BLMZ BloomZ Inc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

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

OR

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

For the fiscal year ended September 30, 2024

OR

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

OR

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

Date of event requiring this shell company report

For the transition period from          to         

Commission file number: 001-42186

BloomZ Inc.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

Toyo Recording 1F, 4-5-19 Akasaka
Minato-ku, Tokyo 107-0052
Japan

+81 050-3138-4984

(Address of principal executive offices)

Minoru Muranaga, Chief Financial Officer

Telephone: +81 050-3138-4984

Email: muranaga@bloomz-inc.com

At the address of the Company set forth above

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

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

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

None

(Title of Class)

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

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

13,429,800 ordinary shares as of September 30, 2024

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

Yes ☐ No ☒

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

Yes ☐ No ☒

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

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

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

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

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

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

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

TABLE OF CONTENTS

INTRODUCTION

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

This annual report on Form 20-F includes our audited consolidated financial statements for the fiscal years ended September 30, 2024, 2023, and 2022. In this annual report, we refer to assets, obligations, commitments, and liabilities in our consolidated financial statements in United States dollars. These dollar references are based on the exchange rate of ¥ to United States dollars, determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations and the value of our assets.

This annual report contains translations of certain ¥ amounts into U.S. dollars at specified rates. Our functional currency and reporting currency are the Japanese yen, the legal currency of Japan. The terms “dollar” or “$” refer to U.S. dollars, the legal currency of the United States. Convenience translations included in this annual report of Japanese yen into U.S. dollars have been made at the exchange rates of ¥143.25=$1.00, which was the foreign exchange rate on September 30, 2024, as reported by the Board of Governors of the Federal Reserve System (the “U.S. Federal Reserve”) in its weekly release on October 7, 2024. Historical and current exchange rate information may be found at https://www.federalreserve.gov/releases/h10/.

Part I

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

Item 3. KEY INFORMATION

A. [Reserved]

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Risks Related to Our Business and Industry

We have had significant accumulated deficits as of September 30, 2024, 2023, and 2022, which raises substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern depends on our being able to attract and retain revenue generating customers, acquire new customer contracts, and secure additional financing.

We had operating losses of ¥185,902 thousand and ¥14,885 thousand and a profit of ¥6,821 thousand for the fiscal years ended September 30, 2024, 2023, and 2022, respectively. Such operating losses resulted in accumulated deficits of ¥237,512 thousand, ¥16,489 thousand, and ¥693 thousand as of September 30, 2024, 2023, and 2022, respectively. Given the preceding conditions, our auditor, Assentsure PAC, has raised substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern depends upon our ability to attract and retain revenue generating customers, acquire new customer contracts, and secure additional financing.

While our management’s plan is to acquire new revenue generating customer contracts and obtain additional financing through the issuance of the Company’s Ordinary Shares, other equity or debt financings, or other means, there is no assurance that we will be successful.

If we are unable to acquire new revenue generating customer contracts and obtain additional financing in the future, there may remain substantial doubt about our ability to continue as a going concern, and, investors or other financing sources may be unwilling to provide funding to us on commercially reasonable terms or at all.

Further, if we are unable to continue as a going concern, we may have to discontinue operations and liquidate our assets and may be compelled to receive less than the value at which those assets are carried on our audited financial statements, which would cause the shareholders to lose all or a part of their investment.

We operate in highly competitive markets and our failure to compete effectively could adversely affect our results of operations.

The audio production and VTuber management industries in Japan are both highly competitive and fragmented. As a relatively new and small-scale company in both industries, we face competition directly from the large-scale companies with more resources and those with a more extended operating history and more connections to these industries. In addition, we indirectly face competition from other large video streaming platforms, social media platforms, and other platforms offering movies, concerts, sports games, and other recreational activities in terms of our VTuber management business. See “Item 4. Information on the Company—B. Business Overview—Competition.” Our current or future competitors may have longer operating histories, greater brand recognition, or greater financial, technical, or marketing resources than we do. Competitors may leverage their brand recognition, experience, and resources to compete with us in a variety of ways, including investing more heavily in developing diverse types and innovative content in their audio production business and VTuber live streaming projects. In addition, new and enhanced technologies may increase the competition in the audio production and VTuber live streaming markets. Increased competition may reduce our profitability, market share, customer base, and brand recognition. There can be no assurance that we will be able to compete successfully against current or future competitors, and such competitive pressures could have a material adverse effect on our business, financial condition, and results of operations.

If we are unable to retain the existing clients for our audio production and voice actor workshop businesses, our results of operations will be materially and adversely affected.

The fees paid by the production committee for our comprehensive audio production services and the profit distributed based on our investment ratio after the animations/video games sold are the primary source of income of our audio production business. In the event our existing clients no longer place orders for our audio production services or invite us to invest and be involved in animation/video game production projects, and we do not acquire sufficient replacement orders to compensate, the revenue from our audio production business may be impacted, and our results of operations may be materially and adversely affected.

Membership fees we collect from the registered members under our workshop business provide the primary source of income of our voice actor workshop business. Since we do not enter into any long-term contracts with our registered members, we may not be able to accurately predict whether the registered members will continue to participate in our workshops, and the participating rates may decline or fluctuate due to factors such as the level of satisfaction with our services and our fees and charges, as well as factors beyond our control, such as the outbreak of a pandemic, Japan’s overall economic situation, and the rising competition from our competitors. If our existing members decide to no longer participate in our voice actor workshops and we do not acquire replacement members in comparable numbers or otherwise grow our member base, the revenue from our voice actor workshop business may be impacted, and our results of operations may be materially and adversely affected.

If we fail to retain our existing fans or further grow our fan base, the operation, profitability, and prospects of our VTuber management business may be materially and adversely affected.

The size of the fan base and the level of fan engagement are critical to the success of our VTuber management business. Since a large portion of the revenue generated from the VTuber management business was from the profits distributed by the online platforms, which directly hinge upon the number of the viewers of our affiliated VTubers’ live streaming videos and how many services, such as Super Chats/Stickers/Thanks, our fans purchase, the amount of the revenue generated by our VTuber management business significantly depends on our ability to maintain and increase the size of our fan base and fan engagement level. If our fan base becomes smaller or our fans become less active, it is probable that our fans would spend less on services like Super Chats/Stickers/Thanks or access the platforms less, in general. As a result, our financial condition would suffer from the consequential decline in revenue, and our business and operating results will be materially and adversely impacted.

As of September 30, 2024, we had approximately 486,000 subscribers on our affiliated VTubers’ YouTube channels.

Our revenue generated from the VTuber management business is highly dependent on the level of fan engagement. For example, during the fiscal years ended September 30, 2024, 2023, and 2022, 13.5%, 29.0%, and 54.0%, respectively, of the revenue generated from the VTuber management business came from YouTube, and among the revenue sources we generated from YouTube during the fiscal years ended September 30, 2024, 2023, and 2022, 52.0%, 68.3%, and 81.5% was from Super Chats/Stickers/Thanks, respectively. This reflects the level of activeness and willingness of our fans to purchase services like Super Chats/Stickers/Thanks to interact and engage with our affiliated VTubers during their live streaming sessions.

Maintaining and improving the current size of our fan base and the level of our fan engagement is critical to our continued success. To maintain and improve our fan base and level of fan engagement, however, we would have to ensure that we adequately and timely respond to changes in fan preferences, cultivate, attract, and retain enough popular VTubers, and offer new features and content that may attract new fans. There is no guarantee that we can meet all of these goals. A number of factors could negatively affect our fan retention, growth, and engagement, including if:

We may fail to cultivate, attract, and retain talented and competent voice actors and VTubers, which may materially and negatively affect our audio production and VTuber management businesses and operations.

As of the date of this annual report, we have 59 collaborating voice actors and 15 affiliated VTubers, which decreased by approximately 15.3% and 6.3% from the numbers as of September 30, 2024, respectively. Our collaborating voice actors play a key role in the audio production, since their voice acting provides the personality of their casting characters. Affiliated VTubers are the core of the live streaming ecosystem, as they are the primary source of captivating content to attract a dynamic and highly interactive community of fans. The charisma of our collaborating voice actors and affiliated VTubers, together with their voice acting skills, are primary contributors to secure the retention of our clients and fans. While we enter into one-year exclusive management agreements with our collaborating voice actors and affiliated VTubers that prohibit them from voice acting or live streaming for third parties’ projects without our prior consent, they may choose not to renew the agreements when the term ends. Moreover, the exclusive management agreements do not prohibit departing voice actors and VTubers from immediately working with our competitors. The departure of high-quality voice actors and VTubers may cause a quick corresponding decline in our client and fan base. To retain high-quality voice actors and VTubers, we may have to expend more resources to provide incentives, such as compensation schemes and comprehensive training and support to help them improve their incentives and build publicity and brand awareness. Although we strive to improve and stabilize our operations in these respects, there is no assurance that our collaborating voice actors and affiliated VTubers will not leave, despite our best efforts to retain them.

Contractual disputes with our collaborating voice actors and affiliated VTubers may harm our reputation and subject us to contractual liabilities, and may be costly or time-consuming to resolve.

We have entered into a one-year exclusive management agreement with every collaborating voice actor and affiliated VTuber. The fixed terms of the exclusive management agreement are generally non-negotiable, and such agreements will be automatically renewed if no party terminates one month prior to the end of the term. From time to time, there may be contractual disputes between us and our collaborating voice actors or affiliated VTubers. Any such disputes may be costly and time-consuming to resolve and detrimental to the quality of our audio production or the content produced by our affiliated VTubers, causing our existing clients to end the business relationship, decrease our fan base and the level of engagement, or could otherwise adversely affect our business, financial condition, and results of operations.

If we are no longer able to benefit from CyberStep’s support, our business may be adversely affected.

CyberStep, one of our principal shareholders, is a large video game-producing company. Our business has benefited from CyberStep’s permission to access its resources and assets, including granting us the use of the studios it leases to host physical voice actor workshops and providing access to its existing sales channels to sell and deliver merchandise featuring our collaborating voice actors and affiliated VTubers. In addition, we also have benefited from other types of CyberStep’s support, including designing and producing novel video games suitable for our collaborating voice actors and affiliated VTubers, to provide work opportunities for our audio production services, and assisting us by engaging with, and securing opportunities to work for, its subsidiaries or strategic alliance counterpart in relevant industries.

However, since we do not enter into agreements with CyberStep for the foregoing support and have been dependent on oral arrangements and non-obligatory support from the management of CyberStep, CyberStep may, at its own discretion, cease granting such permission or providing such support.

We cannot assure you that we will continue to benefit from our cooperation with CyberStep and its subsidiaries in the future. To the extent we cannot maintain our cooperative relationships with CyberStep on terms favorable to us or at all, we may need to expend resources to locate other business alliances to provide similar resources, services, and assets, and we may lose work opportunities, which would have a material and adverse effect on our business, prospects and results of operations. 

Our limited operating history in rapidly evolving industries makes it difficult to accurately forecast our future operating results and evaluate our business prospects.

We only have a limited operating history, as we launched our audio production and voice actor workshop business in October 2017 and our VTuber management business in December 2021. Members of our management team have been working together for a short period of time and our operations are still in an early stage. They may still be in the process of exploring approaches to running our Company and reaching a consensus among themselves, which may affect the efficiency and results of our operation. Due to our limited operating history, our historical growth rate may not be indicative of our future performance. Our future performance may be more susceptible to certain risks than a company with a longer operating history in a different industry. Many factors could adversely affect our business and prospects and future performance, including:

We may not be successful in addressing the risks and uncertainties listed above, among others, which may materially and adversely affect our business, results of operations, financial condition, and future prospects.

Our financial condition, results of operations, and cash flows were adversely affected by the COVID-19 pandemic during the fiscal year ended September 30, 2022.

The COVID-19 pandemic spread throughout the world and resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus during calendar years 2020, 2021, and 2022. Companies also took precautions, such as requiring employees to work remotely, imposing travel restrictions, and temporarily closing their businesses.

While our business has not been materially affected by the COVID-19 pandemic since October 1, 2022, it was substantially and adversely affected during the fiscal year ended September 30, 2022. The global outbreak of COVID-19 adversely impacted Japan between the beginning of 2020 and the first half of 2023. During such period, the Japanese government issued several Declarations of Emergency, requesting the closing of non-essential activities and businesses across the country as a preemptive safeguard against the spread of COVID-19. This situation adversely impacted businesses across the country, particularly in the education and entertainment fields in which we operate.

