SEC Form 20-F filed by Warrantee Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from to

Commission file number: 001-41433

Warrantee Inc.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Japan

(Jurisdiction of incorporation or organization)

1103, Kitahama Craft

2-4-1 Doshomachi, Chuo-ku

Osaka City, Osaka 541-0045, Japan

+81(0)6-6227-8775

(Address of principal executive offices)

Yusuke Shono, Chief Executive Officer

Telephone: +81(0)6-6227-8775

Email: [email protected]

At the address of the Company set forth above

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

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* Not for trading, but only in connection with the registration of the American depositary shares on The Nasdaq Stock Market LLC. Each American depositary share represents one common share.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 22,404,000 common shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☐ No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

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If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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INTRODUCTION

In this annual report on Form 20-F, unless the context otherwise requires, references to:

This annual report on Form 20-F includes our audited consolidated financial statements for the fiscal years ended March 31, 2023, 2022, and 2021. Our functional currency and reporting currency is the Japanese yen. Convenience translations included in this annual report of Japanese yen into U.S. dollars have been made at the exchange rate of JPY132.75 = $1.00, which was the foreign exchange rate on March 31, 2023 as reported by the Board of Governors of the Federal Reserve System (the “U.S. Federal Reserve”) in its weekly release on April 3, 2023. Historical and current exchange rate information may be found at https://www.federalreserve.gov/releases/h10/20230403/.

On October 12, 2021, we effected a 1,500-for-one forward split of all issued and outstanding shares. All historical share amounts and share price information presented in this annual report have been proportionally adjusted to reflect the impact of the forward split.

On November 29, 2022, we effected a two-for-one forward split of all our issued and outstanding shares. All historical share amounts and share price information presented in this annual report have been proportionally adjusted to reflect the impact of the forward split.

We have made rounding adjustments to some of the figures included in this annual report. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them.

Non-GAAP Financial Measures

In addition to U.S. GAAP measures, we use Non-GAAP EBITDA and Non-GAAP EBITDA Margin as described under “Item 5. Operating and Financial Review and Prospects—Non-GAAP Financial Measures” in various places in this annual report. These financial measures are presented as supplemental disclosure and should not be considered in isolation of, as a substitute for, or superior to, the financial information prepared in accordance with U.S. GAAP, and should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this annual report. Non-GAAP EBITDA and Non-GAAP EBITDA Margin may differ from similarly titled measures presented by other companies.

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Part I

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

Item 3. KEY INFORMATION

The following table sets forth our cash and cash equivalents, debt, and capitalization as of March 31, 2023:

Not applicable.

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Risks Related to Our Company and Our Business

We have a limited operating history applying our trinity model to conduct campaigns for corporate sponsors upon which investors can evaluate our future prospects.

We started to apply our trinity model to conduct campaigns for corporate sponsors in 2018. We have a limited operating history, in this respect, upon which an evaluation of our business plan or performance and prospects can be made. The business and prospects of our Company must be considered in light of the potential problems, delays, uncertainties, and complications encountered in connection with a newly established business model. The risks include:

To successfully introduce and market our services at a profit, we must establish goodwill and brand name recognition among the public so that potential customers of our corporate sponsors will agree to participate in the campaigns we conduct for our corporate sponsors to gather relevant customer data or market our corporate sponsors’ products and services. There are no assurances that we can successfully address these challenges and, if unsuccessful, we and our business, financial condition, and operating results could be materially and adversely affected.

We have operated on a leanly staffed, labor efficiency maximized model thus far. As we expect to expand our services and increase the number of campaigns we will conduct for our corporate sponsors, the future expense levels of our business will be based largely on estimates of planned operations and future revenue. It is difficult to accurately forecast future revenue because both our business and our business models are new to the market and are still developing. If our forecasts prove incorrect, the business, operating results, and financial condition of the Company may be materially and adversely affected. Moreover, we may be unable to adjust our spending in a timely manner to compensate for any unanticipated reduction in revenue. As a result, any significant reduction in planned or actual revenue may immediately and adversely affect our business, financial condition, and operating results.

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We may need additional financing to execute our business plan and fund operations, which additional financing may not be available on reasonable terms or at all.

As of March 31, 2023, we had total assets of JPY266,560 thousand (approximately $2,008 thousand) and a working capital deficit of JPY156,354 thousand (approximately $1,178 thousand). As of the date of this annual report, we believe we need a minimum of JPY951,985 thousand (approximately $7,171 thousand) in order to fund our presently forecasted working capital requirements over the next 12 months. We believe that the net proceeds of our initial public offering will be sufficient to fund our presently forecasted business plan and scale-up operations over, at least, the 12 months following the date of this annual report. However, as a result of certain factors presently unforeseen, we may require additional capital over the next 12 months, the receipt of which there can be no assurance. In addition, unless we are able to successfully scale our operations and achieve meaningful cash flow from operations, we will require additional capital in order to fund the continued development of our trinity business model following the 12-month period after the date of this annual report. We will endeavor to acquire any additional required funds through various financing sources, including borrowings under our existing loans from financial institutions, the private and public sale of our equity and debt securities, and other third-party financings. In addition, we will consider alternatives to our current business plan that may enable us to achieve meaningful cash flow from operations with a smaller amount of capital. However, there can be no guaranty that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations.

We have incurred losses from operations during the fiscal years ended March 31, 2022 and 2021. Our ability to continue as a going concern depends on our being able to generate revenue significant enough to result in operating profitability.

We have a history of recurring losses, including a loss from operations of JPY89,842 thousand (approximately $677 thousand) and JPY27,754 thousand (approximately $209 thousand) for the fiscal years ended March 31, 2022 and 2021, respectively. This operating loss has resulted in an accumulated deficit of JPY470,605 thousand (approximately $3,545 thousand), JPY511,908 thousand (approximately $3,856 thousand), and JPY414,828 thousand (approximately $3,125 thousand) as of March 31, 2023, 2022, and 2021, respectively.

If we are unable to generate enough revenue to result in operating profitability in the future, there may be substantial doubt about our ability to continue as a going concern and, therefore, investors or other financing sources may be unwilling to provide funding to us on commercially reasonable terms, or at all. Further, if we are unable to continue as a going concern, we may have to discontinue operations and liquidate our assets and may receive less than the value at which those assets are carried on our audited financial statements, which could cause our investors to lose all or part of their investment.

We face intense competition in the field of marketing, advertising, and market research services, which is likely to intensify further as existing competitors devote additional resources to, and new participants enter, the market. If we cannot compete successfully, we may be unable to increase our revenue or sustain profitability.

We face significant competition from providers of advertising, marketing, and market research services, including market data analysis service providers such as online sentiment and survey companies, product analytics companies, marketing analytics companies, point solution vendors offering usability research tools, research services firms, and panel aggregators, many of whom have significantly more resources than we do. Competition is based on, among other things, rates, availability of markets, quality of products and services provided and their effectiveness, audience coverage, and other factors. The development of new devices and technologies, as well as higher consumer engagement with other forms of digital media, such as online and mobile social networking, are increasing the number of media choices and formats available to audiences, resulting in audience fragmentation and increased competition. Our current and potential competitors may develop and market new technologies, products, or services that render our existing or future services less competitive or obsolete.

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Most of our competitors have longer operating histories, larger customer bases, greater brand recognition and market penetration, higher margins on their products and services, and substantially greater financial, technological, and research and development resources and selling and marketing capabilities. As a result, they may be able to respond more quickly to changes in customer requirements, devote greater resources to the development, promotion, and sale of their products and services than we do, or sell their products and services at prices designed to win significant levels of market share. We may not be able to compete effectively against these organizations. In addition, for cost-saving or other reasons, our customers, which are often large consumer goods manufacturers, may decide to conduct directed marketing or market data research in-house. Increased competition and cost-saving initiatives on the part of corporate sponsors are likely to result in pricing pressures, which could harm our sales, profitability, or ability to gain market share.

We had a limited number of customers accounting for a substantial portion of our revenue in fiscal years ended March 31, 2023, 2022, and 2021, respectively. We have not generated revenue from any customer on a recurring basis, and our efforts in expanding our customer base, increasing average contract value, and generating recurring revenue may not be successful, which makes us vulnerable to a near-term severe financial loss.

We have derived a substantial portion of our revenue from a limited number of customers. For the fiscal year ended March 31, 2021, more than 80% of the consolidated revenue was derived from two customers. In the fiscal year ended March 31, 2022, we received revenue from one corporate sponsor, Paygene Co., Ltd. (“Paygene”), a sales agency for medical devices. In May 2022, we acquired three new corporate sponsors, Beauken Co., Ltd. (“Beauken”), Connect Plus Co., Ltd. (“Connect Plus”), and Y’s Inc. We completed the marketing campaigns for Beauken and Connect Plus in May 2023 and completed the marketing campaign for Y’s Inc. in November 2023. There are inherent risks whenever a large percentage of total revenue is concentrated with a limited number of customers. We have not yet established a recurring customer base that provides us with an ongoing sustainable source of revenue sufficient to cover our operating expenses, which makes us vulnerable to the risk of a near-term severe financial impact if we are unable to secure new revenue generating customer contracts. We will need to develop new campaigns and engage new customers to maintain or increase our service revenue, and there is no assurance that we can do so at a cost-effective manner. In addition, our customers have been concentrated in certain market sectors, such as durables, non-prescription medical treatments and devices, and supplements. If our customers or prospective customers reduce their marketing expenditure because they experience declining or delayed revenue due to market, economic, or competitive conditions, or for other reasons, we could be pressured to reduce the prices we charge for our services or we may not be able to efficiently expand our customer base, which could have an adverse effect on our profit margins and financial position, and could negatively affect our revenue and results of operations and/or trading price of the ADSs.

As our sponsored marketing or market research services have been primarily provided on a campaign basis, revenue from our customers has fluctuated based on the number of the campaigns we may be engaged to conduct for corporate sponsors and the average contract value, which represents the average sponsorship amount from campaigns, during a reporting period, which may be affected by our corporate sponsors’ needs, market conditions, or other factors, some of which may be outside of our control. Our bargaining leverage is often limited with our large manufacturer customers, and we may not be able to obtain the pricing and other terms favorable to us when entering into service contracts with them.

We have not generated recurring revenue from any customer after a campaign designed for such customer has been completed. While we plan to increase our services and revenue by developing and conducting more campaigns for new customers, expanding our service to customers in various industries and markets, increasing campaigns in the market sectors where sponsors are willing to pay a higher fee, and leveraging the relationships we established with our past customers to market additional services to them, there is no guarantee that such efforts to maintain and increase our revenue will be successful or that we can grow our business and revenue cost effectively.

We are not a licensed insurer and depend on third-party insurance companies to provide product insurance or other insurance necessary for our campaigns. Although we have been able to obtain insurance policies used in our past campaigns from multiple providers on competitive terms, there is no guarantee that we may not become dependent on one or a few insurance companies for any special policies needed for our future campaigns.

We are not a licensed insurer and do not provide any insurance that requires a regulatory license. In order to avoid the requirement to obtain an insurance license in Japan, we typically offer to participant users insurance coverage of no more than JPY100,000 (approximately $753). We have used insurance companies to provide certain product insurance and medical insurance policies to cover our business or the participant users in our campaigns. Although we have been able to obtain insurance policies from multiple sources on competitive terms in the past, there may be only a limited number of insurance companies providing the types of insurance policies we may need to use in our future campaigns. In such cases, we may have only limited bargain power and may not be able to obtain our needed insurance policies at an acceptable price, which could limit our ability to increase our profit margin in those campaigns.

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If we fail to retain our Chief Executive Officer or attract and retain additional qualified personnel, we may not be able to pursue our growth strategy.

Our future success will depend upon the continued service of our Chief Executive Officer, Mr. Yusuke Shono. We have leveraged his relationships in our business development activities and in obtaining financing for our operations. See “—As a controlled company, we have relied on our Chief Executive Officer to provide guarantees for our corporate loans from financial institutions and for the lease of our corporate headquarters. We have also historically received short-term loans from our Chief Executive Officer and his wholly owned companies to fund our working capital needs. We may not be able to find alternative financing sources on terms equal to or better than those obtained from our Chief Executive Officer, which could adversely impact our ability to secure necessary financing in the future.” The loss of his services could have a material adverse effect on our business, operations, revenue, or prospects. We do not currently maintain key man life insurance on the life of our Chief Executive Officer. In order to implement our growth plans and continue to grow our business, we also need to recruit additional qualified personnel, such as marketing and sales personnel. If we are not able to recruit such qualified personnel as and when needed, or if the labor costs for such additional personnel exceed the additional revenue we can generate, our growth prospects and profit margins will be harmed.

Our success greatly depends upon our ability to generate and maintain goodwill with the public so that potential customers of our corporate sponsors will be willing to participate in the campaigns we design for our corporate sponsors. If we or our corporate sponsors fail to provide satisfactory products and services to our participant users, our brand image may be tarnished and our financial results and prospects for growth may be adversely affected, and we could also incur liability for recommending our sponsors’ products.

Our ability to provide our marketing campaign services to our corporate sponsors greatly depends on our ability to attract an adequate number of users who are within our corporate sponsors’ target customer base to provide data to us or participate in trials or meetings facilitating the sale of our corporate sponsors’ products or services. We sometimes access these users through third-party partners, such as clinics, for our corporate sponsors in the commercial healthcare vertical arena. While most of the corporate sponsors we work with are large reputable manufacturers in Japan, we cannot guarantee that any products and services they provide to the users who participate in our campaigns are free of defect or error or will meet the participant users’ satisfaction each time. In our past campaign for a supplement supplier, we recommended our sponsor’s preventative care supplements to participant users whose gene test results suggested they may need certain micronutrients. We may also make recommendations of our sponsors’ products in future campaigns we design and conduct for other corporate sponsors. We could incur liability in these campaigns and legal costs in defending litigation if our sponsors’ products cause any negative effect on the participant users.

We have developed and offered the Warrantee app that can be installed and used on a mobile phone to streamline the process for users who participate in certain of our campaigns in the durables vertical to provide data to us and to claim product repair service or replacement. Enhancements to our app may not be introduced in a timely or cost-effective manner, may contain errors or defects, and may have interoperability difficulties with users’ devices. If our participant users believe that utilizing our app to participate in our campaigns or claim product repair service or replacement would be overly time-consuming, confusing, or technically challenging, then our ability to use the app to facilitate our campaigns would be substantially harmed.

If we are not able to provide a positive experience and create value to our participant users, we may not be able to establish goodwill among users to attract an adequate number of users targeted by our corporate sponsors to participate in our campaigns or to promote sales of our sponsors’ products in such campaigns, and thus limiting our ability to market our services to corporate sponsors and expand our revenue.

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We rely on a combination of patent, trademark, trade secret, and other intellectual property rights and measures to protect our intellectual property. Our patents may expire and may not be extended, our patent applications may not be granted, and our patent rights may be contested, circumvented, invalidated, or limited in scope. As a result, our patent rights may not protect us effectively. In particular, we may not be able to prevent others from developing and deploying competing technologies, which could have a material and adverse effect on our business, financial condition, results of operations, and prospects.

To establish and protect our proprietary rights, we rely on a combination of patents, trademarks, confidentiality policies and procedures, non-disclosure agreements with third parties, employee non-disclosure agreements, and other contractual and implicit rights worldwide. As of the date of this annual report, we have three registered patents for the system underlying our business model for us to serve as an intermediary between sponsors, insurance companies, and users and in such role, providing insurance for the users upon terms agreed by the sponsors, and nine registered trademarks and other names and logos used by our Company as trademarks with the Japan Patent Office. Such patents and trademarks are not registered in any other jurisdiction except that Warrantee has been registered in the European Union, the United Kingdom, and Singapore. The success of our business strategy depends on our continued ability to use our existing intellectual property to increase brand awareness and develop our branded services. If our efforts to protect our intellectual property are not adequate or if any third-party misappropriates or infringes on our intellectual property, whether in print, on the Internet, or through other media, the value of our brands may be harmed, which could have a material adverse effect on our business, including the failure of our brands and branded services to achieve and maintain market acceptance. There can be no assurance that all of the steps we have taken to protect our intellectual property in Japan or outside Japan in relevant foreign countries will be adequate. In addition, in light of our intention to expand internationally, the laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of Japan. If any of our patents, trademarks, trade secrets, or other intellectual property are infringed, our business, financial condition, and results of operations could be materially adversely affected.

