PXDT Pixie Dust Technologies Inc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

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

OR

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

For the fiscal year ended 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

Commission file number 001-41749

PIXIE DUST TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Japan

(Jurisdiction of incorporation or organization)

2-2-1 Yaesu, Chuo-ku

Tokyo, 104-0028, Japan

(Address of principal executive offices)

Yoichi Ochiai

Chief Executive Officer

2-2-1 Yaesu, Chuo-ku

Tokyo, 104-0028, Japan

Telephone: 81-3-6910-3040

Fax: 81-3-6910-3041

(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:

* Not for trading, but only in connection with the listing of the American Depositary Shares on The Nasdaq Stock Market LLC.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

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: 14,869,067 Common Shares

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

Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 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 the definitions 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:

U.S. GAAP ☒ International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ Other ☐

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 Act).

Yes ☐ No ☒

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ☐ No ☐

TABLE OF CONTENTS

ABOUT THE ANNUAL REPORT

As used this annual report, the terms “the Company”, “Pixie”, “we”, “our” or “us” refer solely to Pixie Dust Technologies, Inc., a joint stock corporation with limited liability organized under the laws of Japan. We refer to our common shares as “common shares” or “common stock,” unless the context otherwise requires.

Our functional currency and reporting currency is the Japanese yen (which we refer to as “JPY” or “¥”). The terms “dollar,” “USD,” “US$” or “$” refer to U.S. dollars, the legal currency of the United States. Convenience translations included in this annual report of Japanese yen into U.S. dollars have been made at the exchange rate of ¥157.54 = US$1.00, which was the foreign exchange rate on April 30, 2024 as reported by the Board of Governors of the Federal Reserve System (which we refer to as the “U.S. Federal Reserve”) in weekly release on May 6, 2024. Historical and current exchange rate information may be found at www.federalreserve.gov/releases/h10/.

Our financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Our fiscal year ends on April 30 of each year as does our reporting year. Our most recent fiscal year ended on April 30, 2024. See Note 2 to our audited financial statements as of and for the year ended April 30, 2024, included elsewhere in this annual report, for a discussion of the basis of presentation, functional currency, and translation of financial statements.

Market and Industry Data

This annual report contains references to market data and industry forecasts and projections, which were obtained or derived from publicly available information, reports of governmental agencies, market research reports, and industry publications and surveys. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and additional uncertainties and risks regarding the other forward-looking statements in this annual report due to a variety of factors, including those described in the section entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” and elsewhere in this annual report. These and other factors could cause results to differ materially from those expressed in the forecasts and estimates.

Trademarks

We own or have rights to various trademarks, service marks and trade names that we use in connection with the operation of our business. This annual report may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or food products in this annual report is not intended to imply a relationship with, or endorsement or sponsorship by, these other parties. Solely for convenience, the trademarks, service marks and trade names referred to in this annual report may appear without the ^®, TM or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, service marks and trade names.

Select Scientific and Technical Terms

As used herein, the terms set forth below shall have the meanings, or are explained as follows:

“Mechanobiology” refers to the study of how biological components, such as cells, tissues, and organs, can sense and respond to mechanical cues to regulate numerous biological processes, including development, differentiation, physiology, and diseases. For example, companies unrelated to us have used mechanobiology to develop a variety of products, from consumer products such as massage tools that can be used to stimulate the growth of collagen in the face to medical devices such as ultrasonic vibrations to accelerate healing.

“Metamaterials” refers to materials engineered with properties not found in nature. These materials usually have artificially designed structures smaller than the wavelength of the targeted waves, such as light or sound.

“Sensory and metamaterial technologies” refers to technologies to complement or enhance the human senses and to design and develop materials that respond to waves as intended.

“Spatial analysis data” refers to information that is related to specific locations or geographic areas and is used to understand the patterns and relationships that exist within those areas.

“Spatial materials” refers to products to be displayed or placed on walls and other surfaces that contribute to the design and control of the spatial environment.

“Ultrasonic waves” refers to sound waves that have a frequency greater than the upper limit of human hearing, with frequencies that range from 20 kilohertz (kHz) to several gigahertz (GHz), depending on the application.

“Wave technology” refers to our proprietary technology that can be used to emit waves to affect an object, measure waves to obtain and analyze information about an object or develop products that interfere with waves to achieve desired effects.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

RISK FACTORS

We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. You should carefully consider the factors described below, together with all of the other information contained in this annual report, including the audited financial statements and the related notes included in this annual report. These risk factors are not presented in the order of importance or probability of occurrence. If any of the following risks actually occurs, our business, financial condition and results of operations could be materially and adversely affected. Some statements in this annual report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

Summary Risk Factors

Investing in our company involves significant risks. You should carefully consider all of the information in this annual report before making an investment in our company. These risks include the following:

Risks Related to Our Company and Our Business

Risks Related to Government Regulation

Risks Related to Our Intellectual Property

Risks Related to Cybersecurity

Risks Related to Ownership of the ADSs

Risks Related to Japan

Risks Related to Our Company and Our Business

We are an emerging growth company and have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.

We are an emerging growth company and have a limited history in our business. We commenced operations in 2017 and have not generated significant revenues from the commercialization of our technologies and products. Historically, we have generated revenues primarily from commissioned research and development and solution services for third parties including collaboration arrangements aimed at developing, testing and validating new products using our technologies. We are now focusing on further commercializing products that we plan to offer to a wide market including iwasemi, a sound-absorbing metamaterial launched in July 2022, SonoRepro, an ultrasonic non-contact vibrotactile stimulation scalp care device launched in November 2022, VUEVO, a series of directional voice arrival detection devices for individuals who are deaf/hard of hearing (“DHH)” launched in March 2023, and kikippa, an acoustic stimulation device functioning as a speaker launched in April 2023. As such, we expect our revenue from product sales will increase over time and be the primary source of our total revenue in the future. During the year ended April 30, 2024, product revenue accounted for approximately 53% of our total revenue, as we launched multiple products and continued to expand our marketing and sales efforts for our products.

Our prospects must be considered in light of the uncertainties, risks, expenses and difficulties frequently encountered by companies in their early stages of operations and following shifts in business models. We have not yet achieved market acceptance for our products, generated significant revenue from product sales, produced our products at scale, scaled our manufacturing capabilities to meet potential demand at a reasonable cost, established a sales model or conducted sales and marketing activities necessary for successful product commercialization. Consequently, predictions about our future success or viability are highly uncertain and may not be as accurate as they could be if we had a longer operating history or a company history of successfully developing, commercializing and generating revenue from products for a mass market.

In addition, as a business with a limited operating history, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown obstacles. While, to date, we have generated a significant portion of our total revenue from commissioned research and development and solution services for third parties including collaboration arrangements with third parties, we expect to generate revenue primarily from the sale of our products as we progress our efforts to commercialize our products and expand our marketing and distribution capabilities; however, we may not be successful in our efforts. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies with limited operating histories in emerging and rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results of operations could differ materially from our expectations, and our business, financial condition and results of operations could be adversely affected.

We have a history of operating losses and we do not expect to be profitable for the foreseeable future. There is substantial doubt concerning our ability to continue as a going concern.

We have incurred operating losses to date and may not be profitable in the foreseeable future. Specifically, we recorded a net loss of ¥1,965,491 thousand for the year ended April 30, 2023, and ¥1,974,536 thousand ($12,534 thousand) for the year ended April 30, 2024. As of April 30, 2024, we had an accumulated deficit of ¥6,356,788 thousand ($40,350 thousand).

To date, we have funded our operations primarily through the issuance of convertible preferred shares, borrowings from banks and commissioned research and development income. We completed an initial public offering (“IPO”) in August 2023 to raise capital. However, we do not expect that our cash and cash equivalents as of April 30, 2024, together with the net proceeds from the IPO, will enable us to fund our operating expenses, debt obligations and capital expenditures for at least 12 months following the issuance date of the audit opinion for the financial statements contained in this annual report. Therefore, it is likely we will require additional capital over the next 12 months, the receipt of which there can be no assurance. As we focus on developing and commercializing our own products, we have devoted substantial resources to R&D, testing, and commercialization of our products. These operating costs have adversely affected, and may continue to adversely impact on financial performance. Until we are able to generate significant revenues from the sale of our products, we expect to finance our operations through the sale of equity, debt financing, or other sources, including revenue from third-party collaborations, strategic partnerships, marketing, distribution, and licensing agreements. We do not expect to generate cash flow from operating activities sufficient to fund our operating expenses and capital expenditure requirements for the next two to three years. There can be no guarantees that debt or equity financings will be available to us on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations.

We expect our losses to continue for the foreseeable future as we continue to invest significant additional funds toward ongoing R&D as we develop new products through investments in our wave control technologies and product pipeline and toward the timely commercialization of new products and improved versions of existing products. We also expect that our operating expenses will increase because of becoming a public company and will continue to increase as we grow our business and expand our marketing and distribution capabilities. As we ramp the sale of new products, we expect to initially experience negative product gross margins. We expect our cost of product revenue to increase over time in absolute amount and our gross margins will vary based on the volume and mix of products sold. We may not achieve the product gross margins that we anticipate. If our revenue and gross profit does not increase sufficiently to keep pace with our investments and expenses, our net losses may not decline, and we may not attain profitability in the future. Further, our limited operating history makes it difficult to effectively plan for and model future growth, revenue, and operating expenses. Our ability to achieve or sustain profitability is based on numerous factors, many of which are beyond our control, including the impact of market acceptance of our products, product and technology development, our ability to develop and commercialize new products in a timely manner, our ability to scale our manufacturing capacity, and our market penetration and margins. We may never be able to generate sufficient revenue to achieve or sustain profitability. Our failure to achieve or maintain profitability could negatively impact the value of the ADSs and common shares.

It is difficult to predict the time and cost of development and commercialization of our pipeline products, which are produced by or based on the relatively novel and complex wave control technologies and are subject to many risks, any of which could prevent or delay revenue growth and adversely impact our market acceptance, business and results of operations.

We have concentrated our R&D efforts to date on a select number of products for commercialization based on technical feasibility and market opportunity. We launched iwasemi, a sound-absorbing metamaterial in Japan in July 2022, SonoRepro, an ultrasonic non-contact vibrotactile stimulation scalp care device in Japan in November 2022, VUEVO, a series of directional voice arrival detection devices for individuals with DHH in Japan in March 2023, and kikippa, a speaker which is equipped with gamma wave modulation technology that processes and modulates regular TV audio with a 40-Hz amplitude modulation algorithm in Japan in April 2023. We conducted a “soft” launch of our iwasemi product to key professionals in the United States, such as architectural and interior design firms, in March 2023. In addition, we signed an agreement with Energy Spot Co., Ltd, which is headquartered in South Korea, to promote the “iwasemi” series for enhancement of office environments in South Korea in pursuit of comfortable workspace solutions, in March 2024. Further, we launched KOTOWARI, a technology providing spatial analysis data in Japan, in July 2024. We plan to focus on marketing and upgrading the features of SonoRepro, kikippa, VUEVO, iwasemi, and KOTOWARI in the next few years. We also have other product candidates such as hackke, a location positioning technology, which is currently undergoing trial implementation. We do not have any specific timeline for commercializing such other product candidates at this time.

The typical development cycle of new pipeline products can be lengthy and may require new scientific discoveries or advancements and the development and engineering of complex technology, including improvements or modifications to our existing wave control technologies. As we ramp the sale of new products, we expect to initially experience negative product gross margins. We expect our cost of product revenue to increase over time in absolute dollars and our gross margins will vary based on the volume and mix of products sold. We may not achieve the product gross margins that we anticipate.

Further, the variety of our products and product candidates, differences in industries as well as pricing pressures and other factors, leads to challenges in scaling production and sales across the portfolio. We also may depend on third parties for financing, the supply of key inputs and various components and for manufacturing capacity, making our ability to develop new pipeline products complex and subject to risks and uncertainties regarding commercial feasibility, timing and satisfactory technical performance of pipeline products. Additionally, even after the incurrence of significant costs to develop a product, we may not be able to develop a commercially viable product at all. We may need to obtain regulatory approvals for marketing our products, which may require us to complete a lengthy application process. If we do not achieve the required technical specifications or successfully manage our new product development processes, or if commercialization cannot be conducted according to our expected schedule, then our revenue growth from new pipeline products may be prevented or delayed, and our business and operating results may be harmed.

Our ability to increase revenue and achieve profitability will depend on the successful commercialization of our products and product candidates, including SonoRepro, kikippa, VUEVO, iwasemi, and KOTOWARI in the next one to three years, and our product and product candidates may not be successfully commercialized, or we may experience delays in achieving market acceptance, which could negatively impact our business.

Historically, the majority of our revenue has been generated from commissioned research and development and solution services for third parties including collaboration arrangements with third parties, and revenue from product sales was insignificant until 2023, during which year product revenue accounted for approximately 26% of our total revenue. In the near term, we plan to focus on further commercializing our products, iwasemi, a sound-absorbing metamaterial launched in Japan in July 2022, SonoRepro, an ultrasonic non-contact vibrotactile stimulation scalp care device launched in Japan in November 2022, VUEVO, a series of directional voice arrival detection devices for individuals with DHH launched in Japan in March 2023, kikippa, a speaker which is equipped with gamma wave modulation technology that processes and modulates regular TV audio with a 40-Hz amplitude modulation algorithm in Japan in April 2023, and KOTOWARI, a technology providing spatial analysis data launched in Japan in July 2024 Additionally, we conducted a “soft” launch of our iwasemi product to key professionals in the United States, such as architectural and interior design firms, in March 2023. Additionally, we signed an agreement with Energy Spot Co., Ltd, which is headquartered in South Korea, to promote the “iwasemi” series for enhancement of office environments in South Korea in pursuit of comfortable workspace solutions, in March 2024. With respect to VUEVO, in the current phase, we introduced VUEVO mic, which is a tabletop microphone that can connect to a computer or tablet. At the next phase, we expect to introduce our smart-glasses product for individuals with DHH, VUEVO glasses. In the medium term, we plan to commercialize our product candidate VUEVO glasses, which is based on the VUEVO technology, as well as new devices with expanded applications based on the SonoRepro technology. Our financial prospects in the near term, including our ability to achieve profitability, as well as our future growth, may depend greatly on the commercialization of SonoRepro, kikippa, VUEVO, iwasemi, and KOTOWARI which are intended to be sold to a wide market inside and outside Japan such as other Asian countries, the United States and the European Union. If development or manufacturing challenges arise or errors are discovered during the product development cycle of VUEVO glasses and our other product candidates, the launch date of these products may be delayed.

The commercial success of our product and product candidates is dependent on a number of factors, some of which are beyond our control, including the following:

We currently do not, and do not plan in the near future to, market our consumer personal care products including SonoRepro, VUEVO, and kikippa as medical devices. As a result, we are prohibited by the applicable government regulations from marketing or labelling our products as intended for use in the diagnosis, treatment, or prevention of disease in humans or animals, or to affect the structure or functioning of the bodies of humans or animals. For example, we are marketing SonoRepro as a personal scalp care device and do not make any claims relating to hair growth or preventing hair loss. The regulatory limitations we are subject to for our personal care products may affect our ability to effectively promote these products to consumers. If there are opportunities to expand our product markets to foreign jurisdictions, and if the regulations require us to market them as medical devices, we will seek the necessary regulatory approval at that time. As we continue our product research and development, we may create new products or an extension of an existing product that may qualify as a medical device in Japan or other jurisdictions. In such event, we would seek the requisite regulatory approval in Japan and other applicable jurisdictions for such products in the future. However, there is no assurance that we may receive the requisite regulatory approvals in a timely and cost-efficient manner.

In addition, our future success will depend on our customers having a positive experience with our products and increasing demand for our products because of positive feedback and word of mouth. Customers may become dissatisfied if their expectations of beneficial effect after using our products are not met. Customers may also be dissatisfied if adverse events occur, such as equipment malfunction, inaccurate displays, or significant delays in response. Even if we were able to bring new products to the market, we may not be able to demonstrate the superiority of our products over competing products due to factors such as the emergence of alternative technologies to our proprietary technologies, including our wave control technology. If our products fail to meet our customers’ expectations or if our customers experience adverse events, they may be discouraged from repurchasing our products or referring others to purchase our products. In addition, dissatisfied customers may express their negative opinions through social media. Failure to meet our customers’ expectations and the resulting negative publicity could adversely affect our reputation and future sales.

Any costs or losses associated with the failure of product development or launch activities could also adversely affect our business and financial condition.

We operate in a very competitive business environment, and if we are unable to compete successfully against our existing or potential competitors, our business, financial condition, and results of operations may be adversely affected.

Our existing products are, and any new products we develop and commercialize will be, subject to intense competition. Our ability to compete successfully will depend on our ability to continue to apply our wave control technologies to develop innovative and practical solutions of societal problems in a timely and cost-effective manner. In addition, our ability to increase our customer base and achieve broader market acceptance of our products will depend to a significant extent on our ability to expand our marketing efforts. Given the variety of our pipeline products, the number of companies with which we compete varies significantly depending on the geographic market, business segment and line of business. Some of our current and prospective competitors may enjoy a number of competitive advantages over us, including greater name and brand recognition; greater financial and human resources; larger R&D departments; broader product lines; larger sales forces and more established distributor networks; substantial intellectual property portfolios; larger and more established customer bases and relationships; the leverage to enter contracts on more favorable terms; and better established, larger scale and lower cost manufacturing capabilities. There can be no assurance that we will be able to compete successfully against current and future competitors or that the competitive pressures that we face will not materially adversely affect our business, financial condition, and results of operations.

Our results of operations will be harmed if we are unable to accurately forecast customer demand for our product and product candidates.

Our estimates of the market for our products and product candidates are based on a number of internal and third-party estimates. Our ability to accurately forecast demand for our products and product candidates is subject to a number of factors, including our inability to accurately manage our growth strategy, the introduction of products by competitors, increases and decreases in customer demand for our products and competitors’ products, our inability to accurately predict market acceptance of new products, changes in general market conditions, including as a result of public health emergencies such as the COVID-19 pandemic, seasonal demands, regulatory matters or decreased customer confidence in current and future economic conditions.

While we believe that the data underlying our assumptions and estimates is reasonable, we have not independently verified the accuracy of the third-party data underlying our assumptions and estimates, and these assumptions and estimates may be incorrect. In addition, the conditions upon which the assumptions and estimates are based may change at any time, including due to factors outside of our control, which may reduce the predictive accuracy of these underlying factors. If the actual number of customers who benefit from our products, the price at which we are able to sell our products, or the annual addressable market for our products is smaller than our estimates, sales growth could be impaired and our business, financial condition and results of operations could be adversely affected.

