Perpetuals.com Ltd 6-K, filed Mar 3, 2025
Perpetuals.com Ltd (PDC)
About this 6-K
Perpetuals.com Ltd filed this 6-K on March 3, 2025.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of March
Commission File Number:
5-7-11, Ueno, Taito-ku
Tokyo, Japan 110-0005
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☒ Form 40-F ☐
Explanatory Note
Earlyworks Co., Ltd. (the “Company”) is filing this current report on Form 6-K to report its financial results for the six months ended October 31, 2024 and to discuss its recent corporate developments.
Attached as exhibits to this current report on Form 6-K are:
| (1) | a press release dated March 3, 2025, titled “Earlyworks Co., Ltd. Reports Financial and Operational Performance for the Six Months Ended October 31, 2024” as Exhibit 99.1; |
| (2) | the unaudited interim condensed financial statements and related notes as Exhibit 99.2; and |
| (3) | Interactive Data File disclosure as Exhibit 101 in accordance with Rule 405 of Regulation S-T. |
1
EXHIBIT INDEX
| Exhibit No. | Description | |
| 99.1 | Press release titled “Earlyworks Co., Ltd. Reports Financial and Operational Performance for the Six Months Ended October 31, 2024” | |
| 99.2 | Unaudited interim condensed financial statements and related notes for the six months ended October 31, 2024 | |
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Earlyworks Co., Ltd. | ||
| Date: March 3, 2025 | By: |
/s/ Satoshi Kobayashi |
| Name: | Satoshi Kobayashi | |
| Title: | Chief Executive Officer and Representative Director (Principal Executive Officer) | |
3
Exhibit 99.1
Earlyworks Co., Ltd. Reports Financial and Operational Performance for the Six Months Ended October 31, 2024
TOKYO, March 3, 2025. Earlyworks Co., Ltd. (NASDAQ: ELWS) (the “Company”), a Japanese provider of blockchain technology solutions, today announced its financial results for the six months ended October 31, 2024.
For the six months ended October 31, 2024, the Company’s revenue increased by approximately JPY 170,039 thousand, gross profit increased by approximately JPY 81,193 thousand and net loss decreased by approximately JPY 74,789 thousand, as compared to the same period in 2023.
Management Commentary
In July 2023, the Company was successfully listed on Nasdaq. After years of research and development aimed at improving the applicability for blockchain technology, we completed the development of our proprietary blockchain platform, the “Grid Ledger System (GLS),” in December 2023. The GLS has been acknowledged for its high processing speed by multiple corporate clients.
With our listing and the development of GLS as key milestones, we have gained the opportunity to provide services, including system planning, development, consultation, and maintenance, to clients in a variety of industries, such as telecommunications, transportation infrastructure, food and beverage, real estate, entertainment, and IT services. Centered on GLS, we believe our solutions have the potential to go beyond the traditional contract-based development models, and can serve as the foundation for a business model that closely supports corporate clients and their operations. Currently, we are preparing for a full-scale expansion in this area.
Additionally, to accelerate the growth of Web3-related businesses in Japan, we are actively promoting business alliances and collaborations in new ventures to expand the adoption of GLS. Through these initiatives, we aim to enhance GLS’s reliability and market competitiveness, and deliver greater value to a broader range of customers.
Following our listing, we have also focused on strengthening our organizational structure. In November 2024, we appointed a Chief Operating Officer (COO), responsible for driving our business operations. This appointment improves our ability in sales activities and the creation of new business opportunities leveraging GLS to further expand our business. Simultaneously, we established a Chief Design Officer (CDO) role to enhance our creative and design capabilities. The CDO oversees unified UX and UI design, aiming to elevate the user experience of GLS and other technologies.
Moving forward, we believe the collaboration between the COO and CDO will enable us to execute business strategies and deliver customer value in tandem. Our efforts will extend beyond conventional business models to develop innovative business frameworks powered by GLS. Our ultimate goal is not only to provide cutting-edge technology but also to contribute to the overall development of the Web3 industry and the realization of a sustainable society in collaboration with our corporate clients.
As we strive to drive technological innovation centered on GLS, we aim to strengthen our presence in the Web3 industry and advance as a trusted partner committed to enhancing the value of our corporate clients.
EARLYWORKS CO., LTD.
UNAUDITED INTERIM CONDENSED STATEMENTS OF OPERATIONS
| For the six months ended October 31, 2023 | For the six months ended October 31, 2024 | For the six months ended October 31, 2024 | ||||||||||
| JPY | JPY | USD | ||||||||||
| OPERATING REVENUES | ||||||||||||
| Software and system development services | 4,812,000 | 217,699,635 | 1,428,944 | |||||||||
| Consulting and solution services | 1,267,620 | 7,284,000 | 47,811 | |||||||||
| Sale of NFTs | 48,864,935 | - | - | |||||||||
| TOTAL OPERATING REVENUES | 54,944,555 | 224,983,635 | 1,476,755 | |||||||||
| COST OF REVENUES | (3,336,792 | ) | (92,182,568 | ) | (605,071 | ) | ||||||
| GROSS PROFIT | 51,607,763 | 132,801,067 | 871,684 | |||||||||
| OPERATING EXPENSES: | ||||||||||||
| Selling and marketing expenses | (27,077,415 | ) | (37,830,288 | ) | (248,312 | ) | ||||||
| General and administrative expenses | (200,231,599 | ) | (176,938,483 | ) | (1,161,395 | ) | ||||||
| Share-based compensation expenses | (1,616,463 | ) | - | - | ||||||||
| Research and development expenses | (44,821,606 | ) | (21,583,147 | ) | (141,668 | ) | ||||||
| TOTAL OPERATING EXPENSES | (273,747,083 | ) | (236,351,918 | ) | (1,551,375 | ) | ||||||
| LOSS FROM OPERATIONS | (222,139,320 | ) | (103,550,851 | ) | (679,691 | ) | ||||||
| Gain (loss) on digital assets, net | (167,879 | ) | 81,900 | 538 | ||||||||
| Interest expenses, net | (1,789,278 | ) | (1,184,561 | ) | (7,775 | ) | ||||||
| Foreign exchange gain (loss), net | 38,823,264 | (6,768,200 | ) | (44,425 | ) | |||||||
| Government grants | - | 1,255,000 | 8,238 | |||||||||
| Other income, net | 129,617 | 1,100 | 7 | |||||||||
| LOSS BEFORE INCOME TAXES | (185,143,596 | ) | (110,165,612 | ) | (723,108 | ) | ||||||
| Provision for income taxes | ||||||||||||
| Current | - | - | - | |||||||||
| Deferred | 188,496 | - | - | |||||||||
| Total provision for income taxes | 188,496 | - | - | |||||||||
| NET LOSS | (184,955,100 | ) | (110,165,612 | ) | (723,108 | ) | ||||||
| LOSS PER SHARE | ||||||||||||
| Basic | (12.77 | ) | (7.31 | ) | (0.05 | ) | ||||||
| Diluted | (12.77 | ) | (7.31 | ) | (0.05 | ) | ||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING* | ||||||||||||
| Basic | 14,478,530 | 15,076,900 | 15,076,900 | |||||||||
| Diluted | 14,478,530 | 15,076,900 | 15,076,900 | |||||||||
The accompanying notes are an integral part of these unaudited interim condensed financial statements.
