As filed with the U.S. Securities and Exchange Commission on June 2, 2023

Registration No. 333-      ​

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM F-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

WARRANTEE INC.
(Exact name of Registrant as specified in its charter)

Warrantee Inc.
1103, Kitahama Craft
2-4-1 Doshomachi, Chuo-ku
Osaka City, Osaka 541-0045, Japan
Tel: +81(0)6-6227-8775

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)​

Cogency Global Inc.
122 East 42nd Street, 18th Floor
New York, NY 10168
Tel: (800) 221-0102

(Name, address, including zip code, and telephone number, including area code, of agent for service)​

With copies to:

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☑

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging Growth Company ☑

If an emerging growth company that prepares its financial statements in accordance with 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 7(a)(2)(B) of the Securities Act. ☐

†

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

​

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

EXPLANATORY NOTE

This Registration Statement contains two prospectuses, as set forth below:

​

•

a prospectus to be used for the public offering of 2,770,000(1) American Depositary Shares (“ADSs”), each representing one common share (“common shares”), of the Registrant (the “Public Offering Prospectus”) through the underwriters named on the cover page of the Public Offering Prospectus; and

​

​

•

a prospectus to be used for the resale by the selling shareholders set forth therein of 1,480,000 ADSs (the “Resale Prospectus”).

​

The Resale Prospectus is substantively identical to the Public Offering Prospectus, except for the following principal points:

​

•

they contain different outside and inside front covers and back covers;

​

​

•

they contain different Offering sections in the Prospectus Summary section;

​

​

•

they contain different Use of Proceeds sections;

​

​

•

a Selling Shareholders section is included in the Resale Prospectus;

​

​

•

a Selling Shareholders Plan of Distribution is included in the Resale Prospectus; and

​

​

•

the Legal Matters section in the Resale Prospectus deletes the reference to counsel for the underwriters.

​

The Registrant has included in this Registration Statement a set of alternate pages after the back cover page of the Public Offering Prospectus (the “Alternate Pages”) to reflect the foregoing differences in the Resale Prospectus as compared to the Public Offering Prospectus. The Public Offering Prospectus will exclude the Alternate Pages and will be used for the public offering by the Registrant. The Resale Prospectus will be substantively identical to the Public Offering Prospectus except for the addition or substitution of the Alternate Pages and will be used for the resale offering by the selling shareholders.

​

(1)

Assumes the underwriters’ over-allotment option has not been exercised.

​

 

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities, nor a solicitation of an offer to buy these securities, in any jurisdiction where the offer, solicitation, or sale is not permitted.

SUBJECT TO COMPLETION, DATED JUNE 2, 2023

PRELIMINARY PROSPECTUS

Warrantee Inc.

2,770,000 American Depositary Shares
Representing 2,770,000 Common Shares

This is the initial public offering of American Depositary Shares (“ADSs”) representing our common shares (“common shares”). Each ADS represents one common share. We are offering 2,700,000 ADSs. The initial public offering price is $4.00 per ADS.

Prior to this offering, there has been no public market for our common shares or the ADSs. We have applied to list the ADSs on the NASDAQ Capital Market (“NASDAQ”) under the symbol “WRNT.” At this time, NASDAQ has not yet approved our application to list the ADSs. The closing of this offering is conditioned upon NASDAQ’s final approval of our listing application, and there is no guarantee or assurance that the ADSs will be approved for listing on NASDAQ.

We are organized under the laws of Japan. We are a “foreign private issuer” and an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, under applicable U.S. federal securities laws, and are eligible for reduced public company reporting requirements. See “Prospectus Summary — Implications of Being an Emerging Growth Company and a Foreign Private Issuer.”

Following the completion of this offering, we will be a “controlled company” under the listing requirements of NASDAQ. Following this offering, Yusuke Shono, our Chief Executive Officer and a director, will own 74.8% of our outstanding common shares, which may limit a shareholder’s ability to influence our business and affairs, including, among others, amendments to our articles of incorporation and the issuance of additional common shares. See “Risk Factors” and “Management — Controlled Company.”

Investing in the ADSs involves a high degree of risk. Before buying any of the ADSs, you should carefully read the discussion of material risks of investing in the ADSs in “Risk Factors” beginning on page 13 of this prospectus.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

(1)

Represents an underwriting discount equal to 8% per ADS.

​

We have granted the underwriters an option to purchase up to 415,500 additional ADSs from us at the public offering price, less underwriting discounts, for 45 days after the date of this prospectus to cover over-allotments, if any.

The underwriters expect to deliver the ADSs to purchasers on or about •, 2023.

The date of this prospectus is •, 2023.

 

TABLE OF CONTENTS

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by us. Neither we nor the underwriters have authorized anyone to provide you with information that is different, and neither we nor the underwriters take any responsibility for, and provide any assurance as to the reliability of, any information, other than the information in this prospectus and any free writing prospectus prepared by us. We are offering to sell the ADSs, and seeking offers to buy the ADSs, only in jurisdictions where such offers and sales are permitted. This prospectus is not an offer to sell, or a solicitation of an offer to buy, the ADSs in any jurisdictions where, or under any circumstances under which, the offer, sale, or solicitation is not permitted. The information in this prospectus and in any free writing prospectus prepared by us is accurate only as of the date on its respective cover, regardless of the time of delivery of this prospectus or any free writing prospectus or the time of any sale of the ADSs. Our business, results of operations, financial condition, or prospects may have changed since those dates.

Before you invest in the ADSs, you should read the registration statement (including the exhibits thereto and the documents incorporated by reference therein) of which this prospectus forms a part.

For investors outside of the United States:   Neither we nor the underwriters have done anything that would permit this offering, or the possession or distribution of this prospectus, in any jurisdiction where

 

i

 

action for that purpose is required, other than in the United States. You are required to inform yourselves about, and observe any restrictions relating to, this offering and the distribution of this prospectus.

Notice to prospective investors in Japan:   The ADSs have not been and will not be registered pursuant to Article 4, Paragraph 1 of the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended) (the “Financial Instruments and Exchange Act”). Accordingly, none of the ADSs nor any interest therein may be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any “resident” of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to or for the benefit of a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and any other applicable laws, regulations, and ministerial guidelines of Japan in effect at the relevant time.

ABOUT THIS PROSPECTUS

As used in this prospectus, unless the context otherwise requires or otherwise states, references to “Warrantee,” the “Company,” “our Company,” “we,” “us,” “our,” and similar references refer to Warrantee Inc., a joint-stock corporation organized under the laws of Japan, and its wholly-owned subsidiary, Warrantee Pte. Ltd., a Singapore company.

Our functional currency and reporting currency is the Japanese yen (“JPY” or “¥”). The terms “dollar,” “USD,” “US$,” or “$” refer to U.S. dollars, the legal currency of the United States. Convenience translations included in this prospectus of Japanese yen into U.S. dollars have been made at the exchange rate of ¥144.71 = US$1.00, which was the foreign exchange rate on September 30, 2022 as reported by the Board of Governors of the Federal Reserve System (the “U.S. Federal Reserve”) in its weekly release on September 30, 2022. Historical and current exchange rate information may be found at https://www.federalreserve.gov/releases/g5/20221003/.

Our financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Our fiscal year ends on March 31 of each year as does our reporting year. Our most recent fiscal year ended on March 31, 2023. See Note 2 to our audited consolidated financial statements as of and for the years ended March 31, 2022 and 2021, included elsewhere in this prospectus, for a discussion of the basis of presentation, functional currency, and translation of financial statements.

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 prospectus 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 prospectus 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 prospectus. 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 GAAP measures, we use Adjusted EBITDA and Adjusted EBITDA Margin as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures” in various places in this prospectus. 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 GAAP, and should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this prospectus. Adjusted EBITDA and Adjusted EBITDA Margin may differ from similarly titled measures presented by other companies.

 

ii

 

Please see “Summary Consolidated Financial Information and Operating Data” for a reconciliation of non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP.