Further, in order to ensure adequate supply, we must forecast our inventory needs and manufacture our products based on projected future demand. If forecasts do not materialize, inventory projections may be inaccurate, resulting in inventory shortages or excesses. Inventory levels that exceed customer demand could lead to inventory write-downs or write-offs, which could adversely affect our gross profit margins and damage our brand strength. Conversely, if we underestimate customer demand for our products, our manufacturing partners may not be able to provide us with supplies that meets our requirements, which could result in damage to our reputation and customer relationships. In addition, if our demand increases significantly, we may not be able to obtain additional supplies of materials or increased manufacturing capacity on terms acceptable to us when we need them, or at all, which could adversely affect our business, financial condition and results of operations.

If our products and product candidates do not perform as expected, our operating results, reputation and business will suffer.

Our products and product candidates may have design and manufacturing defects and/or labeling defects that prevent them from functioning as expected or may require repairs, recalls, and design changes. Further, the accuracy and reproducibility that we have demonstrated in tests with respect to our products and product candidates may not continue and is not indicative of our actual future performance. There is a limited frame of reference for assessing the long-term performance of our products and product candidates. If our products do not perform as expected, customers may delay deliveries, terminate additional orders, or demand product recalls, each of which could adversely affect our sales and brand and adversely affect our business, financial condition and results of operations. Our future success depends on our ability to implement our business strategy and to develop and introduce a version of our products that meet the evolving needs of our customers in a timely manner. If we are unable to establish an adequate distribution, customer service or technical support network, we may not be able to effectively market and distribute our products or our customers may decide not to order our products. Any operational, technical, user or other problems could adversely affect performance, damage our reputation, affect the commercial attractiveness of our products, increase costs or divert resources, including management’s time and attention from other projects or priorities. Any of the above could have a material adverse effect on our business, financial condition, and results of operations.

We may face significant challenges in obtaining market acceptance of our product and product candidates, which could adversely affect our potential sales and revenues.

We are currently developing a market and customer base primarily in Japan for our products or product candidates. The level of market acceptance of our products by customers and potential customers is uncertain, and if we do not achieve sufficient market acceptance, our ability to generate revenue and profits will be significantly limited. Market acceptance will require substantial marketing efforts and the expenditure of significant amounts of money by us to communicate the benefits of using our products. We may encounter significant market resistance to our products and our products may not be accepted by the market. Our products and technologies may not achieve the expected reliability, performance and durability. Orders for our products may be cancelled, customers who have begun using our products may stop using them, and customers who are expected to begin using our products may not do so. Factors that may affect our ability to achieve market acceptance of our products include whether the product is effective, correctly priced, and safe.

If we cannot provide quality customer and user support for our products once they are sold and delivered to our customers, we could lose customers and our business and prospects will suffer.

Once our products have been delivered to our customers, ongoing customer and user support may be needed and can be complex. For example, we expect many of our potential users for kikippa to be the elderly. Therefore, we will require additional customer support and user support personnel to cater to such population group. In order to effectively support potential new customers and eventual users, we may need to significantly increase our customer and user support staff and provide them with the requisite training for the specific targeted customers and users. If we are unable to attract, train and retain the number of qualified customer and user support personnel that our business requires, our business and prospects may be harmed.

Quality problems with, and product liability claims in connection with, our products could lead to recalls or safety alerts, harm to our reputation, or adverse verdicts or costly settlements, and could have a material adverse effect on our business, financial condition and results of operations.

Quality is critical to us and our customers because product defects can have serious and costly consequences. Our business is exposed to the potential product liability risks inherent in the design, manufacture, and sale of our products. Component failures, manufacturing defects, design flaws, and labeling defects can result in unsafe conditions and injuries to users of our products. These problems could lead to a recall of our products or a safety alert. They could also lead to unfavorable judicial decisions or settlements arising from product liability claims or lawsuits, including class action lawsuits, which could adversely affect our business, financial condition, and results of operations. In particular, a material adverse event to any of our products could reduce market acceptance and demand for all products offered under our brands, which could adversely affect our reputation and our ability to sell products in the future.

High quality products are critical to the success of our business. If we fail to meet the high standards that we set for ourselves and that our customers expect of us, and if our products become the subject of recalls, safety alerts or other serious adverse events, our reputation could be harmed, we could lose customers and our revenues could decline.

In addition, any product liability claims brought against us, regardless of the basis for such claims, could be costly to defend and settle. Any of the issues, including product liability claims and product recalls, may arise in the future. Regardless of the ultimate outcome, this could damage our reputation and have a material adverse effect on our business, financial condition, and results of operations.

The illegal distribution and sale by third parties of counterfeit versions of our products or the unauthorized diversion by third parties of our products could have an adverse effect on our net sales and a negative impact on our reputation and business.

Third parties may illegally distribute and sell counterfeit versions of our products. These counterfeit products may be inferior in terms of quality and other characteristics compared to our authentic products and/or the counterfeit products could pose safety risks that our authentic products would not otherwise present to consumers. Consumers could confuse counterfeit products with our authentic products, which could damage or diminish the image, reputation and/or value of our brand and cause consumers to refrain from purchasing our products in the future, which could adversely affect our reputation, business, financial condition, and results of operations.

We believe our trademarks, patents, and other intellectual property rights are extremely important to our success and our competitive position. While we devote significant resources to the registration and protection of our intellectual property and the protection of our brand image and plan to aggressively pursue entities involved in the trafficking and sale of counterfeit products and the unauthorized diversion of our products, we may be unable to eliminate all counterfeiting activities and unauthorized product diversion, both of which could have a negative impact on our reputation and adversely affect our business, financial condition and results of operations.

If we are unable to successfully expand our sales and marketing to match our growth, our business may be adversely affected.

Our future sales will largely depend on its ability to develop and significantly expand our sales channels and sales force and increase the scope of our marketing activities. We plan to carefully expand and optimize our sales infrastructure and network in order to grow our customer base and business. Our business could be adversely affected if our efforts to expand our sales channels and sales force do not result in a commensurate increase in revenue and a decline in our operating margin. In particular, if we are unable to engage, train and retain qualified sales partners and personnel, or if new sales partners and personnel are unable to achieve desired productivity levels within a reasonable period of time, we may not realize the expected benefits and may not be able to increase our revenues.

We plan to devote significant financial and other resources to our marketing programs, which may result in significant upfront costs. If our marketing activities and expenditures do not result in a commensurate increase in revenue, our business and gross profit may be adversely affected.

We also believe it is important to increase and maintain awareness of our brands in a cost-effective manner in order for our products to be widely accepted and to attract new customers. Even with our brand promotion activities, we may not be able to increase our revenue due to lack of customer awareness. Even if revenues do increase, they may not be able to offset the costs and expenses incurred by us in building our brands. If we are not successful in promoting, maintaining, and protecting our brands, we may not be able to attract or retain the customers we need to realize a sufficient return on our brand-building efforts, and we may not be able to achieve the brand awareness that is essential for our products to be widely accepted by our customers.

We have had significant customer concentration, and this concentration may continue if we fail to diversify our customer base by successfully commercializing our products and product candidates.

We have generated a significant portion of our revenue from commissioned research and development and solution services, including under our collaboration agreements for our existing products. During the fiscal year ended April 30, 2023, three customers accounted for approximately 43.4% of our total revenue. During the fiscal year ended April 30, 2024, two customers accounted for approximately 30.2% of our total revenue. Additionally, as of April 30, 2023, two customers’ account receivable accounted for 33.2% and 14.0% of the total outstanding account receivable balance. As of April 30, 2024, one customer’s accounts receivable accounted for 18.4% of the total outstanding accounts receivable balance. The concentration of customers could leave us exposed to the risks associated with the loss or default of one or more of these significant customers, which would materially and adversely affect our revenue and results of operations. If these customers were to default in their payment obligations under our collaboration agreements, significantly reduce their relationship with us, or if we are unable to replace any lost revenue through the sale of our products and services to additional customers, our financial condition and results from operations could be negatively impacted, and such impact would likely be significant. We expect to diversify our revenue base by commercializing our products including our products targeting consumer markets. This diversification of revenues from product sales is expected to mitigate the risk of continued customer concentration. However, if we fail to successfully commercialize our products, our dependence upon a limited number of customers could continue.

Our ability to expand our product offerings and introduce additional products and services may be limited, which could have a material adverse effect on our business, financial condition, and results of operations.

There can be no assurance that we will be successful in further commercializing our products, developing or commercializing our product candidates, and expanding our product offerings, or that demand for our products will increase in the future. Entering new markets may require us to compete with new companies, meet customer expectations, and comply with new and complex regulations with which we are not familiar. Therefore, significant resources must be invested in market research, legal counsel, and organizational infrastructure, and the return on such investments may not be achieved for several years, if ever. In addition, failure to comply with applicable regulations or obtain the necessary licenses may result in fines and penalties. We also may not be able to demonstrate the value of our new products to our customers, which could impair our ability to successfully generate new revenue streams or receive returns greater than our investments. If these risks materialize, they could have a material and adverse effect on our business, financial condition, and results of operations.

We are subject to risks related to our reliance on collaboration arrangements to fund development and commercialization of certain of our products and product candidates, and our financial results may be adversely impacted if such collaborations do not lead to the commercialization of our products.

Collaborations with strategic partners such as established companies in their respective markets are necessary to successfully commercialize our existing and future products, and substantially all our revenue to date has been generated from research and development service contracts and collaboration agreements. In the near term, we expect revenue from collaborations may continue to represent a significant portion of our revenue, but are expected to represent a declining proportion as our revenue from product sales is expected to increase over time.

The terms of certain of our collaboration agreements include one or more of the following: joint ownership of the new intellectual property; assignment of the new intellectual property to either us or the collaborator; or either exclusive or non-exclusive licenses to the new intellectual property to us or the collaborator and other restrictions on our sole use of developments, such as non-competes. Such collaboration agreements also typically include one or more of the following payment terms: payments for the research and development services to be performed, milestone payments to be received upon the achievement of the milestone events defined in the agreements, and revenue-sharing and royalty payments. These exclusivity, revenue-sharing and other similar terms limit our ability to commercialize our products and technology on our own or with third parties and may impact the size of our business or our profitability, including in ways that we do not currently envision. For example, our collaboration agreements currently, and future agreements could, result in restrictions on our ability to use, transfer, or license intellectual property developed, or technology discovered through the collaborations, which now and may in the future restrict our ability to commercialize certain products. Please see “Item 4.B. Business Overview — Intellectual Property” for more information. Even if certain of our products are commercialized pursuant to such agreements, the commercial returns, including any revenues and expenses derived from or allocable to products incorporating any developed intellectual property, may be shared between the parties, further reducing our potential future revenue or profitability.

Additionally, suitable collaborators might be scarce. Whether or not we pursue a collaboration will depend on a few of factors, including our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and their interest in our product or services. The collaborator must also, in turn, evaluate several factors, such as our technical and commercial capabilities as a partner, the potential market for the subject product, the costs and complexities of manufacturing and delivering the product to the market, and the potential for competing products. The collaborator may also consider alternative product or technologies for similar applications that may be available to develop internally or to collaborate on with another partner and whether such alternative approaches could be more attractive than the proposed collaboration with us for our product. The competition for collaborators is intense.

Even if a suitable collaboration partner is identified, the negotiation process is time-consuming and complex, and the collaboration may not be on terms that are optimal for us. Any such collaboration may require us to incur non-recurring or other charges, increase our near- and long-term expenditures and pose significant integration or implementation challenges or disrupt our management or business. These transactions would entail numerous operational and financial risks, including exposure to unknown liabilities, disruption of our business and diversion of our management’s time and attention to manage a collaboration, incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected collaboration, acquisition or integration costs, write-downs of assets or goodwill or impairment charges, increased amortization expenses, difficulty and cost in facilitating the collaboration or combining the operations and personnel of any acquired business, impairment of relationships with key suppliers, manufacturers, or customers of any acquired business due to changes in management and ownership, and the inability to retain key employees of any acquired business.

Many factors may impact the success of such collaborations, including our ability to perform our obligations, our collaborators’ satisfaction with our products and services, our collaborators’ participation, and interest in supporting commercialization of products, and exposure to the risks of our collaborators. Like us, many of our collaborators are exposed to several risks, any of which could impact their ability to fulfill their obligations under our collaboration agreements, which in turn would adversely impact our ability to derive the anticipated benefits from these collaboration agreements. In addition, most of these agreements do not affirmatively obligate the other party to commercialize a product we have developed for them or to purchase specific quantities of any products. Some agreements do not require funding all research and development costs necessary to bring products to market. We may encounter numerous uncertainties and difficulties in developing, manufacturing, and commercializing any new products subject to these collaboration arrangements that may delay or prevent us from realizing their expected benefits or enhancing our business. Further, we may in the future have disputes with our collaborators, which may harm these relationships or require us to settle the disputes on unfavorable terms.

Any failure or difficulties in maintaining existing collaboration arrangements, establishing new collaboration arrangements, or building up or retooling our operations to meet the demands of our collaboration partners could have a significant negative impact on our business, including our ability to commercialize or achieve commercial viability for our products, lead to the inability to meet our contractual obligations, and could cause us to allocate or divert capital, personnel and other resources from our organization which could adversely affect our business, financial condition, results of operations, prospects, and reputation.

We currently rely, and expect to continue to rely, on third parties to conduct many aspects of our product manufacturing and distribution, and these third parties may terminate these agreements or not perform satisfactorily.

We do not have our own manufacturing facilities or capabilities for our products. We currently rely, and expect to continue to rely, on third parties to scale-up, manufacture and supply our products and product candidates including for SonoRepro, kikippa, VUEVO, and iwasemi. We also expect to rely on third parties for distribution, including our sales partners and their vendors. Risks arising from our reliance on third-party manufacturers include:

Any of these events could lead to development delays or affect our ability to successfully commercialize our products and product candidates. Some of these events could be the basis for action by a regulatory authority, including injunction, recall, seizure or total or partial suspension of production.

If any third-party manufacturer terminates its engagement with us or fails to perform as agreed, we may be required to find replacement manufacturers or develop our own manufacturing capabilities. Although we believe that there are several potential alternative manufacturers available to us for the manufacture our products and product candidates, we may incur significant delays and added costs in identifying, qualifying, and contracting with any such third party or potential second source manufacturer. These delays could result in a suspension or delay of marketing our products and of developing or marketing our product candidates.

We are highly dependent on our senior management team and key personnel and our business could be harmed if we are unable to attract and retain personnel necessary for our success.

We rely heavily on our senior management and key personnel. Our success depends on our ability to retain senior management, retain qualified personnel, including R&D personnel and sales and marketing professionals and other highly skilled personnel, for the foreseeable future, and integrate current and additional talent in all departments. The loss of senior management, sales and marketing professionals, scientists, engineers, and contractors could result in delays in product development and adversely affect our business. If we are not successful in attracting and retaining qualified personnel, our business, financial condition, and results of operations could be adversely affected.

There is intense competition for skilled personnel in our markets, and we may not be able to hire and retain talented personnel on acceptable terms or at all. To encourage valuable employees to stay with us, in addition to salary and cash incentives, we have issued and will continue to issue stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements in our stock price over which we have no control and may be insufficient to compete with more favorable offers from other companies. Despite our efforts to retain valuable personnel, members of our management and key employees may terminate their employment with us in a short period of time.

Many of the other companies with which we compete for talented personnel may have greater financial and other resources, and longer histories in the industry than we do. If we hire employees from competitors or other companies, their former employers may attempt to claim that these employees or we have violated our legal obligations, which could result in a waste of our time and resources and could result in claims for damages. Our competitors may also provide opportunities, career growth or other characteristics more attractive than we can offer. If we are unable to attract and retain quality candidates on an ongoing basis, our ability to discover, develop, and commercialize our wave control technologies and related products will be limited in percentage and success rate.

In addition, job seekers and existing employees often consider the value of the equity compensation they receive in connection with their employment. If the value of our equity compensation declines because we are a public company or for any other reason, our ability to recruit and retain highly skilled employees may be impaired.

If we are unable to attract new personnel or retain and motivate our current personnel, our business, financial condition, and results of operations will be adversely affected.

We have increased the size of our organization and expect to further increase it in the future, and we may experience difficulties in managing this growth. If we are unable to manage the anticipated growth of our business, our future revenue and operating results may be harmed.

As of June 30, 2024, we had 80 full-time employees. As our sales and marketing strategy evolves, we expect to require additional management, operations, sales, marketing and other personnel. Future growth will place significant responsibilities on our management team, including responsibilities to:

Since our inception, we have experienced growth and expect to experience further growth in our business operations. This future growth may place a strain on our organizational, administrative, and operational infrastructure, including our quality control, operations, financial, customer service and sales organization management. We anticipate that we will continue to increase our headcount and hire more specialized personnel as our business grows. To properly manage our growth, we will need to hire, train and manage additional qualified scientists, engineers, laboratory personnel, customer service representatives, and sales and marketing personnel. Rapid expansion of human resources means inexperienced people developing, marketing, and selling our products, which can lead to inefficiencies, unanticipated costs, poor quality, and operational disruptions. If the performance of new hires declines, if we fail to hire, train, manage and integrate these new hires, or if we are not successful in retaining our existing employees, our business could suffer. We may not be able to maintain the quality of our products or our expected delivery dates, and we may not be able to meet the demands of our growing customer base. To properly manage our growth, we need to continuously improve our control systems in the areas of operations, finance, and management, as well as improve our reporting systems and procedures. The time and resources required to implement these new systems and procedures are uncertain, and failure to complete them in a timely, efficient, and effective manner could have an adverse effect on our operations. In addition, as a public company, we will be obligated to establish and maintain effective internal controls over financial reporting, and failure to maintain the adequacy of these internal controls could adversely affect investor confidence in us and, as a result, the value of our common shares.

Matters relating to employment and labor law may adversely affect our business.

Various labor laws in Japan govern our relationship with our employees and affect our operating expenses. These laws include employment classifications such as employee, independent contractor and contract labor, minimum wage requirements, employer contributions to social security, unemployment insurance and workers’ compensation insurance, and other wage and benefit requirements. Substantial additional government regulation or the enactment of new laws, such as increases in minimum wages, changes in employment status or other labor law amendments, could have a material adverse effect on our business, financial condition, results of operations or cash flows. In addition, the formation of a union by our employees could have a material adverse effect on our business, financial condition, results of operations or cash flows.

