Lead Real Estate Co., Ltd F-1/A, filed Feb 28, 2023

Lead Real Estate Co., Ltd (LRE)

F-1/A 2023-02-28

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	Japan			1531			Not Applicable
	(State or other jurisdiction of incorporation or organization)			(Primary Standard Industrial Classification Code Number)			(I.R.S. Employer Identification Number)

	Page
PROSPECTUS SUMMARY		2
RISK FACTORS		10
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS		32
ENFORCEABILITY OF CIVIL LIABILITIES		33
USE OF PROCEEDS		34
DIVIDEND POLICY		35
CAPITALIZATION		36
DILUTION		38
CORPORATE HISTORY AND STRUCTURE		40
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		42
BUSINESS		53
REGULATIONS		68
MANAGEMENT		72
PRINCIPAL SHAREHOLDERS		76
RELATED PARTY TRANSACTIONS		78
DESCRIPTION OF SHARE CAPITAL		79
DESCRIPTION OF AMERICAN DEPOSITARY SHARES		86
SHARES ELIGIBLE FOR FUTURE SALE		94
JAPANESE FOREIGN EXCHANGE CONTROLS AND SECURITIES REGULATIONS		96
MATERIAL INCOME TAX CONSIDERATION		98
UNDERWRITING		106
EXPENSES RELATING TO THIS OFFERING		111
LEGAL MATTERS		111
EXPERTS		111
WHERE YOU CAN FIND ADDITIONAL INFORMATION		111
INDEX TO FINANCIAL STATEMENTS		F-1

	Fiscal Year Ended June 30, 2022				Fiscal Year Ended June 30, 2021
Type	Land Deliveries (Units)		Building Deliveries (Units)		Land Deliveries (Units)		Building Deliveries (Units)
Single-family homes		94		81		102		50
Condominiums		12		9		4		4

	June 30, 2022
(in thousands, except share amounts)	Actual			As adjusted (Over- allotment option not exercised)(1)		As adjusted (Over- allotment option exercised in full)(1)
	$			$		$
Cash and cash equivalents		$	2,971		8,554		9,816
Short-term loans			35,459		35,459		35,459
Long-term loans, including current portion			27,869		27,869		27,869
Shareholders’ Equity:
Ordinary Shares, 50,000,000 Ordinary Shares authorized, 14,485,000 Ordinary Shares issued and 12,498,900 Ordinary Shares outstanding; 15,628,000 Ordinary Shares issued and 13,641,900 Ordinary Shares outstanding, as adjusted assuming the over-allotment option is not exercised, and 15,799,450 Ordinary Shares issued and 13,813,350 Ordinary Shares outstanding, as adjusted assuming the over-allotment option is exercised in full		$	2,536		8,120		9,382
Retained earnings			14,747		14,747		14,747
Accumulated other comprehensive income (loss)			120		120		120
Treasury shares, at cost			(1,136)		(1,136)		(1,136)
Total Shareholders’ Equity			16,267		21,851		23,113
Total Capitalization		$	79,595		85,179		86,441

Over-allotment option not exercised	Per Ordinary Share			Per ADS
Assumed Initial public offering price per Ordinary Share		$	8.00		$	8.00
Net tangible book value per Ordinary Share as of June 30, 2022		$	1.23		$	1.23
As adjusted net tangible book value per Ordinary Share attributable to payments by new investors		$	0.31		$	0.31
Pro forma net tangible book value per Ordinary Share immediately after this offering		$	1.54		$	1.54
Amount of dilution in net tangible book value per Ordinary Share to new investors in the offering		$	6.46		$	6.46

Over-allotment option exercised in full	Per Ordinary Share			Per ADS
Assumed Initial public offering price per Ordinary Share		$	8.00		$	8.00
Net tangible book value per Ordinary Share as of June 30, 2022		$	1.23		$	1.23
As adjusted net tangible book value per Ordinary Share attributable to payments by new investors		$	0.38		$	0.38
Pro forma net tangible book value per Ordinary Share immediately after this offering		$	1.61		$	1.61
Amount of dilution in net tangible book value per Ordinary Share to new investors in the offering		$	6.39		$	6.39

	Ordinary Shares Purchased				Total Consideration					Average Price Per Ordinary Share			Average Price Per ADS
Over-allotment option not exercised	Number		Percent		Amount			Percent		Average Price Per Ordinary Share			Average Price Per ADS
Existing Shareholders		12,498,900		91.6%		$	2,536,259		21.7%		$	0.20		$	0.20
New Investors		1,143,000		8.4%		$	9,144,000		78.3%		$	8.00		$	8.00
Total		13,641,900		100.0%		$	11,680,259		100.0%		$	0.86		$	0.86

