As filed with the U.S. Securities and Exchange
Commission on September 26, 2024.
Registration No. 377-07446
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BloomZ Inc.
(Exact name of registrant as specified in its charter)
Cayman Islands |
|
7819 |
|
Not Applicable |
(State or other jurisdiction of
incorporation or organization) |
|
(Primary Standard Industrial
Classification Code Number) |
|
(I.R.S. Employer
Identification Number) |
Toyo Recording 1F, 4-5-19 Akasaka
Minato-ku, Tokyo 107-0052
Japan
+81 050-3138-4984
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Cogency Global Inc.
122 East 42nd Street, 18th Floor
New York, NY 10168
Telephone: (800) 221-0102
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Ying
Li, Esq.
Lisa Forcht, Esq.
Hunter Taubman Fischer & Li LLC
950
Third Avenue, 19th Floor
New York, NY 10022
212-530-2206
Approximate date of commencement of proposed
sale to the public: Promptly after the effective date of this registration statement.
If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box. ☒
If this Form is filed to register additional securities
for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering ☐
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering ☐
Indicate by check mark whether the registrant
is an emerging growth company as defined in Rule 405 of the Securities Act of 1933
Emerging growth company ☒
If an emerging growth company that prepares its
financial statements in accordance with 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 7(a)(2)(B) of the Securities
Act ☐
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or
until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such
Section 8(a), may determine.
The information in this
preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with
the United States Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek
an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT
TO COMPLETION |
|
PRELIMINARY PROSPECTUS DATED SEPTEMBER
26, 2024 |
8,244,800 Ordinary Shares
This prospectus relates to the offer and resale
by the selling shareholders identified in this prospectus (each, a “Selling Shareholder” and, collectively, the “Selling
Shareholders”) of an aggregate of 8,244,800 ordinary shares of BloomZ Inc. (the “Company,” “we,” “us”
or “our”), par value $0.00000002 (the “Resale Shares”).
The Resale Shares will be resold from time to
time by the Selling Shareholders listed in the section titled “Selling Shareholders” beginning on page 32.
The Selling Shareholders, or their respective
transferees, pledgees, donees or other successors-in-interest, may sell the Resale Shares through public or private transactions at prevailing
market prices, at prices related to prevailing market prices or at privately negotiated prices. The Selling Shareholders may sell any,
all or none of the securities offered by this prospectus, and we do not know when or in what amount the Selling Shareholders may sell
their Resale Shares hereunder following the effective date of this registration statement. We provide more information about how a Selling
Shareholders may sell their Resale Shares in the section titled “Plan of Distribution” on page 93.
We are registering the Resale Shares on behalf
of the Selling Shareholders, to be offered and sold by them from time to time. We will not receive any proceeds from the sale of the Resale
Shares by the Selling Shareholders in the offering described in this prospectus. We have agreed to bear all of the expenses incurred in
connection with the registration of the Resale Shares. The Selling Shareholders will pay or assume the obligation to pay any discounts,
commissions, fees of underwriters, selling brokers or dealer managers and similar expenses, if any, incurred for the sale of the Resale
Shares.
Our ordinary shares, par value $0.00000002 per
share (the “Ordinary Shares”), are currently listed on the Nasdaq Capital Market under the symbol “BLMZ.”
We are an “emerging growth company”
as defined under applicable U.S. securities laws and are eligible for reduced public company reporting requirements. Please
read the disclosures beginning on page 7 of this prospectus for more information.
Investing in our Ordinary Shares, including
the Resale Shares, involves a high degree of risk, including the risk of losing your entire investment. See “Risk Factors”
beginning on page 10 to read about factors you should consider before buying the Resale Shares.
Neither the U.S. Securities and Exchange
Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is ,
2024
TABLE OF CONTENTS
About this Prospectus
This prospectus describes the general manner in
which the Selling Shareholders may offer from time to time 8,244,800 Ordinary Shares that comprise the Resale Shares. You should rely
only on the information contained in this prospectus and the related exhibits, any prospectus supplement or amendment thereto and the
documents incorporated by reference, or to which we have referred you, before making your investment decision. Neither we nor the Selling
Shareholders have authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information,
you should not rely on it. This prospectus, any prospectus supplement or amendments thereto do not constitute an offer to sell, or a solicitation
of an offer to purchase, the Resale Shares offered by this prospectus, any prospectus supplement or amendments thereto in any jurisdiction
to or from any person to whom or from whom it is unlawful to make such offer or solicitation of an offer in such jurisdiction. You should
not assume that the information contained in this prospectus, any prospectus supplement or amendments thereto, as well as information
we have previously filed with the U.S. Securities and Exchange Commission (the “SEC”), is accurate as of any date other than
the date on the front cover of the applicable document. For the avoidance of doubt, no offer or invitation to subscribe for Ordinary Shares
is made to the public in the Cayman Islands. The information contained in this prospectus is current only as of the date on the front
cover of the prospectus. Our business, financial condition, results of operations, and prospects may have changed since that date.
If necessary, the specific manner in which the
Resale Shares may be offered and sold will be described in a supplement to this prospectus, which supplement may also add, update or change
any of the information contained in this prospectus. To the extent there is a conflict between the information contained in this prospectus
and any prospectus supplement, you should rely on the information in such prospectus supplement, provided that if any statement in one
of these documents is inconsistent with a statement in another document having a later date—for example, a document incorporated
by reference in this prospectus or any prospectus supplement—the statement in the document having the later date modifies or supersedes
the earlier statement.
Neither the delivery of this prospectus nor any
distribution of Resale Shares pursuant to this prospectus shall, under any circumstances, create any implication that there has been no
change in the information set forth or incorporated by reference into this prospectus or in our affairs since the date of this prospectus.
Our business, financial condition, results of operations and prospects may have changed since such date.
Our functional currency and reporting currency
are the Japanese yen (“JPY” or “¥”), the legal currency of Japan. The terms “dollar” or “$”
refer to U.S. dollars, the legal currency of the United States. Convenience translations included in this prospectus of Japanese
yen into U.S. dollars have been made at the exchange rates of ¥151.22=$1.00, which was the foreign exchange rate on March 29,
2024, as reported by the Board of Governors of the Federal Reserve System (the “U.S. Federal Reserve”) in its weekly
release on April 1, 2024. Historical and current exchange rate information may be found at https://www.federalreserve.gov/releases/h10/.
Conventions that Apply to this Prospectus
Unless otherwise indicated or the context requires
otherwise, references in this prospectus to:
| ● | “BloomZ Cayman” are to BloomZ Inc., an exempted
company limited by shares incorporated under the laws of the Cayman Islands; |
| ● | “BloomZ Japan” are to Kabushiki Kaisha BloomZ,
a limited liability company organized under the laws of Japan and a wholly owned subsidiary of BloomZ Cayman; |
| ● | “IPO” are to the Company’s initial public
offering of 1,250,000 Ordinary Shares completed on July 25, 2024; |
| ● | “Nasdaq” are to the Nasdaq Stock Market LLC; |
| ● | “Ordinary Shares” are to ordinary shares of BloomZ
Cayman, par value $0.00000002 per share; |
| ● | “Production committee” are to a committee responsible
for the production of the animation/video game, formed by an animation/video game-producing company, BloomZ Japan, and other investors; |
| ● | “SEC” are to the U.S. Securities and Exchange
Commission; and |
| ● | “we,” “us,” “our,” “our
Company,” or the “Company” are to one or more of BloomZ Cayman and its operating subsidiary, BloomZ Japan, as the case
may be. |
On December 11, 2023, the Company’s shareholders
approved a sub-division of the Company’s authorized and issued Ordinary Shares at a ratio of 1:5,000, which became effective on
December 11, 2023. As a result of the sub-division, the authorized share capital of the Company became US$50,000 divided into 2,500,000,000,000
shares of a par value of US$0.00000002 each, of which 11,185,000 Ordinary Shares were issued and outstanding after the sub-division. Unless
otherwise indicated, all share amounts and per share amounts in this prospectus have been presented to give effect to the 1-for-5,000
sub-division of our Ordinary Shares.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety
by, and should be read in conjunction with, the more detailed information and financial statements included elsewhere in this prospectus.
In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our Ordinary Shares,
discussed under “Risk Factors,” before deciding whether to buy our Ordinary Shares.
Overview
We conduct all of our operations through our subsidiary
in Japan, BloomZ Japan. BloomZ Japan is an audio producing and voice actor managing company, which aims to promote voice acting to the
world stage, as an essential component of animation and an aspect of Japanese culture. Since our inception in 2017, we have been devoting
ourselves to providing audio production services as well as voice acting educational services to Japanese youth who wish to become professional
voice actors.
We are currently engaged in three lines of business:
(i) the audio production business; (ii) the VTuber management business; and (iii) the voice actor workshop business.
Audio Production Business
Since our inception in 2017, we have provided
comprehensive audio production services for animation and video games. The procedure of comprehensive audio production begins once the
animation/video game-producing company initially completes the visual works of the animation/video game and generally consists of dubbing,
background music (“BGM”) producing, and mixing.
We have developed certain cooperating models with
animation/video game-producing companies, under which we receive the audio production fees from the production committee/video game-producing
companies for our comprehensive audio production services. In particular, we can choose to invest in the whole animation-producing project
under the cooperating model for animation production and would be entitled to share the profit based on our investment ratio after the
animations are sold.
The fees paid by the production committee/video
game-producing companies for our comprehensive audio production services are the primary income of our audio production business, and
they amounted to approximately JPY54,650 thousand, JPY63,835 thousand and JPY120,121 thousand during the six months ended March 31, 2024
and the fiscal years ended September 30, 2023 and 2022, which accounted for approximately 44.7%, 49.8% and 83.2% of our total
revenue for those periods, respectively.
VTuber Management Business
We commenced our VTuber management business in
December 2021. A “VTuber” is a virtual character (animated character) we create by utilizing motion-capture technology
for our streamers to provide their voice to stream real-time videos featuring human facial expressions and gestures, which can also communicate
and interact with audiences through the chat function by embedding in live-streaming platforms.
“Hoshimeguri Gakuen” is a VTuber group
consisting of 16 of the affiliated VTubers, as of the date of this prospectus, we have managed and operated since its debut in December 2021.
Our affiliated VTubers mainly focus on real-time live streaming on online platforms such as YouTube, a video distribution platform operated
by Google LLC; FANBOX, a sharing platform that allows creators to present their photos, music, films and other forms of artwork operated
by Pixiv Inc.; and BOOTH, an online marketplace for creators sell their artwork operated by Pixiv Inc., such as chatting, singing, and
game live streaming. Besides interactive real-time live streaming, we also sell goods and digital merchandise featuring the virtual characters
of our affiliated VTubers on FANBOX and BOOTH. In addition, our affiliated VTubers also participate and perform in online live streaming
events held by other companies, such as VirtualThruLens, a VTuber online live streaming event held by Avex Entertainment Inc.
Most of the revenue of the VTuber management
business was from the profits distributed by the online platforms and the performing fees distributed by the host companies of live
streaming events. For the six months ended March 31, 2024 and the fiscal years ended September 30, 2023 and 2022, the revenue
generated from the VTuber management business was JPY59,083 thousand, JPY57,442 thousand and JPY18,630 thousand, which accounted for
approximately 48.3%, 44.8% and 12.8% of our total revenue for those periods, respectively. Among the sources of revenue
generated from the VTuber management business during the six months ended March 31, 2024, 24.6%, 51.0%, 1.4%, and 23.0% came from
YouTube, BOOTH, FANBOX, and others, respectively. During the fiscal year ended September 30, 2023, 29.0%, 42.5%, 2.1%, and 26.3%
came from YouTube, BOOTH, FANBOX, and others, respectively. During the fiscal year ended September 30, 2022, 54.0%, 26.4%,
6.6%, and 13% came from YouTube, BOOTH, FANBOX, and others, respectively.
Voice Actor Workshop Business
We have provided professional and practical voice
acting educational services through our voice actor workshops since our inception in 2017. In cooperation with active professional voice
actors, we regularly host physical voice actor workshops four times a month in the studios leased by CyberStep, Inc., one of our principal
shareholders (“CyberStep”), in Tokyo, Japan. CyberStep permits such use at no charge.
To cultivate young voice actors and their abilities
to work as a professional, we provide our members basic vocalization-related lessons and combine actual animation and video game scripts
into the training sections to equip them with practical skills and mannerisms in dubbing and audio production. As of March 31, 2024, we
had a total of 70 registered members who had participated in our workshops.
We generally charge every registered member a
membership fee of JPY22 thousand monthly for four lessons in one month. Membership fees from the registered members provide the primary
income of our voice actor workshop business, and they amounted to JPY2,040 thousand, JPY5,054 thousand and JPY5,805 thousand during the
six months ended March 31, 2024 and the fiscal years ended September 30, 2023 and 2022, which accounted for approximately 1.7%,
3.9% and 4.0% of our total revenue for those periods, respectively.
Competitive Strengths
We believe that the following competitive strengths
have contributed to our success and differentiated us from our competitors:
| ● | visionary and experienced management team with strong technical
and operational expertise; |
| ● | innovative vision and operating philosophy; |
| ● | close connections with a large variety of talented voice
actors and VTubers; and |
| ● | strong support from a large video game-producing company. |
Growth Strategies
We intend to develop our business and strengthen
brand loyalty by implementing the following strategies:
| ● | continue to focus on maintaining and improving the quality
and quantity of our audio production services; |
| ● | maintain and further develop business relationships with
our existing and potential clients in the animation and video game industries; |
| ● | continue to invest in securing talented and competent voice
actors and VTubers; |
| ● | expand into the fields of planning and producing our own
animation and TV programs; and |
| ● | invest in animation production committees to acquire rights
outside of comprehensive audio production. |
Summary of Risk Factors
Investing in our Ordinary Shares, including the
Resale Shares, involves significant risks. You should carefully consider all of the information in this prospectus before making an investment
in our Ordinary Shares. Below please find a summary of the principal risks we face, organized under relevant headings. These risks are
discussed more fully in the section titled “Risk Factors.”
Risks Related to Our Business and Industry
Risks and uncertainties related to our business
include, but are not limited to, the following:
| ● | we
have had significant accumulated deficits as of March 31, 2024, September 30, 2023 and 2022, which raises substantial doubt about our
ability to continue as a going concern. Our ability to continue as a going concern depends on our being able to attract and retain revenue
generating customers, acquire new customer contracts, and secure additional financing (see page 10
of this prospectus); |
| ● | we
operate in highly competitive markets and our failure to compete effectively could adversely affect our results of operations (see page
10 of this prospectus); |
| ● | if
we are unable to retain the existing clients for our audio production and voice actor workshop businesses, our results of operations
will be materially and adversely affected (see page 11 of
this prospectus); |
| ● | if
we fail to retain our existing fans or further grow our fan base, the operation, profitability, and prospects of our VTuber management
business may be materially and adversely affected (see page 11 of
this prospectus); |
| ● | we
may fail to cultivate, attract, and retain talented and competent voice actors and VTubers, which may materially and negatively affect
our audio production and VTuber management businesses and operations (see page 12 of
this prospectus); |
| ● | contractual
disputes with our collaborating voice actors and affiliated VTubers may harm our reputation and subject us to contractual liabilities,
and may be costly or time-consuming to resolve (see page 12 of
this prospectus); |
| ● | if
we are no longer able to benefit from CyberStep’s support, our business may be adversely affected (see page 12
of this prospectus); |
| ● | our
limited operating history in rapidly evolving industries makes it difficult to accurately forecast our future operating results and evaluate
our business prospects (see page 13 of this prospectus); |
| ● | our
financial condition, results of operations, and cash flows have been adversely affected by the COVID-19 pandemic (see page 13
of this prospectus); |
| ● | our
businesses are all operated in Japan, and our current business and future growth could be materially and adversely affected if we experience
a decline in clients in Japan (see page 14 of
this prospectus); |
| ● | a
downturn in the economy of the markets in which our audio production services, VTuber live streaming services and voice acting educational
services are provided may affect clients’ and fans’ willingness to spend on extracurricular education and entertainment services,
which could delay our growth strategy and directly or indirectly have a material adverse effect on our business, financial condition,
profitability, and cash flows (see page 14 of
this prospectus); |
| ● | our
management has a limited history managing rapid expansion. If we cannot effectively and efficiently manage our growth strategy, our results
of operations or profitability could be materially and adversely affected (see page 15 of
this prospectus); |
| ● | any
negative publicity about us, our business, shareholders, affiliates, directors, officers, and other employees may materially and adversely
affect our reputation and business (see page 15 of
this prospectus); |
| ● | if
we are unable to provide a high-quality customer experience, our business, reputation, financial condition, and results of operations
may be materially and adversely affected (see page 16 of
this prospectus); |
| ● | our
business depends on the continued success of our brand, and if we fail to maintain and enhance the recognition of our brand, we may face
difficulty increasing our network of clients, fans, members, and collaborating voice actors and affiliated VTubers, and our reputation
and operating results may be harmed (see page 16 of
this prospectus); |
| ● | unauthorized
use of our intellectual property by third parties and expenses incurred in protecting our intellectual property rights may adversely
affect our business, reputation, and competitive edge (see page 17 of
this prospectus); |
| ● | third
parties may claim that we infringe on their proprietary intellectual property rights, which could cause us to incur significant legal
expenses and prevent us from promoting our services (see page 17 of
this prospectus); |
| ● | our
current insurance policies may not provide adequate levels of coverage against all claims and we may incur losses that are not covered
by our insurance (see page 18 of this prospectus); |
| ● | data
security breaches and attempts thereof could negatively affect our reputation, credibility, and business (see page 18
of this prospectus); |
| ● | our
ability to operate our VTuber management business depends on the development and maintenance of live streaming platforms and the Internet
infrastructure operated by third parties (see page 18 of
this prospectus); |
| ● | we
may need additional capital in the future to pursue our business objectives (see page 18 of
this prospectus); |
| ● | if
we fail to attract, recruit, or retain our key personnel, including our executive officers, senior management, and key employees, our
ongoing operations and growth could be affected (see page 19 of
this prospectus); and |
| ● | we
may from time to time be subject to claims, controversies, lawsuits, and legal proceedings, which could adversely affect our business,
prospects, results of operations, and financial condition (see page 19 of
this prospectus). |
Risks Relating to this Offering and the Trading
Market
In addition to the risks described above, we are
subject to general risks and uncertainties relating to this offering and the trading market, including, but not limited to, the following:
| ● | the market price of our Ordinary Shares may be volatile or
may decline, regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering
price (see page 19 of this prospectus); |
| ● | we
may experience extreme stock price volatility unrelated to our actual or expected operating performance, financial condition, or prospects,
making it difficult for prospective investors to assess the rapidly changing value of our Ordinary Shares (see page 20
of this prospectus); |
| ● | if
we fail to implement and maintain an effective system of internal controls or fail to remediate the material weaknesses in our internal
control over financial reporting that have been identified, we may fail to meet our reporting obligations or be unable to accurately
report our results of operations or prevent fraud, and investor confidence and the market price of our Ordinary Shares may be materially
and adversely affected (see page 21 of
this prospectus); |
| ● | as a public company, we incur substantially
increased costs as compared to when we were a private company (see page 21 of
this prospectus); |
| ● | the
sale or availability for sale of substantial amounts of our Ordinary Shares could adversely affect their market price (see page 22
of this prospectus); |
| ● | we
do not intend to pay dividends for the foreseeable future (see page 22 of
this prospectus); |
| ● | if
securities or industry analysts do not publish research or reports about our business, or if they publish a negative report regarding
our Ordinary Shares, the price of our Ordinary Shares and trading volume could decline (see page 23
of this prospectus); |
| ● | if
we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act
applicable to U.S. domestic issuers, and we would incur significant additional legal, accounting and other expenses that we would
not incur as a foreign private issuer (see page 23 of
this prospectus); |
| ● | because
we are a foreign private issuer and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, you
will have less protection than you would have if we were a domestic issuer (see page 23 of
this prospectus); |
| ● | if
we cannot continue to satisfy the listing requirements and other rules of the Nasdaq Capital Market, our securities may be delisted,
which could negatively impact the price of our securities and your ability to sell them (see page 24
of this prospectus); |
| ● | anti-takeover provisions in our articles of
association may discourage, delay, or prevent a change in control (see page 24 of this prospectus); |
| ● | our
board of directors may decline to register transfers of Ordinary Shares in certain circumstances (see page 24
of this prospectus); |
| ● | we
are an “emerging growth company” within the meaning of the Securities Act, and if we take advantage of certain exemptions
from disclosure requirements available to emerging growth companies, this will make it more difficult to compare our performance with
other public companies (see page 25 of
this prospectus); |
| ● | because
we are an “emerging growth company,” we may not be subject to requirements that other public companies are subject to, which
could affect investor confidence in us and our Ordinary Shares (see page 25 of
this prospectus); |
| ● | you
may have difficulty enforcing judgments against us (see page 25 of
this prospectus); |
| ● | the
laws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations
incorporated in the United States (see page 26 of
this prospectus); |
| ● | you
may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders (see page
26 of this prospectus); |
| ● | if
we are classified as a passive foreign investment company, United States taxpayers who own our Ordinary Shares may have adverse
United States federal income tax consequences (see page 26 of
this prospectus); and |
| ● | our
shareholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption
of their shares (see page 26 of this prospectus). |
Corporate Information
Our principal executive offices are located at
Toyo Recording 1F, 4-5-19 Akasaka, Minato-ku, Tokyo 107-0052, Japan, and our phone number is +81 050-3138-4984. Our registered
office in the Cayman Islands is located at the offices of Conyers Trust Company (Cayman) Limited, whose physical address is Cricket Square,
Hutchins Drive, P.O. Box 2681 Grand Cayman, KY1-1111, Cayman Islands. We maintain a corporate website at https://www.bloomz-inc.com.
The information contained in, or accessible from, our website or any other website does not constitute a part of this prospectus. Our
agent for service of process in the United States is Cogency Global Inc., located at 122 East 42nd Street, 18th
Floor, New York, NY 10168.
Corporate Structure
We are a Cayman Islands exempted company limited
by shares incorporated on April 14, 2023. Exempted companies are Cayman Island companies conducting business mainly outside the Cayman
Islands and, as such, are exempted from complying with certain provisions of the Companies Act (as amended) of the Cayman Islands (the
“Cayman Companies Act”).
The following diagram illustrates our corporate
structure as of the date of this prospectus. For more details on our corporate history, please refer to “Corporate History and Structure.”
Impact of the COVID-19 Pandemic on Our Operations
and Financial Performance
While our business was not materially affected
by the COVID-19 pandemic during the six months ended March 31, 2024 and the fiscal year ended September 30, 2023, it was substantially
and adversely affected during the fiscal years ended September 30, 2022 and 2021. The global outbreak of COVID-19 adversely
impacted Japan between the beginning of 2020 and the first half of 2023. During such period, the Japanese government issued several Declarations
of Emergency, requesting the closing of non-essential activities and businesses across the country as a preemptive safeguard against the
spread of COVID-19. This situation adversely impacted businesses across the country, particularly in the education and entertainment fields
in which we operate.
Audio Production
During the fiscal years ended September 30,
2022 and 2021, many of the orders for audio production services we had received were postponed, due to the cessation of the entirety of
animation production projects in compliance with the government COVID-19 policies. In addition, the progress of a few audio productions
was delayed, as some of our collaborating voice actors were infected with COVID-19. Our audio production business was not materially affected
by the COVID-19 pandemic during the six months ended March 31, 2024 and the fiscal year ended September 30, 2023, because fewer orders
for audio production services were postponed, as fewer animation production projects were deferred or canceled, as compared to the fiscal
years ended September 30, 2022 and 2021. However, the revenue generated from the audio production business during the fiscal year ended
September 30, 2023 nevertheless decreased by 46.9% compared to the fiscal year ended September 30, 2022, due to a reason unrelated to
the COVID-19 pandemic. The decrease was mainly because we were devoting ourselves to several large projects that are expected to take
a few years to complete during the fiscal year ended September 30, 2023, and thus, fewer revenue-generating projects were completed during
such period compared to the fiscal year ended September 30, 2022. The revenue generated from the audio production business during the
six months ended March 31, 2024 increased compared to the same period in the prior year.
VTuber Management
COVID-19 significantly affected the streaming
schedule due to infections afflicting our affiliated VTubers during fiscal year 2022. In addition, offline events featuring our affiliated
VTubers we planned to hold and expected to significantly contribute to the revenue were canceled in fiscal year 2022, either in compliance
with the government’s COVID-19 policies or due to the infection of our affiliated VTubers. Since fewer of our affiliated VTubers
were infected with COVID-19 and most of our infected affiliated VTubers had recovered from COVID-19, the streaming schedule during the
six months ended March 31, 2024 and the fiscal year 2023 was not as significantly affected as it was during the fiscal year 2022. Consequently,
during the six months ended March 31, 2024 and the fiscal year ended September 30, 2023, the number of VTubers available for live streaming
increased, which led to higher advertisement revenue, and thus, the revenue generated from the VTuber management business significantly
increased.
Voice Actor Workshops
Our physical voice actor workshops were frequently
canceled, in compliance with the government policies during the fiscal years ended September 30, 2022 and 2021, due to the COVID-19 pandemic.
While our voice actor workshop business was not materially affected by the COVID-19 pandemic during the six months ended March 31, 2024
and the fiscal year ended September 30, 2023, as no physical voice actor workshops were canceled during these periods, the revenue generated
from the voice actor workshop business decreased compared to the same period in the prior year. The decrease is primarily because the
Company focused on the operation of the VTuber management business rather than the recruitment of members for the voice actor workshops
during the six months ended March 31, 2024 and the fiscal year ended September 30, 2023.
The extent of any future impact of the COVID-19
pandemic on our business is still highly uncertain and cannot be predicted as of the date of this prospectus. Any potential impact to
our operating results will depend, to a large extent, on future developments and new information that may emerge regarding the duration
and severity of the COVID-19 pandemic and the actions taken by government authorities to contain the spread of the COVID-19 pandemic,
almost all of which are beyond our control.
See “Risk Factors — Risks
Related to Our Business and Industry — Our financial condition, results of operations, and cash flows have been adversely
affected by the COVID-19 pandemic” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — COVID-19
Pandemic Affecting Our Results of Operations.”
Implications of Our Being an “Emerging
Growth Company”
As a company with less than $1.235 billion
in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business
Startups Act of 2012, or the “JOBS Act.” An “emerging growth company” may take advantage of reduced
reporting requirements that are otherwise applicable to larger public companies. In particular, as an emerging growth company, we:
| ● | may present only two years of audited financial statements
and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations; |
| ● | are not required to provide a detailed narrative disclosure
discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives,
which is commonly referred to as “compensation discussion and analysis”; |
| ● | are not required to obtain an attestation and report from
our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; |
| ● | are not required to obtain a non-binding advisory vote from
our shareholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on
frequency,” and “say-on-golden-parachute” votes); |
| ● | are exempt from certain executive compensation disclosure
provisions requiring a pay-for-performance graph and chief executive officer pay ratio disclosure; |
| ● | are eligible to claim longer phase-in periods for the adoption
of new or revised financial accounting standards under §107 of the JOBS Act; and |
| ● | will not be required to conduct an evaluation of our internal
control over financial reporting until our second annual report on Form 20-F following the effectiveness of our initial public offering. |
We intend to take advantage of all of these reduced
reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards
under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to
those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107
of the JOBS Act.
Under the JOBS Act, we may take advantage of
the above-described reduced reporting requirements and exemptions until we no longer meet the definition of an emerging growth
company. The JOBS Act provides that we would cease to be an “emerging growth company” at the end of the fiscal year in
which the fifth anniversary of our initial sale of common equity pursuant to a registration statement declared effective under the
Securities Act of 1933, as amended (the “Securities Act”) occurred, if we have more than $1.235 billion
in annual revenue, have more than $700 million in market value of our Ordinary Shares held by non-affiliates, or issue more
than $1 billion in principal amount of non-convertible debt over a three-year period.
Foreign Private Issuer Status
We are a “foreign private issuer”
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Nasdaq listing rules include
certain accommodations in the corporate governance requirements that allow foreign private issuers, such as us, to follow “home
country” corporate governance practices in lieu of the otherwise applicable corporate governance standards of Nasdaq. The application
of such exceptions requires that we disclose each Nasdaq corporate governance standard that we do not follow and describe the Cayman Islands
corporate governance practices we do follow in lieu of the relevant Nasdaq corporate governance standard. We follow Cayman Islands corporate
governance practices in lieu of the corporate governance requirements of Nasdaq in respect of the following:
| ● | the majority independent director requirement under Section 5605(b)(1) of
the Nasdaq listing rules; |
| ● | the requirement under Section 5605(b)(2) of Nasdaq
listing rules that the independent directors have regularly scheduled meetings at which only the independent directors are present; |
| ● | the requirement under Section 5605(d) of Nasdaq
listing rules that a compensation committee comprised solely of independent directors governed by a compensation committee charter oversee
executive compensation; |
| ● | the requirement under Section 5605(e) of Nasdaq
listing rules that director nominees be selected or recommended for selection by either a majority of the independent directors or a
nominations committee comprised solely of independent directors; |
| ● | the requirement under Section 5610 of the Nasdaq Listing
Rules that a company adopt one or more codes of conduct applicable to all directors, officers, and employees, and that such codes are
publicly available; and |
| ● | the requirement under Section 5635(d) of Nasdaq
listing rules that a listed issuer obtain stockholder approval prior to issuing or selling securities (or securities convertible into
or exercisable for common stock) that equal 20% or more of the issuer’s outstanding common stock or voting power prior to such
issuance or sale. |
Cayman Islands law does not impose a requirement
that our board of directors consist of a majority of independent directors or that such independent directors meet regularly without other
members present. Nor does Cayman Islands law require that we obtain shareholder approval prior to issuing or selling securities that equal
20% or more of our outstanding Ordinary Shares or voting power. Nor does Cayman Islands law impose specific requirements on the establishment
of a compensation committee or nominating committee or nominating process.
The Company avails itself of these exemptions.
More specifically, the Company does not have a compensation committee or a nominating and corporate governance committee. Therefore,
for as long as the Company remains a “foreign private issuer,” the Company does not have the same protections afforded to
shareholders of companies that are subject to all of these corporate governance requirements.
THE OFFERING
This
prospectus relates to the offer and resale by the Selling Shareholders of 8,244,800 Ordinary Shares that constitute the Resale Shares.
All of the Resale Shares, if and when sold, will be sold by the Selling
Shareholders. The Selling Shareholders may sell the Resale Shares, from
time to time at prevailing market prices or at privately negotiated prices.
Securities offered by the Selling Shareholders |
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8,244,800 Ordinary Shares |
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Ordinary
Shares issued and outstanding prior to completion of this Offering |
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13,429,800 Ordinary Shares |
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|
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Ordinary
Shares issued and outstanding immediately after this Offering |
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13,429,800 Ordinary Shares |
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Use of proceeds |
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The Company will not receive any of the proceeds from the sale of the Resale Shares. |
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Risk Factors |
|
Investing
in our Ordinary Shares is highly speculative and involves a high degree of risk. As an investor you should be able to bear a complete
loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section beginning
on page 10 of this prospectus. |
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Nasdaq symbol: |
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BLMZ |
RISK FACTORS
An investment in our Ordinary Shares involves
a high degree of risk. Before deciding whether to invest in our Ordinary Shares, you should consider carefully the risks described below,
together with all of the other information set forth in this prospectus, including the section titled “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. If any
of these risks actually occurs, our business, financial condition, results of operations, or cash flow could be materially and adversely
affected, which could cause the trading price of our Ordinary Shares to decline, resulting in a loss of all or part of your investment.
The risks described below and discussed in other parts of this prospectus are not the only ones that we face. Additional risks not presently
known to us or that we currently deem immaterial may also affect our business. You should only consider investing in our Ordinary Shares
if you can bear the risk of loss of your entire investment.
Risks Related to Our Business and Industry
We have had significant accumulated deficits
as of March 31, 2024, September 30, 2023 and 2022, which raises substantial doubt about our ability to continue as a going concern. Our
ability to continue as a going concern depends on our being able to attract and retain revenue generating customers, acquire new customer
contracts, and secure additional financing.