In addition, third parties may assert infringement or misappropriation claims against us, or assert claims that our rights in our trademarks, and other intellectual property assets are invalid or unenforceable. Any such claims could have a material adverse effect on us if such claims were to be decided against us. If our rights in any intellectual property were invalidated or deemed unenforceable, it could permit competing uses of intellectual property which, in turn, could lead to a decline in business and other revenue. If the intellectual property became subject to third-party infringement, misappropriation, or other claims, and such claims were decided against us, we may be forced to pay damages, be required to develop or adopt non-infringing intellectual property, or be obligated to acquire a license to the intellectual property that is the subject of the asserted claim. There could be significant expenses associated with the defense of any infringement, misappropriation, or other third-party claims.

We rely on information technology, and any material failure, weakness, interruption, or breach of security could prevent us from effectively operating our business.

We rely significantly on information systems, including the collection of participant user data and processing of product insurance claims on our Warrantee app. Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of the information systems. Failures of these systems to operate effectively, maintenance problems, or a breach in security of these systems could result in delays in user service and reduce efficiency in our operations.

We collect, store, process, and use personal information and other user data, which subjects us to governmental regulation and other legal obligations related to privacy, information security, and data protection, and any security breaches or our actual or perceived failure to comply with such legal obligations could harm our business.

We collect, store, process, and use personal information and other data of users participating in our campaigns via electronic means or manually, and we may use third parties that are not directly under our control to do so. In our campaigns we may gather participant users’ personal data, including, among other information, names, addresses, phone numbers, email addresses, payment account information, height, weight, and information such as heart rates, sleeping patterns, and activity patterns. Due to the types of the personal information and data we collect and the nature of our services, our data safety measures and the security features of our app and information systems are critical. If our security measures, some of which we manage using third-party solutions, are breached or fail, unauthorized persons may be able to obtain access to or acquire our participant users’ data. Furthermore, if third-party service providers that host participant users’ data on our behalf experience security breaches or violate applicable laws, agreements, or their policies, such events may also put our participant users’ information at risk and could in turn have an adverse effect on our business. Additionally, if we or any third party, including third-party service providers, were to experience a breach of systems compromising our participant users’ personal data, our brand and reputation could be adversely affected, use of our services could decrease, and we could be exposed to a risk of loss, litigation, and regulatory proceedings.

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Depending on the nature of the information compromised, in the event of a data breach or other unauthorized access to or acquisition of our participant users’ data, we may also have obligations to notify participant users about the incident and we may need to provide some form of remedy, such as a subscription to a credit monitoring service, for the individuals affected by the incident. A growing number of legislative and regulatory bodies have adopted user notification requirements in the event of unauthorized access to or acquisition of certain types of personal data. Such breach notification laws continue to evolve in Japan. Complying with these obligations could cause us to incur substantial costs and could increase negative publicity surrounding any incident that compromises participant users’ data. Given the limited amount of user data we have collected, we do not currently carry insurance coverage that is designed to address aspects of cyber risks, and we will have to pay for all losses or all types of claims that may arise in the event we experience a security breach. In addition, any such security breaches may result in negative publicity, adversely affect our brand, decrease demand for our services, and adversely affect our operating results and financial condition.

Failure to comply with relevant laws and regulations, including those relating to the processing, safekeeping, and use of personal data and the insurance licensing requirements could harm our business, financial condition, or results of operations, and any change in laws and regulations may adversely affect our ability to grow our business.

We are subject to various laws and government regulations, including those relating to the processing, safekeeping, and use of personal data and the Insurance Business Act of Japan (Act No. 105 of 1995, as amended) (the “Insurance Business Act”), in respect of each of which the relevant regulators in Japan have a broad discretion to interpret the relevant laws and regulations. Although we have implemented policies and procedures and business models designed to comply with these laws, there can be no assurance that our employees, contractors, agents, or other third parties will not take actions in violation of our policies or applicable law. Any such violations or suspected violations could subject us to civil or criminal penalties, including substantial fines and significant investigation costs, and could also materially damage our reputation, brands, international expansion efforts, and growth prospects, business, financial condition, and results of operations. Publicity relating to any noncompliance or alleged noncompliance as well as interpretation of such laws and regulations by the relevant regulators could also harm our reputation and adversely affect our business, financial condition, or results of operations. Any change in the laws and regulations as well as interpretation of such laws and regulations by the relevant regulators applicable to us may also adversely affect our ability to grow our business, including by greatly increasing the costs for ensuring compliance with the new laws and regulations.

In addition to the expenses and risk of regulatory compliance, certain government regulations may inhibit our ability to develop and pursue certain corporate sponsorships. For example, we are subject to Japan’s insurance regulations. In our campaigns, if we enter into an insurance contract with a licensed insurer where the participant users are insured and the participant users directly receive insurance proceeds from the licensed insurer, we are not subject to any coverage amount limitation since our activities would not be regarded as “insurance business.” However, if we enter into an insurance contract with the licensed insurer where we are insured and we receive the insurance proceeds from the licensed insurer (which are distributed to the participant users from us), we may be required to obtain an insurance business license, since our activities would be regarded as “insurance business” pursuant to the Insurance Business Act, as interpreted by the Financial Services Agency of Japan. In such case, we would incur the resulting costs and burdens of the additional regulatory compliance, unless we limit the maximum amount of insurance coverage we may provide to a participant user in such campaigns to be no more than JPY100,000 (approximately $753). In addition, as the Financial Services Agency of Japan has broad discretion as to the interpretation of the Insurance Business Act, it may amend the detailed requirements under the interpretation (including the amount of the minimum coverage) in the future. Such amendment may require us to adjust our business model, which may harm our revenue prospectus or increase our compliance costs.

All of our revenue has been generated in Japan, but an increase of our international presence could expose us to fluctuations in foreign currency exchange rates, or a change in monetary policy may harm our financial results.

Our functional currency and reporting currency is the Japanese yen. All of our revenue has been generated in Japan, but an increase in our international presence could expose us to fluctuations in foreign currency exchange rates. We are subject to the effects of exchange rate fluctuations with respect to any of these currencies which, among other factors, may be influenced by governmental policies and domestic and international economic and political developments. If our non-Japanese revenue increases substantially in the future, any significant change in the value of the currencies of the countries in which we do business against the Japanese yen could adversely affect our financial condition and results of operations due to translational and transactional differences in exchange rates.

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Moreover, we do not take actions to manage our foreign currency exposure, such as entering into hedging transactions.We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the amount of our revenue that will be generated in other countries, the variability of currency exposures, and the potential volatility of currency exchange rates.

Our long-term success depends, in part, on our ability to expand our services to customers located outside of Japan and our future expansion of our international operations exposes us to risks that could have a material adverse effect on our business, operating results, and financial condition.

We have not provided any service or generated any revenue from customers located outside Japan but expect to do so as part of our growth strategy. We intend to focus our international expansion initially on other Asian countries, particularly Taiwan and Singapore. Our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to the particular challenges of supporting a business in an environment of multiple cultures, customs, legal systems, regulatory systems, and commercial infrastructures. International expansion will require us to invest significant funds and other resources. Our operations in international markets may not develop at a rate that supports our level of investment. Expanding internationally may subject us to new risks that we have not faced before or increase risks that we currently face, including risks associated with:

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Our international operations may be subject to foreign governmental laws and regulations, which vary substantially from country to country. Further, we may be unable to keep up to date with changes in government laws and regulations as they change over time. Failure to comply with these laws and regulations could result in adverse effects to our business. Although we have implemented policies and procedures designed to ensure compliance with these laws and regulations and our internal policies, there can be no assurance that all of our employees, contractors, partners, and agents will comply with these laws and regulations or our internal policies. Violations of laws or regulations by our employees, contractors, partners, or agents could result in litigation, regulatory action, costs of investigation, delays in revenue recognition, delays in financial reporting, financial reporting misstatements, fines, or penalties, any of which could have an adverse effect on our business, operating results, and financial condition.

As a controlled company, we have relied on our Chief Executive Officer to provide guarantees for our corporate loans from financial institutions and for the lease of our corporate headquarters. We have also historically received short-term loans from our Chief Executive Officer and his wholly owned companies to fund our working capital needs. We may not be able to find alternative financing sources on terms equal to or better than those obtained from our Chief Executive Officer, which could adversely impact our ability to secure necessary financing in the future.

As a controlled company, we have relied on our Chief Executive Officer’s business relationships and financial support in our operations. Mr. Shono is the guarantor of all our outstanding corporate loans from financial institutions and our lease for our corporate headquarters. We have also historically received short-term loans from our Chief Executive Officer and his wholly owned companies to fund our working capital needs. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Transactions with Our Chief Executive Officer and His Wholly-Owned Companies.” If Mr. Shono’s ownership interest in us declines significantly in the future, we may not be able to receive the same level of financial support from Mr. Shono. See “—Our Chief Executive Officer has entered into an agreement with another shareholder that may obligate our Chief Executive Officer to effect a transaction that may be unfavorable to our shareholders and our Company.” Although we expect Mr. Shono to continue to support our growth and development through his role with our Company, Mr. Shono does not have any contractual obligation to provide any operational, financial, or other support to us other than those under the existing guarantees. Our inability to secure additional financing in the future on equal or better terms could be limited and, in such event, could adversely affect our business and operations.

Our Chief Executive Officer has entered into an agreement with another shareholder that may obligate our Chief Executive Officer to effect a transaction that may be unfavorable to our shareholders and our Company.

A share pledge agreement (the “Share Pledge Agreement”) was executed on February 19, 2020, among Hack Osaka Investment Limited Partnership (“Hack”), our Chief Executive Officer, Mr. Shono, and ZENY Inc. (“ZENY”), a company wholly owned and controlled by Mr. Shono, in connection with a pledge to Hack of an aggregate of 1,737,000 Common Shares held by ZENY and Mr. Shono. The pledge was established as security for the joint and several liability of ZENY and Mr. Shono to pay for the repurchase of the Common Shares acquired by Hack under a share purchase agreement executed among Hack, ZENY, and Mr. Shono on March 29, 2019. The Share Pledge Agreement was supplemented on March 31, 2020 and further amended on March 31, 2022. ZENY was dissolved and liquidated in 2021 and is no longer a party to the Share Pledge Agreement, as supplemented and amended.

Under the terms of the Share Pledge Agreement, as supplemented and amended, the outstanding balance due to Hack as of March 31, 2022 was confirmed as JPY193,390,450 (approximately $1,456,802) as the aggregate principal balance. To release the pledge, Mr. Shono is required, to pay (a) by March 31, 2023, the outstanding aggregate principal balance of JPY193,390,450 (approximately $1,456,802) in a lump sum payment, and (b) monthly installments (equal monthly installments of JPY2,360,000 (approximately $17,778) from April 30, 2022 to February 28, 2023, and JPY2,275,005 (approximately $17,138) on March 31, 2023. If Mr. Shono fails to make any payment under (a) or (b), he is required to use his best efforts to assist Hack in selling the pledged shares to third parties by means of a public offering of the pledged shares or other means of acquisition. Pursuant to the provisions of the agreement, the aforementioned share pledge has been registered on the shareholder registry of the Company. Mr. Shono and Hack are currently in the process of amending the Share Pledge Agreement to extend the outstanding balance due date to March 31, 2024. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Share Pledge Agreement.”

We have no control over whether Mr. Shono may repay the lump sum payment to Hack on a timely basis. If Mr. Shono fails to make the payment and the pledged shares are required to be sold in a public offering or by other means at a price lower than the prevailing market price, the consequences of such transaction may not be favorable to our other shareholders and may adversely affect the market price of our shares.

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Our articles of incorporation exculpate our directors and corporate auditors from certain liability to us or our shareholders.

Our articles of incorporation include limitation of liability provisions, pursuant to which we can exempt, by resolution of our board of directors, our directors and corporate auditors from liabilities arising in connection with any failure to execute their respective duties in good faith or due to simple negligence (excluding gross negligence and willful misconduct), within the limits stipulated by applicable Japanese laws and regulations. We have also entered into a limitation of liability agreement with each of our directors and corporate auditors, except our Chief Executive Officer and Chief Financial Officer. With certain exceptions, these agreements provide for indemnification for related expenses, including attorneys’ fees, judgments, fines, and settlement amounts incurred by any of these directors and corporate auditors in connection with any action, proceeding, or investigation in those capacities. We have not entered into any limitation of liability agreement with our Chief Executive Officer or Chief Financial Officer, as Article 427 of the Companies Act of Japan (the “Companies Act”) does not allow companies to enter into limitation of liability agreements with executive directors (gyomu-shikko-torishimariyaku).

The limitation on liability provided by our articles of incorporation and the limitation of liability agreements with our non-executive directors and corporate auditors may reduce the likelihood of derivative litigation against directors and corporate auditors and may discourage or deter our shareholders from suing them based upon breaches of their duties to us. Successful claims for indemnification by our non-executive directors and corporate auditors may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Risks Relating to Our Common Shares and the Trading Market

The sale or availability for sale of substantial amounts of the ADSs could adversely affect their market price.

Sales of substantial amounts of the ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of the ADSs and could materially impair our ability to raise capital through equity offerings in the future. As of the date of this annual report, 22,404,000 of our Common Shares are issued and outstanding. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of the ADSs.

Our board of directors may determine the number of Common Shares to be issued as equity compensation from time to time, and the future issuance of additional Common Shares in connection with such issuances or in other transactions may adversely affect the market of the ADSs.

We from time to time may grant equity-based compensation in the form of stock options or other equity incentives to our directors, internal corporate auditors, employees, and external consultants. The number of Common Shares to be issued for such purpose may be determined by our board of directors without any further action or approval of our shareholders, subject to certain exceptions. As of March 31, 2023, 2,073,000 Common Shares were issuable upon exercise of outstanding stock options at a weighted average exercise price of JPY55.20 per share. If and when these options are exercised for our Common Shares, the number of Common Shares outstanding will increase. Such an increase in our outstanding securities, and any sales of such shares, could have a material adverse effect on the market for the ADSs, and the market price of the ADSs.

We currently plan to continue granting stock options and other incentives so that we can continue to secure talented personnel in the future. Any Common Shares to be issued as equity-based compensation, the exercise of outstanding stock options, or in other transactions, including future financing transactions, would dilute the percentage ownership held by our current shareholders.

If securities or industry analysts do not publish research or reports about our business, or if they publish a negative report regarding the ADSs, the price of the ADSs and trading volume could decline.

Any trading market for the ADSs may depend in part on the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade us, the price of the ADSs would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of the ADSs and the trading volume to decline.

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The market price of the ADSs may be volatile or may decline regardless of our operating performance.

From the listing of the ADSs on Nasdaq on July 25, 2023 to the date of this annual report, the closing price of the ADSs has ranged from $0.26 to $4.30 per ADS. The trading price of the ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in Japan that have listed their securities in the United States.

In addition to market and industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our own operations, including the following:

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

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We have identified deficiencies that could aggregate to a material weakness in our internal control over financial reporting. If our remediation of these deficiencies is not effective, or if we identify additional material weaknesses or control deficiencies in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results in a timely manner or prevent fraud, which may adversely affect investor confidence in our Company.

