ELWS Earlyworks Co Ltd

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 April 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: 001-41752

Earlyworks Co., Ltd.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Japan

(Jurisdiction of incorporation or organization)

5-7-11, Ueno, Taito-ku

Tokyo, Japan 110-0005

(Address of principal executive offices)

Satoshi Kobayashi, Chief Executive Officer and Representative Director

Telephone: +81 03-5614-0978

Email: satoshi-k@e-arly.works

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: 15,076,900 ordinary shares.

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

Yes ☐ No ☒

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

Yes ☐ No ☒

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

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

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

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 financial statements for the fiscal years ended April 30, 2024, 2023, and 2022. Our functional currency and reporting currency is the Japanese yen. Convenience translations included in this annual report of Japanese yen into U.S. dollars have been made at the exchange rate of JPY157.54= $1.00, which was the foreign exchange rate on April 30, 2024 as reported by the Board of Governors of the Federal Reserve System (the “U.S. Federal Reserve”) in its weekly release on April 30, 2024. Historical and current exchange rate information may be found at https://www.federalreserve.gov/releases/h10/hist/dat00_ja.htm.  

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

FORWARD-LOOKING INFORMATION

This annual report contains forward-looking statements that reflect our current expectations and views of future events, all of which are subject to risks and uncertainties. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by the use of words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “will,” “would,” “should,” “could,” “may,” or other similar expressions in this annual report. These statements are likely to address our growth strategy, financial results, and future development programs. You must carefully consider any such statements and should understand that many factors could cause actual results to differ from our forward-looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

We describe certain material risks, uncertainties and assumptions that could affect our business, including our financial condition and results of operations, under “Risk Factors.” We base our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may, and are likely to, differ materially from what is expressed, implied, or forecast by our forward-looking statements. Accordingly, you should be careful about relying on any forward-looking statements. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this annual report, whether as a result of new information, future events, changes in assumptions, or otherwise.

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

Blockchain is a nascent and rapidly changing technology and the use of blockchain technology in the commercial marketplace remains relatively small. The slowing or stopping of the development or acceptance of blockchain technology may adversely affect our business.

Blockchain is an emerging technology that offers new capabilities. The development of blockchain technology is a new and rapidly evolving industry that is subject to a high degree of uncertainty. The capabilities of blockchain technology have not been fully confirmed. The utilization of blockchain technology may face opposition by certain participants in the market, who may criticize blockchain technology for its slow processing speed, poor real-time data processing capacity and burdensome learning costs, among other things. In addition, blockchain technology is subject to technical risks such as forking. Most blockchain networks operate based on some form of open-source software. An open-source project is not represented, maintained or monitored by an official organization or authority. Because of the nature of open-source software projects, it may be easier for third parties not affiliated with the issuer to introduce weaknesses or bugs into the core infrastructure elements of the blockchain network. This could result in the corruption of the open-source code which may result in the loss or theft of blockchain assets.

Factors affecting the further development of blockchain industry include, without limitation:

Our business model is dependent on continued investment in and development of the blockchain industry and related technologies. If investments in the blockchain industry become less attractive to investors, innovators, and developers, or if blockchain networks and assets do not gain public acceptance or are not adopted and used by a substantial number of individuals, companies and other entities, it could have a material adverse impact on our prospects and operations.

If we are unable to apply technology effectively in driving value for our customers through blockchain-based solutions, our business could be adversely affected.

Our success depends on our ability to apply our proprietary blockchain technology, Grid Ledger System (“GLS”), develop new services, and improve the performance and cost-effectiveness of the existing services, in each case in ways that address current and anticipated customer requirements, industry needs and future trends. Such success is dependent upon several factors, including technology effectiveness, functionality, competitive pricing, licensing and integration with existing and emerging technologies. The blockchain industry is characterized by rapid technological changes. If we fail to develop and implement technology solutions and technical expertise that keep pace with changes in technology, industry standards, and customer preferences, our value proposition could be adversely affected. We may not be successful in anticipating or responding to these developments on a timely and cost-effective basis and our ideas may not be accepted in the marketplace. The effort to gain technological expertise and develop new technologies in our business may require us to incur significant expenses. In addition, GLS may not gain acceptance or recognition in the market which is dominated by more established and conventional technologies, even though we believe GLS is superior to the conventional blockchains. Our unique advantage created by GLS may be threatened by intensified competition in the market if our competitors invent similar technologies in the future. Any of these events could result in a material adverse effect on our operating results, customer relationships, and business.

We may not be able to adequately evaluate the risks associated with the NFT platforms developed by us.

NFTs, or non-fungible tokens, are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. Similar to cryptocurrency, NFTs are issued, stored, and traded on a blockchain network. Different from cryptocurrency, NFTs are unique and cannot be replaced with other like-kind assets. Traditional digital products can be easily duplicated and distributed without the ability to determine their authenticity. In comparison, NFTs are unique and can be distributed and traded with the ability to prove their authenticity and ownership. For example, we were selected by Hakuhodo DY Music & Pictures Inc. (“Hakuhodo”) to develop a platform called Animap where Hakuhodo sells its NFTs. Hakuhodo is the sole owner of Animap and independently manages the daily operation of Animap. Hakuhodo obtains permission from copyright owners to convert their copyrighted works into NFTs, handles inquiries, complaints, purchase cancellations, refunds and requests as well as provides other customer support for Animap users. We own certain intellectual property rights in the system used to develop Animap. We do not own, operate or maintain Animap, nor do we have any custody, ownership interests or intellectual property rights in the NFTs that are sold on Animap. We also developed another NFT trading platform for a different business partner. Such business partner operates the platform and we produce the NFTs that are sold on the platform. We own the intellectual property rights in the platform and the NFTs that we developed and created.

Because the market for NFTs is relatively nascent, it is difficult to predict how the legal and regulatory framework around NFTs will develop and how such developments will impact us. Further, market acceptance of NFTs is uncertain because buyers may be unfamiliar or uncomfortable with transacting in digital assets and assessing the value of NFTs. The trading platforms developed by us are also subject to cybersecurity risks. For example, a perpetrator could seek to obtain the private key associated with a digital wallet holding an NFT to access and sell the NFT without valid authorization, and the owner of the NFT may have limited recourse due to the nature of blockchain transactions and of cybercrimes generally. In addition, an unauthorized party may acquire the necessary credentials to access user accounts. The safeguards we have implemented or may implement in the future to protect against cybersecurity threats may be insufficient. The occurrence of any of these risks could materially and adversely affect our reputation and business.

The NFT platforms developed by us may expose us to legal and regulatory risks.

Recently, the U.S. regulatory authorities have signaled sanctions could apply to digital transactions and have pursued enforcement actions involving cryptocurrencies and digital asset accounts. On August 28, 2023, the U.S Securities and Exchange Commission charged Impact Theory, LLC, a media and entertainment company headquartered in Los Angeles, with conducting an unregistered offering of crypto asset securities in the form of purported NFTs. As a result, Impact Theory, LLC was ordered to pay a combined total of more than $6.1 million in disgorgement, prejudgment interest, and civil penalty. The nature of many NFT transactions involves circumstances which present higher risks for potential violations, such as anonymity, subjective valuation, use of intermediaries, lack of transparency, and decentralization associated with blockchain technology, which have implications on a wide range of liability issues. NFT transactions may be subject to laws governing virtual currency or money transmission. NFT transactions also raise issues regarding compliance with laws of foreign jurisdictions, many of which present complex compliance issues and may conflict with one another. The NFT platforms expose us to the foregoing risks, among others, any of which could materially and adversely harm our business, financial condition, results of operations, reputation, and prospects.

Our technology is dependent on telecommunications infrastructure and the performance of devices equipped with blockchain.

The success of our blockchain-based services will depend on the continued development of a stable telecommunications infrastructure with the necessary speed, data capacity and security, complementary products such as high-speed networking equipment for providing reliable internet access and services, and other devices that are equipped with blockchain. There is no assurance that the relevant infrastructure and devices will continue to be able to support the demands placed on it by the growth of blockchain technology. There is also no assurance that the infrastructure or complementary products or services necessary to support the blockchain technology will be developed in a timely manner, or that such development will not incur substantial costs to adapt to changing technologies. The failure of these platforms and devices or their development could materially and adversely affect our business, financial condition and results of operation.

Cybersecurity incidents may materially and adversely affect our business.

Security breaches, computer malware and computer hacking attacks have been a prevalent concern since the launch of blockchain technology. To reduce security concerns, GLS employs intermediate processing nodes, which are independent of the nodes that make up the blockchain network and process the actual transactions. Even if the intermediate processing nodes are stopped, the transactions cannot be tampered with. To reduce the impact of attacks on intermediate processing nodes and any unauthorized access, GLS allows the use of firewalls and other means to prevent cyberattacks, thereby providing security. However, our security system and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of an employee of ours, or otherwise. Techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be designed to remain dormant until a predetermined event. Outside parties may also attempt to fraudulently induce employees of ours to disclose sensitive information in order to gain access to our infrastructure. Any such breach or unauthorized access could result in significant legal and financial exposure, damage to our reputation, and a loss of confidence in the services we provide, which in turn could have an adverse effect on our business.

We may experience operational system failures or interruptions that could materially harm our ability to conduct our operations.

We rely on the capacity, reliability and security of third-party systems and software to support our operations. We employ Google Drive to process, transmit and store information as of the date of this annual report. The systems of third-party providers may experience material interruptions or failures due to a variety of events beyond our control, including but not limited to, natural disasters, telecommunications failures, employee or customer error or misuse, targeted attacks, unauthorized access, fraud, computer viruses, denial of service attacks, terrorism, firewall or encryption failures and other security problems. If any of the systems do not operate properly, are compromised or are disabled, we could suffer an adverse impact on our operations.

If we are not able to successfully compete, our business will be materially harmed.

We design, upgrade, and maintain technology systems for our customers. We expect to encounter competition in our business, including from entities having substantially greater capital and resources and offering a wider range of products and services. Many of our competitors may have greater financial, marketing, technological and personnel resources than we do, and may offer a wider range of bundled services, have broader name recognition, and have larger customer bases than we do.