We had operating losses of ¥18,416 thousand,
¥15,796 thousand and a profit of ¥241 thousand for the six months ended March 31, 2024 and the fiscal years ended September 30,
2023 and 2022, respectively. Such operating losses resulted in accumulated deficits of ¥34,905 thousand, ¥16,489 thousand and
¥693 thousand as of March 31, 2024, September 30, 2023 and 2022, respectively. Given the preceding conditions, our auditor, TAAD LLP,
has raised substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern depends upon
our ability to attract and retain revenue generating customers, acquire new customer contracts, and secure additional financing.
While our management’s plan is to acquire
new revenue generating customer contracts and obtain additional financing through the issuance of the Company’s Ordinary Shares,
other equity or debt financings, or other means, there is no assurance that we will be successful.
If we are unable to acquire new revenue generating
customer contracts and obtain additional financing in the future, there may remain substantial doubt about our ability to continue as
a going concern, and, investors or other financing sources may be unwilling to provide funding to us on commercially reasonable terms
or at all.
Further, if we are unable to continue as a going
concern, we may have to discontinue operations and liquidate our assets and may be compelled to receive less than the value at which those
assets are carried on our audited financial statements, which would cause the shareholders to lose all or a part of their investment.
We operate in highly competitive markets
and our failure to compete effectively could adversely affect our results of operations.
The audio production and VTuber management industries
in Japan are both highly competitive and fragmented. As a relatively new and small-scale company in both industries, we face competition
directly from the large-scale companies with more resources and those with a more extended operating history and more connections to these
industries. In addition, we indirectly face competition from other large video streaming platforms, social media platforms, and other
platforms offering movies, concerts, sports games, and other recreational activities in terms of our VTuber management business. See “Business — Competition.”
Our current or future competitors may have longer operating histories, greater brand recognition, or greater financial, technical, or
marketing resources than we do. Competitors may leverage their brand recognition, experience, and resources to compete with us in a variety
of ways, including investing more heavily in developing diverse types and innovative content in their audio production business and VTuber
live streaming projects. In addition, new and enhanced technologies may increase the competition in the audio production and VTuber live
streaming markets. Increased competition may reduce our profitability, market share, customer base, and brand recognition. There can be
no assurance that we will be able to compete successfully against current or future competitors, and such competitive pressures could
have a material adverse effect on our business, financial condition, and results of operations.
If we are unable to retain the existing
clients for our audio production and voice actor workshop businesses, our results of operations will be materially and adversely affected.
The fees paid by the production committee for
our comprehensive audio production services and the profit distributed based on our investment ratio after the animations/video games
sold are the primary source of income of our audio production business. In the event our existing clients no longer place orders for our
audio production services or invite us to invest and be involved in animation/video game production projects, and we do not acquire sufficient
replacement orders to compensate, the revenue from our audio production business may be impacted, and our results of operations may be
materially and adversely affected.
Membership fees we collect from the registered
members under our workshop business provide the primary source of income of our voice actor workshop business. Since we do not enter into
any long-term contracts with our registered members, we may not be able to predict whether the registered members will continue to participate
in our workshops accurately, and the participating rates may decline or fluctuate due to factors such as the level of satisfaction with
our services and our fees and charges, as well as factors beyond our control, such as the outbreak of a pandemic, Japan’s overall
economic situation, and the rising competition from our competitors. If our existing members decide to no longer participate in our voice
actor workshops and we do not acquire replacement members in comparable numbers or otherwise grow our member base, the revenue from our
voice actor workshop business may be impacted, and our results of operations may be materially and adversely affected.
If we fail to retain our existing fans or
further grow our fan base, the operation, profitability, and prospects of our VTuber management business may be materially and adversely
affected.
The size of the fan base and the level of fan
engagement are critical to the success of our VTuber management business. Since a large portion of the revenue generated from the VTuber
management business was from the profits distributed by the online platforms, which directly hinge upon the number of the viewers of our
affiliated VTubers’ live streaming videos and how many services, such as Super Chats/Stickers/Thanks, our fans purchase, the amount
of the revenue generated by our VTuber management business significantly depends on our ability to maintain and increase the size of our
fan base and fan engagement level. If our fan base becomes smaller or our fans become less active, it is probable that our fans would
spend less on services like Super Chats/Stickers/Thanks or access the platforms less, in general. As a result, our financial condition
would suffer from the consequential decline in revenue, and our business and operating results will be materially and adversely impacted.
As of March 31, 2024, we had approximately 470,000
subscribers on our affiliated VTubers’ YouTube channels.
Our revenue generated from the VTuber management
business is highly dependent on the level of fan engagement. For example, during the six months ended March 31, 2024 and the fiscal years
ended September 30, 2023 and 2022, 24.6%, 29.0% and 54.0%, respectively, of the revenue generated from the VTuber management business
came from YouTube, and among the revenue sources we generated from YouTube during the six months ended March 31, 2024 and the fiscal years
ended September 30, 2023 and 2022, 52.2%, 68.3% and 81.5% was from Super Chats/Stickers/Thanks, respectively. This indicates our high
level of fan engagement as it reflects the high level of activeness and willingness of our fans to purchase services like Super Chats/Stickers/Thanks
to interact and engage with our affiliated VTubers during their live streaming sessions.
Maintaining and improving the current size of
our fan base and the level of our fan engagement is critical to our continued success. To maintain and improve this already large size
of our fan base and high level of fan engagement, however, we would have to ensure that we adequately and timely respond to changes in
fan preferences, cultivate, attract, and retain enough popular VTubers, and offer new features and content that may attract new fans.
There is no guarantee that we can meet all of these goals. A number of factors could negatively affect our fan retention, growth, and
engagement, including if:
| ● | technical or other problems prevent our affiliated VTubers
from streaming in a rapid and reliable manner or otherwise adversely affect the fan experience; |
| ● | our affiliated VTubers fail to provide popular and innovative
content that keeps their fans interested and eager to spend on services like Super Chats/Stickers/Thanks on a regular basis; |
| ● | our affiliated VTubers fail to keep their fans engaged over
a long period of time; |
| ● | we suffer from negative publicity or fail to maintain our
brand, or if our reputation is damaged; and/or |
| ● | we fail to address fan concerns related to privacy and communication,
safety, security, or other factors. |
We may fail to cultivate, attract, and retain
talented and competent voice actors and VTubers, which may materially and negatively affect our audio production and VTuber management
businesses and operations.
As of the date of this prospectus, we have 59
collaborating voice actors and 16 affiliated VTubers, which increased by approximately 145.8% and 128.6% from the numbers as of September 30,
2021, respectively. Our collaborating voice actors play a key role in the audio production, since their voice acting provides the personality
of their casting characters. Affiliated VTubers are the core of the live streaming ecosystem, as they are the primary source of captivating
content to attract a dynamic and highly interactive community of fans. The charisma of our collaborating voice actors and affiliated VTubers,
together with their voice acting skills, are primary contributors to secure the retention of our clients and fans. While we enter into
one-year exclusive management agreements with our collaborating voice actors and affiliated VTubers that prohibit them from voice acting
or live streaming for third parties’ projects without our prior consent, they may choose not to renew the agreements when the term
ends. Moreover, the exclusive management agreements do not prohibit departing voice actors and VTubers from immediately working with our
competitors. The departure of high-quality voice actors and VTubers may cause a quick corresponding decline in our client and fan base.
To retain high-quality voice actors and VTubers, we may have to expend more resources to provide incentives, such as compensation schemes
and comprehensive training and support to help them improve their incentives and build publicity and brand awareness. Although we strive
to improve and stabilize our operations in these respects, there is no assurance that our collaborating voice actors and affiliated VTubers
will not leave, despite our best efforts to retain them.
Contractual disputes with our collaborating
voice actors and affiliated VTubers may harm our reputation and subject us to contractual liabilities, and may be costly or time-consuming
to resolve.
We have entered into a one-year exclusive management
agreement with every collaborating voice actor and affiliated VTuber. The fixed terms of the exclusive management agreement are generally
non-negotiable, and such agreements will be automatically renewed if no party terminates one month prior to the end of the term. From
time to time, there may be contractual disputes between us and our collaborating voice actors or affiliated VTubers. Any such disputes
may be costly and time-consuming to resolve and detrimental to the quality of our audio production or the content produced by our affiliated
VTubers, causing our existing clients to end the business relationship, decrease our fan base and the level of engagement, or could otherwise
adversely affect our business, financial condition, and results of operations.
If we are no longer able to benefit from
CyberStep’s support, our business may be adversely affected.
CyberStep, one of our principal shareholders and
one of the Selling Shareholders, is a large video game-producing company. Our business has benefited from CyberStep’s permission
to access its resources and assets, including granting us the use of the studios it leases to host physical voice actor workshops and
providing access to its existing sales channels to sell and deliver merchandise featuring our collaborating voice actors and affiliated
VTubers. In addition, we also have benefited from other types of CyberStep’s support, including designing and producing novel video
games suitable for our collaborating voice actors and affiliated VTubers, to provide work opportunities for our audio production services,
and assisting us by engaging with, and securing opportunities to work for, its subsidiaries or strategic alliance counterpart in relevant
industries.
However, since we do not enter into agreements
with CyberStep for the foregoing support and have been dependent on oral arrangements and non-obligatory support from the management of
CyberStep, CyberStep may, at its own discretion, cease granting such permission or providing such support.
We cannot assure you that we will continue to
benefit from our cooperation with CyberStep and its subsidiaries in the future. To the extent we cannot maintain our cooperative relationships
with CyberStep on terms favorable to us or at all, we may need to expend resources to locate other business alliances to provide similar
resources, services and assets, and we may lose work opportunities, which would have a material and adverse effect on our business, prospects
and results of operations.
Our limited operating history in rapidly
evolving industries makes it difficult to accurately forecast our future operating results and evaluate our business prospects.
We only have a limited operating history, as we
launched our audio production and voice actor workshop business in October 2017 and our VTuber management business in December 2021.
Members of our management team have been working together for a short period of time and our operations are still in an early stage. They
may still be in the process of exploring approaches to running our Company and reaching a consensus among themselves, which may affect
the efficiency and results of our operation. Due to our limited operating history, our historical growth rate may not be indicative of
our future performance. Our future performance may be more susceptible to certain risks than a company with a longer operating history
in a different industry. Many factors could adversely affect our business and prospects and future performance, including:
| ● | our ability to maintain, expand, and further develop our
relationships with clients to meet their increasing demands; |
| ● | our ability to maintain and improve the quality and quantity
of our audio production service; |
| ● | the continued growth and development of the animation/video
game industry and the VTuber management industry; |
| ● | our ability to keep up with the technological developments
or new business models of the rapidly evolving animation/video game industry and the VTuber management industry; |
| ● | our ability to cultivate, attract, and retain talented and
competent voice actors and VTubers; |
| ● | our ability to effectively manage our growth; and |
| ● | our ability to compete effectively with our competitors in
the audio production industry and VTuber management industry. |
We may not be successful in addressing the risks
and uncertainties listed above, among others, which may materially and adversely affect our business, results of operations, financial
condition, and future prospects.
Our financial condition, results of operations,
and cash flows have been adversely affected by the COVID-19 pandemic.
The COVID-19 pandemic has spread throughout the
world and resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel
bans, intended to control the spread of the virus during calendar years 2020, 2021, and 2022. Companies also took precautions, such
as requiring employees to work remotely, imposing travel restrictions, and temporarily closing their businesses.
While our business was not materially affected
by the COVID-19 pandemic during the six months ended March 31, 2024 and the fiscal year ended September 30, 2023, it was substantially
and adversely affected during the fiscal years ended September 30, 2022 and 2021. The global outbreak of COVID-19 adversely
impacted Japan between the beginning of 2020 and the first half of 2023. During such period, the Japanese government issued several Declarations
of Emergency, requesting the closing of non-essential activities and businesses across the country as a preemptive safeguard against the
spread of COVID-19. This situation adversely impacted businesses across the country, particularly in the education and entertainment fields
in which we operate.
Audio Production
During the fiscal years ended September 30,
2022 and 2021, many of the orders for audio production services we had received were postponed, due to the cessation of the entirety of
animation production projects in compliance with the government COVID-19 policies. In addition, the progress of a few audio productions
was delayed, as some of our collaborating voice actors were infected with COVID-19. Our audio production business was not materially affected
by the COVID-19 pandemic during the six months ended March 31, 2024 and the fiscal year ended September 30, 2023, because fewer orders
for audio production services were postponed, as fewer animation production projects were deferred or canceled compared to the fiscal
years ended September 30, 2022 and 2021. However, the revenue generated from the audio production business during the fiscal year ended
September 30, 2023 nevertheless decreased by 46.9% compared to the fiscal year ended September 30, 2022, due to a reason unrelated to
the COVID-19 pandemic. The decrease was mainly because we were devoting ourselves to several large projects that are expected to take
a few years to complete during the fiscal year ended September 30, 2023, and thus, fewer revenue-generating projects were completed during
such period compared to the fiscal year ended September 30, 2022. The revenue generated from the audio production business during the
six months ended March 31, 2024 increased compared to the same period in the prior year.
VTuber Management
COVID-19 significantly affected the streaming
schedule due to infections afflicting our affiliated VTubers during fiscal year 2022. In addition, offline events featuring our affiliated
VTubers we planned to hold and expected to significantly contribute to the revenue were canceled in fiscal year 2022, either in compliance
with the government’s COVID-19 policies or due to the infection of our affiliated VTubers. Since fewer of our affiliated VTubers
were infected with COVID-19 and most of our infected affiliated VTubers had recovered from COVID-19, the streaming schedule during the
six months ended March 31, 2024 and the fiscal year 2023 was not as significantly affected as it was during the fiscal year 2022. Consequently,
during the six months ended March 31, 2024 and the fiscal year ended September 30, 2023, the number of VTubers available for live streaming
increased, which led to higher advertisement revenue, and thus, the revenue generated from the VTuber management business significantly
increased.
Voice Actor Workshops
Our physical voice actor workshops were frequently
canceled, in compliance with the government policies during the fiscal years ended September 30, 2022 and 2021, due to the COVID-19 pandemic.
While our voice actor workshop business was not materially affected by the COVID-19 pandemic during the six months ended March 31, 2024
and the fiscal year ended September 30, 2023, as no physical voice actor workshops were canceled during these periods, the revenue generated
from the voice actor workshop business decreased compared to the same period in the prior year. The decrease is primarily because the
Company focused on the operation of the VTuber management business rather than the recruitment of members for the voice actor workshops
during the six months ended March 31, 2024 and the fiscal year ended September 30, 2023.
For additional information, see section captioned
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — COVID-19 Affecting
Our Results of Operations” in this prospectus.
Our business has not been materially affected
by the COVID-19 pandemic since October 1, 2022. We continue to assess the COVID-19 pandemic, however, at this time, we cannot estimate
the full impact of the COVID-19 pandemic on our financial condition and future results of operations. The ultimate impacts of the COVID-19
pandemic and related mitigation efforts will depend on future developments, including the duration of the COVID-19 pandemic, the acceptance
and effectiveness of vaccines, the impact of COVID-19 and related containment and mitigation measures on our clients, members, collaborating
voice actors, affiliated VTubers, and employees, workforce availability, and the timing and extent to which normal economic and operating
conditions resume. To the extent that the COVID-19 pandemic adversely impacts our business, results of operations, liquidity, or financial
condition, it may also have the effect of increasing many of the other risks described in this “Risk Factors” section.
Our businesses are all operated in Japan,
and our current business and future growth could be materially and adversely affected if we experience a decline in clients in Japan.
Since our audio production business, VTuber management
business, and voice actor business are all operated in Japan, our current business and future growth could be materially and adversely
affected if we experience a decline in clients and fan engagement in Japan.
Due to the importance of the Japanese market to
our business, we are also subject to macroeconomic risks specific to Japan. See “— A downturn in the economy of the markets
in which our audio production services, VTuber live streaming services, and voice acting educational services are provided may affect
clients’ and fans’ willingness to spend on extracurricular education and entertainment services, which could directly or indirectly
delay our growth strategy and have a material adverse effect on our business, financial condition, profitability, and cash flows”
in this section.
A downturn in the economy of the markets
in which our audio production services, VTuber live streaming services, and voice acting educational services are provided may affect
clients’ and fans’ willingness to spend on extracurricular education and entertainment services, which could delay our growth
strategy and directly or indirectly have a material adverse effect on our business, financial condition, profitability, and cash flows.
A downturn in the economy of the markets in
which our audio production services, VTuber live streaming services, and voice acting educational services are provided could
adversely impact clients’ and fans’ willingness to spend on extracurricular education and entertainment services.
Factors that could affect such willingness include general business conditions, employment levels, interest rates and tax rates, the
availability of consumer credit, and consumer confidence in future economic conditions. In the event of an economic downturn,
consumer spending habits could be adversely affected and we could experience lower than expected net profits, which could force us
to delay or slow our growth strategy and directly or indirectly have a material adverse effect on our business, financial condition,
profitability, and cash flows.
In recent years, the economic indicators
in Japan have also shown mixed signs, and future growth of the Japanese economy is subject to many factors beyond our control. The current
administration of Prime Minster Fumio Kishida and the former administration of Prime Minister Yoshihide Suga and Prime Minister Shinzo
Abe have introduced policies to combat deflation and promote economic growth. In addition, the Bank of Japan introduced a plan for quantitative
and qualitative monetary easing in April 2013 and announced a negative interest rate policy in January 2016. In April 2020,
the Bank of Japan decided to further intensify monetary easing in response to the economic downturn caused by the COVID-19 pandemic. However,
the long-term impact of these policy initiatives on Japan’s economy remains uncertain. In addition, the occurrence of pandemics,
such as the COVID-19 pandemic, the occurrence of large-scale natural disasters, such as earthquakes and typhoons, as well as an increase
in the consumption tax rate, which took place in April 2014, with a further increase in October 2019, may also adversely impact
the Japanese economy, potentially impacting spending on extracurricular education and entertainment services. Any future deterioration
of the Japanese or global economy may result in a decline in consumption that would have a negative impact on demand for our services
and the prices we are able to charge for them.
Our management has a limited history managing
rapid expansion. If we cannot effectively and efficiently manage our growth strategy, our results of operations or profitability could
be materially and adversely affected.
We have been growing rapidly in recent years
(other than the fiscal year ended September 30, 2021, in which our results of operations were negatively affected by the COVID-19
pandemic), and we intend to continue to expand our business by undertaking audio production for more animation and video game projects,
planning and producing our own animation and TV programs, securing more talented and competent voice actors and VTubers, improving and
increasing the content of our affiliated VTubers’ live streaming performances, holding offline events featuring our collaborating
voice actors and affiliated VTubers, and broadening the scale of our voice actor workshops. Since this rapid expansion is a new strategy
for us and our management has a limited history managing such an expansion, we may not be able to adapt quickly to such major business
changes, compete successfully in new markets, build our brand in new areas, or generate sufficient net income from our newly expanded
business. As a result, it is difficult for us to predict our results of operations with respect to our newly expanded business and you
should not rely on our historical results of operations as an indication of our future financial performance.
This growth strategy has placed, and will continue
to place, substantial demands on our managerial, operational, technological, and other resources. Our growth strategy will also place
significant demands on us to maintain the quality of our services to ensure that our brand does not suffer as a result of any deviations,
whether actual or perceived, in the quality of our services. To accommodate our growth, we anticipate that we will need to implement a
variety of new and upgraded operational and financial systems, procedures, and controls, including the improvement of our accounting and
other internal management systems. We will also need to continue to expand, train, manage, and motivate our workforce and manage our relationships
with members, clients, and collaborating service providers. All of these endeavors involve risks, and will require substantial management
effort and significant additional expenditures. We cannot assure you that we will be able to effectively manage our growth or execute
our strategies effectively, and any failure to do so may have a material adverse effect on our results of operations and profitability.
Any negative publicity about us, our business,
shareholders, affiliates, directors, officers, and other employees may materially and adversely affect our reputation and business.
We may, from time to time, receive negative publicity
about us, our management, or our business. Any such negative publicity may be the result of malicious harassment or unfair competition
acts by third parties. We may also be subject to government or regulatory investigations as a result of such third-party conduct and may
be required to spend significant time and incur substantial costs to defend ourselves against such third-party conduct, and we may not
be able to conclusively refute any such allegations within a reasonable period of time, or at all. Our reputation may be materially and
adversely affected as a result of any negative publicity, which in turn may cause us to lose market share, clients, fans, and business
partnerships and could, consequently, have a material adverse effect on our business, reputation, financial condition, and results of
operations.
Negative publicity, regardless of merit, could
be related to a wide variety of matters, including, but not limited to:
| ● | alleged misconduct or other improper activities committed
by our directors, officers, and other employees, including misrepresentations made by our employees to potential partners, clients, and
fans during sales and marketing activities, and other fraudulent activities to artificially inflate the popularity of our service offerings; |
| ● | false or malicious allegations or rumors about us or our
directors, shareholders, affiliates, officers, and other employees; |
| ● | complaints by clients, fans, members, and our collaborating
voice actors and affiliated VTubers about our performances, workshops, services, sales, and/or marketing activities; |
| ● | security breaches of confidential client, fan, member, collaborating
voice actor and affiliated VTuber, or employee information; |
| ● | employment-related claims relating to alleged employment
discrimination, wage, and hour violations; or |
| ● | governmental and regulatory investigations or penalties resulting
from our failure to comply with applicable laws and regulations. |
If we are unable to provide a high-quality
customer experience, our business, reputation, financial condition, and results of operations may be materially and adversely affected.
The success of our business largely depends on
our ability to provide a high-quality customer experience for our audio production services, VTuber live streaming services, and voice
acting educational services, which in turn depends on a variety of factors. These factors include our ability to (i) continue to
offer high-quality audio production services, VTuber live streaming services, and voice acting educational services at competitive prices,
(ii) maintain reliable relationships with our clients, members, and collaborating voice actors and affiliated VTubers and retain
the permission to use the physical studios leased by CyberStep and keep them clean and safe for the voice actor workshops, and (iii) provide
timely and satisfying customer service. If our customers are not satisfied with our service experience, or the prices at which we offer
the audio production services and voice acting educational services are severely interrupted or otherwise fail to meet our customers’
expectations, our reputation and customer loyalty could be adversely affected. As a result, if we are unable to continue to provide, or
maintain, a high-quality customer service, we may not be able to retain existing customers or attract new customers, which could have
a material adverse effect on our business, reputation, financial condition, and results of operations.
Our business depends on the continued success
of our brand, and if we fail to maintain and enhance the recognition of our brand, we may face difficulty increasing our network of clients,
fans, members, and collaborating voice actors and affiliated VTubers, and our reputation and operating results may be harmed.
We believe that market awareness of our brand,
“BloomZ,” has contributed significantly to the success of our business. Maintaining and enhancing our brand is critical to
our efforts to increase our network of clients, fans, members, and collaborating voice actors and affiliated VTubers.
Our ability to attract new clients, fans, members,
and collaborating voice actors and affiliated VTubers depends on investment in our brand, our marketing efforts, and the success of our
services, and on the perceived value of our services as may be compared to competing alternatives available to our client, fan, and member
bases.
In order to increase the market awareness of our
brand, we have been striving to cultivate, attract, and retain talented and competent voice actors and VTubers so as to improve our capacity
for participating in more animation/video game production projects and producing more live streaming videos and hosting online live streaming
events. As of the date of this prospectus, the number of our collaborating voice actors has increased to 59 from seven in 2017, and the
number of affiliated VTubers has increased to 16 since the commencement of our VTuber management business in December 2021. In addition,
the aggregate number of views of our VTubers’ YouTube channels affiliated with Hoshimeguri Gakuen, increased significantly from
2,346,418 in the fiscal year 2022 to 9,476,466 in the fiscal year 2023.
In addition, a failure by our clients, fans,
and members to distinguish between our brand and the different services provided by our competitors may result in a reduction in revenue,
profit, and margins, should the services of our competitors be selected rather than ours. If our marketing initiatives are not successful
or become less effective, if we are unable to further enhance our brand recognition, or if we incur excessive marketing and promotion
expenses, we may not be able to attract new clients, fans, members, and collaborating voice actors and affiliated VTubers successfully
or efficiently, and our business and results of operations may be materially and adversely affected.
In addition, negative publicity about our business,
shareholders, affiliates, directors, officers, and other employees can harm the recognition of our brand. Please see “— Any
negative publicity about us, our business, shareholders, affiliates, directors, officers, and other employees may materially and adversely
affect our reputation and business.”
In addition to traditional media, there has been
an increasing use of social media platforms and similar devices in Japan, including instant messaging applications, social media websites,
and other forms of internet-based communications that provide individuals with access to a broad audience of consumers and other interested
persons. The availability of information on instant messaging applications and social media platforms is virtually immediate, as is its
impact, which affords us little or no opportunity for redress or correction. The opportunity for dissemination of information, including
inaccurate information, is readily available. Information concerning our Company, shareholders, affiliates, directors, officers, and other
employees, may be posted on such platforms at any time. The risks associated with any such negative publicity or incorrect information
cannot be completely eliminated by our strategies to maintain our brand integrity and may materially harm the recognition of our brand,
our reputation, business, financial condition, and results of operations.
Unauthorized use of our intellectual property
by third parties and expenses incurred in protecting our intellectual property rights may adversely affect our business, reputation, and
competitive edge.
We regard our company logo, domain names, copyrights,
and other similar intellectual property, especially with respect to our collaborating voice actors and affiliated VTubers’ virtual
characters, and use of rights of publicity (being the licensable right to control the commercial use and make use of the commercial value
of individual’s names, signatures, images, portraits, and likenesses) of our collaborating voice actors, pursuant to the exclusive
management agreements, as important to our success, and we rely on a combination of intellectual property laws and contractual arrangements,
including confidentiality and non-disclosure agreements to protect our rights. For details, please see “Business — Intellectual
Property.”
Despite these measures, any of our intellectual
property rights could be challenged, invalidated, circumvented, or misappropriated, or such intellectual property may not be sufficient
to provide us with competitive advantages. It may be difficult to maintain and enforce intellectual property rights. Statutory laws and
regulations are subject to judicial interpretation and enforcement and may not be applied consistently. Confidentiality, invention assignment
and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach.
Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in all jurisdictions.
Policing unauthorized use of our proprietary technology
and other intellectual property is difficult and expensive, and litigation may be necessary in the future to enforce our intellectual
property rights. Future litigation could result in substantial costs and diversion of our resources and could disrupt our business, as
well as materially adversely affect our financial condition and results of operations. Further, despite the potentially substantial costs,
we cannot assure you that we will prevail in any such litigation.
Third parties may claim that we infringe
on their proprietary intellectual property rights, which could cause us to incur significant legal expenses and prevent us from promoting
our services.
Our success depends, in part, on our ability to
operate without infringing on the intellectual property rights of others. Third parties may, in the future, claim our current or future
copyrights, trademarks, technologies, business methods, processes, or use of rights of publicity of our collaborating voice actors infringe
on their intellectual property rights or may challenge the validity of our intellectual property rights. We may be subject to intellectual
property infringement claims that would be costly to defend and could limit our ability to use certain critical copyrights, trademarks,
business methods, or rights of publicity of our collaborating voice actors.
The defense and prosecution, if necessary, of
intellectual property suits, interference proceedings, and related legal and administrative proceedings can become very costly and may
divert our management personnel from their normal responsibilities. We may not prevail in any of these suits or proceedings. An adverse
determination of any litigation or defense proceedings could require us to pay substantial compensatory and punitive damages, could restrain
us from using critical copyrights, trademarks, business methods, processes, or rights of publicity of our collaborating voice actors,
and could result in us losing or not gaining valuable intellectual property rights.
Furthermore, due to the voluminous amount of discovery
frequently conducted in connection with intellectual property litigation, some of our confidential information could be disclosed to competitors
during this type of litigation. In addition, public announcements of the results of hearings, motions, or other interim proceedings or
developments in the litigation could be perceived negatively by investors and thus have an adverse effect on the trading price of our
Ordinary Shares.
Our current insurance policies may not provide
adequate levels of coverage against all claims and we may incur losses that are not covered by our insurance.
We believe we maintain insurance coverage that
is customary for businesses of our size and type. However, we may be unable to insure against certain types of losses or claims, or the
cost of such insurance may be prohibitive. Uninsured losses or claims, if they occur, could have a material adverse effect on our reputation,
business, results of operations, financial condition, or prospects.
Data security breaches and attempts thereof
could negatively affect our reputation, credibility, and business.
Our operation of businesses collects and stores
personal information relating to our customers (registered members), including their personally identifiable information. Customers are
increasingly concerned with the security of personal information transmitted over the Internet (or through other mechanisms), consumer
identity theft, and user privacy. Any perceived, attempted, or actual unauthorized disclosure of personally identifiable information regarding
our members, collaborating voice actors, and affiliated VTubers could harm our reputation and credibility, reduce the revenue of our businesses,
impair and reduce our ability to attract and retain members, collaborating voice actors, and affiliated VTubers, and could result in litigation
against us or the imposition of significant fines or penalties. We cannot assure you that any of our third-party service providers with
access to such personally identifiable information will maintain policies and practices regarding data privacy and security in compliance
with all applicable laws, or that they will not experience data security breaches or attempts thereof which could have a corresponding
adverse effect on our business.
Recently, data security breaches suffered by well-known
companies and institutions have attracted a substantial amount of media attention, prompting new foreign, national, provincial or state,
and local laws and legislative proposals addressing data privacy and security, as well as increased data protection obligations imposed
on merchants by credit card issuers. As a result, we may become subject to more extensive requirements to protect the customer information
that we process in connection with the purchase of our services, resulting in increased compliance costs.
Our ability to operate our VTuber management
business depends on the development and maintenance of live streaming platforms and the Internet infrastructure operated by third parties.
Since we operate our VTuber management business
on live streaming platforms operated by third parties, such as YouTube, FANBOX, and BOOTH, if our contractual relationship with these
third parties is terminated due to our violation of their terms of service, we may no longer be able operate our VTuber management business
on their live streaming platforms. In such event, the value of these live streaming platforms with video distribution media would decline
due to a decrease in the number of users and our VTuber management business would be adversely affected.
In addition, the Internet’s infrastructure
is comprised of many different networks and services that are highly fragmented and distributed by design. This infrastructure is run
by a series of independent third-party organizations that work together to provide the infrastructure and supporting services of the Internet
under the governance of the Internet Corporation for Assigned Numbers and Names (“ICANN”) and the Internet Assigned Numbers
Authority, now under the stewardship of ICANN. The Internet has experienced various outages and other delays due to damage to portions
of its infrastructure, denial-of-service attacks, or related cyber incidents, and it could face outages and delays in the future. These
outages and delays could reduce the level of Internet usage or result in fragmentation of the Internet, resulting in multiple separate
Internets. These scenarios are not under our control and could reduce the availability of the Internet to our affiliated VTubers for delivery
of their live streaming services. Any interruptions in our VTuber live streaming services or the ability of our fans to access our VTuber
live streaming services could result in a loss of potential or existing fans and harm our VTuber management business.
We may need additional capital in the future
to pursue our business objectives.
We may need to raise additional capital to respond
to business challenges or opportunities, accelerate our growth, develop new business offerings, or enhance our technological capacities.
Due to the unpredictable nature of the capital markets and our industries, we cannot assure you that we will be able to raise additional
capital on terms favorable to us, or at all, if and
when required, especially if we experience disappointing
results of operations. If adequate capital is not available to us as required, our ability to fund operations, take advantage of unanticipated
opportunities, develop or enhance our infrastructure, or respond to competitive pressures could be significantly limited. If we do raise
additional funds through the issuance of equity or convertible debt securities, the ownership interests of holders of our Ordinary Shares
could be significantly diluted. These newly issued securities may have rights, preferences, or privileges senior to those of existing
holders or our securities.
If we fail to attract, recruit, or retain
our key personnel, including our executive officers, senior management, and key employees, our ongoing operations and growth could be
affected.
Our success also depends, to a large extent, on
the efforts of our key personnel, including our chief executive officer, Ms. Kazusa Aranami, director, Mr. Yuhi Mimura, and other
key employees who have valuable experience, knowledge, and connection in the animation production industry and the audio production industry.