We used to be a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, in preparing our consolidated financial statements as of and for the fiscal year ended March 31, 2023, we have identified certain deficiencies resulting from multiple audit adjustments that could aggregate to a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected on a timely basis. Our Chief Executive Officer and Chief Financial Officer concluded that our internal controls over financial reporting were deficient primarily due to (i) a lack of manpower in our accounting department, which may reduce the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and (ii) failure to timely file our annual reports on Form 20-F for the fiscal years ended March 31, 2023 and 2022. The primary deficiencies related to audit adjustments are due to this shortage of staff within our internal accounting department, in addition to the burdens of reporting under U.S. GAAP. As of March 31, 2023, we did not have an effective internal control in place to monitor the progress of all aspects of our SEC reporting and disclosure requirements to timely identify delays, resulting in us being unable to timely meet our reporting and disclosure requirements with the SEC. We are re-evaluating our internal procedures to reduce delays in our future periodic and current reports and plan to adopt certain remedial measures to this effect, including, but not limited to, adopting formal internal policies and guidance on the monitoring of our SEC reporting and disclosure requirements and holding regular training sessions for our internal accounting staff related to SEC reporting and U.S. GAAP requirements. However, the implementation of these measures may not fully address the material weakness in our internal control over financial reporting. Our failure to correct the material weakness or our failure to discover and address any other material weaknesses or control deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations, and prospects, as well as the trading price of the ADSs, may be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly hinders our ability to prevent fraud.

In addition, once we cease to be an “emerging growth company,” as such term is defined in the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act,” in April 2029, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated, or reviewed, or if it interprets the relevant requirements differently from us. In addition, as a public company, our reporting obligations may place a significant strain on our management, operational, and financial resources and systems for the foreseeable future. We may be unable to complete our evaluation testing and any required remediation in a timely manner.

The requirements of being a public company may strain our resources and divert management’s attention.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations has nonetheless increased and will continue to increase our legal, accounting, and financial compliance costs and investor relations and public relations costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things, that we file annual reports and reports of foreign private issuer with respect to our business and operating results as well as proxy statements.

As a result of disclosure of information in the Form 20-F and in filings required of a public company, our business and financial condition are more visible, which we believe may result in an increased likelihood of threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation, and results of operations.

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Being a public company and these new rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors and executive officers.

We were not in compliance with our periodic reporting obligation under the Exchange Act by failing to file our annual reports on Form 20-F for the fiscal years ended March 31, 2023 and 2022 on a timely basis. In the event that we become delinquent with our SEC reporting obligation again, we may not be able to provide up-to-date disclosure to the public market, the ADSs may be considered highly risky or worthless, and the ADSs may be delisted from Nasdaq.

We have become subject to periodic reporting obligations under the Exchange Act since June 30, 2022, when our registration statement on Form F-1, as amended (File No. 333-265511), was declared effective by the SEC. As a reporting company and a foreign private issuer, the prescribed deadline for us to file our annual report on Form 20-F for the fiscal year ended March 31, 2023 was July 31, 2023, which annual report we did not file until January 31, 2024; the prescribed deadline for us to file our annual report on Form 20-F for the fiscal year ended March 31, 2022 was July 31, 2022, which annual report we did not file until June 16, 2023.

Such failure to satisfy our periodic reporting obligation represents a deficiency in our internal controls over financial reporting. See also “—We have identified deficiencies that could aggregate to a material weakness in our internal control over financial reporting. If our remediation of these deficiencies is not effective, or if we identify additional material weaknesses or control deficiencies in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results in a timely manner or prevent fraud, which may adversely affect investor confidence in our Company.”

Further, any failure by us to comply with our SEC reporting obligation in the future may materially and adversely affect investors’ investment in the ADSs. For instance, in the event that we fail to timely file any periodic reports or current reports, we may not be able to provide up-to-date disclosure to the public market, and the ADSs may be considered highly risky or even worthless as a result. Additionally, under Nasdaq Listing Rule 5250(c)(1), a foreign private issuer listed on Nasdaq is required to timely file all required periodic financial reports with the SEC. See “—We are currently not in compliance with the continued listing requirements of Nasdaq. As a result, the ADSs may be delisted, which could negatively impact the price of the ADSs and your ability to sell them.” In the event that the ADSs are delisted from Nasdaq, the value and liquidity of investors’ investment in the ADSs will be materially and adversely affected. Failure to comply with reporting obligation will also render us ineligible to use Form F-3 for registration of securities offered by us.

Our Chief Executive Officer owns a majority of our Common Shares and can exercise significant influence on the Company’s activities, thereby limiting a shareholder’s ability to influence our business and affairs.

Yusuke Shono, our Chief Executive Officer and a director, beneficially owns approximately 76.0% of the outstanding Common Shares. Consequently, Mr. Shono is able to control key corporate decisions, thus limiting the ability of the holders of the ADSs to influence matters affecting our Company. As a shareholder, Mr. Shono may be able to influence the outcome of matters submitted to shareholders for approval, including amendments of our organizational documents, issuance of additional Common Shares, approval of any merger, sale of assets, or other major corporate transactions. This may prevent or discourage unsolicited acquisition proposals or offers for our Common Shares or ADSs that you may feel are in your best interest as one of our shareholders. Circumstances may occur in which the interests of our Chief Executive Officer could be in conflict with your interests or the interests of other shareholders. Accordingly, a shareholder’s ability to fully influence our business and affairs through voting its Common Shares may be limited.

We plan to adopt a related party transaction policy, which will require that all related party transactions that meet the disclosure requirements set forth in Item 404 of Regulation S-K under the Securities Act be disclosed to and approved by all our board of corporate auditors. We expect that, with the adoption of the related party transaction policy and a more active role to be played by our board of auditors in reviewing and monitoring related party transactions, proper controls will be put in place to safeguard the Company’s interests in any related party transactions. However, given the influence of Mr. Shono on our corporate matters, including his ability to control the election of our directors due to his controlling stake in the Company, there is no guarantee that our future related party transactions involving Mr. Shono will be carried out on an arms’ length basis or on terms that are most favorable to us and our shareholders.

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As a foreign private issuer, we have followed home country practice even though we are considered a “controlled company” under Nasdaq corporate governance rules, which could adversely affect our public shareholders.

Our largest shareholder, Mr. Yusuke Shono, owns more than a majority of the voting power of our outstanding Common Shares. Under the Nasdaq corporate governance rules, a company of which more than 50% of the voting power is held by an individual, group, or another company is a “controlled company” and may elect not to comply with certain Nasdaq corporate governance standards, including the requirements that:

As a foreign private issuer, however, Nasdaq corporate governance rules allow us to follow corporate governance practice in our home country, Japan, with respect to appointments to our board of directors and committees. We have followed home country practice as permitted by Nasdaq rather than relying on the “controlled company” exception to the corporate governance rules. See “—Because we are a foreign private issuer and have taken advantage of exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer.” Accordingly, you would not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

We do not intend to pay dividends on our Common Shares for the foreseeable future.

We currently intend to retain most, if not all, of our available funds and any future earnings to fund the operation, development, and growth of our business and, as a result, we do not expect to declare or pay any dividends in the foreseeable future. Therefore, you should not rely on an investment in the ADSs as a source for any future dividend income. Accordingly, the return on your investment in the ADSs will likely depend entirely upon any future price appreciation of the ADSs. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in the ADSs and you may even lose your entire investment in the ADSs.

Rights of shareholders under Japanese law may be different from rights of shareholders in other jurisdictions.

Our articles of incorporation and the Companies Act govern our corporate affairs. Legal principles relating to matters such as the validity of corporate procedures, directors’ and executive officers’ fiduciary duties, and obligations and shareholders’ rights under Japanese law may be different from, or less clearly defined than, those that would apply to a company incorporated in any other jurisdiction. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the law of other countries. For example, under the Companies Act, only holders of 3% or more of our total voting rights or our outstanding shares are entitled to examine our accounting books and records. Furthermore, there is a degree of uncertainty as to what duties the directors of a Japanese company may have in response to an unsolicited takeover bid, and such uncertainty may be more pronounced than that in other jurisdictions.

As holders of ADSs, you may have fewer rights than holders of our Common Shares and must act through the depositary to exercise those rights.

The rights of shareholders under Japanese law to take actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records, and exercising appraisal rights, are available only to shareholders of record. ADS holders are not shareholders of record. The depositary, through its custodian agents, is the record holder of our Common Shares underlying the ADSs. ADS holders will not be able to bring a derivative action, examine our accounting books and records, or exercise appraisal rights through the depositary.

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Holders of ADSs may exercise their voting rights only in accordance with the provisions of the deposit agreement. If we instruct the depositary to ask for your voting instructions, upon receipt of voting instructions from the ADS holders in the manner set forth in the deposit agreement, the depositary will make efforts to vote the Common Shares underlying the ADSs in accordance with the instructions of the ADS holders. The depositary and its agents may not be able to send voting instructions to ADS holders or carry out their voting instructions in a timely manner. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast, or for the effect of any such vote. As a result, holders of ADSs may not be able to exercise their right to vote.

The right of holders of ADSs to participate in any future rights offerings may be limited, which may cause dilution to their holdings and holders of ADSs may not receive cash dividends if it is impractical to make them available to them.

We may, from time to time, distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make any such rights available to the ADS holders in the United States unless we register such rights and the securities to which such rights relate under the Securities Act or an exemption from the registration requirements is available. In addition, the deposit agreement provides that the depositary bank will not make rights available to ADS holders unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act.

The depositary has agreed to pay ADS holders the cash dividends or other distributions it or the custodian receives on our Common Shares or other deposited securities after deducting its fees and expenses. However, because of these deductions, ADS holders may receive less, on a per share basis with respect to their ADSs than they would if they owned the number of shares or other deposited securities directly. ADSs holders will receive these distributions in proportion to the number of Common Shares the ADSs represent. In addition, the depositary may, at its discretion, decide that it is not lawful or practical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property and ADS holders will not receive such distribution.

ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

The deposit agreement governing the ADSs representing our Common Shares provides that, to the fullest extent permitted by applicable law, owners and holders of ADSs irrevocably waive the right to a jury trial for any claim that they may have against us or the depositary arising from or relating to our Common Shares, the ADSs, or the deposit agreement, including any claim under the U.S. federal securities laws.

However, ADS holders will not be deemed, by agreeing to the terms of the deposit agreement, to have waived our or the depositary’s compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder. In fact, ADS holders cannot waive our or the depositary’s compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder. If we or the depositary opposed a demand for jury trial relying on jury trial waiver mentioned above, it is up to the court to determine whether such waiver was enforceable considering the facts and circumstances of that case in accordance with the applicable state and federal law.

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If this jury trial waiver provision is prohibited by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge, the enforceability of a jury trial waiver under the federal securities laws has not been finally adjudicated by a federal court or by the United States Supreme Court. Nonetheless, we believe that a jury trial waiver provision is generally enforceable under the laws of the State of New York, which govern the deposit agreement, or by a federal or state court in the City of New York. In determining whether to enforce a jury trial waiver provision, New York courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement and the ADSs. In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim sounding in fraud or one which is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or in the case of an intentional tort claim, none of which we believe are applicable in the case of the deposit agreement or the ADSs. If you or any other owners or holders of ADSs bring a claim against us or the depositary relating to the matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other owner or holder may not have the right to a jury trial regarding such claims, which may limit and discourage lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may have different outcomes compared to that of a jury trial, including results that could be less favorable to the plaintiff(s) in any such action.

Nevertheless, if the jury trial waiver provision is not enforced, to the extent a court action proceeds, it would proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any owner or holder of ADSs or by us or the depositary of compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder.

Holders of ADSs may not receive distributions on our Common Shares or any value for them if it is illegal or impractical to make them available to such holders.

Subject to the terms of the deposit agreement, the depositary has agreed to pay holders of ADSs the cash dividends or other distributions it or the custodian for the ADSs receives on the Common Shares or other deposited securities after deducting its fees and expenses and any taxes or other government charges. Holders of ADSs will receive these distributions in proportion to the number of our Common Shares that such ADSs represent. However, the depositary is not responsible for making such payments or distributions if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act, but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the depositary. We have no obligation to take any other action to permit distributions on our Common Shares to holders of ADSs. This means that holders of ADSs may not receive the distributions we make on our Common Shares if it is illegal or impractical to make them available to such holders. These restrictions may materially reduce the value of the ADSs.

Holders of ADSs may be subject to limitations on transfer of their ADSs.

ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer, or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

We may amend the deposit agreement without consent from holders of ADSs and, if such holders disagree with our amendments, their choices will be limited to selling the ADSs or cancelling and withdrawing the underlying our Common Shares.

We may agree with the depositary to amend the deposit agreement without consent from holders of ADSs. If an amendment increases fees to be charged to ADS holders or prejudices a substantial existing right of ADS holders, it will not become effective until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, ADS holders are considered, by continuing to hold their ADSs, to have agreed to the amendment and to be bound by the amended deposit agreement. If holders of ADSs do not agree with an amendment to the deposit agreement, their choices will be limited to selling the ADSs or cancelling and withdrawing the underlying our Common Shares. No assurance can be given that a sale of ADSs could be made at a price satisfactory to the holder in such circumstances.

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We are incorporated in Japan, and it may be more difficult to enforce judgments obtained in courts outside Japan.

We are incorporated in Japan as a joint-stock corporation. All of our directors are non-U.S. residents, and a substantial portion of our assets and the personal assets of our directors and executive officers are located outside the United States. As a result, when compared to a U.S. company, it may be more difficult for investors to effect service of process in the United States upon us or to enforce against us, our directors or executive officers, judgments obtained in U.S. courts predicated upon civil liability provisions of the federal or state securities laws of the U.S. or similar judgments obtained in other courts outside Japan. There is doubt as to the enforceability in Japanese courts, in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon the federal and state securities laws of the United States.

Dividend payments and the amount you may realize upon a sale of our Common Shares or the ADSs that you hold will be affected by fluctuations in the exchange rate between the U.S. dollar and the Japanese yen.

Cash dividends, if any, in respect of our Common Shares represented by the ADSs will be paid to the depositary in Japanese yen and then converted by the depositary or its agents into U.S. dollars, subject to certain conditions and the terms of the deposit agreement. Accordingly, fluctuations in the exchange rate between the Japanese yen and the U.S. dollar will affect, among other things, the amounts a holder of ADSs will receive from the depositary in respect of dividends, the U.S. dollar value of the proceeds that a holder of ADSs would receive upon sale in Japan of our Common Shares obtained upon cancellation and surrender of ADSs and the secondary market price of ADSs. Such fluctuations will also affect the U.S. dollar value of dividends and sales proceeds received by holders of our Common Shares.

If we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we would incur significant additional legal, accounting, and other expenses that we would not incur as a foreign private issuer.

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our executive officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States domestic issuers, and we are not required to disclose in our periodic reports all of the information that United States domestic issuers are required to disclose. We may cease to qualify as a foreign private issuer in the future, in which case we would incur significant additional expenses that could have a material adverse effect on our results of operations.

Because we are a foreign private issuer and have taken advantage of exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer.

Nasdaq listing rules require listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to, and we have followed home country practice in lieu of the above requirements. The corporate governance practice in our home country, Japan, does not require a majority of our board to consist of independent directors. Thus, although a director must act in the best interests of the company, it is possible that fewer board members will be exercising independent judgment and the level of board oversight on the management of our company may decrease as a result. In addition, Nasdaq listing rules also require U.S. domestic issuers to have an audit committee, a compensation committee, and a nominating/corporate governance committee composed entirely of independent directors, and an audit committee with a minimum of three members. We, as a foreign private issuer, are not subject to these requirements. Consistent with corporate governance practices in Japan, we have a three-member board of corporate auditors instead of an audit committee and we do not have a standalone compensation committee or nomination and corporate governance committee of our board.

In addition, we are not required under the Exchange Act to file current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act and we are generally exempt from filing quarterly reports with the SEC. Also, we are not required to provide the same executive compensation disclosures regarding the annual compensation of our five most highly compensated senior executives on an individual basis as are required of U.S. domestic issuers. As a foreign private issuer, we are permitted to disclose executive compensation on an aggregate basis and need not supply a Compensation Discussion and Analysis, as is required for domestic companies. Furthermore, as a foreign private issuer, we are also not subject to the requirements of Regulation FD promulgated under the Exchange Act. These exemptions and accommodations will reduce the frequency and scope of information and protections to which you are entitled as an investor.

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We are currently not in compliance with the continued listing requirements of Nasdaq. As a result, the ADSs may be delisted, which could negatively impact the price of the ADSs and your ability to sell them.

