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Warrantee, Inc. Sponsored ADR (WRNT)
:WRNT
Risk Overview Q1, 2023
Risk Distribution
60% Finance & Corporate
12% Legal & Regulatory
9% Ability to Sell
7% Production
7% Macro & Political
5% Tech & Innovation
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Warrantee, Inc. Sponsored ADR Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q1, 2023
Main Risk Category
Finance & Corporate
With 26 Risks
Finance & Corporate
With 26 Risks
Number of Disclosed Risks
43
S&P 500 Average: 31
43
S&P 500 Average: 31
Recent Changes
0Risks added
0Risks removed
0Risks changed
Since Mar 2023
0Risks added
0Risks removed
0Risks changed
Since Mar 2023
Number of Risk Changed
0
S&P 500 Average: 3
0
S&P 500 Average: 3
See the risk highlights of Warrantee, Inc. Sponsored ADR in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 43
Finance & Corporate
Total Risks: 26/43 (60%)Above Sector Average
Share Price & Shareholder Rights21 | 48.8%
Share Price & Shareholder Rights - Risk 1
We are an "emerging growth company" within the meaning of the Securities Act, and we have taken advantage of certain exemptions from disclosure requirements available to emerging growth companies, which will make it more difficult to compare our performance with other public companies.Share Price & Shareholder Rights - Risk 2
We are currently not in compliance with the continued listing requirements of Nasdaq. As a result, the ADSs may be delisted, which could negatively impact the price of the ADSs and your ability to sell them.In order to maintain our listing on Nasdaq, we are required to comply with certain rules of Nasdaq, including those regarding minimum stockholders' equity, minimum share price, minimum market value of publicly held shares, and various additional requirements. On August 18, 2023, we received a notice of non-compliance from the Listing Qualifications Department of Nasdaq stating that, as a result of not having timely filed our annual report on Form 20-F for the fiscal year ended March 31, 2023, we were not in compliance with Nasdaq Listing Rule 5250(c)(1). On October 13, 2023, we received a letter from the Listing Qualifications Department of Nasdaq notifying us that we are not in compliance with the minimum bid price requirement as set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided 180 calendar days, or until April 10, 2024, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the ADSs must have a closing bid price of at least US$1.00 for a minimum of 10 consecutive business days. In the event we do not regain compliance by April 10, 2024, we may be eligible for additional time to regain compliance or may face delisting. On October 27, 2023, we received a staff determination letter (the "Letter") from the Listing Qualifications Department of Nasdaq notifying us of the determination from the Nasdaq staff to delist our securities from The Nasdaq Stock Market because we had not filed our Form 20-F for the fiscal year ended March 31, 2023 and we are not in compliance with Nasdaq's filing requirements for continued inclusion set forth in Nasdaq Listing Rule 5250(c)(1). The delisting action referenced in the Letter has been stayed pending the issuance of a formal decision by the Nasdaq Hearings Panel following a hearing to be held on February 8, 2024.
If Nasdaq subsequently delists the ADSs from trading, we could face significant consequences, including:
- a limited availability for market quotations for the ADSs;- reduced liquidity with respect to the ADSs;- a determination that the ADS is a "penny stock," which will require brokers trading in the ADSs to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for the ADSs;- limited amount of news and analyst coverage; and - a decreased ability to issue additional securities or obtain additional financing in the future.
Share Price & Shareholder Rights - Risk 3
Because we are a foreign private issuer and have taken advantage of exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer.Nasdaq listing rules require listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to, and we have followed home country practice in lieu of the above requirements. The corporate governance practice in our home country, Japan, does not require a majority of our board to consist of independent directors. Thus, although a director must act in the best interests of the company, it is possible that fewer board members will be exercising independent judgment and the level of board oversight on the management of our company may decrease as a result. In addition, Nasdaq listing rules also require U.S. domestic issuers to have an audit committee, a compensation committee, and a nominating/corporate governance committee composed entirely of independent directors, and an audit committee with a minimum of three members. We, as a foreign private issuer, are not subject to these requirements. Consistent with corporate governance practices in Japan, we have a three-member board of corporate auditors instead of an audit committee and we do not have a standalone compensation committee or nomination and corporate governance committee of our board.
In addition, we are not required under the Exchange Act to file current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act and we are generally exempt from filing quarterly reports with the SEC. Also, we are not required to provide the same executive compensation disclosures regarding the annual compensation of our five most highly compensated senior executives on an individual basis as are required of U.S. domestic issuers. As a foreign private issuer, we are permitted to disclose executive compensation on an aggregate basis and need not supply a Compensation Discussion and Analysis, as is required for domestic companies. Furthermore, as a foreign private issuer, we are also not subject to the requirements of Regulation FD promulgated under the Exchange Act. These exemptions and accommodations will reduce the frequency and scope of information and protections to which you are entitled as an investor.