In addition, in the ordinary course of business, we are subject to claims by employees for compensation based on discrimination, harassment, unfair dismissal, and violations of labor laws. Such claims could result in the ongoing costs of litigation and significant settlements or damages against us that would require us to expend our resources, which could adversely affect our business, brand image, employee recruitment, financial condition, results of operations or cash flows.

If we or our third-party contractors experience significant technological or other disruptions, our business may be harmed.

We and our third-party contractors, including manufacturing contractors, rely on information technology systems to function efficiently in our or their businesses, including relating to the manufacture, distribution, and maintenance of our products, and for accounting, data storage, compliance, purchasing and inventory management. Our and our third-party contractors’ information technology systems are vulnerable to computer viruses, ransomware or other malware, attacks by computer hackers, failures while upgrading or replacing software, databases or their components, power outages, fire or other natural disasters, or damage or loss of data, or other natural disasters, hardware failures, communication failures and user errors, other malfunctions, and other cyberattacks. We and our third-party contractors may encounter unintended events where third parties gain unauthorized access to the systems, which may result in interruption of our or their operations, corruption of data, or leakage of our confidential information. If disruptions or security breaches result in the loss of or damage to our data or systems, or inappropriate or unauthorized access, disclosure, or use of confidential, proprietary or other critical information, we may be liable for compensation and may suffer reputational damage.

Technological interruptions could disrupt our operations, including our ability to conduct R&D, ship and track product orders in a timely manner, forecast inventory requirements, manage our supply chain and provide other appropriate services, or impair our customers’ ability to use our products. We will also rely heavily on transportation service providers to ensure that our products are transported reliably and safely point-to-point to our customers and users.

If carriers of our products encounter delivery performance problems such as lost, damaged, or destroyed systems, it can be costly to replace such systems in a timely manner. If this were to occur, our reputation could be harmed, demand for our products could decrease, and the costs and expenses of our business could increase. In addition, a significant increase in shipping costs could adversely affect our operating margins and results of operations. Similarly, strikes, severe weather, natural disasters or other service disruptions affecting the delivery services we use could adversely affect our ability to process product orders in a timely manner.

If we or our third-party contractors experience a material failure of our technological or delivery systems, we may not be able to repair such systems in an efficient and timely manner. Accordingly, such an event could disrupt or reduce the efficiency of our overall business, which could adversely affect our business, financial condition, and results of operations. Our information systems require us to continuously invest significant resources to maintain, protect and enhance our existing systems. If we are unable to effectively maintain and protect the integrity of our information systems and data, our business, financial condition, and results of operations could be adversely affected.

We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to shareholders and otherwise disrupt our operations and adversely affect our business, financial condition, and results of operations.

Our success will depend on our ability to grow our business, including through acquisitions. We may identify opportunities to establish and expand our industry leadership internationally through selective joint ventures or acquisitions to further leverage our differentiated technologies. In some situations, the decision may be made to do this through the acquisition of complementary businesses or technologies rather than through internal development. Identifying suitable acquisition candidates can be difficult, time-consuming, and expensive, and we may not be able to successfully complete the acquisitions we identify. The risks we face in connection with acquisitions are as follows:

If we are unable to address these risks and other issues that arise in connection with acquisitions and investments, we may not realize the expected benefits from the acquisition or investment, incur unexpected liabilities or otherwise harm our business. In addition, future acquisitions may result in the issuance of dilutive securities, incurrence of debt, incurrence of contingent liabilities, amortization or goodwill, any of which could adversely affect our financial condition. If any of these risks materialize, it could have a material adverse effect on our business, financial condition and results of operations.

Insurance policies may be expensive and only protect us from some business risks, which will leave us exposed to significant uninsured liabilities.

Our business may expose us to product liability and other risks inherent in the development, testing, manufacturing, and marketing of our products. Product liability and other claims or incidents, such as regulatory claims, labor disputes, and cyber incidents and breaches, could delay or prevent the development and commercialization of our products. Even if we succeed in marketing products, such claims could result in regulatory authority investigation of the safety and effectiveness of our products, our manufacturing processes, and facilities or, our marketing materials and programs. We may potentially be subject to the PMD Agency or other regulatory authority’s investigations which could lead to fines or more serious enforcement action, limitations on which they may be used or suspension. Regardless of the merits or eventual outcome, liability claims may also result in decreased demand for our products, injury to our reputation, costs to defend the related litigation, a diversion of management’s time, and our resources and substantial monetary awards to users of our products. We currently have insurance that we believe is appropriate for our stage of development and may need to obtain higher levels prior to advancing our product candidates or marketing any of our product candidates. Any insurance we have or may obtain may not provide sufficient coverage against potential liabilities. Furthermore, product liability and other types of insurance (such as cyber insurance) is becoming increasingly expensive and difficult to obtain. As a result, we may be unable to obtain sufficient insurance at a reasonable cost to protect us against losses caused by product liability or other claims or incidents, including data breach and incidents, that could have an adverse effect on our business and financial condition.

Litigation and other legal proceedings may harm our business.

We have been and may in the future be involved in legal proceedings relating to patents and other intellectual property rights, product liability claims, false advertising and consumer protection law claims, employee claims, tort or contract claims, regulatory investigations, securities class actions, and other legal proceedings and investigations. Litigation is inherently unpredictable and may result in excessive or unexpected judgments or injunctions that could affect our business operations. We may be subject to judgments or settlements seeking monetary damages, agreements to change the way we operate our business, or both. The scope of these cases may expand, or additional lawsuits, claims, proceedings, or investigations may be brought against us in the future, which could adversely affect our business, financial condition and results of operations. Adverse media coverage of regulatory or legal actions against us, even if the regulatory or legal actions are unfounded or immaterial to our business, could damage our reputation and brand image, undermine customer confidence and reduce long-term demand for our products.

Our level of indebtedness could materially and adversely affect our business, financial condition and results of operations.

As of April 30, 2024, our outstanding debt was ¥1,021,113 thousand ($6,481 thousand). Our indebtedness could have a material impact on our business, including the following:

In addition, we may not be able to generate sufficient cash flow from our operations to repay our debt when it becomes due and to meet our other financing needs. If we are unable to meet our debt obligations, we may need to pursue one or more alternative strategies, such as selling assets, refinancing, or restructuring its debt, or selling additional debt or equity. In addition, if we must sell assets, our ability to generate revenue may be adversely affected.

Our outstanding debt agreements may limit our flexibility in operating and expanding our business.

As of April 30, 2024, we had had a total of five loans with two Japanese financial institutions with an aggregate principal amount of ¥1,021,113 thousand ($6,481 thousand).

Covenants that may be included in future loan agreements may limit our access to future debt financing on which our business operations and expansion plans are partially dependent. If our revenues were to decrease significantly or our interest expense were to increase significantly, we may not have sufficient cash on hand. In addition, upon the occurrence of an event of default, we may not have sufficient cash to make the necessary prepayments or to raise additional funds on satisfactory terms through equity or debt issuances. In such an event, we may be required to delay, limit, curtail or terminate our business development and expansion efforts. As a result, our business, financial condition, and results of operations may be materially adversely affected.

We may need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly or difficult to obtain and could dilute current shareholders’ ownership interests.

Our future capital requirements will depend on a number of factors, including:

Due to the many risks and uncertainties involved in the development and commercialization of our products, we are unable to reasonably estimate the amount of capital expenditures and incremental operating expenses that our business will require. We may need to raise additional capital through public or private debt or equity financing to achieve a variety of objectives, including, but not limited to:

If we raise additional capital through the sale of equity or equity-linked securities, existing shareholders’ ownership interest in us may be diluted and the market price of the ADSs representing our common shares may decline. The terms of the securities we issue in future capital transactions may be more favorable to new investors and may include the issuance of superior voting rights, warrants or other derivative securities, which could have a further dilutive effect. Convertible debt securities or other equity-linked securities may be subject to conversion rate adjustments or other anti-dilution protections, which may increase the number of shares available for issuance upon conversion due to certain events. If preferred shares are issued, there may be a preference with respect to the liquidation of dividends or a preference with respect to the payment of dividends, which could limit our ability to pay dividends to the holders of ADSs.

In addition, the debt and equity financing we require may not be available to us on favorable terms, or at all. If we are unable to obtain the additional capital we need, we may be forced to scale back our growth plans or reduce our existing operations, and if we are unable to generate sufficient revenues from our operations to continue our business, we may not be able to continue our operations. We may incur significant costs in raising future capital, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution costs, and other expenses. In addition, we may be required to record non-cash expenses in connection with certain securities issued by us, such as convertible bonds and warrants, which could adversely affect our financial condition. As such, holders of ADSs are subject to the risk that future issuances by us may result in a decline in the market price of ADSs and dilution of their holdings in us.

If we are unable to raise the necessary funds for our operations, we may not be able to develop and commercialize our technologies and products, which could have a material adverse effect on our business, liquidity and results of operations.

If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of the ADSs.

The preparation of our financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Estimates are based on historical experience and a variety of assumptions that are believed to be reasonable in the circumstances. The results form the basis for judgments about the carrying amounts of assets, liabilities, equity, income, and expenses that are not readily apparent from other sources. For example, in connection with the revenue accounting standard (Accounting Standards Codification (ASC) Topic 606), management has made judgments and assumptions based on its interpretation of the new standard. The revenue standard is principles-based, and interpretations of those principles may vary from entity to entity based on their unique circumstances. In addition, interpretations, industry practices, and guidelines may change in the application of this standard. If the assumptions underlying the estimates and judgments related to critical accounting policies change, or if actual conditions differ from the assumptions, estimates and judgments, our results of operations could be adversely affected and could fall short of our published guidance or the expectations of securities analysts and investors, which could result in a decline in the market price of the ADSs.

We are exposed to the risk of natural disasters, unusual weather conditions, pandemic outbreaks such as COVID-19, political events, war, terrorism, and unfavorable macroeconomic conditions such as inflation, which could disrupt business and limit our ability to grow our business and negatively affect our results of operations.

We and some of our suppliers, manufacturers, and customers are located in areas that have been or may be affected by natural disasters such as floods, typhoons, tsunamis, tornadoes, fires, earthquakes, volcanic eruptions, global pandemics such as COVID-19, war, and terrorism. Extreme weather events such as severe weather, resulting electrical or technological failures, or even a leak at a nuclear power plant could disrupt our operations and adversely affect our ability to sell our products and services. Any of these events could adversely affect our ability to sell our products and services, and any of them could affect customer trends and purchasing, which in turn could adversely affect our revenues, assets or business.

In addition, our business may be affected by force majeure events, such as natural disasters. Temporary or prolonged disruptions in the transportation of goods, delays in our goods and supplies, disruptions in our technical support or information systems, fuel or power shortages or sharp increases in fuel or power prices could increase the cost of doing business. These events could also have indirect consequences, such as increased insurance or tax costs, if they result in a material loss of property or other insurable losses. Any one or a combination of these factors could have an adverse effect on our business and financial results.

Negative conditions in the general economy both in Japan and globally, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, inflation, recessions, international trade relations, pandemics (such as the COVID-19 pandemic), political turmoil, uncertain geopolitical conditions, natural catastrophes, warfare, and terrorist attacks could cause a decrease in business investments and consumer demand, and negatively affect the growth of our business. For example, global supply chain issues, such as semiconductor shortages, may adversely impact our business as we expand sales of electronic products based on our technologies. Additionally, inflation has accelerated in Japan and globally due in part to global supply chain issues, the Ukraine-Russia war, a rise in energy prices, and strong consumer demand as economies continue to reopen from restrictions related to the COVID-19 pandemic. An inflationary environment can increase our cost of labor, as well as our other operating costs, which may have a material adverse impact on our financial results. In addition, economic conditions could impact and reduce the number of customers who purchase our products or services as credit becomes more expensive or unavailable. Although interest rates have increased and are expected to increase further, inflation may continue. Further, increased interest rates could have a negative effect on the securities markets generally and increase the cost of capital to us, in particular, which may, in turn, have a material adverse effect on the market price of the ADSs.

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

We have not sold material amounts of products or generated material revenue from customers located outside Japan but expect to do so as part of our growth strategy. We conducted a “soft” launch of our iwasemi product to key professionals in the United States, such as architectural and interior design firms, in March 2023. Our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to the particular challenges of supporting a business in an environment of multiple cultures, customs, legal systems, regulatory systems, and commercial infrastructures. International expansion will require us to invest significant funds and other resources. Our operations in international markets may not develop at a rate that supports our level of investment. Expanding internationally may subject us to new risks that we have not faced before or increase risks that we currently face, including risks associated with:

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

Risks Related to Government Regulation

We currently do not, and do not plan in the near future to, market our consumer personal care products, including SonoRepro, VUEVO, and kikippa, as medical devices. If we fail to comply with the government regulations relating to the promotion of such products, or to obtain any required approvals on a timely basis, we may incur fines, penalties, and consumer lawsuits and our business and growth prospects may be negatively impacted.

The Pharmaceutical and Medical Device Act (“PMDA”) is a Japanese law that establishes regulations to secure the quality, efficacy, and safety of medical products such as pharmaceuticals, cosmetics, and medical devices. Under this Act, if a company wants to market and manufacture medical devices, it is required to obtain a marketing and manufacturing license from the Minister of Health, Labor and Welfare and then to follow one of the following procedures depending on the type of medical device: (1) obtain approval from the Minister of Health, Labor and Welfare; (2) obtain certification from a private certification body who is registered by the Minister of Health, Labor and Welfare; or (3) submit a notification to the Minister of Health, Labor and Welfare. This Act also prohibits (a) false or exaggerated advertisements; (b) advertisements that may lead to the false impression that a physician or other person has certified the efficacy, effects or performance of the product; and (c) obscene advertisements with respect to medical devices. In addition, the Act against Unjustifiable Premiums and Misleading Representations stipulates the restricted methods and means of various advertisements, representations, and sales promotions, in a broad sense. When we advertise our products, we must provide appropriate information under this Act, so as not to mislead our customers.

We currently do not, and do not plan in the near future to, market our consumer personal care products, including SonoRepro, VUEVO, and kikippa, as medical devices. As a result, we are prohibited by the applicable government regulations from marketing or labelling our products as intended for use in the diagnosis, treatment, or prevention of disease in humans or animals, or to affect the structure or functioning of the bodies of humans or animals. For example, we are marketing SonoRepro and requires our distributors to market as a personal scalp care device without making any claims relating to hair growth or preventing hair loss. If we or, our distributors, fail to comply with these limitations, we may be subject to fines or other penalties, or may be prevented from selling our products without obtaining the required approvals. In addition, our marketing could be the target of claims of false or deceptive advertising or other criticism. Even if a consumer fraud claim is unsuccessful, has no merit or is not pursued, the negative publicity surrounding assertions against our products could adversely affect our sales, reputation, and growth prospects.

As we continue our product research and development, we may create new products or an extension of an existing product that may qualify as a medical device in Japan or other jurisdictions. Obtaining the approval of Minister of Health, Labor and Welfare for medical devices is typically a lengthy and expensive process, and approval could be uncertain. Foreign governments also regulate medical devices distributed outside Japan, whose approval can also be lengthy, expensive, and highly uncertain. None of our consumer personal care products or product candidates has received regulatory approval to be marketed and sold in Japan or any other country. To the extent that any regulatory approval is needed for our products, we may not be able to obtain, or may experience significant delays or costs in obtaining, regulatory approval for our products and even if approvals are obtained, complying on an on-going basis with numerous regulatory requirements will be time-consuming and costly. The failure to obtain timely regulatory approval of product candidates, any product marketing limitations or a product withdrawal would negatively impact our business, results of operations and financial condition.

In addition, as part of our sales strategy, we have commenced selling a third-party medication used for treating hair loss on our e-commerce site in conjunction with selling SonoRepro in January 2023. To sell such medication, we are required under the PMDA to notify the public health center of the municipality which has jurisdiction over our store, apply for a license for the store-based distribution, and provide a notification to the public health center of the specified distribution before operating the store. We obtained the license in December 2022. In addition, under the Act, a pharmacist or a registered salesclerk of pharmaceuticals must be in charge of the storefront sales business, and the sales of pharmaceuticals must be conducted by a pharmacist or a registered sales representative of pharmaceuticals. These regulations could be costly to comply with and may delay our planned expansion of sales operations given our limited resources. If we fail to comply with these regulations, we may be subject to regulatory penalties such as fines, consumer claims, and negative publicity.

Changes in government regulations and trade policies may materially and adversely affect our sales and results of operations.

The markets where we sell and expect to sell our products may be heavily influenced by government regulations and policies. The governments may take administrative, legislative, or regulatory action that could materially interfere with our ability to sell our products in the manner we desire and/or to certain customers. The uncertainty regarding future standards and policies may also affect our ability to develop our products or to license our technologies to third parties and to sell products to our end users, which could have a material adverse effect on our business, financial condition and results of operations.

Our collection, use, storage, disclosure, transfer and other processing of personal information, could give rise to significant costs, liabilities and other risks, including as a result of investigations, inquiries, litigation, fines, legislative and regulatory action and negative press about our privacy and data protection practices, which may harm our business, financial conditions, results of operations and prospects.

During our business activities, we collect, use, store, disclose, transfer and otherwise process increasingly large amounts of personal information, including that of our employees, customers, and third parties with whom we do business. The collection, use, storage, disclosure, transfer and other processing of personal information is increasingly subject to a wide range of national and international laws and regulations regarding data privacy and security including those relating to the processing, safekeeping, and use of personal data, in respect of each of which the relevant regulators in Japan have a broad discretion to interpret the relevant laws and regulations. As we seek to expand our business, we are subject to, and may continue to be subject to, various data privacy and security laws, regulations, standards and contractual obligations in the jurisdictions in which we operate.

The Act on the Protection of Personal Information (the “APPI”) in Japan is to protect rights and interests of individuals, while balancing the usefulness of personal information. The APPI mainly concerns three situations: (i) acquisition and use; (ii) storage; and (iii) transfer of personal information. When personal information is acquired, the purpose of use must be notified to the individual or made public, except in cases where the purpose of use has been made public in advance. The purpose of use must be specified, and the acquired personal information must be used within the scope of such purpose of use. When storing personal information, it is necessary to manage it safely so that it will not be leaked. For the safe management, the APPI requires business operators holding others’ personal information to establish information security system. It includes establishment of fundamental rule of personal information management, appointment of personnel responsible for personal information management, provisions of regular training courses on privacy and security breach, physical security control. Additionally, when transferring personal data to a third party, it is necessary, in principle, to obtain the consent of the principal in advance. In the event that an individual violates the above obligations under the APPI and also violates an improvement order issued by the Personal Information Protection Commission regarding this matter, a criminal penalty of “imprisonment for not more than one year or a fine of not more than one million yen” could be imposed on the individual who violated the law. In addition, a criminal penalty of “a fine of up to 100 million yen” could be imposed on the violating entity. A victim may file a claim for damages based on torts against the offending entity for damages caused by the leakage and for compensation. Furthermore, if there is a contractual relationship between the victim and the entity, and the leakage of personal information is judged to be a breach of contract, damages may be claimed for breach of contract.