Market and Industry Data

This prospectus contains references to market data and industry forecasts and projections, which were obtained or derived from publicly available information, reports of governmental agencies, market research reports, and industry publications and surveys. These sources generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. Although we believe such information to be accurate, we have not independently verified the data from these sources. However, we acknowledge our responsibility for all disclosures in this prospectus. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and additional uncertainties and risks regarding the other forward-looking statements in this prospectus due to a variety of factors, including those described in the section entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the forecasts and estimates.

 

iii

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in this prospectus, including those that express a belief, expectation, or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning our possible or assumed future results of operations, financial condition, business strategies and plans, market opportunity, competitive position, industry environment, and potential growth opportunities. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “believe,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “continue,” “predict,” “project,” “potential,” “target,” “goal,” or other words that convey the uncertainty of future events or outcomes. You can also identify forward-looking statements by discussions of strategy, plans, or intentions. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, because forward-looking statements relate to matters that have not yet occurred, they are inherently subject to significant business, competitive, economic, regulatory, and other risks, contingencies, and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including, among others, those discussed in this prospectus under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” may cause our actual results, performance or achievements to differ materially from any future results, performance, or achievements expressed or implied by the forward-looking statements in this prospectus. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements in this prospectus include:

•

our ability to attract and retain customers, which we also refer to as “corporate sponsors” or “sponsors” in providing our campaign services;

​

​

•

our ability to develop campaigns and other services, improve our existing services, and increase the value of our services in a timely and cost-effective manner;

​

•

the substantial doubt about our ability to continue as a going concern due to our history of operating losses;

​

•

our ability to compete in the advertising, marketing, and market research services markets;

​

•

our expectations regarding our customer growth rate and the usage of our services;

​

​

•

our ability to increase our revenue, revenue growth rate, and profitability;

​

•

our ability to timely and effectively scale and adapt our existing business model and technology and protect our intellectual property rights;

​

•

our ability to successfully enter new markets and manage our business expansion;

​

•

our ability to successfully acquire and integrate companies and assets;

​

​

•

our ability to respond to unpredictable disruptive events, such as the COVID-19 pandemic and associated business disruptions;

​

•

our future business development, results of operations, and financial condition;

​

•

our ability to develop operational systems and hire additional personnel to satisfy our obligations as a public company, including necessary internal controls over financial reporting, and to achieve and maintain our listing with NASDAQ; and

​

•

the regulatory environments in which we operate.

​

Given the foregoing risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements in this prospectus. The forward-looking statements contained in this prospectus are not guarantees of future performance and our actual results of operations and financial condition may differ materially from such forward-looking statements. In addition, even if our results of operations and financial condition are consistent with the forward-looking statements in this prospectus, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this prospectus speaks only as of the date of this prospectus. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements in this prospectus, whether as a result of new information, future events or otherwise, after the date of this prospectus.

 

iv

 

1

 

2

 

3

 

4

 

​

5

 

​

6

 

7

 

8

 

9

 

10

 

(in thousands except for per common share amounts)

​

​

Six months ended September 30,

​

​

Years ended March 31,

​

​

2022 ($)

​

​

2022 (¥)

​

​

2021 (¥)

​

​

2022 ($)

​

​

2022 (¥)

​

​

2021 (¥)

​

Statement of Income Information

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Revenue

​

​

​

$

900

​

​

​

​

¥

130,182

​

​

​

​

¥

103,636

​

​

​

​

$

1,553

​

​

​

​

¥

224,727

​

​

​

​

¥

212,000

​

​

Cost of revenue

​

​

​

​

8

​

​

​

​

​

1,119

​

​

​

​

​

981

​

​

​

​

​

17

​

​

​

​

​

2,516

​

​

​

​

​

25,146

​

​

Gross profit

​

​

​

​

892

​

​

​

​

​

129,063

​

​

​

​

​

102,655

​

​

​

​

​

1,536

​

​

​

​

​

222,211

​

​

​

​

​

186,854

​

​

Operating expenses:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Selling, general, and administrative expenses

​

​

​

​

459

​

​

​

​

​

66,487

​

​

​

​

​

146,507

​

​

​

​

​

2,156

​

​

​

​

​

312,053

​

​

​

​

​

214,608

​

​

Gain/(Loss) from operations

​

​

​

​

409

​

​

​

​

​

59,232

​

​

​

​

​

(45,844)

​

​

​

​

​

(621)

​

​

​

​

​

(89,842)

​

​

​

​

​

(27,754)

​

​

Other income

​

​

​

​

—

​

​

​

​

​

—

​

​

​

​

​

—

​

​

​

​

​

4

​

​

​

​

​

541

​

​

​

​

​

5,971

​

​

Interest expenses

​

​

​

​

(11)

​

​

​

​

​

(1,524)

​

​

​

​

​

(1,560)

​

​

​

​

​

(21)

​

​

​

​

​

(2,984)

​

​

​

​

​

(3,424)

​

​

Foreign currency gain (loss), net

​

​

​

​

(13)

​

​

​

​

​

(1,820)

​

​

​

​

​

(432)

​

​

​

​

​

(32)

​

​

​

​

​

(4,795)

​

​

​

​

​

(591)

​

​

Total other income (expense), net

​

​

​

​

24

​

​

​

​

​

3,451

​

​

​

​

​

(1,992)

​

​

​

​

​

(49)

​

​

​

​

​

(7,238)

​

​

​

​

​

1,956

​

​

Net Profit/(Loss)

​

​

​

$

409

​

​

​

​

¥

59,232

​

​

​

​

¥

(45,844)

​

​

​

​

$

(671)

​

​

​

​

¥

(97,080)

​

​

​

​

¥

(25,798)

​

​

Net Profit/(Loss) margin

​

​

​

​

45.4%

​

​

​

​

​

45.5%

​

​

​

​

​

-44.2%

​

​

​

​

​

-43.2%

​

​

​

​

​

-43.2%

​

​

​

​

​

-12.2%

​

​

Net loss per share attributable to common shareholders, basic

​

​

​

$

0.02

​

​

​

​

¥

2.96

​

​

​

​

¥

(2.29)

​

​

​

​

$

(0.03)

​

​

​

​

¥

(4.85)

​

​

​

​

¥

(1.29)

​

​

Net loss per share attributable to common shareholders, diluted

​

​

​

$

0.02

​

​

​

​

¥

2.79

​

​

​

​

¥

(2.29)

​

​

​

​

$

(0.03)

​

​

​

​

¥

(4.85)

​

​

​

​

¥

(1.29)

​

​

Weighted-average shares outstanding basic

​

​

​

​

20,004,000

​

​

​

​

​

20,004,000

​

​

​

​

​

20,004,000

​

​

​

​

​

20,004,000

​

​

​

​

​

20,004,000

​

​

​

​

​

20,004,000

​

​

Weighted-average shares outstanding diluted

​

​

​

​

21,222,348

​

​

​

​

​

21,222,348

​

​

​

​

​

20,004,000

​

​

​

​

​

20,004,000

​

​

​

​

​

20,004,000

​

​

​

​

​

20,004,000

​

​

(in thousands)

​

​

Six months ended September 30,

​

​

Years ended March 31,

​

Other Operating Data

​

​

2022 ($)

​

​

2022 (¥)

​

​

2021 (¥)

​

​

2022 ($)

​

​

2022 (¥)

​

​

2021 (¥)

​

Adjusted EBITDA

​

​

​

​

483

​

​

​

​

​

69,900

​

​

​

​

​

9,228

​

​

​

​

$

(35)

​

​

​

​

¥

(5,004)

​

​

​

​

¥

84,045

​

​

Accumulated Coverage Value(1)

​

​

​

$

—

​

​

​

​

¥

—

​

​

​

​

¥

—

​

​

​

​

$

—

​

​

​

​

¥

—

​

​

​

​

¥

11,850,000,000

​

​

Cumulative Sponsors Served

​

​

​

​

—

​

​

​

​

​

—

​

​

​

​

​

—

​

​

​

​

​

—

​

​

​

​

​

—

​

​

​

​

​

7

​

​

11

 

(in thousands, except per common share amounts)

​

​

Six months ended September 30,

​

​

Years ended March 31,

​

Reconciliation of Non-GAAP Measures

​

​

2022 ($)