Share Price & Shareholder Rights - Risk 4
If we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we would incur significant additional legal, accounting, and other expenses that we would not incur as a foreign private issuer.As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our executive officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States domestic issuers, and we are not required to disclose in our periodic reports all of the information that United States domestic issuers are required to disclose. We may cease to qualify as a foreign private issuer in the future, in which case we would incur significant additional expenses that could have a material adverse effect on our results of operations.
Share Price & Shareholder Rights - Risk 5
Dividend payments and the amount you may realize upon a sale of our Common Shares or the ADSs that you hold will be affected by fluctuations in the exchange rate between the U.S. dollar and the Japanese yen.Cash dividends, if any, in respect of our Common Shares represented by the ADSs will be paid to the depositary in Japanese yen and then converted by the depositary or its agents into U.S. dollars, subject to certain conditions and the terms of the deposit agreement. Accordingly, fluctuations in the exchange rate between the Japanese yen and the U.S. dollar will affect, among other things, the amounts a holder of ADSs will receive from the depositary in respect of dividends, the U.S. dollar value of the proceeds that a holder of ADSs would receive upon sale in Japan of our Common Shares obtained upon cancellation and surrender of ADSs and the secondary market price of ADSs. Such fluctuations will also affect the U.S. dollar value of dividends and sales proceeds received by holders of our Common Shares.
Share Price & Shareholder Rights - Risk 6
We are incorporated in Japan, and it may be more difficult to enforce judgments obtained in courts outside Japan.We are incorporated in Japan as a joint-stock corporation. All of our directors are non-U.S. residents, and a substantial portion of our assets and the personal assets of our directors and executive officers are located outside the United States. As a result, when compared to a U.S. company, it may be more difficult for investors to effect service of process in the United States upon us or to enforce against us, our directors or executive officers, judgments obtained in U.S. courts predicated upon civil liability provisions of the federal or state securities laws of the U.S. or similar judgments obtained in other courts outside Japan. There is doubt as to the enforceability in Japanese courts, in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon the federal and state securities laws of the United States.
Share Price & Shareholder Rights - Risk 7
We may amend the deposit agreement without consent from holders of ADSs and, if such holders disagree with our amendments, their choices will be limited to selling the ADSs or cancelling and withdrawing the underlying our Common Shares.We may agree with the depositary to amend the deposit agreement without consent from holders of ADSs. If an amendment increases fees to be charged to ADS holders or prejudices a substantial existing right of ADS holders, it will not become effective until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, ADS holders are considered, by continuing to hold their ADSs, to have agreed to the amendment and to be bound by the amended deposit agreement. If holders of ADSs do not agree with an amendment to the deposit agreement, their choices will be limited to selling the ADSs or cancelling and withdrawing the underlying our Common Shares. No assurance can be given that a sale of ADSs could be made at a price satisfactory to the holder in such circumstances.
Share Price & Shareholder Rights - Risk 8
Holders of ADSs may not receive distributions on our Common Shares or any value for them if it is illegal or impractical to make them available to such holders.Subject to the terms of the deposit agreement, the depositary has agreed to pay holders of ADSs the cash dividends or other distributions it or the custodian for the ADSs receives on the Common Shares or other deposited securities after deducting its fees and expenses and any taxes or other government charges. Holders of ADSs will receive these distributions in proportion to the number of our Common Shares that such ADSs represent. However, the depositary is not responsible for making such payments or distributions if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act, but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the depositary. We have no obligation to take any other action to permit distributions on our Common Shares to holders of ADSs. This means that holders of ADSs may not receive the distributions we make on our Common Shares if it is illegal or impractical to make them available to such holders. These restrictions may materially reduce the value of the ADSs.
Share Price & Shareholder Rights - Risk 9
ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.The deposit agreement governing the ADSs representing our Common Shares provides that, to the fullest extent permitted by applicable law, owners and holders of ADSs irrevocably waive the right to a jury trial for any claim that they may have against us or the depositary arising from or relating to our Common Shares, the ADSs, or the deposit agreement, including any claim under the U.S. federal securities laws.
However, ADS holders will not be deemed, by agreeing to the terms of the deposit agreement, to have waived our or the depositary's compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder. In fact, ADS holders cannot waive our or the depositary's compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder. If we or the depositary opposed a demand for jury trial relying on jury trial waiver mentioned above, it is up to the court to determine whether such waiver was enforceable considering the facts and circumstances of that case in accordance with the applicable state and federal law.