There is no assurance that these key personnel will not voluntarily terminate their employment with us. We do not carry, and do not intend
to procure, key person insurance on any of our senior management team. The loss of any of our key personnel could be detrimental to our
ongoing operations. Our success will also depend on our ability to attract and retain qualified personnel to manage our existing operations
as well as our future growth. We may not be able to successfully attract, recruit, or retain key personnel, and this could adversely impact
our growth. Moreover, we rely on our sales and marketing team to source new clients for our business growth. We have four sales and marketing
personnel in total, as of the date of this prospectus, who are responsible for pitching and soliciting upstream animation/video game-producing
companies to purchase our audio production services. If we are unable to attract, retain, and motivate our sales and marketing personnel,
our business may be adversely affected.
We may from time to time be subject to claims,
controversies, lawsuits, and legal proceedings, which could adversely affect our business, prospects, results of operations, and financial
condition.
We may from time to time become subject to or
involved in various claims, controversies, lawsuits, and legal proceedings. However, claims and threats of lawsuits are subject to inherent
uncertainties, and we are uncertain whether any of these claims would develop into a lawsuit. Lawsuits, or any type of legal proceeding,
may cause us to incur defense costs, utilize a significant portion of our resources, and divert management’s attention from our day-to-day
operations, any of which could harm our business. Any settlements or judgments against us could have a material adverse impact on our
financial condition, results of operations, and cash flows. In addition, negative publicity regarding claims or judgments made against
us may damage our reputation and may result in a material adverse impact on us.
Risks Relating to this Offering and the Trading
Market
The market price of our Ordinary Shares
may be volatile or may decline, regardless of our operating performance, and you may not be able to resell your shares at or above the
initial public offering price.
The market price of our Ordinary Shares may fluctuate
significantly in response to numerous factors, many of which are beyond our control, including:
| ● | actual or anticipated fluctuations in our revenue and other
operating results; |
| ● | the financial projections we may provide to the public, any
changes in these projections or our failure to meet these projections; |
| ● | actions of securities analysts who initiate or maintain coverage
of us, changes in financial estimates by any securities analysts who follow our Company, or our failure to meet these estimates or the
expectations of investors; |
| ● | announcements by us or our competitors of significant services
or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; |
| ● | price and volume fluctuations in the overall stock market,
including as a result of trends in the economy as a whole; |
| ● | lawsuits threatened or filed against us; and |
| ● | other events or factors, including those resulting from war
or incidents of terrorism, or responses to these events. |
In addition, the stock markets have experienced
extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies.
Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies.
In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved
in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business,
and adversely affect our business.
We may experience extreme stock price volatility
unrelated to our actual or expected operating performance, financial condition, or prospects, making it difficult for prospective investors
to assess the rapidly changing value of our Ordinary Shares.
Recently, there have been instances of extreme
stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public offerings,
especially among companies with relatively smaller public floats. As a relatively small-capitalization company with relatively small public
float, we may experience greater stock price volatility, extreme price run-ups, lower trading volume, and less liquidity than large-capitalization
companies. In particular, our Ordinary Shares may be subject to rapid and substantial price volatility, low volumes of trades, and large
spreads in bid and ask prices. Such volatility, including any stock run-up, may be unrelated to our actual or expected operating performance,
financial condition, or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Ordinary
Shares.
In addition, if the trading volumes of our Ordinary
Shares are low, persons buying or selling in relatively small quantities may easily influence prices of our Ordinary Shares. This low
volume of trades could also cause the price of our Ordinary Shares to fluctuate greatly, with large percentage changes in price occurring
in any trading day session. Holders of our Ordinary Shares may also not be able to readily liquidate their investment or may be forced
to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also
adversely affect the market price of our Ordinary Shares. As a result of this volatility, investors may experience losses on their investment
in our Ordinary Shares. A decline in the market price of our Ordinary Shares also could adversely affect our ability to issue additional
Ordinary Shares or other securities and our ability to obtain additional financing in the future. No assurance can be given that an active
market in our Ordinary Shares will develop or be sustained. If an active market does not develop, holders of our Ordinary Shares may be
unable to readily sell the shares they hold or may not be able to sell their shares at all.
If we fail to implement and maintain an
effective system of internal controls or fail to remediate the material weaknesses in our internal control over financial reporting that
have been identified, we may fail to meet our reporting obligations or be unable to accurately report our results of operations or prevent
fraud, and investor confidence and the market price of our Ordinary Shares may be materially and adversely affected.
In preparing our consolidated financial statements
as of and for the six months ended March 31, 2024 and the fiscal years ended September 30, 2023 and 2022, we and our independent
registered public accounting firm have identified material weaknesses in our internal control over financial reporting, as defined in
the standards established by the Public Company Accounting Oversight Board, and other control deficiencies. The material weaknesses identified
included (i) certain audit adjustments proposed by the auditor and recorded by the Company into the financial statements; and (ii) a lack
of independent directors and an audit committee. Following the identification of the material weaknesses and control deficiencies, we
plan to continue to take remedial measures including (i) implementing regular and continuous accounting principles generally accepted
in the United States of America (“U.S. GAAP”) accounting and financial reporting training programs for our accounting and
financial reporting personnel; (ii) engaging an external consulting firm to assist us with assessment of Sarbanes-Oxley compliance
requirements and improvement of overall internal control; and (iii) appointing independent directors, establishing an audit committee,
and strengthening corporate governance. However, the implementation of these measures may not fully address the material weaknesses in
our internal control over financial reporting. If we fail to implement and maintain an effective system of internal control to remediate
any material weakness over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations
or prevent fraud. If we fail to achieve and maintain an effective internal control environment on an ongoing basis, we could suffer material
misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence
in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead
to a decline in the trading price of our Ordinary Shares. Additionally, ineffective internal control over financial reporting could expose
us to an increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which
we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements for prior
periods. As a result, our business, financial condition, results of operations and prospects, and the trading price of our Ordinary Shares,
may be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly hinders our ability
to prevent fraud.
We are a public company in the United States
subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include
a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual
report for the fiscal year ending September 30, 2024. In addition, once we cease to be an “emerging growth company,”
as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness
of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not
effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent
registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified, if it is not satisfied
with our internal controls or the level at which our controls are documented, designed, operated, or reviewed, or if it interprets the
relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant
strain on our management, operational, and financial resources and systems for the foreseeable future. We may be unable to complete our
evaluation testing and any required remediation in a timely manner.
As a public company, we incur substantially
increased costs as compared to when we were a private company.
We incur significant legal, accounting, and other
expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently
implemented by the SEC and Nasdaq, impose various requirements on the corporate governance practices of public companies.
Compliance with these rules and regulations increases
our legal and financial compliance costs and makes some corporate activities more time-consuming and costlier. We have incurred additional
costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company
reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive
officers.
We are an “emerging growth company,”
as defined in the JOBS Act and will remain an emerging growth company until the earlier of (1) the last day of the fiscal year
(a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross
revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value
of our Ordinary Shares that is held by non-affiliates exceeds $700 million as of the prior September 30, and (2) the date on
which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. An emerging growth company
may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies.
These provisions include exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth
company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such
time as those standards apply to private companies.
After we are no longer an “emerging growth
company,” or until five years following the completion of our initial public offering, whichever is earlier, we expect to incur
significant additional expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404
and the other rules and regulations of the SEC. For example, as a public company, we have been required to increase the number of
independent directors and adopt policies regarding internal controls and disclosure controls and procedures.
As we have only recently become a public company,
we are continuing to evaluate and monitor developments with respect to these rules and regulations, and, as of the date of this prospectus,
we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.
The sale or availability for sale of substantial
amounts of our Ordinary Shares could adversely affect their market price.
Sales of substantial amounts of our Ordinary Shares
in the public market after the completion of this offering, or the perception that these sales could occur, could adversely affect the
market price of our Ordinary Shares and could materially impair our ability to raise capital through equity offerings in the future. The
sales or subsequent resales of the Resale Shares in the public market by the Selling Shareholders may cause the market price of our Ordinary
Shares to decline. All of the Resale Shares will be freely tradable without restriction or further registration under the Securities Act,
and certain Ordinary Shares held by our existing shareholders may also be sold in the public market in the future, subject to the restrictions
in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. As of the date of this prospectus, an aggregate
of 13,429,800 Ordinary Shares are issued and outstanding. Sales of these Ordinary Shares into the market could cause the market price
of our Ordinary Shares to decline.
We do not intend to pay dividends for the
foreseeable future.
We currently intend to retain any future earnings
to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future.
As a result, you may only receive a return on your investment in our Ordinary Shares if the market price of our Ordinary Shares increases.
If securities or industry analysts do not
publish research or reports about our business, or if they publish a negative report regarding our Ordinary Shares, the price of our Ordinary
Shares and trading volume could decline.
Any trading market for our Ordinary Shares may
depend in part on the research and reports that industry or securities analysts publish about us or our business. We do not have any control
over these analysts. If one or more of the analysts who cover us downgrade us, the price of our Ordinary Shares would likely decline.
If one or more of these analysts cease coverage of our Company or fail to regularly publish reports on us, we could lose visibility in
the financial markets, which could cause the price of our Ordinary Shares and the trading volume to decline.
If we cease to qualify as a foreign private
issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic
issuers, and we would incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer.
We are qualified as a foreign private issuer.
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy
statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports
and financial statements with the SEC as frequently or as promptly as United States domestic issuers, and we are not required to
disclose in our periodic reports all of the information that United States domestic issuers are required to disclose. While we currently
are qualified as a foreign private issuer, we may cease to qualify as a foreign private issuer in the future, in which case we would incur
significant additional expenses that could have a material adverse effect on our results of operations.
Because we are a foreign private issuer
and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than
you would have if we were a domestic issuer.
Nasdaq listing rules require listed companies
to have, among other things, a majority of its board members be independent, and such independent directors have regularly scheduled
meetings at which only they are present. As a foreign private issuer, however, we are permitted to, and we have chosen to follow home
country practice in lieu of the above requirements. The corporate governance practice in our home country, the Cayman Islands, does not
impose a requirement that our board of directors consist of a majority of independent directors or that such independent directors meet
regularly without other members present. Thus, although a director must act in the best interests of the Company, it is possible that
fewer board members will be exercising independent judgment, and the level of board oversight on the management of our Company may decrease
as a result. In addition, Nasdaq listing rules require U.S. domestic issuers to have a compensation committee composed entirely
of independent directors and that director nominees be selected or recommended for selection by either a majority of the independent
directors or a nominating and corporate governance committee comprised solely of independent directors. We, as a foreign private issuer,
are not subject to these requirements and have chosen to follow home country practice instead. Our home country practice does not impose
specific requirements on the establishment of a compensation committee or nominating committee or nominating process. Therefore, we do
not have a compensation committee or a nominating and corporate governance committee, nor are our director nominees selected or recommended
for selection by a majority of the independent directors. Nasdaq listing rules also require listed companies to obtain shareholder approval
prior to issuing or selling securities (or securities convertible into or exercisable for common stock) that equal 20% or more of the
companies’ outstanding common stock or voting power prior to such issuance or sale. We, as a foreign private issuer, are permitted
to and have chosen to follow home country practice in lieu of this requirement, which allows us to issue and sell securities that equal
20% or more of our outstanding Ordinary Shares or voting power without obtaining shareholder approval.
Therefore, for as long as we remain a “foreign
private issuer,” we will not have the same protections afforded to our shareholders that are subject to all of the above corporate
governance requirements, and you will have less protection than you would have if we were a domestic issuer.
If we cannot continue to satisfy the listing
requirements and other rules of the Nasdaq Capital Market, our securities may be delisted, which could negatively impact the price of
our securities and your ability to sell them.
We have listed our Ordinary Shares on the Nasdaq
Capital Market under the symbol “BLMZ.”
In order to maintain our listing on the Nasdaq
Capital Market, we are required to comply with certain rules of the Nasdaq Capital Market, including those regarding minimum stockholders’
equity, minimum share price, minimum market value of publicly held shares, and various additional requirements. Even if we meet the listing
requirements and other applicable rules of the Nasdaq Capital Market, we may not be able to continue to satisfy these requirements and
applicable rules. If we are unable to satisfy the Nasdaq Capital Market criteria for maintaining our listing, our securities could be
subject to delisting.
On September 12, 2024, we received a written notification
(the “Notification Letter”) from Nasdaq advising us that, based on the market value of our Ordinary Shares from July
29, 2024 to September 11, 2024, we did not meet the minimum market value of listed securities requirement stipulated in Nasdaq Listing
Rule 5550(b)(2) (the “Minimum Market Value of Listed Securities Requirement”). Nasdaq Listing Rule 5550(b)(2) requires listed
companies to maintain a minimum market value of listed securities of $35 million, and Nasdaq Listing Rule 5810(c)(3)(C) provides that
a failure to meet the Minimum Market Value of Listed Securities Requirement exists if the deficiency continues for a period of 30 consecutive
business days.
The Notification Letter does not impact our
listing on the Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), we have been provided 180 calendar days, or until March
11, 2025 (the “Compliance Period”), to regain compliance with Nasdaq Listing Rule 5550(b)(2), which will be satisfied
if, at any time during the Compliance Period, the market value of our Ordinary Shares closes at $35 million or more for a minimum of
ten consecutive business days. During the Compliance Period, we expect that our Ordinary Shares will continue to be listed and
traded on the Nasdaq. We intend to monitor the market value of our Ordinary Shares between now and March 11, 2025, and our
management is looking into various options available to regain compliance and maintain our continued listing. In the event we do not
regain compliance by March 11, 2025, we will be subject to delisting, yet we may appeal the delisting determination to the
Nasdaq’s hearings panel.
If the Nasdaq Capital Market subsequently delists
our securities from trading, we could face significant consequences, including:
| ● | a limited availability for market quotations for our securities; |
| ● | reduced liquidity with respect to our securities; |
| ● | a determination that our Ordinary Shares are a “penny
stock,” which will require brokers trading in our Ordinary Shares to adhere to more stringent rules and possibly result in a reduced
level of trading activity in the secondary trading market for our Ordinary Shares; |
| ● | limited amount of news and analyst coverage; and |
| ● | a decreased ability to issue additional securities or obtain
additional financing in the future. |
Anti-takeover provisions in our articles
of association may discourage, delay, or prevent a change in control.
Some provisions of our articles of association
may discourage, delay or prevent a change in control of our Company or management that shareholders may consider favorable, including
provisions that authorize our board of directors to issue shares with preferred, deferred, or other special rights or restrictions without
any further vote or action by our shareholders.
Our board of directors may decline to register
transfers of Ordinary Shares in certain circumstances.
Our board of directors may, in its sole discretion,
decline to register any transfer of any Ordinary Share which is not fully paid up or on which we have a lien. Our directors may also decline
to register any transfer of any Ordinary Share unless (i) the instrument of transfer is lodged with us, accompanied by the certificate
for the shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor
to make the transfer; (ii) the instrument of transfer is in respect of only one class of shares; (iii) the instrument of transfer
is properly stamped, if required; (iv) in the case of a transfer to joint holders, the number of joint holders to whom the share
is to be transferred does not exceed four; (v) the shares transferred are free of any lien in favor of us; or (vi) a fee of
such maximum sum as the Nasdaq Capital Market may determine to be payable, or such lesser sum as our board of directors may from time
to time require, is paid to us in respect thereof.
If our directors refuse to register a transfer
they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and
the transferee notice of such refusal. The registration of transfers may, on 14 days’ notice being given by advertisement
in one or more newspapers or by electronic means, be suspended and the register closed at such times and for such periods as our board
of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register
closed for more than 30 days in any year.
This, however, is unlikely to affect market transactions
of the Ordinary Shares purchased by investors in a public offering. The legal title to such Ordinary Shares and the registration details
of those Ordinary Shares in the Company’s register of members remain with the Depository Trust Company. All market transactions
with respect to those Ordinary Shares are carried out without the need for any kind of registration by the directors, as the market transactions
will all be conducted through the Depository Trust Company systems.
We are an “emerging growth company”
within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging
growth companies, this will make it more difficult to compare our performance with other public companies.
We are an “emerging growth company”
within the meaning of the Securities Act, as modified by the JOBS Act. Section 102(b)(1) of the JOBS Act exempts emerging growth
companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that
have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act)
are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out
of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election
to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued
or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new
or revised standard at the time private companies adopt the new or revised standard. This will make comparison of our financial statements
with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the
extended transition period difficult or impossible because of the potential differences in accounting standards used.
Because we are an “emerging growth
company,” we may not be subject to requirements that other public companies are subject to, which could affect investor confidence
in us and our Ordinary Shares.
For as long as we remain an “emerging growth
company,” as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply
with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and exemptions from the requirements of shareholder approval of any golden
parachute payments not previously approved. Because of these lessened regulatory requirements, our shareholders would be left without
information or rights available to shareholders of more mature companies. If some investors find our Ordinary Shares less attractive as
a result, there may be a less active trading market for our Ordinary Shares and our share price may be more volatile. See “Implications
of Our Being an ‘Emerging Growth Company.’”
You may have difficulty enforcing judgments
against us.
We are incorporated under the laws of the Cayman
Islands as an exempted company limited by shares. Currently, all of our operations are conducted in Japan, and all or a substantial portion
of our assets are and will be located outside of the United States and located in Japan. In addition, all of our officers and directors
are nationals and residents of a country other than the United States, and almost all of their assets are located outside the United States.
As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States
in the event that you believe we have violated your rights, either under United States federal or state securities laws or otherwise,
or if you have a claim against us. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of
Japan may not allow you to enforce a judgment against our assets or the assets of our directors and officers. See “Enforceability
of Civil Liabilities.”
The laws of the Cayman Islands may not provide
our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.
Our corporate affairs are governed by our memorandum
and articles of association, by the Cayman Companies Act and by the common law of the Cayman Islands. The rights of shareholders to take
action against our directors, actions by minority shareholders, and the fiduciary responsibilities of our directors to us under Cayman
Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in
part from comparatively limited judicial precedent in the Cayman Islands and from English common law. Decisions of the Privy Council (which
is the final Court of Appeal for British overseas territories such as the Cayman Islands) are binding on a court in the Cayman Islands.
Decisions of the English courts, and particularly the Supreme Court and the Court of Appeal are generally of persuasive authority but
are not binding in the courts of the Cayman Islands. Decisions of courts in other Commonwealth jurisdictions are similarly of persuasive
but not binding authority. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law
are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman
Islands has a less developed body of securities laws relative to the United States. Therefore, our public shareholders may have more
difficulty protecting their interests in the face of actions by our management, directors, or controlling shareholders than would shareholders
of a corporation incorporated in a jurisdiction in the United States.
You may be unable to present proposals before
annual general meetings or extraordinary general meetings not called by shareholders.
Cayman Islands law provides shareholders with
only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general
meeting. These rights, however, may be provided in a company’s articles of association. Our articles of association allow our shareholders
holding shares which carry in aggregate not less than one-tenth of all votes attaching to all of our issued and outstanding shares, to
requisition an extraordinary general meeting of our shareholders, in which case our board of directors is obliged to call such meeting.
Advance notice of at least five calendar days is required for the convening of any general meeting of our shareholders. A quorum
required for a meeting of shareholders consists of at least two shareholders, present in person or by proxy, holding shares which carry
in aggregate in excess of 50% of all votes attaching to all of our shares in issue and entitled to vote at such meeting.
If we are classified as a passive foreign
investment company, United States taxpayers who own our Ordinary Shares may have adverse United States federal income tax consequences.
A non-U.S. corporation such as ourselves
will be classified as a passive foreign investment company, which is known as a PFIC, for any taxable year if, for such year, either:
| ● | at least 75% of our gross income for the year is passive
income; or |
| ● | the average percentage of our assets (determined at the end
of each quarter) during the taxable year which produce passive income or which are held for the production of passive income is at least
50%. |
Passive income generally includes dividends, interest,
rents and royalties (other than rents or royalties derived from the active conduct of a trade or business), and gains from the disposition
of passive assets.
If we are determined to be a PFIC for any taxable
year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our Ordinary Shares, the U.S. taxpayer
may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.
Depending on the amount of cash we raise in this
offering, together with any other assets held for the production of passive income, it is possible that, for our 2023 taxable year or
for any subsequent year, more than 50% of our assets may be assets which produce passive income, in which case we would be deemed a PFIC,
which could have adverse U.S. federal income tax consequences for U.S. taxpayers who are shareholders. We will make this determination
following the end of any particular tax year.
For purposes of the PFIC analysis, in general,
a non-U.S. corporation is deemed to own its pro rata share of the gross income and assets of any entity in which it is considered
to own at least 25% of the equity by value.
For a more detailed discussion of the application
of the PFIC rules to us and the consequences to U.S. taxpayers if we were or are determined to be a PFIC, see “Material Income
Tax Consideration — United States Federal Income Taxation — PFIC.”
Our shareholders may be held liable for
claims by third parties against us to the extent of distributions received by them upon redemption of their shares.
If we are forced to enter into an insolvency liquidation,
any distributions received by shareholders could be viewed as an unlawful payment if it was proved that immediately following the date
on which the distribution was made, we were unable to pay our debts as they fall due in the ordinary course of business. As a result,
a liquidator could seek to recover some or all amounts received by our shareholders. Furthermore, our directors may be viewed as having
breached their fiduciary duties to us or our creditors and/or may have acted in bad faith, thereby exposing themselves and our Company
to claims, by paying public shareholders from the trust account prior to addressing the claims of creditors. We cannot assure you that
claims will not be brought against us for these reasons. We and our directors and officers who knowingly and willfully authorized or permitted
any distribution to be paid out of our share premium account while we were unable to pay our debts as they fall due in the ordinary course
of business would be guilty of an offence and may be liable for a fine of 15,000 Cayman Islands Dollars and to imprisonment for five years
in the Cayman Islands.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements
that reflect our current expectations and views of future events, all of which are subject to risks and uncertainties. Forward-looking
statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not
relate strictly to historical or current facts. You can find many (but not all) of these statements by the use of words such as “approximates,”
“believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,”
“intends,” “plans,” “will,” “would,” “should,” “could,” “may,”
or other similar expressions in this prospectus. These statements are likely to address our growth strategy, financial results, and product
and development programs. You must carefully consider any such statements and should understand that many factors could cause actual results
to differ from our forward-looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and
uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results
may vary materially. Factors that could cause actual results to differ from those discussed in the forward-looking statements include,
but are not limited to:
| ● | assumptions about our future financial and operating results,
including revenue, income, expenditures, cash balances, and other financial items; |
| ● | our ability to execute our growth, and expansion, including
our ability to meet our goals; |
| ● | current and future economic and political conditions; |
| ● | our capital requirements and our ability to raise any additional
financing which we may require; |
| ● | our ability to attract clients and further enhance our brand
recognition; |
| ● | our ability to hire and retain qualified management personnel
and key employees in order to enable us to develop our business; |
| ● | the COVID-19 pandemic; and |
| ● | other assumptions described in this prospectus underlying
or relating to any forward-looking statements. |
We describe certain material risks, uncertainties,
and assumptions that could affect our business, including our financial condition and results of operations, under “Risk Factors.”
We base our forward-looking statements on our management’s beliefs and assumptions based on information available to our management
at the time the statements are made. We caution you that actual outcomes and results may, and are likely to, differ materially from what
is expressed, implied or forecast by our forward-looking statements. Accordingly, you should be careful about relying on any forward-looking
statements. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking
statements after the distribution of this prospectus, whether as a result of new information, future events, changes in assumptions, or
otherwise.
Industry Data and Forecasts
This prospectus contains market data and industry
forecasts and projections, which were obtained or derived from publicly available information, reports of governmental agencies, market
research reports, and industry publications and surveys. These sources generally state that the information contained therein has been
obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. Although
we believe such information to be accurate, we have not independently verified the data from these sources. However, we acknowledge our
responsibility for all disclosures in this prospectus. Forecasts and other forward-looking information obtained from these sources are
subject to the same qualifications and additional uncertainties and risks regarding the other forward- looking statements in this prospectus
due to a variety of factors, including those described in this section, the section entitled “Risk Factors,” and elsewhere
in this prospectus. These and other factors could cause results to differ materially from those expressed in the forecasts and estimates.
ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of the Cayman
Islands as an exempted company limited by shares. We are incorporated under the laws of the Cayman Islands because of certain benefits
associated with being a Cayman Islands company, such as political and economic stability, an effective judicial system, a favorable tax
system, the absence of foreign exchange control or currency restrictions, and the availability of professional and support services. The
Cayman Islands, however, has a less developed body of securities laws as compared to the United States and provides significantly
less protection for investors than the United States. Additionally, Cayman Islands companies may not have standing to sue in the
Federal courts of the United States.
Substantially all of our assets are located in
Japan. In addition, all of our directors and officers are nationals or residents of Japan and all or a substantial portion of their assets
are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States
upon us or these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated
upon the civil liability provisions of the securities laws of the United States or any state in the United States.
We have appointed Cogency Global Inc. as our agent
to receive service of process with respect to any action brought against us in the United States District Court for the Southern
District of New York under the federal securities laws of the United States or of any state in the United States or any
action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws
of the State of New York.
Conyers Dill & Pearman (“Conyers”),
our counsel with respect to the laws of the Cayman Islands, and COACH Legal Professional Corporation (“COACH”), our counsel
with respect to Japanese law, have advised us that there is uncertainty as to whether the courts of the Cayman Islands or Japan would
(i) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon
the civil liability provisions of the securities laws of the United States or any state in the United States or (ii) entertain
original actions brought in the Cayman Islands or Japan against us or our directors or officers predicated upon the securities laws of
the United States or any state in the United States.
We have been advised by Conyers that, although
there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States
(and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments with the United States),
the courts of the Cayman Islands may recognize as a valid judgment, a final and conclusive judgment in personam obtained in the
federal or state courts of the United States against the Company under which a sum of money is payable (other than a sum of money
payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) or, in certain
circumstances, an in personam judgment for non-monetary relief, and may give a judgment based thereon, provided that (a) such
courts had proper jurisdiction over the parties subject to such judgment; (b) such courts did not contravene the rules of natural
justice of the Cayman Islands; (c) such judgment was not obtained by fraud; (d) the enforcement of the judgment would not be
contrary to the public policy of the Cayman Islands; (e) no new admissible evidence relevant to the action is submitted prior to
the rendering of the judgment by the courts of the Cayman Islands; and (f) there is due compliance with the correct procedures under
the laws of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from United States
courts under civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman
Islands to give rise to obligations to make payments that are penal or punitive in nature. Because such a determination has not yet been
made by a court of the Cayman Islands, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable
in the Cayman Islands. A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
In addition, COACH has advised the Company
that it is uncertain whether the Japanese courts will (i) recognize or enforce judgments of United States courts obtained
against the Company or any of its directors or officers under the civil liability provisions of the securities laws of the
United States or any state of the United States or (ii) accept the original action brought in Japan against the
Company or any of its directors or officers under the securities laws of the United States. Japan’s Civil Execution Act
(Act No. 4 of 1979, as amended) and Code of Civil Procedure (Act No. 109 of 1996, as amended) require Japanese courts to deny
requests for the enforcement of judgments of foreign courts where foreign judgments does not meet the requirements set forth in the
Civil Execution Act and the Code of Civil Procedure, including the following:
| ● | the jurisdiction of the foreign court shall be recognized
under laws, regulations, treaties, or conventions; |
| ● | the defeated defendant has been served (excluding service
by publication or other similar service) with the summons or order for the commencement of litigation, or that he/she did not receive
such summons or order, but did respond to the summons or order; |
| ● | the content of the judgment and the litigation proceedings
are not contrary to public policy or good morals in Japan; and |
| ● | there exists a guarantee of reciprocity as to the recognition
by a court of the relevant foreign jurisdiction of a final judgment of a Japanese court. |
Reciprocity is defined as the recognition in a
foreign country of the validity of a judgment of a Japanese court of the same kind as that of a foreign court in that country under conditions
not different in material respects from those in Japan, just as Japan recognizes the judgment of a foreign court, and the Japanese courts
will determine the existence of reciprocity on a case-by-case basis for each judgment rendered by a foreign court
For example, Japanese courts recognize reciprocity
for judgments of courts in the states of Hawaii, New York, California, and Nevada (mainly for monetary claims), but there is no guarantee
that reciprocity will be recognized for judgments in other states or for different types of U.S. judgments. Therefore, U.S. court
judgments for civil liability premised on U.S. federal and state securities laws may not be enforceable in Japan.
USE OF PROCEEDS
The Company will not receive any of the proceeds
from the sale of the Resale Shares. The Selling Shareholders will receive all of the net proceeds from the sales of the Resale Shares
under this prospectus. The Company has agreed to bear the expenses relating to the registration of the Resale Shares for the Selling Shareholders.
DIVIDEND POLICY
Since our inception, we have not declared or paid
cash dividends on our Ordinary Shares. Any decision to pay dividends in the future will be subject to a number of factors, including our
financial condition, results of operations, the level of our retained earnings, capital demands, general business conditions, and other
factors our board of directors may deem relevant. We currently intend to retain most, if not all, of our available funds and any future
earnings after this offering to fund the operation, development, and growth of our business, and, as a result, we do not expect to pay
any dividends in the foreseeable future. Consequently, we cannot give any assurance that any dividends may be declared and paid in the
future.
Under Cayman Islands law, a Cayman Islands company
may pay a dividend on its shares out of either profit or share premium, provided that in no circumstances may a dividend be paid if this
would result in the company being unable to pay its debts due in the ordinary course of business.
If we determine to pay dividends on any of our
Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our subsidiary, BloomZ Japan. Under
the Japanese Companies Act (Act No. 86 of 2005, as amended), dividends must be paid from retained earnings and no dividend shall be paid
out if the payment would cause the company to be insolvent (more precisely, if the amount of net assets after dividends falls below a
certain amount as stipulated by the Companies Act). As a result, in the event that BloomZ Japan incurs debt on its own behalf in the future,
its ability to pay dividends or other distributions to us may be limited.
Cash dividends, if any, on our Ordinary Shares
will be paid in U.S. dollars.
SELLING SHAREHOLDERS
The following table sets forth the names of the
Selling Shareholders, the number of the Ordinary Shares that the Selling Shareholders beneficially owned prior to the offering, and the
maximum number of the Resale Shares that may be offered for resale for the account of the Selling Shareholders under this prospectus.
The table also provides information regarding the number and percentage of the Ordinary Shares beneficially owned by the Selling Shareholders
after the offering of the shares as adjusted to reflect the assumed sale of all of the Resale Shares offered under this prospectus.
None of the Selling Shareholders is a broker-dealer
or an affiliate of a broker-dealer. For the Resale Shares to be offered by the Selling Shareholders, and they do not have any agreement
or understanding to distribute any of the Resale Shares being registered. Each Selling Shareholder may offer for sale from time to time
any or all of the Resale Shares. The table below assumes that the Selling Shareholders will sell all of the Resale Shares offered for
sale by this prospectus.
Beneficial ownership is determined in accordance
with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing
the number of Ordinary Shares beneficially owned by a person listed below and the percentage ownership of such person, Ordinary Shares
underlying options, warrants, or convertible securities held by each such person that are exercisable or convertible within 60 days
of the date of this prospectus are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other
person.
The Company may require the Selling Shareholders
to suspend the sales of the Resale Shares offered by this prospectus upon the occurrence of any event that makes any statement in this
prospectus or the related registration statement untrue in any material respect or that requires the changing of statements in these documents
in order to make statements in those documents not misleading.