Our ability to develop competitive advantages will require continued improvement in GLS, enhancements to our services, investment in the development of our services, and additional marketing activities. There can be no assurance that we will timely implement changes into our technology, that we will have resources to make sufficient investments in the development of our services, that our competitors will not devote significantly more resources to competing services, or that we will otherwise be successful in developing market share. If competitors offer superior services, or implement changes in a timelier and more cost-effective manner, our market share could be affected, and this would adversely impact our business and results of operations.

Competitors will likely attempt to imitate our services and technology. If we are unable to protect or preserve our proprietary rights, our business may be harmed.

As our business continues to expand, our competitors will likely imitate our services and technology. Only a portion of the intellectual property used in the operation of our business lines is patentable, and therefore we rely on trade and service marks, copyrights, trade secrets, and other forms of intellectual property protection. We also rely on confidentiality agreements with employees, consultants, third-party service providers, and others to protect our intellectual property and proprietary rights.

Nevertheless, the steps we take to protect our intellectual property and proprietary rights against infringement or other violation may be inadequate. There is no assurance that others will not independently develop technology with the same or similar function to any proprietary technology that we rely on. We may experience difficulty in effectively limiting the unauthorized use of our intellectual property and proprietary rights. We could incur significant costs and management distraction in pursuing claims to enforce our intellectual property and proprietary rights through litigation. If we are unable to protect or preserve the value of our intellectual property and proprietary rights for any reason, our brand and reputation could be damaged and our business, financial condition, and results of operations could be materially adversely affected.

Negative publicity could damage our business.

Developing and maintaining our reputation is critical to attracting and retaining customers and investors. Our success depends on our ability to successfully maintain and improve our technology and systems to meet the functionality, performance, reliability and speed requirements of our customers. Negative publicity regarding our Company, our technology, our key personnel, or blockchain technology generally, whether based upon fact, allegation or perception and whether justified or not, could give rise to reputational risk which could significantly harm our business prospects.

If one or more competitors obtain patents covering technology critical to the operation of our business, we may infringe on the intellectual property rights of others.

If one or more other persons, companies or organizations has or obtains a valid patent covering technology critical to the operation of our business, there can be no assurance that such entity would be willing to license such technology at acceptable prices or at all, which could have a material adverse effect on our business, financial condition and results of operations.

Due to the fundamentally open-source nature of blockchain technology, we may not always be able to determine that we are using or accessing protected information or software. In addition, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may currently be pending applications of which we are unaware that may later result in issued patents that our products or services infringe.

We could expend significant resources defending against patent infringement and other intellectual property right claims, which could require us to divert resources away from our operations. Any damages we are required to pay or injunctions against our continued use of such intellectual property in resolution of such claims may cause a material adverse effect to our business, financial condition and results of operations.

If we are unable to successfully identify, hire and retain skilled individuals, our business will be adversely affected.

Our growth is based, in part, on our ability to attract and retain highly skilled professionals and software engineers. We aim to motivate and retain qualified employees. However, we may face difficulties in recruiting and retaining employees of a caliber consistent with our business strategy because of competition from other companies. If our employees are unsatisfied with what we offer, such as remuneration packages or working environment, we may not be able to retain qualified employees or replace them with personnel of appropriate skill sets and personal attributes at comparable costs. In such an event, we may need to expend additional resources to retain or replace suitable employees.

As of the date of this annual report, we are not subject to any employment-related claims. However, we may be subject to various employment-related claims from time to time, such as individual actions or government enforcement actions relating to wage-hour, labor standards, or healthcare and benefit issues. Such actions, if brought against us and successful in whole or in part, may materially and adversely affect our business or results of operations.

The loss of key personnel could have a material adverse effect on us.

Our success depends solely on the continued services of key personnel, particularly our management and officers, who have extensive market knowledge and long-standing industry relationships. Our management team collectively has experience working with corporations of various operating scales across different industries. Our reputation among and our relationships with key customers are the result of a significant investment of time and effort by our management to build credibility in a highly specialized industry. The loss of services of any member of management could diminish our business, growth opportunities, and our relationships with key customers.

We could be the victim of employee misconduct.

There is a risk that our employees or contractors could engage in fraud, conflicts of interest, unauthorized disclosure of confidential information, or other misconduct that adversely affects our business. Furthermore, our employees could make errors in recording or executing transactions for customers which would cause us to enter into transactions that customers may disavow and refuse to settle. It is not always possible to deter misconduct by our employees, and the precautions we take to prevent and detect misconduct may not be effective in all cases. Our ability to detect and prevent errors or misconduct by entities with which we do business may be even more limited. Such misconduct could subject us to financial losses and materially harm our reputation, financial condition and operating results.

If our vendors and third-party service providers experience difficulties, our business could be adversely affected.

We outsource some operational activities and depend on relationships with vendors and third-party service providers. For example, we employ external engineers for certain outsourced systems development and maintenance projects. Our operations could be interrupted or disrupted if our vendors and third-party service providers, or even the vendors of such vendors and third-party service providers, experience operational or other systems difficulties, terminate their service, fail to comply with regulations, raise their prices, or dispute key intellectual property rights sold or licensed to or developed for our Company. If any of these events happen, and we are unable to replace vendors and service providers, on a timely basis or at all, our operations could be interrupted. If an interruption were to continue for a significant period, our business, financial condition and results of operations could be adversely affected. Even if we can replace vendors and third-party providers, it may be at a higher cost, which could also adversely affect our business, financial condition and results of operations.

Our revenues are dependent on a limited number of major customers, and the loss of any such customer or the inability of any such customer to make payments to us as due, could have a material adverse effect on our business, results of operations and financial condition.

For the fiscal year ended April 30, 2024, we had three customers that each contributed to over 10% of our total sales revenue, accounting for approximately 42.6%, 27.2%, and 21.5% of our total sales revenue, respectively. For the fiscal year ended April 30, 2023, we had three customers that each contributed to over 10% of our total sales revenue, accounting for approximately 42.9%, 24.1%, and 10.5% of our total sales revenue, respectively. For the fiscal year ended April 30, 2022, we had two customers that each contributed to over 10% of our total sales revenue, accounting for approximately 47.4% and 25.9% of our total sales revenue, respectively. Although we do not heavily rely upon any one customer for the majority of our revenue, our revenue is dependent on a limited number of customers who account for a large percentage of our contractually committed capacity. If one or more of our significant customers fail to make payments to us or do not honor their contractual commitments, our revenue and results of operations would be materially and adversely affected.

In addition, our reliance on any significant customers may give such customers a degree of pricing leverage against us when negotiating contracts and terms of services with us. The loss of any of our major customers, or a significant decrease in the extent of the services that they outsource to us or the level of prices we offer, could materially and adversely affect our financial condition and results of operations.

Any of our customers could experience a downturn in their business, which in turn could result in their inability or failure to make timely payments to us pursuant to their contracts with us. In the event of any customer default, our liquidity could be adversely impacted. These risks would be particularly significant if one of our major customers were to experience adverse effects to its business and defaults under their contracts with us.

We may have difficulty executing our growth strategy and maintaining our growth effectively.

Our growth requires additional investment in personnel, facilities, information technology infrastructure, and financial and management systems and controls and may place a significant strain on our management and resources. Our growth strategy also may subject us to increased legal, compliance and regulatory obligations. There is no assurance that our growth efforts will be successful. We may not be able to implement important strategic initiatives in accordance with our expectations, including that the strategic initiatives could result in additional unanticipated costs, which may result in an adverse impact on our business and financial results. Unless our growth results in an increase in our revenues that is proportionate to the increase in our costs associated with our growth, our future profitability could be adversely affected.

We intend to explore acquisitions, other investments and strategic alliances. We may not be successful in identifying opportunities or in integrating the acquired businesses. Any such transaction may not produce the results we anticipate, which could adversely affect our business.

We intend to explore and pursue acquisitions, strategic partnerships, joint ventures and other alliances to strengthen our business and grow our Company in the future. The market for acquisitions and strategic opportunities is highly competitive. In addition, these transactions entail numerous operational and financial risks, including but not limited to difficulties in valuing acquired businesses, combining personnel and firm cultures, integrating acquired products, services and operations, achieving anticipated synergies that were inherent in our valuation assumptions, exposure to unknown material liabilities, the potential loss of key vendors, clients or employees of acquired companies, incurrence of substantial debt or dilutive issuance of equity securities to pay for acquisitions, higher-than expected acquisition or integration costs, write-downs of assets or impairment charges, increased amortization expenses and decreased earnings, revenue or cash flow from dispositions.

If we need to seek additional financing but are not able to do so on commercially acceptable terms, our liquidity and financial condition will be adversely affected.

As of the date of this annual report, we have entered into loan and credit agreements with financial lending institutions. For further details on our bank borrowings, see “Item 5. Operating And Financial Review And Prospects—B. Liquidity and Capital Resources.” The viability of our business is dependent on the availability of adequate capital to develop and maintain our business. We will need to continue to invest in our operations for the foreseeable future to carry out our business plan. If we do not attract customers and does not achieve the expected operating results, we will need to seek additional financing or revise our business plan. Our ability to borrow additional funds may be impacted by financial lending institutions’ ability or willingness to lend to us on commercially acceptable terms. If we have low levels of operating cash flow together with limited access to capital or credit in the future, it could have an impact on our ability to meet our capital requirements, invest in our software and infrastructure, engage in strategic initiatives, make acquisitions or strategic investments in other companies, react to changing economic and business conditions, or repay our outstanding debt. Such outcomes could have an adverse effect on our business, financial condition and operating results.

Operational risk may materially and adversely affect our performance.

Operational risk is the risk of an adverse outcome resulting from inadequate or failed internal processes, people, systems or external events. Our exposure to operational risk arises from routine processing errors, as well as extraordinary incidents, such as major system failures or legal and regulatory matters. Because our business lines are reliant on both technology and human expertise and execution, we are exposed to material operational risks arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of third-party service providers, counterparties or other third parties, failed or inadequate processes, design flaws and technology or system failures and malfunctions. Operational errors or significant operational delays could have a materially negative impact on our ability to conduct its business or service its clients, which could adversely affect our results of operations.