When conducting tests of our products and product candidates, we face risks associated with the collection of subject data in a manner consistent with applicable laws and regulations, including the requirements and other similar regulatory bodies. We have not needed to, nor have we conducted clinical trials of our products or product candidates, which we currently do not and do not expect to market as medical devices. To the extent we need to conduct clinical trials in the future, we will collect personal health information which may subject us to additional regulatory requirements.

In many cases, these laws and regulations apply not only to our dealings with third parties, but also to the transfer of information between us and our affiliates and other parties with whom we do business. These laws, regulations and standards may be interpreted and applied differently over time and from jurisdiction to jurisdiction, which could adversely affect our business, financial condition, and results of operations. Regulatory frameworks for data privacy and security around the world are continually evolving and developing, and as a result, interpretation and enforcement standards and methods of enforcement may be uncertain for the foreseeable future.

Our employees, independent contractors, consultants, commercial partners, and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, or contractual obligations, which could harm our business, financial condition and results of operations.

We are exposed to the risk that our employees, independent contractors, consultants, commercial partners, distributors, and vendors may engage in fraudulent, illegal, or unethical activities. Fraud by these parties could include intentional, reckless, or negligent acts, or fraudulent disclosures that violate (1) the regulations of the Pharmaceuticals and Medical Devices Agency and other similar regulatory bodies, including regulations requiring true, complete and accurate reporting of information to such bodies; (2) manufacturing standards; (3) anti-fraud laws; or (4) laws requiring true, complete and accurate reporting of financial information or data. This may also include intentional, reckless, or negligent acts or fraudulent disclosures to the Company in violation of the above laws and regulations. This may also include breach of any contracts we have entered such as our employees or contractors disclosing our collaborators’ trade secrets to others and causing us to breach our confidentiality obligations to our collaborators.

It is not always possible to identify and deter fraudulent, illegal, or unethical activities by our employees or other third parties, and the precautions we take to detect and prevent such activities may not be effective in limiting unknown or uncontrolled risks or losses or in protecting us from government investigations or other actions or lawsuits arising from noncompliance with such laws and regulations or breach of any contracts we have entered into. If such lawsuits are brought against us and we are not successful in defending or asserting our rights, these lawsuits could result in the imposition of significant fines or other sanctions, including civil, criminal or administrative penalties, damages, monetary fines, disgorgement and imprisonment. These sanctions could adversely affect our ability to operate our business and our results of operations. Regardless of whether we are successful in defending against such lawsuits or investigations, we may incur significant costs, including legal fees and reputational damage, and management’s attention to defending against such claims and investigations may adversely affect our business, financial condition, and results of operations.

Changes in tax law and regulations may have a material adverse effect on our business, financial condition, and results of operations.

The rules and regulations dealing with taxes including corporate, local and enterprise taxes in Japan are constantly under review by governmental agencies. Changes in tax laws may adversely affect us or the holders of our common shares. Future changes in tax laws could have a material adverse effect on our business, financial condition, results of operations and cash flows. Investors are urged to consult with their legal and tax advisors regarding the impact of potential changes in tax law on their investment in the ADSs.

Risks Related to Our Intellectual Property

The failure to enforce and maintain our patents, trademarks and protect our other intellectual property could materially adversely affect our business.

We own various patents, trademarks, trade secrets, know-how, and similar intellectual property essential to our success. The success of our business strategy depends on our ability to continue to use our existing intellectual property to leverage our technologies to develop and commercialize our products and product candidates.

To protect or enforce our patents and other intellectual property rights, we may be required to initiate patent or other intellectual property proceedings (such as infringement or interference suits) against third parties. These proceedings may be costly, time-consuming and may divert management’s attention from other business concerns. There is also a risk that these lawsuits may invalidate or narrowly interpret our patents or that our patent applications may not be issued. In addition, these lawsuits may induce the defendants to bring claims against us. There can be no assurance that we will prevail in any such litigation or proceeding, or that any damages or other remedies awarded to us will be commercially valuable, if any.

If our efforts to protect our intellectual property are inadequate, or if third parties misappropriate or infringe on our intellectual property, whether in print, on the Internet or in other media, or if our employees or contractors intentionally or inadvertently leaked our trade secrets, the value of our technologies and brands may be harmed. This could have a material adverse effect on our business, such as weakening the competitive position of our products in the market. There can be no assurance that all measures we have taken to protect our intellectual property in Japan and in any relevant foreign countries outside Japan, will be adequate. In addition, in light of our intention to expand our business internationally, some foreign laws do not protect intellectual property rights to the same extent as Japanese laws. Any infringement of our trademarks, trade secrets or other intellectual property could have a material adverse effect on our business, financial condition, and results of operations.

Even if resolved in our favor, litigation or other legal proceedings related to intellectual property claims could result in significant costs and could divert our management and other personnel from their normal responsibilities. In addition, the results of hearings, motions or other interim proceedings or developments may be made public, and if securities analysts or investors perceive these results negatively, it could have a material adverse effect on the price of our ADSs. Such litigation or proceedings could significantly increase our operating losses and reduce the resources available for research and development activities and future sales, marketing, and distribution activities. We may not have sufficient financial or other resources to properly pursue such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation and proceedings more effectively than we can because they have greater financial resources and a more mature and developed portfolio of intellectual property rights. Uncertainties arising from the initiation and continuation of patent litigation and other proceedings may impair our ability to compete in the marketplace. The foregoing could adversely affect our business, financial condition, and results of operations.

We rely substantially on our trademarks and trade names. If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be harmed.

We rely heavily on our trademarks to build and maintain the integrity of our brands. Our registered and unregistered trademarks and trade names may be challenged, infringed, circumvented, declared generic or found to be in violation or infringement of other trademarks. Although we use these trademarks and trade names to increase our visibility among potential partners and customers in markets in which we have an interest, we may not be able to protect our rights. The use of trade names or trademarks like ours by competitors or other third parties may interfere with the establishment of our brand identity and may cause market confusion. In addition, other trademark owners may file claims against us for infringement or dilution of their trade names or trademarks. In the long run, if we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively, and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights relating to trademarks, trade secrets, domain names and other intellectual property may be ineffective and may result in the diversion of significant costs and resources, which could adversely affect our business, financial condition, and results of operations.

We may be subject to claims that our employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property. Such claims could harm our business, financial condition and results of operations.

Our employees, consultants and advisors may be currently or have been employed or engaged by universities or our competitors and potential competitors. While we strive to ensure that its employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, there may be instances in the future where we or these individuals may be subject to claims that they have inadvertently or otherwise used or disclosed the intellectual property, including trade secrets or other proprietary information, of a current or former employer. We may be subject to claims that we or these people have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information of current or former employers. They may also be subject to claims in the future that they have breached non-compete agreements with their former employers. Litigation may be necessary to defend against these claims. If we fail to defend against such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights and human resources, which may adversely affect our business, financial condition, and earnings. In addition, even if we are successful in defending ourselves against such claims, we may incur significant costs for litigation, which may hinder our business operations.

In addition, although it is our policy to require employees and contractors who may be involved in the conception or development of intellectual property to enter into agreements to assign such intellectual property to us, we may not be able to enter into such agreements with each of the parties who conceived or developed the intellectual property that we consider to be our own. In addition, there is a possibility that the transfer of intellectual property rights may not be possible. It is also possible that the assignment of intellectual property rights may not be self-contained or that the assignment agreement may be breached, and that we may be forced to file claims against third parties or defend claims brought by third parties against us to determine ownership of what we consider to be its intellectual property. Such claims could adversely affect our business, financial condition and results of operations.

Our obligations under our existing or future product development and commercialization collaboration agreements may limit our ability to exploit intellectual property rights that are important to our business. Further, if we fail to comply with our obligations under our existing or future collaboration agreements, or otherwise experience disruptions to our business relationships with our prior, current, or future collaborators, we could lose intellectual property rights that are important to our business.

We are party to collaboration agreements with other companies, pursuant to which we provide research and development services but have no ownership rights or co-ownership rights, to certain intellectual property generated through the collaborations. We may enter into additional collaboration agreements in the future, pursuant to which we may have no ownership rights, or only co-ownership rights, to certain intellectual property generated through the future collaborations. If we are unable to obtain ownership or license of such intellectual property generated through our prior, current, or future collaborations and overlapping with, or related to, our own proprietary technology or product candidates, then our business, financial condition, results of operations and prospects could be materially harmed. As some of our intellectual properties are jointly developed with and co-owned by third parties, in those cases we may be required by our collaboration agreements to obtain the third parties’ consent to use or license the co-owned intellectual properties as desired by us. If we cannot obtain the third parties’ consent in a timely manner or at a cost acceptable to us, our ability to commercialize those intellectual properties may be restricted.

Our collaboration agreements typically contain certain obligations that require us to design certain products for our collaborators with respect to certain specific targets over a specified period. Despite our best efforts, our prior, current or future collaborators might conclude that we have materially breached our collaboration agreements. If these collaboration agreements are terminated, or if the underlying intellectual property, to the extent we have ownership or license thereof, fails to provide the intended exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, products and technology identical to ours. This could have a material adverse effect on our competitive position, business, financial condition, results of operations and prospects.

Disputes may arise regarding intellectual property subject to a collaboration agreement, including:

In addition, collaboration agreements are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or increase what we believe to be our obligations under the relevant agreements, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have owned, co-owned or in-licensed under the collaboration agreements prevent or impair our ability to maintain our current collaboration arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected technology or product candidates, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Intellectual property rights do not necessarily address all potential threats, and limitations in intellectual property rights could harm our business, financial condition, and results of operations.

It is uncertain to what extent our intellectual property rights will be protected in the future because they are limited and may not adequately protect our business or enable us to maintain our competitive advantage. For example:

Any of the foregoing could adversely affect our business, financial condition, and results of operations.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed. If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patent protection for its current and future products, we rely on unpatented trade secrets, know-how and continuous innovation to establish and maintain its competitive position, particularly in cases where patent protection is not appropriate or cannot be obtained. Trade secrets and know-how can be difficult to protect. We strive to protect such proprietary information through confidentiality agreements with our employees, collaborators, contractors, advisors, consultants and other third parties, as well as invention assignment agreements with our employees. Confidentiality agreements are intended to protect our proprietary information and, in the case of agreements or clauses involving invention assignment, to grant us ownership of technology developed through relationships with employees or third parties.

We cannot assure you that we have entered into such agreements with each party that has or may have access to our trade secrets or proprietary information. Further, despite such efforts, it is possible that one of these parties may breach the agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain an adequate remedy for such breach. Enforcing claims that a party has illegally disclosed or misappropriated a trade secret can be difficult, costly, and time-consuming, and the outcome is unpredictable. In addition, if our trade secrets were disclosed to competitors or other third parties, or developed independently by third parties, our competitive position would be materially impaired. Furthermore, these trade secrets, know-how and proprietary information are likely to spread within the industry over time through independent development, publication of journal articles describing the methodology, and the transfer of personnel from academic to industrial scientific positions.

We also strive to maintain the integrity and confidentiality of our data and trade secrets by maintaining the physical security of our premises and the physical and electronic security of our information technology systems. Although we rely on these people, organizations, and systems, our contracts and security measures may be breached, and we may not have adequate remedies in the event of a breach. There is also a possibility that our trade secrets may become known to our competitors or be independently discovered. To the extent that our employees, consultants, contractors or subcontractors use intellectual property owned by others in performing their work for us, disputes may arise with respect to related or resulting know-how or invention rights, which could adversely affect our business, financial condition and results of operations.

If our third-party manufacturing partners do not respect our intellectual property and trade secrets and produce competitive products using our designs or intellectual property, our business, financial condition and results of operations would be harmed.

We do not have our own manufacturing facilities or capabilities for our products. We currently rely, and expect to continue to rely, on third parties to scale-up, manufacture and supply our products and product candidates including for SonoRepro, kikippa, VUEVO, and iwasemi. While our manufacturing agreements generally prohibit our manufacturing partners from misappropriating our intellectual property or trade secrets or using our designs to manufacture products for competitors, we may be unsuccessful in monitoring or enforcing our intellectual property rights. It is possible that counterfeit products may be found in the marketplace that are manufactured by our manufacturing partners, and any measures we take to stop counterfeit products may not be successful. In addition, customers who purchase these counterfeit products may experience product defects or malfunctions, which could damage our reputation and brand and cause us to lose future sales. As a result of the above, our business, financial condition and results of operations may be adversely affected.

Risks Related to Cybersecurity

Security breaches, loss of data and other disruptions could compromise sensitive information related to our business, prevent us from accessing critical information or expose us to liability, which could adversely affect our business and our reputation.

We rely on computer systems and network infrastructure throughout our operations. We use the server of a third-party hosting service provider. Our operations depend on our ability to protect our computer equipment and systems from damage from physical theft, fire, power outages, telecommunications failures, and other catastrophic events, as well as from internal and external security breaches, viruses, worms, and other destructive problems. Any disruption to our operations due to damage to or failure of our computer systems, network infrastructure or servers could have a material adverse effect on our business and could subject us to regulatory action or litigation. A significant network breach in the security of these systems because of ineffective operation of these systems, maintenance issues, upgrades, or migrations to new platforms, or cyberattacks or other failures to maintain an ongoing and secure cyber network could result in further damage, delays in customer service, and reduced efficiency in our operations. This could include the theft of our intellectual property and trade secrets, improper use of personal information, and other forms of identity theft. While we utilize our own personnel and various hardware and software to monitor our systems, controls, firewalls, and encryption, and intend to maintain and upgrade our security technology and operating procedures to prevent damage, breaches and other disruptions, there is no guarantee that these security measures will be successful. Any such claims, proceedings or actions by regulatory authorities, or adverse publicity resulting from such claims, could adversely affect our business and results of operations.

We use information technology systems and networks to process, transmit and store electronic information in connection with our business activities. As the use of digital technology increases, cyber incidents, including intentional attacks and unauthorized access attempts to computer systems and networks, are becoming more frequent and sophisticated. These threats pose a risk to the security of our systems and networks, and to the confidentiality, availability and integrity of data that is critical to our business and business strategy. There can be no assurance that we will be successful in preventing cyberattacks or successfully mitigating their effects. Despite the implementation of security measures, our computer systems and our current and future third-party service providers are susceptible to damage or interruption due to hacking, computer viruses, software bugs, unauthorized access or disclosure, natural disasters, terrorism, war, telecommunications, equipment, and electrical failures. There is no guarantee that we will be able to promptly detect such events. If such an event occurs, we will have a difficult time responding to it. Unauthorized access, loss, or dissemination could disrupt our operations, including our research and development activities, the processing and preparation of our financial information and our ability to manage various general and administrative aspects of our business. To the extent that such disruptions or security breaches result in loss of or damage to our data or applications, or inappropriate disclosure or theft of confidential, proprietary, or personal information, we could be subject to liability, reputational damage, poor performance, or regulatory action by the government authorities where we operate. Any of these could have an adverse effect on our business.

Cybersecurity breaches and other disruptions or failures in our information technology systems could compromise our information, result in the unauthorized disclosure of confidential customer, employee, Company and business partners’ information, damage our reputation, and expose us to liability, which could negatively impact our business.

In the normal course of our business, we may collect, process, and store sensitive data, including our own business information; information about our customers, suppliers, and business partners; and personally identifiable information about our customers and employees that resides in our data centers and on our networks. The secure processing, maintenance and transmission of this information is essential to our business operations. We also depend on the information technology systems of third parties for the analysis, data storage, and communication. We currently do not have redundant information technology systems.

We rely on commercially available systems, software, tools, and monitoring to provide security for the processing, transmission, and storage of sensitive information. Despite the security measures and ongoing vigilance, we have in place to protect sensitive information, our systems and those of our third-party service providers may be vulnerable to security breaches, hacker attacks, vandalism, computer viruses, loss or misplacement of data, human error, or other malfunctions and attacks. Such breaches may compromise our network and information stored therein may be accessed, disclosed, lost, or stolen. For example, in the second calendar quarter of 2022, we discovered an unauthorized use of our account with a third-party service provider which resulted in improper billing to us. We promptly initiated an investigation after the incident with the assistance of outside experts. The investigation found no evidence of virus infection or unauthorized access. We also do not believe that there was any breach of personally identifiable information or information of our business partners as such information was not stored on the third-party server. Following the incident, we have taken measures to enhance our system and password security but there is no guarantee that the measures we have taken and will take in the future will be adequate in fending off cyber- attacks or compromises. Advances in computer and software capabilities and encryption technology, new tools, and other developments may increase the risk of a breach or compromise. Technological interruptions would also disrupt our operations, including our ability to timely deliver and track product or service orders, project inventory requirements, manage our supply chain and otherwise adequately service our customers or disrupt our customers’ ability to use our products or services. In the event we experience significant disruptions, we may be unable to repair our systems in an efficient and timely manner and such events may disrupt or reduce the efficiency of our entire operation for a prolonged period. The occurrence of these incidents could result in diminished internal and external reporting capabilities, impaired ability to process transactions, harm to our control environment, diminished employee productivity, and unanticipated increases in costs, including substantial legal costs in connection with the defending of any lawsuits that may arise from such incidents.

Currently, we carry insurance policies to mitigate certain potential losses, but this insurance is limited in amount, and we cannot be certain that such potential losses will not exceed policy limits. In addition, we cannot be certain that insurance for cybersecurity incidents will continue to be available on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. It could be difficult to predict the ultimate resolution of any such incidents or to estimate the amounts or ranges of potential loss, if any, that could result therefrom. We are increasingly dependent on complex information technology to manage our infrastructure. Our information systems require an ongoing commitment of significant resources to maintain, protect and enhance our existing systems. Failure to maintain or protect our information systems and data integrity effectively could negatively affect our business, financial condition and results of operations.

Risks Related to Ownership of the ADSs

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

We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure about executive compensation arrangements pursuant to the rules applicable to emerging growth companies, no requirement to seek non-binding advisory votes on executive compensation or golden parachute arrangements, and not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements. We have elected to adopt these reduced disclosure requirements.

Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement declared effective under the Securities Act or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised financial accounting standards. An emerging growth company can, therefore, delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result, our financial statements may not be comparable to companies that comply with public company effective dates.

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

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

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

Our status as a foreign private issuer exempts us from compliance with certain SEC laws and regulations and certain regulations of Nasdaq, including certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Further, consistent with corporate governance practices in Japan, we do not have a standalone nomination and corporate governance committee under our board. In addition, we are not required under the Exchange Act to file current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act and we are generally exempt from filing quarterly reports with the SEC. Also, we are not required to provide the same executive compensation disclosures regarding the annual compensation of our five most highly compensated senior executives on an individual basis as are required of U.S. domestic issuers. As a foreign private issuer, we are permitted to disclose executive compensation on an aggregate basis and need not supply a Compensation Discussion and Analysis, as is required for domestic companies. Furthermore, as a foreign private issuer, we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. These exemptions and accommodations will reduce the frequency and scope of information and protections to which you are entitled as an investor.

If key shareholders decide to vote together, as a group, in the future, they could have substantial influence over us, which could limit your ability to affect the outcome of key transactions, including a change of control.

Our directors, executive officers, and founders and their respective affiliates currently own beneficially approximately 52.6% of our outstanding common shares. To the Company’s knowledge, there are no shareholder or voting agreements among our shareholders, nor none contemplated. As a result, we are not a “controlled company,” as defined under Nasdaq Corporate Governance Rule 5615(c)(1). However, if certain of our significant shareholders decide, in the future, to act together, such that they comprise more than 50% of our outstanding voting shares, they will be able to influence our management and affairs and all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. Any such concentration of ownership may have the effect of delaying or preventing a change in control of the Company and might affect the market price of our common shares represented by ADSs.

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, the Dodd-Frank Act, and the listing standards of Nasdaq as applicable to a foreign private issuer, which are different in some material respects from those required for a U.S. public company. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” Further, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors.

Pursuant to Section 404 of the Sarbanes-Oxley Act, once we are no longer an emerging growth company, we may be required to furnish an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of complying with Section 404 of the Sarbanes-Oxley Act will significantly increase, and management’s attention may be diverted from other business concerns, which could adversely affect our business and results of operations. We may need to hire more employees in the future or engage outside consultants to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, which will further increase our cost and expense. In addition, enhanced legal and regulatory regimes and heightened standards relating to corporate governance and disclosure for public companies result in increased legal and financial compliance costs and make some activities more time-consuming. As a result of disclosure of information in this annual report and in filings required of a public company, our business and financial condition will become more visible, which may result in threatened or actual litigation, including by competitors, shareholders or third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business, financial condition and results of operations.

As a public company, we will incur significant legal, accounting and other expenses that we would not have incurred as a private company. We expect to be subject to the reporting requirements of the Securities Exchange Act, other rules and regulations of the SEC, and the rules and regulations of any trading market on which our securities may be listed or traded. The costs of proper reporting as a public company are significant, and compliance with the various reporting and other requirements applicable to public companies requires significant time and attention on the part of management. For example, the Sarbanes-Oxley Act, the SEC and the rules of the national securities exchanges impose various requirements on public companies, including requirements to establish and maintain effective disclosure and internal controls. Our management and other personnel must devote a significant amount of time to these compliance efforts. These rules and regulations continue to increase our legal and financial compliance costs and make some activities more time-consuming and costly. For example, these rules and regulations may make it more difficult and expensive for us to obtain directors’ and officers’ liability insurance, and we may have to accept reduced limits of coverage under our insurance policies or incur significant expenses to maintain the same or similar coverage. In addition, the impact of these events may make it difficult to attract and retain qualified personnel to serve on the board of directors, board committees or as executive officers.

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

During the preparation of our financial statements for the fiscal year ended April 30, 2024, we identified material weaknesses in internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses that were identified related to the insufficient staffing and personnel resources with the expertise in public company experience, which contributed to a lack of formalized processes or controls for our management’s timely review and approval over financial statement analyses and complex transactions necessary for an effective financial reporting process.

Despite these weaknesses identified, we believe our financial reports fairly present our operational performance and financial position during the disclosed years. Upon identifying these material weaknesses, we performed additional procedures to evaluate the impact on the financial statements. Based on these procedures, we believe the material weaknesses did not result in any material misstatements to our financial statements. However, these material weaknesses could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our financial statements that would not be prevented or detected. We are implementing measures the following:

The process of implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. We believe the above actions will be effective in remediating the material weaknesses described above and we will continue to devote significant time and attention to these remedial efforts. However, the material weaknesses cannot be considered remediated until the applicable remedial controls have been documented and tested such that management has concluded that these controls are operating effectively.

Furthermore, we cannot provide assurance that additional material weaknesses or control deficiencies will not occur in the future. If we identify additional material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting in future periods, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of the ADSs could be negatively affected.

We are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act and therefore are not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. As a public company, we may in the future be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our annual reports and provide an annual management report on the effectiveness of internal control over financial reporting. We will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until our second annual report required to be filed with the SEC. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal controls over financial reporting beginning with our annual report to be filed with the SEC following the date on which we are no longer an emerging growth company.

To comply with the requirements of being a public company, we may need to undertake various actions, to develop, implement and test additional processes and other controls. Testing and maintaining internal controls can divert our management’s attention from other matters related to the operation of our business.

If we fail to implement and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.

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

We have identified material weaknesses in our internal control over financial reporting as discussed under “— Risks Related to Ownership of the ADSs — We have identified material weaknesses in our internal control over financial reporting. If our remediation of these material weaknesses is not effective, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results in a timely manner or prevent fraud, which may adversely affect investor confidence in our Company,” and may discover other significant deficiencies or material weaknesses in our internal control over financial reporting. We may not successfully remediate these significant deficiencies or material weaknesses on a timely basis or at all. Any failure to remediate any significant deficiencies or material weaknesses identified by us or to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of the ADSs could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and management resources. Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. However, any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal controls over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on trading prices for the ADSs, and could adversely affect our ability to access the capital markets.

If the ADSs become subject to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions, and trading activity in the ADSs may be adversely affected.

If net tangible assets are less than $5,000,000 and the minimum bid price per ADS is less than $4.00, trading in our ADSs may be subject to the “penny stock” rules promulgated under the Exchange Act. Under these rules, a broker-dealer who recommends a security to a person other than an institutional, qualified investor must:

If the ADSs become subject to these rules, broker-dealers may have difficulty in effecting transactions with their customers, which could adversely affect trading activity in the ADSs. As a result, the market price of the Company’s ADSs may decline, and customers may find it more difficult to sell the Company’s ADSs.

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

The trading market for the ADSs depends in part on the research and reports that securities or industry analysts publish about us or our business. If few or no securities or industry analysts cover us, the trading price for the ADSs would be negatively impacted. If one or more of the analysts who covers us downgrades the ADSs, publishes incorrect or unfavorable research about our business, ceases coverage of our Company, or fails to publish reports on us regularly, demand for the ADSs could decrease, which could cause the price of the ADSs or trading volume to decline.

Our failure to meet Nasdaq’s continued listing requirements could result in a delisting of the ADSs.

If we fail to comply with Nasdaq’s requirements for continued listing, including corporate governance requirements and minimum closing price requirements, Nasdaq may take action to delist the ADSs. Such a delisting would likely adversely affect the price of our ADSs and impair your ability to sell or purchase the ADSs when you wish to do so. In the event of delisting, there can be no assurance that any action taken by us to restore compliance with the listing requirements will allow the ADSs to be relisted, stabilize the market price of the ADSs or increase liquidity, prevent the ADSs from falling below Nasdaq’s minimum bid price requirements or prevent future non-compliance with Nasdaq’s listing requirements.

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

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

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

Sales of a substantial number of our common shares or the ADSs in the public market in the future or the perception that these sales might occur, could depress the market price of the ADSs and could impair our ability to raise capital through the sale of additional equity securities from time to time. We are unable to predict the effect that any such sales may have on the prevailing market price of the ADSs.

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

From time to time, we may grant equity-based compensation in the form of stock options or other equity incentives to our directors, internal corporate auditors, employees, and external consultants. The number of common shares to be issued for such purpose may be determined by our board of directors provided that notice is given to our shareholders, or by approval of our shareholders. As of April 30, 2024, 1,049,400 common shares were issuable upon exercise of outstanding stock options at a weighted average exercise price of ¥150,909 ($958) per option. Each option can be exercised for 600 common shares. If and when these options are exercised for our common shares, the number of common shares outstanding will increase. Such an increase in our outstanding securities, and any sales of such shares, could have a material adverse effect on the market for the ADSs, and the market price of the ADSs.

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

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

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

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

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

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

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

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

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

The depositary of the ADSs has agreed to pay holders of ADSs the cash dividends or other distributions it or the custodian for the ADSs receives on common shares or other deposited securities after deducting its fees and expenses. Holders of ADSs will receive these distributions in proportion to the number of our common shares that such ADSs represent. However, the depositary is not responsible for making such payments or distributions if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act of 1933, as amended (the “Securities Act”), but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the depositary. We have no obligation to take any other action to permit distributions on our common shares to holders of ADSs. This means that holders of ADSs may not receive the distributions we make on our common shares if it is illegal or impractical to make them available to such holders. These restrictions may materially reduce the value of the ADSs.

We could be subject to securities class action litigation.

In the past, securities class action lawsuits have often been filed against companies after the market price of their securities has declined. If the Company were to face such a lawsuit, it could result in significant costs and require diversion of management’s attention and resources, which could adversely affect the Company’s business.

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

The deposit agreement governing the ADSs representing our common shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial for any claim they may have against us or the depositary arising out of or relating to our common shares, the ADSs or the deposit agreement, which may include any claim under the U.S. federal securities laws.

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

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

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

In addition to the risks addressed above, the ADSs may be subject to extreme volatility that is seemingly unrelated to the underlying performance of our business. In particular, the ADSs may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices, given that we have relatively small public floats. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance, financial condition or prospects.

Holders of the ADSs may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of the ADSs. As a result of this volatility, investors may experience losses on their investment in the ADSs. Furthermore, the potential extreme volatility may confuse the public investors of the value of our stock, distort the market perception of our stock price and our company’s financial performance and public image, negatively affect the long-term liquidity of the ADSs, regardless of our actual or expected operating performance. If we encounter such volatility, including any rapid stock price increases and declines seemingly unrelated to our actual or expected operating performance and financial condition or prospects, it will likely make it difficult and confusing for prospective investors to assess the rapidly changing value of the ADSs and understand the value thereof.

Risks Related to Japan

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

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

An increase of our international presence could expose us to fluctuations in foreign currency exchange rates, or a change in monetary policy may harm our financial results.

Our functional currency and reporting currency is Japanese yen. An increase in our business activities internationally could expose us to fluctuations in foreign currency exchange rates. If our non-Japanese revenues increase substantially in the future, any significant change in the value of the currencies of the countries in which we do business against the Japanese yen could adversely affect our financial condition and operating performance due to conversion of exchange rates and transactional differences.

We are actively expanding in Japan and are planning to expand overseas markets in the future, and we may be adversely affected if Japanese and global economic conditions and financial markets deteriorate.

We are actively expanding in Japan and plan to expand our business overseas in the future, especially in the United States and Southeast Asia. As a result, our financial condition and results of operations may be significantly affected by general economic conditions and the economic and financial conditions in Japan and internationally. Factors affecting these conditions include fiscal and monetary policies, laws, regulations and other policies of Japan and any other relevant countries. In addition, we may be affected by labor shortages in Japan and any other relevant countries. As a result, our sales may fall short of our expectations, our liquidity and capital position could deteriorate and our cost of credit could increase, which in turn could adversely affect our results of operations and financial condition and may result in a material adverse effect to our business.

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

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

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

The rights of shareholders under Japanese law to take actions, including but not limited to with respect to voting their shares including attending shareholders’ meeting, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records or minutes of directors’ meetings, and exercising appraisal rights, are available only to shareholders of record. Because the depositary, through its custodian agents, is the record holder of our common shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited shares. ADS holders will not be able to bring a derivative action, examine our accounting books and records or minutes of directors’ meetings, 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. Upon receipt of voting instructions from the ADS holders in the manner set forth in the deposit agreement, the depositary will make efforts to vote the common shares underlying the ADSs in accordance with the instructions of the ADS holders. The depositary and its agents may not be able to send voting instructions to ADS holders or carry out their voting instructions in a timely manner. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast, or for the effect of any such vote. As a result, holders of ADSs may not be able to exercise their right to vote.

Dividend payments will be affected by fluctuations in the exchange rate between the U.S. dollar and the Japanese yen.

Cash dividends, if any, in respect of our common shares represented by the ADSs will be paid to the depositary in Japanese yen and then converted by the depositary into U.S. dollars, subject to certain conditions. Accordingly, fluctuations in the exchange rate between the Japanese yen and the U.S. dollar will affect, among other things, the amounts a holder of ADSs will receive from the depositary in respect of dividends.

Direct acquisition of our common shares, in lieu of ADSs, is subject to a prior filing requirement under recent amendments to the Japanese Foreign Exchange and Foreign Trade Act and related regulations.

Under the amendments in 2019 to Japan’s Foreign Exchange and Foreign Trade Law and related regulations (which we refer to as the “FEFTA”), direct acquisitions of our common shares in lieu of ADSs, by a Foreign Investor (as defined herein under “Item 10.D. Exchange Controls”) may be subject to prior filing requirements under the FEFTA regardless of the amount of shares to be acquired. A Foreign Investor wishing to acquire direct ownership of our common shares, rather than ADSs, will be required to make a prior filing with the relevant governmental authorities through the Bank of Japan and wait until clearance for the acquisition is granted by the applicable governmental authorities, which approval may take up to 30 days and could be subject to further extension. Without such clearance, the Foreign Investor will not be permitted to acquire our common shares directly. In addition, any Foreign Investor who intends to take delivery of common shares of the Company upon delivery of ADSs must obtain prior approval of the Japanese governmental authorities before taking delivery, which may take up to 30 days. Without such clearance, the Foreign Investor will not be permitted to acquire our common shares directly.

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

The discussion above is not exhaustive of all possible foreign exchange controls requirements that may apply to a particular investor, and potential investors are advised to satisfy themselves as to the overall foreign exchange controls consequences of the acquisition, ownership and disposition of our common shares or the ADSs by consulting their own advisors. For a more detailed discussion on the requirements and procedures regarding the prior notifications under the Foreign Exchange Regulations, see “Item 10.D. Exchange Controls” and “Item 12.D. American Depositary Shares.”

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Our Company was founded in 2017 by Dr. Ochiai, Dr. Hoshi, and Mr. Taiichiro Murakami, our Chief Operating Officer, to explore better ways to integrate academic and industry resources to develop and commercialize applications of our wave control technology. Since our Company’s inception, we have actively pursued industry-academia collaborations to generate new technologies that can be applied to real-world uses. In doing so, we have prioritized developing products that we believe have potential for wide applicability in the marketplace. We have also sought to accelerate the commercialization of the new products by collaborating with established companies in the relevant industries. Our research efforts aim to develop both advanced technologies and new products and services that can meet real-life needs and help to address social issues facing the global society, such as issues arising from an aging population, as well as to generate added value for our stakeholders.

Our agent for service of process in the United States is Cogency Global Inc. Our principal executive offices are located at 8F Yaesu Central Tower, 2-2-1 Yaesu, Chuo-ku, Tokyo, 104-0028, Japan, and our main telephone number is +81-3-6910-3040. Our website is https://pixiedusttech.com/. The information contained in, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this annual report. You should not consider any information on our website to be a part of this annual report or use any such information in your decision on whether to purchase the ADSs. We have included our website address in this annual report solely for informational purposes.

B. Business Overview

We aim to create and commercialize innovative consumer personal care products and spatial materials through the utilization of mechanobiology and metamaterials in combination with our core proprietary wave technology that employs sound and light waves. Mechanobiology is an emerging field of research that studies how biological systems respond to mechanical stimuli. Mechanobiological research findings have the potential to be used to develop new health care and personal care options. Metamaterials are artificially engineered materials that have properties not found in nature. These properties are achieved by carefully designing the structure of the metamaterial at the sub-wavelength scale. Metamaterials can be used to manipulate electromagnetic waves, such as light and radio waves, in novel ways, such as negative refraction to light. Our wave control technologies consist of a system of methodologies to manipulate the common behaviors of sound and light in abstract layers as desired, and to utilize the unique attributes of sound and light for innovative personal care and industrial products.

While wave control technology has the potential for a variety of applications, we currently focus our development efforts in two principal fields: Personal Care & Diversity and Workspace & Digital Transformation. We focus our research and development on commercializing technologies that we believe will, among other things, provide personal care benefits and that will improve physical limitations through sensory and metamaterial technologies. As an emerging growth company, we have yet to generate significant revenue from any commercialization of our proprietary technologies or products.

In the Personal Care & Diversity field, we are working to develop technologies to enhance personal care and quality of life. We have launched three personal care products in Japan, our principal market: SonoRepro, an ultrasonic non-contact vibrotactile stimulation scalp care device in November 2022; VUEVO, a series of directional voice arrival detection devices for individuals with deaf and DHH in March 2023; and kikippa, a speaker which is equipped with gamma wave modulation technology that processes and modulates regular TV audio with a 40-Hz amplitude modulation algorithm, in April 2023. Our products have been developed, and are marketed and sold, as personal care products. They are not marketed, nor intended to be used, as medical devices. In Japan, medical devices require compliance with the PMDA and are regulated by the PMD Agency and the Ministry of Health, Labor and Welfare, which require registration and approval and compliance with marketing requirements, among other things. If any of our products were to be characterized as a medical device by the Japanese regulators, we may be required to seek regulatory approval and could face penalties for not obtaining such approval. As we continue our product research and development, we may create new products or an extension of an existing product that may qualify as a medical device in Japan or other jurisdictions. In such event, we would seek the requisite regulatory approval in Japan and any other applicable jurisdictions for such products in the future.

In the Workspace & Digital Transformation field, we are working to develop technologies for sensing and controlling space. We launched iwasemi, a sound-absorbing metamaterial in Japan in July 2022, and conducted a “soft” launch of selected versions of our iwasemi product to key professionals in the United States, such as architectural and interior design firms, in March 2023. Additionally, we signed an agreement with Energy Spot Co., Ltd, which is headquartered in South Korea, to promote the “iwasemi” series for enhancement of office environments in South Korea in pursuit of comfortable workspace solutions, in March 2024. We are also developing structures which can ventilate air as well as insulating sound, utilizing iwasemi technology. Further, we launched KOTOWARI, a technology providing spatial analysis data in Japan, in July2024.   Moreover, we are continuing our development of hackke, a location positioning technology; however, we currently do not have any specific timeline for commercializing hackke.