Name of the Selling Shareholders | |
Ordinary Shares Beneficially Owned Prior to Offering(1) | | |
Percentage Ownership Prior to Offering(2) | | |
Maximum Number of Resale Shares to be Sold(3) | | |
Number of Ordinary Shares Owned After Offering | | |
Percentage Ownership After Offering | |
CyberStep, Inc.(4) | |
| 4,500,000 | | |
| 33.5 | % | |
| 4,500,000 | | |
| 0 | | |
| 0 | % |
Lode Runner, Inc.(5) | |
| 1,400,000 | | |
| 10.4 | % | |
| 1,400,000 | | |
| 0 | | |
| 0 | % |
Kazusa Aranami(6) | |
| 750,000 | | |
| 5.6 | % | |
| 750,000 | | |
| 0 | | |
| 0 | % |
Junichi Ogata(7) | |
| 150,000 | | |
| 1.12 | % | |
| 150,000 | | |
| 0 | | |
| 0 | % |
Kosuke Inoue(8) | |
| 125,000 | | |
| 0.9 | % | |
| 125,000 | | |
| 0 | | |
| 0 | % |
Rui Sato(9) | |
| 100,000 | | |
| 0.7 | % | |
| 100,000 | | |
| 0 | | |
| 0 | % |
Yuhi Mimura(10) | |
| 75,000 | | |
| 0.6 | % | |
| 75,000 | | |
| 0 | | |
| 0 | % |
Hiromi Kashiwabushi(11) | |
| 50,000 | | |
| 0.4 | % | |
| 50,000 | | |
| 0 | | |
| 0 | % |
Minoru Muranaga(12) | |
| 50,000 | | |
| 0.4 | % | |
| 50,000 | | |
| 0 | | |
| 0 | % |
Yuichi Ishii(13) | |
| 50,000 | | |
| 0.4 | % | |
| 50,000 | | |
| 0 | | |
| 0 | % |
HeartCore Enterprises, Inc.(14) | |
| 497,400 | | |
| 3.7 | % | |
| 497,400 | | |
| 0 | | |
| 0 | % |
Spirit Advisors, LLC(15) | |
| 497,400 | | |
| 3.7 | % | |
| 497,400 | | |
| 0 | | |
| 0 | % |
| (1) | For the purpose of this table only, the offering refers to
the resale of the Resale Shares by the Selling Shareholders listed above. |
| (2) | Based on 13,429,800 Ordinary Shares issued and outstanding as
of the date of this prospectus. |
| (3) | This number represents all of the Resale Shares that the
Selling Shareholders may resell, as applicable, all of which the Company agreed to register. |
| (4) | The number of Ordinary Shares beneficially owned prior to
this offering represents 4,500,000 Ordinary Shares held by CyberStep, Inc., a widely held public company with securities listed on the
Tokyo Stock Exchange. Based on the most recent annual securities report filed by CyberStep, Inc., no shareholder beneficially owns more
than 10% of its outstanding common stock. As a result, voting and investment discretion with regard to these Ordinary Shares is ultimately
controlled by the five-member board of directors of CyberStep, Inc., which presently consists of Rui Sato, Junichi Ogata, Kousuke Inoue,
Tsuyoshi Suzuki, and Jiro Saito. The address for CyberStep, Inc. is Asahi Seimei Daitabashi Building 4F, 1-22-19 Izumi, Suginami-ku,
168-0063, Tokyo, Japan. |
| (5) | Rui Sato, exercises voting and/or dispositive power over
1,400,000 Ordinary Shares held by Lode Runner, Inc. Rui Sato is the representative director of CyberStep. The principal address
of Lode Runner, Inc. is: 2-2-39 Jingumae, Shibuya-ku, 150-0001, Tokyo, Japan. |
| (6) | Kazusa Aranami, our director, chief executive officer, and
chairperson, holds voting and/or dispositive power over 750,000 Ordinary Shares. The principal address of Kazusa Aranami is: 2-1-307
Haraikatamachi, Shinjuku-ku, Tokyo 162-0841, Japan. |
| (7) | Junichi Ogata, a director of CyberStep, holds voting and/or
dispositive power over 150,000 Ordinary Shares. The principal address of Junichi Ogata is: 2-877-2 Amanumacho, Omiya-ku, Saitama-shi,
Saitama-ken 330-0834 Japan. |
| (8) | Kosuke Inoue, a director of CyberStep, holds voting and/or
dispositive power over 125,000 Ordinary Shares. The principal address of Kosuke Inoue is: 4-8-1609 Yotsuya, Shinjuku-ku, Tokyo 160-0004,
Japan. |
| (9) | Rui Sato, the representative director of CyberStep, holds
voting and/or dispositive power over 100,000 Ordinary Shares. The principal address of Rui Sato is: 2-10-5 Jingu-mae, Shibuya-ku, Tokyo
150-0001, Japan. |
| (10) | Yuhi Mimura, our director, holds voting and/or dispositive
power over 75,000 Ordinary Shares. The principal address of Yuhi Mimura is: Room 102 Gibbon House, 4-20-14 Chuo, Nakano-ku, Tokyo 164-0011,
Japan. |
| (11) | Hiromi Kashiwabushi, holds voting and/or dispositive power
over 50,000 Ordinary Shares. The principal address of Hiromi Kashiwabushi is: 29-17 Honcho, Wako-shi, Saitama-ken 351-0114 Japan. |
| (12) | Minoru Muranaga, our chief financial officer, holds voting
and/or dispositive power over 50,000 Ordinary Shares. The principal address of Minoru Muranaga is: 5-1-1-902 Nishigotanda, Shinagawa-ku,
Tokyo 141-0031, Japan. |
| (13) | Yuichi Ishii, a former director of CyberStep, holds voting
and/or dispositive power over 50,000 Ordinary Shares. The principal address of Yuichi Ishii is: 4-19-7 Matsunamiaoba, Moriya-shi, Ibaraki-ken
302-0132 Japan. |
| (14) | Sumitaka Yamamoto, exercises voting and/or dispositive power
over 497,400 Ordinary Shares held by HeartCore Enterprises, Inc. Sumitaka Yamamoto does not have, and has not had, any material
relationship with the Company or any of its predecessors or affiliates within the past three years. The principal address of HeartCore
Enterprises, Inc. is: 19303 Chablis Court, Saratoga, CA 95070 USA. |
| (15) | Robert Yu, exercises voting and/or dispositive power over
497,400 Ordinary Shares held by Spirit Advisors, LLC. Robert Yu does not have, and has not had, any material relationship with the
Company or any of its predecessors or affiliates within the past three years. The principal address of Spirit Advisors, LLC is: 477
Madison Avenue, 6th floor New York, NY 10022. |
CORPORATE HISTORY AND STRUCTURE
Our Corporate History
BloomZ Japan was established on October 17,
2017, as a limited liability company organized under the laws of Japan.
On December 1, 2020, CyberStep (TSE: 3810),
a Japanese public company, acquired 100% of the equity interests in BloomZ Japan from its original shareholders. BloomZ Japan became CyberStep’s
wholly owned subsidiary.
In connection with the IPO, we undertook
a reorganization of our corporate structure (the “Reorganization”) in the following steps:
| ● | in February 2023, we started to plan fundraising by issuing
BloomZ Japan’s ordinary shares to potential investors for our working capital needs and to finance the expenses for the IPO; |
| ● | on April 14, 2023, we incorporated BloomZ Cayman as
an exempted company limited by shares under the laws of the Cayman Islands; |
| ● | on April 24, 2023, BloomZ Cayman acquired 100% of the
equity interests in BloomZ Japan through a share exchange agreement from BloomZ Japan’s shareholders. Consequently, BloomZ Cayman,
through a restructuring that is accounted for as a reorganization of entities under common control, became the ultimate holding company
of BloomZ Japan. See the section captioned “Description of Share Capital — History of Share Issuances” in
this prospectus; |
| ● | on May 31, 2023, after three months of negotiations, BloomZ
Japan entered into investment agreements with 12 investors, pursuant to which agreements BloomZ Japan issued an aggregate of 667 of its
ordinary shares to the 12 investors on May 31, 2023; and |
| ● | on August 25, 2023, BloomZ Cayman acquired the equity
interests in BloomZ Japan held by the 12 investors through a share exchange agreement. |
On July 25, 2024, we completed the IPO of
1,250,000 Ordinary Shares at a public offering price of $4.30 per share. The gross proceeds raised from the IPO were approximately $5.38
million prior to deducting underwriting discounts and other offering expenses payable by us.
On August 26, 2024, we issued 497,400 Ordinary
Shares to HeartCore Enterprises, Inc., a Delaware corporation, and 497,400 Ordinary Shares to Spirit Advisors, LLC, a Delaware limited
liability company, in consideration of the services they provided to the Company in connection with our IPO.
Recent Development
Consulting Agreement
On January 11, 2023 (the “Effective Date”),
the Company entered into a Consulting and Services Agreement, as amended on September 14, 2023 (the “Consulting Agreement”),
with HeartCore Enterprises, Inc., a Selling Shareholder (“HeartCore”). Pursuant to the terms of the Consulting Agreement,
HeartCore agreed to provide the Company certain services, including the following (collectively, the “Services”):
| (i) | Assistance with the selection and negotiation of terms for
a law firm, underwriter, and auditing firm for the Company; |
| (ii) | Assistance in the preparation of documentation for internal
controls required for an initial public offering by the Company; |
| (iii) | Providing support services to remove problematic accounting
accounts upon listing; |
| (iv) | Translation of requested documents into English; |
| (v) | Attendance and, if requested by the Company, leading meetings
with the Company’s management and employees, and/or law firm, underwriter, and auditing firm; |
| (vi) | Preparation of required documents and providing the Company
with support services related to the Nasdaq listing; |
| (vii) | Assistance in preparation of documentation for due diligence
and its translation into English; |
| (viii) | Conversion of accounting data from Japanese standards to
U.S. GAAP; |
| (ix) | Support for the Company’s negotiation and communication
with the auditing firm; |
| (x) | Assistance in the preparation of S-1 or F-1 filings; |
| (xi) | Assistance in the preparation for investor relations until
the initial public offering; |
| (xii) | Creation of an English web page; and |
| (xiii) | Preparation of an investor presentation/deck and executive
summary of the Company’s business and operations. |
Pursuant to the terms of the Consulting Agreement,
the Company agreed to compensate HeartCore US$500,000, to be paid as follows, in return for the provision of the Services during the eight-month
term (the “Term”):
| (i) | US$200,000 on the Effective Date; |
| (ii) | US$150,000 on the three-month anniversary of the Effective
Date; and |
| (iii) | US$150,000 on the six-month anniversary of the Effective
Date. |
For any services performed by HeartCore beyond
the Term, the Company agreed to compensate HeartCore for such services at the rate of US$150 per hour, based on the hours spent by personnel
of HeartCore.
The Term of the Consulting Agreement expired.
Our Corporate Structure
The following diagram illustrates our corporate
structure as of the date of this prospectus.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We conduct all of our operations through our subsidiary
in Japan, BloomZ Japan. BloomZ Japan is an audio producing and voice actor managing company, which aims to promote voice acting to the
world stage, as an essential component of animation and an aspect of Japanese culture. Since our inception in 2017, we have been devoting
ourselves to providing audio production services as well as voice acting educational services to Japanese youth who wish to become professional
voice actors.
COVID-19 Affecting Our Results of Operations
While our business was not materially affected
by the COVID-19 pandemic during the six months ended March 31, 2024 and 2023 and during the fiscal year ended September 30, 2023, it was
substantially and adversely affected during the fiscal years ended September 30, 2022 and 2021. The COVID-19 pandemic adversely
impacted Japan between the beginning of 2020 and the first half of 2023. During such period, the Japanese government issued several Declarations
of Emergency, requesting the closing of non-essential activities and businesses across the country as a preemptive safeguard against the
spread of COVID-19. This situation adversely impacted businesses across the country, particularly in the education and entertainment fields
in which we operate.
Audio Production
During the fiscal years ended September 30,
2022 and 2021, many of the orders for audio production services we had received were postponed, due to the cessation of the entirety of
animation production projects in compliance with the government COVID-19 policies. In addition, the progress of a few audio productions
was delayed, as some of our collaborating voice actors were infected with COVID-19. Our audio production business was not materially affected
by the COVID-19 pandemic during the six months ended March 31, 2024 and 2023 and during the fiscal year ended September 30, 2023, because
fewer orders for audio production services were postponed, as fewer animation production projects were deferred or canceled compared to
the fiscal years ended September 30, 2022 and 2021. However, the revenue generated from the audio production business during the fiscal
year ended September 30, 2023 nevertheless decreased by 46.9% compared to the fiscal year ended September 30, 2022, due to a reason unrelated
to the COVID-19 pandemic. The decrease was mainly because we were devoting ourselves to several large projects that are expected to take
a few years to complete during the fiscal year ended September 30, 2023, and thus, fewer revenue-generating projects were completed during
such period compared to the fiscal year ended September 30, 2022. The revenue generated from the audio production business during the
six months ended March 31, 2024 increased compared to the same period in the prior year.
VTuber Management
COVID-19 significantly affected the streaming
schedule due to infections afflicting our affiliated VTubers during fiscal year 2022. In addition, offline events featuring our affiliated
VTubers we planned to hold and expected to significantly contribute to the revenue were canceled in fiscal year 2022, either in compliance
with the government’s COVID-19 policies or due to the infection of our affiliated VTubers. Since fewer of our affiliated VTubers
were infected with COVID-19 and most of our infected affiliated VTubers had recovered from COVID-19, the streaming schedule during the
six months ended March 31, 2024 and 2023 and during the fiscal year 2023 was not as significantly affected as it was during the fiscal
year 2022. Consequently, during the six months ended March 31, 2024 and 2023 and during the fiscal year ended September 30, 2023, the
number of VTubers available for live streaming increased, which led to higher advertisement revenue, and thus, the revenue generated from
the VTuber management business significantly increased.
Voice Actor Workshops
Our physical voice actor workshops were frequently
canceled, in compliance with the government policies during the fiscal years ended September 30, 2022 and 2021, due to the COVID-19
pandemic. While our voice actor workshop business was not materially affected by the COVID-19 pandemic during the six months ended March
31, 2024 and during the fiscal year ended September 30, 2023, as no physical voice actor workshops were canceled during these periods,
the revenue generated from the voice actor workshop business decreased compared to the same period in the prior year. The decrease is
primarily because the Company focused on the operation of the VTuber management business rather than the recruitment of members for the
voice actor workshops during the six months ended March 31, 2024 and during the fiscal year ended September 30, 2023.
The extent of any future impact of the COVID-19
pandemic on our business is still highly uncertain and cannot be predicted as of the date of this prospectus. Any potential impact to
our operating results will depend, to a large extent, on future developments and new information that may emerge regarding the duration
and severity of the COVID-19 pandemic and the actions taken by government authorities to contain the spread of the COVID-19 pandemic,
almost all of which are beyond our control.
See “Risk Factors — Risks
Related to Our Business and Industry — Our financial condition, results of operations, and cash flows have been adversely
affected by the COVID-19 pandemic.”
Key Operating Metrics
In assessing the performance of our businesses,
we review and focus on our key financial performance indicators — revenue, gross profit and gross margin, and operating income and
operating margin.
Revenue
Revenue includes the proceeds from the audio production
business, the VTuber management business, and the voice actor workshop business, whereas the cost of goods sold primarily includes the
labor outsourcing costs incurred in delivering revenue.
Operating Profit and Operating Margin
Operating profit is the difference between our
revenue and cost of revenue, selling, general, and administrative (“SG&A”) expenses, and depreciation and amortization.
Operating margin is the operating profit expressed as a percentage of revenue.
Results of Operations
Comparison of Results of Operations for
the Six Months Ended March 31, 2024 and 2023
The following table sets forth our statements
of operations for the six months ended March 31, 2024 and 2023:
| |
Six Months Ended March 31, | | |
Change (2024 vs. 2023) | |
(in thousands, except change
% data) | |
2024 ($) | | |
2024 (¥) | | |
2023 ($) | | |
2023 (¥) | | |
$ | | |
¥ | | |
YoY % | |
Revenue | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Audio production and talent management business | |
| 361 | | |
| 54,650 | | |
| 259 | | |
| 39,227 | | |
| 102 | | |
| 15,423 | | |
| 39.3 | % |
Internet business | |
| 391 | | |
| 59,083 | | |
| 126 | | |
| 19,073 | | |
| 265 | | |
| 40,010 | | |
| 209.8 | % |
Workshop business | |
| 13 | | |
| 2,040 | | |
| 17 | | |
| 2,548 | | |
| (4 | ) | |
| (508 | ) | |
| (19.9 | )% |
Distributions from investments | |
| 44 | | |
| 6,604 | | |
| 8 | | |
| 1,281 | | |
| 36 | | |
| 5,323 | | |
| 415.5 | % |
Total Revenue | |
| 809 | | |
| 122,377 | | |
| 410 | | |
| 62,129 | | |
| 399 | | |
| 60,248 | | |
| 97.0 | % |
Costs and Expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of revenue | |
| 541 | | |
| 81,850 | | |
| 312 | | |
| 47,122 | | |
| 229 | | |
| 34,728 | | |
| 73.7 | % |
Selling, General and Administrative Expenses | |
| 346 | | |
| 52,274 | | |
| 130 | | |
| 19,662 | | |
| 216 | | |
| 32,612 | | |
| 165.9 | % |
Depreciation and amortization | |
| 44 | | |
| 6,635 | | |
| 26 | | |
| 3,882 | | |
| 18 | | |
| 2,753 | | |
| 70.9 | % |
Total Costs and Expenses | |
| 931 | | |
| 140,759 | | |
| 468 | | |
| 70,666 | | |
| 463 | | |
| 70,093 | | |
| 99.2 | % |
Operating Loss | |
| (122 | ) | |
| (18,382 | ) | |
| (58 | ) | |
| (8,537 | ) | |
| (64 | ) | |
| (9,845 | ) | |
| 115.3 | % |
% of revenue | |
| (15.1 | )% | |
| (15.0 | )% | |
| (14.1 | )% | |
| (13.7 | )% | |
| | | |
| | | |
| | |
Interest income (expense), net | |
| (1 | ) | |
| (92 | ) | |
| (5 | ) | |
| (683 | ) | |
| 4 | | |
| 591 | | |
| (86.5 | )% |
Other income (loss) | |
| - | | |
| 58 | | |
| 1 | | |
| 80 | | |
| (1 | ) | |
| (22 | ) | |
| (27.5 | )% |
Loss before income tax | |
| (123 | ) | |
| (18,416 | ) | |
| (62 | ) | |
| (9,140 | ) | |
| (61 | ) | |
| (9,276 | ) | |
| 101.5 | % |
Income tax expense | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 0.0 | % |
Net Loss | |
| (123 | ) | |
| (18,416 | ) | |
| (62 | ) | |
| (9,140 | ) | |
| (61 | ) | |
| (9,276 | ) | |
| 101.5 | % |
Revenue
Revenue increased by ¥60,248 thousand ($399
thousand) or 97.0% to ¥122,377 thousand ($809 thousand), primarily due to the following factors:
| ● | Revenue from audio production and talent management business
increased by ¥15,423 thousand ($102 thousand), or 39.3%, to ¥54,650 thousand ($361 thousand) during the six months ended March
31, 2024. The increase was mainly due to strong orders for audio production and the start of deliveries for animation production, for
which orders were received in the previous fiscal year. |
| ● | Revenue from the internet business significantly increased
by ¥40,010 thousand ($265 thousand), or 209.8%, to ¥59,083 thousand ($391 thousand) during the six months ended March 31, 2024.
The increase was mainly due to the release of a novel game featuring a well-known VTuber; |
| ● | Revenue from workshop business decreased by ¥508 thousand
($4 thousand), or 19.9%, to ¥2,040 thousand ($13 thousand) during the six months ended March 31, 2024. The decrease was mainly because
the Company focused on the operation of the VTuber management business rather than the recruitment of members for the voice actor workshops
and, thus, the number of new students enrolled in the workshop decreased; and |
| ● | Revenue from distribution from investments increased by ¥5,323
thousand ($36 thousand), or 415.5%,to ¥6,604 thousand ($44 thousand) during the six months ended March 31, 2024. The increase was
mainly due to an increase in the number of investments in animation production. In addition, the animation production committee the Company
invested in during the six months ended March 31, 2024 had strong earnings. |
Cost of Revenue
Total cost of revenue increased by ¥34,728
thousand ($229 thousand), or 73.7%, to ¥81,850 thousand ($541 thousand), reflecting the change in the direct costs associated with
the fluctuation in revenue.
SG&A Expenses and Depreciation and Amortization
Expenses and Operating Margin
Total selling, general, and administrative, or
SG&A, expenses increased by ¥32,612 thousand ($216 thousand), or 165.9%, to ¥52,274 thousand ($346 thousand), primarily due
to the following factors:
| ● | Higher salary expenses due to the additional employees hired
during the six months ended March 31, 2024. |
| ● | Higher commissions fees that resulted from higher sales from
the internet business. |
Depreciation and amortization expenses increased
by ¥2,753 thousand ($18 thousand), or 70.9%, to ¥6,635 thousand ($44 thousand), primarily due to the additional joint investments
the Company acquired during the six months ended March 31, 2024.
Operating loss increased by ¥9,845 thousand
($64 thousand), or 115.3%, to an operating loss of ¥18,382 thousand ($122 thousand) during the six months ended March 31, 2024 from
an operating loss of ¥8,537 thousand ($58 thousand) during the six months ended March 31, 2023. Operating margin decreased from a
loss of 13.7% to a loss of 15.0%.
Interest Expenses, Net
Net interest expenses decreased by ¥591 thousand
($4 thousand), or 86.5%, to ¥92 thousand ($1 thousand), mainly because the ¥200,000 thousand loan that the Company borrowed from
CyberStep in January 2023 was repaid in June 2023.
Other Income/Expenses, net
Other income was ¥58 thousand ($0.4 thousand),
primarily consists of income received from the short-term loan receivable and consumption taxes paid.
Net Loss
As a result, net loss was ¥18,416 thousand
($123 thousand) during the six months ended March 31, 2024 compared to a net loss of ¥9,140 thousand ($62 thousand) during the six
months ended March 31, 2023.
Cash Flows/Liquidity
As of March 31, 2024 and 2023, we had cash of
¥29,070 thousand ($192 thousand) and ¥59,955 thousand ($396 thousand), respectively. Liquidity is a measure of our ability to
meet potential cash requirements. We generally funded our operations with cash flow from operations and, when needed, with borrowings
from Japanese financial institutions or capital injections from our principal shareholders. Our principal uses for liquidity have been
to fund media rights bids for animation projects in our audio production business and for daily operations and working capital. We expect
that our cash and cash equivalents will be sufficient to fund our operating expenses and cash obligations for the next 12 months; however,
our ability to continue as a going concern depends upon our ability to attract and retain revenue generating customers, acquire new customer
contracts, and secure additional financing.
| |
(in 1,000 JPY) | |
| |
Six Month Ended March 31, | |
| |
2024 | | |
2023 | |
Cash flows from operating activities: | |
| | |
| |
Net loss | |
¥ | (18,416 | ) | |
¥ | (9,140 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 6,635 | | |
| 3,882 | |
Interest expense | |
| — | | |
| 647 | |
Interest income | |
| — | | |
| (80 | ) |
Changes in Operating Assets and Liabilities: | |
| | | |
| | |
Accounts Receivable | |
| (7,751 | ) | |
| (7,827 | ) |
Prepaid expenses and other current assets | |
| (4,450 | ) | |
| (1,855 | ) |
Deferred costs | |
| (18,308 | ) | |
| 871 | |
Accounts payable and accrued expenses | |
| 17,898 | | |
| (2,943 | ) |
Other current liabilities | |
| 87,428 | | |
| 25,181 | |
Net cash provided by operating activities | |
| 63,036 | | |
| 8,736 | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of intangible assets – participation rights | |
| (79,950 | ) | |
| — | |
Payment for short-term loan receivable | |
| — | | |
| (35,640 | ) |
Net cash used in investing activities | |
| (79,950 | ) | |
| (35,640 | ) |
Cash flows from financing activities | |
| | | |
| | |
Repayments of long term debt | |
| (1,020 | ) | |
| (1,020 | ) |
Repayment of lease liabilities | |
| (1,600 | ) | |
| (1,610 | ) |
Payment of deferred offering costs | |
| (41,351 | ) | |
| (44,581 | ) |
Proceeds from a loan from related party | |
| 30,000 | | |
| 200,000 | |
Proceeds from cash issuance of shares | |
| — | | |
| 33,500 | |
Net cash (used in)/provided by financing activities | |
| (13,971 | ) | |
| 186,289 | |
Net (decrease)/increase in cash and cash equivalents | |
| (30,885 | ) | |
| 159,385 | |
Cash and cash equivalents at beginning of period | |
| 59,955 | | |
| 65,480 | |
Cash and cash equivalents at end of period | |
¥ | 29,070 | | |
¥ | 224,865 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
| 92 | | |
| 36 | |
Cash paid for income taxes | |
| - | | |
| 6,510 | |
Operating Activities
Net cash generated by operating activities increased
from ¥8,736 thousand ($58 thousand) during the six months ended March 31, 2023 to ¥63,036 thousand ($413 thousand) during the
six months ended March 31, 2024, primarily due to the increase in deferred revenue.
Investing Activities
Net cash used in investing activities increased
from ¥35,640 thousand ($236 thousand) during the six months ended March 31, 2023 to ¥79,950 thousand ($529 thousand) during the
six months ended March 31, 2024, mainly due to higher spending related to the acquisition of joint investments during the six months ended
March 31, 2024.
Financing Activities
Net cash provided by financing activities decreased
from a cash inflow of ¥186,289 thousand ($1,232 thousand) during the six months ended March 31, 2023 to a cash outflow of ¥13,971
($92 thousand) during the six months ended March 31, 2024, primarily due to the reduction in the amount of loan proceeds the Company received
from a related party during the six months ended March 31, 2024.
Debt
The Company’s borrowings as of March 31,
2024 and September 30, 2023, including short-term and long-term positions, consisted of the following:
| |
| |
| |
Yen in thousands | |
| |
| |
| |
As of
March 31, | | |
As of
September 30, | |
| |
Interest Rate | |
Maturity | |
2024 | | |
2023 | |
Term loan with Japan Finance Corporation | |
1.36% | |
30-Jun-29 | |
¥ | 12,750 | | |
¥ | 13,770 | |
Total long-term debt | |
| |
| |
| 12,750 | | |
| 13,770 | |
Current portion of long-term debt, net of debt issuance costs | |
| |
| |
| (2,040 | ) | |
| (2,040 | ) |
Long-term debt, excluding current portion, net of debt issuance costs | |
| |
| |
¥ | 10,710 | | |
¥ | 11,730 | |
Contractual Obligations and Commitments
| |
As of March 31, 2024 | |
| |
Payments due by period: | |
Yen in thousands | |
Total | | |
Less than 1 year | | |
1 – 3 years | | |
4 – 5 years | | |
More than 5 years | |
Long-term debt principal payments | |
¥ | 12,750 | | |
¥ | 2,040 | | |
¥ | 6,120 | | |
¥ | 4,080 | | |
¥ | 510 | |
Operating lease payments | |
| 1,174 | | |
| 1,174 | | |
| — | | |
| — | | |
| — | |
Total | |
¥ | 13,924 | | |
¥ | 3,214 | | |
¥ | 6,120 | | |
¥ | 4,080 | | |
¥ | 510 | |
Comparison of Results of Operations for
the Fiscal Years Ended September 30, 2023 and 2022
The following table sets forth our statements
of operations for the fiscal years ended September 30, 2023 and 2022:
| |
Years Ended September 30, | | |
Change (2023 vs. 2022) | |
(in thousands, except change % data) | |
2023 ($) | | |
2023 (¥) | | |
2022 ($) | | |
2022 (¥) | | |
$ | | |
¥ | | |
YoY% | |
Revenue | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Audio production and talent management business | |
| 427 | | |
| 63,835 | | |
| 804 | | |
| 120,121 | | |
| (377 | ) | |
| (56,286 | ) | |
| (46.9 | )% |
Internet business | |
| 384 | | |
| 57,442 | | |
| 125 | | |
| 18,630 | | |
| 259 | | |
| 38,812 | | |
| 208.3 | % |
Workshop business | |
| 34 | | |
| 5,054 | | |
| 39 | | |
| 5,805 | | |
| (5 | ) | |
| (751 | ) | |
| (12.9 | )% |
Distributions from investments | |
| 13 | | |
| 1,982 | | |
| 6 | | |
| 847 | | |
| 7 | | |
| 1,135 | | |
| 134.0 | % |
Total Revenue | |
| 858 | | |
| 128,313 | | |
| 974 | | |
| 145,403 | | |
| (116 | ) | |
| (17,090 | ) | |
| (11.8 | )% |
Costs and Expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of revenue | |
| 558 | | |
| 83,308 | | |
| 720 | | |
| 107,617 | | |
| (162 | ) | |
| (24,309 | ) | |
| (22.6 | )% |
Selling, General and Administrative Expenses | |
| 345 | | |
| 51,626 | | |
| 186 | | |
| 27,809 | | |
| 159 | | |
| 23,817 | | |
| 85.6 | % |
Depreciation and amortization | |
| 55 | | |
| 8,264 | | |
| 21 | | |
| 3,156 | | |
| 34 | | |
| 5,108 | | |
| 161.9 | % |
Total Costs and Expenses | |
| 958 | | |
| 143,198 | | |
| 927 | | |
| 138,582 | | |
| 31 | | |
| 4,616 | | |
| 3.3 | % |
Operating (Loss)/Income | |
| (100 | ) | |
| (14,885 | ) | |
| 47 | | |
| 6,821 | | |
| (147 | ) | |
| (21,706 | ) | |
| (318.2 | )% |
% of revenue | |
| (11.6 | )% | |
| (11.6 | )% | |
| 4.7 | % | |
| 4.7 | % | |
| | | |
| | | |
| | |
Net interest expense | |
| (12 | ) | |
| (1,723 | ) | |
| (1 | ) | |
| (78 | ) | |
| (11 | ) | |
| (1,645 | ) | |
| 2,109.0 | % |
Net other income | |
| 5 | | |
| 812 | | |
| — | | |
| 8 | | |
| 5 | | |
| 804 | | |
| 10,050.0 | % |
(Loss)/Income before income tax | |
| (107 | ) | |
| (15,796 | ) | |
| 46 | | |
| 6,751 | | |
| (153 | ) | |
| (22,547 | ) | |
| (334.0 | )% |
Income tax expense | |
| — | | |
| — | | |
| 44 | | |
| 6,510 | | |
| (44 | ) | |
| (6,510 | ) | |
| 100.0 | % |
Net (Loss)/Income | |
| (107 | ) | |
| (15,796 | ) | |
| 2 | | |
| 241 | | |
| (109 | ) | |
| (16,037 | ) | |
| (6,654.4 | )% |
Revenue
Revenue decreased by 11.8% year-over-year to ¥128,313
thousand ($858 thousand) primarily due to the following factors:
| ● | While our audio production and talent management business
was not materially affected by the COVID-19 pandemic during the fiscal year ended September 30, 2023, revenue from such business
nevertheless decreased by 46.9% to ¥63,835 thousand ($427 thousand) during the fiscal year ended September 30, 2023 compared
to ¥120,121 thousand ($804 thousand) during the fiscal year ended September 30, 2022. The decrease is mainly because the Company
was devoting itself to several large projects that are expected to take a few years to complete during the fiscal year ended September 30,
2023, and thus, fewer projects were completed compared to the fiscal year ended September 30, 2022; |
| ● | Revenue from the Internet business significantly increased
by 208.3% to ¥57,442 thousand ($384 thousand) during the fiscal year ended September 30, 2023 compared to ¥18,630 thousand
($125 thousand) during the fiscal year ended September 30, 2022, mainly due to an increase in the number of VTubers for live streaming,
which resulted in higher advertisement revenue; |
| ● | While our workshop business was not materially affected by
the COVID-19 pandemic during the fiscal year ended September 30, 2023, revenue from such business decreased by 12.9% to ¥5,054
thousand ($34 thousand) during the fiscal year ended September 30, 2023 compared to ¥5,805 thousand ($39 thousand) during the
fiscal year ended September 30, 2022. The decrease is primarily because the Company focused on the operation of the VTuber management
business rather than the recruitment of members for the voice actor workshops during the fiscal year ended September 30, 2023; and |
| ● | Revenue from distribution from investments increased by 134.0%
to ¥1,982 thousand ($13 thousand) during the fiscal year ended September 30, 2023 compared to ¥847 thousand ($6 thousand)
during the fiscal year ended September 30, 2022, mainly due to two additional joint investments the Company acquired during the
fiscal year ended September 30, 2023. |
Cost of Revenue
Total cost of revenue decreased by 22.6% year-over-year
to ¥83,308 thousand ($558 thousand), reflecting the change in the direct costs associated with the fluctuation in revenue.