(In thousands, except change % data)	Fiscal Years Ended June 30,						Change (2022 vs. 2021)
	2022 ($)		2022 (¥)		2021 (¥)		$		¥		YoY %
Revenue:
Real estate sales		103,976		14,108,455		11,090,778		22,239		3,017,677		27.2%
Other revenue		1,568		212,731		164,497		355		48,234		29.3%
Total revenue		105,543		14,321,186		11,255,275		22,595		3,065,911		27.2%
Cost of revenue and operating expenses:
Cost of sales – real estate		87,054		11,812,347		9,652,072		15,921		2,160,275		22.4%
Cost of sales – other		538		73,037		116,154		(318)		(43,117)		(37.1)%
Selling, general and administrative expenses		13,167		1,786,614		1,033,402		5,551		753,212		72.9%
Total cost of revenue and operating expenses		100,759		13,671,998		10,801,628		21,154		2,870,370		26.6%
Operating income		4,784		649,188		453,647		1,441		195,541		43.1%
Other income / (expense)		1,371		186,007		(9,770)		1,443		195,777		(2,003.9)%
Interest expense		(172)		(23,333)		(56,650)		246		33,317		(58.8)%

Supplemental Disclosures (In thousands, except change % data)	Fiscal Years Ended June 30, 2022		Fiscal Years Ended June 30, 2021		($)		(¥)
Gross margin %		17.0%		13.2%					3.8%
Operating Profit %		4.5%		4.0%					0.5%
Single-family home land deliveries – Units		94		102					(7.8)%
Single-family home land deliveries – Average Sale price (¥ in Thousands)		75,129		77,461		554		571	(3.0)%
Single-family home building deliveries – Units		81		50					62.0%
Single-family home building deliveries – Average Sale price (¥ in Thousands)		23,626		22,202		174		164	6.4%
Condominium land deliveries - Units		12		4					200.0%
Condominium land deliveries – Average Sale price (¥ in Thousands)		322,996		217,321		2,380		1,602	48.6%
Condominium building deliveries – Units		9		4					125.0%
Condominium building deliveries – Average Sale price (¥ in Thousands)		147,961		178,590		1,090		1,316	(17.2)%

(¥ in Thousands)	For the Fiscal Year Ended June 30,
	2022			2021
Cash flows from operating activities:
Net income		¥	528,383		¥	252,358
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization			43,945			37,326
Loss on disposal of assets			1,106,677			966
Deferred income taxes			(10,939)			6,766
Changes in assets and liabilities:
Accounts receivable, net			171,985			244,692
Real estate inventory			(4,306,865)			(591,778)
Prepaid and other current assets			62,130			(100,265)
Intangible asset, net			(54,735)			(48,426)
Operating lease			45,966			(804)
Other assets			(59,201)			303,928
Accounts payable			105,567			180,822
Customer deposits			61,928			58,133
Accrued expenses and other current liabilities			(625,720)			(588,373)
Net cash used in operating activities			(2,930,879)			(244,655)
Cash flows from investing activities:
Purchases of property and equipment			(537,294)			(170,231)
Proceeds from sale of property and equipment			510,091			—
Purchase of investments			(3,670)			(10,700)
Proceeds from sale of investments in marketable securities			11,789			42,039
Other – net investing			—			(21,541)
Net cash used in investing activities			(19,084)			(160,433)
Cash flows from financing activities:
Proceeds from notes payable			5,649,300			8,046,791
Payments on notes payable			(2,811,364)			(7,626,187)
Proceeds from ordinary share issuance			14,225			100,000
Proceeds from sale of treasury shares			1,079			—
Other financing – net			(453)			35,000
Net cash provided by financing activities			2,852,787			555,604
Effect of exchange rate change on cash and cash equivalents			19,962			271
Net decrease in cash and cash equivalents			(77,214)			150,787
Cash and cash equivalents, beginning of year			480,322			329,535
Cash and cash equivalents, end of year		¥	403,108		¥	480,322

(¥ in Thousands)	Payments Due by Period For the Year Ended June 30,
	2023		2024		2025		2026		2027		Thereafter		Total
Current portion of Long-term Debt and Short-term Borrowings		6,361,415		0		0		0		0		0		6,361,415
Long-term debt		0		1,003,913		579,433		60,729		52,025		535,445		2,231,544
Interest on long-term debt		50,591		46,171		16,556		11,726		10,610		37,039		172,693
Operating lease obligations		58,450		58,504		50,011		37,187		16,011		0		220,163
Total		6,470,456		1,108,588		646,000		109,641		78,646		572,484		8,985,815