We may not have sufficient insurance to cover potential losses and claims.

We currently maintain insurance coverage against the risk of property damage caused by fires, lightning strikes, explosions, riots, vehicle collisions, thefts, and flooding. We also maintain earthquake insurance coverage. While we believe that there have not been instances when we had to incur losses, damages, and liabilities because of the lack of insurance coverage, there may be such instances in the future, which may in turn adversely affect our financial condition and results of operations.

We may become involved in legal and other proceedings from time to time and may suffer significant liabilities or other losses as a result.

Certain shareholders of the Company filed a lawsuit in the Tokyo District Court against the Company and Mr. Satoshi Kobayashi, the Company’s Chief Executive Officer and Representative Director. The complaint, which is dated December 18, 2023, was served on the Company and Mr. Kobayashi on January 12, 2024. The plaintiffs alleged that Mr. Kobayashi violated Article 709 of the Japanese Civil Code by intentionally delaying or misrepresenting the procedures necessary for the sale of shares, thereby unfairly depriving the plaintiffs of the opportunity to sell their shares on the Nasdaq market at a higher price following the Company’s initial public offering, and that the Company shall be liable for damages caused by Mr. Kobayashi in the discharge of his duties as the Company’s Representative Director under Article 350 of the Japanese Companies Act. The plaintiffs sought monetary damages in the total amount of $2,925,747, plus interest and costs. From time to time, we may become involved in other disputes with the provision of our services or other aspects of our business and operations, including labor disputes with employees and contract disputes with our customers. These disputes may lead to legal or other proceedings and may result in substantial costs and diversion of resources and management’s attention. Disputes and legal and other proceedings may require substantial time and expense to resolve, which could divert valuable resources, such as management time and working capital, delay our planned projects, and increase our costs. Third parties that are found liable to us may not have the resources to compensate us for our incurred costs and damages. We could also be required to pay significant costs and damages if we do not prevail in any such disputes or proceedings.

General economic, political and market conditions may have an adverse impact on our operating performance, results of operations and cash flow.

Our business is influenced by a range of factors that are beyond our control including general economic and business conditions and legal, regulatory, and political developments. Challenging economic conditions worldwide have from time to time contributed, and may continue to contribute, to slowdowns in the information technology industry at large. Weakness in the economy could have a negative effect on our business, operations and financial condition, including decreases in revenue and operating cash flow, and inability to attract future equity and debt financing on commercially reasonable terms. Additionally, in a down-cycle economic environment, we may experience the negative effects of a slowdown in the usage of our blockchain technology. The impact of global events, including the ongoing conflict between Russia and Ukraine and the armed conflict between Israel and Hamas-led Palestinian militant groups, may also negatively impact our Company.

Our business may be adversely affected by the impact of coronavirus, other epidemics or pandemics, acts of God, wars, insurrections, riots, infrastructure failures, and other force majeure events.

Public health epidemics or outbreaks could adversely impact our business. In addition, acts of terrorism, labor activism or unrest, and other geo-political unrest could cause disruptions in the business, the businesses of partners, or the economy as a whole. In the event of a natural disaster, including a major earthquake, blizzard, or hurricane, or a catastrophic event such as a fire, power loss, or telecommunications failure, we may be unable to continue operations and may endure system interruptions, reputational harm, delays in development of our systems, lengthy interruptions in service, breaches of data security, and loss of critical data, all of which could have an adverse effect on future operating results.

The regulatory regimes governing blockchain technologies are uncertain, and new regulations or policies may materially adversely affect the development of blockchain.

Initially, it was unclear how blockchain technologies and the businesses and activities utilizing such technologies would fit into the current web of government regulation. As blockchain technologies have grown in popularity and in market size, international, federal, state and local regulatory agencies have begun to clarify their position. Various legislative and executive bodies in the United States and in other countries have shown that they intend to adopt legislation to regulate blockchain technologies. However, according to our Japanese legal counsel, there are no laws or regulations in Japan that restrict or regulate blockchain technologies per se as of the date of this annual report. 

New or changing laws and regulations or interpretations of existing laws and regulations may materially and adversely impact the development and growth of blockchain technologies. The imposition of restrictions on blockchains could adversely affect our business.

Our compliance and risk management programs might not be effective and may result in outcomes that could adversely affect our reputation, financial condition and operating results.

Our ability to comply with applicable laws and rules is largely dependent on our establishment and maintenance of compliance, review and reporting systems, as well as our ability to attract and retain qualified compliance and other risk management personnel. There is no assurance that our compliance policies and procedures will always be effective or that we will always be successful in monitoring or evaluating our risks. In the case of alleged non-compliance with applicable laws or regulations, we could be subject to investigations and judicial or administrative proceedings that may result in substantial penalties or civil lawsuits, including by customers, for damages, which could be significant. Any of these outcomes may adversely affect our reputation, financial condition and operating results.

We have limited experience operating as a public company.

We have limited experience conducting our operations as a public company. We may encounter operational, administrative, and strategic difficulties as a public company. This may cause us to react more slowly than our competitors to industry changes and may divert our management’s attention from running our business or otherwise harm our operations. In addition, as a public company, our management team need to develop the expertise necessary to comply with the numerous regulatory and other requirements applicable to public companies, including requirements relating to corporate governance and investor relationships issues, and our management have to evaluate our internal controls system with new thresholds of materiality, and may implement necessary changes to our internal controls system. We cannot guarantee that we will be able to do so in a timely and effective manner.

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

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

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

Risks Related to Our Ordinary Shares and the Trading Market

Share ownership is concentrated in the hands of our management, who are able to exercise a direct or indirect controlling influence on us.

As of the date of this annual report, our directors and executive officers together beneficially own more than a majority of our 15,076,900 Ordinary Shares outstanding. These shareholders, acting together, have significant influence over all matters that require approval by our shareholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other shareholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our Company that other shareholders may view as beneficial.

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

Sales of a substantial amount of the ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of the ADSs and could materially impair our ability to raise capital through equity offerings in the future. As of the date of this annual report, 15,076,900 Ordinary Shares are issued and outstanding, and 1,025,740 ADSs (representing 5,128,700 Ordinary Shares) are issued, outstanding and freely tradeable. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of the ADSs.

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

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

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

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

In addition, 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.

If we fail to implement and maintain an effective system of internal control, 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 the ADSs may be materially and adversely affected.

As a public company in the United States, we are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) requires that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F. In addition, once we cease to be an “emerging growth company,” as 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, 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.

During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented, or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of the ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from Nasdaq, regulatory investigations, and civil or criminal sanctions. We may also be required to restate our financial statements for prior periods. See “Item 15. Controls And Procedures” for more information.

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

As of the date of this annual report, Mr. Satoshi Kobayashi, our Chief Executive Officer and Representative Director, owns more than a majority of the voting power of our outstanding Ordinary Shares. Under the Nasdaq corporate governance rules, a company of which more than 50% of the voting power is held by an individual, group, or another company is a “controlled company” and may elect not to comply with certain Nasdaq corporate governance standards, including the requirements that:

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

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

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

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

Our amended articles of incorporation and the Companies Act of Japan (Act No. 86 of 2005, as amended), or the Companies Act, govern our corporate affairs. Legal principles relating to matters such as the validity of corporate procedures, directors’ and executive officers’ fiduciary duties, and obligations and shareholders’ rights under Japanese law may be different from, or less clearly defined than, those that would apply to a company incorporated in any other jurisdiction. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the law of other countries. For example, under the Companies Act, only holders of 3% or more of our total voting rights or our outstanding shares are entitled to examine our accounting books and records. Furthermore, there is a degree of uncertainty as to what duties the directors of a Japanese joint-stock corporation may have in response to an unsolicited takeover bid, and such uncertainty may be more pronounced than that in other jurisdictions. 

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

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

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

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

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

A prior filing requirement as set forth above is not triggered for acquiring or trading the ADSs since the depositary received clearance for the acquisition of our Ordinary Shares underlying the ADS in June 2023.  In addition, any Foreign Investor expecting to receive delivery of our Ordinary Shares upon surrender of ADSs must also obtain pre-clearance from the applicable Japanese governmental authority prior to accepting delivery, which approval may take up to 30 days and could be subject to further extension. Although such prior filing requirement is not triggered for trading the ADSs once the depositary receives clearance for the deposit of the underlying Ordinary Shares, we cannot assure you that there will not be delays for additional Foreign Investors who wish to acquire our Ordinary Shares or for holders of the ADSs who are Foreign Investors and who wish to surrender their ADSs and acquire the underlying Ordinary Shares. In addition, we cannot assure you that the applicable Japanese governmental authorities will grant such clearance in a timely manner or at all.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If we cannot satisfy the continued listing requirements and other rules of Nasdaq, the ADSs may be delisted, which could negatively impact the price of the ADSs and your ability to sell them.

In order to maintain our listing on Nasdaq, we are required to comply with the continued listing requirements and other rules of Nasdaq. If we are unable to satisfy Nasdaq criteria for maintaining our listing, the ADSs could be subject to delisting. If Nasdaq subsequently delists the ADSs from trading, we could face significant consequences, including:

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

We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such an 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 the ADSs.

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

If we are classified as a passive foreign investment company, United States taxpayers who own the ADSs or our 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 (“PFIC”) for any taxable year if, for such year, either:

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

If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds the ADSs or our 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.

Based on our operations and the composition of our assets, we do not believe we were a PFIC for our 2024 taxable year. However, 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.

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

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

Item 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Corporate History and Structure

We were incorporated in Japan on May 1, 2018 as a joint-stock corporation with limited liability pursuant to the laws of Japan. As of the date of this annual report, we do not have any subsidiaries.  

Corporate Information

Our principal executive office is located at 5-7-11, Ueno, Taito-ku, Tokyo, Japan 110-0005, and our telephone number is +81 03-5614-0978. Our website is https://e-arly.works/. 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., at 122 East 42nd Street, 18th Floor, New York, NY 10168.

