Exhibit 99.1
PIXIE DUST TECHNOLOGIES, INC.
ANNOUNCES INTERIM FINANCIAL
RESULTS
FOR THE SIX MONTHS ENDED
OCTOBER 31, 2023
New York, New York and Tokyo, Japan, January 31, 2024 – Pixie
Dust Technologies, Inc. (Nasdaq: PXDT) (the “Company”), a Japanese technology company focused on commercializing
innovative products and materials utilizing proprietary wave technology, today announced its interim financial results for the six months
ended October 31, 2023. Provided below is a discussion and analysis of the Company’s financial condition and results of operations,
along with the related unaudited condensed interim financial statements of the Company for the six months ended October 31, 2023.
About Pixie Dust Technologies, Inc.
Pixie Dust Technologies, Inc. is a Japanese technology company focused
on commercializing innovative products and materials utilizing proprietary wave technology. The Company is currently focusing on two areas
of product development: (1) “Personal Care & Diversity”, where wave control technology is applied to mechanobiology and
intervention/assistance in vision, hearing, and touch, and (2) “Workspace & Digital Transformation,” where metamaterials
(technology that creates properties through structure rather than material) and solutions to commercial design problems, such as in offices
or construction sites, are applied.
Pixie Dust Technologies Investor Relations Contact:
Email: PXDT_IR@pixiedusttech.com
Gateway Group, Inc.
John Yi and Luke Johnson
Email: pixie@gateway-grp.com
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Various statements
contained in this interim report for the six months ended October 31, 2023 (this “interim report”), including those that
express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking
statements. These forward-looking statements may include projections and estimates concerning our possible or assumed future results
of operations, financial condition, business strategies and plans, market opportunity, competitive position, industry environment,
and potential growth opportunities. In some cases, you can identify forward-looking statements by terms such as “may”,
“will”, “should”, “believe”, “expect”, “could”, “intend”,
“plan”, “anticipate”, “estimate”, “continue”, “predict”,
“project”, “potential”, “target”, “goal” or other words that convey the uncertainty
of future events or outcomes. You can also identify forward-looking statements by discussions of strategy, plans or intentions. We
have based these forward-looking statements on our current expectations and assumptions about future events. While our management
considers these expectations and assumptions to be reasonable, because forward-looking statements relate to matters that have not
yet occurred, they are inherently subject to significant business, competitive, economic, regulatory and other risks, contingencies
and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important
factors, including, among others, those discussed in this interim report and in our annual report on Form 20-F (File No. 001-41749)
for the year ended April 30, 2023 filed with the U.S. Securities and Exchange Commission (the “SEC”) under the headings
“Risk Factors”, “Operating and Financial Review and Prospects”, and “Business Overview” may
cause our actual results, performance or achievements to differ materially from any future results, performance or achievements
expressed or implied by the forward-looking statements in this interim report. Some of the factors that could cause actual results
to differ materially from those expressed or implied by the forward-looking statements in this interim report include:
| ● | our expectations regarding our revenue, expenses, and other
operating results; |
| ● | our efforts to successfully develop and commercialize our
technologies and related products; |
| ● | the implementation of our strategic plans for our business
and products and product candidates; |
| ● | the size of the market opportunity for our products and product
candidates and our ability to maximize those opportunities; |
| ● | our ability to obtain and maintain any needed regulatory approval
of our product candidates; |
| ● | our expectations regarding success in testing for our product
candidates; |
| ● | the costs and success of our marketing efforts and our ability
to promote our brands; |
| ● | our expectations regarding our ability, and that of our manufacturers,
to manufacture our products; |
| ● | our competitive position and the development of and projections
relating to our competitors or our industry; |
| ● | our ability to obtain adequate financing in the future on
terms acceptable to us; |
| ● | our ability to consummate strategic transactions, which may
include acquisitions, mergers, dispositions, or investments; |
| ● | our ability to identify and successfully enter into strategic
collaborations in the future, and our assumptions regarding any potential revenue that we may generate thereunder; |
| ● | our ability to exploit the intellectual property rights jointly
owned with our collaborators in a manner beneficial to us; |
| ● | our ability to obtain, maintain, protect, and enforce intellectual
property protection for our technologies and related products and services, and the scope of such protection; |
| ● | our ability to operate our business without infringing, misappropriating,
or otherwise violating the intellectual property or proprietary rights of third parties; |
| ● | general economic conditions and events and the impact they
may have on us and our customers; |
| ● | our ability to respond to national disasters, such as earthquakes
and tsunamis, and to global pandemics, such as COVID-19; |
| ● | the regulatory environment in which we operate; |
| ● | our ability to attract and retain qualified key management
and technical personnel; and |
| ● | our expectations regarding the time during which we will be
an emerging growth company and a foreign private issuer. |
Given the foregoing risks and uncertainties, you
are cautioned not to place undue reliance on the forward-looking statements in this interim report. The forward-looking statements contained
in this interim report are not guarantees of future performance and our actual results of operations and financial condition may differ
materially from such forward-looking statements. In addition, even if our results of operations and financial condition are consistent
with the forward-looking statements in this interim report, they may not be predictive of results or developments in future periods.
