Earlyworks Co., Ltd. Reports Financial and Operational Performance for the Six Months Ended October 31, 2024

Rhea-AI Summary

Earlyworks (NASDAQ: ELWS), a Japanese blockchain technology solutions provider, reported its financial results for the six months ended October 31, 2024. The company saw revenue increase by JPY 170,039 thousand, with gross profit up by JPY 81,193 thousand and reduced net losses by JPY 74,789 thousand compared to 2023.

Key developments include the completion of their proprietary Grid Ledger System (GLS) in December 2023, which has gained recognition for its high processing speed. The company expanded services across multiple industries including telecommunications, transportation, and IT services.

Financial highlights:

• Total revenue reached JPY 224,984 thousand
• Software development revenue increased by JPY 212,888 thousand
• NFT sales decreased by JPY 48,865 thousand
• Cash position stands at JPY 243,979 thousand
• Total shareholder's equity decreased to JPY 220,559 thousand

Positive

• Revenue increased by JPY 170,039 thousand
• Net loss decreased by JPY 74,789 thousand
• Software development revenue up by JPY 212,888 thousand
• Operating expenses reduced by JPY 37,395 thousand

Negative

• NFT sales declined by JPY 48,865 thousand
• Shareholder equity decreased by JPY 110,166 thousand
• Company still operating at a net loss
• Cost of revenue increased by JPY 88,846 thousand

Insights

Financial Analyst

Earlyworks' interim results reveal a substantial 309% revenue increase to JPY 224,984 thousand, primarily driven by their Grid Ledger System (GLS) Development Kit. This growth represents a promising commercialization of their blockchain platform following years of R&D investment. However, this topline improvement must be viewed alongside concerning financial indicators.

Despite reducing net losses by JPY 74,789 thousand, the company's shareholder equity declined 33% to JPY 220,559 thousand, revealing significant ongoing cash burn. With only JPY 243,979 thousand in cash and restricted cash, runway concerns emerge if profitability isn't achieved soon.

The company's strategic pivot from NFTs (revenue down JPY 48,865 thousand) to enterprise blockchain services (JPY 212,888 thousand increase) aligns with market realities. The operational reorganization with new COO and CDO appointments suggests a shift from product development to commercialization, but adds overhead costs during a critical financial period.

Cost discipline is evident in reduced general/administrative (-JPY 23,293 thousand) and R&D expenses (-JPY 23,239 thousand), though increased marketing spend (+JPY 10,753 thousand) indicates continued growth investment. The fundamental question remains whether GLS can generate sufficient adoption to overcome the inherent scaling limitations of project-based services and achieve sustainable profitability.

Technology Expert

Earlyworks' Grid Ledger System (GLS) appears to be gaining traction in the Japanese corporate market, with management reporting recognition for its high processing speed across multiple industries. The successful transition from R&D to commercialization is evident in the 387% increase in software and system development services revenue.

The company's blockchain approach demonstrates pragmatism by focusing on specific enterprise applications rather than speculative use cases. The declining NFT revenue (-JPY 48,865 thousand) reflects broader market corrections, while their enterprise blockchain focus shows greater sustainability potential.

The reduced R&D spending (-JPY 23,239 thousand) likely signals the completion of core GLS development, though maintaining technological advantage will require ongoing innovation investment. The appointment of a Chief Design Officer highlights awareness that enterprise blockchain adoption depends not just on performance metrics but on user experience - a factor often overlooked by technically-focused blockchain projects.

Their cross-industry client approach spanning telecommunications, transportation, food/beverage, real estate, and IT services demonstrates GLS's versatility. However, the collaboration strategy for expanding adoption may involve revenue-sharing arrangements that could dilute financial returns. The real value proposition for Earlyworks depends on whether GLS can deliver measurable business improvements beyond the initial implementation phase - something many enterprise blockchain projects have struggled to demonstrate.