In the next few years, we plan to focus our efforts on marketing and expanding the features of SonoRepro, kikippa, VUEVO, iwasemi and KOTOWARI, particularly in our principal market of Japan. As part of our sales strategy, we may offer third-party products that complement our own products. For instance, we obtained a license to sell a medication for treatment of hair loss, which we intend to co-market with our personal scalp care device, SonoRepro. We intend to continue to explore such opportunities to provide comprehensive solutions to our customers.

Historically, we have generated revenues primarily from commissioned research and development (“R&D”) and solution services we have provided for other companies including under our collaboration agreements. However, as we expand our marketing and sales efforts for our products, we expect revenue from product sales to contribute an increasing proportion of our revenues over time. During the year ended April 30, 2024, we expanded our marketing and sales efforts for our products, which resulted in product revenue accounting for 53% of our total revenue. For our fiscal years ended April 30, 2023 and 2024, we generated revenues of ¥704,712 thousand and ¥993,021 thousand ($6,303 thousand), respectively, and incurred net losses of ¥1,965,491 thousand and ¥1,974,536 thousand ($12,534 thousand), respectively.

Our Revenue Models

As we create and commercialize a variety of products through applying our core proprietary wave control technology, we have adopted four revenue models for products sales other than collaboration research: (i) the sales model; (ii) the subscription model; (iii) the lease model; and (iv) the licensing model. The table below illustrates the various sources of revenue we expect to obtain from these four models. We may apply one or more of these models to each of our products depending on the nature and features of the product. The revenue models that we plan to apply to each product is further discussed in the sections entitled “Collaboration and Commercialization” under “Our Products and Product Candidates” below.

The Sales Model. Under this model, we sell a product for a one-time charge. We have applied and plan to continue to apply the sales model to iwasemi, SonoRepro, kikippa, and the VUEVO device.

The Subscription Model. Under this model, we expect to continue to receive proceeds from subscription fees for our software upgrades or other services based on the duration or volume of use after a product is sold to a customer. We have applied and plan to continue to apply the subscription model to certain services offered in connection with VUEVO. To date, we have yet to generate any significant revenue from the subscription model.

The Lease Model. Under this model, we lease a product for certain period of time and receive proceeds for the duration of the lease. We have applied and plan to continue to apply the lease model to SonoRepro. To date, we have yet to generate any significant revenue from the lease model.

The Royalty Model. Under this model, we license our technology to a third party to manufacture and sell the relevant product and receive royalties from the licensing arrangement. We have only applied the royalty model to iwasemi HX-a and may apply this model to our other technology applications. To date, we have yet to generate any significant revenue from the royalty model.

Our Strategy

Our strategy is to continue to develop and commercialize innovative and practical products by applying our wave control technology. In this effort, we plan to:

Our Products and Product Candidates

While our wave control technologies have the potential to open up a variety of applications, we are currently focusing our business development efforts on the fields of Personal Care & Diversity and Workspace & Digital Transformation.

Personal Care and Diversity

In the Personal Care & Diversity field, we apply our wave control technologies to seek solutions to improve general daily care and well-being and assist people with physical impairments or functional limitations to live healthy, productive, independent, dignified lives. We have designed our products to be used alone, or as a reasonably priced supplement to an individual’s prescribed medication or treatment. Below are our main product and product candidates with respect to this area. We plan to focus in the near term on further commercialization of our three personal care products in Japan: SonoRepro, launched in November 2022, kikippa, launched in April 2023, and VUEVO, launched in March 2023.

SonoRepro

SonoRepro is a personal scalp care device, which we launched in Japan in November 2022. SonoRepro was developed based on non-contact vibrotactile stimulation with ultrasound, one of our proprietary wave control technologies. It is designed in the shape of a showerhead. Users can power on the device and hold it in place on their scalp with one hand. While the outer edge of the device touches the head, the ultrasound-wave generating components inside the device do not. The device is programmed to vibrate every minute, reminding users to move it to a different spot on their scalp. No adverse side effects have been observed to date. We have not made, and do not make, any claims that SonoRepro may stimulate hair growth.

SonoRepro won “CES 2023 Innovation Award” at the Consumer Electronics Show 2023 where over 3,200 companies participated.

SonoRepro

Related Research and Potential Future Developments

In researching the use of ultrasound to promote wound healing, we discovered through experiments on mice that ultrasound stimulation can boost hair growth. From 2019 to 2020, we collaborated with Angfa Co., Ltd., a Japanese hair regrowth pharmaceutical company (“Angfa”), to conduct a clinical study, “Effects of an Ultrasound Focusing Device for Noncontact Force Radiation on Hair (UMIN000038797),” which demonstrated that non-contact vibrotactile stimulation increases the percentage of growth phase hair and decreases the percentage of resting phase hair. The test conducted was a comparative test on 11 healthy men aged between 20 and 30 years old (one participant declined to continue during the test process) to reveal hair changes before and after treatment with ultrasound. Ultrasound was emitted for 20 minutes once a week using a non-contact ultrasound focusing device on the temporal region of one half of the head, leaving the other half of the head untreated.

The study aimed to measure changes in median hair length (extension), growth phase hair ratio, resting phase hair ratio, and median hair diameter (thickness) before and after treatment. The results showed that there was no significant difference between the treatment and non-treatment group in terms of the change in median hair length or the median hair diameter from three days after shaving before treatment (the “pre-treatment stage”) to three days after shaving after 16-week treatment (the “post-treatment stage”). However, with respect to the growth phase hair ratio, the treatment group displayed a significantly higher value than the non-treatment group in the post-treatment stage (p<0.05). With respect to the resting phase hair ratio, the treatment group displayed significantly lower values than the non-treatment group in the post-treatment stage (p<0.05). The study also conducted gene expression tests related to the hair cycle. These tests revealed a significant increase in the expression of FGF12 and WISP1, which are proteins that play important roles in development and tissue repair, in the treatment group compared to the non-treatment group (in each case, p<0.05). P-value is a statistical measure of significance used to assess the probability of results occurring by chance. The threshold for statistical significance is typically set at 5% or lower, depending on the field of study. In this study, the probability threshold was set at 0.05, and a p-value of “p<0.05” means that there is a 5% or less chance that the results observed could have occurred by chance. The results of this clinical study were presented at the World Congress for Hair Research 2022.

The ultrasound device used in this study was a larger prototype, not SonoRepro. However, both devices use non-contact vibrotactile stimulation to stimulate the scalp. SonoRepro is designed to replicate the same sound pressure at the center of the ultrasonic focal point as the larger device, although its overall output is smaller and, we believe, more suitable for the consumer.

A more recent study is also reported in the Japanese monthly journal “Medical Consultation & New Remedies 2023; 60 (11)”. This study, aimed at determining the effects on the scalp and hair when using SonoRepro with scalp lotion for 12 weeks, consisted of adult men and women under 49 years old who were concerned about thinning hair. The goal of this study was to utilize a test group and control group to determine whether results were significant. As part of this study, scalp lotion was applied to the top of the head, and ultrasonic waves were irradiated to the scalp by SonoRepro to cover the center of the application area. In comparing the results of the test group with the control group, this study revealed that the study participants who received treatment via SonoRepro showed a meaningful improvement in hair diameter, head condition, and scalp water content.

Although our research to date is encouraging, we expect to continue our studies in this area and may make adjustments to our product in the future, if necessary and appropriate, including launching new models of SonoRepro with additional or improved features. SonoRepro represents our first attempt at utilizing ultrasound technology in personal care devices. We believe there may be further potential for other applications in this field, including the use of ultrasound for improving skin conditions, wound healing, and other uses. To this end, we are continuing our research and development efforts through collaborations with universities and partner corporations.

Market and Competition

In Japan, there are many types of hair scalp massagers available in the market. They are typically handheld devices that are used to massage the scalp, promote blood circulation, and reduce stress. In addition, as we currently do not, and do not plan in the near future to, market SonoRepro as a medical device, we are subject to regulatory limitations in making claims about SonoRepro’s effects. Based on information provided by the Japanese Medical Information System Development Center, our competitors in the scalp massage devices field typically do not seek regulatory approvals for their products. As we have only recently launched our product, our market share is nominal at present.

Collaboration and Commercialization

We have collaborated with Angfa to develop and commercialize SonoRepro. Under a distributorship agreement we entered into with Angfa on June 20, 2022, Angfa was appointed as a non-exclusive distributor for our SonoRepro product within the territory in Japan. The specific terms, such as the amount, price, delivery date, expenses, or other conditions are separately determined by the parties through accepted purchase orders. We have retained the right to distribute the product in Japan independently by ourselves or third parties. Angfa may receive incentive fees from us based upon sales volume. The term of the agreement is one year, which expired on June 20, 2023. However, the parties have agreed to renew the agreement for another year.

In Japan, initial pre-sales of SonoRepro in July 2022 through Makuake, a Japanese product launch platform, were encouraging, and we began selling this product on our own e-commerce site in November 2022. To date, we have sold SonoRepro through e-commerce sites and retail sales store such as bic camera, Yodobashi camera (both of which are popular Japanese consumer electronics retail chains) and Tsutaya Kaden. We are also using TV commercials in Japan to promote our product. We have started a rental program for SonoRepro and are marketing and selling product to barber shops and beauty salons for sale to their own customers. To offer a more comprehensive solution for our customers, we have commenced selling a third-party medication for treating hair loss along with SonoRepro in January 2023. This requires us to meet certain regulatory requirements including obtaining a license for store-based distribution, which we obtained in December 2022.

At this stage, we have no plans to market SonoRepro as a medical device or claim that it has a medical effect of improving thinning hair. We initiated sales of SonoRepro in Japan in November 2022 as a personal scalp care device without making any claims relating to hair growth or preventing hair loss. We believe by doing so we do not need to apply for a medical device approval under Japanese law and expect to continue to do so. We plan to market SonoRepro only in Japan for the foreseeable future. In the long term, we may expand our sales to other countries, initially focusing on other Asian countries. If opportunities arise to expand our product markets to foreign jurisdictions, and if the regulations in the applicable foreign jurisdictions require us to market SonoRepro as a medical device, we will seek the necessary regulatory approval at that time. As we continue our product research and development, we may create new products or extensions of our existing SonoRepro product based on its underlying technology that may qualify as a medical device in Japan or other jurisdictions. In such event, we will seek the requisite regulatory approval in Japan and other applicable jurisdictions for such products.

The revenue model we have applied to SonoRepro is the sales model or the lease model. Under the sales model, we charge a one-time fee for each sale. Under the lease model, we receive lease revenue for the duration of the lease.

For our fiscal years ended April 30, 2023 and 2024, the number of the SonoRepro sold was 1,432 and 1,545 respectively and we generated revenues of ¥142,449 thousand and ¥198,566 thousand ($1,260 thousand), respectively from the SonoRepro business including but not limited to those sales.   

Supply and Manufacturing

We intend to utilize third parties, on a non-exclusive basis, to manufacture SonoRepro and may manufacture this product by ourselves in the future.

We primarily rely on our manufacturer to purchase raw materials for the manufacture of SonoRepro, including (i) mechanical and electrical components, (ii) aluminum, steel, copper, and metal alloy products, and (iii) plastic materials. Such raw materials and components are generally available throughout the world and are purchased domestically when possible from a variety of suppliers. We generally are not dependent upon, nor do we expect to become dependent on, any single source for raw materials or components. We have not been informed by our manufacturer of any difficulties, nor do we expect to in the future, in obtaining raw materials or components necessary for the production of SonoRepro.

Intellectual Property

We have filed 11 patent applications in Japan for the ultrasonic control element technology from the development stage. In addition, we have filed a PCT application based on the Japanese patent application and have filed a patent application in the United States based on the PCT application. We have filed 3 design patent applications in Japan for the SonoRepro enclosure and the design of the ultrasonic vibration arrangement. We have acquired trademark rights for the product brand names in Japan and expect to apply in the future for trademark rights in other major countries where we plan to sell the product.

kikippa

kikippa is a consumer product designed as an acoustic stimulation device that functions as a desk-top speaker to modulate sound to 40 Hz. It was launched in Japan in April 2023. kikippa utilizes our technology to implement period-equivalent amplitude modulation to daily speech, such as television or radio broadcasts. Users can use an audio cable to connect kikippa to a TV set or radio or any other audio device. kikippa’s embedded SIM card allows it to receive signals from us via telecommunication to check the contract status for the Gamma Wave Mode Monthly plan. Once the device is powered on, users can activate or deactivate the sound mode using a remote control to generate or stop the modulated sounds. Additionally, we have a dedicated website and LINE (a popular Japanese social networking service) integration function that allows users to check the usage status of their devices.

kikippa

Related Research and Potential Future Developments

We conducted research to develop a proprietary process for the modulation of everyday audio sounds, such as TV sound, by applying amplitude modulation with a period equivalent to that of gamma waves, which is a type of brain wave. We do not make any claim that the modulated sound generated by kikippa may improve cognitive function or may be used as any form of medical treatment. We plan to continue our research in this field and explore opportunities to leverage the effects of modulated sound to facilitate daily care and activities.

Market and Competition

Our market for kikippa is currently limited to consumers in Japan. kikippa faces competition from various providers of other consumer products for acoustic stimulation, such as sound or wave machines. Many of the competitors are more established companies with greater name and brand recognition and sales channels.

Collaboration and Commercialization

Since November 2020, we have been collaborating with Shionogi & Co., Ltd., a Japanese pharmaceutical company (“Shionogi”), and its affiliate, Shionogi Healthcare Co., Ltd. (“Shionogi Healthcare”, and collectively with Shionogi, the “Shionogi Parties”), to develop and commercialize kikippa. On March 10, 2023, we entered into a collaboration agreement with Shionogi and Shionogi Healthcare (the “Shionogi Collaboration Agreement”), which replaced our prior collaboration arrangements with Shionogi and Shionogi Healthcare. Under the Shionogi Collaboration Agreement, we will design, manufacture, and sell kikippa to Shionogi Healthcare, as well as provide users of the product with a right to use the on-premises gamma wave sound technology monthly user support services for kikippa (the “on-premises technology”). Shionogi Healthcare will sell and market kikippa to customers and provide customer services in Japan. In addition, we and Shionogi will jointly conduct research and development related to kikippa. With respect to our sales of kikippa to Shionogi Healthcare, the specific terms such as the amount, price, delivery date, expenses, or other conditions, will be determined separately by the parties through accepted purchase orders. With respect to the on-premises technology usage fees paid by customers, we and Shionogi Healthcare will split such fees.

With respect to research and development, the intellectual property ownership of the results from the collaboration is determined as follows: With respect to development of hardware and on-premises software necessary for commencing a business relating to kikippa, (i) subject to the exception under (iii), results created solely by us or Shionogi will belong to that party, (ii) results created jointly by the parties will be jointly owned, and (iii) any healthcare-related development results created by us will be jointly owned by us and Shionogi, except for the copyright to any software-related and hardware-related works, which will solely belong to us. In addition, with respect to joint research on gamma-band electroencephalography stimulation by 40 Hz sound modulation and improvement of cognitive function that is considered to contribute to increasing the business value of kikippa, the results of jointly-performed work will be shared by the parties, and the results of independently-performed work performed shall belong to the applicable party. During the term of the agreement, none of the parties may sell or provide products or services primarily intended for gamma stimulation by sound (such products and services excluding kikippa and the on-premises technology, the “Related Products and Services”) to a third party without the prior consent of all other parties. If any party wishes to commercialize the Related Products and Services, such party must first discuss the matter with the other parties in good faith for up to six months. If either party proceeds without the participation of the other, a fee equal to a single digit percentage tied to the business’s profit is payable for 20 years.

The agreement will remain effective until September 20, 2024, after which it will automatically renew for one year unless either party gives notice of its intention not to renew with reasonable grounds six months before the expiration date. If the agreement is terminated, any party that wishes to continue the business relating to kikippa with a third party may do so, subject to a fee as referenced above.

At this stage, we do not plan to market kikippa as a medical device or claim that it has a medical effect of improving cognitive impairment. We initiated sales of kikippa in Japan in April 2023 as an acoustic stimulation device. We believe by doing so we do not need to apply for a medical device approval under Japanese law. We plan to market kikippa only in Japan in the foreseeable future. In the long term, we may expand our sales to other countries, initially focusing on other Asian countries. If opportunities arise to expand our product markets to foreign jurisdictions, and if the regulations in the applicable foreign jurisdictions require us to market kikippa as a medical device, we will seek the necessary regulatory approval at that time. As we continue our product research and development, we may create new products or extensions of our existing kikippa product based on its underlying technology that may qualify as a medical device in Japan or other jurisdictions. In such event, we will seek the requisite regulatory approval in Japan and other applicable jurisdictions for such products.

The main revenue model we expect to apply to kikippa is the sales model. Furthermore, we offer two types of fee plans for usage of on-premises technology, one of which is the Gamma Wave Mode Indefinite plan that requires upfront payment charges with no subsequent monthly fees, and the other of which is the Gamma Wave Mode Monthly plan that the customer initially pays only for a device price and then charges recurring monthly fees for the duration of usage of on-premises technology. The modulated sound technology, along with program upgrades and other web-based services are available for both plans. However, in case of the Gamma Wave Mode Monthly plan, such additional services will not be available without paying monthly fees.

For our fiscal years ended April 30, 2023 and 2024, we generated revenues of ¥170,008 thousand and ¥386,795 thousand ($2,455 thousand), respectively from the kikippa business including sales of devices and on-premises technology usage fees. 

Supply and Manufacturing

We intend to utilize third parties, on a non-exclusive basis, to manufacture kikippa and may manufacture this product by ourselves in the future. Under a manufacturing agreement we entered into with JENESIS Co., Ltd. (“JENESIS”) on September 26, 2022, we engaged JENESIS as a non-exclusive manufacturer of kikippa, reserving the right to manufacture the product by ourselves or other third-party manufacturers. Specific terms regarding each purchase such as the amount, price, delivery date, expenses, or other conditions, will be determined separately by the parties through accepted purchase orders. The term of the agreement was from September 1, 2022 to August 31, 2023, which was renewed with a current termination date of August 31 2024, after which it will be automatically renewed for one year unless either party gives notice of its intention not to renew 30 days before the expiration date. We currently intend to seek renewal of this agreement, subject to acceptable terms.