2
EARLYWORKS CO., LTD.
UNAUDITED INTERIM CONDENSED BALANCE SHEETS
| As of April 30, 2024 | As of October 31, 2024 | As of October 31, 2024 | ||||||||||
| JPY | JPY | USD | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS: | ||||||||||||
| Cash | 337,911,102 | 212,493,024 | 1,394,769 | |||||||||
| Time deposit | 100,000,000 | - | - | |||||||||
| Digital assets | 44,662 | 116,854 | 767 | |||||||||
| Accounts receivable, net | 40,711,929 | 28,309,600 | 185,819 | |||||||||
| Contract assets | 40,359,303 | 37,233,604 | 244,395 | |||||||||
| Prepayments | 8,227,532 | 58,066,704 | 381,140 | |||||||||
| Short-term deposits | 3,096,509 | 3,096,509 | 20,325 | |||||||||
| Income tax receivable | 325 | - | - | |||||||||
| Other current assets, net | 39,600 | 3 | - | |||||||||
| TOTAL CURRENT ASSETS | 530,390,962 | 339,316,298 | 2,227,215 | |||||||||
| Property and equipment, net | 1,319,884 | 1,085,713 | 7,126 | |||||||||
| Operating lease right-of-use assets | 11,711,000 | 7,607,963 | 49,937 | |||||||||
| Long-term deposits | 657,740 | 657,740 | 4,317 | |||||||||
| Restricted cash | 31,486,253 | 31,486,253 | 206,671 | |||||||||
| TOTAL ASSETS | 575,565,839 | 380,153,967 | 2,495,266 | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: | ||||||||||||
| Bank loans – current portion, net | 119,189,500 | 15,807,000 | 103,755 | |||||||||
| Other payables and accrued liabilities | 65,573,842 | 73,011,094 | 479,230 | |||||||||
| Operating lease liabilities, current | 8,239,009 | 6,911,713 | 45,367 | |||||||||
| Contract liabilities | - | 2,404,025 | 15,780 | |||||||||
| Deferred income | - | 20,000,000 | 131,277 | |||||||||
| TOTAL CURRENT LIABILITIES | 193,002,351 | 118,133,832 | 775,409 | |||||||||
| Bank loans – non-current, net | 49,063,000 | 41,461,000 | 272,143 | |||||||||
| Operating lease liabilities, non-current | 2,775,741 | - | - | |||||||||
| TOTAL LIABILITIES | 244,841,092 | 159,594,832 | 1,047,552 | |||||||||
| COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: | ||||||||||||
| Ordinary shares, 55,300,000 shares authorized; 13,839,400 and 15,076,900 shares issued and outstanding as of April 30, 2023 and 2024 | 50,000,000 | 50,000,000 | 328,192 | |||||||||
| Additional paid-in capital | 2,210,480,581 | 2,210,480,581 | 14,509,226 | |||||||||
| Accumulated deficit | (1,929,755,834 | ) | (2,039,921,446 | ) | (13,389,704 | ) | ||||||
| TOTAL SHAREHOLDERS’ EQUITY | 330,724,747 | 220,559,135 | 1,447,714 | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 575,565,839 | 380,153,967 | 2,495,266 | |||||||||
The accompanying notes are an integral part of these unaudited interim condensed financial statements.
3
Total revenue for the six months ended on October 31, 2024, increased by approximately JPY 170,039 thousand from approximately JPY 54,945 thousand in the same period in 2023 to approximately JPY 224,984 thousand.
Revenue from software and system development services increased by approximately JPY 212,888 thousand mainly due to the launch of the System Development Kit package for GLS, and revenue from consulting and solution services also increased by approximately JPY 6,016 thousand mainly due to collaborations with large Japanese corporations and increase in the associated consulting and solution services. On the other hand, revenue from sales of NFTs decreased by approximately JPY 48,865 thousand as there was a decrease in demand in the NFT market in the six-months ended October 31, 2024.
Cost of revenue increased by approximately JPY 88,846 thousand from approximately JPY 3,337 thousand in the same period in 2023 to approximately JPY 92,183 thousand, primarily due to the significant increase in revenue of JPY 170,039 thousand as described above.
Total operating expenses decreased by approximately JPY 37,395 thousand from approximately JPY 273,747 thousand in the same period in 2023 to approximately 236,352 thousand. The main reasons contributing to the decrease were the decrease in general and administrative expenses of approximately JPY 23,293 thousand and in research and development expenses of approximately JPY 23,239 thousand, partially offset by the increase in selling and marketing expenses of approximately JPY 10,753 thousand. The decrease in general and administrative expenses was primarily due to decreased recruiting and training expenses, outsourcing fees, and taxes and public dues (taxes and public charges). The decrease in research and development expenses was primarily because the Company was dedicated to the research and development of GLS in the six-months ended October 31, 2023, which was a strategic decision made by the Company’s management to contribute to its future business. On the other hand, the increase in selling and marketing expenses was primarily due to increased advertising and promotion expenses.
As of October 31, 2024, the Company had approximately JPY 243,979 thousand in cash and restricted cash and the total shareholder’s equity decreased by approximately JPY 110,166 thousand due to net loss for the six months ended October, 31, 2024 from approximately JPY 330,725 thousand as of April 30, 2024 to approximately JPY 220,559 thousand as of October 31, 2024.
About Earlyworks Co., Ltd.
Earlyworks Co., Ltd. is a Japanese company operating its proprietary private blockchain technology, GLS, to leverage blockchain technology in various applications in a wide range of industries. GLS is a hybrid blockchain that combines the technical advantages of blockchain and database technology. GLS features high-speed processing, which can reach 0.016 seconds per transaction, tamper-resistance, security, zero server downtime, and versatile applications. The applicability of GLS is verified in multiple domains, including real estate, advertisement, telecommunications, metaverse, and financial services. The Company’s mission is to keep updating GLS and make it an infrastructure in the coming Web3/metaverse-like data society.
Company Name: Earlyworks Co., Ltd.
Location: 3F MR Building, 5-7-11 Ueno, Taito-ku, Tokyo
Representative: Seiya Kobayashi, CEO
Business Description: Development and provision of next-generation blockchain systems, including the proprietary GLS (Grid Ledger System),
and blockchain-based system solutions
Establishment: May 2018
Website: https://e-arly.works/
For Media Inquiries:
Earlyworks Co., Ltd.