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

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

B. Business Overview

Overview

We are a blockchain-based technology company incorporated in Japan. We deliver services and develop solutions based on our proprietary GLS to leverage blockchain technology in various business settings, including advertisement tracking, online visitor management, and sales of non-fungible tokens. Our customers represent a diverse range of industries, such as information technology, metaverse, advertisement, real estate, telecommunication and entertainment. We generate revenue from our (i) software and system development services, (ii) consulting and solution services, and (iii) sale of NFTs. For the fiscal years ended April 30, 2024, 2023 and 2022, we had total revenue of approximately JPY179.4 million (US$1.1 million), JPY46.6 million, and JPY463.7 million, respectively, revenue generated from our software and system development services accounted for approximately 70.0%, 47.0%, and 50.6% of our total revenue, respectively, revenue generated from our consulting and solution services accounted for approximately 1.6%, 48.2%, and 49.4% of our total revenue, respectively, and revenue generated from the sale of NFTs accounted for approximately 28.4%, 4.8%, and 0% of our total revenue, respectively. For the same fiscal years, we had net loss of approximately JPY330.2 million (US$2.1 million), JPY382.3 million, and JPY602.5 million, respectively.

Our mission is to optimize business operations with our creative ideas and the use of blockchain technology. We believe in a data centric future where blockchain technology will be indispensable and widely used, due to its efficiency, security, and reliability.

Industry Background

A distributed ledger is a ledger containing records of transactions between parties in a shared network. When a party in the network adds a transaction to the ledger, it is synchronized to other parties in the network through a consensus algorithm. The consensus algorithm enables transactions to be validated and confirmed without the need for a central point of authority. A validated transaction is added to the network in a permanent and immutable way. Every party in the network has simultaneous access to view the information, which is kept secure with the use of cryptographic functions.

A blockchain is a type of distributed ledger where transaction data is grouped into specific, time-stamped sets. Once consensus is reached for the data to go into a set, the set is sealed with a cryptographic signature, creating a sealed block. This block is then mathematically tied to the previous block on the ledger, forming a chain.

The potential benefits of blockchain technology include, among others:

While blockchains have various benefits, we believe that the conventional blockchains cannot yet be widely applied in business settings. The issues associated with the conventional blockchains include, among others:

Our Technology

Since our inception in May 2018, we have focused on blockchain technology and developing systems with a view to making our proprietary GLS an infrastructural technology in the future. As of the date of this annual report, GLS has been developed by our CTO, Hiroki Yamamoto, with collaboration efforts from the following partners:

We believe that GLS is superior to the conventional blockchains. The conventional blockchains provide a high level of security but are criticized for being slow in processing data reads and writes, especially when the number of parties in the network increases to a certain level. We have developed GLS to balance the trade-off between security and convenience and believe that GLS achieves both security performance and processing speed.

GLS is a hybrid blockchain that combines the technical advantages of both blockchain technology and database technology. Database technology provides the traditional infrastructure for data storage, collection, organization and processing, and enables the construction of systems. GLS demonstrates the following features:

GLS was designed and developed as an integrated distributed computing management system that we believe will serve as the infrastructure for the latest technologies such as artificial intelligence, big data, and the Internet of Things. The services provided by GLS are limited to the scope of the current telecommunications infrastructure and the capabilities of blockchain-equipped devices, and we believe that future advances in telecommunications infrastructure and blockchain devices will further enhance the potential value of GLS.

We recognize that there is a lack of engineers who can handle blockchain in Japan, and we plan to increase the number of use cases for GLS and invest in researching and developing a universally usable System Development Kit (“SDK”) for GLS. We are a company that operates with an eye on the Web3. To that end, we hope that various applications using our blockchain technology will be developed and the industry as a whole will grow.

Our Services

We derive our revenue from our (i) software and system development services, (ii) consulting and solution services, and (iii) sale of NFTs.

Through our software and system development services, we serve companies that have digital assets and intend to leverage these assets for the purposes of creating new businesses and new systems. We develop systems that are tailored to the specific needs of each customer.

Through our consulting services, we assist companies that seek to update their existing data and digital technology, add additional functions to their systems, and transform their businesses, operations, and processes. The companies that purchase our solution services are often repeat customers for whom we have developed systems and who return to us for additional services.

The sale of NFTs was achieved through an NFT trading platform that we developed for a business partner. Such business partner operates the platform and provides customer services to users of the platform. Such business partner is principally responsible for marketing and sales activities. The marketing and sales activities are mainly focused on the Japanese market and no NFT purchasers on the platform are from the U.S. as of the date of this annual report. We provide technological expertise by developing the NFT trading platform, creating the NFTs that are sold on the platform and providing technological support if needed. The creation of the NFTs is decided through consultation with the business partner and not independently controlled by us. We own the intellectual property rights in the platform and the NFTs that we developed and created. As of the date of this annual report, the users of the platform are allowed to buy the NFTs, but not transfer or resell the NFTs on the platform. Such users may resell the NFTs on secondary markets such as OpenSea. The NFT purchasers on the platform are of various backgrounds, a certain number of whom are NFT collectors. We also play the secondary role serving as a sales agent for the business partner to enhance the sales activities. In fulfilling such a secondary role, we sell the NFTs on behalf of our business partner. We do not hold the NFTs for investment purposes but we may hold the NFTs from time to time for sales promotion purposes. We do not make marketing activities in terms that indicate the NFTs as an investment opportunity. We receive a percentage of the sales revenue, and we accept cryptocurrencies as payment as NFTs are traded generally using cryptocurrencies.

We developed another NFT trading platform, Animap, for Hakuhodo DY Music & Pictures Inc. (“Hakuhodo”). Pursuant to the agreement between our Company and Hakuhodo, Hakuhodo is the sole owner of Animap and independently manages the daily operation of Animap. Hakuhodo obtains license from copyright owners, converts their copyrighted works into NFTs within the scope of the license, sells the NFTs on Animap, handles inquiries, complaints, purchase cancellations, refunds and requests as well as provides other customer support for Animap users. We used our technological expertise to develop Animap based on the public blockchain Ethereum. We own certain intellectual property rights in the system used to develop Animap. We stress-tested Animap prior to its launch in June 2022 and stress test Animap at least once every six months. We do not own, operate, or maintain Animap. The currently available NFTs on Animap represent some popular Japanese IPs, such as Tatsunoko Production, Big Hat Monkeys, and Mentori. The NFTs are stored by Animap users through manners of their choice, the most common of which is Metamask. The copyright owners remain the owners of the intellectual property rights in the underlying content represented by the NFTs. Hakuhodo maintains the royalty interest in, or intellectual property of, the NFTs that are offered on Animap. When the NFTs are sold, the ownership interests and intellectual property rights in the NFTs are transferred from Hakuhodo to the NFT buyers. We do not have any custody, ownership or intellectual property interests in the NFTs that are on Animap. In the event of disputes over the intellectual property underlying the NFTs, we believe it is unlikely for our Company to be a party to such disputes. As of the date of this annual report, Animap users are allowed to purchase NFTs, but not transfer, distribute, or resell their NFTs on Animap. Animap users may resell their NFTs on secondary markets such as OpenSea and Rarible. We are entitled to a system usage fee, which is equal to a percentage of the NFT sales revenue, under the precondition that such revenue reaches a predetermined level. We do not accept and do not plan to accept payment for our services in the form of digital assets. As of the date of this annual report, we have not received any revenue from the sale of NFTs on Animap.

Business Model

The process for achieving our revenue is as follows.

Identifying business opportunities

We are introduced to customers through our sales team as well as personal connections of our board members and shareholders. We also use other marketing channels, such as participating in industry online programs and events. We evaluate our sales strategies and progress at least once per month.

We typically receive orders from customers who are interested in blockchain and hope to digitally transform their internal databases. To determine whether to accept an order, we consider whether the project is profitable, whether the customer is credible and reputable, and whether a long-standing business relationship will be created with the customer.

Forming business cooperation

When a customer places an order with us, we invite the customer to consider whether the ordered system has the potential to contribute to the customer’s future earnings, whether it will reduce the customer’s costs, and whether the customer’s investment in the system is reasonable. We assist our customers with making well informed business decisions.

For the fiscal year ended April 30, 2024, we had three customers that each contributed to over 10% of our total sales revenue, accounting for approximately 42.6%, 27.2%, and 21.5% of our total sales revenue, respectively. For the fiscal year ended April 30, 2023, we had three customers that each contributed to over 10% of our total sales revenue, accounting for approximately 42.9%, 24.1%, and 10.5% of our total sales revenue, respectively. For the fiscal year ended April 30, 2022, we had two customers that each contributed to over 10% of our total sales revenue, accounting for approximately 47.4% and 25.9% of our total sales revenue, respectively. Although we derived a significant portion of our sales revenue from a limited number of customers, we did not heavily rely upon any one customer for the majority of our revenue.

Planning the project

In the planning phase, we enter into discussions with our customers and divide roles and responsibilities. We select specialists on our team and put them in charge of designing proposals, developing solutions, and providing other incidental support to our customers. Our customers appoint points of contact and make them responsible for reviewing proposals, facilitating communications in the course of the projects, and inspecting solutions upon completion.

We develop blockchain-based solutions tailored to the needs of each customer. To understand our customers’ issues, we interview our customers, engage a group of specialists across industries, study our customers’ business flow, and verify whether there are any areas where the ordered systems can solve the issues. We then evaluate the available proposals and discuss the solutions to be developed with our customers.

Working on the project

In the course of the projects, we strive to eliminate the discrepancies between the project progress and the project targets. We keep close communications with our customers for updates on the project progress. We hold regular meetings with our customers at least once per month to discuss the project progress and future plans. We also hold additional meetings as needed, for example where the customers need to immediately change their functional requirements.

We sometimes outsource work to external engineers. To determine whether to outsource, we consider the availability of our resources, the outsourcing fee structures, and the technical requirements of ordered systems. The external engineers are responsible for ancillary support to our team and not for greater roles. To control the quality of outsourced work, our team evaluates the quality of the outsourced work each day and requires the external engineers to submit a work report each month, so that our team can confirm the outsourced work is executed efficiently in accordance with the project schedules.

Completing the project

At the end of projects, we provide work completion reports to our customers. Our customers review the reports during the inspection period. When our customers have no objections to our products and services, they will stamp their names on the reports and deliver the reports to us to confirm project completion. When our customers do not sign the reports and raise no objections before the termination of the inspection period, the projects will also be considered completed.