​

​

2022 (¥)

​

​

2021 (¥)

​

​

2022 ($)

​

​

2022 (¥)

​

​

2021 (¥)

​

Net Income/(Loss) from operations

​

​

​

$

385

​

​

​

​

¥

55,781

​

​

​

​

¥

(43,852)

​

​

​

​

$

(621)

​

​

​

​

¥

(89,842)

​

​

​

​

¥

(27,754)

​

​

Adjustments for:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Share-based compensation

​

​

​

​

28

​

​

​

​

​

4,061

​

​

​

​

​

52,932

​

​

​

​

​

580

​

​

​

​

​

83,976

​

​

​

​

​

111,684

​

​

Depreciation & Amortization

​

​

​

​

23

​

​

​

​

​

3,263

​

​

​

​

​

148

​

​

​

​

​

6

​

​

​

​

​

862

​

​

​

​

​

115

​

​

Adjusted EBITDA(1)

​

​

​

$

436

​

​

​

​

¥

63,105

​

​

​

​

¥

9,228

​

​

​

​

$

(35)

​

​

​

​

¥

(5,004)

​

​

​

​

¥

84,045

​

​

Adjusted EBITDA %(2)

​

​

​

​

48.4%

​

​

​

​

​

48.5%

​

​

​

​

​

8.9%

​

​

​

​

​

(2.3)%

​

​

​

​

​

(2.2)%

​

​

​

​

​

39.6%

​

​

(in thousands, except per common share amounts)

​

​

Six months ended September 30,

​

​

Years ended March 31,

​

Reconciliation of Non-GAAP Measures

​

​

2022 ($)

​

​

2022 (¥)

​

​

2021 (¥)

​

​

2022 ($)

​

​

2022 (¥)

​

​

2021 (¥)

​

Net Income/(Loss)

​

​

​

$

409

​

​

​

​

¥

59,232

​

​

​

​

¥

(45,844)

​

​

​

​

$

(671)

​

​

​

​

¥

(97,080)

​

​

​

​

¥

(25,798)

​

​

Net loss %

​

​

​

​

45.4%

​

​

​

​

​

45.5%

​

​

​

​

​

(44.2)%

​

​

​

​

​

(43.2)%

​

​

​

​

​

(43.2)%

​

​

​

​

​

(12.2)%

​

​

Adjustments for:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Other income

​

​

​

​

—

​

​

​

​

​

—

​

​

​

​

​

—

​

​

​

​

​

(4)

​

​

​

​

​

(541)

​

​

​

​

​

(5,971)

​

​

Interest expenses

​

​

​

​

11

​

​

​

​

​

1,524

​

​

​

​

​

1,560

​

​

​

​

​

21

​

​

​

​

​

2,984

​

​

​

​

​

3,424

​

​

Foreign currency gain/(loss), net

​

​

​

​

(34)

​

​

​

​

​

(4,975)

​

​

​

​

​

432

​

​

​

​

​

32

​

​

​

​

​

4,795

​

​

​

​

​

591

​

​

Share-based compensation

​

​

​

​

28

​

​

​

​

​

4,061

​

​

​

​

​

52,932

​

​

​

​

​

580

​

​

​

​

​

83,976

​

​

​

​

​

111,684

​

​

Depreciation & Amortization

​

​

​

​

23

​

​

​

​

​

3,263

​

​

​

​

​

148

​

​

​

​

​

6

​

​

​

​

​

862

​

​

​

​

​

115

​

​

Adjusted EBITDA(1)

​

​

​

$

436

​

​

​

​

¥

63,105

​

​

​

​

¥

9,228

​

​

​

​

$

(36)

​

​

​

​

¥

(5,004)

​

​

​

​

¥

84,045

​

​

Adjusted EBITDA %(2)

​

​

​

​

48.4%

​

​

​

​

​

48.5%

​

​

​

​

​

8.9%

​

​

​

​

​

(2.3)%

​

​

​

​

​

(2.2)%

​

​

​

​

​

39.6%

​

​

(in thousands)

​

​

September 30,

​

​

March 31,

​

Consolidated Balance Sheet Information

​

​

2022 ($)

​

​

2022 (¥)

​

​

2022 (¥)

​

​

2022 ($)

​

​

2022 (¥)

​

​

2021 (¥)

​

Total assets

​

​

​

​

1,427

​

​

​

​

​

206,451

​

​

​

​

​

182,810

​

​

​

​

$

1,263

​

​

​

​

¥

182,810

​

​

​

​

¥

194,806

​

​

Total liabilities

​

​

​

​

1,298

​

​

​

​

​

187,798

​

​

​

​

​

222,311

​

​

​

​

​

1,536

​

​

​

​

​

222,311

​

​

​

​

​

135,942

​

​

Equity (deficit):

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Common shares

​

​

​

​

944

​

​

​

​

​

136,636

​

​

​

​

​

136,636

​

​

​

​

​

944

​

​

​

​

​

136,636

​

​

​

​

​

136,636

​

​

Additional paid-in capital

​

​

​

​

2,331

​

​

​

​

​

337,299

​

​

​

​

​

337,299

​

​

​

​

​

2,331

​

​

​

​

​

337,299

​

​

​

​

​

337,299

​

​

Accumulated deficit

​

​

​

​

(3,128)

​

​

​

​

​

(452,677)

​

​

​

​

​

(511,908)

​

​

​

​

​

(3,537)

​

​

​

​

​

(511,908)

​

​

​

​

​

(414,828)

​

​

Accumulated other comprehensive loss

​

​

​

​

(18)

​

​

​

​

​

(2,605)

​

​

​

​

​

(1,528)

​

​

​

​

​

(11)

​

​

​

​

​

(1,528)

​

​

​

​

​

(243)

​

​

Total shareholders’ equity (deficit)

​

​

​

​

129

​

​

​

​

​

18,653

​

​

​

​

​

(39,501)

​

​

​

​

​

(273)

​

​

​

​

​

(39,501)

​

​

​

​

​

58,864

​

​

Total liabilities and shareholders’ equity (deficit)

​

​

​

​

1,427

​

​

​

​

​

206,451

​

​

​

​

​

182,810

​

​

​

​

$

1,263

​

​

​

​

¥

182,810

​

​

​

​

¥

194,806

​

​

​

12

 

RISK FACTORS

An investment in the ADSs is highly speculative and involves a high degree of risk. We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. You should carefully consider the factors described below, together with all of the other information contained in this prospectus, including the audited and unaudited financial statements and the related notes included in this prospectus, before deciding whether to invest in the ADSs. These risk factors are not presented in the order of importance or probability of occurrence. If any of the following risks actually occurs, our business, financial condition, and results of operations could be materially and adversely affected. In that event, the market price of the ADSs could decline, and you could lose part or all of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

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 the Company must be considered in the light of the potential problems, delays, uncertainties, and complications encountered in connection with a newly established business model. The risks include, but are not limited to:

•

the possibility that we will not be able to develop functional and scalable services, or that although functional and scalable, our services will not be economical to market;

​

•

that our competitors market and provide superior or more effective services;

​

•

that we are not able to upgrade and enhance our technologies to accommodate new needs and expanded service offerings;

​

•

the limitations that applicable laws and regulations place on the types of insurance coverage we can offer and/or the maximum amounts of such insurance coverage; or

​

•

the failure to comply with the applicable laws and regulations for our services as we conduct our current business and expand into new markets including markets outside Japan.

​

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.

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 September 30, 2022, we had total assets of JPY206,451 thousand ($1,427 thousand) and a working capital deficit of JPY87,471 thousand ($604 thousand). As of March 31, 2022, we had total assets of

 

13

 

JPY182,810 thousand ($1,505 thousand) and a working capital deficit of JPY112,658 thousand ($928 thousand). As of the date of this prospectus, we believe we need a minimum of JPY951,985 thousand ($7,839 thousand) in order to fund our presently forecasted plan of operations over the next 12 months. We have undertaken the present offering for purposes of acquiring the required capital and believe that the net proceeds of this offering will be sufficient to fund our presently forecasted business plan and scale-up of operations over, at least, the 12 months following the date of this prospectus. 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 prospectus. 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.

