,745,818 | Item 6. Directors, Senior Management and Employees This section details the company's leadership, compensation, and board structure, highlighting its status as a "controlled company" - The board of directors consists of four members: Mei Kanayama (Representative Director), Youichiro Haga (Director and Corporate Officer), Yoji Takenaka (Independent Director), and Tetsuya Sato (Independent Director)378391 - For the fiscal year ended March 31, 2025, the aggregate compensation paid to all directors and senior management was approximately $404,868388 - The company operates as a company with a corporate auditor under the Japanese Companies Act, which is an alternative to having board committees like an audit committee392 Major Share Ownership | Shareholder | Beneficial Ownership (%) | | :--- | :--- | | Mei Kanayama | 58.05% | | Tokushin G.K. | 32.07% | | Grand Elec-Tech Limited | 6.31% | Item 7. Major Shareholders and Related Party Transactions This section outlines major shareholders and significant transactions with related parties, primarily controlled by the director's family - On June 30, 2023, the company sold its 100% interest in subsidiary Kaika International and its 40% interest in equity investment Palpito to DinnerBank, a related party416 - Mr. Mei Kanayama, the representative director, provides personal guarantees for certain company loans417 Sales to Related Parties (FY2023-FY2025) | Fiscal Year Ended | Total Sales to Related Parties | | :--- | :--- | | March 31, 2025 | $7,840,934 | | March 31, 2024 | $6,006,993 | | March 31, 2023 | $847,986 | Purchases from Related Parties (FY2023-FY2025) | Fiscal Year Ended | Total Purchases from Related Parties | | :--- | :--- | | March 31, 2025 | $10,494,954 | | March 31, 2024 | $445,980 | | March 31, 2023 | $202,516 | Item 8. Financial Information This section covers the company's dividend policy, noting no dividends have been paid, and outlines the legal framework for future distributions - The company has not declared or paid any cash dividends on its Ordinary Shares since its inception419 - Under the Japanese Companies Act, dividend distributions are made from the company's surplus and must generally be authorized by a resolution at a general meeting of shareholders423 Item 9. The Offer and Listing This section confirms the company's American Depositary Shares are listed and traded on the Nasdaq Stock Market under the symbol "TKLF" - The company's American Depositary Shares (ADSs) have been listed on the Nasdaq Stock Market under the trading symbol "TKLF" since January 18, 2022430431 Item 10. Additional Information This section provides supplementary details on corporate governance, exchange controls, and key tax implications for shareholders - The company's purpose includes a wide range of activities such as international business consulting, import/export, drugstore operations, logistics, and e-commerce438 - Japan's Foreign Exchange and Foreign Trade Act (FEFTA) governs the acquisition and holding of shares by non-residents and foreign investors443 - Dividends paid to non-resident holders are generally subject to a Japanese withholding tax rate of 20.42%, which can be reduced under applicable tax treaties451453 - For U.S. federal income tax purposes, U.S. Holders of ADSs are generally treated as owners of the underlying Ordinary Shares449465 Item 11. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to foreign exchange risk, credit risk from receivables, and interest rate risk on its borrowings - The company's primary market risk is foreign exchange risk due to its functional currency (JPY) differing from its reporting currency (USD)488 - Credit risk exists with cash deposits and accounts receivable, with $3.3 million in cash held in Japanese financial institutions as of March 31, 2025491 - The company has not used derivative financial instruments to hedge against interest rate or foreign currency risks490493 Item 12. Description of Securities Other Than Equity Securities This section details the terms of the company's American Depositary Shares (ADSs), including the ADS-to-share ratio and associated fees - Each American Depositary Share (ADS) represents 10 Ordinary Shares of the company, with The Bank of New York Mellon serving as the depositary496 Selected ADS Holder Fees | Fee | For | | :--- | :--- | | Up to $5.00 per 100 ADSs | Issuance or cancellation of ADSs | | Up to $0.05 per ADS | Any cash distribution | | Up to $0.05 per ADS per year | Depositary services | PART II Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds This section confirms that net proceeds of $3.4 million from a 2024 offering have been fully used for expansion and operations - In January 2024, the company completed a registered direct offering, raising net proceeds of $3,412,000507508 - The net proceeds from the offering were fully utilized for expanding overseas markets and for daily operations508 Item 15. Controls and Procedures Management concluded that disclosure and internal controls were not effective as of March 31, 2025, due to material weaknesses - Management concluded that disclosure controls and procedures were not effective as of March 31, 2025512 - Material weaknesses in internal control over financial reporting were identified, including insufficient accounting staff with U.S. GAAP/SEC knowledge and a lack of proper IT controls512514 - Remediation plans include hiring more qualified accounting personnel, implementing regular U.S. GAAP training, and improving IT environment and management513 Item 16. Corporate Governance and Other Disclosures This section covers governance practices, accountant fees, and the company's cybersecurity risk management framework - As a foreign private issuer, the company follows Japanese corporate governance practices, which differ from Nasdaq requirements regarding board independence and audit committees524525535 - The company has implemented a cybersecurity risk management framework, with oversight from the board of directors, and no material cybersecurity incidents were detected in the year ended March 31, 2025531532533 Principal Accountant Fees | Fiscal Year Ended | Audit Fees | | :--- | :--- | | March 31, 2025 | $379,634 | | March 31, 2024 | $627,249 | | March 31, 2023 | $599,150 | PART III Item 18. Financial Statements This section presents the company's audited consolidated financial statements and accompanying notes for the last three fiscal years Consolidated Financial Statements The financial statements show total assets of $157.8 million and net income of $6.6 million for the fiscal year ended March 31, 2025 Consolidated Balance Sheet Summary | (in USD) | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Total Assets | $157,830,185 | $141,997,159 | | Total Current Assets | $137,218,305 | $122,166,877 | | Total Liabilities | $114,816,155 | $105,954,375 | | Total Current Liabilities | $101,457,942 | $93,414,733 | | Total Shareholders' Equity | $43,014,030 | $36,042,784 | Consolidated Statement of Operations Summary | (in USD) | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | Total Revenue | $210,119,238 | $195,681,315 | $169,724,346 | | Income from Operations | $4,719,183 | $5,777,882 | $823,839 | | Net Income (Loss) | $6,638,488 | $7,478,936 | $(8,048,822) | | Basic EPS | $0.16 | $0.20 | $(0.22) | | Diluted EPS | $0.19 | $0.20 | $(0.22) | Notes to Consolidated Financial Statements The notes detail key accounting policies, revenue disaggregation, and significant financial events like tax rulings and debt guarantees - The company adopted the Current Expected Credit Loss (CECL) methodology under ASU 2016-13 on April 1, 2023, which did not have a material impact on the financial statements588 - The company's syndicated loans of approximately $52.2 million have a maturity date of March 2026 and are guaranteed by the representative director, Mr. Kanayama703708 - A tax examination by the Tokyo Regional Taxation Bureau was annulled by the National Tax Tribunal on February 12, 2025, leading to a recovery for the company677740 - On November 15, 2024, the company executed a reverse split of its ADSs by changing the ratio from one ADS per ordinary share to one ADS per 10 ordinary shares, with all per-ADS data retroactively restated755 Revenue Disaggregation by Geography (FY2025) | Geographic Area | Revenue (USD) | % of Total | | :--- | :--- | :--- | | Japan domestic market | $62,190,446 | 29.6% | | Hong Kong market | $104,685,311 | 49.8% | | The United States market | $19,515,109 | 9.3% | | Other overseas markets | $23,728,372 | 11.3% |