If this jury trial waiver provision is prohibited by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge, the enforceability of a jury trial waiver under the federal securities laws has not been finally adjudicated by a federal court or by the United States Supreme Court. Nonetheless, we believe that a jury trial waiver provision is generally enforceable under the laws of the State of New York, which govern the deposit agreement, or by a federal or state court in the City of New York. In determining whether to enforce a jury trial waiver provision, New York courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement and the ADSs. In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim sounding in fraud or one which is based upon a creditor's negligence in failing to liquidate collateral upon a guarantor's demand, or in the case of an intentional tort claim, none of which we believe are applicable in the case of the deposit agreement or the ADSs. If you or any other owners or holders of ADSs bring a claim against us or the depositary relating to the matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other owner or holder may not have the right to a jury trial regarding such claims, which may limit and discourage lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may have different outcomes compared to that of a jury trial, including results that could be less favorable to the plaintiff(s) in any such action.
Nevertheless, if the jury trial waiver provision is not enforced, to the extent a court action proceeds, it would proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any owner or holder of ADSs or by us or the depositary of compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder.
Share Price & Shareholder Rights - Risk 10
The right of holders of ADSs to participate in any future rights offerings may be limited, which may cause dilution to their holdings and holders of ADSs may not receive cash dividends if it is impractical to make them available to them.We may, from time to time, distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make any such rights available to the ADS holders in the United States unless we register such rights and the securities to which such rights relate under the Securities Act or an exemption from the registration requirements is available. In addition, the deposit agreement provides that the depositary bank will not make rights available to ADS holders unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act.
The depositary has agreed to pay ADS holders the cash dividends or other distributions it or the custodian receives on our Common Shares or other deposited securities after deducting its fees and expenses. However, because of these deductions, ADS holders may receive less, on a per share basis with respect to their ADSs than they would if they owned the number of shares or other deposited securities directly. ADSs holders will receive these distributions in proportion to the number of Common Shares the ADSs represent. In addition, the depositary may, at its discretion, decide that it is not lawful or practical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property and ADS holders will not receive such distribution.
Share Price & Shareholder Rights - Risk 11
As holders of ADSs, you may have fewer rights than holders of our Common Shares and must act through the depositary to exercise those rights.The rights of shareholders under Japanese law to take actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records, and exercising appraisal rights, are available only to shareholders of record. ADS holders are not shareholders of record. The depositary, through its custodian agents, is the record holder of our Common Shares underlying the ADSs. ADS holders will not be able to bring a derivative action, examine our accounting books and records, or exercise appraisal rights through the depositary.
Holders of ADSs may exercise their voting rights only in accordance with the provisions of the deposit agreement. If we instruct the depositary to ask for your voting instructions, upon receipt of voting instructions from the ADS holders in the manner set forth in the deposit agreement, the depositary will make efforts to vote the Common Shares underlying the ADSs in accordance with the instructions of the ADS holders. The depositary and its agents may not be able to send voting instructions to ADS holders or carry out their voting instructions in a timely manner. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast, or for the effect of any such vote. As a result, holders of ADSs may not be able to exercise their right to vote.
Share Price & Shareholder Rights - Risk 12
Rights of shareholders under Japanese law may be different from rights of shareholders in other jurisdictions.Our articles of incorporation and the Companies Act govern our corporate affairs. Legal principles relating to matters such as the validity of corporate procedures, directors' and executive officers' fiduciary duties, and obligations and shareholders' rights under Japanese law may be different from, or less clearly defined than, those that would apply to a company incorporated in any other jurisdiction. Shareholders' rights under Japanese law may not be as extensive as shareholders' rights under the law of other countries. For example, under the Companies Act, only holders of 3% or more of our total voting rights or our outstanding shares are entitled to examine our accounting books and records. Furthermore, there is a degree of uncertainty as to what duties the directors of a Japanese company may have in response to an unsolicited takeover bid, and such uncertainty may be more pronounced than that in other jurisdictions.
Share Price & Shareholder Rights - Risk 13
Direct acquisition of our Common Shares, in lieu of ADSs, is subject to a prior filing requirement under the amendments in 2019 to the Japanese Foreign Exchange and Foreign Trade Act of Japan and related regulations.Under the amendments in 2019 to the Foreign Exchange and Foreign Trade Act of Japan (Act No. 228 of 1949, as amended) ("FEFTA") and related regulations, direct acquisition of our Common Shares, in lieu of ADSs, by a Foreign Investor (as defined herein under "Item 10. Additional Information-D. Exchange Controls") could be subject to the prior filing requirement under FEFTA, regardless of the amount of shares to be acquired. A Foreign Investor wishing to acquire direct ownership of our Common Shares, rather than ADSs, will be required to make a prior filing with the relevant governmental authorities through the Bank of Japan and wait until clearance for the acquisition is granted by the applicable governmental authorities, which approval may take up to 30 days and could be subject to further extension. Without such clearance, the Foreign Investor will not be permitted to acquire our Common Shares directly.