The report of our independent registered public accounting firm for the fiscal year ended March 31, 2022 states that due to our net losses, significant accumulated deficit, and continuing negative cash flows, there is substantial doubt about our ability to continue as a going concern.

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.

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 have a limited number of customers accounting for a substantial portion of our revenue in the six months ended September 30, 2022 and the fiscal years ended March 31, 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 years ended March 31, 2021 and 2020, more than 80% of the consolidated revenue was derived from two and three

 

14

 

customers, respectively. In the six months ended September 30, 2022 and the fiscal year ended March 31, 2022, we received revenue from one corporate sponsor, Paygene, a sales agency for medical devices. In May 2022, we acquired three new corporate sponsors, Beauken, Connect Plus, and Y’s Inc. We completed the marketing campaigns for Beauken and Connect Plus in May 2023 and are currently conducting a marketing campaign for Y’s Inc. 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. Our business model envisions that 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 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 may not be able to efficiently expand our customer base, which could have an adverse effect on our margins and financial position, and could negatively affect our revenue and results of operations and/or trading price of our common shares and 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 facts, 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 leverage 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 (US$823). We have used insurance companies to provide certain product insurance and medical insurance policies to cover our business or the participating 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.

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

Our future success will depend upon the continued service of our Chief Executive Officer. 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

 

15

 

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 we need or, if the labor costs for these 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 among the public so that potential customers of our corporate sponsors will be willing to participate in the campaigns we designed 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. While most of the corporate sponsors we work with are large reputable manufactures 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.

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 prospectus, 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

 

16

 

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, 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.

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.

 

17

 

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, subject to policy terms and conditions, 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, and 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 (US$823). In addition, as the Financial Services Agency of Japan has a broad discretion as to interpretation of the Insurance Business Act, it may amend the detailed requirements under the interpretation (including the amount of the threshold) in the future. Such amendment may require us to adjust our business model, which may harm our revenue prospectus or increase our compliance costs.

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 to 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

 

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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:

•

recruiting and retaining talented and capable employees in foreign countries;

​

•

increased exposure to public health issues, such as the COVID-19 pandemic;

​

•

promoting our business models to customers and users from different cultures, which may require us to adapt to sales and service practices necessary to effectively serve the local market;

​

•

compliance with the laws of numerous taxing jurisdictions, both foreign and domestic, in which we conduct business, potential double taxation of our international earnings, and potentially adverse tax consequences due to changes in applicable Japanese and foreign tax laws;

​

•

compliance with privacy, data protection, encryption, and information security laws, such as the Singapore Personal Data Protection Act of 2012;

​

•

credit risk and higher levels of payment fraud;

​

•

weaker intellectual property protection in some countries;

​

•

compliance with anti-bribery laws;

​

•

currency exchange rate fluctuations;

​

•

tariffs, export, and import restrictions, restrictions on foreign investments, sanctions, and other trade barriers or protection measures;

​

•

foreign exchange controls that might prevent us from repatriating cash earned outside Japan;

​

•

economic or political instability in countries where we may operate;

​

•

increased costs to establish and maintain effective controls at foreign locations; and

​

•

overall higher costs of doing business internationally.

​

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. See “ — If we fail to retain our Chief Executive Officer or attract and retain additional qualified personnel, we might not be able to pursue our growth strategy.” 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 “Certain Relationships and Related Party Transactions — Transactions with Our Chief Executive Officer and His Wholly-Owned Companies.” After the completion of this offering, we may not be able to receive the same level of financial support from Mr. Shono. If Mr. Shono’s ownership interest in us declines significantly in the future, this may affect our ongoing relationship. See “— Our Chief Executive Officer has entered into an agreement with another

 

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shareholder that may obligate our Chief Executive Officer to effect a transaction 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 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 868,500 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. 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 (US$1,592,477) as the aggregate principal balance. To release the pledge, Mr. Shono is required, to pay (a) by March 31, 2023, the outstanding aggregate balance of JPY193,390,450 (US$1,592,477) in a lump sum payment, (b) monthly installments (equal monthly installments of JPY2,360,000 (US$19,433) from April 30, 2022 to February 28, 2023 and JPY2,275,005 (US$18,734) 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 “Certain Relationships and 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.

Our articles of incorporation exculpates 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. 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

 

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reduce the amount of money available to us. While we plan to procure directors’ and officers’ liability insurance policies after the completion of this offering, such insurance policies may not be available to us in the future at a reasonable rate, may not cover all potential claims for indemnification, and may not be adequate to indemnify us for all liability that may be imposed.

Risks Related to this Offering and Ownership of the ADSs

We are an “emerging growth company” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common shares and the ADSs may be less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, a requirement to present only two years of audited financial statements in the registration statement for the emerging growth company’s initial public offering of common equity securities, an exemption from the auditor attestation requirement of the Sarbanes-Oxley Act, reduced disclosure about executive compensation arrangements pursuant to the rules applicable to smaller reporting companies, no requirement to seek non-binding advisory votes on executive compensation or golden parachute arrangements, and not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements. We have elected to adopt these reduced disclosure requirements.

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 registration statement declared effective under the Securities Act 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. In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised financial accounting standards. An emerging growth company can, therefore, delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result, our financial statements may not be comparable to companies that comply with public company effective dates.

We would cease to be an “emerging growth company” upon the earliest of (i) the last day of the fiscal year following the fifth anniversary of this offering, (ii) the last day of the fiscal year during which our annual gross revenue is $1.235 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities, or (iv) as of the end of any fiscal year in which the market value of our common shares held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year (and we have been a public company for at least 12 months and have filed at least one annual report on Form 20-F).

We cannot predict if investors will find the ADSs less attractive as a result of our taking advantage of these exemptions. If some investors find the ADSs less attractive as a result of our choices, there may be a less active trading market for the ADSs and our stock price may be more volatile.

As a “foreign private issuer,” we are permitted and intend to follow certain home country corporate governance and other practices instead of otherwise applicable SEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.

Our status as a foreign private issuer exempts us from compliance with certain SEC laws and regulations and certain regulations of NASDAQ, including certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Further, consistent with corporate governance practices in Japan, we do not have a standalone compensation committee or nomination and corporate governance committee under 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

 

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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 & 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.

We are a “controlled company” under NASDAQ corporate governance rules, since 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.

After the completion of this offering, assuming we sell the number of ADSs set forth on the cover page of this prospectus, Yusuke Shono, our Chief Executive Officer and a director, will beneficially own approximately 74.8% of the outstanding common shares (or approximately 73.5% of the outstanding shares of our common shares if the underwriters exercise their option to purchase additional ADSs in full). 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.

In conjunction with the consummation of this offering, we will 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.

We will incur significant increased costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives, including internal control over financial procedures.

As a public company, we need to develop operational systems and hire additional personnel to satisfy our obligations as a public company, including internal controls over financial reporting, and incur legal, accounting, and other expenses that we did not previously incur. We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, and the listing standards of NASDAQ as applicable to a foreign private issuer, which are different in some material respects from those required for a U.S. public company. Compliance with these rules and regulations will increase our legal and financial compliance 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.” Further, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors.

Pursuant to Section 404 of the Sarbanes-Oxley Act, once we are no longer an emerging growth company, we may be required to furnish an attestation report on internal control over financial reporting issued by our

 

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independent registered public accounting firm. When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of complying with Section 404 of the Sarbanes-Oxley Act will significantly increase, and management’s attention may be diverted from other business concerns, which could adversely affect our business and results of operations. We may need to hire more employees in the future or engage outside consultants to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, which will further increase our cost and expense. In addition, enhanced legal and regulatory regimes and heightened standards relating to corporate governance and disclosure for public companies result in increased legal and financial compliance costs and make some activities more time-consuming.

We have identified deficiencies that could aggregate to a material weakness in our internal control over financial reporting as discussed under “— 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,” and may discover other significant deficiencies or material weaknesses in our internal control over financial reporting. We may not successfully remediate these significant deficiencies or material weaknesses on a timely basis or at all. Any failure to remediate any significant deficiencies or material weaknesses identified by us or to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by NASDAQ, the SEC, or other regulatory authorities, which would require additional financial and management resources.