We do not purchase any raw materials directly for the manufacture of this product. All materials are purchased through our contract manufacturer, including (i) mechanical and electrical components, (ii) aluminum, steel, copper, and metal alloy products, and (iii) plastic materials. Such raw materials and components are generally available throughout the world and are purchased domestically when possible from a variety of suppliers. We generally are not dependent upon, nor do we expect to become dependent on, any single source for raw materials or components. We have not been informed by our manufacturer of any difficulties, nor do we expect to in the future, in obtaining raw materials or components necessary for the production of kikippa.

Intellectual Property

All intellectual property relating to the product will be jointly owned by us and Shionogi, except where the relevant deliverables and technologies are independently developed by either party. We and Shionogi have jointly filed 14 patent applications in Japan for this device and related technologies, which are mainly intended to cover: (1) the signal processing method that converts everyday sounds, such as TV sound, into non-invasive sound stimuli; and (2) functions that improve the usability of the equipment. In addition, we have filed 5 PCT applications based on the Japanese patent applications, and we have filed patent applications in the United States based on the PCT applications. We also plan to file European and Chinese patent applications. We also have filed a design patent application in Japan for the equipment housing. We have acquired trademark rights for the product brand in Japan and expect to apply in the future for trademark rights in other major countries where we plan to sell the product. The relevant trademarks are owned by us and licensed to Shionogi.

As most of the patents related to kikippa will be jointly owned between us and Shionogi, if we implement the patents by ourselves, we may do so without consent from Shionogi, but we will be required to pay them a customary license fee. The prior written consent of Shionogi is required for disposal, transfer, or pledge of the co-ownership interest. If we license the patent technology to a third party to generate income, we must obtain the prior written consent of Shionogi, and pay them a portion of the license fee, which will be determined by separate negotiation.

VUEVO

We are applying our sensing technology to develop a series of products under the name VUEVO, which can display the direction and content of a speaker’s speech. We have introduced VUEVO mic, which is a tabletop microphone that can connect to a computer or tablet. Using an intuitive user interface on a computer, tablet, or smartphone, VUEVO mic provides real-time direction and speech content recognition of participating members in a meeting or conversation. The microphone collects utterances from all angles and displays the content in the direction of the speaker. The user interface is designed to identify the speaker and their content, and users can start a conversation and invite others to join via a smartphone app. VUEVO mic comes with a USB charging cable and USB AC adapter for recharging. When charging, the battery indicator on the top of the microphone flashes according to the charge amount and turns off when charging is complete.

Additionally, VUEVO provides the user with transcribed data that includes the speaker’s information, which can then be used to create minutes of meetings. The transcription engine can also be replaced by a translation engine to provide real-time translation capabilities. VUEVO is currently being offered to customers as a set of hardware and a network service.

Related Research and Potential Future Developments

Originally, a doctoral student with congenital hearing loss was conducting research on DHH people in Dr. Ochiai’s Laboratory at the University of Tsukuba, focusing on the use of smart glasses with a transcription function to enable the contents of the voice to be visually confirmed as subtitles. We acquired the research in 2019 and proceeded to develop the system through interviews with more than 100 DHH people. To address the difficulty of distinguishing between multiple voices and accurately perceiving the direction of the voice, we developed an algorithm based on our proprietary wave control technologies, to realize a function that detects the direction of the voice and displays that direction on the smart glasses. Our algorithm also improves noise immunity for transcription. Once recognized, the position of the speaker is retained, so that subtitles of different colors can be displayed for each speaker, subtitles can be overlaid in the direction of a speaker who is within the visible area, and indications can be displayed when someone outside that area starts speaking so that the user can see the subtitles displayed if they turn to that direction.

We also launched VUEVO Display in Japan in August 2024. Using the same core VUEVO technology as VUEVO mic, it can display dialogue subtitles in real time on both sides of the transparent display, which enables smooth face-to-face communication. Because VUEVO display also has an interpretation function, it can facilitate communication not only with DHH persons but also among persons with different first languages.

In the next phase, we plan to develop VUEVO glasses based on augmented reality (“AR”) technology. Using the same core VUEVO technology as VUEVO mic, our goal for the glasses is to superimpose the content of speech onto the speaker in real space from the perspective of the viewer wearing the glasses. As our research and development continues, we expect to launch new models of VUEVO with additional or improved features.

VUEVO glasses, which are currently under development, are worn in the same way as eyeglasses. Speech is projected in real time on the inside of the lenses, allowing the user to read what is being said. We expect that VUEVO glasses will incorporate our proprietary algorithm that overcomes certain challenges by extending conventional technology. For example, when a wearable device is attached to a flexible joint, such as the neck, errors can accumulate in inertial sensor-based posture correction algorithms, resulting in a shift in the origin and direction of coordinates. This misalignment means that the wearable device will not be able to correctly capture and display the direction of the voice. We have developed a proprietary algorithm that can continue to compensate for shifts in the origin and direction of coordinates caused by neck movements. As a result, the expected use cases may not be limited to the desktop for meetings, schools, and homes; rather, the range of application is expected to be expanded to include conversations during commuting and other forms of transportation, as well as at work.

We expect that the market for use cases where AR is considered a mere “nice-to-have” will soon reach a plateau. To ensure VUEVO glasses will be accepted by a wide market, we believe that we need to continue to enhance our current working prototype depicted below and intend to develop further prototypes in collaboration with organizations for the hearing impaired in Japan to enhance our product’s functions, with the goal of making VUEVO glasses a highly desirable user aid for its users.

	VUEVO mic	360 degrees view.
	VUEVO Display	Working Prototype of VUEVO Glasses

Market and Competition

As a device that transforms live speech into readable content, we expect that VUEVO mic will face competition from a number of speech-to-text apps, such as Notta, the speech-to-text applications of Google Assistant, Apple Dictation for iOS users, Dragon and Otter. These apps have greater brand recognition and more established sales channels. In respect of VUEVO Display we face competition from other developers including KONICA MINOLTA and TOPPAN. In addition, we also expect that VUEVO glasses will face competition from other developers of smart glasses that turn speech into subtitles in real-time. For example, we expect that a major competitor for our product may be XRAI Glasses, which develops software solutions powered by Augmented Reality.

While our competitors offer a variety of innovative features, VUEVO is designed and targeted to assist the DHH population, in particular, by allowing them to identify who is speaking and view speech instantly. While VUEVO can be used in conjunction with hearing aids, consumers may deem VUEVO as an alternative, and in that perspective, VUEVO faces competition from manufacturers and suppliers of hearing aids. Many of them are more established companies with greater name and brand recognition and more established sales channels.

Collaboration and Commercialization

Beginning in March 2021, we have collaborated with Sumitomo Pharma Co., Ltd., a Japanese pharmaceutical company (“Sumitomo Pharma”), to jointly develop VUEVO products under various agreements, the most recent of which expired in February 2023. The intellectual property relating to VUEVO is jointly owned by us and Sumitomo Pharma, except that works of program, database, design information of software and hardware as stipulated in the Copyright Act in Japan, as well as copyrights of the aforementioned results and corresponding rights under the laws outside Japan belong solely to Pixie. From March 2021 to February 2023, we had entered into six joint patent application agreements relating to patents and design relating to VUEVO.

We introduced VUEVO mic to the market in March 2023. We plan to market VUEVO only in Japan in the foreseeable future. We may expand overseas in the future, initially focusing on the United States and the European Union, subject to suitable market conditions. We expect there will be two sales channels, one for businesses and the other for retail/personal use. However, our initial launch is focused only on sales to businesses.

In connection with our sales of VUEVO mic, we entered into a royalty agreement with Sumitomo Pharma on March 29, 2023. The agreement grants us the exclusive right to use the results generated by previous collaborations with Sumitomo Pharma. The agreement also covers the manufacturing and sale of the VUEVO products, provision of customer services, and other services incidental to the products worldwide. During the period from March 1, 2023 to April 30, 2031, we will pay Sumitomo Pharma a low-end single digit percentage royalty based on net sales (the total amount of net revenue of the VUEVO products, net revenue for installment of the services related to the products, and net revenue of monthly end-user support service related to the products). However, we are not required to pay the royalty in any fiscal year if (i) there is no cumulative surplus after deducting business expenses and research and development costs in a threshold amount from our revenue for the products and the services from March 1, 2023 to May 1 of the relevant year or (ii) if there is no surplus after deducting expenses for the relevant year. The agreement contains other customary terms regarding the ability to conduct additional research and development activities, the results of which will be owned by us. Further, during the period from March 1, 2023 to November 30, 2025, if we wish to negotiate with a third party other than Sumitomo Pharma in relation to the VUEVO products and services (the “VUEVO Business”), we must notify Sumitomo Pharma and provide it an opportunity to collaborate with us; however, we may conduct the VUEVO Business with a third party without Sumitomo Pharma’s consent if we determine that the VUEVO Business would be better maximized with the third party. In addition, if Sumitomo Pharma wishes to participate directly in the VUEVO Business, it must notify us no later than November 30, 2025 and we then must negotiate the terms for any such collaboration. If no agreement is reached by February 28, 2026, we may continue the VUEVO Business without Sumitomo Pharma’s further involvement. The term of the agreement was from March 29, 2023 to April 30, 2024, which was renewed with a current termination date of April 30 2025, after which it will be automatically renewed for one year unless either party gives notice of its intention not to renew with reasonable grounds at least three months prior to the expiration date. In the event of renewal, the parties will discuss, in good faith, whether the royalty rate shall be amended one month prior to the renewal date.

The main revenue models we expect to apply to VUEVO are the sales model and the subscription model. We plan to generate revenue from both sales of the products and charging a subscription fee for providing transcription and other services to the users for a subscribed period.

For our fiscal years ended April 30, 2023 and 2024, we generated revenues of ¥89,725 thousand and ¥64,209 thousand ($408 thousand), respectively from the VUEVO business including but not limited to sales of devices or subscription fee. 

Supply and Manufacturing

We intend to utilize third parties, on a non-exclusive basis, to manufacture VUEVO and may manufacture this product by ourselves in the future. Under a manufacturing agreement we entered into with JENESIS on June 1, 2022, we engaged JENESIS as a non-exclusive manufacturer of VUEVO, reserving the right to manufacture the product by ourselves or other third-party manufacturers. Specific terms regarding each purchase such as the amount, price, delivery date, expenses, or other conditions, will be determined separately by the parties through accepted purchase orders. The term of the agreement was from June 1, 2022 to May 31, 2023, which was renewed with a current termination date of May 31 2025, after which it will be automatically renewed for one year unless either party gives notice of its intention not to renew 30 days before the expiration date. We currently intend to seek renewal of this agreement, subject to acceptable terms.

We do not purchase any raw materials directly for the manufacture of this product. All materials are purchased through our contract manufacturer, including (i) mechanical and electrical components, (ii) aluminum, steel, copper, and metal alloy products, and (iii) plastic materials. Such raw materials and components are generally available throughout the world and are purchased domestically when possible from a variety of suppliers. We generally are not dependent upon, nor do we expect to become dependent on, any single source for raw materials or components. We have not been informed by our manufacturer of any difficulties, nor do we expect to in the future, in obtaining raw materials or components necessary for the production of VUEVO.

Intellectual Property

We have filed 16 patent applications in Japan related to VUEVO, which are mainly intended to cover the technology related to display methods that enable natural recognition of speech content and sound sources in real time. In addition, we have filed 6 PCT applications based on the Japanese patent applications, and we have filed patent applications in the United States based on the PCT applications. On the other hand, we protect our unique algorithms to estimate multiple sound source directions as a trade secret to prevent imitation by other companies. We also filed 2 design patent applications in Japan for the housing design of the microphone and the graphical user interface design. We plan to protect the graphical user interface for displaying a content of speech and the direction of the sound source through a combination of utility patent and design patents. In addition, we have filed design patent applications in the United States, Europe, and the United Kingdom based on the Japanese design patent applications. Patents for inventions relating to VUEVO outside the term of that which pre-dated our relationship with Sumitomo Pharma are owned solely by us. Inventions resulting from our collaboration with Sumitomo Pharma are jointly owned by us and Sumitomo Pharma. We have acquired trademark rights for the product brand in Japan, and expect to apply in the future for trademark rights in other major countries where we plan to sell the product. The relevant trademarks are owned by us and may be licensed to other parties, where appropriate.

As most of the patents related to VUEVO developed from March 2021 to February 2023 are jointly owned between us and Sumitomo Pharma, if we implement the patents by ourselves, we may do so free of charge without consent from Sumitomo Pharma. The prior written consent of Sumitomo Pharma is required for disposal, transfer, or pledge of the co-ownership interest. If we license the patent technology to a third party to generate income, we must obtain the prior written consent of Sumitomo Pharma and pay them a portion of the license income fee.

Workspace & Digital Transformation

In the Workspace & Digital Transformation domain, we apply our wave control technologies to help people to better sense and control the space they are in. Below are our main product and product candidates. We launched iwasemi in Japan in July 2022 and conducted a “soft” launch of iwasemi to key professionals in the United States, such as architectural and interior design firms, in March 2023. We also launched KOTOWARI, a technology providing spatial analysis data in Japan, in July 2024.

iwasemi

iwasemi is a range of sound-absorbing or sound-proofing materials we have developed or are developing by applying our proprietary engineering technologies to design acoustic metamaterials. Sound absorbing material is a material to improve the indoor sound environment by reducing the over reflection in the room. Sound-proofing material is a material to reduce the transmission of sound from one area to another. Traditionally, research on sound absorption and soundproofing has focused on the selection of the “materials” to use. However, with the development of metamaterial technologies, it is possible to design an artificial “structure” in natural materials to achieve the desired characteristics of sound absorption and reflection. This shift in focus from “material” to “structure” means that the choice of materials become secondary, allowing for greater freedom in the selection. The advancements in computer performance and artificial intelligence have enabled high-speed and mass simulations. Leveraging our technological resources, our experts, including Dr. Ochiai and Dr. Hoshi, have created new acoustic metamaterials, leading to the release of multiple series of iwasemi products.

iwasemi offers three features. First, iwasemi can effectively absorb a wide frequency range, including hundreds of hertz, which glass wool cannot absorb, or it can absorb sound specifically in a certain frequency range. We have created design assets that allow us to modify iwasemi’s properties to suit the application. Second, iwasemi is able to use various materials, such as plastic, metals, and wood, to realize a high sound-absorption coefficiency thanks to its well-designed resonant structures. Consequently, it is possible to create a sound absorbing or sound-proofing material with design features such as color variations including transparent colors and texture expression using surface treatment, and with sufficient stiffness by selecting an adequate raw material. The sound-absorbing or sound-proofing material can also be molded integrally with applied products to improve their strength and reduce their weight. With these features, iwasemi is suitable for providing a soundproof environment in various contexts, such as construction, building materials, fixtures, railways, and automobiles. Third, iwasemi is easy to install or relocate, unlike many other sound-absorbing or sound-proofing materials such as glass wool, which typically require permanent installation. Users can easily remove iwasemi from one wall and install it on another.

The material-agnostic nature of metamaterial is also beneficial from a sustainability perspective. For example, iwasemi SQ-a is made from recycled resin, and iwasemi RC-a is made from bioplastic derived from plants. Another iwasemi series we expect to release in the future can also be produced using recycled materials such as waste plastic. Our experts foresee the potential for continuously developing new metamaterials that are material-agnostic not only for iwasemi but for other potential products.

In the initial commercialization phase for iwasemi, we launched the hexagonal iwasemi HX-a in July 2022. In the second phase, we launched the square-shaped iwasemi SQ-a in December 2022. For the third phase, we launched iwasemi RC-a, with more enhanced design and transparency than iwasemi HX-a, in May 2023, and we hope to expand our commercial market to key industry professionals in the United States. All products can be easily installed using tape or magnets. As our research and development continues, we expect to launch new models of iwasemi with additional or improved features.

iwasemi RC-a won the “CES 2024 Innovation Award” at the Consumer Electronics Show 2024 in the “Home Appliances” category

We conducted a test comparing an iwasemi sound-absorbing material prototype with a thickness of 25 mm to glass wool with a density of 32kg/m³ of the same thickness. We measured the sound absorption coefficient at normal incidence in accordance with the procedures defined in ISO 10534-2:1998, an international standard for this purpose published by the International Organization for Standardization. The sound absorption coefficient at normal incidence is a measure of how well a material absorbs sound waves that are incident vertically from the front, with a larger coefficient indicating greater absorption. The results showed that the iwasemi prototype had a sound absorption rate of 0.91 at 1000 Hz, while the glass wool had a sound absorption rate of 0.48, suggesting the superiority of the iwasemi prototype. In addition, in 2022, we installed iwasemi HX-a to a meeting room in the office of a large Japan-based multinational corporation and performed an experiment to test the sound-proofing effect of iwasemi HX-a. We observed that the installation of iwasemi HX-a resulted in a reduction in sound reverberation time of approximately 40% for the sounds in the frequency range of 500-1000 Hz, which is the frequency band human voices mostly fall within, while maintaining the design characteristics of the space. Based on this study, we believe the installation of iwasemi can reduce the noise and bring clearer voice for conversation made within a room or on audio or video conference calls in the room.

Illustration of the structure and mechanism of our sound-absorbing metamaterials

iwasemi HX-a

iwasemi SQ-a

iwasemi RC-a

Further, we have released a new proprietary soundproofing metamaterial, which is air-permeable and sound-impermeable, at Orgatech Tokyo 2023 in April. The structure of this soundproofing material is designed to allow air to pass through between multiple pillars with slits. When sound passes through this structure, some of the sound waves become scattered due to the function of the pillars. The incident wave sounds (sound waves passing through the structure) and scattered wave sounds (sound waves scattered by the pillars) cancel each other out, preventing sound from passing through this structure, as illustrated below.

Illustration of soundproofing mechanism

To test effectiveness of this structure, we conducted an experiment using the transfer-function method, a technique used to measure the transmission loss of a sample by comparing the sound pressure levels at different points along the propagation of the sound wave. By conducting this experiment with a sample of our soundproofing metamaterial designed for 1 kHz, we confirmed that the output sound pressure at 1 kHz was 25 dB lower than the input sound pressure. The National Institute on Deafness and other Communication Disorders has reported that exposure to sound levels above 85 dBA can cause hearing loss. It is also noted that sound pressure levels ranging from 80-110 dBA are equivalent to the noise produced by motorcycles and dirt bikes, while levels between 60-70 dBA are equivalent to normal conversation levels. The above experimental result suggests that our soundproofing metamaterial can reduce the sound pressure from a hazardous level to a permissible level.