A prior filing requirement as set forth above is not triggered for acquiring or trading the ADSs since the depositary received clearance for the acquisition of our Common Shares underlying the ADS in June 2022. In addition, any Foreign Investor expecting to receive delivery of our Common Shares upon surrender of ADSs must also obtain pre-clearance from the applicable Japanese governmental authority prior to accepting delivery, which approval may take up to 30 days and could be subject to further extension. Although such prior filing requirement is not triggered for trading the ADSs once the depositary receives clearance for the deposit of the underlying Common Shares, we cannot assure you that there will not be delays for additional Foreign Investors who wish to acquire our Common Shares or for holders of the ADSs who are Foreign Investors and who wish to surrender their ADSs and acquire the underlying Common Shares. In addition, we cannot assure you that the applicable Japanese governmental authorities will grant such clearance in a timely manner or at all.
The discussion above is not exhaustive of all possible foreign exchange controls requirements that may apply to a particular investor, and potential investors are advised to satisfy themselves as to the overall foreign exchange controls consequences of the acquisition, ownership and disposition of our Common Shares or the ADSs by consulting their own advisors. For a more detailed discussion on the requirements and procedures regarding the prior notifications under the Foreign Exchange Regulations, see "Item 10. Additional Information-D. Exchange Controls."
Share Price & Shareholder Rights - Risk 14
Our Chief Executive Officer owns a majority of our Common Shares and can exercise significant influence on the Company's activities, thereby limiting a shareholder's ability to influence our business and affairs.Yusuke Shono, our Chief Executive Officer and a director, beneficially owns approximately 76.0% of the outstanding Common Shares. Consequently, Mr. Shono is able to control key corporate decisions, thus limiting the ability of the holders of the ADSs to influence matters affecting our Company. As a shareholder, Mr. Shono may be able to influence the outcome of matters submitted to shareholders for approval, including amendments of our organizational documents, issuance of additional Common Shares, approval of any merger, sale of assets, or other major corporate transactions. This may prevent or discourage unsolicited acquisition proposals or offers for our Common Shares or ADSs that you may feel are in your best interest as one of our shareholders. Circumstances may occur in which the interests of our Chief Executive Officer could be in conflict with your interests or the interests of other shareholders. Accordingly, a shareholder's ability to fully influence our business and affairs through voting its Common Shares may be limited.
We plan to adopt a related party transaction policy, which will require that all related party transactions that meet the disclosure requirements set forth in Item 404 of Regulation S-K under the Securities Act be disclosed to and approved by all our board of corporate auditors. We expect that, with the adoption of the related party transaction policy and a more active role to be played by our board of auditors in reviewing and monitoring related party transactions, proper controls will be put in place to safeguard the Company's interests in any related party transactions. However, given the influence of Mr. Shono on our corporate matters, including his ability to control the election of our directors due to his controlling stake in the Company, there is no guarantee that our future related party transactions involving Mr. Shono will be carried out on an arms' length basis or on terms that are most favorable to us and our shareholders.
Share Price & Shareholder Rights - Risk 15
We were not in compliance with our periodic reporting obligation under the Exchange Act by failing to file our annual reports on Form 20-F for the fiscal years ended March 31, 2023 and 2022 on a timely basis. In the event that we become delinquent with our SEC reporting obligation again, we may not be able to provide up-to-date disclosure to the public market, the ADSs may be considered highly risky or worthless, and the ADSs may be delisted from Nasdaq.We have become subject to periodic reporting obligations under the Exchange Act since June 30, 2022, when our registration statement on Form F-1, as amended (File No. 333-265511), was declared effective by the SEC. As a reporting company and a foreign private issuer, the prescribed deadline for us to file our annual report on Form 20-F for the fiscal year ended March 31, 2023 was July 31, 2023, which annual report we did not file until January 31, 2024; the prescribed deadline for us to file our annual report on Form 20-F for the fiscal year ended March 31, 2022 was July 31, 2022, which annual report we did not file until June 16, 2023.
Such failure to satisfy our periodic reporting obligation represents a deficiency in our internal controls over financial reporting. See also "-We have identified deficiencies that could aggregate to a material weakness in our internal control over financial reporting. If our remediation of these deficiencies is not effective, or if we identify additional material weaknesses or control deficiencies in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results in a timely manner or prevent fraud, which may adversely affect investor confidence in our Company."