Audio Production

During the fiscal year ended September 30, 2022, many of the orders for audio production services we had received were postponed, due to the cessation of the entirety of animation production projects in compliance with the government COVID-19 policies. In addition, the progress of a few audio productions was delayed, as some of our collaborating voice actors were infected with COVID-19. Our audio production business was not materially affected by COVID-19 during the fiscal years ended September 30, 2024 and 2023, because fewer orders for audio production services were postponed, as fewer animation production projects were deferred or canceled compared to the fiscal year ended September 30, 2022. The revenue generated from the audio production business during the fiscal year ended September 30, 2024 increased by 44.5% compared to the fiscal year ended September 30, 2023. The increase was mainly because anime production projects have begun to generate revenue.

VTuber Management

COVID-19 significantly affected the streaming schedule due to infections afflicting our affiliated VTubers during fiscal year 2022. In addition, offline events featuring our affiliated VTubers we planned to hold and expected to significantly contribute to the revenue were canceled in fiscal year 2022, either in compliance with the government’s COVID-19 policies or due to the infection of our affiliated VTubers. Since fewer of our affiliated VTubers were infected with COVID-19 and most of our infected affiliated VTubers had recovered from COVID-19, the streaming schedule during the fiscal years 2024 and 2023 was not as significantly affected as it was during the fiscal year 2022. Consequently, during the fiscal years ended September 30, 2024 and 2023, the number of VTubers available for live streaming increased, which led to higher advertisement revenue, and thus, the revenue generated from the VTuber management business significantly increased.

Voice Actor Workshops

Our physical voice actor workshops were frequently canceled, in compliance with the government policies during the fiscal year ended September 30, 2022, due to the COVID-19 pandemic. While our voice actor workshop business was not materially affected by COVID-19 during the fiscal years ended September 30, 2024 and 2023, as no physical voice actor workshops were canceled during these periods, the revenue generated from the voice actor workshop business decreased compared to the same period in the prior year. The decrease is primarily because of a decrease in the number of students.

For additional information, see section captioned “Item 5. Operating and Financial Review and Prospects—COVID-19 Pandemic Affecting Our Results of Operations.”

Our businesses are all operated in Japan, and our current business and future growth could be materially and adversely affected if we experience a decline in clients in Japan.

Since our audio production business, VTuber management business, and voice actor business are all operated in Japan, our current business and future growth could be materially and adversely affected if we experience a decline in clients and fan engagement in Japan.

Due to the importance of the Japanese market to our business, we are also subject to macroeconomic risks specific to Japan. See “Item 3. Key Information—D. Risk Factors—A downturn in the economy of the markets in which our audio production services, VTuber live streaming services, and voice acting educational services are provided may affect clients’ and fans’ willingness to spend on extracurricular education and entertainment services, which could directly or indirectly delay our growth strategy and have a material adverse effect on our business, financial condition, profitability, and cash flows” in this section.

A downturn in the economy of the markets in which our audio production services, VTuber live streaming services, and voice acting educational services are provided may affect clients’ and fans’ willingness to spend on extracurricular education and entertainment services, which could delay our growth strategy and directly or indirectly have a material adverse effect on our business, financial condition, profitability, and cash flows.

A downturn in the economy of the markets in which our audio production services, VTuber live streaming services, and voice acting educational services are provided could adversely impact clients’ and fans’ willingness to spend on extracurricular education and entertainment services. Factors that could affect such willingness include general business conditions, employment levels, interest rates and tax rates, the availability of consumer credit, and consumer confidence in future economic conditions. In the event of an economic downturn, consumer spending habits could be adversely affected and we could experience lower than expected net profits, which could force us to delay or slow our growth strategy and directly or indirectly have a material adverse effect on our business, financial condition, profitability, and cash flows.

In recent years, the economic indicators in Japan have also shown mixed signs, and future growth of the Japanese economy is subject to many factors beyond our control. The Japanese government has introduced policies to combat deflation and promote economic growth. In addition, the Bank of Japan introduced a plan for quantitative and qualitative monetary easing in April 2013 and announced a negative interest rate policy in January 2016. In April 2020, the Bank of Japan decided to further intensify monetary easing in response to the economic downturn caused by the COVID-19 pandemic. However, the long-term impact of these policy initiatives on Japan’s economy remains uncertain. In addition, the occurrence of pandemics, such as the COVID-19 pandemic, the occurrence of large-scale natural disasters, such as earthquakes and typhoons, as well as an increase in the consumption tax rate, which took place in April 2014, with a further increase in October 2019, may also adversely impact the Japanese economy, potentially impacting spending on extracurricular education and entertainment services. Any future deterioration of the Japanese or global economy may result in a decline in consumption that would have a negative impact on demand for our services and the prices we are able to charge for them.

Our management has a limited history managing rapid expansion. If we cannot effectively and efficiently manage our growth strategy, our results of operations or profitability could be materially and adversely affected.

We have been growing rapidly in recent years, and we intend to continue to expand our business by undertaking audio production for more animation and video game projects, planning and producing our own animation and TV programs, securing more talented and competent voice actors and VTubers, improving and increasing the content of our affiliated VTubers’ live streaming performances, holding offline events featuring our collaborating voice actors and affiliated VTubers, and broadening the scale of our voice actor workshops. Since this rapid expansion is a new strategy for us and our management has a limited history managing such an expansion, we may not be able to adapt quickly to such major business changes, compete successfully in new markets, build our brand in new areas, or generate sufficient net income from our newly expanded business. As a result, it is difficult for us to predict our results of operations with respect to our newly expanded business and you should not rely on our historical results of operations as an indication of our future financial performance.

This growth strategy has placed, and will continue to place, substantial demands on our managerial, operational, technological, and other resources. Our growth strategy will also place significant demands on us to maintain the quality of our services to ensure that our brand does not suffer as a result of any deviations, whether actual or perceived, in the quality of our services. To accommodate our growth, we anticipate that we will need to implement a variety of new and upgraded operational and financial systems, procedures, and controls, including the improvement of our accounting and other internal management systems. We will also need to continue to expand, train, manage, and motivate our workforce and manage our relationships with members, clients, and collaborating service providers. All of these endeavors involve risks and will require substantial management effort and significant additional expenditures. We cannot assure you that we will be able to effectively manage our growth or execute our strategies effectively, and any failure to do so may have a material adverse effect on our results of operations and profitability.

Any negative publicity about us, our business, shareholders, affiliates, directors, officers, and other employees may materially and adversely affect our reputation and business.

We may, from time to time, receive negative publicity about us, our management, or our business. Any such negative publicity may be the result of malicious harassment or unfair competition acts by third parties. We may also be subject to government or regulatory investigations as a result of such third-party conduct and may be required to spend significant time and incur substantial costs to defend ourselves against such third-party conduct, and we may not be able to conclusively refute any such allegations within a reasonable period of time, or at all. Our reputation may be materially and adversely affected as a result of any negative publicity, which in turn may cause us to lose market share, clients, fans, and business partnerships and could, consequently, have a material adverse effect on our business, reputation, financial condition, and results of operations.

Negative publicity, regardless of merit, could be related to a wide variety of matters, including, but not limited to:

If we are unable to provide a high-quality customer experience, our business, reputation, financial condition, and results of operations may be materially and adversely affected.

The success of our business largely depends on our ability to provide a high-quality customer experience for our audio production services, VTuber live streaming services, and voice acting educational services, which in turn depends on a variety of factors. These factors include our ability to (i) continue to offer high-quality audio production services, VTuber live streaming services, and voice acting educational services at competitive prices, (ii) maintain reliable relationships with our clients, members, and collaborating voice actors and affiliated VTubers and retain the permission to use the physical studios leased by CyberStep and keep them clean and safe for the voice actor workshops, and (iii) provide timely and satisfying customer service. If our customers are not satisfied with our service experience, or the prices at which we offer the audio production services and voice acting educational services are severely interrupted or otherwise fail to meet our customers’ expectations, our reputation and customer loyalty could be adversely affected. As a result, if we are unable to continue to provide, or maintain, a high-quality customer service, we may not be able to retain existing customers or attract new customers, which could have a material adverse effect on our business, reputation, financial condition, and results of operations.

Our business depends on the continued success of our brand, and if we fail to maintain and enhance the recognition of our brand, we may face difficulty increasing our network of clients, fans, members, and collaborating voice actors and affiliated VTubers, and our reputation and operating results may be harmed.

We believe that market awareness of our brand, “BloomZ,” has contributed significantly to the success of our business. Maintaining and enhancing our brand is critical to our efforts to increase our network of clients, fans, members, and collaborating voice actors and affiliated VTubers.

Our ability to attract new clients, fans, members, and collaborating voice actors and affiliated VTubers depends on investment in our brand, our marketing efforts, and the success of our services, and on the perceived value of our services as may be compared to competing alternatives available to our client, fan, and member bases.

In order to increase the market awareness of our brand, we have been striving to cultivate, attract, and retain talented and competent voice actors and VTubers so as to improve our capacity for participating in more animation/video game production projects and producing more live streaming videos and hosting online live streaming events. As of the date of this annual report, the number of our collaborating voice actors has increased to 59 from seven in 2017, and the number of affiliated VTubers has increased to 15 since the commencement of our VTuber management business in December 2021. In addition, the aggregate number of views of our VTubers’ YouTube channels affiliated with Hoshimeguri Gakuen, increased significantly from 9,476,466 in the fiscal year 2023 to 17,347,841in the fiscal year 2024.

In addition, a failure by our clients, fans, and members to distinguish between our brand and the different services provided by our competitors may result in a reduction in revenue, profit, and margins, should the services of our competitors be selected rather than ours. If our marketing initiatives are not successful or become less effective, if we are unable to further enhance our brand recognition, or if we incur excessive marketing and promotion expenses, we may not be able to attract new clients, fans, members, and collaborating voice actors and affiliated VTubers successfully or efficiently, and our business and results of operations may be materially and adversely affected.

In addition, negative publicity about our business, shareholders, affiliates, directors, officers, and other employees can harm the recognition of our brand. Please see “—Any negative publicity about us, our business, shareholders, affiliates, directors, officers, and other employees may materially and adversely affect our reputation and business.”

In addition to traditional media, there has been an increasing use of social media platforms and similar devices in Japan, including instant messaging applications, social media websites, and other forms of internet-based communications that provide individuals with access to a broad audience of consumers and other interested persons. The availability of information on instant messaging applications and social media platforms is virtually immediate, as is its impact, which affords us little or no opportunity for redress or correction. The opportunity for dissemination of information, including inaccurate information, is readily available. Information concerning our Company, shareholders, affiliates, directors, officers, and other employees, may be posted on such platforms at any time. The risks associated with any such negative publicity or incorrect information cannot be completely eliminated by our strategies to maintain our brand integrity and may materially harm the recognition of our brand, our reputation, business, financial condition, and results of operations.

Unauthorized use of our intellectual property by third parties and expenses incurred in protecting our intellectual property rights may adversely affect our business, reputation, and competitive edge.

We regard our company logo, domain names, copyrights, and other similar intellectual property, especially with respect to our collaborating voice actors and affiliated VTubers’ virtual characters, and use of rights of publicity (being the licensable right to control the commercial use and make use of the commercial value of individual’s names, signatures, images, portraits, and likenesses) of our collaborating voice actors, pursuant to the exclusive management agreements, as important to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality and non-disclosure agreements to protect our rights. For details, please see “Item 4. Information on the Company—Business—Intellectual Property.”

Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented, or misappropriated, or such intellectual property may not be sufficient to provide us with competitive advantages. It may be difficult to maintain and enforce intellectual property rights. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently. Confidentiality, invention assignment and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in all jurisdictions.

Policing unauthorized use of our proprietary technology and other intellectual property is difficult and expensive, and litigation may be necessary in the future to enforce our intellectual property rights. Future litigation could result in substantial costs and diversion of our resources and could disrupt our business, as well as materially adversely affect our financial condition and results of operations. Further, despite the potentially substantial costs, we cannot assure you that we will prevail in any such litigation.

Third parties may claim that we infringe on their proprietary intellectual property rights, which could cause us to incur significant legal expenses and prevent us from promoting our services.

Our success depends, in part, on our ability to operate without infringing on the intellectual property rights of others. Third parties may, in the future, claim our current or future copyrights, trademarks, technologies, business methods, processes, or use of rights of publicity of our collaborating voice actors infringe on their intellectual property rights or may challenge the validity of our intellectual property rights. We may be subject to intellectual property infringement claims that would be costly to defend and could limit our ability to use certain critical copyrights, trademarks, business methods, or rights of publicity of our collaborating voice actors.