E-Mail: ew-ir@e-arly.works
Forward-Looking Statements
Certain statements in this announcement are forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on the Company’s current expectations and projections about future events that the Company believes may affect its financial condition, results of operations, business strategy and financial needs. Investors 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. The Company undertakes no obligation to update or revise publicly any forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review other factors that may affect its future results in the Company’s registration statement and other filings with the U.S. Securities and Exchange Commission.
4
Exhibit 99.2
EARLYWORKS CO., LTD.
INDEX TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
TABLE OF CONTENTS
F-1
EARLYWORKS CO., LTD.
UNAUDITED INTERIM CONDENSED BALANCE SHEETS
| As of April 30, 2024 | As of October 31, 2024 | As of October 31, 2024 | ||||||||||
| JPY | JPY | USD | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS: | ||||||||||||
| Cash | ||||||||||||
| Time deposit | ||||||||||||
| Digital assets | ||||||||||||
| Accounts receivable, net | ||||||||||||
| Contract assets | ||||||||||||
| Prepayments | ||||||||||||
| Short-term deposits | ||||||||||||
| Income tax receivable | ||||||||||||
| Other current assets, net | ||||||||||||
| TOTAL CURRENT ASSETS | ||||||||||||
| Property and equipment, net | ||||||||||||
| Operating lease right-of-use assets | ||||||||||||
| Long-term deposits | ||||||||||||
| Restricted cash | ||||||||||||
| TOTAL ASSETS | ||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: | ||||||||||||
| Bank loans – current portion, net | ||||||||||||
| Other payables and accrued liabilities | ||||||||||||
| Operating lease liabilities, current | ||||||||||||
| Contract liabilities | ||||||||||||
| Deferred income | ||||||||||||
| TOTAL CURRENT LIABILITIES | ||||||||||||
| Bank loans – non-current, net | ||||||||||||
| Operating lease liabilities, non-current | ||||||||||||
| TOTAL LIABILITIES | ||||||||||||
| COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: | ||||||||||||
| Ordinary shares, | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
The accompanying notes are an integral part of these unaudited interim condensed financial statements.
F-2
EARLYWORKS CO., LTD.
UNAUDITED INTERIM CONDENSED STATEMENTS OF OPERATIONS
| For the six months ended October 31, 2023 | For the six months ended October 31, 2024 | For the six months ended October 31, 2024 | ||||||||||
| JPY | JPY | USD | ||||||||||
| OPERATING REVENUES | ||||||||||||
| Software and system development services | ||||||||||||
| Consulting and solution services | ||||||||||||
| Sale of NFTs | ||||||||||||
| TOTAL OPERATING REVENUES | ||||||||||||
| COST OF REVENUES | ( | ) | ( | ) | ( | ) | ||||||
| GROSS PROFIT | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||
| Selling and marketing expenses | ( | ) | ( | ) | ( | ) | ||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ||||||
| Share-based compensation expenses | ( | ) | ||||||||||
| Research and development expenses | ( | ) | ( | ) | ( | ) | ||||||
| TOTAL OPERATING EXPENSES | ( | ) | ( | ) | ( | ) | ||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||
| Gain (loss) on digital assets, net | ( | ) | ||||||||||
| Interest expenses, net | ( | ) | ( | ) | ( | ) | ||||||
| Foreign exchange gain (loss), net | ( | ) | ( | ) | ||||||||
| Government grants | ||||||||||||
| Other income, net | ||||||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||
| Provision for income taxes | ||||||||||||
| Current | ||||||||||||
| Deferred | ||||||||||||
| Total provision for income taxes | ||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ||||||
| LOSS PER SHARE | ||||||||||||
| Basic | ( | ) | ( | ) | ( | ) | ||||||
| Diluted | ( | ) | ( | ) | ( | ) | ||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING* | ||||||||||||
| Basic | ||||||||||||
| Diluted | ||||||||||||
The accompanying notes are an integral part of these unaudited interim condensed financial statements.
F-3
EARLYWORKS CO., LTD.
UNAUDITED INTERIM CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| Ordinary shares* | Additional Paid-in | Accumulated | Total Shareholders’ | Total Shareholders’ | ||||||||||||||||||||
| Share* | Amount | Capital | Deficit | Equity | Equity | |||||||||||||||||||
| JPY | JPY | JPY | JPY | USD | ||||||||||||||||||||
| Balance, April 30, 2023 | ( | ) | ||||||||||||||||||||||
| Issuance of ordinary shares for cash | ( | ) | ||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Share based compensation | - | |||||||||||||||||||||||
| Balance, October 31, 2023 | ( | ) | ||||||||||||||||||||||
| Ordinary shares* | Additional Paid-in | Accumulated | Total Shareholders’ | Total Shareholders’ | ||||||||||||||||||||
| Share* | Amount | Capital | Deficit | Equity | Equity | |||||||||||||||||||
| JPY | JPY | JPY | JPY | USD | ||||||||||||||||||||
| Balance, April 30, 2024 | ( | ) | ||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Balance, October 31, 2024 | ( | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited interim condensed financial statements.
F-4
EARLYWORKS CO., LTD.
UNAUDITED INTERIM CONDENSED STATEMENTS OF CASH FLOWS
| For the six months ended October 31, 2023 | For the six months ended October 31, 2024 | For the six months ended October 31, 2024 | ||||||||||
| JPY | JPY | USD | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Adjustment to reconcile net loss to net cash generated from operating activities: | ||||||||||||
| Depreciation expense | ||||||||||||
| Loan origination fee | ||||||||||||
| Deferred tax expense | ( | ) | ||||||||||
| Foreign currency exchange gain | ( | ) | ||||||||||
| Unrealized loss on digital assets | ||||||||||||
| Share-based compensation expense | ||||||||||||
| Changes in assets and liabilities | ||||||||||||
| Accounts receivable | ||||||||||||
| Contract assets | ||||||||||||
| Prepayments | ( | ) | ( | ) | ( | ) | ||||||
| Digital assets | ( | ) | ( | ) | ||||||||
| Other current assets, net | ( | ) | ||||||||||
| Income taxes, net | ||||||||||||
| Contract liabilities | ( | ) | ||||||||||
| Other payables and accrued liabilities | ||||||||||||
| Lease obligations net cash | ( | ) | ||||||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Proceeds from redemption of time deposit | ||||||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Advance payment for software purchase | ( | ) | ( | ) | ||||||||
| Receipt of government grants | ||||||||||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | ( | ) | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Issuance of ordinary shares for cash | ||||||||||||
| Repayment of loans | ( | ) | ( | ) | ( | ) | ||||||
| Payments on deferred initial public offering (“IPO”) costs | ( | ) | ||||||||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | ( | ) | ( | ) | ||||||||
| EFFECT OF EXCHANGE RATE | ( | ) | ( | ) | ||||||||
| CHANGE IN CASH AND RESTRICTED CASH | ( | ) | ( | ) | ||||||||
| CASH AND RESTRICTED CASH, AT BEGINNING OF PERIOD | ||||||||||||
| CASH AND RESTRICTED CASH, AT PERIOD END | ||||||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||
| Cash paid (received) for: | ||||||||||||
| Interest | ||||||||||||
| Income taxes | ( | ) | ( | ) | ( | ) | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
| Operating lease right-of-use assets obtained in exchange for operating lease liabilities | ||||||||||||
| RECONCILIATION OF CASH AND RESTRICTED CASH REPORTED IN THE BALANCE SHEETS: | ||||||||||||
| Cash | ||||||||||||
| Restricted cash | ||||||||||||
| Total cash and restricted cash shown in the statements of cash flows | ||||||||||||
The accompanying notes are an integral part of these unaudited interim condensed financial statements.