In order to maintain our listing on Nasdaq, we are required to comply with certain rules of Nasdaq, including those regarding minimum stockholders’ equity, minimum share price, minimum market value of publicly held shares, and various additional requirements. On August 18, 2023, we received a notice of non-compliance from the Listing Qualifications Department of Nasdaq stating that, as a result of not having timely filed our annual report on Form 20-F for the fiscal year ended March 31, 2023, we were not in compliance with Nasdaq Listing Rule 5250(c)(1). On October 13, 2023, we received a letter from the Listing Qualifications Department of Nasdaq notifying us that we are not in compliance with the minimum bid price requirement as set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided 180 calendar days, or until April 10, 2024, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the ADSs must have a closing bid price of at least US$1.00 for a minimum of 10 consecutive business days. In the event we do not regain compliance by April 10, 2024, we may be eligible for additional time to regain compliance or may face delisting. On October 27, 2023, we received a staff determination letter (the “Letter”) from the Listing Qualifications Department of Nasdaq notifying us of the determination from the Nasdaq staff to delist our securities from The Nasdaq Stock Market because we had not filed our Form 20-F for the fiscal year ended March 31, 2023 and we are not in compliance with Nasdaq’s filing requirements for continued inclusion set forth in Nasdaq Listing Rule 5250(c)(1). The delisting action referenced in the Letter has been stayed pending the issuance of a formal decision by the Nasdaq Hearings Panel following a hearing to be held on February 8, 2024.

If Nasdaq subsequently delists the ADSs from trading, we could face significant consequences, including:

We are an “emerging growth company” within the meaning of the Securities Act, and we have taken advantage of certain exemptions from disclosure requirements available to emerging growth companies, which will make it more difficult to compare our performance with other public companies.

We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This will make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

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Because we are an “emerging growth company,” we may not be subject to requirements that other public companies are subject to, which could affect investor confidence in us and the ADSs.

For as long as we remain an “emerging growth company,” as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of shareholder approval of any golden parachute payments not previously approved. Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of other public companies. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the ADS price may be more volatile.

If we are classified as a passive foreign investment company, United States taxpayers who own the ADSs or our Common Shares may have adverse United States federal income tax consequences.

A non-U.S. corporation such as ourselves will be classified as a passive foreign investment company, which is known as a PFIC, for any taxable year if, for such year, either:

Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business), and gains from the disposition of passive assets.

If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds the ADSs or our Common Shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.

Based on our operations and the composition of our assets, we do not believe we were a PFIC for our 2023 taxable year. However, it is possible that, for our 2024 taxable year or for any subsequent year, more than 50% of our assets may be assets which produce passive income, in which case we would be deemed a PFIC, which could have adverse U.S. federal income tax consequences for U.S. taxpayers who are shareholders. We will make this determination following the end of any particular tax year.

The classification of certain of our income as active or passive, and certain of our assets as producing active or passive income, and hence whether we are or will become a PFIC, depends on the interpretation of certain United States Treasury Regulations as well as certain IRS guidance relating to the classification of assets as producing active or passive income. Such regulations and guidance are potentially subject to different interpretations. If due to different interpretations of such regulations and guidance the percentage of our passive income or the percentage of our assets treated as producing passive income increases, we may be a PFIC in one or more taxable years.

For a more detailed discussion of the application of the PFIC rules to us and the consequences to U.S. taxpayers if we were or are determined to be a PFIC, see “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—PFIC.”

U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS ABOUT THE PFIC RULES, THE POTENTIAL APPLICABILITY OF THESE RULES TO THE COMPANY CURRENTLY AND IN THE FUTURE, AND THEIR FILING OBLIGATIONS IF THE COMPANY IS A PFIC.

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Direct acquisition of our Common Shares, in lieu of ADSs, is subject to a prior filing requirement under the amendments in 2019 to the Japanese Foreign Exchange and Foreign Trade Act of Japan and related regulations.

Under the amendments in 2019 to the Foreign Exchange and Foreign Trade Act of Japan (Act No. 228 of 1949, as amended) (“FEFTA”) and related regulations, direct acquisition of our Common Shares, in lieu of ADSs, by a Foreign Investor (as defined herein under “Item 10. Additional Information—D. Exchange Controls”) could be subject to the prior filing requirement under FEFTA, regardless of the amount of shares to be acquired. A Foreign Investor wishing to acquire direct ownership of our Common Shares, rather than ADSs, will be required to make a prior filing with the relevant governmental authorities through the Bank of Japan and wait until clearance for the acquisition is granted by the applicable governmental authorities, which approval may take up to 30 days and could be subject to further extension. Without such clearance, the Foreign Investor will not be permitted to acquire our Common Shares directly.

A prior filing requirement as set forth above is not triggered for acquiring or trading the ADSs since the depositary received clearance for the acquisition of our Common Shares underlying the ADS in June 2022. In addition, any Foreign Investor expecting to receive delivery of our Common Shares upon surrender of ADSs must also obtain pre-clearance from the applicable Japanese governmental authority prior to accepting delivery, which approval may take up to 30 days and could be subject to further extension. Although such prior filing requirement is not triggered for trading the ADSs once the depositary receives clearance for the deposit of the underlying Common Shares, we cannot assure you that there will not be delays for additional Foreign Investors who wish to acquire our Common Shares or for holders of the ADSs who are Foreign Investors and who wish to surrender their ADSs and acquire the underlying Common Shares. In addition, we cannot assure you that the applicable Japanese governmental authorities will grant such clearance in a timely manner or at all.

The discussion above is not exhaustive of all possible foreign exchange controls requirements that may apply to a particular investor, and potential investors are advised to satisfy themselves as to the overall foreign exchange controls consequences of the acquisition, ownership and disposition of our Common Shares or the ADSs by consulting their own advisors. For a more detailed discussion on the requirements and procedures regarding the prior notifications under the Foreign Exchange Regulations, see “Item 10. Additional Information—D. Exchange Controls.”

Item 4. INFORMATION ON THE COMPANY

Corporate History and Structure

We began our operations through Warrantee, a joint-stock corporation organized under the laws of Japan on October 21, 2013. On July 12, 2019, Warrantee incorporated a wholly owned subsidiary, Warrantee Pte. Ltd., in Singapore as a private company limited by shares.

On July 25, 2023, the ADSs began trading on the Nasdaq Capital Market under the symbol “WRNT.” On July 27, 2023, we closed our initial public offering of 2,400,000 ADSs at a public offering price of $4.00 per ADS.

Corporate Information

Our principal executive offices are located at 1103 Kitahama Craft, 2-4-1 Doshomachi, Chuo-ku, Osaka City, Osaka 541-0045, Japan, and our phone number is+81(0) 6-6227-8775. Our website address is https://warrantee.com/. The information contained in, or accessible from, our website or any other website does not constitute a part of this annual report. Our agent for service of process in the United States is Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, NY 10168.

The SEC maintains a website at www.sec.gov that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC using its EDGAR system.

For information regarding our principal capital expenditures, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources.”

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Overview

We are a Japanese marketing and market research technology company that helps corporate sponsors unlock value through targeted marketing campaigns, while providing our corporate sponsors’ potential customers who participate in our campaigns with extended warranty coverage on durables or certain healthcare benefits sponsored by our corporate sponsors.

Our Company was founded in Japan in 2013. Beginning in 2018, we have focused on developing a suite of specialized marketing and market research services through campaigns for enterprises, which we refer to as our corporate sponsors or sponsors in our campaigns. These services are designed to collect and leverage targeted and specialty data of our corporate sponsors’ potential customers to provide proprietary market insights to our corporate sponsors and promote the sales of their products. In addition to our Chief Executive Officer and Chief Financial Officer, we operate our business with one full-time employee in charge of accounting matters and one part-time employee in charge of sales matters in Japan. We have a limited operating history with our campaign services, including a limited number of corporate sponsors (three in the fiscal year ended March 31, 2021, one in the fiscal year ended March 31, 2022, and four in the fiscal year ended March 31, 2023), on whom our business has been substantially dependent. We cannot guarantee that, with our current limited resources, we can adequately grow our business, increase our sponsor base, or manage our operations as a publicly traded company in the United States. In addition, the loss of any corporate sponsor in the absence of securing new business would have a material adverse effect on our operations and financial condition.

At the core of our current business of providing marketing campaign services is our trinity model, which connects three stakeholders: corporate sponsors, campaign participants, whom we also refer to as users, and Warrantee, and is designed to benefit all three stakeholders. This model is exemplified by our sponsored product insurance model used in our durables vertical. Under the sponsored product insurance model, we provide product insurance in the form of a limited extended warranty for appliances to users participating in our marketing campaigns, in exchange for their personal, purchase, or other data needed by our corporate sponsors, which we provide to our corporate sponsors for a sponsorship fee. We typically provide to participant users no more than JPY100,000 (approximately $753) of insurance coverage in order to comply with Japanese insurance regulations. Our collected user data enables our corporate sponsors to gain insights on their potential customers’ purchase patterns and inform our sponsors’ formulation of marketing strategies. In each campaign, within the covered period, if a participant user’s registered appliance breaks down, the user may elect to use the insurance coverage to pay for repair services or a replacement. Should a participant user make a claim for a replacement, we will only use the insurance coverage to subsidize a purchase of our corporate sponsor’s product. In this way, our campaigns can potentially increase sales of our sponsors’ products. We use the sponsorship fees to cover our operational costs, including purchasing product insurance from licensed insurers for participant users.

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In 2020, we expanded our marketing campaign services to corporate sponsors in the commercial healthcare vertical. Based on our trinity model, we have designed and conducted campaigns for corporate sponsors in the commercial healthcare vertical, which use sponsorship fees to provide certain types of medical insurance or other healthcare benefits in exchange for user data. Such model has the potential of increasing sales of such corporate sponsors’ products by means of such marketing. In June 2022, we further expanded our marketing campaign services by initiating a sponsor campaign for an employment agency, pursuant to which we will provide to the sponsor’s labor pool members a limited amount of unemployment insurance in exchange for their personal data.

For the fiscal years ended March 31, 2023, 2022, and 2021, we generated total revenue of JPY243,218 thousand (approximately $1,832 thousand), JPY224,727 thousand (approximately $1,693 thousand), and JPY212,000 thousand (approximately $1,597 thousand), respectively, and generated net income of JPY41,303 thousand (approximately $311 thousand) and incurred net losses of JPY97,080 thousand (approximately $731 thousand), and JPY25,798 thousand (approximately $194 thousand), respectively. We have had only 11 customers and associated marketing campaigns to date, including one currently ongoing sponsor contract with Paygene, which will expire on December 31, 2023, one sponsor contract with Y’s Inc. that expired on May 26, 2023, which we are in the process of extending to December 2023, and two customers, Beauken and Connect Plus for which we completed marketing campaigns in May 2023. We have not yet established a recurring customer base that provides an ongoing sustainable source of revenue sufficient to cover our operating expenses. If we are unable to develop new sponsor contracts or other revenue sources, we may not be able to sustain our operations.

We believe our trinity model creates value for both our corporate sponsors and participant users. We expect to design and conduct more campaigns based on our trinity model in our two existing verticals, as well as in other market verticals as part of our growth strategy.

Sponsored Marketing and Market Research Services

We are focused on offering marketing campaign services, which may help drive revenue growth for our corporate sponsors through demand and behavior analysis and direct incremental sales. We believe that our marketing campaign services provide manufacturers and suppliers greater clarity on aspects of product purchases, such as stock-keeping unit, price, quantity, and timing by their customers or potential customers. We collect relevant granular sales data points and provide to our corporate sponsors organized user data that may be used for retargeting or marketing activities.

To facilitate our data collection and to provide convenience to participant users, we have developed and provided a mobile app for our campaigns for certain of our campaigns in the durables vertical, which allows participant users to input data and make claims for repair services or replacements through the app. Our app is available through the iTunes Store and Google Play in Japan. For cost efficiency or to accommodate less tech savvy participant users, we also utilize a manual process of data collection. All user data collected are owned by Warrantee, and we impose contractual limitations on use periods and purposes to our sponsors or obtain a confirmation letter stating that our sponsors have discarded all user data provided by Warrantee.

Currently, we primarily provide our marketing and market research services to corporate sponsors on a campaign-by-campaign basis, and our campaigns are customized for each corporate sponsor based on our trinity model. We also provide traditional marketing consultancy and related services to corporate sponsors. We have focused on developing customers in the durables vertical and the commercial healthcare vertical thus far and are also actively exploring opportunities to provide services to customers in other market verticals.

Durables Vertical

We primarily apply our sponsored product insurance model in organizing our campaigns for our corporate sponsors in the durables vertical, which include manufacturers, suppliers, and agencies marketing or selling household appliances and other durables. Our campaigns in this vertical provide extended warranty coverage on durables for participant users. Our participant users may be consumers or business entities. As of the date of this annual report, we have served a total of seven sponsors in this vertical, including two appliance manufacturers in the fiscal year ended March 31, 2021, a medical device sales agency, Paygene, for which we are conducting a marketing campaign as of the date of this annual report, and a real estate management firm, Connect Plus, for which we completed a marketing campaign in May 2023 directed to the existing tenants at the sponsor’s properties.

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In a typical campaign, in partnership with our corporate sponsor or an advertising agency, we access and recruit participant users via flyers, email, social media, phone calls, or through person-to-person outreach. After signing our consent form to participate in the campaign, a participant user is requested to provide personal or other identification data, such as a name and contact information, answer questions designed to gather targeted and relevant information for our sponsor, and register all appliances the user owns that are of the same type as sold by our sponsor. For participant users who use our mobile app, and if we have a campaign launched on the app, participant users can provide requested information and register their products on the app.

In exchange for the requested data, we provide to each participant user one year of product insurance coverage of up to JPY100,000 (approximately $753) for the user’s registered appliances. The coverage can be used to pay for repair services or replacements if a registered appliance breaks down, regardless of whether such appliance is still within the warranty period provided by the manufacturer. If the user chooses a replacement, our coverage can only be used to purchase the replacement product from our sponsor.

After we collect the user data, we organize the data and provide it to our sponsor. In return for the information, the sponsor pays a sponsorship fee to us, which we use to cover our operating costs, including purchasing product insurance from licensed insurers to provide coverage to the participant users.

We believe our sponsored product insurance model benefits both our corporate sponsors and participant users. This model enables participant users to receive product insurance coverage without paying any cash premium and enables our corporate sponsors to receive targeted and relevant user data in a cost-efficient manner to inform their business and marketing decisions. As we effectively subsidize our participant users’ purchase costs if their registered products break down and if they elect to use our coverage to purchase replacements from our sponsors, we expect our participant users to be incentivized to purchase replacements from our sponsors instead of repairing broken products. We believe this can potentially generate new sales for our sponsors.

Commercial Healthcare Vertical

We entered the commercial healthcare vertical in 2020 by adapting our trinity model for the design and conduct of customized campaigns for corporate sponsors in this vertical, which include manufacturers, suppliers, and agencies marketing or selling health care related goods or services. Our campaigns in this vertical allow participant users who are generally consumers to receive complimentary examinations or treatments for ailments and procedures that are usually not covered by Japan’s “universal” coverage program. In our campaigns, we use sponsorship fees to pay the costs to enable these complimentary examinations or treatments to be available for participant users in exchange for their health and other data needed by our sponsors. As of the date of this annual report, we have served a total of three sponsors in this vertical, including one supplement supplier in the fiscal year ended March 31, 2021 and a manufacturer of health food products, Beauken, for which we completed a marketing campaign in May 2023.

The healthcare system in Japan requires that all residents maintain health insurance coverage. The country has a statutory health insurance system that subsidizes citizens who are not covered under an employment-based or private health insurance plan with a blanket “universal” coverage program. While this system helps maintain baseline coverage, the statutory and employer-based programs are often rigid. For example, employer-based programs typically do not allow employees the flexibility of selecting end healthcare providers, and there are often specific health and medical applications that are excluded from coverage. These restrictions have led to the growth of the Japanese private health insurance market, which range from critical quality of life functions tied to cancer or cardiac outcomes to more cosmetic oriented procedures, such as orthodontics or plastic surgery, usually for a high premium.