The defense and prosecution, if necessary, of intellectual property suits, interference proceedings, and related legal and administrative proceedings can become very costly and may divert our management personnel from their normal responsibilities. We may not prevail in any of these suits or proceedings. An adverse determination of any litigation or defense proceedings could require us to pay substantial compensatory and punitive damages, could restrain us from using critical copyrights, trademarks, business methods, processes, or rights of publicity of our collaborating voice actors, and could result in us losing or not gaining valuable intellectual property rights.

Furthermore, due to the voluminous amount of discovery frequently conducted in connection with intellectual property litigation, some of our confidential information could be disclosed to competitors during this type of litigation. In addition, public announcements of the results of hearings, motions, or other interim proceedings or developments in the litigation could be perceived negatively by investors and thus have an adverse effect on the trading price of our Ordinary Shares.

Our current insurance policies may not provide adequate levels of coverage against all claims and we may incur losses that are not covered by our insurance.

We believe we maintain insurance coverage that is customary for businesses of our size and type. However, we may be unable to insure against certain types of losses or claims, or the cost of such insurance may be prohibitive. Uninsured losses or claims, if they occur, could have a material adverse effect on our reputation, business, results of operations, financial condition, or prospects.

Data security breaches and attempts thereof could negatively affect our reputation, credibility, and business.

Our operation of businesses collects and stores personal information relating to our customers (registered members), including their personally identifiable information. Customers are increasingly concerned with the security of personal information transmitted over the Internet (or through other mechanisms), consumer identity theft, and user privacy. Any perceived, attempted, or actual unauthorized disclosure of personally identifiable information regarding our members, collaborating voice actors, and affiliated VTubers could harm our reputation and credibility, reduce the revenue of our businesses, impair and reduce our ability to attract and retain members, collaborating voice actors, and affiliated VTubers, and could result in litigation against us or the imposition of significant fines or penalties. We cannot assure you that any of our third-party service providers with access to such personally identifiable information will maintain policies and practices regarding data privacy and security in compliance with all applicable laws, or that they will not experience data security breaches or attempts thereof which could have a corresponding adverse effect on our business.

Recently, data security breaches suffered by well-known companies and institutions have attracted a substantial amount of media attention, prompting new foreign, national, provincial or state, and local laws and legislative proposals addressing data privacy and security, as well as increased data protection obligations imposed on merchants by credit card issuers. As a result, we may become subject to more extensive requirements to protect the customer information that we process in connection with the purchase of our services, resulting in increased compliance costs.

Our ability to operate our VTuber management business depends on the development and maintenance of live streaming platforms and the Internet infrastructure operated by third parties.

Since we operate our VTuber management business on live streaming platforms operated by third parties, such as YouTube, if our contractual relationship with these third parties is terminated due to our violation of their terms of service, we may no longer be able operate our VTuber management business on their live streaming platforms. In such event, the value of these live streaming platforms with video distribution media would decline due to a decrease in the number of users and our VTuber management business would be adversely affected.

In addition, the Internet’s infrastructure is comprised of many different networks and services that are highly fragmented and distributed by design. This infrastructure is run by a series of independent third-party organizations that work together to provide the infrastructure and supporting services of the Internet under the governance of the Internet Corporation for Assigned Numbers and Names (“ICANN”) and the Internet Assigned Numbers Authority, now under the stewardship of ICANN. The Internet has experienced various outages and other delays due to damage to portions of its infrastructure, denial-of-service attacks, or related cyber incidents, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage or result in fragmentation of the Internet, resulting in multiple separate Internets. These scenarios are not under our control and could reduce the availability of the Internet to our affiliated VTubers for delivery of their live streaming services. Any interruptions in our VTuber live streaming services or the ability of our fans to access our VTuber live streaming services could result in a loss of potential or existing fans and harm our VTuber management business.

We may need additional capital in the future to pursue our business objectives.

We may need to raise additional capital to respond to business challenges or opportunities, accelerate our growth, develop new business offerings, or enhance our technological capacities. Due to the unpredictable nature of the capital markets and our industries, we cannot assure you that we will be able to raise additional capital on terms favorable to us, or at all, if and when required, especially if we experience disappointing results of operations. If adequate capital is not available to us as required, our ability to fund operations, take advantage of unanticipated opportunities, develop or enhance our infrastructure, or respond to competitive pressures could be significantly limited. If we do raise additional funds through the issuance of equity or convertible debt securities, the ownership interests of holders of our Ordinary Shares could be significantly diluted. These newly issued securities may have rights, preferences, or privileges senior to those of existing holders or our securities.

If we fail to attract, recruit, or retain our key personnel, including our executive officers, senior management, and key employees, our ongoing operations and growth could be affected.

Our success also depends, to a large extent, on the efforts of our key personnel, including our chief executive officer, Ms. Kazusa Aranami, director, Mr. Yuhi Mimura, and other key employees who have valuable experience, knowledge, and connection in the animation production industry and the audio production industry. There is no assurance that these key personnel will not voluntarily terminate their employment with us. We do not carry, and do not intend to procure, key person insurance on any of our senior management team. The loss of any of our key personnel could be detrimental to our ongoing operations. Our success will also depend on our ability to attract and retain qualified personnel to manage our existing operations as well as our future growth. We may not be able to successfully attract, recruit, or retain key personnel, and this could adversely impact our growth. Moreover, we rely on our sales and marketing team to source new clients for our business growth. We have seven sales and marketing personnel in total, as of the date of this annual report, who are responsible for pitching and soliciting upstream animation/video game-producing companies to purchase our audio production services. If we are unable to attract, retain, and motivate our sales and marketing personnel, our business may be adversely affected.

We may from time to time be subject to claims, controversies, lawsuits, and legal proceedings, which could adversely affect our business, prospects, results of operations, and financial condition.

We may from time to time become subject to or involved in various claims, controversies, lawsuits, and legal proceedings. However, claims and threats of lawsuits are subject to inherent uncertainties, and we are uncertain whether any of these claims would develop into a lawsuit. Lawsuits, or any type of legal proceeding, may cause us to incur defense costs, utilize a significant portion of our resources, and divert management’s attention from our day-to-day operations, any of which could harm our business. Any settlements or judgments against us could have a material adverse impact on our financial condition, results of operations, and cash flows. In addition, negative publicity regarding claims or judgments made against us may damage our reputation and may result in a material adverse impact on us.

Risks Relating to our Ordinary Shares and the Trading Market

The market price of our Ordinary Shares may be volatile or may decline, regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

The market price of our Ordinary Shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

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

The trading price of our Ordinary Shares is likely to be volatile, which could result in substantial losses to our investors.

From the closing of our initial public offering on July 23, 2024 to the date of this annual report, the trading price of our Ordinary Shares has ranged from $0.35 to $4.3 per Ordinary Share. The trading price of our Ordinary Shares is likely to continue to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations overseas that have listed their securities in the United States. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in their trading prices. The trading performances of other companies’ securities after their offerings may affect the attitudes of investors toward companies listed in the United States in general and consequently may impact the trading performance of our Ordinary Shares, regardless of our actual operating performance.

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

Any of these factors may result in large and sudden changes in the volume and price at which our Ordinary Shares will trade.

In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

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

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations. Despite recent reforms made possible by the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act,” compliance with these rules and regulations will nonetheless increase our legal, accounting, and financial compliance costs and investor relations and public relations costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things, that we file annual and current reports with respect to our business and operating results as well as proxy statements.

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

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

We may experience extreme stock price volatility unrelated to our actual or expected operating performance, financial condition, or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Ordinary Shares.

Recently, there have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public offerings, especially among companies with relatively smaller public floats. As a relatively small-capitalization company with relatively small public float, we may experience greater stock price volatility, extreme price run-ups, lower trading volume, and less liquidity than large-capitalization companies. In particular, our Ordinary Shares may be subject to rapid and substantial price volatility, low volumes of trades, and large spreads in bid and ask prices. Such volatility, including any stock run-up, may be unrelated to our actual or expected operating performance, financial condition, or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Ordinary Shares.

In addition, if the trading volumes of our Ordinary Shares are low, persons buying or selling in relatively small quantities may easily influence prices of our Ordinary Shares. This low volume of trades could also cause the price of our Ordinary Shares to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our Ordinary Shares may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our Ordinary Shares. As a result of this volatility, investors may experience losses on their investment in our Ordinary Shares. A decline in the market price of our Ordinary Shares also could adversely affect our ability to issue additional Ordinary Shares or other securities and our ability to obtain additional financing in the future. No assurance can be given that an active market in our Ordinary Shares will develop or be sustained. If an active market does not develop, holders of our Ordinary Shares may be unable to readily sell the shares they hold or may not be able to sell their shares at all.

If we fail to implement and maintain an effective system of internal controls or fail to remediate the material weaknesses in our internal control over financial reporting that have been identified, we may fail to meet our reporting obligations or be unable to accurately report our results of operations or prevent fraud, and investor confidence and the market price of our Ordinary Shares may be materially and adversely affected.

In preparing our consolidated financial statements as of and for the fiscal years ended September 30, 2024, 2023, and 2022, we and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board, and other control deficiencies. The material weaknesses identified included (i) certain audit adjustments proposed by the auditor and recorded by the Company into the financial statements; and (ii) a lack of independent directors and an audit committee. Following the identification of the material weaknesses and control deficiencies, we have elected two independent directors and formed an audit committee and plan to continue to take remedial measures, including (i) implementing regular and continuous accounting principles generally accepted in the United States of America (“U.S. GAAP”) accounting and financial reporting training programs for our accounting and financial reporting personnel and (ii) engaging an external consulting firm to assist us with assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal control. However, the implementation of these measures may not fully address the material weaknesses in our internal control over financial reporting. 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 our Ordinary Shares. Additionally, ineffective internal control over financial reporting could expose us to an 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. As a result, our business, financial condition, results of operations, and prospects, and the trading price of our Ordinary Shares, may be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly hinders our ability to prevent fraud.

We are a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending September 30, 2025. In addition, once we cease to be an “emerging growth company,” as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified, if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated, or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational, and financial resources and systems for the foreseeable future. We may be unable to complete our evaluation testing and any required remediation in a timely manner.

As a public company, we incur substantially increased costs as compared to when we were a private company.

We incur significant legal, accounting, and other expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and Nasdaq, impose various requirements on the corporate governance practices of public companies.

Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costlier. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. 

We are an “emerging growth company,” as defined in the JOBS Act and will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by non-affiliates exceeds $700 million as of the prior March 31, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.

After we are no longer an “emerging growth company,” or until five years following the completion of our initial public offering, whichever is earlier, we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures.

The sale or availability for sale of substantial amounts of our Ordinary Shares could adversely affect their market price.

Sales of substantial amounts of our Ordinary Shares in the public market, or the perception that these sales could occur, could adversely affect the market price of our Ordinary Shares and could materially impair our ability to raise capital through equity offerings in the future. The sales or subsequent resales of the Ordinary Shares in the public market by the selling shareholders under the prospectus filed on November 6, 2024 (the “Resale Shares”) may cause the market price of our Ordinary Shares to decline. All of the Resale Shares will be freely tradable without restriction or further registration under the Securities Act, and certain Ordinary Shares held by our existing shareholders may also be sold in the public market in the future, subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. As of the date of this annual report, an aggregate of 14,425,936 Ordinary Shares are issued and outstanding. Sales of these Ordinary Shares into the market could cause the market price of our Ordinary Shares to decline.

We do not intend to pay dividends for the foreseeable future.

We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Ordinary Shares if the market price of our Ordinary Shares increases.

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

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

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

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

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

Nasdaq listing rules require listed companies to have, among other things, a majority of its board members be independent, and such independent directors have regularly scheduled meetings at which only they are present. As a foreign private issuer, however, we are permitted to, and we have chosen to follow home country practice in lieu of the above requirements. The corporate governance practice in our home country, the Cayman Islands, does not impose a requirement that our board of directors consist of a majority of independent directors or that such independent directors meet regularly without other members present. Thus, although a director must act in the best interests of the Company, it is possible that fewer board members will be exercising independent judgment, and the level of board oversight on the management of our Company may decrease as a result. In addition, Nasdaq listing rules require U.S. domestic issuers to have a compensation committee composed entirely of independent directors and that director nominees be selected or recommended for selection by either a majority of the independent directors or a nominating and corporate governance committee comprised solely of independent directors. We, as a foreign private issuer, are not subject to these requirements and have chosen to follow home country practice instead. Our home country practice does not impose specific requirements on the establishment of a compensation committee or nominating committee or nominating process. Therefore, we do not have a compensation committee or a nominating and corporate governance committee, nor are our director nominees selected or recommended for selection by a majority of the independent directors. Nasdaq listing rules also require listed companies to obtain shareholder approval prior to issuing or selling securities (or securities convertible into or exercisable for common stock) that equal 20% or more of the companies’ outstanding common stock or voting power prior to such issuance or sale. We, as a foreign private issuer, are permitted to and have chosen to follow home country practice in lieu of this requirement, which allows us to issue and sell securities that equal 20% or more of our outstanding Ordinary Shares or voting power without obtaining shareholder approval.