F-5
EARLYWORKS CO., LTD.
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
Note 1 – Nature of business and organization
Earlyworks Co., Ltd. (the “Company”) is a stock company incorporated in Japan pursuant to the laws of Japan on May 1, 2018. The Company builds products, delivers services, and develops solutions based on its proprietary Grid Ledger System to leverage blockchain technology in various business settings, including advertisement tracking, online visitor management, and sales of non-fungible tokens. The Company primarily generates revenue from software and system development services, consulting and solution services, and sale of NFTs.
Note 2 – Liquidity and going concern
In accordance with Accounting Standards Update
(“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40),
the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the
Company’s ability to continue as a going concern within
The Company’s accounts have been prepared assuming that the company will continue as a going concern basis. The going concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the unaudited interim condensed financial statements. The Company’s ability to continue as a going concern depends upon aligning its sources of funding (debt and equity) with the expenditure requirements of the Company and repayment of the short-term debt facilities as and when they fall due.
The Company has considered whether there is
a substantial doubt about its ability to continue as a going concern. Cash flow from operations and capital contributions and loans
from shareholders have been utilized to finance the working capital requirements of the Company. For the six months ended October
31, 2024, the Company had negative cash flow from operating activities of JPY
To sustain its ability to support the Company’s operating activities, the Company considered supplementing its sources of funding through the following:
If necessary, the Company will consider additional financings through the issuance of ordinary shares or debt financings and look into refinancing the Company’s existing debt obligations. However, there can be no assurances that the Company will be successful in securing any debt on terms favorable to the Company, or at all, and it is not possible to predict whether any financing efforts will be successful or if the Company will obtain the necessary financing.
Management has commenced a strategy to raise debt and equity. However, there can be no certainty that these additional financings will be available on acceptable terms or at all. If management is unable to execute this plan, there would likely be a material adverse effect on the Company’s business. All of these factors raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements for the year ended April 30, 2024 and the unaudited interim condensed financial statements for six months ended October 31, 2024 have been prepared on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Note 3 – Summary of significant accounting policies
Basis of presentation
The unaudited interim condensed financial statements do not include all the information and footnotes required by the U.S. GAAP for complete financial statements. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with the U.S. GAAP have been condensed or omitted consistent with Article 10 of Regulation S-X. In the opinion of the Company’s management, the unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, in normal recurring nature, as necessary for the fair statement of the Company’s financial position as of October 31, 2024, and results of operations and cash flows for the six-month periods ended October 31, 2023 and 2024. The unaudited interim condensed balance sheet as of October 31, 2024 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by the U.S. GAAP. Interim results of operations are not necessarily indicative of the results expected for the full fiscal year or for any future period. These unaudited interim condensed financial statements should be read in conjunction with the audited financial statements as of and for the years ended April 30, 2023 and 2024, and related notes included in the Company’s audited financial statements.
F-6
Use of estimates and assumptions
The preparation of unaudited interim condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and revenues and expenses during the reporting periods. Significant accounting estimates reflected in the Company’s unaudited interim condensed financial statements include, but not limited to, estimates for useful lives and impairment of property and equipment, impairment of long-lived assets, allowance for expected credit loss, revenue recognition, and deferred taxes. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the unaudited interim condensed financial statements.
Foreign currency translation and transaction
The Company uses Japanese yen (“JPY”) as its reporting currency. The functional currency of the Company which is incorporated in Japan is JPY, which is its respective local currency based on the criteria of ASC 830, Foreign Currency Matters.
Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the applicable exchange rates at the balance sheet dates. Net gains and losses resulting from foreign exchange transactions are included in exchange gain (loss), net on the statements of operations.
Convenience Translation
Translations of balances in the balance sheets,
statements of operations, statements of changes in shareholders’ equity and statements of cash flows from JPY into USD as of October
31, 2024 are solely for the convenience of the readers and are calculated at the rate of USD
Cash
Cash includes currency on hand and deposits
held by banks that can be added or withdrawn without limitation. The Company maintains its bank accounts in Japan and the United
States. Cash balances in bank accounts in Japan are insured by the Deposit Insurance Corporation of Japan subject to certain
limitations. Cash balances in bank accounts in the United States are insured by the Federal Deposit Insurance Corporation up to USD
Restricted cash
Restricted cash is cash legally restricted as to withdrawal or usage due to an order by the Tokyo District Court as a result of a lawsuit filed by certain shareholders of the Company.
Time deposit
Time deposit is a deposit in a bank account with
original maturity of over three months.
Digital assets
Digital assets such as Ethereum, Binance Coin and Polygon are included in current assets in the balance sheets as an indefinite live intangible asset. Digital assets are initially recognized based on the fair value of the digital assets on the date of receipt. The Company recognized realized gains or losses when digital assets are sold for other digital assets, or for cash consideration using a first-in first-out method of accounting and the Company accounts for received and disbursements as cash flows from operating activities.
An intangible asset with an indefinite useful life is not amortized but assessed for impairment whenever events or changes in circumstances occur indicating that it is more likely than not that the indefinite-life asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital assets in the principal market at the time its fair value is being measured, and the Company recognized an impairment loss in an amount equal to that excess. The Company monitors and evaluates the quality and relevance of the available information, such as pricing information from the asset’s principal (or most advantageous) market or from other digital asset exchanges or markets, to determine whether such information is indicative of a potential impairment. The Company recognizes an impairment loss at any time the fair value of the digital asset is below its carrying value. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
F-7
Accounts receivable and allowance for expected credit losses accounts
Accounts receivable include trade accounts due
from clients. As of May 1, 2023, accounts receivable, net was JPY
Prepayments
Prepayments are mainly payments made to vendors or services providers for goods or future services that have not been provided. These amounts are generally refundable and bear no interest. Management reviews its prepayments on a regular basis to determine if the allowance is adequate and adjusts the allowance when necessary. As of April 30, 2024 and October 31, 2024, no allowance was deemed necessary.
Deferred initial public offering (“IPO”) costs
Pursuant to ASC 340-10-S99-1, IPO costs directly
attributable to an offering of equity securities were deferred and charged against the gross proceeds of the offering as a reduction
of additional paid-in capital. These costs included legal fees, consulting fees, underwriting fees, the SEC filing and printing expenses
related to the IPO. On July 27, 2023, the Company closed its IPO and gross proceeds of JPY
Short-term deposits and long-term deposits
Short-term deposits and long-term deposits are mainly for rent and money deposited with certain service providers. These amounts are refundable and bear no interest. The short-term deposits usually have one year term and are refundable upon contract termination. The long-term deposits are refunded from service providers when term and conditions set forth in the agreements have been satisfied.