	Fiscal Year Ended June 30, 2022				Fiscal Year Ended June 30, 2021
Type	Land Deliveries (Units)		Building Deliveries (Units)		Land Deliveries (Units)		Building Deliveries (Units)
Single-family homes		94		81		102		50
Condominiums		12		9		4		4

	Revenue (Japanese Yen in Thousands)
	Fiscal Year Ended June 30,
	2022		2021
Real Estate Development and Sales		14,108,455		11,090,778
Other		212,731		164,497
Total		14,321,186		11,255,275

	For the fiscal year ended June 30, 2022	For the fiscal year ended June 30, 2021
Number of projects at the beginning of the period	79	55
New orders added during the period	66	74
Delivered projects(1) during the period	81	50
Number of projects at the end of the period	64	79
Average sale price for delivered projects during the period (including land)	JPY98,752 thousand	JPY99,596 thousand

	Single-family Home Projects (Example 1)			Single-family Home Projects (Example 2)

(In thousands, except change % data)	Fiscal Years Ended June 30,						Change (2022 vs. 2021)
	2022 ($)		2022 (¥)		2021 (¥)		$		¥		YoY %
Total other income (expense)		1,199		162,674		(66,420)		1,688		229,094		(344.9)%
Income before income taxes		5,983		811,862		387,227		3,129		424,635		109.7%
Income taxes		2,089		283,479		134,869		1,095		148,610		110.2%
Net income		3,894		528,383		252,358		2,034		276,025		109.4%
Net loss attributable to the noncontrolling interests		(3)		(370)		(27,132)		197		26,762		(98.6)%
Net income attributable to ordinary shareholders		3,897		528,753		279,490		1,837		249,263.0		89.2%
Foreign currency translation gain (loss)		140		19,056		(1,062)		148		20,118		(1,894.4)%
Total comprehensive income		4,037		547,809		278,428		1,985		269,381		96.8%

	Hotel (Example 1)			Hotel (Example 2)

Function:	Number
Management		8
Finance		4
Planning and development		4
Project construction management		7
Sales and marketing		13

Function:	Number
Property management		12
Administrative and human resources		2
Total		50

	Condominium Projects (Example 1)			Condominium Projects (Example 2)

Name	Age	Position(s)
Eiji Nagahara	54	President, Chief Executive Officer, and Representative Director
Daisuke Takahashi	46	Chief Financial Officer
Takashi Nihei	47	Director and General Manager of Development Division
Hidekazu Hamagishi	43	Director and General Manager of Accounting Department
Masahiro Maki	74	Independent Director and Audit and Supervisory Committee Member
Hiroyuki Saito	55	Independent Director and Audit and Supervisory Committee Member
Ryoma Iida	37	Independent Director and Audit and Supervisory Committee Member

	Ordinary Shares Beneficially Owned Prior to this Offering				Ordinary Shares Beneficially Owned After this Offering (Over-allotment option not exercised)				Ordinary Shares Beneficially Owned After this Offering (Over-allotment option fully exercised)
	Beneficially		Percent		Number		Percent		Number		Percent
Directors and Executive Officers(1):
Eiji Nagahara		12,220,837		97.8%		12,220,837		89.6%		12,220,837		88.5%
Daisuke Takahashi		45,455		*		45,455		*		45,455		*
Takashi Nihei		18,182		*		18,182		*		18,182		*
Hidekazu Hamagishi		4,546		*		4,546		*		4,546		*
Masahiro Maki		27,273		*		27,273		*		27,273		*
Hiroyuki Saito		—		—		—		—		—		—
Ryoma Iida		—		—		—		—		—		—
All directors and executive officers as a group (seven individuals):		12,316,293		98.5%		12,316,293		90.3%		12,316,293		89.2%
5% Shareholders:(1)
Eiji Nagahara		12,220,837		97.8%		12,220,837		89.6%		12,220,837		88.5%

Name of Related Party			Relationship to Us
Mr. Eiji Nagahara			Our president, chief executive officer, representative director, and majority shareholder

Persons depositing or withdrawing shares or ADS holders must pay:			For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)			Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
$0.05 (or less) per ADS			Any cash distribution to ADS holders
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs			Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders
$0.05 (or less) per ADS per calendar year			Depositary services