Therefore, for as long as we remain a “foreign private issuer,” we will not have the same protections afforded to our shareholders that are subject to all of the above corporate governance requirements, and you will have less protection than you would have if we were a domestic issuer.

If we cannot continue to satisfy the listing requirements and other rules of the Nasdaq Capital Market, our securities may be delisted, which could negatively impact the price of our securities and your ability to sell them.

Our Ordinary Shares are listed on the Nasdaq Capital Market under the symbol “BLMZ.”

In order to maintain our listing on the Nasdaq Capital Market, we are required to comply with certain rules of the Nasdaq Capital Market, including those regarding minimum stockholders’ equity, minimum share price, minimum market value of publicly held shares, and various additional requirements. Even if we meet the listing requirements and other applicable rules of the Nasdaq Capital Market, we may not be able to continue to satisfy these requirements and applicable rules. If we are unable to satisfy the Nasdaq Capital Market criteria for maintaining our listing, our securities could be subject to delisting.

On September 12, 2024, we received a written notification (the “Notification Letter”) from Nasdaq advising us that, based on the market value of our Ordinary Shares from July 29, 2024 to September 11, 2024, we did not meet the minimum market value of listed securities requirement stipulated in Nasdaq Listing Rule 5550(b)(2) (the “Minimum Market Value of Listed Securities Requirement”). Nasdaq Listing Rule 5550(b)(2) requires listed companies to maintain a minimum market value of listed securities of $35 million, and Nasdaq Listing Rule 5810(c)(3)(C) provides that a failure to meet the Minimum Market Value of Listed Securities Requirement exists if the deficiency continues for a period of 30 consecutive business days.

The Notification Letter does not impact our listing on the Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), we have been provided 180 calendar days, or until March 11, 2025 (the “Compliance Period”), to regain compliance with Nasdaq Listing Rule 5550(b)(2), which will be satisfied if, at any time during the Compliance Period, the market value of our Ordinary Shares closes at $35 million or more for a minimum of 10 consecutive business days. During the Compliance Period, we expect that our Ordinary Shares will continue to be listed and traded on the Nasdaq. We intend to monitor the market value of our Ordinary Shares between now and March 11, 2025, and our management is looking into various options available to regain compliance and maintain our continued listing. In the event we do not regain compliance by March 11, 2025, we will be subject to delisting; however, we may appeal the delisting determination to the Nasdaq’s hearings panel. 

On December 2, 2024, we received a written deficiency letter (the “Deficiency Letter”) from Nasdaq advising us that, based on the bid price of our Ordinary Shares from October 18, 2024 to November 29, 2024, we did not meet the minimum bid price requirement as set forth under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”) for continued listing on Nasdaq. The Minimum Bid Price Rule requires listed securities to maintain a minimum bid price of $1.00 per share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet this requirement exists if the deficiency continues for a period of 30 consecutive business days.

The Deficiency Letter does not impact our listing on the Nasdaq. In accordance with the Nasdaq Listing Rule 5810(c)(3)(A), we have been provided 180 calendar days, or until June 2, 2025, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, our Ordinary Shares must have a closing bid price of at least $1.00 for a minimum of 10 consecutive trading days during the 180-day period or prior to June 2, 2025. We intend to actively monitor the closing bid price of its securities between now and June 2, 2025. The Company will take all reasonable measures to regain compliance. In the event that the Company does not regain compliance by June 2, 2025, the Company may be eligible for additional time to regain compliance or may face delisting.

If the Nasdaq Capital Market subsequently delists our securities from trading, we could face significant consequences, including:

Anti-takeover provisions in our articles of association may discourage, delay, or prevent a change in control.

Some provisions of our articles of association may discourage, delay, or prevent a change in control of our Company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue shares with preferred, deferred, or other special rights or restrictions without any further vote or action by our shareholders.

It is not possible to predict the actual number of Ordinary Shares we will sell under the White Lion Purchase Agreement to White Lion, or the actual gross proceeds resulting from those sales.

Subject to certain limitations in the White Lion Purchase Agreement and compliance with applicable law, we have the discretion to deliver notices to White Lion at any time throughout the Commitment Period. The number of the Ordinary Shares ultimately offered for sale by White Lion under the prospectus filed on November 6, 2024 is dependent upon the number of Ordinary Shares we elect to sell to White Lion under the White Lion Purchase Agreement. The actual number of Ordinary Shares that are sold to White Lion may depend on a number of factors, including the market price and market liquidity of our Ordinary Shares during the Commitment Period. Actual gross proceeds may be less than $30.0 million, which may impact our future liquidity. Because the price per share of each Ordinary Share sold to White Lion will fluctuate during the Commitment Period, it is not currently possible to predict the number of Ordinary Shares that will be sold or the actual gross proceeds to be raised in connection with those sales, if any.

Investors who buy Ordinary Shares in the public market at different times will likely pay different prices.

Investors who purchase Ordinary Shares in the public market at different times will likely pay different prices, and, therefore, may experience different levels of dilution and different outcomes in their investment results. In connection with the White Lion Purchase Agreement, we will have discretion, subject to market demand, to vary the timing, prices, and numbers of Ordinary Shares sold to White Lion. Similarly, White Lion may sell the Resale Shares at different times and at different prices. Investors may experience a decline in the value of the Ordinary Shares they purchase from White Lion in the public market as a result of sales made by us in future transactions to White Lion at prices lower than the prices such investors paid.

The issuance of Ordinary Shares to White Lion may cause substantial dilution to our existing shareholders, and the sale of such Ordinary Shares acquired by White Lion could cause the price of our Ordinary Shares to decline.

We have registered for resale by White Lion up to 40,500,000 Ordinary Shares. After White Lion has acquired Ordinary Shares under the White Lion Purchase Agreement, it may sell all, some, or none of those Ordinary Shares. Sales to White Lion by us pursuant to the White Lion Purchase Agreement may result in substantial dilution to the interests of other holders of our Ordinary Shares. The sale of a substantial number of Ordinary Shares to White Lion could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise desire. The number of the Resale Shares ultimately offered for resale by White Lion is dependent upon the number of Ordinary Shares issued to White Lion pursuant to the White Lion Purchase Agreement. Depending on a variety of factors, including market liquidity of our Ordinary Shares, the issuance of Ordinary Shares to White Lion may cause the trading price of our Ordinary Shares to decline.

Our board of directors may decline to register transfers of Ordinary Shares in certain circumstances.

Except in connection with the settlement of trades, transactions or transfers of Ordinary Shares entered into through the facilities of a stock exchange or automated quotation system on which our Ordinary Shares are listed or traded from time to time, our board of directors may, in its sole discretion, decline to register any transfer of any Ordinary Share which is not fully paid up or on which we have a lien. Our directors may also decline to register any transfer of any Ordinary Share unless (i) the instrument of transfer is lodged with us, accompanied by the certificate for the shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; (ii) the instrument of transfer is in respect of only one class of shares; (iii) the instrument of transfer is properly stamped, if required; (iv) in the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four; (v) the shares transferred are free of any lien in favor of us; or (vi) a fee of such maximum sum as the Nasdaq Capital Market may determine to be payable, or such lesser sum as our board of directors may from time to time require, is paid to us in respect thereof.  

If our directors refuse to register a transfer they shall, within two months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal. The registration of transfers may, after compliance with any notice required in accordance with the rules of the relevant stock exchange, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year. The period of 30 days may be extended for a further period or periods not exceeding 30 days in respect of any year if approved by the shareholders of the Company by ordinary resolution.

This, however, is unlikely to affect market transactions of the Ordinary Shares purchased by investors in a public offering. The legal title to such Ordinary Shares and the registration details of those Ordinary Shares in the Company’s register of members remain with the Depository Trust Company. All market transactions with respect to those Ordinary Shares are carried out without the need for any kind of registration by the directors, as the market transactions will all be conducted through the Depository Trust Company systems.

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

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

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

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

You may have difficulty enforcing judgments against us.

We are incorporated under the laws of the Cayman Islands as an exempted company limited by shares. Currently, all of our operations are conducted in Japan, and all or a substantial portion of our assets are and will be located outside of the United States and located in Japan. In addition, all of our officers and directors are nationals and residents of a country other than the United States, and almost all of their assets are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe we have violated your rights, either under United States federal or state securities laws or otherwise, or if you have a claim against us. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of Japan may not allow you to enforce a judgment against our assets or the assets of our directors and officers.  

The laws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.

Our corporate affairs are governed by our memorandum and articles of association, by the Companies Act (as amended) of the Cayman Islands (the “Cayman Companies Act”), and by the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders, and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands and from English common law. Decisions of the Privy Council (which is the final Court of Appeal for British overseas territories such as the Cayman Islands) are binding on a court in the Cayman Islands. Decisions of the English courts, and particularly the Supreme Court and the Court of Appeal are generally of persuasive authority but are not binding in the courts of the Cayman Islands. Decisions of courts in other Commonwealth jurisdictions are similarly of persuasive but not binding authority. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws relative to the United States. Therefore, our public shareholders may have more difficulty protecting their interests in the face of actions by our management, directors, or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

You may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.

Cayman Islands law provides shareholders with only limited rights to requisition a general meeting and does not provide shareholders with any right to put any proposal before a general meeting. These rights, however, may be provided in a company’s articles of association. Our articles of association allow our shareholders holding shares which carry in aggregate not less than one-third of all votes attaching to all of our issued and outstanding shares, to requisition an extraordinary general meeting of our shareholders, in which case our board of directors is obliged to call such meeting. Advance notice of not less than ten clear days is required for the convening of any general meeting of our shareholders. A quorum required for a meeting of shareholders consists of at least two shareholders, present in person or by proxy, holding shares which carry in aggregate not less than one-third in nominal value of the total issued shares in the Company entitled to vote at such general meeting of the Company.

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

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

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

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

Depending on the amount of assets held for the production of passive income, it is possible that, for our 2025 taxable year or for any subsequent year, more than 50% of our assets may be assets which produce passive income, in which case we would be deemed a PFIC, which could have adverse U.S. federal income tax consequences for U.S. taxpayers who are shareholders. We will make this determination following the end of any particular tax year.

For purposes of the PFIC analysis, in general, a non-U.S. corporation is deemed to own its pro rata share of the gross income and assets of any entity in which it is considered to own at least 25% of the equity by value.

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

Our shareholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares.

If we are forced to enter into an insolvency liquidation, any distributions received by shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution was made, we were unable to pay our debts as they fall due in the ordinary course of business. As a result, a liquidator could seek to recover some or all amounts received by our shareholders. Furthermore, our directors may be viewed as having breached their fiduciary duties to us or our creditors and/or may have acted in bad faith, thereby exposing themselves and our Company to claims, by paying public shareholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. We and our directors and officers who knowingly and willfully authorized or permitted any distribution to be paid out of our share premium account while we were unable to pay our debts as they fall due in the ordinary course of business would be guilty of an offence and may be liable for a fine of 15,000 Cayman Islands Dollars and to imprisonment for five years in the Cayman Islands.

Item 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Corporate History and Structure

BloomZ Japan was established on October 17, 2017, as a limited liability company organized under the laws of Japan.

On December 1, 2020, CyberStep (TSE: 3810), a Japanese public company, acquired 100% of the equity interests in BloomZ Japan from its original shareholders. BloomZ Japan became CyberStep’s wholly owned subsidiary.

In connection with the IPO, we undertook a reorganization of our corporate structure (the “Reorganization”) in the following steps:

On July 25, 2024, we completed the IPO of 1,250,000 Ordinary Shares at a public offering price of $4.30 per share. The gross proceeds raised from the IPO were approximately $5.38 million prior to deducting underwriting discounts and other offering expenses payable by us.

On August 26, 2024, we issued 497,400 Ordinary Shares to HeartCore Enterprises, Inc., a Delaware corporation, and 497,400 Ordinary Shares to Spirit Advisors, LLC, a Delaware limited liability company, in consideration of the services they provided to the Company in connection with our IPO.

Recent Development

White Lion Transaction

On October 1, 2024, the Company entered into the White Lion Purchase Agreement with White Lion and a Registration Rights Agreement (the “RRA”). Pursuant to the White Lion Purchase Agreement, the Company has the right, but not the obligation, to require White Lion to purchase, from time to time, up to $30,000,000 in aggregate gross purchase price of newly issued Ordinary Shares, subject to certain limitations and conditions set forth in the White Lion Purchase Agreement.