We also conducted an experiment using the transfer-function method to compare the effectiveness of our soundproofing material to glass wool, a customarily used traditional sound-proofing material. We processed glass wool to have the same thickness and aperture rate as our soundproofing material. The aperture rate is a measure of how porous a material is, and in general, materials with lower aperture rates are more effective at blocking sound. The output sound pressure from the processed glass wool was only 10 dB lower than the input sound pressure at 1 kHz, which is significantly less than the 25 dB reduction we achieved with our soundproofing material.

We expect that our soundproofing metamaterial will be useful in settings where noise pollution is a concern, such as construction sites, railroads, factories, and air ventilation systems. In addition, this material can be used in open spaces such as cubicles, which is a feature that sets it apart from many other existing soundproofing materials that are only suitable for closed spaces.

Structure illustration of our new proprietary soundproofing metamaterial

Prototype of our new soundproofing metamaterial

Market and Competition

According to a report by Maia Research Analysis, dated February 11, 2022, the Japanese market for acoustic panel (covering both sound-absorbing and sound-proofing materials) is expected to grow from approximately US$3.7 billion in 2022 to US$4.9 billion by 2028, and the U.S. market is expected to grow from approximately US$19.4 billion in 2022 to US$25.9 billion in 2028. We have designed iwasemi to combine functionality and artistry as a sound-absorbing or sound-proofing material, taking advantage of the large number of material options available. Although iwasemi currently has a negligible market share, we aim to establish it as the first recognized acoustic metamaterial for homes and offices, as we are not aware of any similar products currently available on the market. There are acoustic metamaterials on the market for other applications, such as military and industrial applications. However, these metamaterials are often impractical for use in homes and offices because they are too expensive or too difficult to install. We believe these will require additional design and engineering to be adapted for home and office use.

iwasemi faces intense competition from existing and upcoming sound proofing materials and office acoustic panel manufacturers. For example, iwasemi competes with other sound-absorbing or sound-proofing panels made of plastic or microporous material that are also available in a variety of sizes and colors, such as Moxie Surfaces’ Clear-PEP, deamp’s plastic panels, and RPG’s Clearsorber foil. Although we believe that iwasemi offers a wider variety of thicknesses and densities and is more effective at absorbing sound at a wider range of frequencies, the other products may be more price competitive. In addition, the industry for acoustic panel has a low barrier to entry and faces intense competition among many players, both in Japan and the United States. Many of the manufacturers and suppliers of sound proofing materials are more established companies with greater name and brand recognition and more established sales channels than us.

Collaboration and Commercialization

We have developed and commercialized internally different models of iwasemi sound-absorbing and soundproofing panels, including iwasemi HX-a, iwasemi SQ-a, iwasemi RC-a, and our new soundproofing metamaterial, and are continuing to do so, except iwasemi HX-a as discussed below, with regard to which we have collaborated with Itoki Corporation, a major Japanese office furniture manufacturer (“Itoki”). We have primarily promoted and marketed all our iwasemi products by raising awareness of the iwasemi brand among architectural firms, construction companies, and other distributors and consultants of construction materials. We have done this by attending trade shows, providing samples and information sessions, and running advertisements in trade magazines.

The revenue model we have applied to iwasemi HX-a is a sales model along with a licensing model. We have applied the sales model to iwasemi SQ-a and iwasemi RC-a. We have not determined the model to apply to our new soundproofing metamaterial discussed above. We expect to generate most of our revenue from the iwasemi products from the direct sales of these products.

For our fiscal years ended April 30, 2023 and 2024, the total amount number of iwasemi sold was 9,706 and 33,635 respectively, which in terms of physical dimensions was 3,802 square meters and 13,424 square meters, respectively. For each of such fiscal years, we generated revenues of ¥57,440 thousand and ¥130,768 thousand ($830 thousand), respectively from the iwasemi business, including but not limited to those product sales.

Supply and Manufacturing

Except with respect to the hexagonal iwasemi HX-a product (which will be manufactured by Itoki), we intend to utilize third parties, on a typically non-exclusive basis, to manufacture our iwasemi products and may manufacture the products by ourselves in the future.

Under a manufacturing agreement we entered into with DAIICHIJUSHI INDUSTRY CO., LTD (“DAIICHIJUSHI INDUSTRY”) on July 11, 2022, we engaged DAIICHIJUSHI INDUSTRY as a non-exclusive manufacturer of iwasemi, reserving the right to manufacture the product by ourselves or other third-party manufacturers. Specific terms regarding each purchase such as the amount, price, delivery date, expenses, or other conditions, will be determined separately by the parties through accepted purchase orders. The term of the agreement was from July 11, 2022 to July 10, 2023, which was renewed with a current termination date of July 10 2025, after which it will be automatically renewed for one year unless either party gives notice of its intention not to renew 30 days before the expiration date. We currently intend to seek renewal of this agreement, subject to acceptable terms.

We do not purchase any raw materials directly for the manufacture of iwasemi. All materials are purchased through our contract manufacturers, including polycarbonate resin, recycled resin, and bio-mass based plastic. The selection of raw materials depends on the desired application. Such raw materials and components are generally available throughout the world and are purchased domestically when possible from a variety of suppliers. We generally are not dependent upon, nor do we expect to become dependent on, any single source for raw materials or components. We have not been informed by our manufacturers of any difficulties, nor do we expect to in the future, in obtaining raw materials or components necessary for the production of this product.

Intellectual Property

We have filed 25 patent applications in Japan for the sound absorption system with acoustic metamaterials from the development stage. In addition, we have filed 6 PCT applications based on the Japanese patent applications, and we have filed patent applications in the United States, Europe, and China based, on the PCT applications. One of these patents is on sound-absorbing structures used in all HX-a, SQ-a, and RC-a. We also filed 12 design patent applications in Japan for the equipment housing. In addition, we have filed design patent applications in the United States, Europe, and China based on the Japanese design patent applications. 9 of these design patents, including international application, are jointly owned with Itoki. We acquired trademark rights for the product brand in Japan, the United States, Europe, and China. The relevant trademarks are owned by us, and licensed to Itoki and, where appropriate, other third parties. Because two related patents were granted to Itoki in December 2023, we may enter into license agreements with Itoki in the near future.

hackke

We refer to our positioning technology as “hackke.” By installing multiple locators on, for example, the ceiling of a room, it is possible to calculate the three-dimensional location information of the tags. This technology, which has been under development since 2020, can be used to visualize the movement of workers and cargo and provide the information needed to improve efficiency.

hackke is currently in additional research and development with a construction company, which is one of the potential clients for this system and is currently undergoing trial implementation. We do not have any specific timeline for further commercialization of this technology, if any.

KOTOWARI

Wave control technologies can be used for spatial sensing, but to achieve this, a platform is required with a database function to appropriately aggregate data continuously sent from a large number of sensors, locators, and tags, a component to process the data as needed, and a dashboard editing function for visualization. KOTOWARI provides spatial analysis data to its users. As an example, KOTOWARI can generate data on work conditions at construction sites and on human flow information at stores and exhibitions upon user request, which can then be analyzed by the user for management and other purposes.

KOTOWARI is a solution service that converts space into time-series digital data in an optimal way according to the customers’ needs. It can offer both real-time human/object digitization and high-definition digitization of industrial machinery. Our spatial time-series data enables advanced analysis which was not possible with image recognition only and make previously unviewable objects visible. Additionally, by linking with machines, we believe we can give the machines “eyes” and “intelligence” to achieve advanced controls. KOTOWARI is not limited to sensors developed by us but can also be used to connect commercially available surveillance cameras for digital transformation in construction, agriculture, and other fields, and to connect commercially available CO2 sensors to develop pandemic (such as COVID-19) countermeasures based on actual measurements.

In many areas, data from construction sites is still not digitized. However, we believe that our efforts to digitize this data and embed digital processes into construction work will facilitate integration of the reinforcement learning cycle into the work with AI.

We are collaborating with certain third parties including a few dedicated business partners including construction companies, namely INFRONEER Holdings and its subsidiaries or Kajima and its subsidiaries (alphabetical order) in the development of the KOTOWARI technology and launched KOTOWARI in Japan, in July 2024.

Market and Competition

KOTOWARI’s target market is the construction industry. The Japanese domestic construction industry is facing challenges such as shortage of workers and aging of skilled workers, and with caps on overtime work coming into effect from fiscal 2024, we believe that there is a pressing need to improve productivity across such industry. Digitalization can contribute greatly to improving productivity, and according to a report by Yano Research Institute, the DX market  in construction industry is expected to grow by more than 10% annually, reaching 58.6 billion yen in fiscal year 2024 and 125 billion yen in fiscal year 2030.

In particular, while various inspections for construction processes are important for quality control of buildings and structures, inspectors need to visit sites and take numerous photographs in prescribed ways and visually inspect such sites in person. With products based on KOTOWARI that utilizes commercially available 360-degree cameras and enables remote inspection of construction sites, the work volume involved in recording evidence of construction work can be significantly reduced.

Construction companies and companies that develop software for the construction industry are using technology to develop products to improve productivity, and potential competitors to KOTOWARI are software and hardware used to conduct “rebar arrangement inspections,” which check whether the rebar in reinforced concrete structures are arranged as per their design. Shimizu Corporation, a major construction company, has collaborated with Sharp, a domestic electronics manufacturer, to develop a dedicated tablet device for rebar arrangement inspection. By photographing the condition of the rebar with multiple cameras, it is possible to determine whether the number and spacing of such rebars are as per their design.

Additionally, 21 construction companies have formed a consortium and, in collaboration with Prime Life Technologies, developed a dedicated device equipped with a triple-lens camera, and have launched a service called “CONSAIT Eye.”

We are also developing a rebar arrangement inspection system that utilizes KOTOWARI. A major benefit of this system is that it reduces the labor required for taking photographs on-site by about 90% compared to current methods, thereby reducing the workload on site. We continue to work with collaborative partners with the aim of obtaining approval from testing organizations that will actually perform tests on behalf of the government and from relevant government ministries and agencies. We are also continuing research and development with the aim of expanding the scope of on-site testing, striving to maintain its competitiveness.

Collaboration and Commercialization

We are working on collaboration and joint development of KOTOWARI, mainly with major domestic construction companies, including Kajima Corporation and INFRONEER Holdings Co., Ltd. In particular, we are developing a system that can reduce the labor required for creating photographs for the purpose of quality control in the construction process and are working to deploy this system at each of these companies.

For our fiscal years ended April 30, 2023 and 2024, we generated revenues of ¥122,704 thousand and ¥166,427 thousand ($1,056 thousand), respectively from the KOTOWARI business.  

Supply and Manufacturing

KOTOWARI is a solution service and no manufacturing is necessary.

Intellectual Property

We have filed 9 patent applications in Japan for technologies related to KOTOWARI from the development stage. In addition, we have filed a Patent Cooperation Treaty (“PCT”) application based on the Japanese patent application. We have acquired trademark rights for the product brand in Japan and expect to apply in the future for trademark rights in other major countries where we plan to sell the product.

Intellectual Property

To establish and protect our proprietary rights, we rely on a combination of patents, trademarks, confidentiality policies and procedures, non-disclosure agreements with third parties, employee non-disclosure agreements, and other contractual and implicit rights worldwide.

As of April 30, 2024, our utility patent portfolio included 239 patent applications filed. Among these applications, 40 of them have been granted in Japan and foreign jurisdictions, 15 are pending examination by the applicable patent office, and 40 have been filed, but we have not requested the applicable patent office to commence examination. The third situation applies only in Japan and certain other non-U.S. countries, where the patent authority will not commence examination without a request from us. To clarify the distinctions, we categorize the status of our utility patent applications as “Filed,” “Pending,” and “Granted” in the tables provided below.

Additionally, our design patent portfolio included 32 applications filed, with 22 of them granted in Japan and foreign jurisdictions.

Generally, “utility patents” protect any new technical solution proposed for the shape, structure, or their combination of a product, suitable for practical use. On the other hand, “design patents,” concerning an overall or partial product, protect any new design of the shape, pattern, or their combination, or the combination of color with shape or pattern, demonstrating an aesthetic appeal and fit for industrial application. For a utility patent, the key requirement is “un-obviousness,” meaning the technical feature must be difficult to develop in view of existing prior arts. For a design patent, the key requirement is “creative in-ease,” indicating that the design feature must be challenging to create in comparison to prior arts.

Applying for a utility patent can involve more steps than applying for a design patent. For example, in Japan and some other non-U.S. countries, we are required to file a request for examination with the patent office to commence examination for utility patents, while no such requirement exists for design patents. As a result, we only distinguish the status of design patents as either “Granted” or “Pending” in the tables provided below.

The term of individual patents depends on the legal term of the patents in the countries where they are obtained. In most countries where we file, the patent term for a utility patent is 20 years from the earliest date of filing a non-provisional patent application. On the other hand, a design patent typically has a term of 15 years.

For more detailed information about our material patents, please see the tables below:

SonoRepro

Granted Patents

Pending Patents

kikippa

Granted Patents

Pending Patents

VUEVO

Granted Patents

Pending Patents

iwasemi

Granted Patents

Pending Patents

Granted Industrial Design Patent

KOTOWARI

Granted Patents

In addition, as of April 30, 2024, we had 53 registered trademarks and from 74 trademark applications. “Pixie Dust Technologies” is registered in Japan, the United States, Korea, and China. We further have licensing arrangements with collaborators as discussed above under “Our Products and Product Candidates.”

To protect our intellectual property and ensure its competitiveness, we have an intellectual property management division. The division has two patent attorneys who work on discovering invention and intellectual property protections on a regular basis. When we collaborate with other companies in research and development projects, we have, and intend to continue to, enter into agreements to provide that (i) any intellectual property arising from joint research and development will be shared between the parties and (ii) any intellectual property arising from one party’s sole activity will be owned by that party, in order to ensure our sole ownership of any intellectual property developed by us on our own, except with pharmaceutical companies with which all intellectual property developed will generally be jointly owned between the parties as discussed above under “Our Products and Product Candidates.” As some of our intellectual properties are jointly developed with and co-owned by third parties, in those cases we may be required by our collaboration agreements to obtain the third parties’ consent to use or license the co-owned intellectual properties as desired by us. If we cannot obtain the third parties’ consent in a timely manner or at a cost acceptable to us, our ability to commercialize those intellectual properties may be restricted. See “Risk Factors — Our obligations under our existing or future product development and commercialization collaboration agreements may limit our ability to exploit intellectual property rights that are important to our business. Further, if we fail to comply with our obligations under our existing or future collaboration agreements, or otherwise experience disruptions to our business relationships with our prior, current, or future collaborators, we could lose intellectual property rights that are important to our business.”

We are also often engaged in research and development projects with academic institutions and in particular, University of Tsukuba and Tohoku University. Different from collaborating with companies, we have entered into agreements with a part of academic institutions whereby we would retain sole ownership of any intellectual property arising from the collaboration, and in consideration for the academic institution’s contributions, we have granted warrants to such academic institution. We have and may continue to compensate the academic institutions we work with for their contributions in cash or in our securities, where appropriate.

The success of our business strategy depends on our continued ability to use our existing intellectual property in order to develop new solutions, increase brand awareness and develop our branded services. If our efforts to protect our intellectual property are not adequate, or if any third-party misappropriates or infringes on our intellectual property, whether in print, on the Internet or through other media, the value of our brands may be harmed, which could have a material adverse effect on our business, including the failure of our brands and branded services to achieve and maintain market acceptance. There can be no assurance that all of the steps we have taken to protect our intellectual property in Japan or outside Japan in relevant foreign countries will be adequate. In addition, in light of our intention to expand internationally, the laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of Japan. If any of our patents, trademarks, trade secrets or other intellectual property are infringed, our business, financial condition and results of operations could be materially adversely affected.

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

Employees

As of June 30, 2024, the Company had 102 employees including 76 permanent employees, 4 fixed-term employees, 7 fixed-term part-time employees, 11 contractors and 4 dispatched workers. The Company has never had a work stoppage and none of its employees are represented by any labor organization.

Loan Agreement

On May 31, 2024, the Company reached an agreement with The Shoko Chukin Bank, Ltd. (the “Lender”) to obtain new debt financing (the “New Debt”) in the amount of one billion yen. The maturity date of New Debt is September 30, 2025. The foregoing description of the New Debt is subject to and qualified in its entirety by reference to the full text of the New Debt, a copy of which is attached hereto at Exhibit 4.1, and the terms of which are incorporated by reference. The Company expects to obtain additional debt financing from other financial institutions in Japan. Once the Company has reached any agreements with such financial institutions, the Company will provide additional information to its stockholders as part of its ongoing public company reporting obligations.

Legal Proceedings

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

REGULATION OF OUR INDUSTRY

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

In Japan, the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors (shitauke hou) is the law regulating certain level of large companies subcontracting their jobs to protect subcontractors from exploitation. The applicability is determined based on the three prongs: (I) type of subcontracted job; (II) registered capital of a subcontracting company; and (III) registered capital of a subcontractor.

With regard to (I) type of subcontracted job, the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors provides four major categories: (a) manufacturing of goods; (b) repairing of goods; (c) creation of “information-based products”; or (d) provision of services that a subcontracting company is primarily responsible for. If a company subcontract any of the four types of jobs, then we need to go on to the next prong.

In the second prong, a subcontracting company needs to review whether its registered capital exceeds a threshold established by the law. The important thresholds are JPY 300 million, JPY 50 million, and JPY 10 million, and an applicable threshold differs from what the job is subcontracted. If a company subcontracts (a) manufacturing of goods, (b) repairing of goods, (c) creation of computer programs in the category of information-based products, or (d) provision of transportation service/warehousing/information processing services, then thresholds of JPY 300 million and JPY 10 million will apply. If a company subcontracts any creation of information-based products or provision of services other than the foregoing, then the thresholds of JPY 50 million and JPY 10 million will apply.

Lastly, the third prong will look at whether subcontractor’s registered capital is under the threshold applicable in the second prong. For example, in the case where the threshold of JPY 300 million applies and the second prong is satisfied, if the subcontractor’s registered paid-in capital does not exceed JPY 300 million, then the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors will apply to the subcontracting company, which will result in a number of duties being imposed.

If the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors applies, a subcontracting company will be obligated to obey various duties. Among others, obligations include: (i) duty to provide a form stating terms and conditions of order, such as the amount of subcontract fees; (ii) duty to prepare and retain a form; (iii) duty to specify a payment due, which must not exceed 60 days from receipt of deliverable; (iv) prohibition of unreasonable refusal of deliverable; (v) prohibition of unreasonable delay in subcontract fees; (vi) prohibition of return of deliverable; and (vii) prohibition of unreasonable request of rework.