Within this vertical, we have two primary types of corporate sponsors. The first type is medical device manufacturers which provide medical devices that are generally not covered under Japan’s government-run universal medical insurance program. In the campaign we conducted for a medical device manufacturer in the fiscal year ended March 31, 2020, we subsidized the insurance costs for participant users to enable them to test use certain knee regenerative treatment devices of our sponsor in exchange for their personal and use data. In this campaign, we used sponsorship fees to purchase special commercial medical insurance policies for participant users providing coverage up to JPY100,000 (approximately $753) per participant user, which enabled the participant users to receive certain regenerative treatments not covered by the “universal” coverage program and test use our sponsor’s devices. In addition to receiving the target user data, upon the conclusion of our campaign, more than half of the participant users purchased our sponsor’s devices.

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Our other type of customer is a manufacturer and/or supplier of supplement and health food products. In the campaign we conducted for a supplement manufacturer in the fiscal year ended March 31, 2021 and our recently completed campaign for Beauken, we used sponsorship fees to purchase and provided gene testing kits that help test potential metabolic and genetic traits of disease to participant users in exchange for their health data. In providing the test results for participant users, we also made recommendations of our sponsor’s preventative care supplements and health food products to participant users whose test results suggested they may need certain micronutrients. For participant users who decided to purchase our sponsor’s products, they were directed to make orders with our sponsor. We believe by promoting users’ awareness of our sponsor’s supplements through our campaign, we could increase sales of our sponsor’s supplements.

Additional Verticals

Our strategy includes, among other things, the development of and entry into other industry verticals. For example, in May 2022, we were engaged by Y’s, Inc., a Kyoto, Japan based employment agency, to design and launch a campaign directed at persons placed by Y’s placement services, pursuant to which users receive a limited amount of unemployment insurance, up to JPY100,000 (approximately $753), in exchange for their personal data. We believe that campaigns on behalf of corporate sponsors that offer users limited unemployment insurance will be attractive in times of macroeconomic uncertainty, such as those experienced by our addressable markets as of the date of this annual report.

Customers

Our primary source of revenue is derived from corporate sponsorship contracts for our campaigns. We have also generated revenue from miscellaneous services, including advertising, licensing fees, and system development services from time to time, though we do not expect to engage in any significant activity or incur significant revenue or expenses with regard to miscellaneous services going forward. Our customers include both established companies, such as Daikin Industries, Ltd., and growth companies. Our customers for our campaign services have been concentrated in the durables and commercial healthcare verticals, and we plan to expand our services to potential customers in other market verticals.

In the fiscal year ended March 31, 2023 and 2022, we generated 88% and 100% of our total revenue, respectively, from one corporate sponsor, Paygene, in the durables vertical. Paygene is a sales agency for medical devices. Pursuant to the sponsor contract with Paygene, as amended, we will provide to Paygene certain requested information of 40 hospitals or clinics (the “Required Delivery Number”) each month for a monthly fee of ¥16,000 thousand (approximately $121 thousand) from January 1, 2021 to December 31, 2023, provided that, if we deliver information for a number of participant hospitals and clinics (the “Actually Delivered Number”) that is greater than the Required Delivery Number, Paygene will pay us an additional fee equal to a per billing unit price of ¥400 thousand (approximately $3 thousand) (the “Per Billing Unit Price”) multiplied by the difference by which the Actually Delivered Number exceeds the Required Delivery Number, and if we fail to deliver information for the Required Delivery Number, our fee will be reduced by an amount equal to the Per Billing Unit Price multiplied by the difference by which the Required Delivery Number exceeds the Actually Delivered Number. This sponsor contract automatically renews for successive one-year terms unless either party gives the other party termination notice one month before the expiration date. Either Paygene or we may terminate this contract if (i) the other party commits a breach and fails to cure such breach in 30 days after notice, (ii) if the other party commences certain liquidation or bankruptcy proceedings, or (iii) if the other party commits fraud or other similarly improper acts and the parties fail to resolve the issue.

Under this sponsor contract, we are requested to provide purchase and use data of certain medical devices and contact information of doctors at the participant hospitals and clinics as well as an opportunity for Paygene to conduct pitch meetings with the participant hospitals and clinics. We have leveraged our Chief Executive Officer’s relationships with certain hospitals and clinics in gathering and delivering the requested information and arranging the meetings. We have used our sponsored product insurance model to incentivize other hospitals and clinics with which we do not have relationships to participate in our campaign by providing product insurance coverage for their medical devices in exchange for their consents to provide the requested information and attend pitch meetings with Paygene. We can provide coverage above JPY100,000 (approximately $753) for each participant clinic or hospital without obtaining an insurance business license as the participant hospitals and clinics will be directly insured by the policies we purchase for them. As of March 31, 2023, our Actually Delivered Number had met or exceeded the Required Delivery Number each month. There is no guarantee that we can continue to successfully deliver the requested information and arrange pitch meetings for Paygene. If we fail to meet the Required Delivery Number, our monthly fee from this contract may be substantially reduced.

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For the fiscal years ended March 31, 2023, 2022, and 2021, two customers, one customer, and two customers, respectively, accounted for 100%, 100%, and 84%, respectively, of our total revenue. Revenue, which was related to sales in Japan, from those customers totaled JPY243,218 thousand (approximately $1,832 thousand), JPY224,727 thousand (approximately $1,693 thousand), and JPY177,000 thousand (approximately $1,333 thousand) of the total revenue of JPY243,218 thousand (approximately $1,832 thousand), JPY224,727 thousand (approximately $1,693 thousand), and JPY212,000 thousand (approximately $1,597 thousand) for the fiscal years ended March 31, 2023, 2022, and 2021, respectively. Our revenue from miscellaneous system development services constituted, less than 10% of our total revenue in the fiscal year ended March 31, 2021, and decreased to zero in the fiscal years ended March 31, 2022 and 2023, as we continuously transitioned to focusing on our marketing campaign services and reduced those miscellaneous services. The following represents revenue attributable to each of these customers as a percentage of total revenue for each respective year.

Our sponsorship fee for each campaign is often a fixed amount paid in advance, which is calculated based on a per user rate and an estimated participant number. Contract value varies depending on sponsors. We anticipate our average contract value to increase as we continue to expand sponsor relationships in the commercial healthcare vertical, where our experience indicates that customers tend to agree to pay a higher rate for each user engaged in our campaigns.

Recent Development

In May 2022, we entered into corporate sponsorship contracts with Beauken, Connect Plus, and Y’s Inc. We completed the marketing campaigns for Beauken and Connect Plus in May 2023 and completed the marketing campaign for Y’s Inc. in November 2023.

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Market

We operate in the competitive marketing and market research technology industry in Japan. Our sponsors generally view our services as a substitute to other means of advertising and marketing, including social media marketing, direct response marketing, TV or radio ads, and other advertising. In contrast to traditional advertising media, we believe our services provide sponsors an effective, differentiated targeted marketing program that generates actionable customer insights, including specific consumer information and purchase data and potential increase of revenue through new sales.

Our Growth Strategy

Domestically, we strive to continue our growth through demonstrated track records on return on investment for sponsors and increased branding with their potential customers. By demonstrating tangible return on investment for sponsors and growing usage by their potential customers, we believe we will continue to be able to increase adoption from both stakeholders as we scale the business across more corporate sponsors. Additionally, we plan to leverage outbound marketing—including through an expansion of agency network referrals, recruitment of internal sales staff, and general advertising and promotion—to attract new corporate sponsors.

Our focus domestically will be to expand the number of corporate sponsors for whom we provide marketing and market research services, increase the frequency of campaigns for sponsors, increase the average rate charged per participant user in our campaigns, and enter into other industry verticals. Our strategy is to monetize the higher per user pricing often associated with the commercial healthcare vertical and other verticals we identify and pursue, which we expect will help improve our contract value and core business growth and profitability. We believe our trinity model is widely applicable across many traditional industries and new growth industries, given the benefits we provide to our sponsors’ potential customers with no cash payment required.

Our primary focus in the near term is to continue to grow our business based on the trinity model, where we believe we deliver quantifiable campaign results for our sponsors and value to the participant consumers. We currently do not have any international operations. We intend to expand our business internationally with an initial focus on other Asian countries, particularly Taiwan and Singapore. Our international growth strategy is expected to rely on a hub and spoke model, whereby we plan to leverage parent company relationships with multinational Japanese companies to target their international subsidiaries and their local campaigns outside Japan.

Competition

We view our core service offerings to corporate sponsors as a form of targeted marketing—one which offers higher tangible return on marketing spend and both quantitative and qualitative feedback that directly impact product offerings. Our business model overlaps with the broad mass media and advertising industry which, in Japan, is dominated by the large advertising giants, such as Dentsu, Hakuhodo, CyberAgent, Asatsu-Dk, and others.

By comparison, according to Dentsu, overall advertising expenditures in Japan increased 1.9% year-over-year to JPY6,938.1 billion in 2019, while Internet advertising continued to replace traditional television and radio advertisements. We believe our services fall within the intersection of Internet marketing and the niche of “newly established categories,” including events, exhibitions, screen displays, and live advertisements, which has also experienced solid growth at the expense of traditional advertising.

Our Competitive Strengths

We believe our competitive strengths in the targeted marketing service space include:

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Human Capital

We currently operate with a very limited staff and use mostly third-party providers to provide the services required by each campaign on an as-needed basis. All business critical functions are decided by our Chief Executive Officer and Chief Financial Officer, with the day-to-day administrative functions outsourced to professional vendors. As part of our development strategy, we have strived for continued growth while managing our operating expenses, including labor costs. We plan to maintain this approach as we seek to increase our employee base to accelerate expansion of our business and support the infrastructure of a public company. As of the date of this annual report, in addition to our Chief Executive Officer and Chief Financial Officer, we have one full-time employee in charge of accounting matters and one part-time employee in charge of sales matters. We will need to increase our staff substantially in order to operate as a public company and grow our business. We have allocated a portion of the net proceeds of our initial public offering towards the hiring of additional employees, including sales and marketing personnel and accounting and financial reporting personnel. However, there can be no assurance that we will be able to hire and retain experienced and qualified employees in the near term, which could adversely impact our ability to operate as a public company and to grow our business. Our Company is not required by law to be unionized and, to date, has not been unionized. As such, we are not required to engage in collective bargaining procedures with any unions under Japanese labor laws.

Insurance

We do not maintain directors’ and officers’ liability insurance, property insurance, business interruption insurance, or general third-party liability insurance. We believe the insurance coverage we maintain is in line with the industry.

Property and Equipment

We do not own any real property. We entered into a lease with Daiwa k. Co., Ltd. on February 3, 2014 for 494.5 square feet of office space, which is used as our headquarters in Osaka City, Osaka, Japan. The monthly rent for this lease is JPY148 thousand (approximately $1.1 thousand). The current lease term expires on February 27, 2024 and is automatically renewable for two-year terms, unless a notice is provided from the landlord at least six months prior to the last day of the then-current term. Mr. Shono, our Chief Executive Officer, is a guarantor of this lease.

In addition, we lease five office seats in Tokyo, Japan from Mitsui Fudosan Co., Ltd for a monthly rent of JPY575 thousand (approximately $4.33 thousand). The current lease term is from July 1, 2023 to June 30, 2024 and is automatically renewable for one-month terms, unless a notice is provided from the landlord at least two months prior to the last day of the then-current term.

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Intellectual Property

To establish and protect our proprietary rights, we rely on a combination of patents, trademarks, confidentiality policies and procedures, non-disclosure agreements with third parties, employee non-disclosure agreements, and other contractual and implicit rights worldwide. As of the date of this annual report, we have three registered patents protecting the intellectual property of the system underlying our sponsored product insurance model, which enables us to serve as an intermediary—helping facilitate data in exchange for insurance benefits—among sponsors, insurance companies, and users. We also have nine registered trademarks, including our names and marks, Warrantee, Warrantee Now, Free Insurance, our logo, and the Warrantee Now logo, with the Japan Patent Office. Our patents have a term of 20 years. Our patents and trademarks are not currently registered in any other jurisdiction, except that Warrantee has been registered in Australia, Brazil, China, the European Union, India, the United Kingdom, and Singapore. The success of our business strategy depends on our continued ability to use our existing intellectual property in order to increase brand awareness and develop our branded services. If our efforts to protect our intellectual property are not adequate, or if any third-party misappropriates or infringes on our intellectual property, whether in print, on the Internet or through other media, the value of our brands may be harmed, which could have a material adverse effect on our business, including the failure of our brands and branded services to achieve and maintain market acceptance. There can be no assurance that all of the steps we have taken to protect our intellectual property in Japan or outside Japan in relevant foreign countries, such as Taiwan and Singapore, will be adequate. In addition, in light of our intention to expand internationally, the laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of Japan. If any of our patents, trademarks, trade secrets, or other intellectual property are infringed, our business, financial condition, and results of operations could be materially adversely affected.

In addition, third parties may assert infringement or misappropriation claims against us, or assert claims that our rights in our trademarks, patents, and other intellectual property assets are invalid or unenforceable. Any such claims could have a material adverse effect on us if such claims were to be decided against us. If our rights in any intellectual property were invalidated or deemed unenforceable, it could permit competing uses of our intellectual property which, in turn, could lead to a decline in business and our revenue. If the intellectual property became subject to third-party infringement, misappropriation or other claims, and such claims were decided against us, we may be forced to pay damages, be required to develop or adopt non-infringing intellectual property or be obligated to acquire a license to the intellectual property that is the subject of the asserted claim. There could be significant expenses associated with the defense of any infringement, misappropriation, or other third-party claims.

Seasonality

Our business is not subject to seasonal fluctuations.

Regulations

Personal Information Protection

In Japan, the Act on the Protection of Personal Information (the “APPI”) and its related guidelines impose various requirements on businesses, including us, that use databases containing personal information. Under the APPI, we are required to lawfully use personal information we have obtained within the purpose of use we have specified and taken appropriate measures to maintain the security of such personal information. We are also restricted from providing the personal information of a person (the “principal”) to third parties without the consent of the principal. The APPI also includes regulations relating to the handling of sensitive personal data and anonymous personal data and the transfer of personal information to foreign countries. A Personal Information Handling Business Operator (as defined below) shall not transfer a person’s personal data to third parties, including its affiliated entities without the prior consent of the principal unless an exception applies (Article 27, Paragraph 1 of the APPI).

A “Personal Information Handling Business Operator” is defined as a person (including a judicial person and excluding any administrative organizations) providing a personal information database for use in business (Article 16, Paragraph 2). Our business utilizes the personal information obtained from participant users, thereby subjecting our Company to the provisions applicable to the Personal Information Handling Business Operator. Under the APPI, the prior consent of the principal to a transfer of such person’s personal data (including Sensitive Information (as defined below)) is not required if the transfer:

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Furthermore, the Personal Information Handling Business Operator shall, unless an exception listed above applies, not acquire Sensitive Information (such as personal information relating to physical or mental disabilities, medical records, and medical and pharmacological treatment) without obtaining prior consent from the principal (Article 2, Paragraph 3 and Article 20, Paragraph 2 of the APPI).

We gather personal information from participant users and transfer them to our corporate sponsors in conducting our campaigns for our corporate sponsors. Therefore, we are required to obtain consents from the participant users prior to the transfer of their information to our corporate sponsors. Some of the information we collect could fall under the category of sensitive personal data under the APPI. In addition, we gather personal information including diagnosis records, which is understood to typically fall under the Sensitive Information,  from participant users in our campaigns for corporate sponsors in the healthcare industry. Therefore, we are required to obtain prior consent from the participant users to obtain the Sensitive Information.

When storing personal information, it is necessary to manage it safely so that it will not be leaked and the database storing the information is not breached. For the safe management, the APPI requires the Personal Information Handling Business Operator to establish an information security system. It includes establishment of the fundamental rule of personal information management, appointment of personnel responsible for personal information management, provisions of regular training courses on privacy and security breach, and physical security control. As for the fundamental rules, we have two internal rules, “Rules on Personal Information Protection” and “Basic Policy on Handling of Personal Information,” which govern personal information protection. Under the Rules on Personal Information Protection, we appointed our Chief Executive Officer, as the person who is responsible for personal information management. We provide a copy of our privacy policy and relevant contact information on our website.