Subject to the satisfaction of certain customary conditions including, without limitation, the effectiveness of a registration statement registering the resale of the Ordinary Shares issuable pursuant to the White Lion Purchase Agreement, the Company’s right to sell Ordinary Shares to White Lion commenced on the date of the execution of the White Lion Purchase Agreement and extends until the earlier of (i) White Lion having purchased Ordinary Shares equal to $30,000,000 or (ii) one year from the date of execution of the White Lion Purchase Agreement.

During the Commitment Period, subject to the terms and conditions of the White Lion Purchase Agreement, the Company may exercise its right to sell its Ordinary Shares. The Company may deliver a Fixed Purchase Notice (as such term is defined in the White Lion Purchase Agreement), pursuant to which the Company can require White Lion to purchase up to a number of Ordinary Shares equal to the lesser of (i) $150,000 or (ii) 100% of the Average Daily Trading Volume (as such term is defined in the White Lion Purchase Agreement). The Company may also deliver a Rapid Purchase Notice (as such term is defined in the White Lion Purchase Agreement), pursuant to which the Company may require White Lion to purchase up to a number of Ordinary Shares equal to the lesser of (i) 100% of the Average Daily Trading Volume and (ii) $2,000,000 divided by the highest closing price of the Ordinary Shares over the most recent five business days immediately prior to the receipt of the Rapid Purchase Notice. White Lion may waive such limits under any notice at its discretion and purchase additional Ordinary Shares.

The price to be paid by White Lion for any Ordinary Shares that the Company requires White Lion to purchase will depend on the type of purchase notice that the Company delivers. For Ordinary Shares being issued pursuant to a Fixed Purchase Notice, the purchase price per share will be equal to 87% of the lowest VWAP (as such term is defined in the White Lion Purchase Agreement) of the Ordinary Shares that occurs during the five consecutive business days prior to the purchase notice. For Ordinary Shares being issued pursuant to a Rapid Purchase Notice, the purchase price per share will be equal to the average of the three lowest traded prices of the Ordinary Shares on the date that the Rapid Purchase Notice is delivered.

No purchase notice shall result in White Lion beneficially owning (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder) more than 9.99% of the number of Ordinary Shares outstanding immediately prior to the issuance of Ordinary Shares issuable pursuant to a purchase notice.

Either the Company or White Lion has the right to terminate the White Lion Purchase Agreement at any time in the event of a material breach of the White Lion Purchase Agreement by the other party, which shall be effected by written notice being sent by non-breaching party to the breaching party, provided however, that the Company shall have effectively delivered the Commitment Shares to White Lion prior to any such termination. The White Lion Purchase Agreement also automatically terminates on the earlier of (i) the end of the Commitment Period, (ii) the date that the Company commences a voluntary bankruptcy proceeding, a custodian is appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefit of its creditors, or (iii) immediately upon the delisting of the Ordinary Shares from the Nasdaq Capital Market.

In consideration for the commitment of White Lion, as described above, the Company has agreed that it will issue to White Lion Commitment Shares in an amount equal to $375,000 divided by the closing price of the Ordinary Shares on the Commitment Shares Determination Date (as such term is defined in the White Lion Purchase Agreement). The Commitment Shares were fully earned by White Lion as of the execution date of the White Lion Purchase Agreement, and the issuance of the Commitment Shares is not contingent upon any other event or condition, including, without limitation, the Company’s submission of a purchase notice to White Lion, the filing of a registration statement, and irrespective of any termination of the White Lion Purchase Agreement. In November, 2024, the Company issued 70,000 commitment shares with proceeds of approximately $41 thousand pursuant to the terms of the White Lion Purchase Agreement.

Pursuant to the RRA, the Company agreed to file, within 15 days following the execution of the White Lion Purchase Agreement, a resale registration statement with the SEC covering the resale by White Lion of the maximum number of Ordinary Shares permitted to be included therein in accordance with applicable SEC rules, regulations and interpretations and the Commitment Shares. The RRA also contains usual and customary damages provisions for failure to file and failure to have the registration statement declared effective by the SEC within the time periods specified therein.

The White Lion Purchase Agreement and the RRA contain customary representations, warranties, conditions, and indemnification obligations of the parties. The representations, warranties, and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.

Our Corporate Structure

We are a Cayman Islands exempted company limited by shares incorporated on April 14, 2023. Exempted companies are Cayman Island companies conducting business mainly outside the Cayman Islands and, as such, are exempted from complying with certain provisions of the Cayman Companies Act.

The following chart illustrates our corporate structure as of the date of this annual report.

For details of our principal shareholders’ ownership, please refer to the beneficial ownership table in “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”

Corporate Information

Our principal executive offices are located at Toyo Recording 1F, 4-5-19 Akasaka, Minato-ku, Tokyo 107-0052, Japan, and our phone number is +81 050-3138-4984. Our registered office in the Cayman Islands is located at the offices of Conyers Trust Company (Cayman) Limited, whose physical address is Cricket Square, Hutchins Drive, P.O. Box 2681 Grand Cayman, KY1-1111, Cayman Islands. We maintain a corporate website at https://www.bloomz-inc.com. The information contained in, or accessible from, our website or any other website does not constitute a part of this annual report. Our agent for service of process in the United States is Cogency Global Inc., located at 122 East 42^nd Street, 18^th Floor, New York, NY 10168.

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

B. Business Overview

Overview

We conduct all of our operations through our subsidiary in Japan, BloomZ Japan. BloomZ Japan is an audio producing and voice actor managing company, which aims to promote voice acting to the world stage, as an essential component of animation and an aspect of Japanese culture. Since our inception in 2017, we have been devoting ourselves to providing audio production services as well as voice acting educational services to Japanese youth who wish to become professional voice actors.

We are currently engaged in three lines of businesses: (i) the audio production business; (ii) the VTuber management business; and (iii) the voice actor workshop business.

Audio Production Business

Since our inception in 2017, we have provided comprehensive audio production services for animations and video games. The procedure of comprehensive audio production begins once the animation/video game-producing company initially completes the visual works of the animation/video game and generally consists of dubbing, BGM producing, and mixing.

We have developed certain cooperating models with animation/video game-producing companies, under which we receive the audio production fees from the production committee/video game-producing companies for our comprehensive audio production services. In particular, we can choose to invest in the whole animation-producing project under the cooperating model for animation production and would be entitled to share the profit based on our investment ratio after the animations are sold.

The fees paid by the production committee/video game-producing companies for our comprehensive audio production services are the primary income of our audio production business, and they amounted to approximately JPY114,987 thousand, JPY63,835 thousand, and JPY120,121 thousand during the fiscal years ended September 30, 2024, 2023, and 2022, which accounted for approximately 52.3%, 49.8%, and 83.2% of our total revenue for those periods, respectively.

VTuber Management Business

We commenced our VTuber management business in December 2021. A “VTuber” is a virtual character (animated character) we create by utilizing motion-capture technology for our streamers to provide their voice to stream real-time videos featuring human facial expressions and gestures, which can also communicate and interact with audiences through the chat function by embedding in live-streaming platforms.

“Hoshimeguri Gakuen” is a VTuber group we have managed and operated since its debut in December 2021, consisting of 15 of the affiliated VTubers as of the date of this annual report. Our affiliated VTubers mainly focus on real-time live streaming on online platforms such as YouTube, Niconico and Twitch, such as chatting, singing, and game live streaming. Besides interactive real-time live streaming, we also sell goods and digital merchandise featuring the virtual characters of our affiliated VTubers on FANBOX and BOOTH. In addition, our affiliated VTubers participate and perform in online live streaming events held by other companies, as well as offline events held at brick-and-mortar stores and other locations.

Most of the revenue of the VTuber management business was from the profits distributed by the online platforms and the performing fees distributed by the host companies of live streaming events. For the fiscal years ended September 30, 2024, 2023, and 2022, the revenue generated from the VTuber management business was JPY91,563 thousand, JPY57,442 thousand, and JPY18,630 thousand, which accounted for approximately 41.6%, 44.8%, and 12.8% of our total revenue for those periods, respectively. Among the sources of revenue generated from the VTuber management business during the fiscal year ended September 30, 2024, 13.5%, 38.7%, and 47.8% came from YouTube, BOOTH, and others, respectively. During the fiscal year ended September 30, 2023, 29.0%, 42.5%, and 28.5% came from YouTube, BOOTH, and others, respectively. During the fiscal year ended September 30, 2022, 54.0%, 26.4%, and 19.6% came from YouTube, BOOTH, and others, respectively.

Voice Actor Workshop Business

We have provided professional and practical voice acting educational services through our voice actor workshops since our inception in 2017. In cooperation with active professional voice actors, we regularly host physical voice actor workshops four times a month in the studios leased by CyberStep in Tokyo, Japan, which CyberStep permits such use at no charge.

To cultivate young voice actors and their abilities to work as a professional, we provide our members basic vocalization-related lessons and combine actual animation and video game scripts into the training sections to equip them with practical skills and mannerisms in dubbing and audio production. As of September 30, 2024, we had 25 active registered members who had participated in our workshops.

We generally charge every registered member a membership fee of JPY22 thousand monthly for four lessons in one month. Membership fees from the registered members provide the primary income of our voice actor workshop business, and they amounted to approximately JPY4,679 thousand, JPY5,054 thousand, and JPY5,805 thousand during the fiscal years ended September 30, 2024, 2023, and 2022, which accounted for approximately 2.1%, 3.9%, and 4.0% of our total revenue for those periods, respectively.

Our Competitive Strengths

We believe the following competitive strengths are essential for our success and differentiate us from our competitors:

Visionary and Experienced Management Team with Strong Technical and Operational Expertise

Our senior management team has extensive experience in the audio production industry, extending to both the animation and video game production industry. Ms. Kazusa Aranami, our founder and chief executive officer, is known for her achievement as a voice actress. As an entrepreneur with a strong voice acting background and over 10 years of experience in the audio production industry, Ms. Aranami has led us to establish an optimized and robust standard of procedure to ensure the high quality and efficiency of our audio production services and secured the main sources of the orders for our audio production services with her insight into the industry trends and her deep connections within the industry. Having worked in the animation production industry for more than 10 years, Mr. Yuhi Mimura, our director, had been involved in all stages of animation production in his career. With his profound experience in the animation production industry, Mr. Mimura is capable of casting any genre of audio work, which allows us to adjust our operation with respect to audio production flexibly within the client’s budget. Under the leadership of our senior management members, we have identified trends in the audio production industry and seized opportunities for growth and innovation.

Innovative Vision and Operating Philosophy

Our goal and operating philosophy are to promote voice acting to the world, as an aspect of Japanese culture that is similar to animation, which is an essential component of animation and an aspect of Japanese culture. Based on this goal and operating philosophy, we are actively challenging new fields unparalleled in the closed voice acting industry—VTubers, a spin-off and an innovative application of voice acting—leading to achievements. For example, we have managed and operated a VTuber group, “Hoshimeguri Gakuen,” which, together with our affiliated VTubers’ individual YouTube channels, had approximately 486,000 subscribers on its YouTube channel as of September 30, 2024. Since VTubers are operating under virtual characters, streamers can be engaged in streaming with fewer real world constraints regarding geographic distance, gender, age, nationality, etc., as opposed to the constraints physical individuals would encounter. In addition, since we own the intellectual property rights of the VTubers’ virtual characters, we may efficiently conduct business by leveraging the intellectual property rights in designing and selling physical and virtual merchandise featuring the VTubers’ virtual characters.

Close Connections with a Large Variety of Talented Voice Actors and VTubers

As Ms. Kazusa Aranami, our chief executive officer, a well-known voice actress and VTuber with profound experience and achievement, has been leading the operations of our audio production business and VTuber management business since our inception, we have developed close connections with a large variety of talented voice actors and VTubers. As of the date of this annual report, we have 59 collaborating voice actors and 15 affiliated VTubers. We believe close connections with a large variety of talented and experienced voice actors and VTubers would enable us to provide more efficient, flexible, and diverse as well as high-quality services to our existing clients and attract potential clients.