Other current assets, net
Other current assets, net, primarily consists of other receivables from third parties. These other receivables are unsecured and are reviewed periodically to determine whether their carrying value has become impaired.
Property and equipment, net
Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
| Leasehold improvements | lesser of lease term or expected useful life | |
| Office furniture and fixtures |
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statements of operations. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized.
Impairment for long-lived assets
Long-lived assets, including property and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. We assess the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, we would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. For the six months ended October 31, 2023 and 2024 no impairment of long-lived assets was recognized.
F-8
Fair value of financial instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. |
| ● | Level 3 – inputs to the valuation methodology are unobservable. |
Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash, time deposit, digital assets, accounts receivable, contract assets, prepayments, short-term deposits, income tax receivable and other current assets, current portion of long-term bank loans, other payables and accrued liabilities, current operating lease liabilities, income tax payable, and contract liabilities approximate the fair value of the respective assets and liabilities as of April 30, 2024 and October 31, 2024 based upon the short-term nature of the assets and liabilities.
Revenue recognition
The Company recognizes revenue as it satisfies a performance obligation when its client obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the client.
The Company applied practical expedient when sales taxes were collected from clients, meaning sales tax is recorded net of revenue, instead of cost of revenue, which are subsequently remitted to governmental authorities and are excluded from the transaction price. The Company does not offer rights of refund of previously paid or delivered amounts, rebates, rights of return or price protection. In all instances, the Company limits the amount of revenue recognized to the amounts for which it has the right to bill its clients.
The Company is a principal and records revenue on a gross basis when the Company is primarily responsible for fulfilling the service, has discretion in establishing pricing and controls the promised service before transferring that service to clients. Otherwise, the Company is an agent and records revenue on a net basis.
F-9
The Company derives its revenues from three sources: (1) software and system development services, (2) consulting and solution services, and (3) sale of NFTs. All of the Company’s contracts with clients do not contain cancellable and refund-type provisions.
(1) Software and system development services
The contract is typically fixed priced and does not provide any post contract client support or upgrades. The Company designs software and system based on clients’ specific needs which require the Company to perform services including design, development, and integration. These services also require significant customization. Upon delivery of the services, client acceptance is generally required. The Company assesses that software and system development services is considered as one performance obligation as the clients do not obtain benefit for each separate service. The duration of the development period is short, usually less than one year.
The Company’s software and system development service revenue is generated primarily from contracts with medium and large-sized enterprises. The contracts contain negotiated billing terms which generally include multiple payment phases throughout the contract term and a portion of contract amount usually is billed upon the completion of the related projects. Pursuant to the contract terms, the Company has enforceable right on payments for the work performed.
The Company’s revenue from software and system development contracts is generally recognized over time as the Company’s performance creates or enhances the project controlled by the clients and the control is transferred continuously to the Company’s clients. The Company uses an input method based on cost incurred as the Company believes that this method most accurately reflects the Company’s progress toward satisfaction of the performance obligation, which usually takes less than one year. Under this method, the Company could appropriately measure the fulfillment of a performance obligation. Assumptions, risks and uncertainties inherent in the estimates used to measure progress could affect the amount of revenues, receivables and contract liabilities at each reporting period.
Incurred costs include all direct material, labor and subcontract costs, and those indirect costs related to application development performance, such as indirect labor, supplies, and tools. Cost-based input method requires the Company to make estimates of revenues and costs to complete the service. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the application development, including materials, labor, and other system costs. The Company’s estimates are based upon the professional knowledge and experience of the Company’s engineers and project managers to assess the contract’s schedule, performance, and technical matters. The Company has adequate cost history and estimating experience, and with respect to which management believes it can reasonably estimate total development costs. If the estimated costs are greater than the related revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated. Changes in estimates for software development services include but are not limited to cost forecast changes and change orders. The cumulative effect of changes in estimates is recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. To date, the Company has not incurred a material loss on any contracts. However, as a policy, provisions for estimated losses on such engagements will be made during the period in which a loss becomes probable and can be reasonably estimated. If contract modifications result in additional goods or services that are distinct from those transferred before the modification, they are accounted for prospectively as if the Company entered into a new contract. If the goods or services in the modification are not distinct from those in the original contract, sales and gross profit are adjusted using the cumulative catch-up method for revisions in estimated total contract costs and contract values.
(2) Consulting and solution services
Revenue from consulting and solution services is primarily comprised of fixed-fee contracts, which require the Company to provide professional consulting and solution services over contract terms beginning on the commencement date of each contract, which is the date its service is made available to clients. Billings to the clients are generally on a monthly or quarterly basis over the contract term, which is typically 1 to 12 months. The consulting and solution services contracts typically include a single performance obligation. The revenue from consulting and solution services is recognized over the contract term as clients receive and consume benefits of such services as provided.
Revenue includes reimbursements of travel and out-of-pocket expense, with equivalent amounts of expense recorded in cost of revenue.
F-10
(3) Sale of NFTs
The Company engages in sale of NFTs, or non-fungible tokens. NFTs are assets that have been tokenized via a blockchain and are assigned unique identification codes and metadata that distinguish them from other tokens. The Company typically enters into contracts with its customers where the rights of the parties, including payment terms, are identified and sales prices to the customers are fixed with no separate sales rebate, discount, or other incentive and no right of return exists on sales of NFTs. The Company’s performance obligation is to deliver products according to contract specifications. The Company recognizes product revenue at a time when the control of products is transferred to customers.
Contract balances
The timing of revenue recognition may differ from the timing of invoicing to customers. For certain services, customers are required to pay before the services are transferred. The Company recognizes contract assets or contract liabilities in the balance sheets, depending on the relationship between the Company’s performance and the customer’s payment.
Contract assets are rights to consideration in
exchange for goods or services that the entity has transferred to a customer when that right is conditional on something other than the
passage of time. As of May 1, 2023, April 30, 2024 and October 31, 2024, the Company recorded contract assets of , JPY
Contract liabilities are recorded when
consideration is received from a customer prior to transferring the services to the customer or other conditions under the terms of
a sales contract. As of May 1, 2023, April 30, 2024 and October 31, 2024, the Company recorded contract liabilities of JPY
Operating leases
The Company determines if an arrangement is a lease at inception. Leases are classified as operating or finance leases in accordance with the recognition criteria in ASC 842-20-25. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.
At the commencement date of a lease, the Company determines the classification of the lease based on the relevant factors present and records a right-of-use (“ROU”) asset and lease liability for operating lease. ROU assets acquired through lease represent the right to use an underlying asset for the lease term, and operating lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and lease liabilities are calculated as the present value of the lease payments not yet paid. If the rate implicit in the Company’s leases is not readily available, the Company uses an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. This incremental borrowing rate reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. ROU assets include any lease prepayments and are reduced by lease incentives. Operating lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease terms are based on the non-cancellable term of the lease.