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which may result in threatened or actual litigation, including by competitors, shareholders, or 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 harm our business, financial condition, and results of operations.

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 are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act and are not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. However, during the preparation of our financial statements for the fiscal years ended March 31, 2022 and 2021 included in this prospectus, we 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. As of March 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that our internal controls over financial reporting were deficient primarily due to 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 GAAP. 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 GAAP.

 

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We are subject to the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F. In addition, once we cease to be an “emerging growth company” as defined in the JOBS Act, and assuming we are either an accelerated filer or a large accelerated filer, 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 control or the level at which our controls are documented, designed, operated, or reviewed, or if it interprets the relevant requirements differently from us.

We cannot provide assurance that additional material weaknesses or control deficiencies will not occur or recur in the future, or that we will have the necessary resources and personnel to effectively remedy any deficiency or material weakness and develop adequate controls over financial reporting. We currently have only one employee in charge of accounting matters and depend greatly on outside accountants for certain of our accounting and auditing functions. With the proceeds from this offering, we anticipate increasing the quantity of internal accountants as well as the quality of the accounting department, including bringing on staff with practical, applied experience in GAAP. Any remediation process if needed or developing adequate controls required for a public company will be time consuming and costly and will place significant demands on our financial and operational resources.

If we fail to implement and maintain an effective system of internal control to remediate any material weakness over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud. If we fail to achieve and maintain an effective internal control environment on an ongoing basis, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of the ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements for prior periods.

We cannot assure you that the ADSs will become liquid or that the ADSs will continue to be listed on a securities exchange.

We have applied to list the ADSs representing our common shares on NASDAQ; however, we cannot assure you that we will be able to maintain any such listing. Furthermore, although we anticipate a mechanism allowing common shares to be exchanged at a certain ratio to ADSs in connection with this offering, we may experience procedural or regulatory difficulties, from time to time, in the exchange of common shares for ADSs.

We have been thinly staffed and have leveraged third-party services to support the operations of our business. We will need to engage additional personnel and incur increased costs as a result of being a public company, and our failure to comply with the applicable requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing standards of NASDAQ, and the other laws and regulations applicable to us as a public company could subject us to delisting of the ADSs, fines, sanctions, and other regulatory action and potentially civil litigation. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling ADSs representing our common shares, which may further affect the liquidity of the ADSs. This would also make it more difficult for us to raise additional capital or attract qualified employees or partners.

Additionally, prior to the completion of this offering, there has been no public market for our common shares or the ADSs. Although we will list the ADSs on NASDAQ under the symbol “WRNT,” an active trading market for the ADSs may never develop or be sustained following this offering. If an active trading market does not develop or is not sustained, you may have difficulty selling your ADSs at an attractive price, or at all. An inactive market may also impair our ability to raise capital by selling our common shares or

 

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ADSs, and it may impair our ability to attract and motivate our employees through equity incentive awards and our ability to acquire other companies, products or technologies by using our common shares or ADSs as consideration.

Management will have broad discretion as to the use of the proceeds from this offering, and we may invest or spend the proceeds in ways with which you do not agree and in ways that may not yield a return.

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of the ADSs. We currently intend to use the net proceeds from this offering for working capital and other general corporate purposes, including hiring additional employees including sales and marketing personnel and conducting promotional activities associated with expanding corporate sponsors and attracting participant users for our campaigns. Our failure to apply these funds effectively could have a material adverse effect on our business, delay the development of our businesses, and cause the price of the ADSs to decline.

The price of the ADSs may fluctuate substantially.

The price for the ADSs in this offering will be determined by us and representatives of the underwriters, and it may not be indicative of prices that will prevail in the open market following this offering. You may not be able to sell your ADSs at or above the initial public offering price or at any other price or at the time that you would like to sell. You should consider an investment in the ADSs to be risky, and you should invest in the ADSs only if you can withstand a total loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of the ADSs to fluctuate, in addition to the other risks mentioned in this section of the prospectus, are:

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any failure to meet or exceed revenue and financial projections we provide to the public;

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actual or anticipated variations in our quarterly financial condition and operating results or those of other companies in our industry;

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•

our failure to meet or exceed the estimates and projections of the investment community;

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•

announcements of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors;

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•

additions or departures of our key management personnel;

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•

issuances by us of debt or equity securities;

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•

litigation involving our Company, including shareholder litigation, investigations or audits by regulators into the operations of our Company, or proceedings initiated by our competitors, customers, or participant users;

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•

changes in the market valuations of similar companies;

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•

ADS price and volume fluctuations attributable to inconsistent trading volume levels of the ADSs;

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•

significant sales of the ADSs or common shares by our insiders or our shareholders in the future;

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•

the trading volume of the ADSs in the United States; and

​

•

general economic and market conditions.

​

These and other market and industry factors may cause the market price and demand for the ADSs to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their ADSs and may otherwise negatively affect the liquidity of the ADSs. Future market fluctuations may also materially adversely affect the market price of the ADSs.

In the past, following periods of volatility in the market price of a company’s securities, shareholders have often instituted securities class action litigation against that company. Any such class action suit or other securities litigation would divert the attention of our senior management, require us to incur significant expense and, whether or not adversely determined, could materially adversely affect our business, financial condition, results of operations, and prospects.

 

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If you purchase ADSs in this offering, you will experience immediate and substantial dilution in the net tangible book value of the ADSs you purchase in this offering.

If you purchase ADSs in this offering, you will experience immediate dilution of $3.65 per ADS in the net tangible book value of your ADSs after giving effect to this offering at the offering price of $4.00 per ADS because the price that you pay will be substantially greater than the net tangible book value per ADS that you acquire. For a further description of the dilution that you will experience immediately after this offering, see the section of this prospectus titled “Dilution.” To the extent that new equity awards are issued under our share-based compensation plans or we issue additional common shares or ADSs in the future, there will be further dilution to investors participating in this offering.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the price of the ADSs and trading volume could decline.

The price and trading volume of the ADSs will be heavily influenced by the way analysts and investors interpret our financial information and other disclosures. If securities or industry analysts do not publish research or reports about our business, delay publishing reports about our business, or publish negative reports about our business, regardless of accuracy, the price and trading volume of the ADSs could decline.

The trading market for the ADSs will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. We expect that only a limited number of analysts may cover our Company following our initial public offering. If the number of analysts that cover us declines, demand for the ADSs could decrease and the price and trading volume of the ADSs may decline.

We do not currently intend to pay dividends on our common shares for the foreseeable future.

We currently do not intend to pay any dividends to holders of our common shares for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Any determination to pay dividends in the future will be at the discretion of our board of directors and subject to limitations under applicable law. Therefore, you are not likely to receive any dividends on your ADSs for the foreseeable future, and the success of an investment in the ADSs will depend upon any future appreciation in its value. Moreover, any ability to pay may be restricted by the terms of any future credit agreement or any future debt or preferred equity securities of us or our subsidiaries. Consequently, investors may need to sell all or part of their holdings of our common shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which our shareholders have purchased the ADSs.

Sales of a substantial number of our common shares or the ADSs in the public markets by our existing shareholders in the future could cause the price of the ADSs to fall.

In order to raise capital, execute our corporate finance strategy, or for other reasons, we may register additional ADSs in the future. Sales of a substantial number of our common shares or the ADSs in the public market in the future or the perception that these sales might occur, could depress the market price of the ADSs and could impair our ability to raise capital through the sale of additional equity securities from time to time. We are unable to predict the effect that any such sales may have on the prevailing 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 may from time to time 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 the date of this prospectus, 2,073,000 common shares are 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

 

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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 the investors who purchase ADSs in this offering.

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.

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 withdrawing the underlying 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 material 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 withdrawing the underlying 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.

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.

The depositary of the ADSs has agreed to pay holders of ADSs the cash dividends or other distributions it or the custodian for the ADSs receives on common shares or other deposited securities after deducting its

 

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fees and expenses. 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. 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.