Strong Support from a Large Video Game-Producing Company

One of our principal shareholders, CyberStep, is a large video game-producing company. Since video game production is one of the upstream industries of our audio production business and VTuber management business, CyberStep is competent in quickly and efficiently designing and producing novel video games suitable for our collaborating voice actors and affiliated VTubers with specific teams. While we do not enter into agreements with CyberStep on a regular basis, from time to time, when CyberStep takes into account our collaborating voice actors’ or affiliated VTubers’ vocal characteristics, skills, and experiences when designing characters in the video games, including the characters’ personalities, backgrounds, and genders, it enters into service agreements with us for our audio production services that feature our collaborating voice actors or affiliated VTubers. For example, the video game “Onigiri,” which CyberStep launched in 2013, features one voice actor from our Company, and the video game “CosmicBreak Universal,” which CyberStep launched in 2020, features two voice actors from our Company. This has also been a significant attraction point of our voice actor workshops.

In addition, as a large video game-producing company that has invested in and cooperated with various companies and developed strategic alliances from different industries, including retail sales, logistics, and event planning, CyberStep has granted us access to its resources and assets, such as using the studios it leases to host physical voice actor workshops and its existing sales channels to sell and deliver the merchandise featuring our collaborating voice actors and affiliated VTubers. In addition, CyberStep has been assisting us in engaging with and securing opportunities to work with its subsidiaries or strategic alliances. For instance, we developed and sold a novel game featuring a VTuber under the label Rabbitfoot with CyberStep in May 2023 and March 2024, with CyberStep developing the game and BloomZ Japan planning and managing the VTubers.

However, since we do not enter into an agreement with CyberStep specifically granting us access to its resources and assets, assisting us in generating work opportunities or providing us with any support, we have been dependent on oral permission and non-obligatory assistance and support from the management of CyberStep, which CyberStep may cease providing at its own discretion in the future. Please see “Item 3. Key Information—Risk Factors — Risks Related to Risks Related to Our Business and Industry — If we are no longer able to benefit from CyberStep’s support, our business may be adversely affected.”

Growth Strategies

Continue to focus on maintaining and improving the quality and quantity of our audio production services

The audio production business is our core business and is the key to our continued growth and building our reputation and brand awareness. Therefore, we intend to continue to focus on maintaining and improving the quality of our audio production service. Our initiatives include further optimizing the standard of procedure for our audio production and enhancing the training of and quality control over the collaborating voice actors. We also intend to increase the quantity of our audio production services by investing in and undertaking audio production for more animation and video game productions and acquiring the intellectual property rights to audio production, voice actor casting, and digital content production.

Maintain and further develop business relationships with our existing and potential clients in the animation and video game industries

Due to the abundant business connections with the animation and video game industries, our CEO, Ms. Aranami, and our director, Mr. Mimura, have established during their long and successful careers in the field, we have developed deep cooperating relationships with many upstream entities of the animation and video game industry. Our senior management team has built solid connections with Nihon Falcom Corporation, CyberStep, ZERO-G Inc., and other well-known animation or video game-producing companies in Japan. We plan to further develop business relationships with potential clients by investing in and undertaking audio production for more animation and video game productions so as to cooperate with new clients and build our reputation and brand awareness. We also anticipate the increase in our visibility and brand recognition as a consequence of our recent listing on Nasdaq may benefit us in attracting more potential clients to place orders for our audio production service.

Continue to invest in securing talented and competent voice actors and VTubers

A large variety of talented and competent voice actors and VTubers are the root of our audio production business and VTuber management business. Therefore, we intend to continue to invest in securing talented and competent voice actors and VTubers by enhancing the training of our collaborating voice actors and affiliated VTubers, headhunting for experienced voice actors and VTubers who have already accomplished certain achievement, and holding more and larger scale auditions to discover talented newcomers.

In addition to targeting individual experienced voice actors and VTubers, we also intend to acquire currently existing VTuber groups from their operating and managing companies in Japan.

Through the preceding approaches, we aim to have VTuber groups consisting of more than 100 affiliated VTubers by 2025.

Expand into the fields of planning and producing our own animation and TV programs

It has long been our desire and goal to plan and produce our own original animated films. Having our own animation production projects will set a milestone for our growth and development, which we believe will enable us to vertically integrate our resources and enable us to form a more efficient corporate structure.

While we will continue to invest in other companies’ animation production projects, we also intend to move forward to expand into the fields of planning and producing our own animation and TV programs. Since the beginning of the fiscal year 2024, we have received a few orders, including an order to produce a 12 episodes of fifteen-minute animation scheduled to broadcast in April 2025 with a total producing budget of JPY82 million, and have developed an administrating structure capable of planning and producing our own animation production, under which our CEO, Ms. Aranami, leverages her keen insight on the industry trends and her deep connections within the animation industry to conduct sales activities and our director, Ms. Mimura, who is proficient in animation production management, has established a system to manage the progress of the animation production with his profound experience in animation production and know-how.

Investment in animation production committees to acquire rights outside of comprehensive audio production

In the Japanese animation production industry, “animation production committees” are usually established as an external joint venture or partnership by several companies, including animation-producing companies, audio production companies, and other investors, to produce animation. To establish an animation production committee, the companies enter into a joint venture or partnership agreement specifying the distribution and fees for work, the date of the first broadcast, the total project cost, the ownership of intellectual property rights, the method of profit allocation, the amount of investment by each company, and their respective roles. Generally, only the companies investing in the animation production committee may obtain the right to provide their services for the project. Therefore, we usually invest in an animation production committee to acquire the right and work opportunity to provide our audio production services for the project. In addition, once the animation is sold, the animation production committee would allocate the profit to the investors pursuant to the joint venture or partnership agreement or, if not stipulated, on the basis of the investment ratio of each party.

As of the date of this annual report, in addition to acquiring the rights to the comprehensive audio production through our investment in animation production committees, we have also acquired the rights to the comprehensive animation production, the overseas copyrights and the rights for goods merchandising.

As we believe that overseas copyrights are one of the highest sales and revenue-generating rights obtainable in the animation production business, we expect that, in addition to the rights to the comprehensive audio production, acquiring such copyrights would enhance our total revenue and consequently contribute to the growth of our business. As of the date of this annual report, we are a member of anime production committees for seven popular Japanese manga, four of which have been broadcast since September 2023, two in the calendar year 2024, and one scheduled to start broadcasting in April 2025, for which we exclusively own the overseas copyrights, and we expect to start generating revenue from its overseas copyrights thereafter.

Business

Our business contains three core parts: the audio production business, the VTuber management business, and the voice actor and VTuber workshop business.

Audio Production

The audio production business has been our main business since our inception in 2017.

High-quality audio production takes an animation/video game to a different level. For video game production, we have developed a cooperating model with the video game-producing companies.

The cooperating model for video game production is illustrated as follows:

Under this cooperating model, we are responsible for comprehensive audio production for the video game, including auditioning and determining which of our collaborating voice actors to dub for the characters in the video game, while in some cases, video game-producing companies may designate specific voice actors that are not affiliated with us to dub, and organizing and arranging schedules for the voice actors to record. Generally, video game-producing companies pay a lump sum audio production fee directly to us, and we will then distribute the casting/performance fee to our collaborating voice actors pursuant to our exclusive management agreements with them or to the voice actors’ agencies for the unaffiliated voice actors.

As for the animation production, since we are responsible for providing one of the most significant and indispensable parts of animation production, we have been leveraging our audio production services to develop a cooperating model with animation-producing companies, in which we are an investor (among other investors) of the whole animation/video game production, as well as an outsourced contractor engaged by the production committee (in which we are an investor).

The cooperating model for animation production is illustrated as follows:

Under this cooperating model, we invest in and establish a production committee with the animation-producing company and other investors. Through the production committee, we are in charge of the comprehensive audio production once the animation-producing company is initially finished with the visual works of the animation. An animation usually contains 12 episodes, with one episode being recorded, edited, and produced each week. The production committee generally pays us the audio production fee for each episode, although on some occasions, the audio production fee is paid after the production of the whole animation is completed. After receiving the audio production fee from the production committee, we will distribute the casting/performance fee to our collaborating voice actors pursuant to our exclusive management agreements with them or to the voice actors’ agencies for the unaffiliated voice actors. As of the date of this annual report, in addition to acquiring the rights to comprehensive audio production through our investment in animation production committees, we have also acquired the rights to the comprehensive animation production, the overseas copyrights and the rights for goods merchandising. As we believe that overseas copyrights are one of the highest sales and revenue-generating rights obtainable in the animation production business, we expect that, in addition to the rights to the comprehensive audio production, acquiring such copyrights would enhance our total revenue and, consequently, contribute to the growth of our business. As of the date of this annual report, we have invested in anime production committees for seven popular Japanese manga titles. Among the seven animations, four were broadcast prior to September 2023, two were broadcast in January 2024 and October 2024, and one is scheduled to air in April 2025. Overseas copyrights have been acquired for this anime scheduled to broadcast in April 2025, and we expect to start generating revenue from the overseas copyrights thereafter.

The comprehensive audio production consists of dubbing, BGM producing, and mixing.

Dubbing

After reviewing the visual works of the animation/video game, we will select from our collaborating voice actors we deem the best fit, or sometimes we select unaffiliated voice actors designated by the production committee, to dub for specific characters in the animation/video game, based on their vocal characteristics, ability, experience, pay rate, and popularity among audiences, among other factors. Once the voice actors are determined, we contact the voice actors or the agents of the unaffiliated voice actors to arrange the schedules for dubbing in the recording studio provided by the production committee/video game-producing company.

BGM Producing

We often outsource to music companies that specialize in BGM production to provide the BGM for the animation/video games under production. Such companies, along with their composers and lyricists, work with the audio director of the animation/video game hired by the animation/video game-producing company to create and edit the audio effects and BGM in their own recording studio.

Mixing

In general, dubbing and BGM producing are parallel and progress simultaneously. After the dubbing and BGM production are both completed, the mixer we contract with mix the dubbed soundtrack and the BGM with the visual works of the animation/video game.

We contributed to the production of two, zero, and one animation(s), and one, one, and one video game in the fiscal years ended September 30, 2024, 2023, and 2022, respectively, under this cooperating model. The following table summarizes the information of the animations/video games we completed in the fiscal years ended September 30, 2024, 2023, and 2022: 

Once an animation is sold, the production committee allocates the profit to us, the animation-producing company, and other investors on the basis of the investment ratio of each party. For the fiscal years ended September 30, 2024, 2023, and 2022, we were distributed JPY8,798 thousand, JPY1,982 thousand, and JPY847 thousand, respectively.

Collaborating Voice Actors

While we enter into exclusive management agreements stipulating similar terms with each of our collaborating voice actors, we generally classify them into three levels: “Affiliated,” “Semi-Affiliated,” and “Entrusted.” Affiliated and Semi-Affiliated voice actors are those who have reached a certain level of achievement in the industry and made contributions to us, while newcomers who have just joined us are classified as Entrusted voice actors.

Generally, Affiliated voice actors have had longer careers and have higher rates of compensation than Semi-Affiliated voice actors. As of September 30, 2024, 2023, and 2022, we had 11, nine, and nine Affiliated voice actors, six, 10, and 10 Semi-Affiliated voice actors and 32, 33, and 24 Entrusted voice actors, respectively.

The material terms stipulated in our exclusive management agreements are as follows:

Scope of the Exclusive Management Agreement

The following entertainment activities performed and conducted by our collaborating voice actor as a voice actor are subject to the exclusive management agreement, which the voice actor’s exclusive rights belong to us worldwide:

Obligations and Rights

We are the manager of our collaborating voice actor for worldwide entertainment activities, and the collaborating voice actors are our exclusive voice actors and perform pursuant to our instructions.

Intellectual Property Rights

All intellectual property rights, including, but not limited to, copyrights, trademarks, design rights, and ownership rights arising from the collaborating voice actor’s entertainment activities during the effective term of the exclusive management agreements, belong exclusively to us worldwide, including Japan. We may use and dispose of them at our own discretion.

Right to Receive Performance Fees

We have the right to receive the performance fee of the collaborating voice actor’s entertainment activities from third parties on his/her behalf. We are entitled to 20% of the performance fee as compensation for our management services.

Term

During the fiscal years ended September 30, 2024, 2023, and 2022, the exclusive management agreements entered were generally for a period of one year. The exclusive management agreement is automatically extended for one year if neither we nor the collaborating voice actor delivers notice of termination at least one month prior to the expiration date of the exclusive management agreement.

Termination

We may immediately terminate the exclusive management agreement if the collaborating voice actor:

Both we and the collaborating voice actor may immediately terminate the exclusive management agreement if either of us violates the representations and warranties that either party is not or will not be affiliated with any organized crime group or any other antisocial force.

Clients and Marketing

While our clients are mainly animation and video game-producing companies in Japan, we sometimes receive orders from foreign movie companies for Japanese dubbing services. We recruit new clients via existing client referrals, personal networking, online advertisements, promotions, and digital marketing. Since we are relatively new to the audio production industry, our marketing strategy has been, as of the date of this annual report, to work on as many projects as we can within our capacity, regardless of the scale of the projects, as we strive to build our reputation and brand awareness. For the fiscal years ended September 30, 2024, 2023, and 2022, we had 41, 59, and 56 clients, respectively.