Any forward-looking statement that we make in this
interim report speaks only as of the date of this interim report. Except as required by law, we do not undertake any obligation to update
or revise, or to publicly announce any update or revision to, any of the forward-looking statements in this interim report, whether as
a result of new information, future events or otherwise, after the date of this interim report.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our
financial condition and results of operations should be read in conjunction with our unaudited condensed interim financial statements
for the six months ended October 31, 2023 and related notes thereto, included elsewhere in this interim report, as well as our audited
financial statements and related notes for the year ended April 30, 2023, which are included in our annual report on Form 20-F filed with
the SEC on November 16, 2023. In addition to historical financial information, the following discussion contains forward-looking statements
that reflect our current plans, expectations, estimates and beliefs. Our actual results could differ materially from those discussed in
the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere
in this interim report, particularly in the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
As used this interim report, the terms “the
Company”, “Pixie”, “we”, “our” or “us” refer solely to Pixie Dust Technologies,
Inc., a joint stock corporation with limited liability organized under the laws of Japan. We refer to our common shares as “common
shares” or “common stock,” unless the context otherwise requires. Our functional currency and reporting currency is
the Japanese yen (which we refer to as “JPY” or “¥”). The terms “dollar,” “USD,” “US$”
or “$” refer to U.S. dollars, the legal currency of the United States. Convenience translations included in this interim report
of Japanese yen into U.S. dollars have been made at the exchange rate of ¥151.46=US$1.00, which was the foreign exchange rate on October
31, 2023 as reported by the Board of Governors of the Federal Reserve System (which we refer to as the “U.S. Federal Reserve”)
in weekly release on November 6 , 2023. Historical and current exchange rate information may be found at www.federalreserve.gov/releases/h10/.
Our financial statements
are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Our fiscal year ends on April
30 of each year as does our reporting year. Our most recent fiscal year ended on April 30, 2023. See Note 2 to our unaudited condensed
interim financial statements for the six months ended October 31, 2023 and related notes thereto included elsewhere in this interim report
for a discussion of the basis of presentation, functional currency and convenience translation of condensed interim financial statements.
Business Overview
We aim to create and commercialize innovative consumer
personal care products and spatial materials through the utilization of mechanobiology and metamaterials in combination with our core
proprietary wave technology that employs sound and light waves. Mechanobiology is an emerging field of research that studies how biological
systems respond to mechanical stimuli. Mechanobiological research findings have the potential to be used to develop new health care and
personal care options. Metamaterials are artificially engineered materials that have properties not found in nature. These properties
are achieved by carefully designing the structure of the metamaterial at the sub-wavelength scale. Metamaterials can be used to manipulate
electromagnetic waves, such as light and radio waves, in novel ways, such as negative refraction to light. Our wave control technologies
consist of a system of methodologies to manipulate the common behaviors of sound and light in abstract layers as desired, and to utilize
the unique attributes of sound and light for innovative personal care and industrial products.
We generate revenue from the services and sales
of products using our core wave control technology, and we operate in one segment. While wave control technology has the potential for
a variety of applications, we currently focus our development efforts in two principal fields: Personal Care & Diversity and Workspace
& Digital Transformation. We focus our research and development on commercializing technologies that we believe will, among other
things, provide personal care benefits and that will improve physical limitations through sensory and metamaterial technologies.
In 2014, Dr. Yoichi Ochiai, our Chief Executive
Officer and Dr. Takayuki Hoshi, our Chief Research Officer, developed “Pixie Dust,” a three-dimensional acoustic levitation
technology, which enables the movement of objects in three dimensions by using ultrasonic control. Previously, ultrasonic waves had only
been used to levitate objects and make them move in two dimensions. Since then, we have continued to work on overcoming the challenges
in manipulating waves by improving the efficiency and performance of the computer processing required to control waves and making the
circuit boards more sophisticated, as well as on applying our wave control technology to product developments and innovation.