Competition and Strengths

Market entry

The technological barrier to enter the blockchain industry is high, therefore many companies hesitate to enter this industry. Another challenge in the blockchain industry is that it is difficult to balance the trade-off among speed, security and transparency. Other companies seek to develop their solutions to balance such trade-off but such development processes can be lengthy and costly. In addition, we believe that conventional blockchains are too slow to go beyond the realm of demonstration testing and achieve monetization in business settings. Companies equipped with the conventional blockchains are only able to create limited commercial value. Our Company sought to overcome the technical issues of conventional blockchains and has developed our proprietary GLS, which we believe can be widely and flexibly applied in various business settings.

Market competition

We believe that we are one of the very few companies in Japan that are capable of commercializing blockchain technology. However, the market for blockchain technology is developing and we anticipate new entrants to the market and competition to intensify in the future. Our future competitors may have greater resources than us and there can be no assurance that we will have the financial and operational resources necessary to carry out our business plan and successfully compete with our competitors.

Our strengths

We believe the following competitive advantages are essential for our success and differentiate us from our competitors.

Our transformative blockchain-based technology

GLS constitutes our core strength and demonstrates the following advantages compared to the conventional blockchains:

Dedicated talent team

Our robust research and development team members are dedicated to blockchain research, operations, and development to support the improvement of blockchain technology. We, on occasions, consult with academia to keep abreast of the most recent advancement and technological issues of blockchain technology and to apply academic perspectives to system development. Our professional management team collectively has experience working with corporations of various operating scales across different industries. Our management has cultivated business knowledge and expertise by undertaking diverse roles, including sales, business planning, consulting, accounting, and programming. We also have an agreement with a third-party company for external engineers, some of whom are graduates of Hanoi University of Technology, Vietnam’s leading school for IT professionals, majoring in information technology.

Trusted relationships with business partners

We value the trust that we have built with our customers and business partners, who work with us for advice, joint research, and system development. Some of our system development customers return to us for additional consulting and system maintenance services. Our customers are of different operating scales, ranging from venture companies to multi-national businesses. Our customers represent a wide spectrum of industries, including information technology, metaverse, advertisement, real estate, telecommunication and entertainment industry , among others. We will continue to grow by leveraging the trust and expertise of the companies that we have worked with.

Growth Strategies

In February 2021, we were selected by “Microsoft for Startups” in recognition of the wide applicability of GLS. As of the date of this annual report, we have verified the applicability of GLS in various domains, including, but not limited to, the following:

In the future, we hope to generate revenue by applying GLS to the following domains:

To achieve these goals, we will invest in research and development of GLS, secure talented human resources, and actively pursue alliances with partner companies, aiming to become a company that functions as one of the world’s infrastructures.

Research and Development

We conduct independent research and development with dedication to innovation. Our research and development team members also work with external engineers to improve GLS.

We design, implement, and review a comprehensive set of rules governing our independent research and development projects. To start a R&D project, an inventor must make an application where the inventor must specify certain information including the content to be developed, development schedule, delivery date, required resources, and estimated profitability. The relevant heads of department evaluate the project. To determine whether to approve the project, they consider factors such as the availability of resources and profitability. After they approve the project, they select and appoint a project manager. The project manager supervises the progress of the project and reports to the relevant heads of department at least once a month. At the end of the project, the relevant heads of department review and inspect the final product. When the product passes the inspection, the project will be considered completed.

Besides independent research and development, we also conduct joint research and development projects with academia and business partners. One such joint project to develop an ultra-high-speed next-generation hybrid database called “SmokeDB,” which is expected to facilitate the introduction of blockchain into non-financial fields. Applying blockchain to non-financial fields incur various issues such as low processing speeds and technical difficulties in development and maintenance. We aim to resolve these challenges by combining our blockchain technology and our business partner’s network expertise.

Intellectual Property 

We seek to protect our intellectual property rights by relying on Japanese intellectual property laws and on contractual measures. It is our practice to enter into confidentiality, non-disclosure, and invention assignment agreements with our employees and contractors, and into confidentiality and non-disclosure agreements with other third parties, in order to limit access to our confidential information and proprietary technology. In addition to these contractual measures, we also rely on a combination of trademarks, registered domain names, and patent rights to protect our brand and our intellectual property. As of the date of this annual report, we have registered 2 patents, 14 trademarks and 9 domain names. Our pending intellectual property applications include 1 patent. We consider the patent “Information processing equipment and program (GLS)” to be material to our business. The chart below presents information about some intellectual property that we have registered or applied for.

Type		Name		Issuing authority		Application date		Status		Expiration date
Trademark				Japan Patent Office		August 12, 2022		registered		April 28, 2033
		データキャナル		Japan Patent Office		October 14, 2021		registered		April 04, 2032
		Data Canal		Japan Patent Office		October 13, 2021		registered		April 04, 2032
				Japan Patent Office		February 25, 2021		registered		August 12, 2031
		APO		Japan Patent Office		February 27, 2020		registered		June 22, 2031
		SmokeDB		Japan Patent Office		January 22, 2020		registered		January 28, 2031
				Japan Patent Office		November 25, 2019		registered		December 15, 2030
		アーリーワークス		Japan Patent Office		November 25, 2019		registered		December 15, 2030
				Japan Patent Office		July 01, 2019		registered		June 23, 2030
		Grid Ledger System		Japan Patent Office		May 14, 2019		registered		June 25, 2030
Patent		Information processing equipment and program		Japan Patent Office		October 31, 2022		in progress		N/A
		Information processing equipment and program		Japan Patent Office		December 2, 2020		registered		December 2, 2040
		Information processing equipment and program (GLS)		Japan Patent Office		October 27, 2020		registered		October 27, 2040

Property and Equipment

Our principal executive office is located in Tokyo, Japan. Our office space is leased from an independent third party with an area of 184.12 square meters starting from October 1, 2019. Mr. Satoshi Kobayashi, our Chief Executive Officer and Representative Director, is the guarantor on the lease agreement. The lease agreement automatically renews for another two years, unless either party notifies the other party of its intention to the contrary no later than six months before the expiration of the current term. The lease agreement may be terminated on six months’ notice of the intention to terminate. The current expiration date for the lease agreement is on September 30, 2024 and we intend to renew such lease agreement. We do not hold title or interest in any other property, plants, or equipment.

We believe that the current office facilities are adequate for the time being. As our business grow, there may be a need to secure additional office space.

Employees

We strive to attract, recruit, and retain talents through our compensation and benefit programs, as well as learning and development opportunities that support career advancement. In addition to salaries, we offer complementary benefits including bonuses, communications allowance, commuting allowance, overtime allowance, employment insurance, health insurance, and employee pension.

In the selection of team members, we consider whether the candidates empathize with our mission and vision, and whether the candidates can flexibly endure changes in a rapidly evolving environment. In the selection of engineers, we consider whether the candidates have sufficient experience in designing databases.

We enter into employment agreements with each of our employees. The employment agreements typically contain certain restrictions, including non-compete covenants for a period of one year following the termination of employment, and confidentiality restrictions through the time period the information remains confidential, among other covenants. The employment agreements typically last for indefinite terms. There is no labor union or collective agreement that covers any of our employees.

As of the date of this annual report, we have a headcount of 15 full-time employees (excluding our directors and company auditors) at our principal executive office in Japan. The chart below presents the number of our employees as of April 30, 2024, 2023 and 2022.

We also enter into outsourcing contracts with external engineers from time to time, which enables us to have access to additional engineers as needed.

Insurance

We currently maintain insurance coverage against the risk of property damage caused by fires, lightning strikes, explosions, riots, vehicle collisions, thefts, flooding and certain other damaging accidents. We also maintain earthquake insurance coverage. We have obtained directors and officers liability insurance. We review and renegotiate our premiums, coverage limits, and other terms of insurance policies on an annual basis. We do not hold major tangible assets and our assets are predominantly intangible and intellectual. We believe our insurance coverage is sufficient for our business practice and consistent with the customary industry practice in Japan.

Seasonality

Our business is not subject to seasonal fluctuations. We enter into business contracts with our customers throughout the year.

Regulations

Intellectual Property Protection Laws

There are various intellectual property laws in Japan, including the Patent Act (Act No. 121 of April 13, 1959, as amended), the Utility Model Act (Act No. 123 of April 13, 1959, as amended), the Design Act (Act No. 125 of April 13, 1959, as amended), the Trademark Act (Act No. 127 of April 13, 1959, as amended), the Copyright Act (Act No. 48 of May 6, 1970). The Patent Act provides patent right and regulates protection and utilization of inventions. The Utility Model Act provides utility model right and regulates protection and utilization of devices. The Design Act provides design rights. The Trademark Act provides trademark rights. The Copyright Act provides provide for authors’ rights and neighboring rights.

According to our Japanese legal counsel, as of the date of this annual report, we have registered 2 patents, 14 trademarks and 9 domain names in Japan. Our pending intellectual property applications in Japan include 1 patent. 

Labor Laws

There are various labor-related laws in Japan, 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). The Labor Standards Act regulates, among others, minimum standards for working conditions such as working hours, leave period, and leave days. The Industrial Safety and Health Act requires, among others, the implementation of measures to secure employee safety and protect the health of workers in the workplace. The Labor Contracts Act regulates, among others, the change of terms of employment contracts and working rules, and dismissal and disciplinary action.

According to our Japanese legal counsel, as of the date of this annual report, we comply with these laws and regulations. 

Regulations on Lease Agreements

Our lease agreements are generally subject to the Civil Code (Act No. 89 of April 27, 1896, as amended) and Act on Land and Building Leases (Act No. 90 of October 4, 1991, as amended).

According to our Japanese legal counsel, as of the date of this annual report, the terms and conditions of our lease agreements are consistent with these laws and are valid and enforceable as provided for in these agreements. 

Regulations on Privacy Protection

The Act on the Protection of Personal Information (Act No. 57 of May 30, 2003, as amended) aims to protect an individual’s rights and interests and establishes obligations that a personal information handling business operator shall fulfill.