Further, any failure by us to comply with our SEC reporting obligation in the future may materially and adversely affect investors' investment in the ADSs. For instance, in the event that we fail to timely file any periodic reports or current reports, we may not be able to provide up-to-date disclosure to the public market, and the ADSs may be considered highly risky or even worthless as a result. Additionally, under Nasdaq Listing Rule 5250(c)(1), a foreign private issuer listed on Nasdaq is required to timely file all required periodic financial reports with the SEC. See "-We are currently not in compliance with the continued listing requirements of Nasdaq. As a result, the ADSs may be delisted, which could negatively impact the price of the ADSs and your ability to sell them." In the event that the ADSs are delisted from Nasdaq, the value and liquidity of investors' investment in the ADSs will be materially and adversely affected. Failure to comply with reporting obligation will also render us ineligible to use Form F-3 for registration of securities offered by us.
Share Price & Shareholder Rights - Risk 16
The market price of the ADSs may be volatile or may decline regardless of our operating performance.From the listing of the ADSs on Nasdaq on July 25, 2023 to the date of this annual report, the closing price of the ADSs has ranged from $0.26 to $4.30 per ADS. The trading price of the ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in Japan that have listed their securities in the United States.
In addition to market and industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our own operations, including the following:
- actual or anticipated fluctuations in our revenue and other operating results;- the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections;- actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company, or our failure to meet these estimates or the expectations of investors;- announcements by us or our competitors of significant services or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;- price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;- the trading volume of the ADSs on Nasdaq;- sales of the ADSs or Common Shares by us, our executive officers and directors, or our shareholders or the anticipation that such sales may occur in the future;- lawsuits threatened or filed against us; and - other events or factors, including those resulting from war or incidents of terrorism, or responses to these events.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.
Share Price & Shareholder Rights - Risk 17
If securities or industry analysts do not publish research or reports about our business, or if they publish a negative report regarding the ADSs, the price of the ADSs and trading volume could decline.Any trading market for the ADSs may depend in part on the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade us, the price of the ADSs would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of the ADSs and the trading volume to decline.
Share Price & Shareholder Rights - Risk 18
Our board of directors may determine the number of Common Shares to be issued as equity compensation from time to time, and the future issuance of additional Common Shares in connection with such issuances or in other transactions may adversely affect the market of the ADSs.We from time to time may grant equity-based compensation in the form of stock options or other equity incentives to our directors, internal corporate auditors, employees, and external consultants. The number of Common Shares to be issued for such purpose may be determined by our board of directors without any further action or approval of our shareholders, subject to certain exceptions. As of March 31, 2023, 2,073,000 Common Shares were issuable upon exercise of outstanding stock options at a weighted average exercise price of JPY55.20 per share. If and when these options are exercised for our Common Shares, the number of Common Shares outstanding will increase. Such an increase in our outstanding securities, and any sales of such shares, could have a material adverse effect on the market for the ADSs, and the market price of the ADSs.
We currently plan to continue granting stock options and other incentives so that we can continue to secure talented personnel in the future. Any Common Shares to be issued as equity-based compensation, the exercise of outstanding stock options, or in other transactions, including future financing transactions, would dilute the percentage ownership held by our current shareholders.
Share Price & Shareholder Rights - Risk 19
Our articles of incorporation exculpate our directors and corporate auditors from certain liability to us or our shareholders.Our articles of incorporation include limitation of liability provisions, pursuant to which we can exempt, by resolution of our board of directors, our directors and corporate auditors from liabilities arising in connection with any failure to execute their respective duties in good faith or due to simple negligence (excluding gross negligence and willful misconduct), within the limits stipulated by applicable Japanese laws and regulations. We have also entered into a limitation of liability agreement with each of our directors and corporate auditors, except our Chief Executive Officer and Chief Financial Officer. With certain exceptions, these agreements provide for indemnification for related expenses, including attorneys' fees, judgments, fines, and settlement amounts incurred by any of these directors and corporate auditors in connection with any action, proceeding, or investigation in those capacities. We have not entered into any limitation of liability agreement with our Chief Executive Officer or Chief Financial Officer, as Article 427 of the Companies Act of Japan (the "Companies Act") does not allow companies to enter into limitation of liability agreements with executive directors (gyomu-shikko-torishimariyaku).