SG&A Expenses and Depreciation and Amortization
Expenses and Operating Margin
Total selling, general, and administrative, or
SG&A, expenses increased by 85.6% year-over-year to ¥51,626 thousand ($345 thousand), primarily due to the following factors:
| ● | Higher executive compensation and salaries, due to the additional
director and employees hired during the fiscal year ended September 30, 2023. |
| ● | Higher professional fees related to the capital increases
the Company had during the fiscal year ended September 30, 2023. |
Depreciation and amortization expenses increased
by 161.9% year-over-year to ¥8,264 thousand ($55 thousand), primarily due to the additional joint investments the Company acquired
during the fiscal year ended September 30, 2023.
Operating income decreased by 318.2% to an operating
loss of ¥14,885 thousand ($100 thousand) during the fiscal year ended September 30, 2023 from an operating income of ¥6,821
thousand ($47 thousand) during the fiscal year ended September 30, 2022. Operating margin decreased from a profit of 4.7% to a loss
of 11.6%.
Interest Expenses, Net
Net interest expenses increased by 2,109.0% year-over-year
to ¥1,723 thousand ($12 thousand), mainly due to the ¥200,000 thousand loan that the Company borrowed from CyberStep in January 2023.
The loan was repaid in June 2023.
Other Income/Expenses, net
Other income was ¥812 thousand ($5 thousand),
reflecting interest income from short-term loan receivable.
Income Tax Expense
Income tax expense decreased by 100.0% year-over-year
to ¥0 ($0) due to the pre-tax loss the Company had during the fiscal year ended September 30, 2023.
Net Loss
As a result, net loss was ¥15,796 thousand
($107 thousand) during the fiscal year ended September 30, 2023 compared to a net income of ¥241 thousand ($2 thousand) during
the fiscal year ended September 30, 2022.
Cash Flows/Liquidity
As of September 30, 2023 and 2022, we had cash
of ¥59,955 thousand ($401 thousand) and ¥65,480 thousand ($438 thousand), respectively. Liquidity is a measure of our ability
to meet potential cash requirements. We generally funded our operations with cash flow from operations and, when needed, with borrowings
from Japanese financial institutions or capital injections from our principal shareholders. Our principal uses for liquidity have been
to fund media rights bids for animation projects in our audio production business and for daily operations and working capital. We expect
that our cash and cash equivalents will be sufficient to fund our operating expenses and cash obligations for the next 12 months; however
our ability to continue as a going concern depends upon our ability to attract and retain revenue generating customers, acquire new customer
contracts, and secure additional financing.
| |
(in 1,000 JPY) Years Ended September 30, | |
| |
2023 | | |
2022 | |
Cash flows from operating activities: | |
| | | |
| | |
Net (loss)/income | |
¥ | (15,796 | ) | |
¥ | 241 | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 8,264 | | |
| 3,122 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (13,326 | ) | |
| 7,215 | |
Prepaid expenses and other current assets | |
| (3,716 | ) | |
| 3,372 | |
Deferred costs | |
| (19,757 | ) | |
| 15,723 | |
Other Assets | |
| — | | |
| (148 | ) |
Accounts payable | |
| (24,993 | ) | |
| 21,119 | |
Other current liabilities | |
| 27,499 | | |
| 2,175 | |
Net cash (used in)/provided by operating activities | |
| (41,825 | ) | |
| 52,819 | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of property, plant and equipment | |
| (319 | ) | |
| (366 | ) |
Purchase of intangible assets | |
| (19,828 | ) | |
| (6,068 | ) |
Net cash used in investing activities | |
| (20,147 | ) | |
| (6,434 | ) |
Cash flows from financing activities | |
| | | |
| | |
Proceed from issuance of shares | |
| 233,600 | | |
| — | |
Payment of deferred offering costs | |
| (171,893 | ) | |
| — | |
Repayments of long term debt | |
| (2,040 | ) | |
| (2,040 | ) |
Repayment under lease liabilities | |
| (3,220 | ) | |
| (200 | ) |
Net cash provided by/(used in) financing activities | |
| 56,447 | | |
| (2,240 | ) |
Net (decrease)/increase in cash and cash equivalents | |
| (5,525 | ) | |
| 44,145 | |
Cash and cash equivalents at beginning of period | |
| 65,480 | | |
| 21,335 | |
Cash and cash equivalents at end of period | |
¥ | 59,955 | | |
¥ | 65,480 | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
¥ | 1,723 | | |
¥ | 78 | |
Cash paid for income taxes | |
| 6,510 | | |
| — | |
Operating Activities
Net cash generated by operating activities decreased
from ¥52,819 thousand ($398 thousand) generated by operating activities during the fiscal year ended September 30, 2022 to the
net cash use of ¥41,825 thousand ($280 thousand) during the fiscal year ended September 30, 2023, primarily due to the following factors:
| ● | The Company had net loss of ¥15,796 thousand ($107 thousand)
during the fiscal year ended September 30, 2023 compared to the net income of ¥241 thousand ($2 thousand); and |
| ● | The decrease in accounts payable due to a related party for
the payment of outsourcing expenses made during the fiscal year ended September 30, 2023. |
Investing Activities
Net cash used in investing activities increased
from ¥6,434 thousand ($48 thousand) used in investing activities during the fiscal year ended September 30, 2022 to ¥20,147
thousand ($135 thousand) during the fiscal year ended September 30, 2023, primarily due to higher spending related to the acquisition
of joint investments totaling ¥19,828 thousand ($133 thousand) during the fiscal year ended September 30, 2023 compared to ¥6,068
thousand ($41 thousand) during the fiscal year ended September 30, 2022.
Financing Activities
Net cash provided by financing activities increased
from ¥2,240 thousand ($17 thousand) used in financing activities during the fiscal year ended September 30, 2022 to ¥56,447
($378 thousand) provided by financing activities during the fiscal year ended September 30, 2023, primarily due to the proceeds the Company
received from issuance of shares during the fiscal year ended September 30, 2023 while the Company did not issue new shares during the
fiscal year ended September 30, 2022. The increase was partially offset by the payments of deferred offering costs made during the fiscal
year ended September 30, 2023.
Debt
The Company’s borrowings as of September 30,
2023 and 2022, including short-term and long-term positions, consisted of the following:
| |
| |
| |
Yen in thousands | |
| |
Interest Rate | |
Maturity | |
September 30,
2023 | | |
September 30,
2022 | |
Term loan with Japan Finance Corporation | |
0.46 to 1.36% | |
30-Jun-29 | |
¥ | 13,770 | | |
¥ | 15,810 | |
Total long-term debt | |
| |
| |
| 13,770 | | |
| 15,810 | |
Current portion of long-term debt | |
| |
| |
| (2,040 | ) | |
| (2,040 | ) |
Long-term debt, excluding current portion | |
| |
| |
¥ | 11,730 | | |
¥ | 13,770 | |
Contractual Obligations and Commitments
| |
As of September 30, 2023 | |
| |
Payments due by period: | |
Yen in thousands | |
Total | | |
Less than 1 year | | |
1 – 3 years | | |
4 – 5 years | | |
More than 5 years | |
Long-term debt principal payments | |
¥ | 13,770 | | |
¥ | 2,040 | | |
¥ | 6,120 | | |
¥ | 4,080 | | |
¥ | 1,530 | |
Long-term debt interest payments | |
| 640 | | |
| 175 | | |
| 357 | | |
| 99 | | |
| 9 | |
Operating lease payments | |
| 2,774 | | |
| 2,774 | | |
| — | | |
| — | | |
| — | |
Total | |
¥ | 17,184 | | |
¥ | 4,989 | | |
¥ | 6,477 | | |
¥ | 4,179 | | |
¥ | 1,539 | |
Critical Accounting Polices and use of Estimates
Basis of Presentation
The accompanying financial statements appearing
elsewhere in this prospectus are presented in Japanese yen, the currency of the country in which the Company is incorporated and primarily
operates. The accompanying financial statements are prepared in accordance with U.S. GAAP.
Going Concern
The Company had a loss of ¥18,416 thousand,
¥15,796 thousand and a profit of ¥241 thousand for the six months ended March 31, 2024 and the fiscal years ended September 30,
2023 and 2022, respectively. The operating income and loss resulted in an accumulated deficit of ¥34,905 thousand, ¥16,489 thousand
and ¥693 thousand as of March 31, 2024, September 30, 2023 and 2022, respectively.
The Company’s financial statements have
been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation
of liabilities in the normal course of business. The Company’s ability to continue as a going concern is dependent upon the Company’s
ability to attract and retain revenue generating customers, acquire new customer contracts, and secure additional financing.
The Company may consider obtaining additional
financing in the future through the issuance of the Company’s Ordinary Shares, other equity or debt financings, or other means.
The Company, however, is dependent upon its ability to obtain new revenue generating customer contracts, secure equity and/or debt financing
and there are no assurances that the Company will be successful. The financial statements do not include any adjustments to the recoverability
and classification of recorded asset amounts, or the amounts and classification of liabilities that might be necessary should the Company
be unable to continue as a going concern.
Use of Estimates
The preparation of the financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities as of the reporting date, and the reported amounts of revenue and expense during the
reporting period. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake
in the future and include, but are not limited to, useful lives of property and equipment, deferred costs, and valuation allowance against
net deferred tax assets. Actual results could differ from those estimates.
Revenue Recognition
The Company applies ASC Topic 606, Revenue
from Contracts with Customers (“ASC 606”) for all periods presented in the financial statements. To determine the
appropriate amount of revenue to be recognized in accordance with ASC 606, the Company follows a five-step model as follows:
1 — Identification of the
contract with a customer
2 — Identification of the
performance obligation in the contract
3 — Determination of the transaction
price
4 — Allocation of the transaction
price to the performance obligation in the contract
5 — Recognition of revenue
when, or as, a performance obligation is satisfied
The Company’s revenue is primarily derived
from audio production and provision of talent management business, internet business, and workshop business. The Company assesses the
contract term as the period in which the parties to the contract have enforceable rights and obligations. Customer contracts are generally
standardized and non-cancellable for the duration of the stated contract term. Consumption taxes collected and remitted to tax authorities
are excluded from revenue.
The Company may use third-party vendors to provide
certain goods or services to its customers. The Company evaluates those relationships to determine whether revenue should be reported
gross or net. The Company recognizes revenue on a gross basis where it acts as principal and controls the goods and services used to fulfill
the performance obligations to the customer and on a net basis where it acts as an agent.
Regarding revenue derived from audio production
and talent management business, the Company did not act as an agent during the fiscal years ended September 30, 2023 and 2022. During
the fiscal year ended September 30, 2023, the Company started sales of novel games as part of their Internet business. The Company evaluated
the relationships with retailers and recognized revenue on a gross basis when the Company acted as principal and recognized in net when
the Company acted as an agent.
Leases
We determine if an arrangement is a lease at inception.
Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities — current,
and operating lease liabilities — noncurrent on the balance sheets. Finance leases are included in property and equipment,
other current liabilities, and other long-term liabilities in our balance sheets.
ROU assets represent our right to use an underlying
asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease
ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most
of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest
for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes
any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is
reasonably certain that we will exercise that option. Lease expenses for lease payments are recognized on a straight-line basis over the
lease term.
Leases with a lease term of 12 months or
less at inception are not recorded on our balance sheet and are expensed on a straight-line basis over the lease term in our statement
of operations.
Quantitative and Qualitative Disclosure about
Market Risk
Currency Risk
We transact our operating activities in Japanese
yen. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities, and net investments in foreign
operations. We acknowledge the recent deterioration and volatility of the Japanese yen relative to U.S. dollars, but believe we are
relatively insulated from foreign exchange risk, as primarily all of our economical transactions are conducted within Japan and using
Japanese yen.
Market Risk
We derive revenue primarily from animation content
and other visual and entertainment mediums which feature animation or digital content. We believe the end-market demands for such content
will continue to increase in the foreseeable future and believe that products such as merchandises and film adaptations that serve this
demand will continue to be in demand.
BUSINESS
Overview
We conduct all of our operations through our subsidiary
in Japan, BloomZ Japan. BloomZ Japan is an audio producing and voice actor managing company, which aims to promote voice acting to the
world stage, as an essential component of animation and an aspect of Japanese culture. Since our inception in 2017, we have been devoting
ourselves to providing audio production services as well as voice acting educational services to Japanese youth who wish to become professional
voice actors.
We are currently engaged in three lines of businesses:
(i) the audio production business; (ii) the VTuber management business; and (iii) the voice actor workshop business.
Audio Production Business
Since our inception in 2017, we have provided
comprehensive audio production services for animations and video games. The procedure of comprehensive audio production begins once the
animation/video game-producing company initially completes the visual works of the animation/video game and generally consists of dubbing,
BGM producing, and mixing.
We have developed certain cooperating models with
animation/video game-producing companies, under which we receive the audio production fees from the production committee/video game-producing
companies for our comprehensive audio production services. In particular, we can choose to invest in the whole animation-producing project
under the cooperating model for animation production and would be entitled to share the profit based on our investment ratio after the
animations are sold.
The fees paid by the production committee/video
game-producing companies for our comprehensive audio production services are the primary income of our audio production business, and
they amounted to approximately JPY54,650 thousand, JPY63,835 thousand and JPY120,121 thousand during the six months ended March 31, 2024
and the fiscal years ended September 30, 2023 and 2022, which accounted for approximately 44.7%, 49.8% and 83.2% of our total
revenue for those periods, respectively.
VTuber Management Business
We commenced our VTuber management business in
December 2021. A “VTuber” is a virtual character (animated character) we create by utilizing motion-capture technology
for our streamers to provide their voice to stream real-time videos featuring human facial expressions and gestures, which can also communicate
and interact with audiences through the chat function by embedding in live-streaming platforms.
“Hoshimeguri Gakuen” is a VTuber group
consisting of 16 of the affiliated VTubers, as of the date of this prospectus, we have managed and operated since its debut in December 2021.
Our affiliated VTubers mainly focus on real-time live streaming on online platforms such as YouTube, FANBOX and BOOTH, such as chatting,
singing, and game live streaming. Besides interactive real-time live streaming, we also sell goods and digital merchandise featuring the
virtual characters of our affiliated VTubers on FANBOX and BOOTH. In addition, our affiliated VTubers participate and perform in online
live streaming events held by other companies, such as VirtualThruLens.
Most of the revenue of the VTuber management business
was from the profits distributed by the online platforms and the performing fees distributed by the host companies of live streaming events.
For the six months ended March 31, 2024 and the fiscal years ended September 30, 2023 and 2022, the revenue generated from the VTuber
management business was JPY59,083 thousand, JPY57,442 thousand and JPY18,630 thousand, which accounted for approximately 48.3%, 44.8%
and 12.8% of our total revenue for those periods, respectively. Among the sources of revenue generated from the VTuber management business
during the six months ended March 31, 2024, 24.6%, 51.0%, 1.4%, and 23.0% came from YouTube, BOOTH, FANBOX, and others, respectively.
During the fiscal year ended September 30, 2023, 29.0%, 42.5%, 2.1%, and 26.3% came from YouTube, BOOTH, FANBOX, and others, respectively.
During the fiscal year ended September 30, 2022, 54.0%, 26.4%, 6.6%, and 13% came from YouTube, BOOTH, FANBOX, and others, respectively.
Voice Actor Workshop Business
We have provided professional and practical voice
acting educational services through our voice actor workshops since our inception in 2017. In cooperation with active professional voice
actors, we regularly host physical voice actor workshops four times a month in the studios leased by CyberStep in Tokyo, Japan, which
CyberStep permits such use at no charge.
To cultivate young voice actors and their abilities
to work as a professional, we provide our members basic vocalization-related lessons and combine actual animation and video game scripts
into the training sections to equip them with practical skills and mannerisms in dubbing and audio production. As of March 31, 2024, we
had 70 registered members who had participated in our workshops.
We generally charge every registered member a
membership fee of JPY22 thousand monthly for four lessons in one month. Membership fees from the registered members provide the primary
income of our voice actor workshop business, and they amounted to approximately JPY2,040 thousand, JPY5,054 thousand and JPY5,805 thousand
during the six months ended March 31, 2024 and the fiscal years ended September 30, 2023 and 2022, which accounted for approximately
1.7%, 3.9% and 4.0% of our total revenue for those periods, respectively.
Our Competitive Strengths
We believe the following competitive strengths
are essential for our success and differentiate us from our competitors:
Visionary and Experienced Management Team
with Strong Technical and Operational Expertise
Our senior management team has extensive experience
in the audio production industry, extending to both the animation and video game production industry. Ms. Kazusa Aranami, our founder
and chief executive officer, is known for her achievement as a voice actress. As an entrepreneur with a strong voice acting background
and over 10 years of experience in the audio production industry, Ms. Aranami has led us to establish an optimized and robust standard
of procedure to ensure the high quality and efficiency of our audio production services and secured the main sources of the orders for
our audio production services with her insight into the industry trends and her deep connections within the industry. Having worked in
the animation production industry for more than 10 years, Mr. Yuhi Mimura, our director, had been involved in all stages of
animation production in his career. With his profound experience in the animation production industry, Mr. Mimura is capable of casting
any genre of audio work, which allows us to adjust our operation with respect to audio production flexibly within the client’s budget.
Under the leadership of our senior management members, we have identified trends in the audio production industry and seized opportunities
for growth and innovation.
Innovative Vision and Operating Philosophy
Our goal and operating philosophy are to promote
voice acting to the world, as an aspect of Japanese culture that is similar to animation, which is an essential component of animation
and an aspect of Japanese culture. Based on this goal and operating philosophy, we are actively challenging new fields unparalleled in
the closed voice acting industry — VTubers, a spin-off and an innovative application of voice acting — leading
to achievements, for example, we have managed and operated a VTuber group, “Hoshimeguri Gakuen,” which, together with our
affiliated VTubers’ individual YouTube channels, had approximately 470,000 subscribers on its YouTube channel as of March 31, 2024.
Since VTubers are operating under virtual characters, streamers can be engaged in streaming with fewer real world constraints regarding
geographic distance, gender, age, nationality, etc., as opposed to the constraints physical individuals would encounter. In addition,
since we own the intellectual property rights of the VTubers’ virtual characters, we may efficiently conduct business by leveraging
the intellectual property rights in designing and selling physical and virtual merchandise featuring the VTubers’ virtual characters.
Close Connections with a Large Variety of
Talented Voice Actors and VTubers
As Ms. Kazusa Aranami, our chief executive officer,
a well-known voice actress and VTuber with profound experience and achievement, has been leading the operations of our audio production
business and VTuber management business since our inception, we have developed close connections with a large variety of talented voice
actors and VTubers. As of the date of this prospectus, we have 59 collaborating voice actors and 16 affiliated VTubers. We believe close
connections with a large variety of talented and experienced voice actors and VTubers would enable us to provide more efficient, flexible,
and diverse as well as high-quality services to our existing clients and attract potential clients.
Strong Support from a Large Video Game-Producing
Company
One of our principal shareholders, CyberStep,
is a large video game-producing company. Since video game production is one of the upstream industries of our audio production business
and VTuber management business, CyberStep is competent in quickly and efficiently designing and producing novel video games suitable for
our collaborating voice actors and affiliated VTubers with specific teams. While we do not enter into agreements with CyberStep on a regular
basis, from time to time, when CyberStep takes into account our collaborating voice actors’ or affiliated VTubers’ vocal characteristics,
skills and experiences when designing characters in the video games, including the characters’ personalities, backgrounds and genders,
it enters into service agreements with us for our audio production services that feature our collaborating voice actors or affiliated
VTubers. For example, the video game “Onigiri,” which Cyberstep launched in 2013, features one voice actor from our Company,
and the video game “CosmicBreak Universal,” which CyberStep launched in 2020, features two voice actors from our Company.
This has also been a significant attraction point of our voice actor workshops.
In addition, as a large video game-producing company
that has invested in and cooperated with various companies and developed strategic alliances from different industries, including retail
sales, logistics, and event planning, CyberStep has granted us access to its resources and assets, such as using the studios it leases
to host physical voice actor workshops and its existing sales channels to sell and deliver the merchandise featuring our collaborating
voice actors and affiliated VTubers. In addition, CyberStep has been assisting us in engaging with and securing opportunities to work
with its subsidiaries or strategic alliances. For instance, since CyberStep invested in TechnoBlood eSports Inc., a Japanese e-sports
company (“TechnoBlood”), in December 2022, TechnoBlood and BloomZ Japan jointly worked on an e-sports program broadcasted
in June 2023 on TOKYO MX, a TV channel that is available to be watched by approximately 15 million households and 37.35 million
people in the Kanto area of Japan, in which BloomZ Japan was responsible for hosting for the events and casting performers.
However, since we do not enter into an agreement
with CyberStep specifically granting us access to its resources and assets, assisting us in generating work opportunities or providing
us with any support, we have been dependent on oral permission and non-obligatory assistance and support from the management of CyberStep,
which CyberStep may cease providing at its own discretion in the future. Please see “Risk Factors — Risks Related to Risks
Related to Our Business and Industry — If we are no longer able to benefit from CyberStep’s support, our business may be adversely
affected.”
Our Growth Strategy
Continue to focus on maintaining and improving
the quality and quantity of our audio production services
The audio production business is our core business
and is the key to our continued growth and building our reputation and brand awareness. Therefore, we intend to continue to focus on maintaining
and improving the quality of our audio production service. Our initiatives include further optimizing the standard of procedure for our
audio production and enhancing the training of and quality control over the collaborating voice actors. We also intend to increase the
quantity of our audio production services by investing in and undertaking audio production for more animation and video game productions
and acquiring the intellectual property rights to audio production, voice actor casting, and digital content production.
Maintain and further develop business relationships
with our existing and potential clients in the animation and video game industries
Due to the abundant business connections with
the animation and video game industries, our CEO, Ms. Aranami, and our director, Mr. Mimura, have established during their long and
successful careers in the field, we have developed deep cooperating relationships with many upstream entities of the animation and video
game industry. Our senior management team has built solid connections with Nihon Falcom Corporation, CyberStep, ZERO-G Inc., and other
well-known animation or video game-producing companies in Japan. We plan to further develop business relationships with potential clients
by investing in and undertaking audio production for more animation and video game productions so as to cooperate with new clients and
build our reputation and brand awareness. We also anticipate the increase in our visibility and brand recognition as a consequence of
our recent listing on Nasdaq may benefit us in attracting more potential clients to place orders for our audio production service.
Continue to invest in securing talented
and competent voice actors and VTubers
A large variety of talented and competent voice
actors and VTubers are the root of our audio production business and VTuber management business. Therefore, we intend to continue to invest
in securing talented and competent voice actors and VTubers by enhancing the training of our collaborating voice actors and affiliated
VTubers, headhunting for experienced voice actors and VTubers who have already accomplished certain achievement, and holding more and
larger scale auditions to discover talented newcomers.
In addition to targeting individual experienced
voice actors and VTubers, we also intend to acquire currently existing VTuber groups from their operating and managing companies in Japan.
Through the preceding approaches, we aim to have
VTuber groups consisting of more than 100 affiliated VTubers by 2025.
Expand into the fields of planning and producing
our own animation and TV programs
It has long been our desire and goal to plan and
produce our own original animated films. Having our own animation production projects will set a milestone for our growth and development,
which we believe will enable us to vertically integrate our resources and enable us to form a more efficient corporate structure.
While we will continue to invest in other companies’
animation production projects, we also intend to move forward to expand into the fields of planning and producing our own animation and
TV programs. Since the beginning of the fiscal year 2023, we have received a few orders, including an order to produce a 12 episodes of
three-minute animation broadcasted from January 2024 to March 2024 with a total producing budget of JPY32 million, and have developed
an administrating structure capable of planning and producing our own animation production, under which our CEO, Ms. Aranami, leverages
her keen insight on the industry trends and her deep connections within the animation industry to conduct sales activities and our director,
Ms. Mimura, who is proficient in animation production management, has established a system to manage the progress of the animation production
with his profound experience in animation production and know-how.
Investment in animation production committees
to acquire rights outside of comprehensive audio production
In the Japanese animation production industry,
“animation production committees” are usually established as an external joint venture or partnership by several companies,
including animation-producing companies, audio production companies, and other investors, to produce animation. To establish an animation
production committee, the companies enter into a joint venture or partnership agreement specifying the distribution and fees for work,
the date of the first broadcast, the total project cost, the ownership of intellectual property rights, the method of profit allocation,
the amount of investment by each company, and their respective roles. Generally, only the companies investing in the animation production
committee may obtain the right to provide their services for the project. Therefore, we usually invest in an animation production committee
to acquire the right and work opportunity to provide our audio production services for the project. In addition, once the animation is
sold, the animation production committee would allocate the profit to the investors pursuant to the joint venture or partnership agreement
or, if not stipulated, on the basis of the investment ratio of each party.
As of the date of this prospectus, in addition
to acquiring the rights to the comprehensive audio production through our investment in animation production committees, we have also
acquired the rights to the comprehensive animation production, the overseas copyrights and the rights for goods merchandising.
As we believe that overseas copyrights are
one of the highest sales and revenue-generating rights obtainable in the animation production business, we expect that, in addition
to the rights to the comprehensive audio production, acquiring such copyrights would enhance our total revenues and consequently
contribute to the growth of our business. As of the date of this prospectus, we have acquired the rights to adapt seven popular
Japanese manga into animation and plan to use them as leverage to form animation production committees, subject to the condition
that we will exclusively own the overseas copyrights of the seven animations produced. Among the seven animations, one has been
broadcast from January 2024 to March 2024, two are scheduled for broadcast in the second half of the calendar year 2024, and the
others are scheduled in the calendar year 2025, and we expect to start generating revenues from their overseas copyrights
thereafter.
Our Business
Our business contains three core parts: the audio
production business, the VTuber management business, and the voice actor and VTuber workshop business.
Audio Production
The audio production business has been our main
business since our inception in 2017.
High-quality audio production takes an animation/video
game to a different level. For video game production, we have developed a cooperating model with the video game-producing companies.
The cooperating model for video game production
is illustrated as follows:
Under this cooperating model, we are responsible
for comprehensive audio production for the video game, including auditioning and determining which of our collaborating voice actors to
dub for the characters in the video game, while in some cases, video game-producing companies may designate specific voice actors that
are not affiliated with us to dub, and organizing and arranging schedules for the voice actors to record. Generally, video game-producing
companies pay a lump sum audio production fee directly to us, and we will then distribute the casting/performance fee to our collaborating
voice actors pursuant to our exclusive management agreements with them or to the voice actors’ agencies for the unaffiliated voice
actors.
As for the animation production, since we are
responsible for providing one of the most significant and indispensable parts of animation production, we have been leveraging our audio
production services to develop a cooperating model with animation-producing companies, in which we are an investor (among other investors)
of the whole animation/video game production, as well as an outsourced contractor engaged by the production committee (in which we are
an investor).
The cooperating model for animation production
is illustrated as follows:
Under this cooperating model, we invest in and
establish a production committee with the animation-producing company and other investors. Through the production committee, we are in
charge of the comprehensive audio production once the animation-producing company is initially finished with the visual works of the animation.
An animation usually contains 12 episodes, with one episode being recorded, edited, and produced each week. The production committee generally
pays us the audio production fee weekly for each episode, although on some occasions, the audio production fee is paid after the production
of the whole animation is completed. After receiving the audio production fee from the production committee, we will distribute the casting/performance
fee to our collaborating voice actors pursuant to our exclusive management agreements with them or to the voice actors’ agencies
for the unaffiliated voice actors. As of the date of this prospectus, in addition to acquiring the rights to comprehensive audio production
through our investment in animation production committees, we have also acquired the rights to the comprehensive animation production,
the overseas copyrights and the rights for goods merchandising. As we believe that overseas copyrights are one of the highest sales and
revenue-generating rights obtainable in the animation production business, we expect that, in addition to the rights to the comprehensive
audio production, acquiring such copyrights would enhance our total revenues and, consequently, contribute to the growth of our business.
As of the date of this prospectus, we have acquired the rights to adapt seven popular Japanese manga into animations and plan to use them
as leverage to form animation production committees, subject to the condition that we will exclusively own the overseas copyrights of
the seven animations. Among the seven animations, one has been broadcast from January 2024 to March 2024, two are scheduled for broadcast
in the second half of the calendar year 2024, and the others are scheduled in the calendar year 2025, and we expect to start generating
revenues from their overseas copyrights thereafter.
The comprehensive audio production consists of
dubbing, BGM producing, and mixing.
Dubbing
After reviewing the visual works of the animation/video
game, we will select from our collaborating voice actors we deem the best fit, or sometimes we select unaffiliated voice actors designated
by the production committee, to dub for specific characters in the animation/video game, based on their vocal characteristics, ability,
experience, pay rate, and popularity among audiences, among other factors. Once the voice actors are determined, we contact the voice
actors or the agents of the unaffiliated voice actors to arrange the schedules for dubbing in the recording studio provided by the production
committee/video game-producing company.
BGM Producing
We often outsource to music companies that specialize
in BGM production to provide the BGM for the animation/video games under production. Such companies, along with their composers and lyricists,
work with the audio director of the animation/video game hired by the animation/video game-producing company to create and edit the audio
effects and BGM in their own recording studio.
Mixing
In general, dubbing and BGM producing are parallel
and progress simultaneously. After the dubbing and BGM production are both completed, the mixer we contract with mix the dubbed soundtrack
and the BGM with the visual works of the animation/video game.
We have contributed to the production of one,
zero, one and three animations, and zero, one, one and one video game in the six months ended March 31, 2024 and the fiscal years
ended September 30, 2023, 2022 and 2021, respectively, under this cooperating model. The following table summarizes the information
of the animations/video games we completed in the six months ended March 31, 2024 and the fiscal years ended September 30, 2023,
2022 and 2021:
Name | |
Category | |
Fiscal Year | |
Revenue (Yen in Thousands) | |
Goodbye, Dragon Life | |
Animation | |
2024 | |
| 8,400 | |
Ys X -NORDICS- | |
Video Game | |
2023 | |
| 9,632 | |
Dropkick on My Devil! X | |
Animation | |
2022 | |
| 15,600 | |
Trails Before Dawn II | |
Video Game | |
2022 | |
| 18,913 | |
Science Fell in Love, So I Tried to Prove It | |
Animation | |
2021 | |
| 15,750 | |
World’s End Harem | |
Animation | |
2021 | |
| 14,300 | |
Koi to Yobu ni wa Kimochiwarui | |
Animation | |
2021 | |
| 390 | |
Trails Before Dawn | |
Video Game | |
2021 | |
| 15,000 | |
Once an animation is sold, the production committee
allocates the profit to us, the animation-producing company, and other investors on the basis of the investment ratio of each party. For
the six months ended March 31, 2024 and the fiscal years ended September 30, 2023 and 2022, we were distributed JPY6,604 thousand,
JPY1,982 thousand and JPY847 thousand, respectively.
Collaborating Voice Actors
While we enter into exclusive management agreements
stipulating similar terms with each of our collaborating voice actors, we generally classify them into three levels: “Affiliated,”
“Semi-Affiliated,” and “Entrusted.” Affiliated and Semi-Affiliated voice actors are those who have reached a certain
level of achievement in the industry and made contributions to us, while newcomers who have just joined us are classified as Entrusted
voice actors.
Generally, Affiliated voice actors have had longer
careers and have higher rates of compensation than Semi-Affiliated voice actors. As of March 31, 2024, September 30, 2023 and 2022,
we had 11, nine and nine Affiliated voice actors, seven, 10 and 10 Semi-Affiliated voice actors and 30, 33 and 24 Entrusted voice actors,
respectively.