According to our Japanese legal counsel, as of the date of this annual report, we comply with these laws and regulations. 

Regulations on Whistleblower Protection

The Whistleblower Protection Act No. 122 of June 18, 2004 (Act No. 122 of June 18, 2004, as amended) provides prohibition of disadvantageous treatment of whistleblowers on the grounds of whistleblowing and the measures that a business operator and administrative organ should take concerning whistleblowing to protect whistleblowers.

According to our Japanese legal counsel, as of the date of this annual report, we comply with these laws and regulations. 

C. Organizational Structure

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

D. Property, Plants and Equipment

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

Item 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

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

A. Operating Results

The following table sets forth our selected profit or loss data, both in absolute amount and as a percentage of total revenue, for the periods indicated.

Revenue

The following table sets forth the breakdown of our revenue by category, both in absolute amount and as a percentage of the total revenue for each category for the periods indicated:

Our total revenue for the fiscal year ended April 30, 2024 increased by approximately JPY132.8 million, or 285.1%, compared to that of the fiscal year ended April 30, 2023. Our total revenue for the fiscal year ended April 30, 2023 decreased by approximately JPY417.2 million, or 90.0%, compared to that of the fiscal year ended April 30, 2022. 

Revenue generated from our software and system development services accounted for 70.0%, 47.0%, and 50.6% of our total revenue for the fiscal years ended April 30, 2024, 2023, and 2022, respectively. Revenue from software and system development services for the fiscal year ended April 30, 2024 increased by JPY103.7 million, or 474.3%, compared to that of the fiscal year ended April 30, 2023. Such increase was mainly attributable to the completion of the GLS SDK, which we had been developing last year. This has enabled us to provide services that meet customer needs. Additionally, our listing on the Nasdaq Capital Market has increased our industry presence and bolstered trust from other companies, contributing to our revenue growth. Furthermore, in Japan, there are no publicly listed companies developing blockchain technology themselves, and it is difficult to find blockchain partners with the necessary technical capabilities. This has brought attention to our technology. Moreover, increased interest in blockchain technology has also contributed to our revenue growth. Revenue from software and system development services for the fiscal year ended April 30, 2023 decreased by JPY212.9 million, or 90.7%, compared to that of the fiscal year ended April 30, 2022. Such decrease was mainly due to the fact that in fiscal year 2022 we entered into a number of contracts to the extent that we were unable to devote substantial resources to research and development activities; most of such contracts were for terms of one year or less and expired during 2023. During the fiscal year ended April 30, 2023, we were more selective in entering into contracts and conducting projects in which we devote our resources, and we were engaged in research and development projects that are expected to generate revenue in the future.

Revenue generated from our consulting and solution services accounted for 1.6%, 48.2%, and 49.4% of our total revenue for the fiscal years ended April 30, 2024, 2023, and 2022, respectively. Revenue from consulting and solution services for the fiscal year ended April 30, 2024 decreased by JPY19.6 million, or 87.5%, compared to that of the fiscal year ended April 30, 2023. Such decrease was mainly due to the improved understanding of blockchain technology among our corporate clients, leading to an increase in requests for the development of specific systems using blockchain. However, this has also resulted in a decrease in consulting and solution services for how to use blockchain. Revenue from consulting and solution services for the fiscal year ended April 30, 2023 decreased by JPY206.6 million, or 90.2%, compared to that of the fiscal year ended April 30, 2022. Such decrease was due to the fact that in fiscal year 2023, we entered into a number of contracts to the extent that we were unable to devote substantial resources to research and development activities; most of such contracts were for terms of one year or less and expired during 2023. During the fiscal year ended April 30, 2023, we were more selective in entering into contracts and conducting projects in which we devote our resources, and we were engaged in research and development projects that are expected to generate revenue in the future.  

Revenue generated from the sale of NFTs accounted for 28.4%, 4.8%, and nil of our total revenue for the fiscal years ended April 30, 2024, 2023, and 2022, respectively. Revenue from the sale of NFTs for the fiscal year ended April 30, 2024 increased by JPY48.7 million, or 2,154.9%, compared to that of the fiscal year ended April 30, 2023. Such increase was mainly because of the increased sales support for NFTs. The Company started to receive revenue from the sale of NFTs in the fiscal year ended April 30, 2023.

Cost of Revenue

The following table sets forth the breakdown of our cost of revenue by category, both in absolute amount and as a percentage of the cost of revenue, for the periods indicated:

Cost of revenue primarily comprises (1) outsourced staff cost; (2) staff cost; (3) telecommunication cost; (4) rental expense; and (5) others. Cost of revenue for the fiscal year ended April 30, 2024 increased by approximately JPY7.1 million, or 23.2%, compared to that of the fiscal year ended April 30, 2023. Such increase was primarily attributable to an increase of JPY17.2 million in outsourced staff cost, partially offset by a decrease of JPY9.4 million in staff cost and telecommunication cost. Cost of revenue for the fiscal year ended April 30, 2023 decreased by approximately JPY77.9 million, or 71.9%, compared to that of the fiscal year ended April 30, 2022. Such decrease was primarily attributable to a decrease of JPY77.5 million in staff cost, outsourced staff cost and telecommunication cost.

Gross Profit/Loss

As a result of changes in revenue and cost of revenue, our gross profit for the fiscal year ended April 30, 2024 increased by JPY125.7 million, or 782.4%, compared to that of the fiscal year ended April 30, 2023, and our gross profit for the fiscal year ended April 30, 2023 decreased by JPY339.3 million, or 95.5%, compared to that of the fiscal year ended April 30, 2022. The following table sets forth a breakdown of gross profit by services offered for the fiscal years ended April 30, 2024, 2023, and 2022:

Operating Expenses

The following table sets forth our operating expenses, both in absolute amount and as a percentage of the total operating expenses, for the periods indicated:

Selling and marketing expenses

Selling and marketing expenses include (1) salaries and benefits of our sales and marketing staff, and (2) others, such as advertising expense and other related payment for our sales and marketing staff. Selling and marketing expenses for the fiscal year ended April 30, 2024 decreased by JPY0.4 million, or 0.7%, compared to those of the fiscal year ended April 30, 2023. Such decrease was primarily attributable to the reduction in executive compensation, the streamlining of our personnel structure, and the review and adjustment of employee salaries to appropriate levels. Selling and marketing expenses for the fiscal year ended April 30, 2023 increased by JPY25.9 million, or 87.3%, compared to those of the fiscal year ended April 30, 2022. Such increase was primarily attributable to an increase of JPY29.9 million in advertising expenses. The following table sets forth the breakdown of selling and marketing expenses, both in absolute amount and as a percentage of the total selling and marketing expenses, for the periods indicated:

General and administrative expenses

Administrative expenses include (1) professional service fee; (2) salaries and benefits of our management, finance, operations and other staff and outsourced administrative staff; (3) insurance fee; (4) office expense for our operating; (5) taxes and duties; (6) transportation fee; (7) outsourced staff cost; (8) rental expense and (9) others, including depreciation and amortization, entertainment fee. The general and administrative expenses for the fiscal year ended April 30, 2024 increased by JPY150.3 million, or 62.6%, compared to those of the fiscal year ended April 30, 2023. Such increase was primarily attributable to NASDAQ listing and D&O insurance costs. The general and administrative expenses for the fiscal year ended April 30, 2023 increased by JPY38.0 million, or 18.8%, compared to those of the fiscal year ended April 30, 2022. Such increase was primarily attributable to the increase of staff salaries and benefits and outsourced staff cost. The following table sets forth the breakdown of general and administrative expenses, both in absolute amount and as a percentage of the total general and administrative expenses, for the periods indicated:

Share-based compensation expenses

On July 1, 2019, the shareholders and board of directors of the Company approved the 2019 trust-type stock option plan (the “2019 Trust-type Plan”), which has an exercise period of 10 years from July 4, 2019 to July 3, 2029. Under the “2019 Trust-type Plan,” the Company is committed to issue 2,000,000 Ordinary Shares (retrospectively restated to include the effects of the share split of 50-for-1 and 100-for-1 on July 16, 2019 and on October 25, 2021, respectively) of the Company to its eligible employees, officers, directors or any other individual as determined by the board of directors. The share-based compensation expenses were JPY 1.6 million, nil, and JPY670.0 million for the fiscal year ended April 30, 2024, 2023, and 2022, respectively. See our financial statements and the related notes included elsewhere in this annual report for more information.

Research and development expenses  

Research and development expenses include (1) salaries and benefits of our research development staff; (2) outsourced development cost; and (3) other miscellaneous expenses for our research and development department, such as telecommunication expenses and rental and utility expenses. Research and development expenses for the fiscal year ended April 30, 2024 decreased by JPY32.7 million, or 30.1%, compared to those of the fiscal year ended April 30, 2023. Such decrease was primarily achieved by the completion of the GLS SDK, which reduced research and development costs, and by reducing outsourced staff costs through bringing staff in-house. Research and development expenses for the fiscal year ended April 30, 2023 increased by JPY83.1 million, or 322.6%, compared to those of the fiscal year ended April 30, 2022. Such increase was primarily attributable to the increase in staff cost, outsourced staff cost and telecommunication cost.

Income tax provisions

Income tax benefit was JPY0.2 million for the fiscal year ended April 30, 2024, as compared to income tax benefit of JPY9.2 million for the fiscal year ended April 30, 2023. Such decrease in income tax benefit was primarily due to income tax benefit of approximately JPY9.3 million recorded for the fiscal year ended April 30, 2023 which resulted from refund of income taxes paid for the fiscal year ended April 30, 2022. Income tax benefit was JPY9.2 million (US$0.1 million) for the fiscal year ended April 30, 2023, as compared to income tax expense of JPY28.9 million for the fiscal year ended April 30, 2022. Such decrease primarily resulted from the decrease of our revenue.

Net loss

As a result of the foregoing reasons, we reported a net loss of JPY336.2 million for the fiscal year ended April 30, 2024, a net loss of JPY382.3 million for the fiscal year ended April 30, 2023, and a net loss of JPY602.5 million for the fiscal year ended April 30, 2022.