During the fiscal years ended September 30, 2024, 2023, and 2022, approximately 82%, 90%, and 90% of the orders we received came from our existing clients, respectively. We believe that such high reorder rate demonstrates the quality and client satisfaction of the comprehensive audio production services we provide.

Set out below is a breakdown of the revenue generated from our audio production business contributed by our top five clients during the fiscal years ended September 30, 2024, 2023, and 2022:

For the Fiscal Year Ended September 30, 2024

For the Fiscal Year Ended September 30, 2023

For the Fiscal Year Ended September 30, 2022

Material terms of our service agreements with the top five clients are as follows:

Scope of Services

We generally enter into written service agreements with clients that set out the scope of services as follows:

Individual Contract

We generally enter into a written individual contract for a specific project; either an animation or a video game, with clients to stipulate the contents and details of the service, the delivery date, the amount of consideration, the payment schedule, and other necessary matters.

Term

During the fiscal years ended September 30, 2024, 2023, and 2022, the service agreements entered were generally for a period of one year. The service agreements are generally automatically extended for one year if neither we nor the client make a written request to change or terminate the agreement at least one month prior to the expiration date of the agreement.

Termination

The service agreements generally grant both us and the clients the right to terminate the service agreement or individual contracts by providing the other party one-month prior written notice.

If an individual contract terminates in the middle of the term, due to termination or other reasons, the clients are required to pay us the consideration in proportion to the ratio of the performance of our services.

VTuber Management

We commenced our VTuber management business in December 2021. The term “VTuber” is an abbreviation of virtual YouTuber, which is a virtual (animated) character, in lieu of a physical individual, we create by utilizing motion-capture technology for our streamers to provide their voices, in order to stream real-time videos featuring human facial expressions and gestures, which can also communicate and interact with audiences through the chat function by embedding in live-streaming platforms.

“Hoshimeguri Gakuen” is a VTuber group we have managed and operated since its debut in December 2021. As of the date of this annual report, we have 16 affiliated VTubers in the group. Focusing on real-time live streaming, our affiliated VTubers mainly broadcast chatting, singing, and game live streaming on YouTube. Besides interactive real-time live streaming, we also strive to build and grow our fan bases through sales of goods and digital merchandise featuring the virtual characters of our affiliated VTubers on BOOTH. As of September 30, 2024, Hoshimeguri Gakuen, together with our affiliated VTubers’ individual YouTube channels, had approximately 486,000 subscribers on its YouTube channel. In addition, our affiliated VTubers participate and perform in online live streaming events held by other companies, such as VirtualThruLens.

Our revenue generated from YouTube mainly contains three parts: Google AdSense revenue, membership, and Super Chats/Stickers/Thanks. Google AdSense revenue is the revenue that we can receive from Google LLC by having ads displayed on our affiliated VTubers’ live streaming videos on YouTube, by which we receive a rate ranging from JPY200 to JPY600 per 1,000 viewers based on ad impressions recognized by Google. YouTube Membership is a service provided by YouTube that allows a subscriber to register as a member of our YouTube Channel and gain membership privileges, such as access to exclusive videos and other exclusive items to the channel, by paying a monthly fee. Super Chats and Super Stickers are services provided by YouTube that allow audiences to interact with our affiliated VTubers during their real-time live streaming. Audiences can purchase Super Chats to highlight their message and thus increase the chance of getting our affiliated VTuber’s attention within the live chat box. Audiences can also purchase Super Stickers to see a digital or animated image that pops up in the live chat feed. Audiences may also directly tip our affiliated VTubers via Super Thanks, which is a service provided by YouTube, formerly known as Viewer applause, to show extra gratitude for our affiliated VTubers’ live streaming videos. Among the revenue sources generated from YouTube during the fiscal years ended September 30, 2024, 2023, and 2022, 4.1%, 7.8%, and 3.0% was from Google AdSense revenue, 43.9%, 23.9%, and 15.6% was from memberships, and 52.0%, 68.3%, and 81.5% was from Super Chats/Stickers/Thanks, respectively. 

Our revenue generated from BOOTH mainly consists of the sales of the merchandise featuring our affiliated VTubers’ virtual characters. Among all the merchandise we sold, including acrylic figures, illustrations, and stickers, the recorded voice data of our affiliated VTubers’ virtual characters were the most popular genre.

For the fiscal years ended September 30, 2024, 2023, and 2022, the revenue generated from the VTuber management business was JPY91,514 thousand, JPY57,442 thousand, and JPY18,630 thousand, which accounted for approximately 41.6%, 44.8%, and 12.8% of our total revenue for those periods, respectively. Among the sources of revenue generated from the VTuber management business during the fiscal year ended September 30, 2024, 13.5%, 38.7%, and 47.8% came from YouTube, BOOTH, and others, respectively. During the fiscal year ended September 30, 2023, 29.0%, 42.5%, and 28.4% came from YouTube, BOOTH, and others, respectively. During the fiscal year ended September 30, 2022, 54.0%, 26.4%, and 19.6% came from YouTube, BOOTH, and others, respectively.

Affiliated VTubers

As of the date of this annual report, we have entered into exclusive management agreements with 15 affiliated VTubers. Pursuant to the exclusive management agreements, we provide comprehensive support to our affiliated VTubers, such as assisting in their streaming on YouTube and other individual activities, helping them create video programs as a member of Hoshimeguri Gakuen, and providing equipment intended for streaming and streaming studios leased by CyberStep available to them. In return, most of the revenue generated by our affiliated VTubers from third parties is allocated to the affiliated VTuber and us on a 50% to 50% basis.

The material terms stipulated in our exclusive management agreements are as follows:

Scope of the Exclusive Management Agreement

The following VTuber activities performed and conducted by our affiliated VTuber as a VTuber are subject to the exclusive management agreement, which the VTuber’s exclusive rights belong to us worldwide:

Obligations and Rights

We are the manager of our affiliated VTubers for VTuber activities, and the affiliated VTubers are our exclusive VTubers and perform pursuant to our instructions.

Intellectual Property Rights

All the accounts and the auxiliary rights of the social media, streaming platforms, and others necessary for us to perform the management services exclusively belong to us without any limitation as to region, period, or scope.

All intellectual property rights, including, but not limited to, copyrights, trademarks, design rights, and ownership rights arising from the affiliated VTuber’s VTuber activities, exclusively belong to us without any limitation as to region, term, or scope. We may use and dispose of them at our own discretion, provided that we obtain consent from the affiliated VTuber before using the intellectual property rights for any purpose other than VTuber activities and related advertising, promoting, and merchandise producing.

Right to Receive Performance Fees

We have the right to receive the revenue generated from the affiliated VTuber’s VTuber activities from third parties on his/her behalf. We are entitled to 50% of the revenue generated from YouTube and the sales of virtual merchandise that involves the affiliated VTuber’s performance, such as recorded voices data; 90% of the revenue generated from the sales of physical merchandise, such as acrylic figures and stickers, and virtual merchandise that does not involve the affiliated VTuber’s performance, such as illustrations, as compensation for our management services.

Term

During the fiscal years ended September 30, 2024, 2023, and 2022, the exclusive management agreements entered were generally for a period of one year. The exclusive management agreement is automatically extended for one year if neither we nor the affiliated VTuber delivers notice of termination at least three months prior to the expiration date of the exclusive management agreement.

Termination

Both we and the collaborating voice actor may immediately terminate the exclusive management agreement if either of us violates the representations and warranties that either party is not or will not be affiliated with any organized crime group or any other antisocial force.

One of our most famous affiliated VTuber’s virtual characters — Kuramochi Kyoko

One of our most famous affiliated VTuber’s virtual characters — Mochimochi Sakura

Our Suppliers

Before the debut of a new VTuber, we generally design the VTuber’s character settings, including its appearance and characteristics that we consider appropriate after discussing with the VTuber. We then engage with animation developers with respect to the production and output of our designed 2D or 3D virtual characters consistent with our character settings.

We do not enter into long-term production contracts with specific animation developers. Instead, we place fixed-term orders with the animation developers for the production of virtual characters. Without being bound by long-term producing contracts, we have greater flexibility to choose from several animation developers to satisfy the specifications of our demands on the basis of the factors that benefit us the most at the time we place the order, including the quality and the price of their service, the quality and efficiency of the services they provide, and the payment terms they accept.

Marketing

Targeting building and growing our fan bases, we focus on improving the content of our affiliated VTubers’ live streaming videos. We provide various types of support to our affiliated VTubers to improve the content of their live streaming videos, such as providing training in line with the guidelines to ensure the soundness of content, updating them with information about the latest popular trends, assisting them in deciding the songs to sing and the games be live-streamed, and providing suggestions for their direction in organizing and planning their live streaming videos.

We expect to further develop and maintain strong relationships between our affiliated VTubers and their fans by supporting them in increasing their public recognition, building their reputation and awareness, and gaining more fans. To this end, we are continuously planning events, activities, and TV shows that our affiliated VTubers will present, which we believe may further foster the ties between our affiliated VTubers and their fans. 

Voice Actor Workshops

We have provided professional and practical training in voice acting through our voice actor workshops since our inception in 2017. In cooperation with active professional voice actors, we regularly host physical voice actor workshops four times a month in the studios leased by CyberStep in Tokyo, which CyberStep permits such use at no charge. We have determined that it is more advantageous to operate physical voice actor workshops rather than online-workshop, because it allows us to exercise greater control over the quality of our training services and overall training environment.

To cultivate young voice actors and their abilities to work as professionals, we provide our members basic vocalization-related lessons and combine actual animation and video game scripts into the training sections to equip them with practical skills and mannerisms in dubbing and audio production, which enables us to differentiate our lessons from similar services in Japan provided by competitors.

Since our inception, we have built a large base of members, which has been essential for our rapid growth. As of September 30, 2024, we had 80 registered members who had participated in our workshops since the inception of our voice actor workshop business.

We generally charge every registered member a membership fee of JPY22 thousand monthly for four lessons in one month. Membership fees from the registered members provide the primary income of our voice actor workshop business, and they amounted to approximately JPY4,679 thousand, JPY5,054 thousand, and JPY5,805 thousand during the fiscal years ended September 30, 2024, 2023, and 2022, which accounted for approximately 2.1%, 3.9%, and 4.0% of our total revenue for those periods, respectively.

Our Lessons

All of our lessons are directly instructed and lectured by our cooperating active professional voice actors who have extensive experience in dubbing for animations, foreign movies, or video games, such as Azusa Enoki, a renowned Japanese voice actress, actress, and singer who dubbed for Nagisa Saito in “Squid Girl,” Uta Yumeno in “Onegai My Melody” series, Angelene in “A Certain Magical Index II,” and Mion Takamine in “Pretty Rhythm.”

Instructors are responsible for instructing and teaching a large variety of skills within the scope of voice acting, including basic vocalization, pronunciation and intonation, practical techniques while reading out actual animation and video game scripts, nuances between acting on stage and as a voice actor, useful mannerisms for recording situations, and various domestic and international methods for opening up the emotions in a play. During our lessons, members may also experience voice acting in actual recording studios leased by CyberStep.

Our Members

We do not adopt strict conditions for applications to our voice actor workshop and generally accept every applicant, regardless of whether they want to become professional voice actors or are purely interested in voice acting.

Members who perform well and show their talent in the workshop are allowed to participate in the newcomer auditions we hold at the end of each fiscal year, in which we evaluate participants’ characteristics, interest in voice acting, expression ability, and potential performing competency from a comprehensive perspective. Once the participants pass the newcomer audition, they are given the opportunity to enter into exclusive management agreements with us and commence operation as our collaborating voice actors or affiliated VTubers, or both.

In our efforts to appeal to more applicants to join our voice actor workshop, we emphasize improving our lessons in a way that incorporates diverse and practical content. In addition, we have implemented a policy that offers outstanding members the opportunity to present in small audio production projects we operate for casting and dubbing, which has been recognized by our members as one of the most appealing factors to join our voice actor workshop.

Competition

The audio production and VTuber management industries in Japan are both highly competitive and fragmented, with many new companies joining the competition in recent years and a few leading companies, such as Magic Capsule Co., Ltd. and Techno Sound Co., Ltd., in terms of audio production, and COVER Corp. (TSE: 5253; OTCMKTS: COVCF) and ANYCOLOR Inc (TSE: 5032), in terms of VTuber management. As a relatively new and small-scale company in both industries, we face competition directly from the large-scale companies with more resources and those with a more extended operating histories and more connections to the industries they work within. In addition, we indirectly compete with other large video streaming platforms, social media platforms, and other platforms offering online entertainment with respect to our VTuber management business.