The Insurance Business Act

The Insurance Business Act prohibits any person from conducting insurance business without obtaining an insurance business license. Under Article 2, Paragraph 1 of the Insurance Business Act, the term “insurance business” is defined to generally include (i) the business of underwriting insurance for which premiums are received in exchange for an agreement to pay a fixed amount of insurance proceeds in connection with the life or death of an individual, (ii) insurance for which premiums are received in exchange for an agreement to compensate for damage caused by specific and accidental events, and (iii) other insurances known as so-called life insurance or non-life insurance, with certain exceptions. We do not hold an insurance business license under the Insurance Business Act though we use the term “Free Insurance” as a trademark in conducting our business in Japan.

The Financial Services Agency of Japan (“JFSA”) publishes the Guideline related to Insurance Companies (for insurance companies that provide small size/short-term insurances) (the “Guideline”) in connection with interpretations of the Insurance Business Act. Among others, the Guideline provides the JFSA’s interpretation of Article 2, Paragraph 1 of the Insurance Business Act as follows:

Other factors that regulators are required to consider in determining whether an insurance business license is required include: the contents of the agreement to provide for the subject service, the person who provides the service, the manner in which the service is provided (such as whether the service is relevant to the primary business of the service provider), whether the service has traditionally been perceived as different from an insurance transaction, and the purpose of the regulations under the Insurance Business Act.

We have and will continue to conduct our business in a manner that does not require us to comply with such licensing requirement for an insurance business under the Insurance Business Act. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Business—Failure to comply with relevant laws and regulations including those relating to the processing, safekeeping, and use of personal data and the insurance licensing requirements could harm our business, financial condition, or results of operations, and any change in laws and regulations may adversely affect our ability to grow our business.”

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C. Organizational Structure

See “—A. History and Development of the Company.”

D. Property, Plants and Equipment

See “—B. Business Overview—Property and Equipment.”

Item 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report. This report contains forward-looking statements. In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.

Key Financial Definitions

Revenue. Our primary source of revenue comes from customer billings in sponsor contracts. We have also generated revenue from miscellaneous services, including advertising, licensing fees, and system development services from time to time, though we do not expect to engage in any significant activity or incur significant revenue or expenses with regard to miscellaneous services going forward.

Cost of revenue. Cost of revenue includes the direct cost to develop software products, depreciation, personnel-related expenses, insurance costs, repair and replacement costs, genetic testing costs, and participant user recruiting costs for our sponsored marketing and market research services.

Selling, general, and administrative expenses. Our selling, general, and administrative expenses (“SG&A”) are primarily composed of operating expenses related to sales and marketing, technology development, miscellaneous insurance expenses for our Company, and other general and administrative expenses, such as expenses related to our initial public offering.

Other income (expense). From time to time we have non-recurring, non-operating gains and losses, which are reflected through other income/expense.

Non-GAAP Measures

To supplement our consolidated financial statements presented in accordance with U.S. GAAP, we also provide Non-GAAP EBITDA and its ratio to revenue, Non-GAAP EBITDA %, each of which are financial measures that are not based on any standardized methodology prescribed by U.S. GAAP. Management considers Non-GAAP EBITDA and Non-GAAP EBITDA Margin to be measures of performance which provide useful information to both management and investors as an additional tool to use in evaluating our ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. We also believe that Non-GAAP EBITDA and Non-GAAP EBITDA Margin are used by some investors as a way to measure a company’s ability to incur and service debt, make capital expenditures, and meet working capital requirements. However, you should be aware that non-GAAP financial measures are not a substitute for U.S. GAAP measures; they should be read and used in conjunction with our U.S. GAAP financial information. Our non-GAAP measures may not be comparable to similar non-GAAP information which may be presented by other companies. In all cases, it should be understood that non-GAAP operating measures do not depict amounts that accrue directly to the benefit of shareholders.

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Non-GAAP EBITDA. We define Non-GAAP EBITDA as net income plus other income, other loss, interest expenses, share-based compensation, and depreciation and amortization expenses. Non-GAAP EBITDA should not be considered an alternative to net income or other measures under GAAP. Non-GAAP EBITDA is not calculated identically by all companies and, therefore, our measures of Non-GAAP EBITDA may not be comparable to similarly titled measures reported by other companies.

Non-GAAP EBITDA Margin. We define Non-GAAP EBITDA Margin as the percentage derived from dividing Non-GAAP EBITDA for a period by total revenue for the same period.

Comparison of Results of Operations for the Fiscal Years Ended March 31, 2023 and 2022

​

Revenue

Revenue increased by 8% year-over-year in the fiscal year ended March 31, 2023 to JPY243,218 thousand ($1,832 thousand) because we mainly focused on one significant market campaign service in the durables vertical during the fiscal year ended March 31, 2023 which comprises 88% of the revenue of the fiscal year ended March 31, 2023. We transitioned to focusing on our marketing campaign services and reduced the offering of miscellaneous services compared to previous years.

Cost of Revenue

Cost of revenue decreased by 17% year-over-year to JPY2,097 thousand ($16 thousand) in the fiscal year ended March 31, 2023, mainly due to the decrease in variable costs, which are primarily comprised of insurance premiums paid for participant users in campaigns and system development costs in the fiscal year ended March 31, 2022. As we focused on a few significant projects during the fiscal year ended March 31, 2023, insurance costs and labor costs were lower in the fiscal year ended March 31, 2023.

Gross profit grew by 9% year-over-year to JPY18,910 thousand ($142 thousand) and gross profit margin was 99.1% in the fiscal year ended March 31, 2023.

SG&A

SG&A decreased by 40% year-over-year to JPY188,528 thousand ($1,420 thousand) in the fiscal year ended March 31, 2023, primarily due to a decrease in stock compensation expenses and professional fees.

Other (Expenses) Income

We recorded other expenses of JPY7,692 thousand ($58 thousand) in the fiscal year ended March 31, 2023, primarily due to increases in foreign currency losses due to the depreciation of the Japanese yen against the U.S. dollars and the increase in foreign currency remittances compared to the prior fiscal years. This was partially offset by interest income.

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Net Income (Loss) and Non-GAAP EBITDA

Net income increased to JPY41,303 thousand ($311 thousand) in the fiscal year ended March 31, 2023 from a net loss of JPY97,080 thousand ($731 thousand) in the prior fiscal year, primarily due to the increase in revenue and significant decrease in SG&A.

Non-GAAP EBITDA increased to JPY71,806 thousand ($541 thousand) in the fiscal year ended March 31, 2023 from a loss of JPY5,004 thousand ($38 thousand) in the prior fiscal year due to the increase in revenue, significant decreased in SG&A and increase in depreciation and amortization expense which was added back to net income to calculate Non-GAAP EBITDA.

Comparison of Results of Operations for the Fiscal Years Ended March 31, 2022 and 2021

​

Revenue

Revenue increased by 6% year-over-year in the fiscal year ended March 31, 2022 to JPY224,727 thousand ($1,553 thousand) because we focused on one significant market campaign service in the durables vertical during the current year, which contributed more than all the prior year’s market campaign services. We transitioned to focusing on our marketing campaign services and reduced prior miscellaneous services.

Cost of Revenue

Cost of revenue decreased by 90% year-over-year to JPY2,516 thousand ($17 thousand) in the fiscal year ended March 31, 2022, due to the decrease in variable costs, which was primarily comprised of insurance premiums paid for participant users in campaigns and system development costs in the prior year, which were not incurred in the current year because we focused on one significant project during the current year, which resulted in a decrease in system development costs, insurance costs, and labor costs. As a result, gross profit grew 19% year-over-year to JPY222,211 thousand ($1,536 thousand) and gross profit margin increased year-over-year to 98.9% in the fiscal year ended March 31, 2022.

SG&A

SG&A increased by 45% year-over-year to JPY312,053 thousand ($2,157 thousand) in the fiscal year ended March 31, 2022, primarily due to increased stock compensation expenses associated with our fourth series stock option grant.

Other (Expenses) Income

We recorded other expenses of JPY4,254 thousand ($28 thousand) in the fiscal year ended March 31, 2022, primarily due to increases in foreign currency losses due to the depreciation of the Japanese yen against the U.S. dollars and the increase in foreign currency remittances compared to the prior fiscal year. This was partially offset by interest income and a Singapore government grant.

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Net Loss and Non-GAAP EBITDA

Net loss increased to JPY97,080 thousand ($670 thousand) in the fiscal year ended March 31, 2022 from a net loss of JPY25,798 thousand ($212 thousand) in the prior fiscal year, primarily due to the increase in SG&A and the increase in other expenses.

Non-GAAP EBITDA decreased to a loss of JPY5,004 thousand ($35 thousand) in the fiscal year ended March 31, 2022 from a profit of JPY84,045 thousand ($692 thousand) in the prior fiscal year due to the increased SG&A, increase in other expenses.

Liquidity is a measure of our ability to meet potential cash requirements. We generally fund our operations with cash flow from operations and, when needed, with borrowings from Japanese financial institutions, our Chief Executive Officer or its affiliates. As of the date of this annual report, we believe we need a minimum of JPY1,050,553 thousand ($7,914 thousand) in order to fund our presently forecasted working capital requirements over the next 12 months. On July 26, 2023, we closed our initial public offering of 2,400,000 ADSs at a public offering price of $4.00 per ADS. Gross proceeds of our initial public offering totaled $9.6 million, before deducting underwriting discounts and other related expenses. Net proceeds of our initial public offering were approximately $7.19 million. We believe that the net proceeds of the offering will be sufficient to fund our presently forecasted working capital requirements over, at least, the 12 months following the date of this annual report. However, as a result of certain factors presently unforeseen, we may require additional capital over the next 12 months, the receipt of which there can be no assurance. In addition, unless we are able to successfully scale our operations and achieve meaningful cash flow from operations, we will require additional capital in order to fund our continued development of our trinity business model following the 12-month period following the date of this annual report. We will endeavor to acquire any additional required funds through various financing sources, including borrowings under our existing loans from financial institutions, the private and public sale of our equity and debt securities and other third-party financings. In addition, we will consider alternatives to our current business plan that may enable us to achieve meaningful cash flow from operations with a smaller amount of capital. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations.

Cash Flows for the Fiscal Years Ended March 31, 2023 and 2022

​

Operating Activities. Cash flow generated from operations was JPY41,662 thousand ($314 thousand) in the fiscal year ended March 31, 2023, compared to cash generated from operations of JPY79,565 thousand ($599 thousand) in the prior fiscal year, mainly due to the decrease in accrued liabilities and other current liabilities balance and stock compensation expenses, which was partially offset by the increase in net income.

Investing Activities. Cash flow used in investing activities was JPY8,670 thousand ($65 thousand) in the fiscal year ended March 31, 2023, compared to cash used in investing activities of JPY20,841 thousand ($157 thousand) in the fiscal year ended March 31, 2022. The decrease in cash outflow from investing activities was primarily due to fewer investments in capitalized software during the fiscal year ended March 31, 2023.

Financing Activities. Cash flow used in financing activities was JPY46,374 thousand ($349 thousand) in the fiscal year ended March 31, 2023, compared to cash used in financing activities of JPY60,099 thousand ($453 thousand) in the prior fiscal year, primarily due to the decreased payments of deferred offering costs.

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Cash Flows for the Fiscal Years Ended March 31, 2022 and 2021

The following table sets forth a summary of our cash flows for the fiscal years indicated.

​

Operating Activities. Cash flow from operations was a source of JPY79,565 thousand ($655 thousand) in the fiscal year ended March 31, 2022, compared to a source of JPY2,043 thousand ($17 thousand) in the prior fiscal year, mainly due to a decrease in net income, partially increased due to an increase in trade receivables and deferred revenue.

Investing Activities. Cash flow from investing activities was a use of JPY20,841 thousand ($172 thousand) in the fiscal year ended March 31, 2022, due to investments in capitalized software. There were no cash flows from investing activities during the fiscal year ended March 31, 2022.

Financing Activities. Cash flow from financing activities was a use of cash of JPY60,099 thousand ($495 thousand) in the fiscal year ended March 31, 2022, compared to a use of cash of JPY12,554 thousand ($103 thousand) in the prior fiscal year, primarily due to increased payments of deferred offering costs, and less receipts related to long term debt in comparison to the prior fiscal year.

Outstanding Loans from Financial Institutions

As of March 31, 2023, the Company had outstanding loans from three Japanese financial institutions: SBI Estate Finance Co., Ltd., Resona Bank, Limited, and Japan Finance Corporation. The main purpose of obtaining these loans has been to expand the Company’s business lines and develop more services. Mr. Shono, our Chief Executive Officer, is a guarantor of the Company’s obligations under the loan agreements with SBI Estate Finance Co., Ltd., Resona Bank, Limited, and Japan Finance Corporation.

On August 31, 2017, the Company obtained a loan in the principal amount of JPY52,000 thousand ($392 thousand) from SBI Estate Finance Co., Ltd., which matures on September 5, 2037, and accrues interest at a rate of 6.00% per annum. This loan is guaranteed by Mr. Shono, our Chief Executive Officer. Principal and interest are payable monthly; the outstanding balance as of March 31, 2023 and 2022 was JPY43,187 thousand ($325 thousand) and JPY45,011 thousand ($339 thousand), respectively.

On December 18, 2020, the Company obtained a loan from Resona Bank in the principal amount of JPY25,000 thousand ($188 thousand), which matures on November 30, 2030. No interest is payable or accrues prior to December 17, 2023. Thereafter, interest accrues at a rate of 1.200% per annum until the earlier of repayment in full or maturity. This loan is guaranteed by Credit Guarantee Corporation of Osaka and Mr. Shono, our Chief Executive Officer. Principal and, if applicable, interest are payable monthly; the outstanding balance as of March 31, 2023 and 2022 was JPY24,220 thousand ($182 thousand) and JPY25,000 thousand ($188 thousand), respectively.

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On September 3, 2014, the Company obtained a loan from Japan Finance Corporation in the principal amount of JPY15,000 thousand ($113 thousand), which matured on September 30, 2021 (the “Prior Term Loan”). On September 30, 2021, the Company refinanced the Prior Term Loan with Japan Finance Corporation to extend the maturity date to August 31, 2026. The Company also used JPY15,000 thousand ($113 thousand) out of JPY15,500 thousand ($117 thousand) of the proceeds from the new loan to repay all outstanding principal balance under the Prior Term Loan. The interest rate per annum on the new term loan is 0.36% per annum from September 30, 2021 to September 30, 2024, and 1.26% per annum from October 1, 2024 to the maturity date. Under the new loan, the Company is required to make monthly repayments of principal beginning September 30, 2022 and monthly repayments of interest beginning October 30, 2021. This loan is guaranteed by Mr. Shono, our Chief Executive Officer. The outstanding balance as of March 31, 2023 and 2022 was JPY13,975 thousand ($105 thousand) and JPY15,500 thousand ($117 thousand), respectively.

Contractual Obligations

Payments of contractual obligations and commitments will require considerable resources. In our ordinary course of business, we routinely enter into commercial commitments and financial obligations for various aspects of our operations.

The following table sets forth the amount of our contractual obligations as of March 31, 2023.

​

Off-Balance Sheet Arrangements

As of March 31, 2023, 2022, and 2021, we were not party to any material off-balance sheet financial arrangements that are reasonably likely to have a current or future effect on our financial condition or operating results. We do not have any relationship with unconsolidated entities or financial partnerships for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes.

See “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”

Other than as disclosed below and elsewhere in this annual report on Form 20-F, we are not aware of any trends, uncertainties, demands, commitments, or events for the period from April 1, 2022 to March 31, 2023 that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity, or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial condition.

Factors and Trends Affecting Our Results of Operations

We believe that the growth and future success of our business depends on many factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we plan to successfully address in order to sustain our growth and improve our results of operations.