Leases with an initial lease term of 12 months or less are not recorded on the balance sheets. Lease expense for these leases is recognized on a straight-line basis over the lease term.
Cost of revenues
Cost of revenues mainly consist of salaries and benefits of our staff and outsourced staff, and related expenses including telecommunication cost and rental costs.
Selling and marketing expenses
Selling and marketing expenses mainly consist of payroll, promotion expenses, and related expenses for personnel engaged in selling and marketing activities.
F-11
Advertising expenses
Advertising costs are expensed as incurred and
included in selling, general, and administrative expenses in the statements of operations. Advertising expenses amounted to JPY
Research and development expenses
Research and development costs are expensed as incurred. These costs primarily consist of payroll, outsourced development cost, and related expenses for personnel engaged in research and development activities.
Government grants and deferred income
The Company recognizes government grants when it is probable that (a) the Company will comply with the conditions attached to the grant and (b) the grant will be received. For grants related to assets, the Company elected cost accumulation approach under which the benefit of the grant would be inherently recognized in the statements of operations through reduced expense. For grants related to income, the benefit of the grant would be recognized in the statements of operations in a systematic and rational manner over the period in which the entity recognizes the relevant expenses. Recognized benefit is presented as government grants on the statements of operations.
The Company received government grants of
JPY
Income taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the unaudited interim condensed financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
An uncertain tax position is recognized as a
benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized
is the largest amount of tax benefit that is greater than
Loss per share
Basic loss per share is computed by dividing net loss attributable to the holders of ordinary shares by the weighted average number of ordinary shares outstanding during the period presented. Diluted loss per share is calculated by dividing net loss attributable to the holders of ordinary shares as adjusted for the effect of dilutive ordinary share equivalents, if any, by the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. However, ordinary share equivalents are not included in the denominator of the diluted loss per share calculation when inclusion of such shares would be anti- dilutive, such as in a period in which a net loss is recorded.
F-12
Share-based compensation
The Company applies ASC 718, Compensation – Stock Compensation (“ASC 718”), to account for its employee share-based payments. In accordance with ASC 718, the Company determines whether an award should be classified and accounted for as a liability award or equity award. All the Company’s share-based awards to employees were classified as equity awards and are recognized in the unaudited interim condensed financial statements based on their grant date fair values. In accordance with ASC 718, the Company recognizes share-based compensation cost for equity awards to employees with a performance condition based on the probable outcome of that performance condition. Compensation cost is recognized using the accelerated method if it is probable that the performance condition will be achieved. The Company accounts for forfeitures as they occur in accordance with ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting.
Segment reporting
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major clients in unaudited interim condensed financial statements for detailing the Company’s business segments. Based on the criteria established by ASC 280, the Company’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer, who reviews results when making decisions about allocating resources and assessing performance of the Company. As a whole and hence, the Company has only one reportable segment. The Company does not distinguish between markets or segments for the purpose of internal reporting. As the Company’s long-lived assets are substantially located in Japan, no geographical segments are presented.
Related party transactions
A related party is generally defined as (i) any
person and or their immediate family who hold
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related party nature.
Commitments and Contingencies
In the normal course of business, the Company is subject to contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of matters, such as government investigations and tax matters. The Company recognizes a liability for such contingency if it determines it is probable that a loss has occurred and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments including historical performance and the specific facts and circumstances of each matter.
F-13
Risks and uncertainties
Political and economic risk
All of the Company’s assets were located in Japan and all of the Company’s revenue was generated in Japan. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in Japan, as well as by the general state of Japan economy. The Company’s results may be adversely affected by changes in the political, regulatory, and social conditions in Japan. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations, including its organization and structure disclosed in Note 1, such experience may not be indicative of future results.
Foreign currency exchange risk
The functional currency of the Company is JPY. Exposure to foreign currency risk is derived from a bank account denominated in US dollars. Our financial position, results of operations and cash flow are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign currency exchange rates.
To date, we have not engaged in hedging our foreign currency exchange risk. In the future, we may enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the adverse effects of such fluctuations.
Credit risk
As of April 30, 2024 and October 31, 2024,
JPY
Accounts receivables are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risks. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
Concentration of credit risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and account receivable. The Company places its cash with financial institutions with high-credit ratings and quality.
Accounts receivable primarily comprise of amounts receivable from the service clients. To reduce credit risk, the Company performs on-going credit evaluations of the financial condition of these service clients. The Company establishes a provision for credit losses based upon estimates, factors surrounding the credit risk of specific service clients and other information.
Concentration of demand
As of April 30, 2024, one client accounted for
For the six months ended October 31, 2023, one
major client accounted for
Concentration of supply
As of April 30, 2024, two vendors accounted for
For the six months ended October 31, 2023, two
vendors accounted for
F-14
Recent accounting pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. Under the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), the Company meets the definition of an emerging growth company, or EGC, and has elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.
In June 2016, the FASB amended guidance related to the impairment of financial instruments as part of ASU2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which will be effective January 1, 2020. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which clarified that receivables from operating leases are not within the scope of Topic 326 and instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842. On May 15, 2019, the FASB issued ASU 2019-05, which provides transition relief for entities adopting the Board’s credit losses standard, ASU 2016-13. Specifically, ASU 2019-05 amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of the credit losses guidance in ASC 326-20, (3) are eligible for the fair value option under ASC 825-10, and (4) are not held-to-maturity debt securities. For entities that have adopted ASU 2016-13, the amendments in ASU 2019-05 are effective for fiscal years beginning after December 15, 2019, including interim periods therein. An entity may early adopt the ASU in any interim period after its issuance if the entity has adopted ASU 2016-13. For all other entities, the effective date will be the same as the effective date of ASU 2016-13. In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” ASU 2019-11 is an accounting pronouncement that amends ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU 2019-11 amendment provides clarity and improves the codification to ASU 2016-03. The pronouncement would be effective concurrently with the adoption of ASU 2016-03. The pronouncement is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. In February 2020, the FASB issued ASU No. 2020-02, which provides clarifying guidance and minor updates to ASU No. 2016-13 – Financial Instruments – Credit Loss (Topic 326) (“ASU 2016-13”) and related to ASU No. 2016-02 – Leases (Topic 842). ASU 2020-02 amends the effective date of ASU 2016-13, such that ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company adopted this update on May 1, 2023. The adoption of this update had no material impact on the Company’s results of operations and financial position.
F-15
In December 2023, the FASB issued ASU 2023-08, Intangibles – Goodwill and other – crypto assets (Subtopic 350-60): Accounting for and disclosure of crypto assets. This guidance addresses the accounting and disclosure requirements for certain crypto assets. The new guidance requires entities to subsequently measure certain crypto assets at fair value, with changes in fair value recorded in net income in each reporting period. In addition, entities are required to provide additional disclosures about the holdings of certain crypto assets. The ASU’s amendments are effective for fiscal years beginning after December 15, 2024, including interim periods within those years. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on its unaudited interim condensed financial statements and related disclosures.
