Robot Consulting Co Ltd ADR(LAWR) - 2025 Q4 - Annual Report

Part I Key Information This section details significant risks to the company's business and stock, including operating losses, intense competition, and challenges in market adoption of its cloud-based software Risks Related to Our Business and Industry This section outlines key operational and industry-specific risks, including a history of operating losses, intense competition, and challenges in evaluating future performance due to discontinued services - The company has a history of operating losses and an accumulated deficit, leading to substantial doubt about its ability to continue as a going concern[26] Operating Loss and Accumulated Deficit (¥ thousands) | Fiscal Year Ended March 31, | 2025 (¥ thousands) | 2024 (¥ thousands) | 2023 (¥ thousands) | | :--- | :--- | :--- | :--- | | Operating Loss (¥ thousands) | 534,685 | 661,966 | 478,633 | | Accumulated Deficit (¥ thousands) | 1,782,485 | 1,247,800 | 585,834 | - The company has a limited operating history since 2020 and discontinued services that generated 48.48% of revenue in FY2024 and 81.48% in FY2023, making future performance difficult to evaluate[28][36] - The company faces intense competition from established players like Yayoi Co., Ltd. and freee K.K., who possess greater brand recognition and resources[29][30] - Plans to incorporate AI technologies like ChatGPT into products such as 'Robot Lawyer' introduce operational risks, including potential for inaccurate outputs, evolving regulations, and dependency on third-party AI providers[44][48] - Revenue is highly concentrated, with two customers accounting for 14.8% and 10.1% of FY2025 revenue, and one customer for 69.6% of FY2023 revenue[59] Risks Relating to the Trading Market This section highlights risks related to the company's stock, including concentrated ownership, material weaknesses in internal controls, and implications of its foreign private issuer and emerging growth company status - Share ownership is highly concentrated, with directors and executive officers beneficially owning approximately 61.91% of outstanding Ordinary Shares, granting them significant influence over corporate matters[96] - Multiple material weaknesses in internal control over financial reporting were identified as of March 31, 2024, including insufficient U.S. GAAP personnel and inadequate segregation of duties, leading to a restatement of FY2023 financials[101][104] - As a foreign private issuer, the company follows Japanese corporate governance practices, which may offer less shareholder protection than Nasdaq standards for U.S. domestic issuers[112][131] - Classified as an "emerging growth company," the company uses an extended transition period for new accounting standards, potentially complicating financial comparisons with other public companies[135] - There is a risk of classification as a Passive Foreign Investment Company (PFIC), which could result in adverse U.S. federal income tax consequences for U.S. taxpayers holding its shares[136][137] Information on the Company Robot Consulting, incorporated in 2020, provides HR solutions with plans to expand into legal technology and the metaverse, leveraging its "Labor Robot" system and strategic partnerships History and Development of the Company This section outlines the company's foundational milestones, including its incorporation, share splits, and recent Initial Public Offering on the Nasdaq Capital Market - Robot Consulting was incorporated in Tokyo, Japan on April 17, 2020[142] - The company executed a 1-for-1000 share split on February 5, 2024, and a 1-for-6 share split on January 7, 2025, increasing total outstanding shares to 42,210,000[143][144] - The company closed its Initial Public Offering (IPO) of 3,750,000 ADSs at $4.00 per ADS on July 18, 2025, with trading on Nasdaq under the symbol "LAWR" beginning July 17, 2025[145] Business Overview This section details the company's core product, "Labor Robot," its strategic shifts, and growth initiatives including U.S. market entry and AI-driven legal tech development, supported by a marketing strategy leveraging government subsidies - The company's main product is "Labor Robot," a cloud-based human resource management system launched in September 2022, assisting with HR, accounting, and government grant applications[151] Labor Robot User Growth | As of | Cumulative Users | New Users (During FY) | CAGR | | :--- | :--- | :--- | :--- | | Mar 31, 2023 | 261 | 261 | 261% | | Mar 31, 2024 | 483 | 222 | 85% | | Mar 31, 2025 | 536 | 53 | 11.0% | - The company discontinued several services, including e-commerce and advertising, to focus on Labor Robot, with discontinued services accounting for 48.48% of FY2024 revenue and 81.48% of FY2023 revenue[154] - Growth strategies include U.S. legal tech market expansion with CJK Group for "Junior Lawyer X" and launching "Robot Lawyer" in Japan, a metaverse-based legal Q&A service using ChatGPT's API[160][161] - Marketing heavily relies on assisting customers with Japanese government subsidy applications (e.g., METI, MHLW grants) to reduce the effective cost of products and services[197][199] Operating and Financial Review and Prospects FY2025 saw a slight revenue decrease to ¥675.6 million and a narrowed net loss to ¥534.7 million, while FY2024 experienced a 729% revenue surge but a widened net loss due to IPO expenses Operating Results This section analyzes the company's revenue and net loss trends, highlighting the impact of discontinued services, software revenue growth, and the effect of IPO-related expenses on