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Acquiring New Sponsors and Campaign Opportunities. Our revenue and costs are primarily affected by the volume of campaign services, as well as the mix of sponsors of these services, which vary from period to period. Although we hope to develop repeated service opportunities with existing sponsors, we have not been successful in doing so to date under our business model and we intend to focus on incremental revenue opportunities through development of new sponsors. We plan to use our initial public offering proceeds to invest in sales and marketing, including hiring more staff to drive sponsor acquisition and to conduct more campaigns. We believe our investments in these areas will allow us to market our services to the needs of enterprises in the durables vertical and the commercial healthcare vertical which comprise our existing sponsor base, while unlocking opportunities to expand our sponsor base and to conduct campaigns in other verticals and markets. If our investments in sponsor acquisition are not successful, our operating results would be adversely impacted.

Ability to Manage Costs Associated with Implementing Our Growth Strategy. Managing our costs to maintain or increase our profit margin associated with performing our campaign services has been our long-time strategic objective. We have been thinly staffed and have leveraged third-party services to support the operations of our business. In order to acquire more sponsors and campaign opportunities, we intend to invest in sales and marketing and increase hiring. In addition, management expects to adopt automation software where appropriate to maintain or increase efficiency, including increasing the use of our app in conducting campaigns. If we fail to manage the costs and expenses associated with our growth strategy effectively, our profit margin would be harmed.

Business Environment. Product manufacturers and suppliers have always had the need for their potential customers’ information to optimize their sales and marketing funnels. We believe our services address their needs for targeted user data and our trinity model, which is designed to provide a tangible benefit to participant users in exchange for their data, can facilitate obtaining such data efficiently. We believe our patents in Japan also provide certain protection to us in hindering others from serving in a similar intermediary role and adopting the same sponsored product insurance model in Japan. As a relatively new business model, we rely on our patents and the current regulatory framework to allow for this model to be applied for campaigns for sponsors in various verticals. We intend to continue to tap the needs of our sponsors and potential sponsors for user data and new sales channels while any challenge to our patents or change to the current regulatory framework applicable to our business model may adversely affect our business and increase our costs.

Impact of COVID-19

On March 11, 2020, the World Health Organization designated the outbreak of COVID-19 as a pandemic. Given that our marketing campaigns did not depend on face-to-face interactions with sponsors or participant users, we did not observe significant impacts on our business or results of operations for the fiscal years ended March 31, 2023, 2022, and 2021. We applied for the COVID-19 subsidy program for sustaining businesses provided by the Japanese government. For the fiscal year ended March 31, 2021, we received a one-time grant of JPY2,000 thousand ($15 thousand) from the subsidy program. While the extent to which COVID-19 may impact our future results cannot be known at this time, there is no guarantee that the pandemic and associated economic impacts will not result in a negative impact to our future financial condition, results of operations, and cash flows.

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. As events continue to evolve, our estimates may change materially in future periods.

In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require management’s judgment in its application, while in other cases, management’s judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions. We believe that the accounting policies discussed below are the most critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

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Revenue Recognition

We apply ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) for all periods presented in the consolidated financial statements. To determine the appropriate amount of revenue to be recognized in accordance with ASC 606, we follow a five-step model as follows:

1 — Identification of the contract with a customer;

2 — Identification of the performance obligation in the contract;

3 — Determination of the transaction price;

4 — Allocation of the transaction price to the performance obligation in the contract; and

5 — Recognition of revenue when, or as, a performance obligation is satisfied.

Our revenue is primarily derived from the durables vertical and the commercial healthcare vertical. Our services are marketed and sold directly to the customers. We assess the contract term as the period in which the parties to the contract have enforceable rights and obligations. The actual contract term may differ from the stated term in contracts with certain termination or renewal rights, depending on whether there are substantive penalties associated with those rights. Customer contracts are generally standardized and noncancellable for the duration of the stated contract term. Consumption taxes collected and remitted to tax authorities are excluded from revenue. We may use third-party vendors to provide certain goods or services to our customers. We evaluate those relationships to determine whether revenue should be reported gross or net. We recognize revenue on a gross basis where we act as principal and control the goods and services used to fulfill the performance obligations to the customer and on a net basis where we act as an agent. We have not acted as an agent during the fiscal years ended March 31,2023, 2022, and 2021.

Durables Vertical:

Performance Obligations

Revenue from the durables vertical is primarily comprised of sponsorship fees from corporate sponsors in exchange for participant users’ personal or other identification information. During the sponsorship campaigns, we aggregate personal information, organize that data, and then provide it to corporate sponsors. We have identified one performance obligation, the delivery of participant users’ personal information. All other immaterial deliverables occur prior to this but revenue is not recognized until the delivery of the participant users’ personal information, which is the performance obligation. Accordingly, we recognize revenue at a point in time when the personal information is provided to corporate sponsors upon satisfying our single distinct performance obligation.

When we conduct the market research or marketing planning proposal services for the customers in the preliminary stages of the durables vertical contract, the single performance obligation is satisfied and revenue is recognized when the services are completed and accepted by the customers and we have no further obligations.

Contractual Consideration

The transaction price is generally fixed at contract inception. However, our contracts with corporate sponsors within the durables vertical may include a specified quantity, which entitles the customer to refunds, when defined quantity levels are not met at the end of the provision period. These arrangements represent a form of variable consideration, which is estimated using the most likely amount method to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved. During the fiscal years ended March 31, 2023, 2022, and 2021, no revenue was recognized from estimates that had not been resolved as of the applicable periods.

Commercial Healthcare Vertical:

Performance Obligations

Revenue from the commercial healthcare vertical is primarily comprised of sponsorship fees from corporate sponsors in exchange for healthcare-related promotional campaigns. During healthcare-related promotional campaigns targeted to participant users based on results of their free genetic test kits, we have the stand-ready obligation to provide promotional services for the duration of the campaign promotion period. Accordingly, revenue is recognized ratably based on the time-elapsed method over the contractual term with the corporate sponsors.

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When we conduct a campaign sponsored by the corporate sponsors and provide them the personal information we have collected from the participant users in exchange for complimentary examinations, we have identified one performance obligation, which is the delivery of participant users’ personal information, with other promises being immaterial in the context of the contract. Therefore, we recognize revenue at a point in time when the personal information is provided to the corporate sponsors.

Contractual Consideration

The transaction price may be fixed at contract inception within the commercial healthcare vertical in a form of non-refundable minimum guarantee but may also have a component of variable consideration, such as sales incentives, which are calculated by multiplying the amount of work accomplished by a fixed unit price of remuneration. Due to the variable consideration being entirely constrained, the sales incentive is excluded from the transaction price until the uncertainty is subsequently resolved. During the fiscal years ended March 31, 2023, 2022, and 2021, no revenue was recognized from estimates that had not been resolved as of the applicable period.

Miscellaneous revenue, such as revenue from advertising, licensing, and system development, is recognized ratably over time or at the point of time depending on the type of deliverables and duration of the sponsor contract.

Transaction Price

The transaction price is the amount of consideration to which we expect to be entitled for transferring goods and services to the customer.

Payments from the customers are often made in advance before satisfaction of the performance obligations. When payments are not due in advance, they are due within 30 days of delivery of the goods or service. In instances where the timing of revenue recognition differs from the timing of the right to invoice, we have determined that a significant financing component generally does not exist. Additionally, we have elected the practical expedient that permits an entity not to recognize a significant financing component if the time between the transfer of a good or service and payment is one year or less.

Share-Based Compensation

We apply the provisions of ASC Topic 718, Compensation—Stock Compensation. We measure the cost of employee and non-employee services received in exchange for awards of equity instruments at the fair value of the award on the grant date and recognize the cost over the requisite service period which the employee and non-employee are required to provide services in exchange for the award. Compensation costs are recognized on a straight-line basis over the requisite service period of the awards which are expected to vest. Recognition of compensation cost will be deferred until the liquidity event occurs. For awards with performance conditions, compensation cost is recognized when the condition is probable of being achieved, or in the case of a liquidity event, when the liquidity event occurs. We use option pricing methods that require the input of subjective assumptions, including the expected term, expected volatility, dividend yield, and risk-free interest rate. For awards with market conditions, we use a hybrid method between a discounted cash flow method and Monte Carlo simulation models to value the awards. We have elected to recognize forfeitures as they occur.

Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable primarily consist of amounts billed and currently due from customers, net of an allowance for doubtful accounts, if recorded. When we have an unconditional right to payment, subject only to the passage of time, the right is treated as a receivable. Fees billed in advance of the related contractual term represent contract liabilities and are presented as deferred revenue. Typical payment terms provide for customer payment within 30 days of the contract date.

Trade accounts receivable are subject to collection risk. We perform evaluations of our customers’ financial positions and generally extend credit on account, without collateral. We determine the need for an allowance for doubtful accounts based upon various factors, including credit quality of the customer, age of the receivable balance, and current economic conditions.

There were no bad debt expenses or allowance for doubtful accounts recorded as of and for the fiscal years ended March 31, 2023, 2022, and 2021.

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Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the differences between the financial statement and tax bases of assets, liabilities, and net operating loss by using enacted tax rate in effect for the year in which the differences are expected to reverse. The effect of a change in tax rate on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We recognize deferred tax assets to the extent that these assets are believed to be more likely than not to be realized. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized. In making such a determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

Warrantee and its subsidiary file tax returns in the tax jurisdictions of Japan and Singapore. Tax benefits for uncertain tax positions are based upon management’s evaluation of the information available at the reporting date. To be recognized in the consolidated financial statements, a tax benefit must be at least more likely than not of being sustained based on technical merits. The benefit for positions meeting the recognition threshold is measured as the largest benefit more likely than not of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.

Recently Issued Accounting Pronouncements

As an emerging growth company, the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to delay adoption of certain new or revised accounting standards. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.

Financial Instruments — Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which is intended to provide more decision-useful information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to accounts receivable. This standard is effective for annual reporting periods beginning after December 15, 2022 for non-public entities, including interim periods within that reporting period. Early adoption is permitted. We adopted this standard effective April 1, 2023 and the adoption did not have a material effect on our consolidated financial statements.

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Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

The following table sets forth the names, ages, and positions of our executive officers and members of our board of directors and of our board of corporate auditors as of the date of this annual report. The business address of all of persons identified below is 1103 Kitahama Craft, 2-4-1 Doshomachi, Chuo-ku, Osaka City, Osaka 541-0045, Japan.

Biographical Information

The following is a summary of certain biographical information concerning our executive officers, directors, and corporate auditors.

Yusuke Shono. Mr. Shono is our founder and has served as our Chief Executive Officer and our representative director since October 2013 as well as the representative director of our Singapore subsidiary, Warrantee Pte. Ltd. Mr. Shono has expertise in data marketing and programming. Mr. Shono has served as a member of the Medical Point Promotion Council of the Ministry of International Affairs and Communications since 2012. He received a Bachelor of Arts degree in Economics from Kyoto University in 2013.

Yumi Matsudaira. Ms. Matsudaira has served as our director since June 2023 and our Chief Financial Officer since April 2023. Prior to joining our Company, Ms. Matsudaira was an audit manager at PricewaterhouseCoopers where she obtained her U.S. CPA license. She worked at PricewaterhouseCoopers Michigan office and Singapore office for a total seven years from October 2010 to October 2017. Ms. Matsudaira also worked at Canadian Education College in Singapore as a General Manager from October 2017 to April 2023. Ms. Matsudaira received her Bachelor of Business Administration degree in Finance from University of Hawaii in 2007 and her Master of Business Administration from Hawaii Pacific University in 2010.

Hideto Nakamura. Mr. Nakamura is an independent director and has served on our board of directors since June 2023. Mr. Nakamura has served as a Director at Leong Hum Engineering Pte Ltd., where he oversees the accounting and administration department, since April 2019. Mr. Nakamura has served as the Managing Director at Singapore Biken Pte Ltd., where he oversees operations of the entire company, since January 2013. Mr. Nakamura served as a Director at Aquatic Maintenance Services Pte Ltd., where he oversaw the entire company operations, from January 2017 to June 2019. Mr. Nakamura obtained his Bachelor’s degree in Economics from Kyushu International University in 1999.

Ryo Matsutani. Mr. Matsutani has served as a corporate auditor of the Company since June 2023. Mr. Ryo Matsutani has served as a Director at One Asia Lawyers Vietnam Co., Ltd since October 2019. He worked as an in-house Legal Officer at Nitto Denko Corporation from October 2016 to September 2019 and as an in-house Legal Officer at Yahoo Japan Corporation from January 2014 to September 2016. He obtained his Bachelor’s degree in Law from Sophia University in Japan in 2010 and his Juris Doctor degree from Chuo Law School in Japan in 2013.

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Rimi Takahashi. Ms. Takahashi has served as a corporate auditor of the Company since October 2021. Ms. Takahashi is a free-lance consultant providing services including business planning, financial strategy planning, management planning, and developing competence for small and medium enterprises and executives. Prior to her consulting role, she served as an account executive at Aoyama Sogo Accounting Firm Co., Ltd. from September 2020 to September 2021. From April 2014 to August 2020, she worked in the corporate planning and trade operations department at Itoham Foods Inc. where she analyzed the company’s internal and external performance and developed its corporate strategy. Ms. Takahashi received a Bachelor of Science degree in Chemistry from Nara Women’s University in 2014.

Taeko Horiguchi. Ms. Horiguchi has served as a corporate auditor of the Company since October 2021. Ms. Horiguchi is a principal tax accountant at Taeko Horiguchi Tax Accountant Office (“Taeko”) where she has provided tax representation, tax returns and financial consulting services since October 2009. Prior to Taeko, Ms. Horiguchi held various positions at Ernst & Young LLP’s Japan office providing business advisory services, including M&A consulting, financial due diligence, and corporate valuation. In addition, Ms. Horiguchi worked at Deloitte LLP’s Japan office providing various tax due diligence and consulting services. Ms. Horiguchi received a Bachelor of Arts degree in Business from Tokyo Keizai University in 1987.

There is no family relationship among any of the directors, corporate auditors, and officers. There is no arrangement or understanding among any of our directors and corporate auditors or any other person pursuant to which our directors and corporate auditors are appointed.

Board Diversity

The table below provides certain information regarding the diversity of our board of directors as of the date of this annual report.

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Controlled Company

Yusuke Shono, our Chief Executive Officer and a director, owns a majority of our outstanding Common Shares and consequently has effective veto rights over certain significant corporate actions, which may limit a shareholder’s ability to influence our business and affairs. As a result, we are a “controlled company” for purposes of the Nasdaq listing rules. As a controlled company, we are permitted to elect to rely on certain exemptions from the obligation to comply with certain corporate governance requirements, including the requirement that:

As a foreign private issuer, however, Nasdaq corporate governance rules allow us to follow corporate governance practice in our home country, Japan, with respect to appointments to our board of directors and committees. We follow home country practice as permitted by Nasdaq rather than rely on the “controlled company” exception to the corporate governance rules. See “Item 3. Key Information—D. Risk Factors— Risks Relating to Our Common Shares and the Trading Market—Because we are a foreign private issuer and have taken advantage of exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer.” Accordingly, you would not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

B. Compensation

In accordance with the Companies Act and our articles of incorporation, the amount of compensation for our directors and corporate auditors is decided by first setting the maximum amount of total compensation for all of our directors and corporate auditors through a resolution adopted by our shareholders at a shareholders meeting. The representative director authorized by our board of directors and our board of directors then decide on the amount of compensation for each director based on certain criteria established by our Company.

The following table summarizes the total amount of cash remuneration paid to each category of our directors and corporate auditors in the fiscal year ended March 31, 2023, including by the type of remuneration and the number of persons in each category.

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Stock Options

We granted stock options to purchase our Common Shares, as authorized by our shareholders in June 2016, March 2017, January 2021, and March 2021. The purpose of these grants is to enable our directors, corporate auditors, employees, and advisors to share in our success and to reinforce a corporate culture that aligns interests with those of our shareholders. Our stock option grants generally prohibit transfers of the options. A stock option holder generally forfeits such stock options if they are no longer a director, corporate auditor, employee, or advisor of our Company, except under limited circumstances or as otherwise determined by our board of directors. The following table summarizes the stock options we have issued which are still outstanding.

For additional details, see Note 8 to our audited consolidated financial statements as of and for the fiscal years ended March 31, 2023, 2022, and 2021 appearing elsewhere in this annual report.