The limitation on liability provided by our articles of incorporation and the limitation of liability agreements with our non-executive directors and corporate auditors may reduce the likelihood of derivative litigation against directors and corporate auditors and may discourage or deter our shareholders from suing them based upon breaches of their duties to us. Successful claims for indemnification by our non-executive directors and corporate auditors may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Share Price & Shareholder Rights - Risk 20
Our Chief Executive Officer has entered into an agreement with another shareholder that may obligate our Chief Executive Officer to effect a transaction that may be unfavorable to our shareholders and our Company.A share pledge agreement (the "Share Pledge Agreement") was executed on February 19, 2020, among Hack Osaka Investment Limited Partnership ("Hack"), our Chief Executive Officer, Mr. Shono, and ZENY Inc. ("ZENY"), a company wholly owned and controlled by Mr. Shono, in connection with a pledge to Hack of an aggregate of 1,737,000 Common Shares held by ZENY and Mr. Shono. The pledge was established as security for the joint and several liability of ZENY and Mr. Shono to pay for the repurchase of the Common Shares acquired by Hack under a share purchase agreement executed among Hack, ZENY, and Mr. Shono on March 29, 2019. The Share Pledge Agreement was supplemented on March 31, 2020 and further amended on March 31, 2022. ZENY was dissolved and liquidated in 2021 and is no longer a party to the Share Pledge Agreement, as supplemented and amended.
Under the terms of the Share Pledge Agreement, as supplemented and amended, the outstanding balance due to Hack as of March 31, 2022 was confirmed as JPY193,390,450 (approximately $1,456,802) as the aggregate principal balance. To release the pledge, Mr. Shono is required, to pay (a) by March 31, 2023, the outstanding aggregate principal balance of JPY193,390,450 (approximately $1,456,802) in a lump sum payment, and (b) monthly installments (equal monthly installments of JPY2,360,000 (approximately $17,778) from April 30, 2022 to February 28, 2023, and JPY2,275,005 (approximately $17,138) on March 31, 2023. If Mr. Shono fails to make any payment under (a) or (b), he is required to use his best efforts to assist Hack in selling the pledged shares to third parties by means of a public offering of the pledged shares or other means of acquisition. Pursuant to the provisions of the agreement, the aforementioned share pledge has been registered on the shareholder registry of the Company. Mr. Shono and Hack are currently in the process of amending the Share Pledge Agreement to extend the outstanding balance due date to March 31, 2024. See "Item 7. Major Shareholders and Related Party Transactions-B. Related Party Transactions-Share Pledge Agreement."
We have no control over whether Mr. Shono may repay the lump sum payment to Hack on a timely basis. If Mr. Shono fails to make the payment and the pledged shares are required to be sold in a public offering or by other means at a price lower than the prevailing market price, the consequences of such transaction may not be favorable to our other shareholders and may adversely affect the market price of our shares.
Share Price & Shareholder Rights - Risk 21
We have a limited operating history applying our trinity model to conduct campaigns for corporate sponsors upon which investors can evaluate our future prospects.We started to apply our trinity model to conduct campaigns for corporate sponsors in 2018. We have a limited operating history, in this respect, upon which an evaluation of our business plan or performance and prospects can be made. The business and prospects of our Company must be considered in light of the potential problems, delays, uncertainties, and complications encountered in connection with a newly established business model. The risks include:
- the possibility that we will not be able to develop functional and scalable services, or that, although functional and scalable, our services will not be economical to market;- that our competitors may market and provide superior or more effective services;- that we are not able to upgrade and enhance our technologies to accommodate new needs and expanded service offerings;- the limitations that applicable laws and regulations place on the types of insurance coverage we can offer and/or the maximum amounts of such insurance coverage; or - the failure to comply with the applicable laws and regulations for our services as we conduct our current business and expand into new markets, including markets outside Japan.
To successfully introduce and market our services at a profit, we must establish goodwill and brand name recognition among the public so that potential customers of our corporate sponsors will agree to participate in the campaigns we conduct for our corporate sponsors to gather relevant customer data or market our corporate sponsors' products and services. There are no assurances that we can successfully address these challenges and, if unsuccessful, we and our business, financial condition, and operating results could be materially and adversely affected.
We have operated on a leanly staffed, labor efficiency maximized model thus far. As we expect to expand our services and increase the number of campaigns we will conduct for our corporate sponsors, the future expense levels of our business will be based largely on estimates of planned operations and future revenue. It is difficult to accurately forecast future revenue because both our business and our business models are new to the market and are still developing. If our forecasts prove incorrect, the business, operating results, and financial condition of the Company may be materially and adversely affected. Moreover, we may be unable to adjust our spending in a timely manner to compensate for any unanticipated reduction in revenue. As a result, any significant reduction in planned or actual revenue may immediately and adversely affect our business, financial condition, and operating results.