The material terms stipulated in our exclusive
management agreements are as follows:
Scope of the Exclusive Management Agreement
The following entertainment activities performed
and conducted by our collaborating voice actor as a voice actor are subject to the exclusive management agreement, which the voice actor’s
exclusive rights belong to us worldwide:
| 1) | All audio and visual content, including acting, playing,
singing, dancing, interviews, and photographs, whether on television, radio, movies, online live streaming, advertising commercials,
stages, live events, lectures, magazines, books, and other media, regardless of the formats that currently exist or will be developed
in the future; |
| 2) | Written works, screenplays or scripts, directing and acting
video works, plays, music, photography, videos, sound, calligraphy, painting, and other artworks, and utilizing and managing all of his/her
creations; |
| 3) | Use of the right of publicity; and |
| 4) | All other creating and performing activities as a voice actor. |
Obligations and Rights
We are the manager of our collaborating voice
actor for worldwide entertainment activities, and the collaborating voice actors are our exclusive voice actors and perform pursuant to
our instructions.
Intellectual Property Rights
All intellectual property rights, including, but
not limited to, copyrights, trademarks, design rights, and ownership rights arising from the collaborating voice actor’s entertainment
activities during the effective term of the exclusive management agreements, belong exclusively to us worldwide, including Japan. We may
use and dispose of them at our own discretion.
Right to Receive Performance Fees
We have the right to receive the performance fee
of the collaborating voice actor’s entertainment activities from third parties on his/her behalf. We are entitled to 20% of the
performance fee as compensation for our management services.
Term
During the six months ended March 31, 2024 and
the fiscal years ended September 30, 2023 and 2022, the exclusive management agreements entered were generally for a period
of one year. The exclusive management agreement is automatically extended for one year if neither we nor the collaborating voice actor
delivers notice of termination at least one month prior to the expiration date of the exclusive management agreement.
Termination
We may immediately terminate the exclusive management
agreement if the collaborating voice actor:
| 1) | has committed misconduct or misbehavior, regardless of publicly
or privately, in violation of the provisions stipulated in the exclusive management agreement; and |
| 2) | is unable to perform the obligations under the exclusive
management agreement due to physical or mental health reasons or other reasons attributable to him/her if such circumstances continue
for more than three months. |
Both we and the collaborating voice actor may
immediately terminate the exclusive management agreement if either of us violates the representations and warranties that either party
is not or will not be affiliated with any organized crime group or any other antisocial force.
Clients and Marketing
While our clients are mainly animation and video
game-producing companies in Japan, we sometimes receive orders from foreign movie companies for Japanese dubbing services. We recruit
new clients via existing client referrals, personal networking, online advertisements, promotions, and digital marketing. Since we are
relatively new to the audio production industry, our marketing strategy has been, as of the date of this prospectus, to work on as many
projects as we can within our capacity, regardless of the scale of the projects, as we strive to build our reputation and brand awareness.
For the six months ended March 31, 2024 and the fiscal years ended September 30, 2023 and 2022, we had 33, 59 and 56 clients,
respectively.
During the six months ended March 31, 2024 and
the fiscal years ended September 30, 2023 and 2022, approximately 40%, 90% and 90% of the orders we received came from our existing
clients, respectively. We believe that such high reorder rate demonstrates the quality and client satisfaction of the comprehensive audio
production services we provide.
Set out below is a breakdown of the revenue generated
from our audio production business contributed by our top five clients during the six months ended March 31, 2024 and the fiscal years
ended September 30, 2023 and 2022:
For the Six Months Ended March 31, 2024
Client | |
Category | |
Revenue (Yen in Thousands) | | |
Percentages of total revenue | |
GEKKOU Inc. | |
Animation-producing company | |
| 23,400 | | |
| 42.8 | % |
IID, Inc. | |
Media service company | |
| 10,757 | | |
| 19.6 | % |
Vega Entertainment., Ltd. | |
Animation-producing company | |
| 8,400 | | |
| 15.4 | % |
CyberStep, Inc. | |
Video games-producing company | |
| 2,887 | | |
| 5.3 | % |
Wolfs Bane, Inc. | |
Animation-producing company | |
| 2,400 | | |
| 4.4 | % |
Total | |
| |
| 47,844 | | |
| 87.5 | % |
For the Fiscal Year Ended September 30,
2023
Client | |
Category | |
Revenue (Yen in Thousands) | | |
Percentages of total revenue | |
Clouded Leopard Entertainment Inc. | |
Video games-producing company | |
| 16,000 | | |
| 25.1 | % |
CyberStep | |
Video games-producing company | |
| 14,205 | | |
| 22.3 | % |
Linkworld International Limited | |
Video games-producing company | |
| 11,317 | | |
| 17.7 | % |
Nihon Falcom Corporation | |
Video games-producing company | |
| 10,038 | | |
| 15.7 | % |
SANDIAS., Ltd. | |
Animation-producing company | |
| 1,932 | | |
| 3.0 | % |
Total | |
| |
| 53,492 | | |
| 83.8 | % |
For the Fiscal Year Ended September 30,
2022
Client | |
Category | |
Revenue (Yen in Thousands) | | |
Percentages of total revenue | |
Nihon Falcom Corporation | |
Video games-producing company | |
| 23,366 | | |
| 19.5 | % |
Clouded Leopard Entertainment Inc. | |
Video games-producing company | |
| 16,764 | | |
| 14.0 | % |
Client 1 | |
Animation-producing company | |
| 15,600 | | |
| 13.0 | % |
Lode Runner Inc. | |
Animation-producing company | |
| 10,000 | | |
| 8.3 | % |
Cyberstep | |
Video games-producing company | |
| 6,649 | | |
| 5.5 | % |
Total | |
| |
| 72,379 | | |
| 60.3 | % |
Material terms of our service agreements with
the top five clients are as follows:
Scope of Services
We generally enter into written service agreements
with clients that set out the scope of services as follows:
| 1) | Arranging voice actors to dub for animations/video games
planned, developed, produced, and operated by the client; |
| 2) | Recording and editing voice and audio data; |
| 3) | Processing work necessary for the performance of the foregoing
services; and |
| 4) | Other services that are agreed upon in the individual contract. |
Individual Contract
We generally enter into a written individual contract
for a specific project; either an animation or a video game, with clients to stipulate the contents and details of the service, the delivery
date, the amount of consideration, the payment schedule, and other necessary matters.
Term
During the six months ended March 31, 2024 and
the fiscal years ended September 30, 2023 and 2022, the service agreements entered were generally for a period of one year.
The service agreements are generally automatically extended for one year if neither we nor the client make a written request to change
or terminate the agreement at least one month prior to the expiration date of the agreement.
Termination
The service agreements generally grant both us
and the clients the right to terminate the service agreement or individual contracts by providing the other party one-month prior written
notice.
If an individual contract terminates in the middle
of the term, due to termination or other reasons, the clients are required to pay us the consideration in proportion to the ratio of the
performance of our services.
VTuber Management
We commenced our VTuber management business in
December 2021. The term “VTuber” is an abbreviation of virtual YouTuber, which is a virtual (animated) character, in
lieu of a physical individual, we create by utilizing motion-capture technology for our streamers to provide their voices, in order to
stream real-time videos featuring human facial expressions and gestures, which can also communicate and interact with audiences through
the chat function by embedding in live-streaming platforms.
“Hoshimeguri Gakuen” is a VTuber group
we have managed and operated since its debut in December 2021. As of the date of this prospectus, we have 16 affiliated VTubers in
the group. Focusing on real-time live streaming, our affiliated VTubers mainly broadcast chatting, singing, and game live streaming on
YouTube, FANBOX, and BOOTH. Besides interactive real-time live streaming, we also strive to build and grow our fan bases through
sales of goods and digital merchandise featuring the virtual characters of our affiliated VTubers on FANBOX, and BOOTH. As of March
31, 2024, Hoshimeguri Gakuen, together with our affiliated VTubers’ individual YouTube channels, had approximately 470,000 subscribers
on its YouTube channel. In addition, our affiliated VTubers participate and perform in online live streaming events held by other companies,
such as VirtualThruLens.
Our revenue generated from YouTube mainly contains
three parts: Google AdSense revenue, membership, and Super Chats/Stickers/Thanks. Google AdSense revenue is the revenue that we can receive
from Google LLC by having ads displayed on our affiliated VTubers’ live streaming videos on YouTube, by which we receive a rate
ranging from JPY200 to JPY600 per 1,000 viewers based on ad impressions recognized by Google. YouTube Membership is a service provided
by YouTube that allows a subscriber to register as a member of our YouTube Channel and gain membership privileges, such as access to exclusive
videos and other exclusive items to the channel, by paying a monthly fee. Super Chats and Super Stickers are services provided by YouTube
that allow audiences to interact with our affiliated VTubers during their real-time live streaming. Audiences can purchase Super Chats
to highlight their message and thus increase the chance of getting our affiliated VTuber’s attention within the live chat box. Audiences
can also purchase Super Stickers to see a digital or animated image that pops up in the live chat feed. Audiences may also directly tip
our affiliated VTubers via Super Thanks, which is a service provided by YouTube, formerly known as Viewer applause, to show extra gratitude
for our affiliated VTubers’ live streaming videos. Among the revenue sources generated from YouTube during the six months ended
March 31, 2024 and the fiscal years ended September 30, 2023 and 2022, 4.8%, 7.8% and 3.0% was from Google AdSense revenue, 42.9%,
23.9% and 15.6% was from memberships, and 52.2%, 68.3% and 81.5% was from Super Chats/Stickers/Thanks, respectively.
Our revenue generated from BOOTH and FANBOX mainly
consists of the sales of the merchandise featuring our affiliated VTubers’ virtual characters. Among all the merchandise we sold,
including acrylic figures, illustrations, and stickers during the six months ended March 31, 2024 and the fiscal years ended September 30,
2023 and 2022, the recorded voice data of our affiliated VTubers’ virtual characters were the most popular genre.
Our revenue generated from online live streaming
events, such as VirtualThruLens, mainly consists of the performing fees of our affiliated VTubers distributed by the host companies of
the events. For the fiscal year ended September 30, 2023, we received JPY1,469 thousand from the host company of VirtualThruLens, Avex
Entertainment Inc.
For the six months ended March 31, 2024 and the
fiscal years ended September 30, 2023 and 2022, the revenue generated from the VTuber management business was JPY59,083 thousand,
JPY57,442 thousand and JPY18,630 thousand, which accounted for approximately 48.3%, 44.8% and 12.8% of our total revenue for those periods,
respectively. Among the sources of revenue generated from the VTuber management business during the six months ended March 31, 2024, 24.6%,
51.0%, 1.4%, and 23.0% came from YouTube, BOOTH, FANBOX, and others, respectively. During the fiscal year ended September 30, 2023, 29.0%,
42.5%, 2.1%, and 26.3% came from YouTube, BOOTH, FANBOX, and others, respectively. During the fiscal year ended September 30, 2022,
54.0%, 26.4%, 6.6%, and 13.0% came from YouTube, BOOTH, FANBOX, and others, respectively.
Affiliated VTubers
As of the date of this prospectus, we have entered
into exclusive management agreements with 16 affiliated VTubers. Pursuant to the exclusive management agreements, we provide comprehensive
support to our affiliated VTubers, such as assisting in their streaming on YouTube and other individual activities, helping them create
video programs as a member of Hoshimeguri Gakuen, and providing equipment intended for streaming and streaming studios leased by CyberStep
available to them. In return, most of the revenue generated by our affiliated VTubers from third parties is allocated to the affiliated
VTuber and us on a 50% to 50% basis.
The material terms stipulated in our exclusive
management agreements are as follows:
Scope of the Exclusive Management Agreement
The following VTuber activities performed and
conducted by our affiliated VTuber as a VTuber are subject to the exclusive management agreement, which the VTuber’s exclusive rights
belong to us worldwide:
| 1) | All acting, singing, dancing, lecturing, or any other similar
performance in the form of videos streaming on YouTube or other video distribution and streaming platforms; |
| 2) | Creating, writing, and composing musical artworks, such as
lyrics and music for the purpose of reproduction and distribution of materials, such as records, videotapes, and compact discs; |
| 3) | Performances in any public broadcasting media, such as terrestrial
and cable television broadcasting, in any Internet media, such as network streaming platforms and websites, on radio broadcasts, cable
broadcasts, newspapers, magazines, movies, live events, theaters and lecture halls, and other media, regardless if currently exist or
will be developed in the future; and |
| 4) | All other recording and creating activities. |
Obligations and Rights
We are the manager of our affiliated VTubers for
VTuber activities, and the affiliated VTubers are our exclusive VTubers and perform pursuant to our instructions.
Intellectual Property Rights
All the accounts and the auxiliary rights of the
social media, streaming platforms, and others necessary for us to perform the management services exclusively belong to us without any
limitation as to region, period, or scope.
All intellectual property rights, including, but
not limited to, copyrights, trademarks, design rights, and ownership rights arising from the affiliated VTuber’s VTuber activities,
exclusively belong to us without any limitation as to region, term, or scope. We may use and dispose of them at our own discretion, provided
that we obtain consent from the affiliated VTuber before using the intellectual property rights for any purpose other than VTuber activities
and related advertising, promoting, and merchandise producing.
Right to Receive Performance Fees
We have the right to receive the revenue generated
from the affiliated VTuber’s VTuber activities from third parties on his/her behalf. We are entitled to 50% of the revenue generated
from YouTube and the sales of virtual merchandise that involves the affiliated VTuber’s performance, such as recorded voices data;
90% of the revenue generated from the sales of physical merchandise, such as acrylic figures and stickers, and virtual merchandise that
does not involve the affiliated VTuber’s performance, such as illustrations, as compensation for our management services.
Term
During the six months ended March 31, 2024 and
the fiscal years ended September 30, 2023 and 2022, the exclusive management agreements entered were generally for a period
of one year. The exclusive management agreement is automatically extended for one year if neither we nor the affiliated VTuber delivers
notice of termination at least three months prior to the expiration date of the exclusive management agreement.
Termination
Both we and the collaborating voice actor may
immediately terminate the exclusive management agreement if either of us violates the representations and warranties that either party
is not or will not be affiliated with any organized crime group or any other antisocial force.
One of our most famous affiliated VTuber’s
virtual characters — Kuramochi Kyoko
One of our most famous affiliated VTuber’s
virtual characters — Mochimochi Sakura
Our Suppliers
Before the debut of a new VTuber, we generally
design the VTuber’s character settings, including its appearance and characteristics that we consider appropriate after discussing
with the VTuber. We then engage with animation developers with respect to the production and output of our designed 2D or 3D virtual characters
consistent with our character settings.
We do not enter into long-term production contracts
with specific animation developers. Instead, we place fixed-term orders with the animation developers for the production of virtual characters.
Without being bound by long-term producing contracts, we have greater flexibility to choose from several animation developers to satisfy
the specifications of our demands on the basis of the factors that benefit us the most at the time we place the order, including the quality
and the price of their service, the quality and efficiency of the services they provide, and the payment terms they accept.
Marketing
Targeting building and growing our fan bases,
we focus on improving the content of our affiliated VTubers’ live streaming videos. We provide various types of support to our affiliated
VTubers to improve the content of their live streaming videos, such as providing training in line with the guidelines to ensure the soundness
of content, updating them with information about the latest popular trends, assisting them in deciding the songs to sing and the games
be live-streamed, and providing suggestions for their direction in organizing and planning their live streaming videos.
We expect to further develop and maintain strong
relationships between our affiliated VTubers and their fans by supporting them in increasing their public recognition, building their
reputation and awareness, and gaining more fans. To this end, we are continuously planning events, activities, and TV shows that our affiliated
VTubers will present, which we believe may further foster the ties between our affiliated VTubers and their fans.
Voice Actor Workshops
We have provided professional and practical training
in voice acting through our voice actor workshops since our inception in 2017. In cooperation with active professional voice actors, we
regularly host physical voice actor workshops four times a month in the studios leased by CyberStep in Tokyo, which CyberStep permits
such use at no charge. We have determined that it is more advantageous to operate physical voice actor workshops rather than online-workshop,
because it allows us to exercise greater control over the quality of our training services and overall training environment.
To cultivate young voice actors and their abilities
to work as professionals, we provide our members basic vocalization-related lessons and combine actual animation and video game scripts
into the training sections to equip them with practical skills and mannerisms in dubbing and audio production, which enables us to differentiate
our lessons from similar services in Japan provided by competitors.
Since our inception, we have built a large base
of members, which has been essential for our rapid growth. As of March 31, 2024, we had 70 registered members who had participated
in our workshops since the inception of our voice actor workshop business.
We generally charge every registered member a
membership fee of JPY22 thousand monthly for four lessons in one month. Membership fees from the registered members provide the primary
income of our voice actor workshop business, and they amounted to approximately JPY2,040 thousand, JPY5,054 thousand and JPY5,805 thousand
during the six months ended March 31, 2024 and the fiscal years ended September 30, 2023 and 2022, which accounted for approximately
1.7%, 3.9% and 4.0% of our total revenue for those periods, respectively.
Our Lessons
All of our lessons are directly instructed and
lectured by our cooperating active professional voice actors who have extensive experience in dubbing for animations, foreign movies,
or video games, such as Azusa Enoki, a renowned Japanese voice actress, actress, and singer who dubbed for Nagisa Saito in “Squid
Girl,” Uta Yumeno in “Onegai My Melody” series, Angelene in “A Certain Magical Index II,” and Mion
Takamine in “Pretty Rhythm.”
Instructors are responsible for instructing and
teaching a large variety of skills within the scope of voice acting, including basic vocalization, pronunciation and intonation, practical
techniques while reading out actual animation and video game scripts, nuances between acting on stage and as a voice actor, useful mannerisms
for recording situations, and various domestic and international methods for opening up the emotions in a play. During our lessons, members
may also experience voice acting in actual recording studios leased by CyberStep.
Our Members
We do not adopt strict conditions for applications
to our voice actor workshop and generally accept every applicant, regardless of whether they want to become professional voice actors
or are purely interested in voice acting.
Members who perform well and show their talent
in the workshop are allowed to participate in the newcomer auditions we hold at the end of each fiscal year, in which we evaluate participants’
characteristics, interest in voice acting, expression ability, and potential performing competency from a comprehensive perspective. Once
the participants pass the newcomer audition, they are given the opportunity to enter into exclusive management agreements with us and
commence operation as our collaborating voice actors or affiliated VTubers, or both.
In our efforts to appeal to more applicants to
join our voice actor workshop, we emphasize improving our lessons in a way that incorporates diverse and practical content. In addition,
we have implemented a policy that offers outstanding members the opportunity to present in small audio production projects we operate
for casting and dubbing, which has been recognized by our members as one of the most appealing factors to join our voice actor workshop.
Competition
The audio production and VTuber management
industries in Japan are both highly competitive and fragmented, with many new companies joining the competition in recent years
and a few leading companies, such as Magic Capsule Co., Ltd. and Techno Sound Co., Ltd., in terms of audio production, and COVER
Corp. (TSE: 5253; OTCMKTS: COVCF) and ANYCOLOR Inc (TSE: 5032), in terms of VTuber management. As a relatively new and
small-scale company in both industries, we face competition directly from the large-scale companies with more resources and those
with a more extended operating histories and more connections to the industries they work within. In addition, we indirectly compete
with other large video streaming platforms, social media platforms, and other platforms offering online entertainment with respect
to our VTuber management business.
We believe that our ability to compete effectively
depends upon many factors, including the high quality of our audio production services, the diverse and innovative content of our real-time
live streaming, our close connections with a large variety of talented voice actors and VTubers, our capability to adjust flexibly to
satisfy clients’ needs and demands, and the strength of our brand. In addition to the factors listed above, we believe that we are
well-positioned to effectively compete in the audio production and VTuber management industries based on the fact that we are able to
integrate our resources in our audio production business and VTuber management business and leverage the strengths of both industries
and maximize synergies to support both. Some competitors, however, may have longer operating histories, greater brand recognition, or
greater financial, technical, or marketing resources than we do. For a discussion of risks relating to competition. See “Risk Factors — Risks
Related to Our Business and Industry — We operate in highly competitive markets and our failure to compete effectively
could adversely affect our results of operations.”
Employees
We had eight, six, four, and three full-time employees
as of March 31, 2024 and September 30, 2023, 2022, and 2021, respectively. The following table sets forth the number of our full-time
employees categorized by areas of operations as of March 31, 2024:
Function: | |
Number | |
Management | |
| 3 | |
Sales and Marketing | |
| 5 | |
Total | |
| 8 | |
We enter into employment agreements with our full-time
employees. The employment agreements have an indefinite term and may be terminated by the employee with a 30-day advance notice. Dismissal
of the employee by us is required to meet the following requirements: (i) the dismissal is objectively reasonable and socially acceptable;
(ii) the dismissal is based on the grounds set forth in the labor regulations; (iii) the dismissal does not fall under any of
the prohibited grounds stipulated by law; and (iv) a 30-day advance notice is given, or a dismissal allowance is paid in lieu of
such notice. In addition, we enter into confidentiality agreements with our key employees upon employment with our Company.
In addition to our full-time employees, we had
eight, two, four, and three outsourced employees as of March 31, 2024 and September 30, 2023, 2022, and 2021, respectively. Besides
assisting our full-time employees, these outsourced employees are also responsible for general administration, finance and accounting,
project management, legal affairs, and the operations of VTuber management and voice actor workshops.
We believe that we maintain a good working relationship
with our full-time and outsourced employees, and we have not experienced material labor disputes in the past. None of our employees are
represented by a labor union.
Insurance
Other than the government-mandated social and
health insurance and worker’s accident compensation insurance, we do not maintain any other insurance covering our directors’
and officers’ liability, properties, equipment, or employees. We neither carry any business interruption insurance, accident insurance
covering our members in respect of personal injuries or damages arising from accidents that occur during the voice actor workshops, nor
any other third-party liability insurance to cover claims in respect of personal injuries or any damages arising from accidents on our
properties or in relation to our operations. We believe that our insurance coverage is in line with industry practice.
Property and Equipment
We lease our headquarters location in Akasaka,
Tokyo, and a work office located in Ichigaya, Tokyo. A summary of our leased properties as of the date of this prospectus is shown below:
Location | |
Space (Square Feet) | | |
Rent (Monthly) | |
Use | |
Lease Term |
1F, 4-5-19 Akasaka, Minato-ku, Tokyo (Akasaka) | |
| — | | |
JPY100,000 | |
Headquarters, one work office | |
April 1, 2024 to March 31, 2026 |
2-1 Haraikata-machi, Shinjuku-ku, Tokyo (Ichigaya) | |
| 328.83 | | |
JPY148,000 | |
One work office | |
September 17, 2022 to September 30, 2024 |
We lease these premises from independent third
parties under operating lease agreements. The lease agreement of our office located in Ichigaya is renewable from one year to six months
before the lease expires.
We believe that our existing facilities are sufficient
for our near-term needs.
Intellectual Property
We regard our company logo, domain names, copyrights,
and other similar intellectual property, especially with respect to our collaborating voice actors and affiliated VTubers’ virtual
characters, and use of rights of publicity of our collaborating voice actors as critical to our success. “Rights of publicity”
are the licensable rights to control the commercial use and make use of the commercial value of individual’s names and portraits,
etc. that are recognized through judicial precedents of the Japanese courts, which refers to the Japanese Constitution and the Japanese
Civil Code. We rely on a combination of laws in Japan such as Civil Code, Copyright Law and trademark Act, judicial precedents of the
Japanese courts, and confidentiality agreements with employees to protect our intellectual property rights. We also regularly monitor
any infringement or misappropriation of our intellectual property rights.
Pursuant to the exclusive management agreements
with our collaborating voice actors and affiliated VTubers, we own all intellectual property rights, including, but not limited to, copyrights,
trademarks, design rights, and rights arising from the collaborating voice actor’s entertainment activities/affiliated VTubers’
VTuber activities, and use of rights of publicity of our collaborating voice actors.
As of the date of this prospectus, we have use
of rights of publicity of our collaborating voice actors in the following animations/video games/foreign dramas:
No. |
|
Name |
|
Category |
1 |
|
Koi to Yobu ni wa Kimochiwarui |
|
Animation |
2 |
|
Dropkick on My Devil! |
|
Animation |
3 |
|
Science Fell in Love, So I Tried to Prove It |
|
Animation |
4 |
|
TRAILS BEFORE DAWN |
|
Video Game |
5 |
|
World’s End Harem |
|
Video Game |
6 |
|
Himegami Kagura |
|
Video Game |
7 |
|
A Girl and a Dragon |
|
Video Game |
8 |
|
Ys Ⅸ-Monstrum NOX |
|
Video Game |
9 |
|
The Legend of Heroes: Trails into Reverie |
|
Video Game |
10 |
|
Onigiri |
|
Video Game |
11 |
|
BlackStella Iи:FernØ |
|
Video Game |
12 |
|
BlackStella PTOLOMEA |
|
Video Game |
13 |
|
GODDESS OF VICTORY: NIKKE |
|
Video Game |
14 |
|
UNCONTROL |
|
Foreign Drama |
15 |
|
Pororo racing adventure |
|
Foreign Animation |
16 |
|
Prison Break |
|
Foreign Drama |
17 |
|
Gangnam Beauty |
|
Foreign Drama |
18 |
|
Monarch Industry/The Rebel Princess |
|
Foreign Drama |
19 |
|
Jirisan |
|
Foreign Drama |
As of the date
of this prospectus, we have copyrights and other intellectual property rights, and the ownership of the social media accounts of the
following affiliated VTubers’ virtual characters:
No. |
|
Name |
|
Original Name |
|
Publication Date |
|
Expiration Date |
|
Image |
1 |
|
Kyoko Kuwamochi |
|
倉持京子 |
|
September 11, 2020 |
|
September 10, 2090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Oguri Mel |
|
オグリ・メル |
|
September 12, 2020 |
|
September 11, 2090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Mikado |
|
帝 |
|
October 2, 2020 |
|
October 1, 2090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Kamino Hikari |
|
神乃ひかり |
|
November 21, 2020 |
|
November 20, 2090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Mochimochi Sakura |
|
餅々さくら |
|
February 28, 2021 |
|
February 27, 2091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
Iori Nemea |
|
伊織ねめあ |
|
May 1, 2021 |
|
April 30, 2091 |
|
|
No. |
|
Name |
|
Original Name |
|
Publication Date |
|
Expiration Date |
|
Image |
7 |
|
Makura Rui |
|
魔昏るい |
|
May 15, 2022 |
|
May 14, 2092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Teru Umashika |
|
馬鹿蝶 |
|
May 26, 2022 |
|
May 25, 2092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Aoi Heru |
|
碧衣ヘルオグリ・メル |
|
May 27, 2022 |
|
May 26, 2092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Kachiki Shakuna |
|
勝気シャクナ |
|
June 29, 2022 |
|
June 28, 2092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Michisaki Mirine |
|
満咲ミリネ |
|
October 22, 2022 |
|
October 21, 2092 |
|
|
No. |
|
Name |
|
Original Name |
|
Publication Date |
|
Expiration Date |
|
Image |
12 |
|
Hakuchoge Mahoro |
|
六月雪まほろ |
|
October 23, 2022 |
|
October 22, 2092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
Kaneko Kirari |
|
金猫きらり |
|
October 24, 2022 |
|
October 23, 2092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
Kirikuma Yuni |
|
切熊ゆに |
|
December 18, 2022 |
|
December 17, 2092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
Somei Kairi |
|
爽明カイリ |
|
August 13, 2023 |
|
August 12, 2093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Domeki Eru |
|
百目鬼える |
|
August 14, 2023 |
|
August 13, 2093 |
|
|
In addition, as of the date of this prospectus,
we have registered one domain name and 79 social media accounts in Japan relating to our business.
Seasonality
In the audio production business, although the
broadcast schedule of the video game productions is affected by the seasons, Japanese animation productions, in which we are mainly involved
in the audio production component, are produced throughout the year. In addition, the activities of the animation production committee,
which is made up of the animation-producing company and other investors, including our Company, do not fluctuate with the seasons, and
profits and distributions from the activities of the companies that own the copyrights may be generated at any time of the year.
In the VTuber management business, although the
choice of content to be viewed is largely determined by the interests and preferences of individual users, the number of times video content
is viewed can be expected to increase during the summer, year-end and New Year holidays, when audiences have more leisure time than in
any other time of the year. In addition, events are held during each of these seasons, which have an impact on sales.
The voice actor workshop business is highly specialized
and aims to improve skills over a long period of time. Therefore, there is no seasonality in the number of participants throughout the
year. However, marketing efforts to attract customers tend to be more effective in April, when Japan’s new fiscal year begins.
Legal Proceedings
From time to time, we may become a party to various
legal or administrative proceedings arising in the ordinary course of our business, including actions with respect to intellectual property
infringement, violation of third-party licenses or other rights, breaches of contract, and labor and employment claims. As of the date
of this prospectus, we are not a party to, and we are not aware of any threat of, any legal or administrative proceedings that, in the
opinion of our management, is likely to have any material and adverse effect on our business, financial condition, cash flow, or results
of operations.
REGULATIONS
The main Japanese laws that regulate the services
provided by the Company include the Act against Unjustifiable Premiums and Misleading Representations, the Act on Specified Commercial
Transactions, the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors, the Copyright Act, labor-related laws,
and the Act on the Protection of Personal Information.
Act against Unjustifiable Premiums and Misleading
Representations
Our business involving the sale of digital contents
for consumers is subject to the Act against Unjustifiable Premiums and Misleading Representations (Act No. 134 of May 15, 1962, as
amended). Under this law, we are prohibited from making representations to the general consumers that the contents of the products are
significantly better than they actually are, and representations to the general consumers that the contents of our products are significantly
better than those pertaining to our competitors if not true.
In addition, this law establishes regulations
regarding the provision of premiums by business operators, such as a limit on the maximum amount of premiums to prevent the provision
of excessive premiums.
Business operators that violate this law may be
ordered by the supervisory authority to take certain actions or receive administrative guidance.
In addition, if a business operator commits an
act of misrepresentation, it may be ordered to pay a surcharge.
Act on Specified Commercial Transactions
Our business involving the internet sale of digital
contents for consumers is subject to the Act on Specified Commercial Transactions (Act No. 57 of June 4, 1976, as amended). Under
this law, Internet sellers are obligated to indicate in their advertisements the consideration for services provided via the Internet,
the time and method of payment of the consideration, etc., and are prohibited from attempting to induce customers to apply for sales contracts
and service contracts related to mail order sales against their will.
Under the June 2022 amendment, Internet
sellers are obliged to indicate on the final confirmation screen of the Internet ordering system the consideration for the services, the
time and method of payment of the consideration, and other matters so that the customer can easily confirm the final confirmation at the
stage immediately before the order is confirmed.
Business operators violating the regulations of
this law may be subject to administrative penalties, such as orders to improve operations, orders to suspend operations, or orders to
prohibit the operations of officers, and may also be subject to penalties.
Act against Delay in Payment of Subcontract
Proceeds, etc. to Subcontractors
Our business involving outsourcing content production
may be subject to the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors (Act No. 120 of June 1, 1956,
as amended). Under this law, we may be obligated to deliver order forms to subcontractors and set deadlines for payment of subcontract
proceeds. In addition, after we have subcontracted work to a subcontractor, we may be prohibited from having the subcontractor pick up
items related to the work, etc., unless the subcontractor is responsible for the subcontractor’s actions.
Business operators violating the regulations of
this law may be subject to recommendations, publication, etc., by the regulatory authorities, and may also be subject to penalties.
Intellectual Property Laws and Regulations
Japan has a number of laws and regulations concerning
intellectual property rights, including the Patent Act (Act No. 121 of 1959, as amended), the Utility Model Act (Act No. 123 of 1959,
as amended), the Design Act (Act No. 125 of 1959, as amended), and the Copyright Act (Act No. 48 of 1970, as amended).
The Patent Act protects rights to inventions,
the Utility Model Act protects rights to inventions such as the shape of an article, the Design Act protects rights to the design of an
article, and the Copyright Act protects rights pertaining to spiritual and creative activities, such as literature, art, music, and programs,
as well as the rights of performers.
Our business may be subject to various restrictions
on the use of various rights under these laws and regulations.
In particular, since we sell our content, the
appropriateness of copyrights may become an issue, and where we infringe on the copyrights of third parties, we may be subject to claims
for injunction or damages.