Our Company was founded in 2017 by Dr. Ochiai,
Dr. Hoshi, and Mr. Taiichiro Murakami, our Chief Operating Officer, to explore better ways to integrate academic and industry resources
to develop and commercialize applications of our wave control technology. Since our Company’s inception, we have actively pursued
industry-academia collaborations to generate new technologies that can be applied to real-world uses. In doing so, we have prioritized
developing products that we believe have potential for wide applicability in the marketplace. We have also sought to accelerate the commercialization
of the new products by collaborating with established companies in the relevant industries. Our research efforts aim to develop both advanced
technologies and new products and services that can meet real-life needs and help to address social issues facing the global society,
such as issues arising from an aging population, as well as to generate added value for our stakeholders.
In the Personal Care & Diversity field, we
are working to develop technologies to enhance personal care and quality of life. We have launched three personal care products in Japan,
our principal market: SonoRepro, an ultrasonic non-contact vibrotactile stimulation scalp care device in November 2022; VUEVO, a series
of directional voice arrival detection devices for individuals who are deaf/hard of hearing (“DHH”) in March 2023; and kikippa,
an acoustic stimulation device functioning as a speaker in April 2023. Our products have been developed, and are marketed and sold, as
personal care products. They are not marketed, nor intended to be used, as medical devices. In Japan, medical devices require compliance
with the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices (“PMDA”) and
are regulated by the Pharmaceuticals and Medical Devices Agency (“PMD Agency”) and the Ministry of Health, Labor and Welfare,
which require registration, approval and compliance with marketing requirements, among other things. If any of our products were to be
characterized as a medical device by the Japanese regulators, we may be required to seek regulatory approval and could face penalties
for not obtaining such approval. As we continue our product research and development, we may create new products or an extension of an
existing product that may qualify as a medical device in Japan or other jurisdictions. In such event, we would seek the requisite regulatory
approval in Japan and any other applicable jurisdictions for such products in the future.
In the Workspace & Digital Transformation field,
we are working to develop technologies for sensing and controlling space. We launched iwasemi, a sound-absorbing metamaterial in Japan
in July 2022, and conducted a “soft” launch of selected versions of our iwasemi product to key professionals in the United
States, such as architectural and interior design firms, in March 2023. Additionally, we are continuing our development of KOTOWARI, a
technology providing spatial analysis data; however, we currently do not have any specific timeline for commercializing these products.
In the next few years, we plan to focus our efforts
on marketing and expanding the features of SonoRepro, kikippa, VUEVO, and iwasemi, particularly in our principal market of Japan. As part
of our sales strategy, we may offer third-party products that complement our own products. For instance, we obtained a license to sell
a medication for treatment of hair loss, which we co-market with our personal scalp care device, SonoRepro. We intend to continue to explore
such opportunities to provide comprehensive solutions to our customers.
Historically, we have generated revenues primarily
from commissioned research and development (“R&D”) and solution services we have provided for other companies under our
collaboration agreements. However, as we expand our marketing and sales efforts for our products, we expect revenue from product sales
to contribute an increasing proportion of our revenues over time. During the six months ended October 31, 2023, we continued to expand
our marketing and sales efforts for our products, which resulted in product revenue accounting for approximately 75% of our total revenue
for the same period. For the six months ended October 31, 2022 and 2023, we generated revenues of ¥158,639 thousand and ¥299,139
thousand ($1,975 thousand), respectively, and incurred net losses of ¥885,000 thousand and ¥1,150,027 thousand ($7,593 thousand),
respectively.
Key Financial Definitions
Revenue. Our major sources of revenue
include commissioned research and development, solution services, guest speaker services, membership services, and product sales.
Our commissioned research
and development revenue has historically comprised the bulk of our revenue. As part of our commissioned research and development activities,
we submit to our customers certain deliverables, such as reports, prototypes, and digital source code, which are generated during research
and demonstration experiments or the verification and demonstration of the relevant digital technology to the customers. As part of our
solution services, we sell or lend dedicated devices and provide system usage service principally through our hackke service and
VUEVO service. As part of our guest speaker services, members of our management team speak for several media or external events such as
academic or industry conferences managed by third parties. As part of our membership services, we operate a membership forum called “Pixie
Nest,” which hosts meetings and distributes information to facilitate solving social issues based on knowledge gained by Pixie through
industry-academia collaboration, and for such service, our members pay a fee.