Persons depositing or withdrawing shares or ADS holders must pay:			For:
Registration or transfer fees			Transfer and registration of our Ordinary Shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares
Expenses of the depositary			Cable (including SWIFT) and facsimile transmissions (when expressly provided in the deposit agreement) Converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes			As necessary
Any charges incurred by the depositary or its agents for servicing the deposited securities			As necessary

Underwriters			Number of ADSs
EF Hutton, division of Benchmark Investments, LLC

Total

Securities and Exchange Commission Registration Fee	$	3,582
Nasdaq Global Market Listing Fee	$	150,000
FINRA Filing Fee	$	6,296
Legal Fees and Expenses	$	561,307
Accounting Fees and Expenses	$	1,703,263
Printing and Engraving Expenses	$	200,000
Underwriter Out-of-Pocket Accountable Expenses	$	204,500
Miscellaneous Expenses	$	77
Total Expenses	$	2,829,025

CONTENTS			PAGE(S)
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			F-2
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2022 AND 2021			F-3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE FISCAL YEARS ENDED JUNE 30, 2022 AND 2021			F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE FISCAL YEARS ENDED JUNE 30, 2022 AND 2021			F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED JUNE 30, 2022 AND 2021			F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			F-7 – F-25

	June 30,
ASSETS	2022			2021
Current assets:
Cash and cash equivalents		¥	403,108		¥	480,322
Accounts receivable, net			261,068			433,053
Real estate inventory			8,845,779			4,538,914
Prepaid and other current assets			266,042			328,172
Total current assets			9,775,997			5,780,461
Property and equipment, net			2,049,056			3,158,793
Intangible assets, net			115,546			74,493
Investment in marketable securities			31,657			43,899
Right-of-use assets – operating lease, net			155,886			129,279
Investment			16,850			13,180
Other assets			271,751			212,550
Total assets		¥	12,416,743		¥	9,412,655
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		¥	602,435		¥	496,868
Short-term borrowings and current portion of notes payable			6,361,415			4,451,075
Customer deposits			284,975			223,047
Current portion of lease liabilities			58,696			27,844
Accrued expenses and other current liabilities			305,354			907,699
Total current liabilities			7,612,875			6,106,533
Notes payable, net of current portion			2,231,544			1,303,948
Deferred tax liabilities, net			66,576			77,515
Lease liabilities, net of current portion			148,224			106,503
Other liabilities			156,457			179,832
Total liabilities			10,215,676			7,774,331
SHAREHOLDERS’ EQUITY:
Ordinary shares, 50,000,000 shares authorized, 14,485,000 shares issued and 12,498,900 shares outstanding as of June 30, 2022 and 14,485,000 shares issued and 12,485,000 shares outstanding as of June 30, 2021			344,145			329,920
Retained earnings			2,001,048			1,472,295
Treasury shares, at cost, 1,986,100 as of June 30, 2022 and 2,000,000 shares as of June 30, 2021			(154,121)			(155,200)
Noncontrolling interest			(6,244)			(5,874)
Accumulated translation gain (loss)			16,239			(2,817)
Total equity			2,201,067			1,638,324
Total liabilities and shareholders’ equity		¥	12,416,743		¥	9,412,655

	For the Fiscal Year Ended June 30,
	2022			2021
Revenue:
Real estate sales		¥	14,108,455		¥	11,090,778
Other revenue			212,731			164,497
Total revenue			14,321,186			11,255,275
Expenses:
Cost of sales – real estate			11,812,347			9,652,072
Cost of sales – other			73,037			116,154
Selling, general and administrative			1,786,614			1,033,402
Total expenses			13,671,998			10,801,628
Operating income			649,188			453,647
Other income (expense):
Interest expense			(23,333)			(56,650)
Other, net			186,007			(9,770)
Total other income (expense), net			162,674			(66,420)
Income before income taxes			811,862			387,227
Income taxes			283,479			134,869
Net income			528,383			252,358
Net loss attributable to the noncontrolling interests			(370)			(27,132)
Net income attributable to ordinary shareholders			528,753			279,490
Foreign currency translation gain (loss)			19,056			(1,062)
Total Comprehensive income		¥	547,809		¥	278,428
Earnings per share:
Basic		¥	43.83		¥	22.30
Diluted		¥	43.83		¥	22.30
Weighted average shares outstanding:
Basic			12,498,900			12,485,000
Diluted			12,498,900			12,485,000