Labor Laws
Japan has a variety of labor-related laws, including
the Labor Standards Act (Act No. 49 of April 7, 1947, as amended), the Industrial Safety and Health Act (Act No. 57 of June 8,
1972, as amended), and the Labor Contracts Act (Act No. 128 of December 5, 2007, as amended). The Labor Standards Act stipulates
minimum standards for working hours, holidays, overtime pay, and other working conditions. The Industrial Safety and Health Act requires,
among other things, the implementation of measures to ensure employee safety and protect workers’ health in the workplace. The Labor
Contracts Act establishes regulations regarding employment contracts, changes to work rules, dismissals, and disciplinary actions.
In particular, in Japan, the Labor Contract Law
restricts the dismissal of employees, and it is necessary to properly manage and supervise employees.
In addition, the “Act on Comprehensive Promotion
of Labor Measures and Stabilization of Employment and Improvement of Working Lives of Workers” (abbreviated as “Act on Comprehensive
Promotion of Labor Measures”) was enacted on June 1, 2020, imposing on businesses the obligation to ensure a safe work environment.
Personal Information Protection Act
The Personal Information Protection Act of Japan
(Act No. 57 of 2003, as amended) and related guidelines impose various regulations on businesses that use personal information and its
databases, regarding the appropriate acquisition of such information, secure management, prohibition of use for other purposes, restrictions
on information sharing with third parties, and appropriate subsequent measures in the event of information leakage.
The April 2022 amendment imposes a clear-cut
obligation on businesses to prohibit the inappropriate use of personal information. The rules regarding the protection of personal information
are changed, such that even non-personal information, such as website browsing history and personal location information associated with
an individual, is subject to the Personal Information Protection Law in certain cases where consideration of personal privacy is required.
Business operators violating the regulations of
this law may be subject to recommendations, etc., by the regulatory authorities and may also be subject to penalties.
Conclusion
We operate our services in compliance with these
regulations.
Although we will continue to strengthen our legal
compliance system and conduct internal training, the enactment or revision of new laws and regulations, and where the services operated
by us become subject to new laws and regulations, it may affect our business, performance, and financial position.
MANAGEMENT
Set forth below is information concerning our
directors and executive officers.
The following individuals are our executive management
and members of the board of directors.
Name |
|
Age |
|
Position(s) |
Kazusa Aranami |
|
36 |
|
Director, Chief Executive Officer, and Chairperson |
Yuhi Mimura |
|
38 |
|
Director |
Minoru Muranaga |
|
57 |
|
Chief Financial Officer |
Akira Sugimoto |
|
59 |
|
Independent Director |
The following is a brief biography of each of
our executive officers and directors:
Ms. Kazusa Aranami is our founder and has
served as our director, chief executive officer, and chairperson since our inception in April 2023 and as BloomZ Japan’s representative
director and chief executive officer since its inception in October 2017. Prior to founding BloomZ Japan and our Company, Ms. Aranami
worked as a voice actress and actress at four different voice actor management companies — JTB Entertainment, Kitty Production,
Apt Pro Inc, and Quatrestella Co., Ltd., between April 2008 and December 2011, May 2013 and March 2015, April 2015
and July 2015, and August 2015 and September 2017, respectively. Ms. Aranami also worked as a freelance voice actress and
actress between January 2012 and April 2013. Ms. Aranami received her vocational degree in Voice Acting from Yoyogi Animation
Academy in 2007.
Mr. Yuhi Mimura has served as our
director since our inception in April 2023 and as BloomZ Japan’s director since its inception in October 2017. Prior to
joining BloomZ Japan and our Company, Mr. Mimura worked as a staff member responsible for animation production progress at Asahi
Production Inc., an animation-producing company, from December 2007 to October 2011, a manager at I Link Co., Ltd., a voice
actor management company, from November 2011 to February 2014, a manager at Aksent. Co. Ltd., a voice actor management company,
from March 2014 to September 2015, and a manager and a staff member responsible for audio production progress at Quatrestella
Co., Ltd., a voice actor management company, from October 2015 to September 2017. Mr. Mimura received his vocational degree
in Color Studies from Yoyogi Animation Academy in 2007.
Mr. Minoru Muranaga has served as
our chief financial officer since August 2024 and as BloomZ Japan’s accounting manager since July 2023. Prior to joining the
Company and BloomZ Japan, Mr. Muranaga worked as a manager at FORUM8 Co., Ltd., a Japanese software developer and supplier, between June
2018 and November 2022. Mr. Muranaga received his bachelor’s degree in Social Science from Waseda University in 1992 and has a certificate
as a Japanese Certified Public Accountant.
Mr. Akira Sugimoto has served as our independent
director since July 2024. Mr. Sugimoto is the founder and representative director of ActKnowledge Co., Ltd., a Japanese company that provides
management consulting services. Prior to founding ActKnowledge Co., Ltd. in April 2023, Mr. Sugimoto worked for Mitsubishi UFJ Financial
Group, Inc. (NYSE: MUFG), a Japanese bank holding and financial services company, for more than 20 years, including working as an inspector
in different departments and subsidiaries and a chief consultant at Mitsubishi UFJ Research & Consulting Co., Ltd., Mitsubishi UFJ
Financial Group, Inc.’s second tier subsidiary, and served as a director at Plan and D Co., Ltd., a Japanese consulting company,
between January 2014 and March 2023. Mr. Sugimoto received his bachelor’s degree in Law from the University of Tokyo in 1989.
Pursuant to our articles of association, unless
otherwise determined by our Company in a general meeting, we are required to have a minimum of two directors and the exact number of directors
will be determined from time to time by our board of directors.
Under our articles of association, a director
may be appointed by ordinary resolution or by the directors. An appointment of a director may be on terms that the director will automatically
retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting or upon any specified event
or after any specified period in a written agreement between our Company and the director, if any, but no such term will be implied in
the absence of express provision. It is expected that, whether by ordinary resolution or by the directors, each director will be appointed
on the terms that the director will hold office until the appointment of the director’s successor or the director’s re-appointment
at the next annual general meeting, unless the director has sooner vacated office.
For additional information, see “Description
of Share Capital — Directors.”
Family Relationships
None of our directors or executive officers has
a family relationship as defined in Item 401 of Regulation S-K.
Board of Directors
Our board of directors currently consists of three
directors, including one independent director. A director may vote with respect to any contract, proposed contract, or arrangement in
which he is materially interested, provided that (a) such director, if his/her interest in such contract or arrangement is material, has
declared the nature of his/her interest at the earliest meeting of the board at which it is practicable for him/her to do so, either specifically
or by way of a general notice and (b) if such contract or arrangement is a transaction with a related party, such transaction has been
approved by the audit committee. Nasdaq corporate governance rules require that a majority of an issuer’s board of directors must
consist of independent directors. However, as a Cayman Islands company listed on the Nasdaq, we are a foreign private issuer and are permitted
to follow the home country practice with respect to certain corporate governance matters. Cayman Islands law does not require a majority
of a publicly traded company’s board of directors to be comprised of independent directors. We rely on this home country practice
exception and do not have a majority of independent directors serving on our board of directors.
Our board of directors may exercise all the powers
of our Company to borrow money, mortgage its undertaking, property, and uncalled capital, and issue debentures or other securities whenever
money is borrowed or as security for any obligation of our Company or of any third party. None of our directors has a service contract
with us that provides for benefits upon termination of service.
Duties of Directors
Under Cayman Islands law, all of our directors
owe three types of duties to us: (i) statutory duties, (ii) fiduciary duties, and (iii) common law duties. The Cayman Companies Act imposes
a number of statutory duties on a director. Under Cayman Islands law, the fiduciary duties owed by a director to our Company include (a)
a duty to act in good faith in what the director considers are in the best interests of the company, (b) a duty to exercise their powers
in the company’s interests and only for the purposes for which they were given, (c) a duty to avoid improperly fettering the exercise
of the director’s future discretion, (d) a duty to avoid any conflict of interest (whether actual or potential) between the director’s
duty to the company and the director’s personal interests or a duty owed to a third party, and (e) a duty to exercise independent
judgment. The common law duties owed by a director are those to exercise appropriate skill and care. The relevant threshold measure for
such standard is that of a reasonable diligent person having both the general knowledge, skill, and experience that may reasonably be
expected of a person carrying out the same functions as are carried out by that director in relation to the company, and the general knowledge,
skill, and experience that that director has. In fulfilling their duty to us, our directors must ensure compliance with our memorandum
and articles of association, as amended and restated from time to time, and our shareholder resolutions. We have the right to seek damages
where certain duties owed by any of our directors are breached.
The functions and powers of our board of directors
include, among others:
| ● | appointing officers and determining the term of office of
the officers; |
| ● | exercising the borrowing powers of the company and mortgaging
the property of the company; and |
| ● | maintaining or registering a register of mortgages, charges,
or other encumbrances of the company. |
Terms of Directors and Executive Officers
Under our articles of association, a director
may be appointed by ordinary resolution or by the directors. An appointment of a director may be on terms that the director will automatically
retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting or upon any specified event
or after any specified period in a written agreement between our Company and the director, if any, but no such term will be implied in
the absence of express provision. It is expected that, whether by ordinary resolution or by the directors, each director will be appointed
on the terms that the director will hold office until the appointment of the director’s successor or the director’s re-appointment
at the next annual general meeting, unless the director has sooner vacated office.
All of our executive officers are appointed by
and serve at the discretion of our board of directors.
Qualification
Under our articles of association, a director
is not required to hold any shares in our Company by way of qualification. A director who is not a shareholder of our Company is nevertheless
entitled to attend and speak at general meetings.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with
each of our executive officers. Pursuant to employment agreements, the form of which is filed as Exhibit 10.1 to the registration statement
of which this prospectus is a part, we agree to employ each of our executive officers for a specified time period, which may be renewed
upon both parties’ agreement 30 days before the end of the current employment term. We may terminate the employment for cause, at
any time, without notice or remuneration, for certain acts of the executive officer, including the commitments of any serious or persistent
breach or non-observance of the terms and conditions of the employment, conviction of a criminal offense, willful disobedience of a lawful
and reasonable order, fraud or dishonesty, receipt of bribery, or severe neglect of his or her duties. An executive officer may terminate
his or her employment at any time with a one-month prior written notice. Each executive officer agrees to hold, both during and after
the employment agreement expires, in strict confidence and not to use or disclose to any person, corporation or other entity without written
consent, any confidential information.
We have also entered into indemnification agreements
with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers
against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or
officer of our Company.
Compensation of Directors and Executive Officers
For the fiscal year ended September 30, 2023,
we paid an aggregate of JPY15,577 thousand ($104 thousand) as compensation to our executive officers and directors. None of our non-employee
directors have any service contracts with us that provide for benefits upon termination of employment. We have not set aside or accrued
any amount to provide pension, retirement, or other similar benefits to our directors and executive officers.
Committees of the Board of Directors
Audit Committee
We have established an audit committee, which
consists of three directors, including Kazusa Aranami, Yuhi Mimura, and Akira Sugimoto. We have determined that only Akira Sugimoto satisfies
the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Exchange Act. Therefore,
Kazusa Aranami and Yuhi Mimura will be replaced with independent directors within 90 days and one year, respectively, of listing on the
Nasdaq Capital Market, so that after one year of the listing, the audit committee will consist solely of independent directors. We have
also determined that Akira Sugimoto qualifies as an audit committee financial expert under the SEC rules and as a financially sophisticated
audit committee member under the Nasdaq listing rules. Akira Sugimoto is the chair of the audit committee. Our audit committee has adopted
a written charter (the “Charter”), which requires that each member of the Audit Committee are independent in accordance with
the requirements of Rule 10A-3 of the Exchange Act and the rules of the NASDAQ Stock Market or any other securities exchange on which
any of our securities are listed, and that no member of the Audit Committee can have participated in the preparation of the Company’s
or any of its subsidiaries’ financial statements at any time during the past three years. The Charter requires that
each member of the Committee must be able to read and understand fundamental financial statements, including the Company’s balance
sheet, income statement, and cash flow statement, at least one member of the Committee must have past employment experience in finance
or accounting, requisite professional certification in accounting, or other comparable experience or background that leads to financial
sophistication, and at least one member of the Audit Committee must be an “audit committee financial expert” as defined in
Item 407(d)(5)(ii) of Regulation S-K. The Charter provides that the purpose of the Audit Committee is to oversee the Company’s accounting
and financial reporting processes and the audit of the Company’s financial statements, and that the primary role of the Audit Committee
is to oversee the financial reporting and disclosure process.
The Charter provides that the Audit Committee
has the following authority and responsibilities, among others:
| ● | To select, retain, terminate, and set the compensation of
an independent registered public accounting firm to act as the Company’s independent auditors; |
| ● | To select, retain, compensate, oversee, and terminate, if
necessary, any other registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing
other audit, review or attest services for the Company; |
| ● | To pre-approve all audit and permitted non-audit and tax
services that may be provided by the Company’s independent auditors or other registered public accounting firms and establish policies
and procedures for the Committee’s pre-approval of permitted services by the Company’s independent auditors or other registered
public accounting firms on an on-going basis; |
| ● | At least annually, to obtain and review a report by the Company’s
independent auditors that describes (1) the accounting firm’s internal quality control procedures, (2) any issues raised
by the most recent internal quality control review, peer review, or Public Company Accounting Oversight Board review or inspection of
the firm or by any other inquiry or investigation by governmental or professional authorities in the past five years regarding one
or more audits carried out by the firm and any steps taken to deal with any such issues, and (3) all relationships between the firm
and the Company or any of its subsidiaries; and to discuss with the independent auditors this report and any relationships or services
that may impact the objectivity and independence of the auditors; |
| ● | To assure the regular rotation of the lead audit partner
at the Company’s independent auditors and consider regular rotation of the accounting firm serving as the Company’s independent
auditors; |
| ● | To review and discuss with the Company’s independent
auditors the auditors’ responsibilities under generally accepted auditing standards and the responsibilities of management in the
audit process, including the overall audit strategy, the scope and timing of the annual audit, any significant risks identified during
the auditors’ risk assessment procedures and, when completed, the results, including significant findings, of the annual audit; |
| ● | To review and discuss with the Company’s independent
auditors (1) all critical accounting policies and practices to be used in the audit, (2) all alternative treatments of financial
information within GAAP that have been discussed with management, the ramifications of the use of such alternative treatments and the
treatment preferred by the auditors, and (3) other material written communications between the auditors and management; |
| ● | To review with management and the Company’s independent
auditors: any major issues regarding accounting principles and financial statement presentation; |
| ● | To review with management, the internal audit department
and the Company’s independent auditors the adequacy and effectiveness of the Company’s financial reporting processes, internal
control over financial reporting and disclosure controls and procedures, and any fraud involving management or other employees with a
significant role in such processes, controls, and procedures; |
| ● | To recommend to the board that the audited financial statements
and the Management’s Discussion and Analysis of Financial Condition and Results of Operations section be included in the Company’s
Form 20-F and produce the audit committee report required to be included in the Company’s proxy statement; |
| ● | To review and approve the functions of the Company’s
Internal Accounting Department; |
| ● | To establish and oversee procedures for the receipt, retention
and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential,
anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters; and |
| ● | To review, approve and oversee any transaction between the
Company and any related person and any other potential conflict of interest situations on an ongoing basis, in accordance with Company
policies and procedures, and to develop policies and procedures for the Committee’s approval of related party transactions. |
Compensation Committee
Because we are a “foreign private issuer”
within the meaning of the corporate governance standards of Nasdaq, we are not required to, and do not currently expect to, have a compensation
committee. If and when we are no longer a “foreign private issuer,” we will be required to establish a compensation committee.
We anticipate that such a compensation committee would consist of three directors who will be “independent” under the rules
of the SEC, subject to the permitted “phase-in” period pursuant to the rules of Nasdaq. Upon formation of a compensation committee,
we would expect to adopt a compensation committee charter defining the committee’s primary duties in a manner consistent with the
rules of the SEC and Nasdaq standards.
This compensation committee would:
| ● | review and determine the compensation arrangements for management; |
| ● | Establish and review general compensation policies with the
objective to attract and retain superior talent, to reward individual performance, and to achieve our financial goals; |
| ● | administer our incentive compensation and benefit plans and
purchase plans; |
| ● | oversee the evaluation of the board of directors and management;
and |
| ● | review the independence of any compensation advisers. |
Upon formation of a compensation committee, we
would expect to adopt a compensation committee charter defining the committee’s primary duties in a manner consistent with the rules
of the SEC and Nasdaq standards.
Nominating and Corporate Governance Committee
Because we are a “foreign private issuer”
within the meaning of the corporate governance standards of Nasdaq, we are not required to, and do not currently expect to, have a nominating
and corporate governance committee. If and when we are no longer a “foreign private issuer,” we will be required to establish
a nominating and corporate governance committee. We anticipate that such a nominating and corporate governance committee would consist
of three directors who will be “independent” under the rules of the SEC, subject to the permitted “phase-in” period
pursuant to the rules of Nasdaq. Upon formation of a nominating and corporate governance committee, we would expect to adopt a nominating
and corporate governance committee charter defining the committee’s primary duties in a manner consistent with the rules of the
SEC and Nasdaq standards.
A shareholder may nominate one or more persons
for election as a director at an annual meeting of shareholders if the shareholder complies with the notice and information provisions
contained in our bylaws. Such notice must be in writing to our Company not less than 90 days and not more than 120 days prior to the anniversary
date of the preceding year’s annual meeting of shareholders or as otherwise required by requirements of the Exchange Act. In addition,
shareholders furnishing such notice must be a holder of record on both (i) the date of delivering such notice and (ii) the record date
for the determination of shareholders entitled to vote at such meeting.
Code of Business Conduct and Ethics
Because we are a “foreign private issuer”
within the meaning of the corporate governance standards of Nasdaq, we are not required, and do not currently expect, to adopt one or
more codes of conduct applicable to all directors, officers, and employees. If and when we are no longer a “foreign private issuer,”
we will be required to adopt one or more codes of conduct applicable to all directors, officers, and employees, and that such codes are
publicly available. We anticipate that such a code would apply to our directors, officers, employees (including our principal executive
officer, principal financial officer, and other persons performing similar functions), and our agents and would be publicly available
on our website.
PRINCIPAL SHAREHOLDERS
The following table sets forth information with
respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our Ordinary Shares as of the
date of this prospectus, and as adjusted to reflect the sale of the Resale Shares offered in this offering for:
| ● | each of our directors and executive officers; and |
| ● | each person known to us to own beneficially more than 5%
of our Ordinary Shares. |
Beneficial ownership includes voting or investment
power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named
in the table have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them. Percentage
of beneficial ownership of each listed person prior to this offering is based on 13,429,800 Ordinary Shares outstanding as of the date
of this prospectus.
Information with respect to beneficial ownership
has been furnished by each director, officer, or beneficial owner of 5% or more of our Ordinary Shares. Beneficial ownership is determined
in accordance with the rules of the SEC and generally requires that any such person have voting or investment power with respect to securities.
In computing the number of Ordinary Shares beneficially owned by a person listed below and the percentage ownership of such person, Ordinary
Shares underlying options, warrants, or convertible securities held by each such person that are exercisable or convertible within 60 days
of the date of this prospectus are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other
person.
| |
Ordinary Shares Beneficially Owned Prior to this Offering | | |
Ordinary Shares Beneficially Owned After this Offering | |
| |
Number | | |
Percent | | |
Number | | |
Percent | |
Directors and Executive Officers(1): | |
| | |
| | |
| | |
| |
Kazusa Aranami | |
| 750,000 | | |
| 5.6 | % | |
| 0 | | |
| 0 | % |
Yuhi Mimura | |
| 75,000 | | |
| 0.6 | % | |
| 0 | | |
| 0 | % |
Minoru Muranaga | |
| 50,000 | | |
| 0.4 | % | |
| — | | |
| — | |
Akira Sugimoto | |
| — | | |
| — | | |
| — | | |
| — | |
All directors and executive officers as a group (four individuals): | |
| 875,000 | | |
| 6.6 | % | |
| 0 | | |
| 0 | % |
5% Shareholders: | |
| | | |
| | | |
| | | |
| | |
CyberStep, Inc.(2) | |
| 4,500,000 | | |
| 33.5 | % | |
| 0 | | |
| 0 | % |
Lode Runner, Inc.(3) | |
| 1,400,000 | | |
| 10.4 | % | |
| — | | |
| — | |
Notes:
(1) | Unless otherwise indicated, the business address of each
of the individuals is Toyo Recording 1F, 4-5-19 Akasaka, Minato-ku, Tokyo 107-0052, Japan. |
(2) | The
number of Ordinary Shares beneficially owned prior to this offering represents 4,500,000 Ordinary Shares held by CyberStep, Inc., a widely
held public company with securities listed on the Tokyo Stock Exchange. Based on the most recent annual securities report filed by CyberStep,
Inc., no shareholder beneficially owns more than 10% of its outstanding common stock. As a result, voting and investment discretion with
regard to these Ordinary Shares is ultimately controlled by the five-member board of directors of CyberStep, Inc., which presently consists
of Rui Sato, Junichi Ogata, Kousuke Inoue, Tsuyoshi Suzuki, and Jiro Saito .
The address for CyberStep, Inc. is Asahi Seimei Daitabashi Building 4F, 1-22-19 Izumi, Suginami-ku, 168-0063, Tokyo, Japan. |
(3) | The number of Ordinary Shares beneficially owned prior to
this offering represents 1,400,000 Ordinary Shares held by Lode Runner, Inc., a Japanese company 100% owned by Rui Sato. The address
for Lode Runner, Inc. is 2-2-39 Jingumae, Shibuya-ku, 150-0001, Tokyo, Japan. |
None of our shareholders has informed us that
it is affiliated with a registered broker-dealer or is in the business of underwriting securities. We are not aware of any arrangement
that may, at a subsequent date, result in a change of control of the Company.
RELATED PARTY TRANSACTIONS
Employment Agreements
See “Management — Employment
Agreements and Indemnification Agreements.”
Material Transactions with Related Parties
The related parties that had material transactions
for the six months ended March 31, 2024 and the fiscal years ended September 30, 2023, 2022 and 2021 consist of the following:
Name of Related Party |
|
Nature of Relationship at September 30, 2023, 2022 and 2021 |
CyberStep, Inc. |
|
A principal shareholder of the Company |
Lode Runner Inc. |
|
A principal shareholder of the Company/A company controlled by a director of CyberStep |
Laughact, Inc. |
|
An affiliate of the Company prior to the acquisition on December 2021 |
Kazusa Aranami |
|
Director of the Company |
Accounts receivable due from a related party as
of March 31, 2024, September 30, 2023, 2022 and 2021 were as follows (in thousands):
| |
| |
As of March 31, | | |
As of September 30, | |
| |
| |
2024 | | |
2024 | | |
2023 | | |
2023 | | |
2022 | | |
2022 | | |
2021 | | |
2021 | |
| |
| |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | |
Accounts receivables due from related party | | |
| | |
| | |
| | |
| | |
| |
CyberStep, Inc. | |
Sound production and talent management service to related party | |
| — | | |
| — | | |
| 21 | | |
| 3,214 | | |
| — | | |
| — | | |
| — | | |
| — | |
Laughact, Inc. | |
Provided internet (VTuber) services to related party | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 13 | | |
| 2,033 | |
Accounts payable due to a related parties as of
March 31, 2024, September 30, 2023, 2022 and 2021 were as follows (in thousands):
| |
| |
As of March 31, | | |
As of September 30, | |
| |
| |
2024 | | |
2024 | | |
2023 | | |
2023 | | |
2022 | | |
2022 | | |
2021 | | |
2021 | |
| |
| |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | |
Accounts payable due to related party | | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
CyberStep, Inc. | |
Outsourcing services provided by related party | |
| 108 | | |
| 16,312 | | |
| — | | |
| — | | |
| 82 | | |
| 12,384 | | |
| — | | |
| — | |
Kazusa Aranami | |
Outsourcing services provided by related party | |
| 1 | | |
| 187 | | |
| 0.3 | | |
| 49 | | |
| — | | |
| — | | |
| — | | |
| — | |
Loan payables due to related parties as of March
31, 2024, September 30, 2023, 2022 and 2021 were as follows (in thousands):
| |
| |
As of March 31, | | |
As of September 30, | |
| |
| |
2024 | | |
2024 | | |
2023 | | |
2023 | | |
2022 | | |
2022 | | |
2021 | | |
2021 | |
| |
| |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | |
Loan Payable due to related party | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
CyberStep, Inc. | |
Loan from the Company’s principal shareholder for working capital | |
| 198 | | |
| 30,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Revenue generated from related parties for the
six months ended March 31, 2024 and for the fiscal years ended September 30, 2023, 2022 and 2021 was as follows (in thousands):
| |
| |
For the six months ended March
31, | | |
For the fiscal years ended September 30, | |
| |
| |
2024 | | |
2024 | | |
2023 | | |
2023 | | |
2022 | | |
2022 | | |
2021 | | |
2021 | |
| |
| |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | |
Revenues from related parties | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
CyberStep, Inc. | |
Sound production and talent management income | |
| 20 | | |
| 3,047 | | |
| 98 | | |
| 14,776 | | |
| 44 | | |
| 6,649 | | |
| — | | |
| — | |
Laughact, Inc. | |
Internet (Vtuber) income | |
| — | | |
| — | | |
| — | | |
| — | | |
| 7 | | |
| 1,011 | | |
| 92 | | |
| 13,886 | |
Lode Runner Inc. | |
Audio production and talent management income | |
| — | | |
| — | | |
| — | | |
| — | | |
| 66 | | |
| 10,000 | | |
| — | | |
| — | |
Cost of revenue incurred with a related parties
for the six months ended March 31, 2024 and for the fiscal years ended September 30, 2023, 2022 and 2021 were as follows
(in thousands):
| |
| |
For the six months ended March 31, | | |
For the fiscal years ended September 30, | |
| |
| |
2024 | | |
2024 | | |
2023 | | |
2023 | | |
2022 | | |
2022 | | |
2021 | | |
2021 | |
| |
| |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | |
Cost of revenue with related parties | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
CyberStep, Inc. | |
Outsourcing services provided by related party | |
| 95 | | |
| 14,349 | | |
| 27 | | |
| 4,033 | | |
| 79 | | |
| 11,916 | | |
| — | | |
| — | |
Kazusa Aranami | |
Outsourcing services provided by related party | |
| 7 | | |
| 1,054 | | |
| 13 | | |
| 1,959 | | |
| — | | |
| — | | |
| — | | |
| — | |
Selling, General and Administrative expenses incurred
with a related party for the six months ended March 31, 2024 and for the fiscal years ended September 30, 2023, 2022 and 2021
were as follows (in thousands):
| |
| |
For the six months ended March 31, | | |
For the fiscal years ended September 30, | |
| |
| |
2024 | | |
2024 | | |
2023 | | |
2023 | | |
2022 | | |
2022 | | |
2021 | | |
2021 | |
| |
| |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | |
Selling, General and Administrative expenses with related party | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
CyberStep, Inc. | |
Commission fee to related party | |
| 0.4 | | |
| 59 | | |
| 6 | | |
| 850 | | |
| — | | |
| — | | |
| — | | |
| — | |
Interest expenses incurred with a related party
for the six months ended March 31, 2024 and for the fiscal years ended September 30, 2023, 2022 and 2021 were as follows
(in thousands):
| |
| |
For the six months ended March 31, | | |
For the fiscal years ended September 30, | |
| |
| |
2024 | | |
2024 | | |
2023 | | |
2023 | | |
2022 | | |
2022 | | |
2021 | | |
2021 | |
| |
| |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | | |
(US$) | | |
(¥) | |
Interest expenses with related party | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
CyberStep, Inc. | |
Interest expenses to related party | |
| 0.0 | | |
| 1 | | |
| 11 | | |
| 1,633 | | |
| — | | |
| — | | |
| — | | |
| — | |
DESCRIPTION OF SHARE CAPITAL
We are a Cayman Islands exempted company and our
affairs are governed by our memorandum and articles of association, as amended from time to time, and the Companies Act (As Revised) of
the Cayman Islands, which we refer to as the Companies Act below, and the common law of Cayman Islands.
We were incorporated as an exempted company limited
by shares under the Cayman Companies Act on April 14, 2023. A Cayman Islands exempted company:
| ● | is a company that conducts its business mainly outside the
Cayman Islands; |
| ● | is prohibited from trading in the Cayman Islands with any
person, firm or corporation except in furtherance of the business of the exempted company carried on outside the Cayman Islands (and
for this purpose can effect and conclude contracts in the Cayman Islands and exercise in the Cayman Islands all of its powers necessary
for the carrying on of its business outside the Cayman Islands); |
| ● | does not have to hold an annual general meeting; |
| ● | does not have to make its register of members open to inspection
by shareholders of that company; |
| ● | may obtain an undertaking against the imposition of any future
taxation; |
| ● | may register by way of continuation in another jurisdiction
and be deregistered in the Cayman Islands; |
| ● | may register as a limited duration company; and |
| ● | may register as a segregated portfolio company. |
As of the date of this prospectus, our authorized
share capital is US$50,000 divided into 2,500,000,000,000 shares, par value of US$0.00000002 each. As of the date of this prospectus,
13,429,800 Ordinary Shares are issued and outstanding.
All of our shares issued and outstanding are fully
paid.
Our Amended and Restated Memorandum and Articles
of Association
We have adopted the amended and restated memorandum
of association on December 11, 2023, and the amended and restated articles of association on December 11, 2023, and effective on July
1, 2024 (collectively, the “Amended and Restated Memorandum and Articles of Association”). The following are summaries of
certain material provisions of the Amended and Restated Memorandum and Articles of Association and of the Companies Act, insofar as they
relate to the material terms of our Ordinary Shares.
Objects of Our Company. Under our Amended
and Restated Memorandum and Articles of Association, the objects of our Company are unrestricted, and we are capable of exercising all
the functions of a natural person of full capacity irrespective of any question of corporate benefit, as provided by section 27(2) of
the Companies Act.
Ordinary Shares. Our Ordinary Shares are
issued in registered form and are issued when registered in our register of members. We may not issue shares to bearer. Our shareholders
who are non-residents of the Cayman Islands may freely hold and vote their shares.
Dividends. The holders of our Ordinary
Shares are entitled to such dividends as may be declared by our board of directors. Our Amended and Restated Memorandum and Articles of
Association provide that dividends may be declared and paid out of the funds of our Company lawfully available therefor. Under the laws
of the Cayman Islands, our Company may pay a dividend out of either profit or share premium account; provided that in no circumstances
may a dividend be paid out of our share premium if this would result in our Company being unable to pay its debts as they fall due in
the ordinary course of business.
Voting Rights. Voting at any meeting of
shareholders is by way of a poll, save that in the case of a physical meeting, the chairman of the meeting may decide that a vote be on
a show of hands unless a poll is demanded by:
| ● | at least three shareholders present in person or by proxy
or (in the case of a shareholder being a corporation) by its duly authorized representative for the time being entitled to vote at the
meeting; |
| ● | shareholder(s) present in person or by proxy or (in
the case of a shareholder being a corporation) by its duly authorized representative representing not less than one-tenth of the total
voting rights of all shareholders having the right to vote at the meeting; and |
| ● | shareholder(s) present in person or by proxy or (in
the case of a shareholder being a corporation) by its duly authorized representative and holding shares in us conferring a right to vote
at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all
shares conferring that right. |
An ordinary resolution to be passed at a meeting
by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the Ordinary Shares cast at a meeting,
while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the issued and outstanding
Ordinary Shares at a meeting. A special resolution will be required for important matters such as a change of name, making changes to
our Amended and Restated Memorandum and Articles of Association, a reduction of our share capital, and the winding up of our Company.
Our shareholders may, among other things, divide or combine their shares by ordinary resolution.
General Meetings of Shareholders. As a
Cayman Islands exempted company, we are not obliged by the Companies Act to call shareholders’ annual general meetings. Our Amended
and Restated Memorandum and Articles of Association provide that we shall, if required by the Companies Act, in each year hold a general
meeting as our annual general meeting, and shall specify the meeting as such in the notices calling it, and the annual general meeting
shall be held at such time and place as may be determined by our directors. All general meetings (including an annual general meeting,
any adjourned general meeting or postponed meeting) may be held as a physical meeting at such times and in any part of the world and at
one or more locations, as a hybrid meeting or as an electronic meeting, as may be determined by our board of directors in its absolute
discretion.