During the six months ended October 31, 2023, we
generated revenue primarily from product sales, in addition to revenue from commissioned research and development and revenue from our
various types of services. Our product sales for the six months ended October 31, 2023 were primarily comprised of SonoRepro, iwasemi
and kikippa. Revenue is recognized when control of the promised goods or services is transferred to the customer in an amount that reflects
the expected consideration in exchange for such goods or services. We recognize revenue from the sales of SonoRepro and iwasemi
to customers principally at the point of delivery of the product to the customer. The kikippa products are first sold to an intermediary
which is identified as our customer. We recognize revenue from the sales of kikippa at the time of delivery of the product to the intermediary,
which is upon transferring control of the goods to the intermediary as evidenced by the intermediary’s ability to direct the use
of and obtain substantially all of the remaining benefits from the performance obligation. We are the principal for the transactions with
the intermediary and recognize revenue on a gross basis. Additionally, there is no right of return for delivered products to the intermediary
and payment to us is not contingent on sales to an end user. The intermediary then resells kikippa to an end user. When we generate revenue
from e-commerce, it is recognized either at the time of shipment or at the time of delivery of the product to the end customer, depending
on the terms of the contracts. We also entered into certain product rental arrangements and earned product rental revenue. Rental revenue
was not material during the six months ended October 31, 2023.
Going forward, while the revenue from commissioned
research and development will remain as a source of revenue for us, we expect to generate more revenue from commercializing and expanding
sales of our own products and other services.
Cost of services. Cost of services
consists primarily of outsourcing costs, depreciation and amortization, supply expenses, personnel costs and related costs that are attributable
to providing our services.
Cost of products. Cost of products
consists primarily of material costs, outsourcing costs, depreciation and amortization, supply expenses, personnel costs and related costs
that are attributable to production.
Research and development costs. Research
and development costs consist of personnel costs, laboratory supplies and facility costs, as well as fees paid to other entities that
conduct certain research and development activities on our behalf.
Selling, general and administrative expenses.
Our selling, general and administrative expenses (“SG&A”) are primarily composed of advertising and marketing promotion
expenses, and personnel costs for sales and marketing staff and general corporate functions.
Interest expense. Interest expense
consists primarily of interest expense arising from borrowings from banks.
Other income, net. From time to time
we have non-recurring, non-operating gains and losses which are reflected through other income (expense). These typically include income
from interest and subsidies among other sources and foreign exchange gains (losses).
Factors Impacting our Operating Results
The following trends and uncertainties either affected
our financial performance historically or are likely to impact our results of operations in the future:
| ● | The number and quality of partner companies which collaborate
with us for joint research and development. We have historically generated revenues primarily from commissioned research and development
and solution services we provided for other companies included under our collaboration arrangements. We intend to continue to generate
revenue from these sources in the future, though the focus of our business is expected to be on commercializing our products. We face
significant competition in seeking appropriate collaborators, which are sometimes also clients of our services. Collaborations are complex
and time-consuming to negotiate and document. Whether we can continue to benefit from our collaborations with other companies will depend
on whether we can establish or maintain strategic partnerships or other alternative arrangements for our product and product candidates
on acceptable terms. |
| ● | The commercialization and potential profitability of our
wave control technology and related products. In the next few years, we plan to focus on commercializing SonoRepro, kikippa, VUEVO,
and iwasemi, particularly in our principal market of Japan. To date, we have only produced and sold an insignificant amount of SonoRepro
and iwasemi products. In March 2023 and April 2023, we launched VUEVO and kikippa in Japan, respectively. We also conducted a “soft”
launch of our iwasemi product to key professionals in the United States, such as architectural and interior design firms, in March 2023.
These product launches have not resulted in significant sales so far. Our financial prospects in the near term, including our ability
to achieve profitability, as well as our future growth, may depend on the commercialization of SonoRepro, kikippa, VUEVO and iwasemi.