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 law, ADS holders, including those holders who acquire ADSs in the secondary market. Waive the right to a jury trial for any claim they may have against us or the depositary arising out of or relating to our common shares, the ADSs or the deposit agreement, which may include any claim under the U.S. federal securities laws.

However, ADS owners and 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 owners and 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 were to oppose a jury trial based on this waiver, the court would have to determine whether the waiver was enforceable based on the facts and circumstances of the case in accordance with applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including 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, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this would be the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before investing in the ADSs.

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging 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 result in different outcomes than a trial by jury would have, including outcomes that could be less favorable to the plaintiff(s) in any such action. Nevertheless, if this jury trial waiver is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or the ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

Moreover, as the jury trial waiver relates to claims arising out of or relating to the ADSs or the deposit agreement, we believe that, as a matter of construction of the clause, the waiver would likely to continue to apply to ADS holders who withdraw the common shares from the ADS facility with respect to claims arising before the cancellation of the ADSs and the withdrawal of the common shares, and the waiver would most likely not apply to ADS holders who subsequently withdraw the common shares represented by ADSs from the ADS facility with respect to claims arising after the withdrawal. However, to our knowledge, there has been no case law on the applicability of the jury trial waiver to ADS holders who withdraw the common shares represented by the ADSs from the ADS facility.

 

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There is a risk that we will be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our current or any future taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of ADSs.

A non-U.S. corporation, such as our Company, is classified as a PFIC for any taxable year in which, after applying relevant look-through rules with respect to the income and assets of its subsidiaries, either: (i) 50% or more of the value of the corporation’s assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets; or (ii) at least 75% of the corporation’s gross income is passive income. “Passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. In determining the value and composition of our assets, the cash we raise in this offering will generally be considered to be held for the production of passive income and thus will be considered a passive asset.

Based upon our current and projected income and the valuation of our assets, including goodwill, we believe we may be classified as a PFIC for our current taxable year and in future taxable years. However, the determination of whether any corporation was, or will be, a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax rules that are subject to differing interpretations. In addition, because the determination of whether a corporation will be a PFIC for any taxable year can only be made after the close of such taxable year, there can be no assurance that we will not be a PFIC for our current taxable year or any future taxable year. Our PFIC status will depend, in part, on the amount of cash that we raise in this offering and how quickly we utilize the cash in our business. Furthermore, because we may value our goodwill based on the market price of the ADSs, a decrease in the market price of the ADSs may also cause us to be classified as a PFIC for the current or any future taxable year.

If we were treated as a PFIC, a U.S. holder (as defined below under “Certain Tax Considerations — Certain U.S. Federal Income Tax Considerations for U.S. Holders”) of ADSs may be subject to adverse U.S. federal income tax consequences, such as taxation at the highest marginal ordinary income tax rates on capital gains and on certain actual or deemed distributions, interest charges on certain taxes treated as deferred, and additional reporting requirements. We do not intend to provide information necessary for U.S. holders to make “qualified electing fund” elections which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs.

Risks Related to Japan

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

We are incorporated in Japan as a joint stock corporation (kabushiki kaisha) with limited liability. All of our directors are non-U.S. residents, and all of our assets and the personal assets of our directors 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 upon us in the United States, or to enforce against us or our directors or executive officers, judgments obtained in U.S. courts predicated upon civil liability provisions of U.S. federal or state securities laws or similar judgments obtained in other courts outside of 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 U.S. federal and state securities laws.

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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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. We do not take actions to manage our foreign currency exposure, such as entering into hedging transactions.

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’ 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 laws 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 joint stock corporation may have in response to an unsolicited takeover bid, and such uncertainty may be more pronounced than that in other jurisdictions.

Holders of ADSs have fewer rights than shareholders under Japanese law, and their voting rights are limited by the terms of the deposit agreement.

The rights of shareholders under Japanese law to take actions, including with respect to 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. Because the depositary, through its custodian agents, is the record holder of our common shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited shares. ADS holders will not be able to bring a derivative action, examine our accounting books and records, or exercise appraisal rights through the depositary.

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. If we do not instruct the depositary to ask for your voting instructions (and we are not required to do so), you can still send instructions and the depositary may try to vote common shares in accordance with those instruction, but it is not required to do so. 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.

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 “Description of Share Capital and Articles of Incorporation — 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 once the depositary receives clearance for the acquisition of our common shares underlying the ADS. The requisite approval relating to this offering was received 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

 

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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 “Description of Share Capital and Articles of Incorporation — Exchange Controls” and “Description of American Depositary Shares — Deposit, Withdrawal, and Cancellation.”

Dividend payments and the amount you may realize upon a sale of 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 into U.S. dollars, subject to certain conditions. 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 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 common shares.

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USE OF PROCEEDS

We estimate that we will receive approximately $7.9 million in net proceeds from the sale of 2,770,000 ADSs offered by us in this offering (or approximately $9.5 million if the underwriters exercise in full their option to purchase up to 415,500 additional ADSs from us), based on the initial public offering price of $4.00 per ADS, after deducting the underwriting discounts, non-accountable expense allowance, and estimated offering expenses of approximately $2.22 million payable by us.

We intend to use the net proceeds for the purposes below:

​

•

approximately $2.84 million for hiring additional employees including sales, marketing, and administrative personnel;

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​

•

approximately $2.23 million for conducting promotional activities, including outbound marketing and expansion of agency network referrals;

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​

•

approximately $1.80 million for general advertising and promotion, associated with expanding corporate sponsors and attracting participant users for our campaigns; and

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​

•

approximately $1.00 million for working capital and other general corporate purposes.

​

In the event of the underwriters’ exercise of their overallotment option, we intend to apply the net proceeds therefrom among the above-mentioned purposes. We have no agreements or commitments for particular uses of the net proceeds from this offering, and our management will have discretion in allocating the net proceeds. The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our expansion and development efforts, whether or not we enter into strategic transactions, our general operating costs and expenditures, and the changing needs of our businesses.

We believe that our funds and the net proceeds from this offering will be sufficient to continue our businesses and operations as currently conducted for at least the next 12 months; however, changing circumstances may cause us to consume capital significantly faster than we currently anticipate.

 

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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. See “Description of Share Capital and Articles of Incorporation — Dividend Rights.” 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. See “Description of American Depositary Shares — Dividends and Other Distributions.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents, debt and capitalization as of September 30, 2022:

•

on an actual basis;

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​

•

on an as-adjusted basis to give effect to the issuance of 2,770,000 ADSs in this offering at the initial public offering price of $4.00 per ADS, after deducting underwriting discounts, non-accountable expense allowance, and estimated offering expenses payable by us, as set forth in this prospectus.

​

You should read the following table in conjunction with the sections entitled “Use of Proceeds,” “Summary Consolidated Financial Information and Operating Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and the related notes thereto included elsewhere in this prospectus.

​

(1)

The number of common shares to be outstanding immediately after this offering is based on the issuance of 2,770,000 ADSs in this offering and does not include (i) up to 415,500 ADSs issuable upon the exercise in full by the underwriters of their option to purchase additional ADSs from us, and (ii) up to an aggregate of 2,073,000 common shares issuable upon the exercise of stock options outstanding as of September 30, 2022 at a weighted average exercise price of JPY55.20 per share.

​

(2)

Our debt is comprised of loans borrowed from three Japanese financial institutions: SBI Estate Finance Co., Ltd., Resona Bank, Limited, and Japan Finance Corporation. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Outstanding Loans from Financial Institutions.”

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DILUTION

Purchasers of ADSs in this offering will experience immediate and substantial dilution to the extent of the difference between the initial public offering price per ADS paid by the purchasers of the ADSs in this offering and the as-adjusted net tangible book value per ADS immediately after, and giving effect to, this offering. Dilution results from the fact that the initial public offering price per ADS in this offering is substantially in excess of the net tangible book deficit per ADS attributable to our existing shareholders for our presently outstanding common shares.