B. Liquidity and Capital Resources

Our primary source of liquidity historically has been cash generated from our business operations, bank loans, equity contributions from our shareholders and borrowings, which have historically been sufficient to meet our working capital and capital expenditure requirements.

The following table sets forth the breakdown and terms of our outstanding borrowings as of April 30, 2024, 2023, and 2022.

We believe that our existing cash and cash equivalents and anticipated cash flow from operations, together with the net proceeds from our initial public offering, will be sufficient to meet our anticipated cash needs for the next 12 months and beyond the next 12 months from the date of this annual report. However, the exact amount of proceeds we use for our operations and expansion plans will depend on the amount of cash generated from our operations and any strategic decisions we may make that could alter our expansion plans and the amount of cash necessary to fund these plans. We may, however, decide to enhance our liquidity position or increase our cash reserve for future investments through additional capital and finance funding. We may need additional cash resources in the future if we experience changes in business conditions or other developments, or if we find and wish to pursue opportunities for investments, acquisitions, capital expenditures or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

Our ability to manage our working capital, including receivables and other assets and liabilities and accrued liabilities, may materially affect our financial condition and results of operations.

The following table sets forth our selected cash flow data for the fiscal years ended April 30, 2024, 2023, and 2022:

Operating Activities

Net cash used in operating activities for the fiscal year ended April 30, 2024 was JPY393.9 million (US$2.5 million), which primarily reflected our net loss of JPY336.2 million (US$2.1 million) as mainly adjusted for foreign currency exchange gain of JPY40.9 million (US$0.3 million) and changes in working capital. Adjustments for changes in working capital primarily consisted of (1) JPY40.4 million (US$0.3 million) increase of contract assets, (2) JPY19.0 million (US$0.1 million) increase of income taxes, net, and (3) JPY18.2 million (US$0.1 million) increase of other payables and accrued liabilities.

Net cash used in operating activities for the fiscal year ended April 30, 2023 was JPY399.7 million (US$2.5 million), which primarily reflected our loss of JPY382.3 million (US$2.4 million) as mainly adjusted for changes in working capital. Adjustments for changes in working capital primarily consisted of (1) JPY41.3 million (US$0.3 million) decrease of account receivables, net, and (2) JPY57.6 million (US$0.4 million) decrease of tax payable.

Net cash provided by operating activities for the fiscal year ended April 30, 2022 was JPY100.3 million (US$0.6 million), which primarily reflected our loss of JPY602.5 million (US$3.8 million) as mainly adjusted for: (1) share based compensation of JPY670.0 million (US$4.3 million), (2) deferred income taxes adjustments of JPY16.0 million (US$0.1 million) and changes in working capital. Adjustment for changes in working capital primarily consisted of (1) JPY31.6 million (US$0.2 million) decrease of account receivables, net, (2) JPY28.1 million (US$0.2 million) increase of income taxes payables, and (3) JPY24.0 million (US$0.2 million) increase of accrued liabilities and other payables.

Investing Activities

Net cash used in investing activities for the fiscal year ended April 30, 2024 was JPY100.3 million (US$0.6 million), attributable to purchase of property and equipment of JPY0.3 million (US$0.0 million) and a purchase of time deposit of JPY100.0 million (US$0.6 million).

Net cash used in investing activities for the fiscal year ended April 30, 2023 was JPY1.6 million (US$0.01 million), attributable to purchase of property and equipment of JPY1.6 million (US$0.01 million). 

Net cash provided by investing activities for the fiscal year ended April 30, 2022 was JPY3.8 million (US$0.02 million), mainly attributable to purchase of property and equipment of JPY1.0 million (US$0.01 million) and disposal of long-term investment of JPY4.6 million (US$0.03 million).

Financing Activities

Net cash provided by financing activities for the fiscal year ended April 30, 2024 was JPY644.9 million (US$4.1 million), mainly attributable to proceeds from issuance of equity securities to shareholders upon IPO on July 27, 2023 in the amount of JPY783.1 million (US$5.0 million), partially offset by payments on IPO costs of JPY114.2 million (US$0.7 million) and repayment of loan in the amount of JPY24.1 million (US$0.2 million).

Net cash used in financing activities for the fiscal year ended April 30, 2023 was JPY78.4 million (US$0.5 million), mainly attributable to proceeds from loans in the amount of JPY150.0 million (US$1.0 million), partially offset by repayment of loan in the amount of JPY16.3 million (US$0.1 million) and payments on deferred IPO costs in the amount of JPY212.2 million (US$1.3 million).

Net cash provided by financing activities for the fiscal year ended April 30, 2022 was JPY189.1 million (US$1.2 million), mainly attributable to proceeds from issuance of equity securities to shareholders in the amount of JPY200.1 million (US$1.3 million) and repayment of long-term loan in the amount of JPY11.0 million (US$0.1 million).

Effect of exchange rate

Effect of exchange rate for the fiscal year ended April 30, 2024 was JPY40.9 million (US$0.3 million), which resulted from currency exchange gain from cash denominated in USD. Effect of exchange rate for the fiscal year ended April 30, 2023 was JPY0.2 million (US$0.0 million), which resulted from exchange gain from cash denominated in USD. Effect of exchange rate for the fiscal year ended April 30, 2022 was nil.

Capital Expenditures

We made capital expenditures of JPY0.3 million, JPY1.6 million, and JPY1.0 million in the fiscal years ended April 30, 2024, 2023, and 2022, respectively. In these fiscal years, our capital expenditures were mainly used for procurement of office equipment and leasehold improvements.  

Contractual Obligations and Commitments

The following table sets forth our contractual obligations as of April 30, 2024:

Off-Balance Sheet Arrangements

As of April 30, 2024, 2023, and 2022, we were not party to any material off-balance sheet financial arrangements that are reasonably likely to have a current or future effect on our financial condition or operating results. We do not have any relationship with unconsolidated entities or financial partnerships for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. 

C. Research and Development, Patents and Licenses, etc.

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

D. Trend Information

Other than as disclosed below and elsewhere in this annual report on Form 20-F, we are not aware of any trends, uncertainties, demands, commitments, or events for the period from May 1, 2023 to April 30, 2024 that are reasonably likely to have a material adverse effect on our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

Factors and Trends Affecting Our Results of Operations

We believe the following key factors may affect our financial condition and results of operations:

The development or acceptance of blockchain technology in the commercial marketplace

Our business model is dependent on continued investment in and development of the blockchain industry and related technologies. If investments in the blockchain industry become less attractive to investors, innovators, and developers, or if blockchain networks and assets do not gain public acceptance or are not adopted and used by a substantial number of individuals, companies and other entities, it could have a material adverse impact on our prospects and operations.

Our ability to apply the technology effectively in driving value for our customers through blockchain-based solutions

Our success depends on our ability to apply our proprietary blockchain technology GLS, develop new services, and improve the performance and cost-effectiveness of the existing services, in each case in ways that address current and anticipated customer requirements, industry needs and future trends. Such success is dependent upon several factors, including technology effectiveness, functionality, competitive pricing, licensing and integration with existing and emerging technologies. The blockchain industry is characterized by rapid technological changes. If we fail to develop and implement technology solutions and technical expertise that keep pace with changes in technology, industry standards, and customer preferences, our value proposition could be adversely affected. We may not be successful in anticipating or responding to these developments on a timely and cost-effective basis and our ideas may not be accepted in the marketplace. Additionally, the effort to gain technological expertise and develop new technologies in our business may require us to incur significant expenses. Any of these events could result in a material adverse effect on our operating results, customer relationships, and business.

Telecommunications infrastructure and the performance of devices equipped with blockchain

The success of our blockchain-based services will depend on the continued development of a stable telecommunications infrastructure with the necessary speed, data capacity and security, complementary products such as high-speed networking equipment for providing reliable internet access and services, and other devices that are equipped with blockchain. There is no assurance that the relevant infrastructure and devices will continue to be able to support the demands placed on it by the growth of blockchain technology. There is also no assurance that the infrastructure or complementary products or services necessary to support the blockchain technology will be developed in a timely manner, or that such development will not incur substantial costs to adapt to changing technologies. The failure of these platforms and devices or their development could materially and adversely affect our business, financial condition and results of operation.

Our ability to compete successfully

We design, upgrade, and maintain technology systems for our customers. We expect to encounter competition in our business, including from entities having substantially greater capital and resources and offering a wider range of products and services. Many of our competitors may have greater financial, marketing, technological and personnel resources than we do, and may offer a wider range of bundled services, have broader name recognition, and have larger customer bases than we do.

Our ability to develop competitive advantages will require continued improvement in GLS, enhancements to our services, investment in the development of our services, and additional marketing activities. There can be no assurance that we will timely implement changes into our technology, that we will have resources to make sufficient investments in the development of our services, that our competitors will not devote significantly more resources to competing services, or that we will otherwise be successful in developing market share. If competitors offer superior services, or implement changes in a timelier and more cost-effective manner, our market share could be affected, and this would adversely impact our business and results of operations.

Our ability to retain major customers and acquire new customers

Although we do not heavily rely upon any one customer for the majority of our revenue, our revenue is dependent on a limited number of customers who account for a large percentage of our contractually committed capacity. If one or more of our significant customers fail to make payments to us or does not honor their contractual commitments, our revenue and results of operations would be materially and adversely affected.

In addition, our reliance on any individual significant customer may give that customer a degree of pricing leverage against us when negotiating contracts and terms of services with us. The loss of any of our major customers, or a significant decrease in the extent of the services that they outsource to us or the level of prices we offer, could materially and adversely affect our financial condition and results of operations.

Any of our customers could experience a downturn in their business, which in turn could result in their inability or failure to make timely payments to us pursuant to their contracts with us. In the event of any customer default, our liquidity could be adversely impacted. These risks would be particularly significant if one of our major customers were to experience adverse effects to its business and defaults under their contracts with us.

E. Critical Accounting Estimates

Our financial statements are prepared in accordance with U.S. GAAP, which requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the financial statements. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We base our accounting estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. However, actual results may differ from those estimates. Our critical accounting policies are those that materially affect our financial statements and are subject to complex judgment by our management.