The following table summarizes the outstanding stock options with respect to our Common Shares that we have granted to our directors and corporate auditors:

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C. Board Practices

Board of Directors

Our board of directors has the ultimate responsibility for the administration of our affairs. Our board of directors meets no less than once a month. Under the Companies Act, our Company must have at least three directors on our board of directors. Our board of directors is currently comprised of three directors. Directors are typically nominated at the board level and are elected at general meetings of the shareholders. The normal term of office of any director expires at the close of the ordinary general meeting of shareholders held with respect to the last fiscal year ended within two years after such director’s election to office. Our directors may, however, serve any number of consecutive terms.

Our board of directors appoints from among its members one or more representative directors, who serve as head administrator(s) over our Company’s affairs and represent our Company in accordance with the resolutions of our board of directors. Mr. Yusuke Shono, our Chief Executive Officer and a director, is currently the sole representative director of our Company. Our board of directors may appoint from among its members a chairman, a president, or one or more deputy presidents, senior managing directors, or managing directors.

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Under our Company’s current corporate structure, the Companies Act does not require our board of directors to have any independent directors. Our board of directors is currently comprised of three directors, one of which (Mr. Nakamura) is considered “independent,” as determined in accordance with the applicable Nasdaq rules.

Board of Corporate Auditors

As permitted under the Companies Act, we have elected to structure our corporate governance system as a company with a separate board of corporate auditors instead of an audit committee of our board of directors. Our articles of incorporation provide for not more than five corporate auditors. Corporate auditors are typically nominated at the board level and are elected at general meetings of shareholders by a majority of shareholders entitled to vote, where a quorum is established by shareholders holding one-third or more of the voting rights of those who are entitled to vote are present at the shareholders’ meeting. The normal term of office of any corporate auditor expires at the close of the annual general meeting of shareholders held with respect to the last fiscal year ended within four years after such corporate auditor’s election to office. Our corporate auditors may, however, serve any number of consecutive terms. A corporate auditor may be removed by a special resolution of a general meeting of shareholders.

Our corporate auditors are not required to be certified public accountants. Our corporate auditors may not concurrently serve as directors, employees, or accounting advisors (kaikei sanyo) of our Company or any of our subsidiaries or serve as corporate officers of our subsidiaries. Under the Companies Act, at least one-half of the corporate auditors of a company must be persons who satisfy the requirements for an outside corporate auditor under the Companies Act, and at least one of the corporate auditors must be a full-time corporate auditor.

The function of our board of corporate auditors and each corporate auditor is similar to that of independent directors, including those who are members of the audit committee of a U.S. public company. Each corporate auditor has a statutory duty to supervise the administration by the directors of our affairs, to examine our financial statements and business reports to be submitted by a representative director at the general meetings of shareholders, and to prepare an audit report. Our corporate auditors are obligated to participate in meetings of our board of directors and, if necessary, to express their opinion at such meetings, but are not entitled to vote. Our corporate auditors must inspect the proposals, documents, and any other materials to be submitted by our board of directors to the shareholders at the shareholders’ meeting. If a corporate auditor finds a violation of statutory regulations or our articles of incorporation, or another significant improper matter, such auditor must report those findings to the shareholders at the shareholders’ meeting.

Furthermore, if a corporate auditor believes that a director has engaged in, or is likely to engage in, misconduct or acts that are significantly improper, or that there has been a violation of statutory regulations or our articles of incorporation, the corporate auditor: (i) must report that fact to our board of directors; (ii) can demand that a director convene a meeting of our board of directors; and (iii) if no such meeting is convened in response to the demand, can convene the meeting under the corporate auditor’s own authority. If a director engages in, or is likely to engage in, an activity outside the scope of the objectives of our Company or otherwise in violation of laws or regulations or our articles of incorporation, and such act is likely to cause significant damage to our Company, then a corporate auditor can demand that the director cease such activity.

Our board of corporate auditors has a statutory duty to prepare an audit report based on the audit reports issued by the individual corporate auditors and submit such audit reports to a relevant director and, in the case of audit reports related to financial statements, the independent auditors of our Company each year. A corporate auditor may note an opinion in an audit report issued by our board of corporate auditors, if the opinion expressed in such corporate auditor’s individual audit report is different from the opinion expressed in the audit report issued by our board of corporate auditors. Our board of corporate auditors is empowered to establish the audit principles, the method of examination by our corporate auditors of our affairs and financial position, and any other matters relating to the performance of our corporate auditors’ duties.

Additionally, our corporate auditors must represent our Company in: (i) any litigation between our Company and a director; (ii) dealing with shareholders’ demands seeking a director’s liability to our Company; and (iii) dealing with notices of litigation and settlement in a derivative suit seeking a director’s liability to our Company. A corporate auditor can file court actions relating to our Company within the authority of our corporate auditors, such as an action to nullify the incorporation of our Company, the issuance of shares, or a merger, or to cancel a resolution at a shareholders’ meeting.

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Risk Management

One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through our board of directors as a whole. Our board of directors is responsible for monitoring and assessing strategic risk exposure, including risks associated with cybersecurity and data protection. In addition, our board of corporate auditors is responsible for overseeing and evaluating our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. Our board of corporate auditors also reviews legal, regulatory, and compliance matters that could have a significant impact on our financial statements.

Limitation of Liability of Directors and Corporate Auditors

In accordance with Articles 25 and 34 of our articles of incorporation, and pursuant to the provisions of Article 427 of the Companies Act, we are authorized to enter into agreements with our non-executive directors and corporate auditors, respectively, to limit their liability to our Company for any losses or damages arising from the conduct specified under Article 423 of the Companies Act; provided that the amount of such limited liability is either: (i) an amount determined in advance by the Company within the scope specified in our articles of incorporation or (ii) the amount stipulated in applicable laws and regulations, whichever is higher. Mr. Nakamura is considered a non-executive director within the meaning of the Companies Act. We have executed customary limitation of liability agreements with our corporate auditors, Mses. Horiguchi, Takahashi, and Matsutani, and our independent director, Mr. Nakamura. We have not entered into any limitation of liability agreement with our Chief Executive Officer or Chief Financial Officer, as Article 427 of the Companies Act does not allow companies to enter into limitation of liability agreements with executive directors.

Our articles of incorporation include limitation of liability provisions for our directors and corporate auditors, pursuant to which our board of directors can authorize the Company to exempt our directors and corporate auditors from liabilities arising in connection with any failure to execute their respective duties in good faith and due to simple negligence (excluding gross negligence and willful misconduct), within the limits stipulated by applicable laws and regulations, including Article 426, Paragraph 1 of the Companies Act.

D. Employees

See “Item 4. Information on the Company—B. Business Overview—Human Capital.”

E. Share Ownership

The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our Common Shares as of the date of this annual report for:

Beneficial ownership includes voting or investment power with respect to the Common Shares. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all Common Shares shown as beneficially owned by them. Percentage of beneficial ownership of each listed person is based on 22,404,000 Common Shares outstanding as of the date of this annual report.

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Information with respect to beneficial ownership has been furnished by each named executive officer, director, corporate auditor, or beneficial owner of 5% or more of our Common Shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of Common Shares beneficially owned by a person listed below and the percentage ownership of such person, Common Shares underlying options, warrants, or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this annual report are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person.

To our knowledge, the Company is not directly or indirectly owned or controlled by another corporation(s), by any foreign government, or by any other natural or legal person(s) severally or jointly.

As of the date of this annual report, none of our issued and outstanding Common Shares are held in the United States.

We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our Company.

F. Disclosure of a registrant’s action to recover erroneously awarded compensation

Not applicable.

Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”

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The following includes summaries of transactions or agreements, since April 1, 2021, to which we have been a party, in which any of our directors, corporate auditors, executive officers, or beneficial owners of more than 5% of our capital shares, affiliates of our directors, corporate auditors, executive officers, and holders of more than 5% of our voting securities or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control, and other similar arrangements, which are described under “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management.”

Transactions with Our Chief Executive Officer and His Wholly-Owned Companies

On August 1, 2023, we entered into a term loan agreement with Mr. Shono for $2,700 thousand with a maturity date of March 31, 2024. The interest rate of the term loan is 6.00% per annum. As of the date of this annual report, $2,700 thousand of the principal is outstanding.

Mr. Shono is a guarantor for all our outstanding loans from financial institutions. See a description of these loans under “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Outstanding Loans from Financial Institutions.” Mr. Shono is also a guarantor for the lease of our corporate headquarters. See a description of the lease terms under “Item 4. Information on the Company—B. Business Overview—Property and Equipment.”

Mr. Shono is also a party to a Share Pledge Agreement discussed below, which may cause our Company to be involved in facilitating a sale of the pledged shares.

Share Pledge Agreement

A Share Pledge Agreement was executed on February 19, 2020, among Hack, Mr. Shono, and ZENY, in connection with a pledge to Hack of an aggregate of 1,737,000 Common Shares held by ZENY and Mr. Shono. The pledge was established as security for the joint and several liability of ZENY and Mr. Shono, individually, to pay for the repurchase of the Common Shares acquired by Hack under a share purchase agreement executed among Hack, ZENY, and Mr. Shono on March 29, 2019. The Share Pledge Agreement was supplemented on March 31, 2020 and further amended on March 31, 2022 and January 31, 2024. ZENY was dissolved and liquidated in 2021 and is no longer a party to the Share Pledge Agreement, as supplemented and amended.

Under the terms of the Share Pledge Agreement, as supplemented and amended, the outstanding principal balance due to Hack as of January 31, 2024 was confirmed as JPY193,390,450 (approximately $1,456,802) as the aggregate principal balance. To release the pledge, Mr. Shono is required, to pay (a) by February 29, 2024, the outstanding aggregate principal balance of JPY193,390,450 (approximately $1,456,802) in a lump sum payment, (b) monthly installments (equal monthly installments of JPY17,400,000 (approximately $131,073) from March 31, 2024 to December 31, 2024. If Mr. Shono fails to make any payment under (a) or (b), he is required to use his best efforts to assist Hack in selling the pledged shares to third parties by means of a public offering of the pledged shares or other means of acquisition. Pursuant to the provisions of the agreement, the aforementioned share pledge has been registered on the shareholder registry of our Company.

Investment Agreement with Hack

On March 30, 2018, the Company entered into an investment agreement with Hack for the purchase by Hack of 1,737,000 Common Shares. As of December 31, 2021, Hack’s shareholding was reduced to 57,000 Common Shares, or 0.3% of our outstanding Common Shares.

Under the terms of the investment agreement, Hack is entitled to designate one director to the Company’s board of directors or, in the alternative, to send an observer to meetings of the Company’s board of directors. In the latter case, such observer would not have voting rights. Hack currently does not have a director designee on the Company’s board of directors. In addition, in the event that the Company issues, disposes of, or grants stock options, bonds with stock options, or any other rights to acquire Common Shares, Hack is entitled to subscribe for such rights on a pro-rata basis. The agreement has been terminated in accordance with its terms upon consummation of our initial public offering.

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Agreement with Lotus Wise Associates Co., Ltd.

On December 23, 2018, we entered in a Capital Alliance Agreement with Lotus Wise Associates Co., Ltd. for the purchase of 1,737,000 Common Shares from Mr. Shono, our Chief Executive Officer. Under the terms of the agreement, Lotus Wise Associates Co., Ltd. is entitled to a board observer at meetings of our board of directors; however, such observer is not entitled to voting rights. Tomotake Hasumi, who served as a director of our Company until February 26, 2021, was appointed on such date to serve as our corporate auditor. Mr. Hasumi is the Chief Executive Officer and representative director of Lotus Wise Associates Co., Ltd., a company wholly owned and controlled by Mr. Hasumi, and certain of its affiliates. In addition, the Company and/or Mr. Shono has a right of first refusal to purchase any of our Common Shares held by Lotus Wise Associates Co., Ltd. The agreement has been terminated in accordance with its terms upon consummation of our initial public offering.

Policies and Procedures for Related Party Transactions

Our board of corporate auditors, as a group, is responsible for establishing a related person transaction policy, setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy covers any transaction, arrangement, or relationship, or any series of similar transactions, arrangements, or relationships that meets the disclosure requirements set forth in Item 404 of Regulation S-K under the Securities Act, or Item 404, in which we were, are or are to be a participant, and in which a “related person,” as defined in Item 404, had, has, or will have a direct or indirect material interest, including without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness, and employment by us of a related person. In reviewing and approving any such transactions, our board of corporate auditors is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm’s-length transaction and the extent of the related person’s interest in the transaction. Under the approval policy, the board of corporate auditors similarly oversees approval of transactions and arrangements between us and our subsidiaries, on the one hand, and between principal shareholders, directors, and officers to the extent involving amounts in excess of $120,000, on the other hand.

Not applicable.

Item 8. FINANCIAL INFORMATION

We have appended consolidated financial statements filed as part of this annual report. See “Item 18. Financial Statements.”

Legal Proceedings

We are currently not a party to any material legal or administrative proceedings, other than disclosed below. We are from time to time subject to various legal or administrative claims and proceedings arising in the ordinary course of our business. Any litigation or other legal or administrative proceedings, regardless of the outcome, are likely to result in substantial costs and a diversion of our resources, including our management’s time and attention.

A lawsuit filed by Freude Inc., as the complainant, and our Company as the defendant, relating to the payment of a fee for software development is currently pending in Fukuoka District Court. In this case, Freude Corporation sought recovery of JPY13,027,025 (approximately $98,132) and related late fees from our Company. We intend to vigorously defend the lawsuit.

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Dividend Policy

We currently intend to retain any future earnings to finance the development and expansion of our businesses and, therefore, do not intend to pay any cash dividends in the foreseeable future. Since our inception, we have not declared or paid any cash dividends on our Common Shares. Any decision to pay dividends in the future will be subject to a number of factors, including our financial condition, results of operations, the level of our retained earnings, capital demands, general business conditions, and other factors our board of directors may deem relevant. Accordingly, we cannot give any assurance that any dividends may be declared and paid in the future.

If declared, holders of outstanding Common Shares on a dividend record date will be entitled to the full dividend declared without regard to the date of issuance of the Common Shares or any transfer of the Common Shares subsequent to the dividend payment date. Payment of declared annual dividends in respect of a particular year, if any, will be made in the following year after approval by our shareholders at the annual general meeting of shareholders, subject to certain provisions of our articles of incorporation. Any dividend we declare will be paid by the depositary bank to the holders of ADSs, subject to the terms of the deposit agreement, to the same extent as holders of our Common Shares, to the extent permitted by applicable law and regulations, less the fees and expenses payable under the deposit agreement.

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

Item 9. THE OFFER AND LISTING

The ADSs have been listed on the Nasdaq Capital Market since July 25, 2023 under the symbol “WRNT.”

Not applicable.

The ADSs have been listed on the Nasdaq Capital Market since July 25, 2023 under the symbol “WRNT.”

Not applicable.

Not applicable.

Not applicable.

Item 10. ADDITIONAL INFORMATION

Not applicable.

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We incorporate by reference into this annual report our amended and restated articles of association, which are filed as Exhibit 1.1 to this annual report, and the description of differences in corporate laws contained in our registration statement on Form F-1 (File No. 333-272367), as amended, initially filed with the SEC on June 2, 2023.

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in this annual report.

Foreign Exchange Regulations

FEFTA and related regulations regulate certain transactions involving a “Non-Resident of Japan” or a “Foreign Investor,” including “inward direct investments” by Foreign Investors, and payments from Japan to foreign countries or by residents of Japan to Non-Residents of Japan.

“Non-Residents of Japan” are defined as individuals who are not residents in Japan and corporations whose principal offices are located outside of Japan. Generally, branches and other offices of Japanese corporations which are located outside of Japan are regarded as Non-Residents of Japan, and branches and other offices of non-resident corporations which are located within Japan are regarded as residents of Japan.

“Foreign Investors” are defined as:

Under FEFTA and related regulations, dividends paid on, and the proceeds of sales in Japan of, shares held by Non-Residents of Japan may in general be converted into any foreign currency and repatriated abroad.

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