Reitar Logtech Holdings Limited(RITR) - 2025 Q4 - Annual Report

Part I - Corporate and Financial Information Item 3. Key Information Details the company's corporate structure, cash flow, reduced reporting status, and risks from PRC oversight and the HFCA Act - The company operates through a Cayman Islands holding company, Reitar Logtech Holdings Limited, with Hong Kong subsidiaries, explicitly avoiding a Variable Interest Entity (VIE) structure[20][22] - Cash transfers between the Cayman holding company and Hong Kong subsidiaries occur via capital contributions, loans, or dividends, with no current material impact from PRC laws[25][26][27] - Qualifies as an "emerging growth company" under the JOBS Act, enabling reduced reporting requirements and an extended transition for new accounting standards[30][31] - Despite Hong Kong operations, the company acknowledges risks from potential PRC government oversight that could materially impact operations and share value[33][36][37] - Auditor is subject to PCAOB inspection, but shares face delisting risk from Nasdaq under the HFCA Act if PCAOB cannot inspect auditors in mainland China or Hong Kong for two consecutive years[38][40][209] Risk Factors - Business risks include dependency on Hong Kong and global economic conditions, reliance on third-party suppliers, long sales cycles, and significant upfront capital expenditure for its 'rent-to-rent' model[44][45][47][49] - High customer concentration, with the top five customers accounting for 97.1% of total revenue in fiscal year 2025, poses a significant risk of losing major clients[72][92] - Identified internal control weaknesses include inadequate segregation of duties and a lack of U.S. GAAP-trained personnel, potentially impacting accurate financial reporting[114][115] - Jurisdictional risks arise from Hong Kong's legal system and potential PRC government oversight, which could materially alter operations or hinder securities offerings[159][162][169] - Shareholder risks include a dual-class share structure granting directors and principal shareholders 91.98% of total voting power, limiting Class A shareholder influence, and potential delisting under the HFCA Act[203][204][209] Item 4. Information on the Company Reitar Logtech offers comprehensive logistics solutions in Hong Kong via asset management and construction services, leveraging a PLT model, while facing high customer concentration and extensive local regulations - The business model provides end-to-end logistics solutions, connecting capital partners, operators, and technology, operating through Asset Management & Consultancy and Construction Management & Engineering segments[241][247] Financial Performance Snapshot (HK$) | Fiscal Year Ended March 31, | Revenue (HK$) | Net Income (HK$) | | :--- | :--- | :--- | | 2023 | 84.5 million | 63.6 million | | 2024 | 252.0 million | 19.6 million | | 2025 | 378.2 million | 2.4 million | - High customer concentration persists, with the top five customers accounting for 88.3%, 94.6%, and 97.1% of total revenue for fiscal years 2023, 2024, and 2025, respectively[283][72] - Operations are subject to extensive Hong Kong regulations, including the Buildings Ordinance, Public Health and Municipal Services Ordinance, and various environmental and safety laws[309][312][324] Item 5. Operating and Financial Review and Prospects Revenue grew 50.1% to HK$378.2 million in FY2025, but gross profit margin declined to 15.9% and net income fell to HK$2.4 million, with negative operating cash flow and strategic Bitcoin purchase plans Revenue by Service Segment (HK$) | Service Segment | FY 2023 (HK$) | FY 2024 (HK$) | FY 2025 (HK$) | | :--- | :--- | :--- | :--- | | Construction management and engineering design services | 79.0M | 238.0M | 362.9M | | Asset management and professional consultancy services | 5.5M | 14.0M | 15.2M | | Total Revenue | 84.5M | 252.0M | 378.2M | Key Financial Metrics Comparison | Metric | FY 2024 (HK$) | FY 2025 (HK$) | Change | | :--- | :--- | :--- | :--- | | Revenue | 252.0M | 378.2M | +50.1% | | Gross Profit | 64.1M | 60.1M | -6.2% | | Gross Profit Margin | 25.4% | 15.9% | -9.5 p.p. | | Net Income | 19.6M | 2.4M | -87.8% | | Net Cash from Operations | (18.7M) | (62.4M) | Worsened | - The significant decrease in gross profit margin in FY2025 was primarily due to higher subcontracting costs for a major automated cold chain warehouse project and increased material costs[414][416] - In June 2025, the company agreed to potentially purchase up to 15,000 BTC (valued at up to US$1.5 billion) by issuing ordinary shares, aiming for a digital asset reserve and supporting decentralized finance[357] - A discontinued subleasing business generated a one-time gain of HK$56.2 million in FY2023 from agreement termination and cold storage equipment transfer[360][422] Item 6. Directors, Senior Management and Employees Introduces the board and senior management, details their HK$7.3 million compensation, outlines key committees, and highlights the dual-class share structure concentrating 92% voting power with founders - The board comprises seven directors, including Chairman & CEO Kin Chung CHAN, President Hau Lim CHUNG, Chun Yip YIU, and four independent directors[522][532] - Aggregate cash compensation for all directors and executive officers totaled HK$7.3 million for the fiscal year ended March 31, 2025[536] - The company's dual-class share structure grants directors and executive officers 91.98% of total voting power, despite owning 71.60% of total share capital[559][204] - The board established Audit, Compensation, and Nomination and Corporate Governance Committees, each composed of independent directors[542][543][546][547] Item 