The Company has reviewed all other recently issued accounting pronouncements and concluded that they are either not applicable or not expected to have a material impact on the Company’s unaudited interim condensed financial statements.
Note 4 – Revenues
The following table presents the Company’s revenues disaggregated by service lines for the six months ended October 31, 2023 and 2024:
| For the six months ended October 31, 2023 | For the six months ended October 31, 2024 | |||||||||||
| JPY | JPY | USD | ||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
| OPERATING REVENUES | ||||||||||||
| Software and system development services | ||||||||||||
| Consulting and solution services | ||||||||||||
| Sale of NFTs | ||||||||||||
| TOTAL OPERATING REVENUES | ||||||||||||
Note 5 – Accounts receivable, net
Accounts receivable, net consist of the following:
| As of April 30, 2024 | As of October 31, 2024 | |||||||||||
| JPY | JPY | USD | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Accounts receivable | ||||||||||||
| Less: Allowance for expected credit loss | ||||||||||||
| Add: Consumption tax receivable | ||||||||||||
| Accounts receivable, net | ||||||||||||
F-16
Note 6 – Property and equipment, net
Property and equipment, net consist of the following:
| As of April 30, 2024 | As of October 31, 2024 | |||||||||||
| JPY | JPY | USD | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| At cost: | ||||||||||||
| Office equipment | ||||||||||||
| Total | ||||||||||||
| Accumulated depreciation | ( | ) | ( | ) | ( | ) | ||||||
| Property and equipment, net | ||||||||||||
Depreciation expense for the six months ended
October 31, 2023 and 2024 amounted to JPY
Note 7 – Other payables and accrued expenses
The components of other payables and accrued expenses are as follows:
| As of April 30, 2024 | As of October 31, 2024 | |||||||||||
| JPY | JPY | USD | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Outsourced development costs | ||||||||||||
| Salary and benefit payables | ||||||||||||
| Consumption tax payables | ||||||||||||
| Professional service fee | ||||||||||||
| Communication costs | ||||||||||||
| Sales proceeds temporarily received for others | ||||||||||||
| Withholding tax | ||||||||||||
| Corporate business tax | ||||||||||||
| Resident tax for employees | ||||||||||||
| Others | ||||||||||||
Others mainly consist of other payables related to operating activities including outsourced design costs and handling fee.
F-17
Note 8 – Loans
Outstanding balances of loans consist of the following:
| As of April 30, 2024 | Balance | Balance | Maturity Date | Effective Interest Rate | Collateral/ Guarantee | |||||||||||
| JPY | USD | |||||||||||||||
| Kiraboshi Bank | % | |||||||||||||||
| Kiraboshi Bank | % | |||||||||||||||
| Resona Bank | % | |||||||||||||||
| Shoko Chukin Bank | % | |||||||||||||||
| Total loans | ||||||||||||||||
| Less: Loan origination fee | ( | ) | ( | ) | ||||||||||||
| Current portion of long – term loan | ( | ) | ( | ) | ||||||||||||
| Long-term loan – due over one year | ||||||||||||||||
| As of October 31, 2024 | Balance | Balance | Maturity Date | Effective Interest Rate | Collateral/ Guarantee | |||||||||||
| JPY | USD | |||||||||||||||
| Kiraboshi Bank | % | |||||||||||||||
| Kiraboshi Bank | % | |||||||||||||||
| Shoko Chukin Bank | % | |||||||||||||||
| Total loans | ||||||||||||||||
| Less: Loan origination fee | ||||||||||||||||
| Current portion of long – term loan | ( | ) | ( | ) | ||||||||||||
| Long-term loan – due over one year | ||||||||||||||||
F-18
Interest expense for the six months ended
October 31, 2023 and 2024 amounted to JPY
| JPY | USD | |||||||
| Remainder of 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| Total | ||||||||
Note 9 – Commitments and contingencies
Lease commitments
The Company entered into an operating lease agreement for office space. The minimum lease payment commitments under the operating lease as of October 31, 2024 are set forth in the Note 11 – Operating leases – right-of-use assets
Litigation
Certain shareholders of the Company
filed a lawsuit in the Tokyo District Court against the Company and Mr. Satoshi Kobayashi, the Company’s Chief Executive
Officer and Representative Director. The complaint, which is dated December 18, 2023, was served on the Company and Mr. Kobayashi on
January 12, 2024. The plaintiffs alleged that Mr. Kobayashi violated Article 709 of the Japanese Civil Code by intentionally
delaying or misrepresenting the procedures necessary for the sale of shares, thereby unfairly depriving the plaintiffs of the
opportunity to sell their shares on the Nasdaq market at a higher price following the Company’s initial public offering, and
that the Company shall be liable for damages caused by Mr. Kobayashi in the discharge of his duties as the Company’s
Representative Director under Article 350 of the Japanese Companies Act. The plaintiffs sought monetary damages in the total amount
of USD
Note 10 – Income taxes
(a) Corporate Income Taxes
The Company is in Japan and is subject to Japanese
national and local income taxes, inhabitant tax, and enterprise tax, which, in the aggregate, represent a statutory income tax rate of
approximately
Significant components of the provision for income taxes are as follows:
| For the six months ended October 31, 2023 | For the six months ended October 31, 2024 | |||||||||||
| JPY | JPY | USD | ||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
| Current income tax expense | ||||||||||||
| Deferred tax benefit | ( | ) | ||||||||||
| Total provision for income taxes | ( | ) | ||||||||||
F-19
For the purpose of presentation in the balance
sheets, deferred income tax assets and liabilities have been offset.
| As of April 30, 2024 | As of October 31, 2024 | |||||||||||
| JPY | JPY | USD | ||||||||||
| Deferred tax assets: | ||||||||||||
| Net operating loss carry forward | ||||||||||||
| Write off of other receivable | ||||||||||||
| Lease liabilities | ||||||||||||
| Write off of guarantee money deposited | ||||||||||||
| Temporary difference in depreciation | ||||||||||||
| Bonus accrual | ||||||||||||
| Deferred government grants | ||||||||||||
| Others | ||||||||||||
| Total deferred tax assets | ||||||||||||
| Less: valuation allowance | ( | ) | ( | ) | ( | ) | ||||||
| Deferred tax assets, net of valuation allowance | ||||||||||||
| Deferred tax liabilities: | ||||||||||||
| Right-of-use assets – operating lease | ( | ) | ( | ) | ( | ) | ||||||
| Total deferred tax liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Net deferred tax assets | ||||||||||||
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the cumulative earnings and projected future taxable income in making this assessment. Recovery of substantially all of the Company’s deferred tax assets is dependent upon the generation of future income, exclusive of reversing taxable temporary differences.