TOKYO, March 03, 2025 (GLOBE NEWSWIRE) -- Earlyworks Co., Ltd. (NASDAQ: ELWS) (the “Company”), a Japanese provider of blockchain technology solutions, today announced its financial results for the six months ended October 31, 2024.

For the six months ended October 31, 2024, the Company’s revenue increased by approximately JPY 170,039 thousand, gross profit increased by approximately JPY 81,193 thousand and net loss decreased by approximately JPY 74,789 thousand, as compared to the same period in 2023.

Management Commentary

In July 2023, the Company was successfully listed on Nasdaq. After years of research and development aimed at improving the applicability for blockchain technology, we completed the development of our proprietary blockchain platform, the “Grid Ledger System (GLS),” in December 2023. The GLS has been acknowledged for its high processing speed by multiple corporate clients.

With our listing and the development of GLS as key milestones, we have gained the opportunity to provide services, including system planning, development, consultation, and maintenance, to clients in a variety of industries, such as telecommunications, transportation infrastructure, food and beverage, real estate, entertainment, and IT services. Centered on GLS, we believe our solutions have the potential to go beyond the traditional contract-based development models, and can serve as the foundation for a business model that closely supports corporate clients and their operations. Currently, we are preparing for a full-scale expansion in this area.

Additionally, to accelerate the growth of Web3-related businesses in Japan, we are actively promoting business alliances and collaborations in new ventures to expand the adoption of GLS. Through these initiatives, we aim to enhance GLS’s reliability and market competitiveness, and deliver greater value to a broader range of customers.

Following our listing, we have also focused on strengthening our organizational structure. In November 2024, we appointed a Chief Operating Officer (COO), responsible for driving our business operations. This appointment improves our ability in sales activities and the creation of new business opportunities leveraging GLS to further expand our business. Simultaneously, we established a Chief Design Officer (CDO) role to enhance our creative and design capabilities. The CDO oversees unified UX and UI design, aiming to elevate the user experience of GLS and other technologies.

Moving forward, we believe the collaboration between the COO and CDO will enable us to execute business strategies and deliver customer value in tandem. Our efforts will extend beyond conventional business models to develop innovative business frameworks powered by GLS. Our ultimate goal is not only to provide cutting-edge technology but also to contribute to the overall development of the Web3 industry and the realization of a sustainable society in collaboration with our corporate clients.

As we strive to drive technological innovation centered on GLS, we aim to strengthen our presence in the Web3 industry and advance as a trusted partner committed to enhancing the value of our corporate clients.

EARLYWORKS CO., LTD.
UNAUDITED INTERIM CONDENSED STATEMENTS OF OPERATIONS

	For the six months ended October 31, 2023			For the six months ended October 31, 2024			For the six months ended October 31, 2024
	JPY			JPY			USD
OPERATING REVENUES
Software and system development services	4,812,000			217,699,635			1,428,944
Consulting and solution services	1,267,620			7,284,000			47,811
Sale of NFTs	48,864,935			-			-
TOTAL OPERATING REVENUES	54,944,555			224,983,635			1,476,755
COST OF REVENUES	(3,336,792	)		(92,182,568	)		(605,071	)
GROSS PROFIT	51,607,763			132,801,067			871,684
OPERATING EXPENSES:
Selling and marketing expenses	(27,077,415	)		(37,830,288	)		(248,312	)
General and administrative expenses	(200,231,599	)		(176,938,483	)		(1,161,395	)
Share-based compensation expenses	(1,616,463	)		-			-
Research and development expenses	(44,821,606	)		(21,583,147	)		(141,668	)
TOTAL OPERATING EXPENSES	(273,747,083	)		(236,351,918	)		(1,551,375	)
LOSS FROM OPERATIONS	(222,139,320	)		(103,550,851	)		(679,691	)
Gain (loss) on digital assets, net	(167,879	)		81,900			538
Interest expenses, net	(1,789,278	)		(1,184,561	)		(7,775	)
Foreign exchange gain (loss), net	38,823,264			(6,768,200	)		(44,425	)
Government grants	-			1,255,000			8,238
Other income, net	129,617			1,100			7
LOSS BEFORE INCOME TAXES	(185,143,596	)		(110,165,612	)		(723,108	)
Provision for income taxes
Current	-			-			-
Deferred	188,496			-			-
Total provision for income taxes	188,496			-			-
NET LOSS	(184,955,100	)		(110,165,612	)		(723,108	)
LOSS PER SHARE
Basic	(12.77	)		(7.31	)		(0.05	)
Diluted	(12.77	)		(7.31	)		(0.05	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING*
Basic	14,478,530			15,076,900			15,076,900
Diluted	14,478,530			15,076,900			15,076,900