profitability Comparison of Operations (FY2025 vs. FY2024, ¥ thousands) | Metric | FY 2025 (¥ thousands) | FY 2024 (¥ thousands) | Change (YoY %) | | :--- | :--- | :--- | :--- | | Total Revenue | 675,561 | 693,104 | (2.5)% | | Software Revenue | 150,971 | 75,125 | 101.0% | | Consulting Revenue | 524,590 | 617,979 | (15.1)% | | Gross Profit | 671,625 | 673,256 | (0.2)% | | Total Operating Expenses | 1,205,799 | 1,325,054 | (9.0)% | | Net Loss | (534,685) | (661,966) | (19.2)% | - Total revenue decreased by 2.5% in FY2025 due to discontinued e-commerce services, partially offset by a 101.0% increase in software revenue from Labor Robot user growth[254] Comparison of Operations (FY2024 vs. FY2023, ¥ thousands) | Metric | FY 2024 (¥ thousands) | FY 2023 (¥ thousands) | Change (YoY %) | | :--- | :--- | :--- | :--- | | Total Revenue | 693,104 | 83,597 | 729.1% | | Gross Profit | 673,256 | 12,975 | 5,088.9% | | Total Operating Expenses | 1,325,054 | 480,992 | 175.5% | | Net Loss | (661,966) | (478,633) | 38.3% | - Significant revenue growth in FY2024 was driven by new e-learning and e-commerce services, but net loss increased by 38.3% due to a 256.5% rise in SG&A expenses from IPO preparation costs[261][263] Liquidity and Capital Resources This section reviews the company's cash position and cash flow trends, highlighting a decrease in cash and a shift from financing inflows to outflows, reflecting ongoing operational losses - Cash and cash equivalents decreased from ¥471.6 million as of March 31, 2024, to ¥112.0 million as of March 31, 2025[267] Cash Flow Summary (¥ thousands) | Cash Flow | FY 2025 (¥ thousands) | FY 2024 (¥ thousands) | FY 2023 (¥ thousands) | | :--- | :--- | :--- | :--- | | From Operating Activities | (283,019) | (317,058) | (133,764) | | From Investing Activities | (13,051) | (8,888) | (10,571) | | From Financing Activities | (63,566) | 346,419 | 307,373 | - Net cash used in operating activities decreased in FY2025 to ¥283.0 million from ¥317.1 million in FY2024, primarily due to a lower net loss[270] - Financing activities resulted in a net cash outflow of ¥63.6 million in FY2025, a significant shift from the ¥346.4 million inflow in FY2024, driven by stock issuance proceeds[272] Directors, Senior Management and Employees The company's leadership includes Chairman Hidetoshi Yokoyama and CEO Amit Thakur, with ¥55.4 million in FY2025 compensation and 61.91% share ownership concentrated with the Chairman - The leadership team includes Hidetoshi Yokoyama (Founder, Representative Director, Chairman), Amit Thakur (Director, CEO), and Yukio Aida (Director, CFO)[280][281][282][283] Aggregate Compensation for FY2025 | Group | Compensation (¥) | Compensation (USD Approx.) | | :--- | :--- | :--- | | Executive Officers & Directors | 55.4 million | 370,000 | | Corporate Auditors | 6.2 million | 41,000 | - On February 6, 2024, the board approved issuing stock options for 2,268,000 Ordinary Shares at an exercise price of ¥200 per share, vesting on February 7, 2026[295] - Chairman Hidetoshi Yokoyama beneficially owns 28,452,000 Ordinary Shares, representing 61.91% of the company, with Stella MIC Investment Ltd. holding 5.22%[308] Major Shareholders and Related Party Transactions This section details major shareholders, including Chairman Hidetoshi Yokoyama, and related party transactions such as a repaid loan from the Chairman and payments to entities controlled by a former director - Major shareholders are detailed in Item 6.E, with Hidetoshi Yokoyama identified as the controlling shareholder[313] - On May 26, 2025, the company executed a loan agreement with Chairman Hidetoshi Yokoyama for ¥46.6 million (approximately $311,000) for working capital, which was fully repaid by July 2025 with a 0.9% interest rate[316] - In prior fiscal years, the company engaged in transactions with entities controlled by its former CFO, including payments for advertising services to Clustar, Inc. (¥2.19 million in FY2024) and consulting services to Samulion Factory, Inc. (¥9.79 million in FY2024 and ¥2.04 million in FY2023)[315] Financial Information This section presents consolidated financial statements, details a legal proceeding with ZESTO Consulting LLC for ¥19.47 million, and confirms no dividends have been paid or are expected - The company is involved in a legal proceeding with ZESTO Consulting LLC, with a Tokyo District Court ordering payment of ¥19.47 million (approximately $136,000) plus interest, and the case is currently under appeal[321] - The company has not declared or paid any cash dividends since inception and does not expect to in the foreseeable future, retaining funds for business operations and growth[322] Additional Information This section outlines regulatory and tax considerations for investors, including Japan's FEFTA, Japanese taxation on dividends and capital gains, and potential U.S. federal income tax consequences related to PFIC status - Under Japan's Foreign Exchange and Foreign Trade Act (FEFTA), foreign investors acquiring Ordinary Shares must generally file prior notification with Japanese authorities due to the company's operations in designated sectors like software[118][247][337] - For non-resident holders, dividends are generally subject to a Japanese withholding tax of 15.315% (until Dec 31, 2037), potentially reduced to 10% for U.S. portfolio investors under tax treaties[355][357] - There is a risk of classification as a Passive Foreign Investment Company (PFIC) for U.S. tax purposes, potentially leading to adverse tax consequences for U.S. holders, including higher tax rates on distributions and