For the six months ended October 31, 2023, one customer accounted for approximately 48.3% of our total revenue. |
As we have a limited history of commercializing our products,
it may be difficult to predict our future performance based on our current operation results. The commercial success of our products and
product candidates is dependent on a number of factors including market acceptance of our products and solutions, our manufacturing and
marketing capabilities and our competitive and regulatory environments, among others, many of which may be out of our control. We plan
to leverage our resources including our collaboration relationships with strategic partners in our efforts to commercialize our products
and have seen some encouraging market reaction to SonoRepro and iwasemi so far. Our ability to achieve profitability by focusing on commercializing
our products will depend on our ability to create and increase market demand for our products and manage our growth and the related costs
effectively.
| ● | The market acceptance of our products and product candidates.
The commercialization of our products is at an early stage and our business performance will depend on our ability to increase levels
of user engagement in current and new markets. If we are unable to achieve the degree of market acceptance necessary for future commercial
success of our product candidates, we may not be able to attract or retain customers and users or otherwise maintain or increase the
frequency, duration or level of their engagement. |
| ● | The timing and cost to establish a sales, marketing and
distribution infrastructure. In order for us to successfully commercialize our products, we must either develop a sales, marketing
and distribution infrastructure or collaborate with third parties that have such commercial infrastructure and relevant sales and marketing
experience. We expect to be able to build our commercial infrastructure over time as we launch and expand sales of our products, and
we may rely on licensing and collaboration agreements with strategic partners for the commercialization of our products. If we establish
the commercial infrastructure to support the sales, marketing and distribution of our products, such commercial infrastructure could
be expected to include a targeted sales force supported by sales management, internal sales support, an internal marketing group and
distribution support. Therefore, our business performance will likely depend on our ability to establish a successful infrastructure
to market and sell our products, whether on our own or jointly with current or future collaborators. |
| ● | Changes in general market and economic conditions.
Macroeconomic factors affect consumer spending patterns and thereby our results of operations. These factors include general economic
conditions, inflation, consumer confidence, employment rate, business conditions, and the impact on economic conditions from pandemics
such as COVID-19, and related prophylactic measures. Factors that impact consumer discretionary spending, which remains volatile globally,
continue to create a complex and challenging environment for us and our strategic partners. We intend to continue to evaluate and adjust
our operating strategies and cost management opportunities to mitigate any impacts on our results of operating operations resulting from
broader macroeconomic conditions and policy changes, while remaining focused on the long-term growth of our business. |
We anticipate that our general and administrative
expenses will increase in the future as a result of increased costs associated with being a public company. These increases will likely
include increased costs related to the hiring of additional personnel and fees to outside consultants, attorneys and accountants, among
other expenses, and, in the case of public company-related expenses, services associated with strengthening our internal control over
financial reporting, maintaining compliance with Nasdaq listing and SEC reporting requirements, director and officer liability insurance
costs and investor and public relations costs, among other expenses.
Operating Results
Comparison of the Results for the Six Months Ended October 31,
2022 and 2023
| |
Six Months Ended October 31, | | |
Change (2022 vs 2023) | |
| |
2022(¥) | | |
2023(¥) | | |
2023($) | | |
¥ | | |
% | |
(in thousands) | |
| | |
| | |
| | |
| | |
| |
Statements of Operations Information: | |
| | |
| | |
| | |
| | |
| |
Revenue: | |
| | |
| | |
| | |
| | |
| |
Service | |
¥ | 121,866 | | |
¥ | 73,430 | | |
$ | 485 | | |
¥ | (48,436 | ) | |
| (39.7 | ) |
Products | |
| 36,773 | | |
| 225,709 | | |
| 1,490 | | |
| 188,936 | | |
| 513.8 | |
Total revenue | |
| 158,639 | | |
| 299,139 | | |
| 1,975 | | |
| 140,500 | | |
| 88.6 | |
Cost and expenses: | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of services | |
| 23,121 | | |
| 16,710 | | |
| 111 | | |
| (6,411 | ) | |
| (27.7 | ) |
Cost of products | |
| 24,053 | | |
| 126,820 | | |
| 837 | | |
| 102,767 | | |
| 427.3 | |