The accompanying notes are an integral part of these unaudited interim condensed financial statements.

EARLYWORKS CO., LTD.
UNAUDITED INTERIM CONDENSED BALANCE SHEETS

		As of April 30, 2024			As of October 31, 2024			As of October 31, 2024
		JPY			JPY			USD
					(Unaudited)			(Unaudited)
ASSETS
CURRENT ASSETS:
Cash		337,911,102			212,493,024			1,394,769
Time deposit		100,000,000			-			-
Digital assets		44,662			116,854			767
Accounts receivable, net		40,711,929			28,309,600			185,819
Contract assets		40,359,303			37,233,604			244,395
Prepayments		8,227,532			58,066,704			381,140
Short-term deposits		3,096,509			3,096,509			20,325
Income tax receivable		325			-			-
Other current assets, net		39,600			3			-
TOTAL CURRENT ASSETS		530,390,962			339,316,298			2,227,215
Property and equipment, net		1,319,884			1,085,713			7,126
Operating lease right-of-use assets		11,711,000			7,607,963			49,937
Long-term deposits		657,740			657,740			4,317
Restricted cash		31,486,253			31,486,253			206,671
TOTAL ASSETS		575,565,839			380,153,967			2,495,266
LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES:
Bank loans – current portion, net		119,189,500			15,807,000			103,755
Other payables and accrued liabilities		65,573,842			73,011,094			479,230
Operating lease liabilities, current		8,239,009			6,911,713			45,367
Contract liabilities		-			2,404,025			15,780
Deferred income		-			20,000,000			131,277
TOTAL CURRENT LIABILITIES		193,002,351			118,133,832			775,409
Bank loans – non-current, net		49,063,000			41,461,000			272,143
Operating lease liabilities, non-current		2,775,741			-			-
TOTAL LIABILITIES		244,841,092			159,594,832			1,047,552
COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY:
Ordinary shares, 55,300,000 shares authorized; 13,839,400 and 15,076,900 shares issued and outstanding as of April 30, 2023 and 2024		50,000,000			50,000,000			328,192
Additional paid-in capital		2,210,480,581			2,210,480,581			14,509,226
Accumulated deficit		(1,929,755,834	)		(2,039,921,446	)		(13,389,704	)
TOTAL SHAREHOLDERS’ EQUITY		330,724,747			220,559,135			1,447,714
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		575,565,839			380,153,967			2,495,266

The accompanying notes are an integral part of these unaudited interim condensed financial statements.

Total revenue for the six months ended on October 31, 2024, increased by approximately JPY 170,039 thousand from approximately JPY 54,945 thousand in the same period in 2023 to approximately JPY 224,984 thousand.

Revenue from software and system development services increased by approximately JPY 212,888 thousand mainly due to the launch of the System Development Kit package for GLS, and revenue from consulting and solution services also increased by approximately JPY 6,016 thousand mainly due to collaborations with large Japanese corporations and increase in the associated consulting and solution services. On the other hand, revenue from sales of NFTs decreased by approximately JPY 48,865 thousand as there was a decrease in demand in the NFT market in the six-months ended October 31, 2024.