gains[376][378] - If classified as a PFIC, U.S. holders may consider a "mark-to-market" election if the stock is marketable, but the company does not intend to provide information for a "qualified electing fund" (QEF) election[381][384] Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure is limited, with minimal currency and interest rate risks, and inflation has not had a material impact to date - Currency Risk: The company is relatively insulated from foreign exchange risk as nearly all transactions are conducted in Japanese yen[394] - Inflation Risk: While not material to date, future inflation could adversely affect operating results if price increases do not offset increased expenses[395] - Interest Rate Risk: The company has not been exposed to material risks from interest rate changes, holding cash in bank deposits with no significant interest-bearing investments[396] Part II Controls and Procedures Management concluded that disclosure controls were ineffective as of March 31, 2024, due to material weaknesses in internal control, leading to a restatement of FY2023 financials - Management concluded that disclosure controls and procedures were not effective as of March 31, 2024, due to multiple material weaknesses in internal control over financial reporting[413] - Identified material weaknesses include insufficient financial reporting and accounting personnel with U.S. GAAP knowledge and inadequate segregation of duties within key financial processes[413][415] - An accounting error was identified in the prior period financial statements (as of March 31, 2023) due to these weaknesses, requiring a restatement[414] - As of the annual report date, the identified material weaknesses have not been rectified[416] Corporate Governance As a foreign private issuer, the company follows Japanese corporate governance practices, differing from Nasdaq standards in board independence, audit committee structure, and compensation/nomination committees - The company is a "foreign private issuer" and follows Japanese law and corporate practice in lieu of certain Nasdaq corporate governance standards (Nasdaq Rule 5600)[426][427] - Key differences from Nasdaq rules include no majority independent directors, a board of corporate auditors instead of an independent audit committee, and no separate independent compensation or nomination committees[427] Cybersecurity The company manages cybersecurity risks through a comprehensive policy and an information security committee, with no material incidents detected in FY2025 - The company has adopted a comprehensive information security policy and established an information security committee to manage cybersecurity risks[431][432] - Board oversight is delegated to the information security committee, comprising the Chief Technology Officer and Chief Executive Officer, among others[435] - In FY2025, no cybersecurity incidents were detected that materially affected the company's business, strategy, or financial condition[433] Part III Financial Statements Audited financial statements for FY2023-2025, prepared under U.S. GAAP, show a net loss of ¥534.7 million in FY2025 and an accumulated deficit of ¥1.78 billion, with the auditor expressing going concern doubt Report of Independent Registered Public Accounting Firm This section presents the independent auditor's report, which includes an explanatory paragraph expressing substantial doubt about the company's ability to continue as a going concern - The auditor's report includes an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern, citing operating losses and accumulated deficit[450] Financial Statements This section provides key financial statement highlights, including balance sheet figures showing a total shareholders' deficit and statement of operations figures detailing revenue and net loss trends Balance Sheet Highlights (¥ thousands) | As of March 31, | 2025 (¥ thousands) | 2024 (¥ thousands) | | :--- | :--- | :--- | | Total Assets | 313,972 | 743,545 | | Total Liabilities | 965,357 | 860,245 | | Total Shareholders' Deficit | (651,385) | (116,700) | Statement of Operations Highlights (¥ thousands) | For the Fiscal Year Ended March 31, | 2025 (¥ thousands) | 2024 (¥ thousands) | 2023 (¥ thousands) | | :--- | :--- | :--- | :--- | | Revenue | 675,561 | 693,104 | 83,597 | | Gross Profit | 671,625 | 673,256 | 12,975 | | Net Loss | (534,685) | (661,966) | (478,633) | | Net loss per share (basic and diluted) | (12.7) | (16.1) | (12.3) | Notes to Financial Statements This section details the company's going concern dependency on revenue and financing, disaggregates revenue by service type, and outlines significant subsequent events including the IPO and a short-term loan - The company's ability to continue as a going concern depends on attracting revenue-generating customers and securing additional financing, given its history of operating losses and an accumulated deficit of ¥1.78 billion as of March 31, 2025[468][469] Revenue Disaggregation by Major Source (¥ thousands) | Revenue Source | FY 2025 (¥ thousands) | FY 2024 (¥ thousands) | FY 2023 (¥ thousands) | | :--- | :--- | :--- | :--- | | Sales of Software | 150,971 | 75,125 | 15,481 | | Consulting and Support Services | 524,590 | 617,979 | 12,156 | | Advertising Services | — | — | 39,960 | | Outsourcing Services | — | — | 16,000 | | Total | 675,561 | 693,104 | 83,597 | - Subsequent to the balance sheet date, the company completed its IPO on July 18, 2025, raising net proceeds of $13.37 million, and executed a short-term loan of ¥46.6 million from its Chairman, which was fully repaid[568][569]