We believe that our ability to compete effectively depends upon many factors, including the high quality of our audio production services, the diverse and innovative content of our real-time live streaming, our close connections with a large variety of talented voice actors and VTubers, our capability to adjust flexibly to satisfy clients’ needs and demands, and the strength of our brand. In addition to the factors listed above, we believe that we are well-positioned to effectively compete in the audio production and VTuber management industries based on the fact that we are able to integrate our resources in our audio production business and VTuber management business and leverage the strengths of both industries and maximize synergies to support both. Some competitors, however, may have longer operating histories, greater brand recognition, or greater financial, technical, or marketing resources than we do. For a discussion of risks relating to competition. See “Item 3. Key Information—D. Risk Factors — Risks Related to Our Business and Industry — We operate in highly competitive markets and our failure to compete effectively could adversely affect our results of operations.”

Intellectual Property

We regard our company logo, domain names, copyrights, and other similar intellectual property, especially with respect to our collaborating voice actors and affiliated VTubers’ virtual characters, and use of rights of publicity of our collaborating voice actors as critical to our success. “Rights of publicity” are the licensable rights to control the commercial use and make use of the commercial value of individual’s names and portraits, etc. that are recognized through judicial precedents of the Japanese courts, which refers to the Japanese Constitution and the Japanese Civil Code. We rely on a combination of laws in Japan such as Civil Code, Copyright Law and trademark Act, judicial precedents of the Japanese courts, and confidentiality agreements with employees to protect our intellectual property rights. We also regularly monitor any infringement or misappropriation of our intellectual property rights.

Pursuant to the exclusive management agreements with our collaborating voice actors and affiliated VTubers, we own all intellectual property rights, including, but not limited to, copyrights, trademarks, design rights, and rights arising from the collaborating voice actor’s entertainment activities/affiliated VTubers’ VTuber activities, and use of rights of publicity of our collaborating voice actors.

As of the date of this annual report, we have use of rights of publicity of our collaborating voice actors in more than 100 animations/video games/foreign dramas. The following lists the major animations/video games/foreign dramas of them:

As of the date of this annual report, we have copyrights and other intellectual property rights, and the ownership of the social media accounts of the following affiliated VTubers’ virtual characters:

No.		Name		Original Name		Publication Date		Expiration Date		Image
1		Kyoko Kuwamochi		倉持京子		September 11, 2020		September 10, 2090
2		Oguri Mel		オグリ・メル		September 12, 2020		September 11, 2090
3		Kamino Hikari		神乃ひかり		November 21, 2020		November 20, 2090
4		Mochimochi Sakura		餅々さくら		February 28, 2021		February 27, 2091
5		Iori Nemea		伊織ねめあ		May 1, 2021		April 30, 2091

6		Makura Rui		魔昏るい		May 15, 2022		May 14, 2092
7		Teru Umashika		馬鹿蝶		May 26, 2022		May 25, 2092
8		Aoi Heru		碧衣ヘルオグリ・メル		May 27, 2022		May 26, 2092
9		Kachiki Shakuna		勝気シャクナ		June 29, 2022		June 28, 2092
10		Michisaki Mirine		満咲ミリネ		October 22, 2022		October 21, 2092

11		Kaneko Kirari		金猫きらり		October 24, 2022		October 23, 2092
12		Kirikuma Yuni		切熊ゆに		December 18, 2022		December 17, 2092
13		Domeki Eru		百目鬼える		August 14, 2023		August 13, 2093
14		Yamanashi Chiyo		月見里知夜		November 11, 2024		November 10, 2094
15		Himuro Utsuro		氷室うつろ		November 22, 2024		November 21, 2094

In addition, as of the date of this annual report, we have registered one domain name in Japan relating to our business.

Employees

We had 10, six, and four full-time employees as of September 30, 2024, 2023, and 2022, respectively. The following table sets forth the number of our full-time employees as of September 30, 2024:

We enter into employment agreements with our full-time employees. The employment agreements have an indefinite term and may be terminated by the employee with a 30-day advance notice. Dismissal of the employee by us is required to meet the following requirements: (i) the dismissal is objectively reasonable and socially acceptable; (ii) the dismissal is based on the grounds set forth in the labor regulations; (iii) the dismissal does not fall under any of the prohibited grounds stipulated by law; and (iv) a 30-day advance notice is given, or a dismissal allowance is paid in lieu of such notice. In addition, we enter into confidentiality agreements with our key employees upon employment with our Company.

In addition to our full-time employees, we had two, two and four outsourced employees as of September 30, 2024, 2023, and 2022, respectively. Besides assisting our full-time employees, these outsourced employees are also responsible for general administration, finance and accounting, project management, legal affairs, and the operations of VTuber management and voice actor workshops.

We believe that we maintain a good working relationship with our full-time and outsourced employees, and we have not experienced material labor disputes in the past. None of our employees are represented by a labor union.

Insurance

Other than the director and officer liability insurance, government-mandated social and health insurance, and worker’s accident compensation insurance, we do not maintain any other insurance covering our properties, equipment, or employees. We neither carry any business interruption insurance, accident insurance covering our members in respect of personal injuries or damages arising from accidents that occur during the voice actor workshops, nor any other third-party liability insurance to cover claims in respect of personal injuries or any damages arising from accidents on our properties or in relation to our operations. We believe that our insurance coverage is in line with industry practice.

Property and Equipment

We lease our headquarters location in Akasaka, Tokyo, and a work office located in Harumi, Tokyo. A summary of our leased properties as of the date of this annual report is shown below:

We lease these premises from independent third parties under operating lease agreements. The lease agreement of our office located in Harumi is renewable from one year to six months before the lease expires.

We believe that our existing facilities are sufficient for our near-term needs.

Seasonality

In the audio production business, although the broadcast schedule of the video game productions is affected by the seasons, Japanese animation productions, in which we are mainly involved in the audio production component, are produced throughout the year. In addition, the activities of the animation production committee, which is made up of the animation-producing company and other investors, including our Company, do not fluctuate with the seasons, and profits and distributions from the activities of the companies that own the copyrights may be generated at any time of the year.

In the VTuber management business, although the choice of content to be viewed is largely determined by the interests and preferences of individual users, the number of times video content is viewed can be expected to increase during the summer, year-end and New Year holidays, when audiences have more leisure time than in any other time of the year. In addition, events are held during each of these seasons, which have an impact on sales.

The voice actor workshop business is highly specialized and aims to improve skills over a long period of time. Therefore, there is no seasonality in the number of participants throughout the year. However, marketing efforts to attract customers tend to be more effective in April, when Japan’s new fiscal year begins.

Legal Proceedings

From time to time, we may become a party to various legal or administrative proceedings arising in the ordinary course of our business, including actions with respect to intellectual property infringement, violation of third-party licenses or other rights, breach of contract, and labor and employment claims. We are currently not a party to, and we are not aware of any threat of, any legal or administrative proceedings that, in the opinion of our management, are likely to have any material and adverse effect on our business, financial condition, cash flow, or results of operations.

Regulations

The main Japanese laws that regulate the services provided by the Company include the Act against Unjustifiable Premiums and Misleading Representations, the Act on Specified Commercial Transactions, the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors, the Copyright Act, labor-related laws, and the Act on the Protection of Personal Information.

Act against Unjustifiable Premiums and Misleading Representations

Our business involving the sale of digital contents for consumers is subject to the Act against Unjustifiable Premiums and Misleading Representations (Act No. 134 of May 15, 1962, as amended). Under this law, we are prohibited from making representations to the general consumers that the contents of the products are significantly better than they actually are, and representations to the general consumers that the contents of our products are significantly better than those pertaining to our competitors if not true.

In addition, this law establishes regulations regarding the provision of premiums by business operators, such as a limit on the maximum amount of premiums to prevent the provision of excessive premiums.

Business operators that violate this law may be ordered by the supervisory authority to take certain actions or receive administrative guidance.

In addition, if a business operator commits an act of misrepresentation, it may be ordered to pay a surcharge.

Act on Specified Commercial Transactions

Our business involving the internet sale of digital contents for consumers is subject to the Act on Specified Commercial Transactions (Act No. 57 of June 4, 1976, as amended). Under this law, Internet sellers are obligated to indicate in their advertisements the consideration for services provided via the Internet, the time and method of payment of the consideration, etc., and are prohibited from attempting to induce customers to apply for sales contracts and service contracts related to mail order sales against their will.

Under the June 2022 amendment, Internet sellers are obliged to indicate on the final confirmation screen of the Internet ordering system the consideration for the services, the time and method of payment of the consideration, and other matters so that the customer can easily confirm the final confirmation at the stage immediately before the order is confirmed.

Business operators violating the regulations of this law may be subject to administrative penalties, such as orders to improve operations, orders to suspend operations, or orders to prohibit the operations of officers, and may also be subject to penalties.

Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors

Our business involving outsourcing content production may be subject to the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors (Act No. 120 of June 1, 1956, as amended). Under this law, we may be obligated to deliver order forms to subcontractors and set deadlines for payment of subcontract proceeds. In addition, after we have subcontracted work to a subcontractor, we may be prohibited from having the subcontractor pick up items related to the work, etc., unless the subcontractor is responsible for the subcontractor’s actions.

Business operators violating the regulations of this law may be subject to recommendations, publication, etc., by the regulatory authorities, and may also be subject to penalties.

Intellectual Property Laws and Regulations

Japan has a number of laws and regulations concerning intellectual property rights, including the Patent Act (Act No. 121 of 1959, as amended), the Utility Model Act (Act No. 123 of 1959, as amended), the Design Act (Act No. 125 of 1959, as amended), and the Copyright Act (Act No. 48 of 1970, as amended).

The Patent Act protects rights to inventions, the Utility Model Act protects rights to inventions such as the shape of an article, the Design Act protects rights to the design of an article, and the Copyright Act protects rights pertaining to spiritual and creative activities, such as literature, art, music, and programs, as well as the rights of performers. 

Our business may be subject to various restrictions on the use of various rights under these laws and regulations.

In particular, since we sell our content, the appropriateness of copyrights may become an issue, and where we infringe on the copyrights of third parties, we may be subject to claims for injunction or damages.

Labor Laws

Japan has a variety of labor-related laws, including the Labor Standards Act (Act No. 49 of April 7, 1947, as amended), the Industrial Safety and Health Act (Act No. 57 of June 8, 1972, as amended), and the Labor Contracts Act (Act No. 128 of December 5, 2007, as amended). The Labor Standards Act stipulates minimum standards for working hours, holidays, overtime pay, and other working conditions. The Industrial Safety and Health Act requires, among other things, the implementation of measures to ensure employee safety and protect workers’ health in the workplace. The Labor Contracts Act establishes regulations regarding employment contracts, changes to work rules, dismissals, and disciplinary actions.

In particular, in Japan, the Labor Contract Law restricts the dismissal of employees, and it is necessary to properly manage and supervise employees.

In addition, the “Act on Comprehensive Promotion of Labor Measures and Stabilization of Employment and Improvement of Working Lives of Workers” (abbreviated as “Act on Comprehensive Promotion of Labor Measures”) was enacted on June 1, 2020, imposing on businesses the obligation to ensure a safe work environment.

Personal Information Protection Act

The Personal Information Protection Act of Japan (Act No. 57 of 2003, as amended) and related guidelines impose various regulations on businesses that use personal information and its databases, regarding the appropriate acquisition of such information, secure management, prohibition of use for other purposes, restrictions on information sharing with third parties, and appropriate subsequent measures in the event of information leakage.

The April 2022 amendment imposes a clear-cut obligation on businesses to prohibit the inappropriate use of personal information. The rules regarding the protection of personal information are changed, such that even non-personal information, such as website browsing history and personal location information associated with an individual, is subject to the Personal Information Protection Law in certain cases where consideration of personal privacy is required.

Business operators violating the regulations of this law may be subject to recommendations, etc., by the regulatory authorities and may also be subject to penalties.

Conclusion

We operate our services in compliance with these regulations.

Although we will continue to strengthen our legal compliance system and conduct internal training, the enactment or revision of new laws and regulations, and where the services operated by us become subject to new laws and regulations, it may affect our business, performance, and financial position.

C. Organizational Structure

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

D. Property, Plants and Equipment

See “—B. Business Overview—Facilities.”

Item 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

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

A. Operating Results

Comparison of Results of Operations for the Fiscal Years Ended September 30, 2024 and 2023