Accounting & Financial Operations2 | 4.7%
Accounting & Financial Operations - Risk 1
We have identified deficiencies that could aggregate to a material weakness in our internal control over financial reporting. If our remediation of these deficiencies is not effective, or if we identify additional material weaknesses or control deficiencies in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results in a timely manner or prevent fraud, which may adversely affect investor confidence in our Company.Accounting & Financial Operations - Risk 2
We do not intend to pay dividends on our Common Shares for the foreseeable future.We currently intend to retain most, if not all, of our available funds and any future earnings to fund the operation, development, and growth of our business and, as a result, we do not expect to declare or pay any dividends in the foreseeable future. Therefore, you should not rely on an investment in the ADSs as a source for any future dividend income. Accordingly, the return on your investment in the ADSs will likely depend entirely upon any future price appreciation of the ADSs. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in the ADSs and you may even lose your entire investment in the ADSs.
Debt & Financing2 | 4.7%
Debt & Financing - Risk 1
Holders of ADSs may be subject to limitations on transfer of their ADSs.Debt & Financing - Risk 2
We may need additional financing to execute our business plan and fund operations, which additional financing may not be available on reasonable terms or at all.As of March 31, 2023, we had total assets of JPY266,560 thousand (approximately $2,008 thousand) and a working capital deficit of JPY156,354 thousand (approximately $1,178 thousand). As of the date of this annual report, we believe we need a minimum of JPY951,985 thousand (approximately $7,171 thousand) in order to fund our presently forecasted working capital requirements over the next 12 months. We believe that the net proceeds of our initial public offering will be sufficient to fund our presently forecasted business plan and scale-up operations over, at least, the 12 months following the date of this annual report. However, as a result of certain factors presently unforeseen, we may require additional capital over the next 12 months, the receipt of which there can be no assurance. In addition, unless we are able to successfully scale our operations and achieve meaningful cash flow from operations, we will require additional capital in order to fund the continued development of our trinity business model following the 12-month period after the date of this annual report. We will endeavor to acquire any additional required funds through various financing sources, including borrowings under our existing loans from financial institutions, the private and public sale of our equity and debt securities, and other third-party financings. In addition, we will consider alternatives to our current business plan that may enable us to achieve meaningful cash flow from operations with a smaller amount of capital. However, there can be no guaranty that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations.
Corporate Activity and Growth1 | 2.3%
Corporate Activity and Growth - Risk 1
The requirements of being a public company may strain our resources and divert management's attention.Legal & Regulatory
Total Risks: 5/43 (12%)Above Sector Average
Regulation3 | 7.0%
Regulation - Risk 1
Failure to comply with relevant laws and regulations, including those relating to the processing, safekeeping, and use of personal data and the insurance licensing requirements could harm our business, financial condition, or results of operations, and any change in laws and regulations may adversely affect our ability to grow our business.Regulation - Risk 2
Because we are an "emerging growth company," we may not be subject to requirements that other public companies are subject to, which could affect investor confidence in us and the ADSs.For as long as we remain an "emerging growth company," as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of shareholder approval of any golden parachute payments not previously approved. Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of other public companies. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the ADS price may be more volatile.
Regulation - Risk 3
As a foreign private issuer, we have followed home country practice even though we are considered a "controlled company" under Nasdaq corporate governance rules, which could adversely affect our public shareholders.Our largest shareholder, Mr. Yusuke Shono, owns more than a majority of the voting power of our outstanding Common Shares. Under the Nasdaq corporate governance rules, a company of which more than 50% of the voting power is held by an individual, group, or another company is a "controlled company" and may elect not to comply with certain Nasdaq corporate governance standards, including the requirements that:
- a majority of its board of directors consist of independent directors;- its director nominations be made, or recommended to the full board of directors, by its independent directors or by a nominations committee that is comprised entirely of independent directors and that it adopts a written charter or board resolution addressing the nominations process; and - it has a compensation committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities.
As a foreign private issuer, however, Nasdaq corporate governance rules allow us to follow corporate governance practice in our home country, Japan, with respect to appointments to our board of directors and committees. We have followed home country practice as permitted by Nasdaq rather than relying on the "controlled company" exception to the corporate governance rules. See "-Because we are a foreign private issuer and have taken advantage of exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer." Accordingly, you would not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.