7. Major Shareholders and Related Party Transactions Details related party transactions, including HK$12.6 million due from and HK$2.2 million due to related parties as of March 31, 2025, highlighting operational and financial interconnections Related Party Balances as of March 31, 2025 (HK$) | Balance Type | Amount (HK$) | Nature | | :--- | :--- | :--- | | Amount due from related parties | 12,602,227 | Unsecured, interest-free, non-trade | | Amount due to related parties | 2,167,267 | Unsecured, interest-free, non-trade | - In FY2025, significant related party transactions included HK$16.6 million in subcontracting costs to Smartmore LogTech International Group Limited and HK$1.0 million in revenue from Star Capital Investment Limited[570] - In FY2023, a HK$3.6 million management fee was paid to Kamui Group Development Limited, which ceased to be a related party after January 16, 2023, following its disposal by directors[570][571] Item 8. Financial Information Confirms inclusion of consolidated financial statements, absence of material legal proceedings, and the company's policy of retaining earnings for business expansion instead of paying dividends - The company has not declared or paid cash dividends and plans to retain earnings for business operations and expansion in the foreseeable future[575] - The company is not currently a party to any legal or administrative proceedings expected to have a material adverse effect on its business or financial condition[574] Item 10. Additional Information Outlines tax implications for investors, including no Cayman Islands taxes, Hong Kong profits tax rates, and the significant risk of Passive Foreign Investment Company (PFIC) classification for U.S. holders - The company, incorporated in the Cayman Islands, is not subject to profits, income, gains, or appreciation taxes, with no withholding tax on dividends paid to shareholders[589][590] - Hong Kong operating subsidiaries are subject to a 16.5% profits tax rate, with a two-tiered system applying 8.25% on the first HK$2 million of assessable profits[592] - There is a risk of classification as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which would result in significant adverse tax consequences for U.S. Holders[224][610][611] Item 11. Quantitative and Qualitative Disclosures About Market Risk Highlights significant customer and credit concentration risks, interest rate exposure from bank loans, minimal foreign currency risk due to HKD-USD peg, and geographical concentration in Hong Kong - Significant customer concentration risk exists, with two customers accounting for 61.5% and 23.5% of total revenue in fiscal year 2025[634] - As of March 31, 2025, two customers accounted for 64.5% and 12.3% of contracts receivable, and two customers accounted for 51.6% and 44.9% of contract assets, highlighting credit concentration[635][636] - The company is exposed to interest rate risk on its bank loans and balances, lacking an interest rate hedging policy[476][640] - Foreign currency risk is minimal due to primary exposure to the U.S. dollar and the Hong Kong dollar's peg to the USD[477][641] Part II - Compliance and Controls Covers internal controls, governance, and compliance, including acknowledged material weaknesses, audit committee expertise, a change in certifying accountant, and cybersecurity risk management - Identified inadequacies in internal control over financial reporting as of March 31, 2025, including poor segregation of duties and a lack of U.S. GAAP-trained personnel[652][653] - Mr. Ho Tung Armen HO is identified as the 'audit committee financial expert' on the board of directors[657] - Effective June 23, 2025, WWC, P.C. was dismissed as the independent registered public accounting firm, and Enrome LLP was appointed as the successor auditor[665] - Implemented a cybersecurity policy and risk management process, overseen by the associate director of business strategy and innovation technology, to identify, assess, and manage threats[673][675][676] Part III - Financial Statements and Exhibits Item 18. Financial Statements Presents audited consolidated financial statements for FY2023-2025, prepared under U.S. GAAP, including balance sheets, income statements, cash flows, and notes on accounting policies and risk exposures Consolidated Balance Sheet Summary (As of March 31, 2025) | Account | Amount (HK$) | Amount (US$) | | :--- | :--- | :--- | | Total Assets | 333,819,187 | 42,907,901 | | Total Current Assets | 278,865,899 | 35,844,405 | | Total Liabilities | 176,434,734 | 22,678,277 | | Total Current Liabilities | 176,434,734 | 22,678,277 | | Total Shareholders' Equity | 157,384,453 | 20,229,624 | Consolidated Statement of Income Summary (For the Year Ended March 31, 2025) | Account | Amount (HK$) | Amount (US$) | | :--- | :--- | :--- | | Total Revenue | 378,169,751 | 48,608,562 | | Gross Profit | 60,058,961 | 7,719,760 | | Income from Continuing Operation | 9,769,564 | 1,255,744 | | Net Income | 2,440,540 | 313,698 | | EPS (Basic and Diluted) | 0.13 | 0.02 | Consolidated Statement of Cash Flows Summary (For the Year Ended March 31, 2025) | Account | Amount (HK$) | Amount (US$) | | :--- | :--- | :--- | | Net cash used in operating activities | (62,354,617) | (8,014,834) | | Net cash used in investing activities | (8,749,679) | (1,124,652) | | Net cash provided by financing activities | 91,876,929 | 11,809,525 | | Net increase in cash | 20,772,633 | 2,670,039 | - Revenue recognition for primary services (construction management, engineering design, asset management, and consultancy) is based on the percentage-of-completion method, using contract costs incurred relative to total estimated costs[391][402][744]