Our historical net tangible book value per common share is determined by dividing our net tangible book value, which is the book value of our total tangible assets less the book value of our total liabilities, by the number of outstanding common shares. As of September 30, 2022, the historical net tangible book value of our common shares was $129,000, or $0.01 per common share.

After giving effect to the (i) sale by us of 2,770,000 ADSs in this offering at the initial public offering price of $4.00 per ADS, and (iii) receipt by us of the net proceeds of this offering, after deduction of the underwriting discounts, non-accountable expense allowance, and the estimated offering expenses payable by us, our as-adjusted net tangible book value as of September 30, 2022 would have been $7.9 million, or $0.35 per common share. The as-adjusted net tangible book value per common share immediately after the offering is calculated by dividing the as-adjusted net tangible book value of $7.9 million by 22,774,000 common shares (which are the as-adjusted common shares outstanding as of September 30, 2022). The difference between the initial public offering price per ADS and the as-adjusted net tangible book value per ADS represents an immediate increase in net tangible book value of $0.35 per ADS to our existing shareholders, and an immediate dilution in net tangible book value of $3.65 per ADS to purchasers of ADSs in this offering.

The following table illustrates this dilution to purchasers in this offering on a per ADS basis (in thousands, except per ADS data):

The table and information above assume no exercise by the underwriters of their option to purchase additional ADSs in this offering. If the underwriters exercise in full their option to purchase up to 415,500 additional ADSs from us, the as-adjusted net tangible book value per ADS immediately after this offering would be $0.41 per ADS, and the dilution in as-adjusted net tangible book value per ADS to purchasers in this offering would be $3.59 per ADS, based on the initial public offering price of $4.00 per ADS, and after deducting the underwriting discounts, non-accountable expense allowance, and estimated offering expenses payable by us.

The following table summarizes, as of September 30, 2022, on the as-adjusted basis described above, the differences between the number of common shares underlying the ADSs purchased from us, the total consideration paid to us in cash, and the weighted average price per common share underlying the ADSs that our existing shareholders and the new purchasers in this offering paid. The calculation below is based on the initial public offering price of $4.00 per ADS, before deducting the estimated underwriting discounts, non-accountable expense allowance, and estimated offering expenses payable by us.

 

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The table and information above assume no exercise by the underwriters of their option to purchase additional ADSs in this offering. If the underwriters exercise in full their option to purchase up to 415,500 additional ADSs from us, the number of common shares underlying the ADSs held by purchasers in this offering would be increased to 3,185,500 common shares, or 15% of the total number of common shares outstanding immediately after this offering, and the percentage of common shares held by our existing shareholders would be reduced to 86% of the total number of common shares outstanding immediately after this offering.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section of this prospectus entitled “Business” and our consolidated financial statements and related notes thereto, included elsewhere in this prospectus. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our current plans, expectations, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

Overview

Warrantee is 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 sales of their products.

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. 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. The system underlying our sponsored product insurance model, which is for us to serve as an intermediary between sponsors, insurance companies, and users and in such role provide insurance for the users upon terms agreed by the sponsors, is patent protected in Japan.

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 and potentially increasing sales of our corporate sponsors’ products. 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 six months ended September 30, 2022, and 2021, we generated total revenue of JPY130,182 thousand (US$900 thousand) and JPY103,636 thousand (US$716 thousand), respectively, and generated net income of JPY59,232 thousand (US$409 thousand) and net losses of JPY45,844 thousand (US$317 thousand), respectively. We had an accumulated deficit of JPY452,677 thousand (US$3,128 thousand) as of September 30, 2022.

For the fiscal years ended March 31, 2022, and 2021, we generated total revenue of JPY224,727 thousand (US$1,553 thousand) and JPY212,000 thousand (US$1,465 thousand), respectively, and incurred net losses

 

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of JPY97,080 thousand (US$671 thousand) and JPY25,798 thousand (US$178 thousand), respectively. We had an accumulated deficit of JPY511,908 thousand (US$3,537 thousand) as of March 31, 2022. 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 July 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. With the proceeds from this offering, we expect to design and conduct more campaigns based on our trinity model in our existing verticals, as well as in other market verticals as part of our growth strategy.

Prior to 2018, we were engaged in various businesses including advertising, licensing fees, and system development services, which we refer to herein as “miscellaneous services.” Since 2018, we started to develop our campaign services based on the trinity model and deemphasized our provision of the miscellaneous services. Since April 1, 2021, we have not incurred any meaningful revenue or incurred meaningful expenses from miscellaneous services and we do not expect to engage in any significant activity or incur significant revenue or expenses with regard to miscellaneous services going forward.

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”) is primarily composed of operating expenses related to sales and marketing, technology development, miscellaneous insurance expenses for the Company, and other general and administrative expenses, such as expenses related to this 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 GAAP, we also provide Adjusted EBITDA and its ratio to revenue, Adjusted EBITDA %, each of which are financial measures that are not based on any standardized methodology prescribed by GAAP. Management considers Adjusted EBITDA and Adjusted 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 Adjusted EBITDA and Adjusted 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 GAAP measures; they should be read and used in conjunction with our 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.

Adjusted EBITDA.   We define Adjusted EBITDA as net income plus other income, interest expenses, share-based compensation, and depreciation and amortization expenses. Adjusted EBITDA should not be

 

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considered an alternative to net income or other measures under GAAP. Adjusted EBITDA is not calculated identically by all companies and, therefore, our measures of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

Adjusted EBITDA Margin.   We define adjusted EBITDA Margin as the percentage derived from dividing Adjusted EBITDA for a period by total revenue for the same period.

Factors Impacting Our Performance

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.

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 the 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 six months ended September 30, 2022 or the fiscal years ended March 31, 2022 and 2021 from the pandemic. 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 (US$16 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.

 

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Results of Operations

Comparison of the Results for the Six Months Ended September 30, 2022 and 2021

​

(1)

For a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, see “Summary Consolidated Financial Information and Operating Data.”

​

Revenue

Revenue increased by 26% year-over-year in the six months ended September 30, 2022 to JPY130,182 thousand (US$900 thousand) as the Company’s services were more widely recognized in the industry compared to the same period last year.

Cost of Revenue

Cost of revenue increased by 14% year-over-year to JPY1,119 thousand (US$8 thousand) in the six months ended September 30, 2022 due to the increase in variable, costs which was primarily comprised of insurance premiums paid for participant users in campaigns and system development costs as a result of higher revenue. As a result, gross profit grew 26% year-over-year to JPY129,063 thousand (US$892 thousand) with gross profit margin at ~99% in both periods.

SG&A

SG&A decreased by 55% year-over-year to JPY66,487 thousand (US$459 thousand) in the six months September 30, 2022, primarily due to lower stock compensation expenses associated with our fourth series stock option grant and lower wages paid.

Other (Expenses) Income

Interest expenses decreased 2.3% year-over-year to JPY1,524 thousand (US$11 thousand) in the six months ended September 30, 2022 compared to the prior year, reflecting repayment of long-term debts. Other expenses were JPY1,820 thousand (US$13 thousand) compared to JPY432 thousand (USD3 thousand), reflecting primarily the impact of foreign exchange movements.

Net Income/(Loss) and Adjusted EBITDA

Net income was JPY59,232 thousand (US$409 thousand) in the six months ended September 30, 2022 compared to a net loss of JPY45,844 thousand (US$317 thousand) in the prior fiscal year primarily due to higher revenue and lower SG&A.

 

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Subsequently, Adjusted EBITDA increased to JPY63,105 thousand (US$436 thousand) in the six months ended September 30, 2022 from JPY9,228 thousand (US$64 thousand) in the prior period.

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

​

(1)

For a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, see “Summary Consolidated Financial Information and Operating Data.”

​

Revenue

Revenue increased by 6% year-over-year in the fiscal year ended March 31, 2022 to JPY224,727 thousand (US$1,851 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 (US$21 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 (US$1,830 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 (US$2,570 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 (US$34 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 Adjusted EBITDA

Net loss increased to JPY97,080 thousand (US$799 thousand) in the fiscal year ended March 31, 2022 from a net loss of JPY25,798 thousand (US$212 thousand) in the prior fiscal year, primarily due to the increase in SG&A and the increase in other expenses.