Taxation & Government Incentives1 | 2.3%
Taxation & Government Incentives - Risk 1
If we are classified as a passive foreign investment company, United States taxpayers who own the ADSs or our Common Shares may have adverse United States federal income tax consequences.Environmental / Social1 | 2.3%
Environmental / Social - Risk 1
We collect, store, process, and use personal information and other user data, which subjects us to governmental regulation and other legal obligations related to privacy, information security, and data protection, and any security breaches or our actual or perceived failure to comply with such legal obligations could harm our business.Ability to Sell
Total Risks: 4/43 (9%)Above Sector Average
Competition1 | 2.3%
Competition - Risk 1
We face intense competition in the field of marketing, advertising, and market research services, which is likely to intensify further as existing competitors devote additional resources to, and new participants enter, the market. If we cannot compete successfully, we may be unable to increase our revenue or sustain profitability.Demand1 | 2.3%
Demand - Risk 1
We had a limited number of customers accounting for a substantial portion of our revenue in fiscal years ended March 31, 2023, 2022, and 2021, respectively. We have not generated revenue from any customer on a recurring basis, and our efforts in expanding our customer base, increasing average contract value, and generating recurring revenue may not be successful, which makes us vulnerable to a near-term severe financial loss.Sales & Marketing1 | 2.3%
Sales & Marketing - Risk 1
The sale or availability for sale of substantial amounts of the ADSs could adversely affect their market price.Brand / Reputation1 | 2.3%
Brand / Reputation - Risk 1
Our success greatly depends upon our ability to generate and maintain goodwill with the public so that potential customers of our corporate sponsors will be willing to participate in the campaigns we design for our corporate sponsors. If we or our corporate sponsors fail to provide satisfactory products and services to our participant users, our brand image may be tarnished and our financial results and prospects for growth may be adversely affected, and we could also incur liability for recommending our sponsors' products.Production
Total Risks: 3/43 (7%)Above Sector Average
Employment / Personnel2 | 4.7%
Employment / Personnel - Risk 1
As a controlled company, we have relied on our Chief Executive Officer to provide guarantees for our corporate loans from financial institutions and for the lease of our corporate headquarters. We have also historically received short-term loans from our Chief Executive Officer and his wholly owned companies to fund our working capital needs. We may not be able to find alternative financing sources on terms equal to or better than those obtained from our Chief Executive Officer, which could adversely impact our ability to secure necessary financing in the future.Employment / Personnel - Risk 2
If we fail to retain our Chief Executive Officer or attract and retain additional qualified personnel, we may not be able to pursue our growth strategy.Our future success will depend upon the continued service of our Chief Executive Officer, Mr. Yusuke Shono. We have leveraged his relationships in our business development activities and in obtaining financing for our operations. See "-As a controlled company, we have relied on our Chief Executive Officer to provide guarantees for our corporate loans from financial institutions and for the lease of our corporate headquarters. We have also historically received short-term loans from our Chief Executive Officer and his wholly owned companies to fund our working capital needs. We may not be able to find alternative financing sources on terms equal to or better than those obtained from our Chief Executive Officer, which could adversely impact our ability to secure necessary financing in the future." The loss of his services could have a material adverse effect on our business, operations, revenue, or prospects. We do not currently maintain key man life insurance on the life of our Chief Executive Officer. In order to implement our growth plans and continue to grow our business, we also need to recruit additional qualified personnel, such as marketing and sales personnel. If we are not able to recruit such qualified personnel as and when needed, or if the labor costs for such additional personnel exceed the additional revenue we can generate, our growth prospects and profit margins will be harmed.
Costs1 | 2.3%
Costs - Risk 1
We are not a licensed insurer and depend on third-party insurance companies to provide product insurance or other insurance necessary for our campaigns. Although we have been able to obtain insurance policies used in our past campaigns from multiple providers on competitive terms, there is no guarantee that we may not become dependent on one or a few insurance companies for any special policies needed for our future campaigns.Macro & Political
Total Risks: 3/43 (7%)Above Sector Average
Economy & Political Environment1 | 2.3%
Economy & Political Environment - Risk 1
We have incurred losses from operations during the fiscal years ended March 31, 2022 and 2021. Our ability to continue as a going concern depends on our being able to generate revenue significant enough to result in operating profitability.International Operations1 | 2.3%
International Operations - Risk 1
Our long-term success depends, in part, on our ability to expand our services to customers located outside of Japan and our future expansion of our international operations exposes us to risks that could have a material adverse effect on our business, operating results, and financial condition.Capital Markets1 | 2.3%
Capital Markets - Risk 1
All of our revenue has been generated in Japan, but an increase of our international presence could expose us to fluctuations in foreign currency exchange rates, or a change in monetary policy may harm our financial results.Tech & Innovation
Total Risks: 2/43 (5%)Above Sector Average
Trade Secrets1 | 2.3%
Trade Secrets - Risk 1
We rely on a combination of patent, trademark, trade secret, and other intellectual property rights and measures to protect our intellectual property. Our patents may expire and may not be extended, our patent applications may not be granted, and our patent rights may be contested, circumvented, invalidated, or limited in scope. As a result, our patent rights may not protect us effectively. In particular, we may not be able to prevent others from developing and deploying competing technologies, which could have a material and adverse effect on our business, financial condition, results of operations, and prospects.Technology1 | 2.3%
Technology - Risk 1
We rely on information technology, and any material failure, weakness, interruption, or breach of security could prevent us from effectively operating our business.See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.