(b) Consumption tax
Consumption tax collected and remitted to tax
authorities is excluded from revenue, cost of sales, and expenses in the statements of operations. The Company has been subject to the
applicable consumption tax rate of
Note 11 – Operating leases – right-of-use assets
The Company entered into an operating lease agreement for office space. None of the amounts disclosed below for these leases contain variable payments, residual value guarantees or options that were recognized as part of the right-of-use assets and lease liabilities. As the Company’s leases did not provide an implicit discount rate, the Company used an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
Rent expenses for the six months ended October
31 2023 and 2024 was JPY
F-20
Lease commitments
The Company’s maturity analysis of operating lease liabilities as of October 31, 2024 is as follows:
| Operating Leases | ||||||||
| JPY | USD | |||||||
| Remainder of 2025 | ||||||||
| 2026 | ||||||||
| Total lease payment | ||||||||
| Less imputed interest | ( | ) | ( | ) | ||||
| Present value of operating lease liabilities | ||||||||
| Less: current obligation | ( | ) | ( | ) | ||||
| Long-term obligation on October 31, 2024 | ||||||||
Supplemental disclosure related to operating leases were as follows:
| For the six months ended October 31, 2024 | ||||||||
| JPY | USD | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows for operating leases | ||||||||
| Weighted average remaining lease term of operating leases | ||||||||
| Weighted average discount rate of operating leases | % | |||||||
Note 12 – Shareholders’ equity
Ordinary shares
The Company is a stock company incorporated in Japan pursuant to the laws of Japan on May 1, 2018.
As of April 30, 2024 and October 31, 2024, the
number of outstanding shares is
On April 26, 2024, the Company’s shareholders
approved an amendment to its equity structure whereby the Company reduced capital associated with ordinary shares with a corresponding
increase to additional paid-in capital of JPY
Note 13 – Share-based compensation
Share option plan (the “2019 Plan”)
On February 5, 2019, the shareholders and Board
of Directors of the Company approved the 2019 Plan, which is administered by the Board of Directors and has a term of
The options granted under the 2019 Plan have
a contractual term of
The fair value of each option award is estimated
on the grant date using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of -
F-21
A summary of the employee equity award activity under the 2019 Plan is stated below:
| Number of options | Weighted- average exercise price | Weighted- average remaining contractual term | Aggregate intrinsic Value | |||||||||||||
| JPY | Years | JPY | ||||||||||||||
| Outstanding, April 30, 2023 | ||||||||||||||||
| Granted | ||||||||||||||||
| Forfeited / Cancelled | ||||||||||||||||
| Outstanding, October 31, 2023 | ||||||||||||||||
| Vested at October 31, 2023 | ||||||||||||||||
| Exercisable at October 31, 2023 | ||||||||||||||||
| Number of options | Weighted- average exercise price | Weighted- average remaining contractual term | Aggregate intrinsic Value | |||||||||||||
| JPY | Years | JPY | ||||||||||||||
| Outstanding, April 30, 2024 | ||||||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Forfeited / Cancelled | - | - | - | - | ||||||||||||
| Outstanding, October 31, 2024 | ||||||||||||||||
| Vested at October 31, 2024 | ||||||||||||||||
| Exercisable at October 31, 2024 | ||||||||||||||||
| Number of options | Weighted- average exercise price | Weighted- average remaining contractual term | Aggregate intrinsic Value | |||||||||||||
| USD | Years | USD | ||||||||||||||
| Outstanding, April 30, 2024 | ||||||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Forfeited / Cancelled | - | - | - | - | ||||||||||||
| Outstanding, October 31, 2024 | ||||||||||||||||
| Vested at October 31, 2024 | ||||||||||||||||
| Exercisable at October 31, 2024 | ||||||||||||||||
The aggregate intrinsic value in the table above represents the difference between the fair value of the Company’s ordinary share and the option’s respective exercise price.
For the six months ended October 31, 2023, the
Company recognized share-based compensation expense of JPY
F-22
Trust-Type Share Option Plan (the “2019 Trust-Type Plan”)
On July 1, 2019, the shareholders and Board of
Directors of the Company approved the 2019 Trust-Type Share Option Plan (the “2019 Trust-Type Plan”); 2019 Trust-Type Plan
is administered by the Board of Directors, and has a term of
The trust-type share option (trust for market value-issue stock acquisition rights) is a scheme of where the option holder is granted the right to acquire the Company’s stock in the open market at pre-determined price, which can be lower than the fair market value; therefore, generating immediate benefit to the holder to option. The trust type plan was initiated and created by the trustor (Mr. Kobayashi, the Company’s Chief Executive Officer) when he deposited funds into the trust with the intention to reward the beneficiaries of the plan. The trustee is entrusted with the responsibility to grant to beneficiaries (officers and employees, etc.) the options.
The fair value of each option award is estimated
on the grant date using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of -
A summary of the employee equity award activity under the 2019 Trust-Type Plan is stated below:
| Number of options | Weighted- average exercise price | Weighted- average remaining contractual term | Aggregate intrinsic Value | |||||||||||||
| JPY | Years | JPY | ||||||||||||||
| Outstanding, April 30, 2023 | ||||||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Forfeited / Cancelled | - | - | - | - | ||||||||||||
| Exercised | - | |||||||||||||||
| Outstanding, October 31, 2023 | ||||||||||||||||
| Vested at October 31, 2023 | ||||||||||||||||
| Exercisable at October 31, 2023 | ||||||||||||||||
F-23
| Number of options | Weighted- average exercise price | Weighted- average remaining contractual term | Aggregate intrinsic Value | |||||||||||||
| JPY | Years | JPY | ||||||||||||||
| Outstanding, April 30, 2024 | ||||||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Forfeited / Cancelled | ( | ) | - | |||||||||||||
| Exercised | - | - | - | |||||||||||||
| Outstanding, October 31, 2024 | - | - | - | - | ||||||||||||
| Vested at October 31, 2024 | - | - | - | - | ||||||||||||
| Exercisable at October 31, 2024 | - | - | - | - | ||||||||||||
| Number of options | Weighted- average exercise price | Weighted- average remaining contractual term | Aggregate intrinsic Value | |||||||||||||
| USD | Years | USD | ||||||||||||||
| Outstanding, April 30, 2024 | ||||||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Forfeited / Cancelled | ( | ) | - | - | ||||||||||||
| Exercised | - | - | - | |||||||||||||
| Outstanding, October 31, 2024 | - | - | - | - | ||||||||||||
| Vested at October 31, 2024 | - | - | - | - | ||||||||||||
| Exercisable at October 31, 2024 | - | - | - | - | ||||||||||||
On August 12, 2024, allocated share options of
Note 14 – Subsequent events
The Company has assessed all events from October 31, 2024 up through March 3, 2025, which is the date that these unaudited interim condensed financial statements are available to be issued, and, except as disclosed above, there are not any material subsequent events that require disclosure in these unaudited interim condensed financial statements.
F-24