Adjusted EBITDA decreased to a loss of JPY5,004 thousand (US$41 thousand) in the fiscal year ended March 31, 2022 from a profit of JPY84,045 thousand (US$692 thousand) in the prior fiscal year due to the increased SG&A, increase in other expenses.

Liquidity and Capital Resources

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 our affiliates. As of the date of this prospectus, we believe we need a minimum of JPY761,588 thousand ($5,267 thousand) in order to fund our presently forecasted plan of operations over the next 12 months. We have undertaken the present offering for purposes of acquiring the required capital and believe that the net proceeds of this offering will be sufficient to fund our presently forecasted business plan and scale-up of operations over, at least, the 12 months following the date of this prospectus. 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 prospectus. 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.

The report of our independent registered public accounting firm for the fiscal year ended March 31, 2022 states that due to our net losses, significant accumulated deficit, and continuing negative cash flows, there is substantial doubt about our ability to continue as a going concern.

Cash Flows

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

Operating Activities.   Cash flow from operations was a source of JPY27,432 thousand (US$190 thousand) in the six months ended September 30, 2022, compared to a source of JPY30,442 thousand (US$210 thousand) in the prior period, as higher net income was offset by uses of cash paid for accrued expenses and other current liabilities and cash used for prepaid expenses and other current assets.

Investing Activities.   Cash flow from investing activities was a use of JPY7,678 thousand (US$53 thousand) in the six months ended September 30, 2022 and a use of JPY7,392 thousand (US$51 thousand), due to investments in capitalized software.

Financing Activities.   Cash flow from financing activities was a use of cash of JPY25,304 thousand (US$175 thousand) in the six months ended September 30, 2022, compared to a use of cash of JPY35,335 thousand (US$244 thousand) in the prior period, primarily due to lower payments of deferred offering costs.

 

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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 (US$655 thousand) in the fiscal year ended March 31, 2022, compared to a source of JPY2,043 thousand (US$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 (US$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 (US$495 thousand) in the fiscal year ended March 31, 2022, compared to a use of cash of JPY12,554 thousand (US$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 September 30, 2022 and March 31, 2022, 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 (US$428 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 September 30, 2022 and March 31, 2022 was JPY44,123 thousand (US$305 thousand) and JPY45,011 thousand (US$371 thousand), respectively.

On December 18, 2020, the Company obtained a loan from Resona Bank in the principal amount of JPY25,000 thousand (US$206 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 September 30, 2022 and March 31, 2022 was JPY25,000 thousand (US$173 thousand) and JPY25,000 thousand (US$206 thousand), respectively.

On September 3, 2014, the Company obtained a loan from Japan Finance Corporation in the principal amount of JPY15,000 thousand (US$124 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 (US$124 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 September 30, 2022 and March 31, 2022 was JPY15,275 thousand (US$105 thousand) and JPY15,500 thousand (US$128 thousand), respectively.

 

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Off-Balance Sheet Arrangements

As of September 30, 2022, March 31, 2022, and March 31, 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.

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 September 30, 2022.

The following table sets forth the amount of our contractual obligations as of March 31, 2022.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with 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 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.

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;

 

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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 six months ended September 30, 2022 or the fiscal years ended March 31, 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 six months ended September 30, 2022 and the fiscal years ended March 31, 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 six months ended September 30, 2022 and the fiscal years ended March 31, 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.

 

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There were no bad debt expenses or allowance for doubtful accounts recorded as of and for the six months ended September 30, 2022 and the years ended March 31, 2022 and 2021.

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.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2021 for non-public entities, with early adoption permitted.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Leases — Targeted Improvements (“ASU 2018-11”), which offers a practical expedient for transitioning at the adoption date.

In June 2020, the FASB issued ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, which defers the effective date of ASU 2016-02 for non-public entities to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. We adopted this standard effective April 1, 2022 and the adoption did not have a material effect on our consolidated financial statements.

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

 

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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.

Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes — Simplifying the Accounting for Income Taxes (Topic 740) (“ASU 2019-12”), which simplifies various aspects of the income tax accounting guidance and will be applied using different approaches depending on what the specific amendment relates to and, for non-public entities, are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. We adopted this standard effective April 1, 2022 and the adoption did not have a material effect on our consolidated financial statements.

Government Assistance

In November 2021, the FASB issued Accounting Standards Update No 2021-10, Government Assistance (Topic 832) — Disclosures by Business Entities about Government Assistance (“ASU 2021-10”). ASU 2021-10 requires additional disclosures regarding the nature of government assistance, the related accounting policy used to account for assistance, the affected line items and applicable amounts within the consolidated financial position and results of operations, and significant terms and conditions related to the assistance. Government assistance within the scope of ASC 832 includes assistance that is administered by domestic, foreign, local, state, and national governments, as well as departments, independent agencies, and intergovernmental organizations. The updated guidance increases transparency of government assistance including, 1) the type of assistance, 2) the entity’s accounting for assistance, and 3) the effect of assistance on the entity’s financial statements. The new standard is effective for fiscal years beginning after December 15, 2021. We adopted this standard effective April 1, 2022 and the adoption did not have a material effect on our consolidated financial statements.

Quantitative and Qualitative Disclosure about Market Risk

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in foreign currency. We do not hold or issue financial instruments for trading purposes.

Foreign Currency Risk

Our functional currency is the Japanese yen, whereas our foreign operating expenses incurred by our wholly-owned subsidiary in Singapore are denominated in Singapore dollars. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. A hypothetical 10% change in foreign currency exchange rates may result in a material impact on our consolidated financial statements. To date, we have not had a formal hedging program with respect to foreign currencies, but we may do so in the future if our exposure to foreign currencies should become more significant.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to SEC reporting companies that are not emerging growth companies. For so long as we remain an emerging growth company, we will not be required to, among other things:

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present more than two years of audited financial statements and two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosure in our registration statement of which this prospectus forms a part;

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have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; and

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disclose certain executive compensation related items.

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The JOBS Act also permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result, our financial statements may not be comparable to companies that comply with public company effective dates.

We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (ii) the last day of the fiscal year during which we have total annual gross revenue of at least $1.235 billion, (iii) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which means the market value of our common shares that are held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, and (iv) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

In this prospectus, we have taken advantage of certain of the reduced reporting requirements as a result of being an emerging growth company and a foreign private issuer. Accordingly, the information that we provide in this prospectus may be different than the information you may receive from other public companies in which you hold equity interests. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.

 

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BUSINESS

Company 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 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, four in the fiscal year ended March 31, 2023, and four currently) 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 (US$823) 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 and potentially increasing sales of our corporate sponsors’ products. 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 six months ended September 30, 2022 and 2021, we generated total revenue of JPY130,182 thousand (US$900 thousand) and JPY103,636 thousand (US$716 thousand), respectively, and generated net income of JPY59,232 thousand (US$409 thousand) and net losses of JPY45,844 thousand (US$317 thousand), respectively. We had an accumulated deficit of JPY452,677 thousand (US$3,128 thousand) as of September 30, 2022.

For the fiscal years ended March 31, 2022 and 2021, we generated total revenue of JPY224,727 thousand (US$1,851 thousand) and JPY212,000 thousand (US$1,746 thousand), respectively, and incurred net losses of JPY97,080 thousand (US$799 thousand) and JPY25,798 thousand (US$212 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 July 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. With the proceeds from this offering, we expect to design and conduct more campaigns based on our trinity model in our 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 can 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 SKU, 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 more 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 would provide extended warranty coverage on durables for participant users. Our participant users may be consumers or business

 

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entities. As of the date of this prospectus, 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, the marketing campaign which is ongoing as of the date of this prospectus, and a real estate management firm, Connect Plus, Ltd. Co., for which we completed a marketing campaign in May 2023 directed to the tenants at the sponsor’s properties.

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, 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 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 (US$823) 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 would 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 would 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 prospectus, 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, for usually a high premium.

Within this vertical, we have two primary types of corporate sponsors. The first type are medical device manufacturers which provide medical devices that are generally not covered under Japan’s government-run

 

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