Shareholders’ general meetings may be convened
by the chairperson of our board of directors or by a majority of our board of directors. Advance notice of not less than 10 clear days
is required for the convening of our annual general shareholders’ meeting (if any) and any other general meeting of our shareholders.
A quorum required for any general meeting of shareholders consists of, at the time when the meeting proceeds to business, two shareholders
holding shares which carry in aggregate (or representing by proxy) not less than one-third of all votes attaching to issued and outstanding
shares in our Company entitled to vote at such general meeting.
The Companies Act does not provide shareholders
with any right to requisition a general meeting or to put any proposal before a general meeting. However, these rights may be provided
in a company’s articles of association. Our Amended and Restated Memorandum and Articles of Association provide that upon the requisition
of any one or more of our shareholders holding shares which carry in aggregate not less than one-third of all votes attaching to the issued
and outstanding shares of our Company entitled to vote at general meetings, our board will convene an extraordinary general meeting and
put the resolutions so requisitioned to a vote at such meeting. However, our Amended and Restated Memorandum and Articles of Association
do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not
called by such shareholders.
Transfer of Ordinary Shares. Subject to
the restrictions set out below, any of our shareholders may transfer all or any of his or her Ordinary Shares by an instrument of transfer
in the usual or common form or in a form designated by the relevant stock exchange or any other form approved by our board of directors.
Notwithstanding the foregoing, Ordinary Shares may also be transferred in accordance with the applicable rules and regulations of the
relevant stock exchange.
Our board of directors may, in its absolute discretion,
decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may
also decline to register any transfer of any ordinary share unless:
| ● | the instrument of transfer is lodged with us, accompanied
by the certificate for the Ordinary Shares to which it relates and such other evidence as our board of directors may reasonably require
to show the right of the transferor to make the transfer; |
| ● | the instrument of transfer is in respect of only one class
of ordinary shares; |
| ● | the instrument of transfer is properly stamped, if required; |
| ● | in the case of a transfer to joint holders, the number of
joint holders to whom the ordinary share is to be transferred does not exceed four; and |
| ● | a fee of such maximum sum as the relevant stock exchange
may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof. |
If our directors refuse to register a transfer,
they shall, within two months after the date on which the instrument of transfer was lodged, send to each of the transferor and the
transferee notice of such refusal.
The registration of transfers may, after compliance
with any notice required in accordance with the rules of the relevant stock exchange, be suspended and the register closed at such times
and for such periods as our board of directors may from time to time determine; provided, however, that the registration of transfers
shall not be suspended nor the register closed for more than 30 days in any year as our board may determine.
Liquidation. On the winding up of our Company,
if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital
at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the
shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies
due, of all monies payable to our Company for unpaid calls or otherwise. If our assets available for distribution are insufficient to
repay all of the paid-up capital, such assets will be distributed so that, as nearly as may be, the losses are borne by our shareholders
in proportion to the par value of the shares held by them.
Calls on Shares and Forfeiture of Shares. Our
board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such
shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain
unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Shares.
We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders of these shares,
on such terms and in such manner as may be determined by our board of directors. Our company may also repurchase any of our shares on
such terms and in such manner as have been approved by our board of directors. Under the Companies Act, the redemption or repurchase of
any share may be paid out of our Company’s profits, share premium account or out of the proceeds of a new issue of shares made for
the purpose of such redemption or repurchase, or out of capital if our Company can, immediately following such payment, pay its debts
as they fall due in the ordinary course of business. In addition, under the Companies Act, no such share may be redeemed or repurchased
(a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding or (c) if
the company has commenced liquidation. In addition, our Company may accept the surrender of any fully paid share for no consideration.
Variations of Rights of Shares. Whenever
the capital of our Company is divided into different classes the rights attached to any such class may, subject to any rights or restrictions
for the time being attached to any class, only be varied with the sanction of a resolution passed by a majority of two-thirds of the votes
cast at a separate meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class
issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class,
be deemed to be varied by the creation, allotment or issue of further shares ranking pari passu with such existing class of shares.
Issuance of Additional Shares. Our Amended
and Restated Memorandum and Articles of Association authorize our board of directors to issue additional Ordinary Shares from time to
time as our board of directors shall determine, to the extent of available authorized but unissued shares.
Our Amended and Restated Memorandum and Articles
of Association also authorize our board of directors to establish from time to time one or more series of preference shares and to determine,
with respect to any series of preference shares, the terms and rights of that series, including, among other things:
| ● | the designation of the series; |
| ● | the number of shares of the series; |
| ● | the dividend rights, dividend rates, conversion rights and
voting rights; and |
| ● | the rights and terms of redemption and liquidation preferences. |
Our board of directors may issue preference shares
without action by our shareholders to the extent of available authorized but unissued shares. Issuance of these shares may dilute the
voting power of holders of ordinary shares.
Inspection of Books and Records. Holders
of our Ordinary Shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or
our corporate records. However, our Amended and Restated Memorandum and Articles of Association have provisions that provide our shareholders
the right to inspect our register of shareholders without charge, and to receive our annual audited financial statements. See “Where
You Can Find Additional Information.”
Anti-Takeover Provisions. Some provisions
of our Amended and Restated Memorandum and Articles of Association may discourage, delay, or prevent a change of control of our Company
or management that shareholders may consider favorable, including provisions that:
| ● | authorize our board of directors to issue preference shares
in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without
any further vote or action by our shareholders; and |
| ● | limit the ability of shareholders to requisition and convene
general meetings of shareholders. |
However, under Cayman Islands law, our directors
may only exercise the rights and powers granted to them under our Amended and Restated Memorandum and Articles of Association for a proper
purpose and for what they believe in good faith to be in the best interests of our Company.
Exempted Company. We are an exempted company
with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies.
Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered
as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted
company:
| ● | does not have to file an annual return of its shareholders
with the Registrar of Companies; |
| ● | is not required to open its register of members for inspection; |
| ● | does not have to hold an annual general meeting; |
| ● | may issue shares with no par value; |
| ● | may obtain an undertaking against the imposition of any future
taxation (such undertakings are usually given for 20 years in the first instance); |
| ● | may register by way of continuation in another jurisdiction
and be deregistered in the Cayman Islands; |
| ● | may register as an exempted limited duration company; and |
| ● | may register as a segregated portfolio company. |
“Limited liability” means that the
liability of each shareholder is limited to the amount unpaid by the shareholder on that shareholder’s shares of the company (except
in exceptional circumstances, such as involving fraud, the establishment of an agency relationship, or an illegal or improper purpose
or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
Differences in Corporate Law
The Companies Act is derived, to a large extent,
from the older Companies Acts of England but does not follow recent English statutory enactments and accordingly there are significant
differences between the Companies Act and the current Companies Act of England. In addition, the Companies Act differs from
laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant differences between
the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the State of Delaware in the
United States and their shareholders.
Mergers and Similar Arrangements. The Companies
Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies.
For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking,
property and liabilities in one of such companies as the surviving
company, and (b) a “consolidation” means the combination of two or more constituent companies into a consolidated company
and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a
merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must
then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization,
if any, as may be specified in such constituent company’s articles of association. The plan must be filed with the Registrar of
Companies of the Cayman Islands together with a declaration as to the solvency of the consolidated or surviving company, a list of the
assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be
given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published
in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these
statutory procedures.
A merger between a Cayman Islands parent company
and its Cayman Islands subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman Islands
subsidiary if a copy of the plan of merger is given to every member of that Cayman Islands subsidiary to be merged unless that member
agrees otherwise. For this purpose, a company is a “parent” of a subsidiary if it holds issued shares that together represent
at least ninety percent (90%) of the votes at a general meeting of the subsidiary.
The consent of each holder of a fixed or floating
security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
Save in certain limited circumstances, a shareholder
of a Cayman Islands constituent company who dissents from the merger or consolidation is entitled to payment of the fair value of his
shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting to the merger or consolidation,
provided the dissenting shareholder complies strictly with the procedures set out in the Companies Act. The exercise of dissenter rights
will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue
of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.
Separate from the statutory provisions relating
to mergers and consolidations, the Companies Act also contains statutory provisions that facilitate the reconstruction and amalgamation
of companies by way of schemes of arrangement, provided that the arrangement is approved. In the case of a shareholder scheme, by seventy-five
per cent in value of the members or class of members, as the case may be, with whom the arrangement is to be made and, in the case of
a creditor scheme only a majority in number of each class of creditors with whom the arrangement is to be made and who must in addition
represent seventy-five per cent in value of each such class of creditors, as the case may be, that are present and voting either in person
or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must
be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view
that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
| ● | the statutory provisions as to the required majority vote
have been met; |
| ● | the shareholders have been fairly represented at the meeting
in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of
the class; |
| ● | the arrangement is such that may be reasonably approved by
an intelligent and honest man of that class acting in respect of his interest; and |
| ● | the arrangement is not one that would more properly be sanctioned
under some other provision of the Companies Act. |
The Companies Act also contains a statutory power
of compulsory acquisition which may facilitate the “squeeze out” of a dissentient minority shareholder upon a tender offer.
When a tender offer is made and accepted by holders of 90% of the shares affected within four months, the offeror may, within a two-month
period commencing on the expiration of such four-month period, require the holders of the remaining shares to transfer such shares to
the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed
in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction by way of
scheme of arrangement is thus approved and sanctioned, or if a tender offer is made and accepted, in accordance with the foregoing statutory
procedures, a dissenting shareholder would have no rights comparable to appraisal rights, save that objectors to a takeover offer may
apply to the Grand Court of the Cayman Islands for various orders that the
Grand Court of the Cayman Islands has a broad discretion to make, which would otherwise ordinarily be available to dissenting shareholders
of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
The Companies Act also contains statutory provisions
which provide that a company may present a petition to the Grand Court of the Cayman Islands for the appointment of a restructuring officer
on the grounds that the company (a) is or is likely to become unable to pay its debts within the meaning of section 93 of the Companies
Act; and (b) intends to present a compromise or arrangement to its creditors (or classes thereof) either, pursuant to the Companies
Act, the law of a foreign country or by way of a consensual restructuring. The petition may be presented by a company acting by its directors,
without a resolution of its members or an express power in its articles of association. On hearing such a petition, the Cayman Islands
court may, among other things, make an order appointing a restructuring officer or make any other order as the court thinks fit.
Shareholders’ Suits. In principle,
we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder. However,
based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands courts
can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto)
so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the name of the
company to challenge actions where:
| ● | a company acts or proposes to act illegally or ultra vires; |
| ● | the act complained of, although not ultra vires, could only
be effected duly if authorized by more than the number of votes which have actually been obtained; and |
| ● | those who control the company are perpetrating a “fraud
on the minority.” |
A shareholder may have a direct right of action
against us where the individual rights of that shareholder have been infringed or are about to be infringed.
Our Amended and Restated Memorandum and Articles
of Association contain a provision by which our shareholders waive any claim or right of action that they may have, both individually
and on our behalf, against any director in relation to any action or failure to take action by such director in the performance of his
or her duties with or for our Company, except in respect of any fraud, willful default or dishonesty of such director.
Indemnification of Directors and Executive
Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a company’s memorandum and articles
of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman
Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing
a crime. Our Amended and Restated Memorandum and Articles of Association provide that that we shall indemnify our directors and officers,
and their personal representatives, against all actions, proceedings, costs, charges, expenses, losses, damages, or liabilities incurred
or sustained by such persons, other than by reason of such person’s dishonesty, willful default, or fraud, in or about the conduct
of our Company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his
duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses
or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning
our Company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as
permitted under the Delaware General Corporation Law for a Delaware corporation.
In addition, we have entered into indemnification
agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in
our Amended and Restated Memorandum and Articles of Association.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have
been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is
therefore unenforceable.
Directors’ Fiduciary Duties. Under
Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has
two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that
an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director
must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction.
The duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He
must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the
best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling
shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed
basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption
may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by
a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director
of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes
the following duties to the company — a duty to act in good faith in the best interests of the company, a duty not to
make a personal profit based on his position as director (unless the company permits him to do so), a duty not to put himself in a position
where the interests of the company conflict with his personal interest or his duty to a third party and a duty to exercise powers for
the purpose for which such powers were intended. A director of a Cayman Islands company owes to the company a duty to act with skill and
care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may
reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective
standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Consent. Under
the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to
its certificate of incorporation. Cayman Islands law permits us to eliminate the right of shareholders to act by written consent and our
Amended and Restated Memorandum and Articles of Association provide that any action required or permitted to be taken at any general meetings
may be taken upon the vote of shareholders at a general meeting duly noticed and convened in accordance with our Amended and Restated
Memorandum and Articles of Association and may not be taken by written consent of the shareholders without a meeting.
Shareholder Proposals. Under the Delaware
General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies
with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized
to do so in the governing documents, but shareholders may be precluded from calling special meetings.
The Companies Act does not provide shareholders
with any right to requisition a general meeting or to put any proposal before a general meeting. However, these rights may be provided
in a company’s articles of association. Our Amended and Restated Memorandum and Articles of Association allow our shareholders holding
shares which carry in aggregate not less than one-third of all votes attaching to the issued and outstanding shares of our Company entitled
to vote at general meetings to requisition an extraordinary general meeting of our shareholders, in which case our board is obliged to
convene an extraordinary general meeting and to put the resolutions so requisitioned to a vote at such meeting. Other than this right
to requisition a shareholders’ meeting, our Amended and Restated Memorandum and Articles of Association do not provide our shareholders
with any other right to put proposals before annual general meetings or extraordinary general meetings. As an exempted Cayman Islands
company, we are not obliged by law to call shareholders’ annual general meetings.
Cumulative Voting. Under the Delaware General
Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation
specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors
since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases
the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting
under the laws of the Cayman Islands but our Amended and Restated Memorandum and Articles of Association do not provide for cumulative
voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors. Under the Delaware
General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority
of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our Amended and Restated
Memorandum and Articles of Association, subject to certain restrictions as contained therein,
directors may be removed with or without cause, by an ordinary resolution of our shareholders. An appointment of a director may be on
terms that the director shall automatically retire from office (unless he has sooner vacated office) at the next or a subsequent annual
general meeting or upon any specified event or after any specified period in a written agreement between the company and the director,
if any; but no such term shall be implied in the absence of express provision. Under our Amended and Restated Memorandum and Articles
of Association, a director’s office shall be vacated if the director (i) becomes bankrupt or has a receiving order made against
him or suspends payment or compounds with his creditors; (ii) is found to be or becomes of unsound mind or dies; (iii) resigns
his office by notice in writing to the company; (iv) without special leave of absence from our board of directors, is absent from
three consecutive meetings of the board and the board resolves that his office be vacated; (v) is prohibited by law from being a
director or; (vi) is removed from office pursuant to the laws of the Cayman Islands or any other provisions of our Amended and Restated
Memorandum and Articles of Association.
Transactions with Interested Shareholders.
The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the
corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited
from engaging in certain business combinations with an “interested shareholder” for three years following the date that
such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15%
or more of the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of
a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does
not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors
approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages
any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of
directors.
Cayman Islands law has no comparable statute.
As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although
Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions
must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding up. Under the Delaware
General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders
holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved
by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate
of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.
Under Cayman Islands law, a company may be wound
up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay
its debts, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances
including where it is, in the opinion of the court, just and equitable to do so.
Variation of Rights of Shares. Under the
Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding
shares of such class, unless the certificate of incorporation provides otherwise. Under our Amended and Restated Memorandum and Articles
of Association, if our share capital is divided into more than one class of shares, the rights attached to any such class may only be
varied with the sanction of a resolution passed by a majority of two-thirds of the votes cast at a separate meeting of the holders of
the shares of that class.
Amendment of Governing Documents. Under
the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the
outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under Cayman Islands law, our Amended
and Restated Memorandum and Articles of Association may only be amended with a special resolution of our shareholders.
Rights of Non-resident or Foreign Shareholders.
There are no limitations imposed by our Amended and Restated Memorandum and Articles of Association on the rights of non-resident
or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our Amended and Restated
Memorandum and Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.
Cayman Islands Data Protection
We have certain duties under the Data Protection
Act (as revised) of the Cayman Islands, or the DPA, based on internationally accepted principles of data privacy.
Privacy Notice
This privacy notice puts our shareholders on notice
that through your investment into us you will provide us with certain personal information which constitutes personal data within the
meaning of the DPA, or personal data.
Investor Data
We will collect, use, disclose, retain, and secure
personal data to the extent reasonably required only and within the parameters that could be reasonably expected during the normal course
of business. We will only process, disclose, transfer or retain personal data to the extent legitimately required to conduct our activities
of on an ongoing basis or to comply with legal and regulatory obligations to which we are subject. We will only transfer personal data
in accordance with the requirements of the DPA, and will apply appropriate technical and organizational information security measures
designed to protect against unauthorized or unlawful processing of the personal data and against the accidental loss, destruction, or
damage to the personal data.
In our use of this personal data, we will be characterized
as a “data controller” for the purposes of the DPA, while our affiliates and service providers who may receive this personal
data from us in the conduct of our activities may either act as our “data processors” for the purposes of the DPA or may process
personal information for their own lawful purposes in connection with services provided to us.
We may also obtain personal data from other public
sources. Personal data includes, without limitation, the following information relating to a shareholder and/or any individuals connected
with a shareholder as an investor: name, residential address, email address, contact details, corporate contact information, signature,
nationality, place of birth, date of birth, tax identification, credit history, correspondence records, passport number, bank account
details, source of funds details, and details relating to the shareholder’s investment activity.
Who this Affects
If you are a natural person, this will affect
you directly. If you are a corporate investor (including, for these purposes, legal arrangements such as trusts or exempted limited partnerships)
that provides us with personal data on individuals connected to you for any reason in relation your investment in us, this will be relevant
for those individuals and you should transit the content of this Privacy Notice to such individuals or otherwise advise them of its content.
How We May Use a Shareholder’s Personal
Data
We may, as the data controller, collect, store,
and use personal data for lawful purposes, including, in particular: (i) where this is necessary for the performance of our rights
and obligations under any agreements; (ii) where this is necessary for compliance with a legal and regulatory obligation to which
we are or may be subject (such as compliance with anti-money laundering and FATCA/CRS requirements); and/or (iii) where this is necessary
for the purposes of our legitimate interests and such interests are not overridden by your interests, fundamental rights, or freedoms.
Should we wish to use personal data for other
specific purposes (including, if applicable, any purpose that requires your consent), we will contact you.
Why We May Transfer Your Personal Data
In certain circumstances we may be legally obliged
to share personal data and other information with respect to your shareholding with the relevant regulatory authorities such as the Cayman
Islands Monetary Authority or the Tax Information Authority. They, in turn, may exchange this information with foreign authorities, including
tax authorities.
We anticipate disclosing personal data to persons
who provide services to us and their respective affiliates (which may include certain entities located outside the US, the Cayman Islands
or the European Economic Area), who will process your personal data on our behalf.
The Data Protection Measures We Take
Any transfer of personal data by us or our duly
authorized affiliates and/or delegates outside of the Cayman Islands shall be in accordance with the requirements of the DPA.
We and our duly authorized affiliates and/or delegates
shall apply appropriate technical and organizational information security measures designed to protect against unauthorized or unlawful
processing of personal data, and against accidental loss or destruction of, or damage to, personal data.
We shall notify you of any personal data breach
that is reasonably likely to result in a risk to your interests, fundamental rights or freedoms or those data subjects to whom the relevant
personal data relates.
Contacting the Company
For further information on the collection, use,
disclosure, transfer or processing of your personal data or the exercise of any of the rights listed above, please contact us through
our website at https://www.bloomz-inc.com or through phone number +81 050-3138-4984.
Anti-Money Laundering Matters
In order to comply with legislation or regulations
aimed at the prevention of money laundering, the Company may be required to adopt and maintain anti-money laundering procedures, and may
require subscribers to provide evidence to verify their identity. Where permitted, and subject to certain conditions, the Company may
also delegate the maintenance of our anti-money laundering procedures (including the acquisition of due diligence information) to a suitable
person.
The Company reserves the right to request such
information as is necessary to verify the identity of a subscriber. In the event of delay or failure on the part of the subscriber in
producing any information required for verification purposes, we may refuse to accept the application, in which case any funds received
will be returned without interest to the account from which they were originally debited.
History of Share Issuances
The following is a summary of our securities issuances
in the past three years.
On April 14, 2023, we issued 5,000 Ordinary
Shares, par value $0.00000002, to the initial subscriber, which was transferred to CyberStep.
On April 24, 2023, we entered into a share
exchange agreement with BloomZ Japan, its shareholders, and CyberStep, as the representative of the shareholders, pursuant to which on
April 24, 2023, we acquired the 100% of equity interests in BloomZ Japan from BloomZ Japan’s shareholders in consideration
for the allotting and issuance of an aggregate of 7,845,000 Ordinary Shares to the BloomZ Japan’s shareholders, and BloomZ
Japan became our wholly owned subsidiary.
On May 31, 2023, BloomZ Japan issued an aggregate
of 667 of its ordinary shares to 12 investors for an aggregate consideration of JPY200.1 million.
On August 25, 2023, we entered into a share
exchange agreement with BloomZ Japan, its shareholders, and Lode Runner, Inc., as the representative of the shareholders, pursuant to
which, on August 25, 2023, we acquired the equity interests in BloomZ Japan held by the 12 investors in consideration for the allotting
and issuance of an aggregate of 3,335,000 Ordinary Shares to the 12 investors, and BloomZ Japan became our wholly owned subsidiary.
On December 11, 2023, the Company’s shareholders
approved a sub-division of the Company’s authorized and issued Ordinary Shares at a ratio of 1:5,000, which became effective on
December 11, 2023. As a result of the sub-division, the authorized share capital of the Company became US$50,000 divided into 2,500,000,000,000
shares of a par value of US$0.00000002 each, of which 11,185,000 Ordinary Shares were issued and outstanding after the sub-division. These
shares are presented on a retroactive basis to reflect the sub-division.
On July 25, 2024, the Company completed the IPO
of 1,250,000 Ordinary Shares at a public offering price of $4.30 per share. The gross proceeds raised from the IPO were approximately
$5.38 million prior to deducting underwriting discounts and other offering expenses payable by the Company.
On August 26, 2024, we issued 497,400 Ordinary
Shares to HeartCore Enterprises, Inc., a Delaware corporation, and 497,400 Ordinary Shares to Spirit Advisors, LLC, a Delaware limited
liability company, in consideration of the services they provided to the Company in connection with the Company’s IPO in July 2024.
We believe that each of the foregoing issuances
was exempt from registration under the Securities Act, pursuant to Section 4(2) of the Securities Act regarding transactions
not involving a public offering or in reliance on Regulation S under the Securities Act regarding sales by an issuer in offshore
transactions. No underwriters were involved in the issuances of such securities.
We have not issued any other securities since
the incorporation of the Company on April 14, 2023, except as described above.
MATERIAL INCOME TAX CONSIDERATION
The following summary of the material Japanese,
Cayman Islands and United States federal income tax consequences of an investment in our Ordinary Shares is based upon laws and relevant
interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This summary does not deal with
all possible tax consequences relating to an investment in our Ordinary Shares, such as the tax consequences under state, local, and other
tax laws.
Japanese Taxation
We are a holding company incorporated as an exempted
company in the Cayman Islands. If we determine to pay dividends on any of our Ordinary Shares in the future, as a holding company, we
will be dependent on receipt of funds from our subsidiary, BloomZ Japan.
Generally, owners of ordinary shares of a Japanese
corporation who are non-resident individuals of Japan or who are non-Japanese corporations without a permanent establishment in Japan,
collectively referred to in this section as non-resident holders, will be subject to Japanese income tax collected by way of withholding
on dividends (meaning in this section, distributions made from BloomZ Japan’s retained earnings for the Companies Act purposes)
the Japanese corporation pays with respect to its ordinary shares and such tax will be withheld prior to payment of dividends. Share splits
generally are not subject to Japanese income or corporation taxes.
In the absence of any applicable tax treaty, convention,
or agreement reducing the maximum rate of Japanese withholding tax or allowing exemption from Japanese withholding tax, the rate of the
Japanese withholding tax applicable to dividends paid by Japanese corporations on their ordinary shares to non-resident holders is generally
20.42% (or 20% for dividends due and payable on or after January 1, 2038) under Japanese tax law. However, with respect to dividends
paid on listed shares issued by a Japanese corporation to non-resident holders, other than any individual shareholder who holds 3% or
more of the total number of shares issued by the relevant Japanese corporation (to whom the aforementioned withholding tax rate will still
apply), the aforementioned withholding tax rate is reduced to (i) 15.315% for dividends due and payable up to and including December 31,
2037 and (ii) 15% for dividends due and payable on or after January 1, 2038. The withholding tax rates described above include
the special reconstruction surtax (2.1% multiplied by the original applicable withholding tax rate, i.e., 15% or 20%, as the case may
be), which is imposed during the period from and including January 1, 2013 to and including December 31, 2037, to fund the reconstruction
from the Great East Japan Earthquake.
Japan has income tax treaties whereby the withholding
tax rate (including the special reconstruction surtax) may be reduced, generally to 15%, for portfolio investors, with, among others,
Canada, Denmark, Finland, Germany, Ireland, Italy, Luxembourg, New Zealand, Norway, and Singapore, while the income tax treaties with,
among others, Australia, Belgium, France, Hong Kong, the Netherlands, Portugal, Sweden, Switzerland, the United Arab Emirates, the
United Kingdom, and the United States generally reduce the withholding tax rate to 10% for portfolio investors and the income tax
treaties with, among others, Spain, generally reduce the withholding tax rate to 5% for portfolio investors. In addition, under the income
tax treaty between Japan and the United States, dividends paid to pension funds which are qualified U.S. residents eligible
to enjoy treaty benefits are exempt from Japanese income taxation by way of withholding or otherwise unless the dividends are derived
from the carrying on of a business, directly or indirectly, by the pension funds. Similar treatment is applicable to dividends paid to
pension funds under the income tax treaties between Japan and, among others, Belgium, Denmark, Spain, the United Kingdom, the Netherlands,
and Switzerland. Under Japanese tax law, any reduced maximum rate applicable under a tax treaty shall be available when such maximum rate
is below the rate otherwise applicable under the Japanese tax law referred to in the second preceding paragraph with respect to the dividends
to be paid by a Japanese corporation on its ordinary shares.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on
individuals or corporations based upon profits, income, gains, or appreciation and there is no taxation in the nature of inheritance tax
or estate duty. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties
which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. Our Company
has received an undertaking pursuant to the Tax Concessions Act of the Cayman Islands to the effect that, for a period of 20 years
from April 19, 2023, no law which is thereafter enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains,
or appreciations shall apply to our Company or its operations; and that no tax to be levied on profits, income, gains, or appreciations
or which is in the nature of estate duty or inheritance tax shall be payable (a) on or in respect of the shares, debentures
or other obligations of our Company; or (b) by way of the withholding in whole or in part of any relevant payment as defined in the
Tax Concessions Act of the Cayman Islands. No stamp duty is payable in the Cayman Islands on the issue of shares by, or any
transfers of shares of, Cayman Islands companies (except those which hold interests in land in the Cayman Islands). There are no exchange
control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of
our Ordinary Shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend
or capital to any holder of our Ordinary Shares, as the case may be, nor will gains derived from the disposal of our Ordinary Shares be
subject to Cayman Islands income or corporation tax.
United States Federal Income Taxation
The following does not address the tax consequences
to any particular investor or to persons in special tax situations, such as:
| ● | regulated investment companies; |
| ● | real estate investment trusts; |
| ● | persons that elect to mark their securities to market; |
| ● | U.S. expatriates or former long-term residents of the
U.S.; |
| ● | governments or agencies or instrumentalities thereof; |
| ● | persons liable for alternative minimum tax; |
| ● | persons holding our Ordinary Shares as part of a straddle,
hedging, conversion or integrated transaction; |
| ● | persons that actually or constructively own 10% or more of
our voting power or value (including by reason of owning our Ordinary Shares); |
| ● | persons who acquired our Ordinary Shares pursuant to the
exercise of any employee share option or otherwise as compensation; |
| ● | persons holding our Ordinary Shares through partnerships
or other pass-through entities; |
| ● | beneficiaries of a Trust holding our Ordinary Shares; or |
| ● | persons holding our Ordinary Shares through a trust. |
The discussion set forth below is addressed only
to U.S. Holders that purchase Ordinary Shares in this offering. Prospective purchasers are urged to consult their own tax advisors
about the application of the U.S. federal income tax rules to their particular circumstances as well as the state, local, foreign
and other tax consequences to them of the purchase, ownership and disposition of our Ordinary Shares.
Material Tax Consequences Applicable to
U.S. Holders of Our Ordinary Shares
The following sets forth the material U.S. federal
income tax consequences related to the ownership and disposition of our Ordinary Shares. It is directed to U.S. Holders (as defined
below) of our Ordinary Shares and is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus,
all of which are subject to change.
This description does not deal with all possible
tax consequences relating to ownership and disposition of our Ordinary Shares or U.S. tax laws, other than the U.S. federal
income tax laws, such as the tax consequences under non-U.S. tax laws, state, local and other tax laws.
The following brief description applies only to
U.S. Holders that hold Ordinary Shares as capital assets and that have the U.S. dollar as their functional currency. This brief
description is based on the federal income tax laws of the United States in effect as of the date of this prospectus and on U.S. Treasury
regulations in effect or, in some cases, proposed, as of the date of this prospectus, as well as judicial and administrative interpretations
thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively
and could affect the tax consequences described below.
The brief description below of the U.S. federal
income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of Ordinary Shares and you
are, for U.S. federal income tax purposes,
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation (or other entity taxable as a corporation for
U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; |
| ● | an estate whose income is subject to U.S. federal income
taxation regardless of its source; or |
| ● | a trust that (1) is subject to the primary supervision
of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has
a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
If a partnership (or other entities treated as
a partnership for United States federal income tax purposes) is a beneficial owner of our Ordinary Shares, the tax treatment of a
partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partnerships and partners
of a partnership holding our Ordinary Shares are urged to consult their tax advisors regarding an investment in our Ordinary Shares.
Taxation of Dividends and Other Distributions
on our Ordinary Shares
Subject to the PFIC rules discussed below, the
gross amount of distributions made by us to you with respect to the Ordinary Shares (including the amount of any taxes withheld therefrom)
will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution
is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect
to corporate U.S. Holders, the dividends will not be eligible for the dividends-received deduction allowed to corporations in respect
of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders,
including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income,
provided that (1) the Ordinary Shares are readily tradable on an established securities market in the United States, or we are
eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information
program, (2) we are not a PFIC for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain
holding period requirements are met. Because there is no income tax treaty between the United States and the Cayman Islands, clause
(1) above can be satisfied only if the Ordinary Shares are readily tradable on an established securities market in the United States.
Under U.S. Internal Revenue Service authority, Ordinary Shares are considered for purpose of clause (1) above to be readily
tradable on an established securities market in the United States if they are listed on certain exchanges, which presently include
the NYSE and the Nasdaq Stock Market. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends
paid with respect to our Ordinary Shares, including the effects of any change in law after the date of this prospectus.
Dividends will constitute foreign source income
for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of
the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the
dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign
taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed
by us with respect to our Ordinary Shares will constitute “passive category income” but could, in the case of certain U.S. Holders,
constitute “general category income.”
To the extent that the amount of the distribution
exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will
be treated first as a tax-free return of your tax basis in your Ordinary Shares, and to the extent the amount of the distribution exceeds
your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal
income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution
would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
Taxation of Dispositions of Ordinary Shares
Subject to the PFIC rules discussed below, you
will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the
amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the Ordinary Shares. The gain or loss
will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the
Ordinary Shares for more than one year, you will generally be eligible for reduced tax rates. The deductibility of capital losses is subject
to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign
tax credit limitation purposes which will generally limit the availability of foreign tax credits.
PFIC
A non-U.S. corporation is considered a PFIC,
as defined in Section 1297(a) of the US Internal Revenue Code, for any taxable year if either:
| ● | at least 75% of its gross income for such taxable year is
passive income; or |
| ● | at least 50% of the value of its assets (based on an average
of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of
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