	Ordinary Shares					Retained Earnings			Treasury Shares			Non controlling interest			Translation gain / (loss)			Total Equity
	Shares		Amount			Retained Earnings			Treasury Shares			Non controlling interest			Translation gain / (loss)			Total Equity
BALANCE – June 30, 2020		12,360,000		¥	229,920		¥	1,192,805		¥	(155,200)		¥	21,258		¥	(1,755)		¥	1,287,028
Net income		—			—			279,490			—			(27,132)			—			252,358
Issuance of shares		125,000			100,000			—			—			—			—			100,000
Translation loss																	(1,062)			(1,062)
BALANCE – June 30, 2021		12,485,000		¥	329,920		¥	1,472,295		¥	(155,200)		¥	(5,874)		¥	(2,817)		¥	1,638,324
Net income		—			—			528,753			—			(370)			—			528,383
Issuance of shares		13,900			14,225			—			1,079			—			—			15,304
Translation gain		—			—			—			—			—			19,056			19,056
BALANCE – June 30, 2022		12,498,900		¥	344,145		¥	2,001,048		¥	(154,121)		¥	(6,244)		¥	16,239		¥	2,201,067

Name	Date of Incorporation or Acquisition	Place of Incorporation	Percentage of direct or indirect economic ownership
Subsidiaries
Lead Real Estate Global Co., Ltd (“LRE Dallas”)	September 2017	Texas	100% by LRE
Lead Real Estate HK Co., Limited (“LRE HK”)	February 2014	Hong Kong	100% by LRE
Real Vision Co., Ltd. (“Real Vision”)	July 2006	Japan	100% by LRE
Consolidated VIEs
Lead Real Estate Cayman Limited (“LRE Cayman”)	August 2019	Cayman Islands	100% by CEO
Sojiya Japan K.K.	January 2020	Japan	50% by LRE and 50% by CEO
Unconsolidated VIEs
JP Shuhan Co., Ltd. (“JP Shuhan”)	January 2020	Japan	100% by CEO, deconsolidated

	As of June 30,
	2022			2021
Real estates, including land		¥	8,192,861		¥	4,121,807
Construction In Progress			652,918			417,107
Real estate inventory		¥	8,845,779		¥	4,538,914

	As of June 30,
	Useful Life	2022			2021
	(years)
Land	Infinite		¥	1,006,622		¥	1,828,880
Property and Buildings	8 – 47			669,102			818,480
Machinery and Equipment	10 – 17			158,104			23,356
Tools, Furniture, and Fixtures	4 – 20			22,945			449,388
Construction in progress				300,035			157,844
Less: Accumulated depreciation				(107,752)			(119,155)
Property and equipment, net			¥	2,049,056		¥	3,158,793

	Original Amount Borrowed			Loan Duration	Annual Interest Rate	Amount
Lender 1		¥	1,988,100	8/24/2018 – 6/5/2023	3.45 – 3.60%		¥	1,869,100
Lender 2		¥	1,441,200	1/15/2020 – 12/31/2029	2.60 – 3.00%			1,176,290
Lender 3		¥	340,000	12/27/2017 – 8/25/2032	1.65 – 2.35%			569,250
Lender 4		¥	485,000	10/30/2020 – 7/31/2024	2.80%			482,915
Lender 5		¥	480,000	6/10/2022 – 6/17/2024	2.50%			480,000
Other lenders		¥	4,285,366	3/23/2016 – 4/30/2052	0.46 – 6.00%			4,015,404
Aggregate outstanding principal balances								8,592,959
Less: current portion and short-term borrowings								6,361,415
Long-term portion of notes payable							¥	2,231,544

	Year Ended June 30,
	2022			2021
Interest incurred		¥	211,206		¥	177,232
Less: Amounts capitalized			(187,873)			(120,582)
Interest expense		¥	23,333		¥	56,650

	As of June 30,
Consolidated – LRE Cayman	2022			2021
Assets		¥	—		¥	—
Liabilities			6,481			6,151
Equity			(6,481)			(6,151)
Total liabilities and equity		¥	—		¥	—

	As of June 30,
Consolidated – Sojiya Japan	2022			2021
Assets		¥	472		¥	553
Liabilities			—			—
Equity			472			553
Total liabilities and equity		¥	472		¥	553

(Japanese yen in thousands) Unconsolidated – JP Shuhan	As of June 30,
(Japanese yen in thousands) Unconsolidated – JP Shuhan	2022			2021
Assets		¥	10,511		¥	9,854
Liabilities			3,428			1,300
Equity			7,083			8,554
Total liabilities and equity		¥	10,511		¥	9,854