Income taxes

Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes and tax loss carryforwards. These deferred taxes are measured using the currently enacted tax rates in effect for the year in which the temporary differences or tax loss carryforwards and tax credits are expected to reverse.

Valuation allowances are provided against deferred tax assets when it is more likely than not that a tax benefit will not be realized. The Company considers all available evidence (both positive and negative) when determining whether a valuation allowance is required, with emphasis on its past operating results, the existence of cumulative losses in the most recent years and its forecast of near-term taxable income.

Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following sets forth information regarding members of our board of directors and our executive officers as of the date of this annual report.

Satoshi Kobayashi has served as our Chief Executive Officer and Representative Director since our inception. He co-founded our Company in May 2018. From July 2017 to December 2018, Mr. Satoshi Kobayashi served as the representative director with FEELO.Co. to oversee that company’s entire merchandising business. From January 2013 to December 2015, he acted as a manager of Pasona Inc., where he was in charge of temporary staff management and consulting.

Hiroki Yamamoto has served as our Chief Technology Officer and Director since our inception. Mr. Hiroki Yamamoto co-founded our Company with Mr. Satoshi Kobayashi in May 2018. From August 2015 to May 2018, he was in charge of software development at arl-Y Office. From April 2013 to July 2015, he acted as a software developer at Sunplan Soft Co. He studied Robotics Creation and obtained an Associate Degree from Nagoya Kogakuin College of Technology in March 2013.

Kota Kobayashi has served as our Chief Financial Officer since May 2024. Mr. Kobayashi has served as the co-founder and CEO of Hotaru Inc., which provides rent guarantees to tenants who need a guarantor under lease agreements, since December 2023. He has served as the founder and CEO of Pyrus Inc., which provides fundraising support and management consulting for companies in the sports industry and start-ups, since November 2018. He served as an analyst at Mizuho Securities Co., Ltd. from April 2018 to November 2018, and an analyst at Mizuho Bank, Ltd. from April 2017 to March 2018. He obtained a Bachelor’s degree in finance from Benedictine College in Kansas, United States in 2016.

Masahiro Tominaga has served as our Independent Director since July 2019. Since January 2016, he has served as the representative director of Dizzy Co., which is engaged in the business of management consulting and web-related consulting. From January 2003 to December 2015, he was the executive vice president of UNIMEDIA INC., a company dedicated to digital innovation. He studied economics and obtained a Bachelor’s degree from Musashi University in March 2001.

Kiyomitsu Takayama has served as our Independent Director since February 2021. Since September 2023, he has served as the CRO at Josys inc. Since November 2020, he has served as chairman at Pendo.io Japan, which is a product management company. From February 2014 to October 2020, he was an executive officer and the general manager of sales of Box Japan, Inc., a digital solution provider. He studied business administration and obtained a Bachelor’s degree from Aoyama Gakuin University in 1999.

Masayoshi Gomita has served as our Independent Director since November 2023. Since August 2017, he has served as the representative director of JWS Japan White Spread. In March 2020, he founded Canvas Certified Social Insurance and Labor Consultant Corporation, where he currently serves as an advisor. He was appointed as the chairman and CEO of Create Management Association in July 2022. In June 2021, he founded Peer Pressure LLC, serving as the representative member. Additionally, he has been an independent director of Waybe Inc. since September 2021 and a director of WeCapital Co., Ltd. since December 2022. He studied economics and obtained a Bachelor’s degree from Wakayama University in March 2003.

Shinpei Ogose has served as our Company Auditor since November 2023. He was an associate at Ernst & Young ShinNihon LLC from April 2014 to October 2017 and a manager at dely Inc. from August 2018 to October 2021. In November 2021, he established Ogose CPA Office, where he currently serves. In July 2022, he founded in Co., Ltd., and served as its CEO until March 2024. In July 2023, he founded Tokyo Kokusai Consulting Inc, and has served as its CEO. He studied economics and obtained a Bachelor’s degree from University of Rikkyo in March 2014.

Masaaki Aono has served as our Company Auditor since September 2022. He practiced law at Nagashima Ohno & Tsunematsu from December 2009 to March 2022 and at Mayer Brown from September 2015 to July 2016 in the U.S. Since October 2022, he has served as an outside director, and audit and supervisory committee member at Halmek Holdings Inc, which is a publicly listed company in Japan (TYO: 7119). Since April 2022, he has been a partner at CrossOver Law Firm in Japan. He graduated from the University of Tokyo School of Law in March 2008 and from the University of Chicago School of Law (LL.M.) in June 2015.

Koichi Goto has served as our Company Auditor since July 2019. Since July 2020, he has served as an auditor of KakaoPiccoma Inc., which operates the electronic comic and novel service “Piccoma.” From June 2023 to June 2024, he served as a director at WASEDA GAKUSHUKENKYUKAI CO., LTD, which is a publicly listed company in Japan (TYO: 5869). From April 2016 to January 2024, he served as an auditor of WAKUWAKU Corporation, which is engaged in a renovation platform. From August 2014 to December 2018, he served as a director at SPRIX Inc. He graduated from the Faculty of Economics at Keio University in March 1990.

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

Board Diversity

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

Controlled Company

As of the date of this annual report, Mr. Satoshi Kobayashi, our Chief Executive Officer and Representative Director, beneficially owns more than 50% of the voting power of our outstanding Ordinary Shares. As a result, we are a “controlled company” within the meaning of the Nasdaq listing rules. As a controlled company, we are permitted to elect to rely on certain exemptions from the obligations to comply with certain corporate governance requirements, including the requirements that:

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

B. Compensation

Compensation

In accordance with the Companies Act, compensation for our directors, including bonuses, retirement allowances, and incentive stock options, must be approved at our general meeting of shareholders, unless otherwise specified in our amended articles of incorporation. The shareholders’ approval may specify the upper limit of the aggregate amount of compensation or calculation methods, but if compensation includes benefits in kind, the shareholders’ approval must include the description of such benefits. Compensation for a director is fixed by our board of directors in accordance with our internal regulations and practice and, in the case of retirement allowances, generally reflects the position of the director or executive officer at the time of retirement, length of service as a director and contribution to our performance.

For the fiscal year ended April 30, 2024, we paid an aggregate of JPY45,554,611 (US$289,162) as compensation to our executive officers and directors. For the fiscal year ended April 30, 2024, we did not grant stock options or provide discretionary bonuses. We allocated stock options to certain individuals as described below. We have not set aside or accrued any amount to provide pension, retirement, or other similar benefits to our directors and senior management.

Stock Options   

We have granted stock options to purchase our Ordinary Shares, as authorized by our shareholders on February 5, 2019, under the share option plan, and on July 1, 2019, under the 2019 Trust-type Plan. The purpose of these grants is to enable our directors, senior management, and employees to share in our success and to reinforce a corporate culture that aligns employee interests with those of our shareholders. Our stock option grants generally prohibit transfers of options. A stock option holder generally forfeits such stock options if they are no longer a director, company auditor, or employee of our Company, except under limited circumstances or as otherwise determined by our board of directors. A stock option holder can generally exercise stock options only if our Company’s Ordinary Shares are listed on any financial instrument exchanges. The following table summarizes the stock options we have issued.

Notes:

Of the stock options granted pursuant to the above-mentioned grants, stock options to acquire an aggregate of 60,000 of our Ordinary Shares have been extinguished, and stock options to acquire an aggregate of 2,980,000 of our Ordinary Shares remained outstanding as of April 30, 2024.

The following table summarizes the outstanding stock options with respect to our Ordinary Shares that we have granted to our directors and senior management:

C. Board Practices

Board of Directors

Our board of directors has the ultimate responsibility for the administration of our affairs. Under the Companies Act and our amended articles of incorporation, we are required to have no fewer than three but not more than ten directors. Directors are elected at general meetings of shareholders. The normal term of office of any director expires at the close of the annual general meeting of shareholders held with respect to the last fiscal year ended within two years after such company auditor’s election to office.

The board of directors appoints from among its members one or more representative directors, who have the authority individually to represent us in the conduct of our affairs. Mr. Satoshi Kobayashi is the representative director of our Company. The board of directors may appoint from among its members a chairperson and a president, or one or more vice-presidents, senior managers, and executive managers of the board.

Our board of directors consists of five directors. Our board of directors has determined that our outside directors, Masahiro Tominaga, Kiyomitsu Takayama, and Masayoshi Gomita satisfy the “independence” requirements of the Nasdaq corporate governance rules and the rules and regulations of the SEC.   

Company auditors (kansayaku)

We currently have three company auditors. As permitted under the Companies Act, we have elected to structure our corporate governance system as a company with a board of company auditors instead of board committees. Under the Companies Act and our amended articles of incorporation, we are required to have at least three but no more than 5 company auditors. Company auditors are elected at general meetings of shareholders. The normal term of office of any company auditor expires at the close of the annual general meeting of shareholders held with respect to the last fiscal year ended within four years after such company auditor’s election to office. Our company auditors may, however, serve any number of consecutive terms. Company auditors may be removed by a special resolution of a general meeting of shareholders.

Our company auditors are not required to be certified public accountants. Our company auditors may not at the same time be directors, employees, or accounting advisors (kaikei sanyo) of our Company.

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

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

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

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

Limitation of Liability of Directors

Under the Companies Act and our amended articles of incorporation we may exempt, by resolution of the board of directors, our directors from liabilities to us arising in connection with their failure to execute their duties in good faith and without gross negligence, within the limits stipulated by applicable laws and regulations. In addition, our amended articles of incorporation provide that we may enter into agreements with our directors (excluding executive directors) to limit their respective liabilities to us arising in connection with a failure to execute their duties in good faith and without gross negligence to an amount stipulated in laws and regulations. We have obtained directors and officers liability insurance, which covers expenses, capped at a certain amount, that our directors and officers may incur in connection with their conduct as our directors or executive officers.

D. Employees

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

E. Share Ownership

The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our Ordinary Shares as of April 30, 2024 for:

Beneficial ownership includes voting or investment power with respect to the Ordinary Shares. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them. Percentage of beneficial ownership of each listed person is based on 15,076,900 Ordinary Shares outstanding and 2,980,000 Ordinary Shares subject to options that are exercisable.

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