Cost of revenue increased by approximately JPY 88,846 thousand from approximately JPY 3,337 thousand in the same period in 2023 to approximately JPY 92,183 thousand, primarily due to the significant increase in revenue of JPY 170,039 thousand as described above.  

Total operating expenses decreased by approximately JPY 37,395 thousand from approximately JPY 273,747 thousand in the same period in 2023 to approximately 236,352 thousand. The main reasons contributing to the decrease were the decrease in general and administrative expenses of approximately JPY 23,293 thousand and in research and development expenses of approximately JPY 23,239 thousand, partially offset by the increase in selling and marketing expenses of approximately JPY 10,753 thousand. The decrease in general and administrative expenses was primarily due to decreased recruiting and training expenses, outsourcing fees, and taxes and public dues (taxes and public charges). The decrease in research and development expenses was primarily because the Company was dedicated to the research and development of GLS in the six-months ended October 31, 2023, which was a strategic decision made by the Company’s management to contribute to its future business. On the other hand, the increase in selling and marketing expenses was primarily due to increased advertising and promotion expenses.

As of October 31, 2024, the Company had approximately JPY 243,979 thousand in cash and restricted cash and the total shareholder’s equity decreased by approximately JPY 110,166 thousand due to net loss for the six months ended October, 31, 2024 from approximately JPY 330,725 thousand as of April 30, 2024 to approximately JPY 220,559 thousand as of October 31, 2024.

About Earlyworks Co., Ltd.

Company Overview: Earlyworks Co., Ltd.
Earlyworks Co., Ltd. is a Japanese company operating its proprietary private blockchain technology, GLS, to leverage blockchain technology in various applications in a wide range of industries. GLS is a hybrid blockchain that combines the technical advantages of blockchain and database technology. GLS features high-speed processing, which can reach 0.016 seconds per transaction, tamper-resistance, security, zero server downtime, and versatile applications. The applicability of GLS is verified in multiple domains, including real estate, advertisement, telecommunications, metaverse, and financial services. The Company’s mission is to keep updating GLS and make it an infrastructure in the coming Web3/metaverse-like data society.

Company Name: Earlyworks Co., Ltd.
Location: 3F MR Building, 5-7-11 Ueno, Taito-ku, Tokyo
Representative: Seiya Kobayashi, CEO
Business Description: Development and provision of next-generation blockchain systems, including the proprietary GLS (Grid Ledger System), and blockchain-based system solutions
Establishment: May 2018
Website: https://e-arly.works/
For Media Inquiries:
Earlyworks Co., Ltd.
E-Mail: ew-ir@e-arly.works

Forward-Looking Statements
Certain statements in this announcement are forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on the Company’s current expectations and projections about future events that the Company believes may affect its financial condition, results of operations, business strategy and financial needs. Investors can find many (but not all) of these statements by the use of words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “will,” “would,” “should,” “could,” “may,” or other similar expressions. The Company undertakes no obligation to update or revise publicly any forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review other factors that may affect its future results in the Company’s registration statement and other filings with the U.S. Securities and Exchange Commission.

FAQ

How much did Earlyworks (ELWS) revenue increase in the six months ending October 2024?

Earlyworks' revenue increased by JPY 170,039 thousand, reaching JPY 224,984 thousand total revenue.

What caused the revenue growth for ELWS in the latest financial period?

The growth was mainly driven by the launch of GLS System Development Kit and increased collaborations with large Japanese corporations.

How did ELWS's NFT sales perform in the six months ending October 2024?

NFT sales decreased by JPY 48,865 thousand due to reduced demand in the NFT market.

What is the current cash position of ELWS as of October 31, 2024?

ELWS reported JPY 243,979 thousand in cash and restricted cash.

How has ELWS's shareholder equity changed in the latest reporting period?

Shareholder equity decreased by JPY 110,166 thousand to JPY 220,559 thousand due to net losses.