Research and development | |
| 339,283 | | |
| 279,436 | | |
| 1,845 | | |
| (59,847 | ) | |
| (17.6 | ) |
Selling, general and administrative expenses | |
| 643,892 | | |
| 1,051,796 | | |
| 6,944 | | |
| 407,904 | | |
| 63.3 | |
Total cost and expenses | |
| 1,030,349 | | |
| 1,474,762 | | |
| 9,737 | | |
| 444,413 | | |
| 43.1 | |
Loss from operations | |
| (871,710 | ) | |
| (1,175,623 | ) | |
| (7,762 | ) | |
| (303,913 | ) | |
| 34.9 | |
Interest expense | |
| (13,423 | ) | |
| (15,811 | ) | |
| (104 | ) | |
| (2,388 | ) | |
| 17.8 | |
Other income, net | |
| 133 | | |
| 41,407 | | |
| 273 | | |
| 41,274 | | |
| 31,033.1 | |
Loss before income taxes | |
| (885,000 | ) | |
| (1,150,027 | ) | |
| (7,593 | ) | |
| (265,027 | ) | |
| 29.9 | |
Income tax expense | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Net loss | |
¥ | (885,000 | ) | |
¥ | (1,150,027 | ) | |
$ | (7,593 | ) | |
¥ | (265,027 | ) | |
| 29.9 | |
Revenue. Our revenue increased by 88.6%
from ¥158,639 thousand for the six months ended October 31, 2022 to ¥299,139 thousand ($1,975 thousand) for the six months ended
October 31, 2023, primarily due to increases in product sales revenue of ¥188,936 thousand, partially offset by decreases in revenue
from commissioned research and development of ¥41,281 thousand and revenue from membership service of ¥4,097 thousand. The increase
in product sales was primarily attributable to the launches and sales of the following products: SonoRepro (launched in November 2022),
kikippa (launched in April 2023), and to a lesser degree, iwasemi (launched in July 2022). The decline in revenue from commissioned research
and development was primarily due to a decrease in the number of projects related to kikippa and VUEVO as the research and development
phase for these products wound down during the six months ended October 31, 2023, and we started to focus on the commercialization.
Cost of Services. Our cost of services decreased
by 27.7% from ¥23,121 thousand for the six months ended October 31, 2022 to ¥16,710 thousand ($111 thousand) for the six months
ended October 31, 2023, primarily due to a decrease in revenue from commissioned research and development. The lower rate of decrease
in cost of services as compared to the rate of decrease in service revenue is mainly attributable to a decrease of service projects that
have improved gross margin due to changes in the portfolio of project components, as we have the ability to leverage existing research
results for commissioned research and development depending on the type of service projects.
Cost of Products. Our cost of products increased
by 427.3% from ¥24,053 thousand for the six months year ended October 31, 2022 to ¥126,820 thousand ($837 thousand) for the six
months ended October 31, 2023, primarily due to the commencement of full-scale manufacturing and expanded sales of new products launched
since October 31, 2022, partially offset by the reduction of the per unit cost of product due to the benefits of mass production.
Research and Development Expenses. Our research
and development decreased by 17.6% from ¥339,283 thousand in the six months year ended October 31, 2022 to ¥279,436 thousand ($1,845
thousand) for the six months ended October 31, 2023, primarily due to a shift in focus from the research and development of kikippa and
VUEVO to product commercialization.
Selling, General and Administrative Expenses.
Our selling, general and administrative expenses increased by 63.3% from ¥643,892 thousand for the six months ended October 31, 2022
to ¥1,051,796 thousand ($6,944 thousand) for the six months ended October 31, 2023, primarily due to increases in advertising and
marketing expenses of ¥139,937 thousand for our new products, personnel expenses of ¥99,443 thousand due to an increase in the
number of employees, rent expense of ¥30,159 thousand in connection with our new headquarters and depreciation expenses of ¥32,141
thousand. The remaining increase is primarily attributable to the outsourcing costs relating to marketing consulting and IT services.
Interest Expense. Our interest expense increased
by 17.8% from ¥13,423 thousand for the six months ended October 31, 2022 to ¥15,811 thousand ($104 thousand) for the six months
ended October 31, 2023, primarily due to an increase in outstanding borrowings.
Other Income, net. Our other income increased
significantly from ¥133 thousand for the six months ended October 31, 2022 to ¥41,407 thousand ($273 thousand) for the six months
ended October 31, 2023, primarily due to the increase of foreign exchange gains as a result of the receipt of the net proceeds from the
initial public offering of our common shares in U.S. dollars during the six months ended October 31, 2023.
Liquidity and Capital Resources
Sources of Capital Resources
Our principal sources of liquidity were cash and
cash equivalents totaling ¥2,135,513 thousand as of April 30, 2023 and ¥2,420,667 thousand ($15,982 thousand) as of October 31,
2023, which were held and used for working capital purposes. Our cash and cash equivalents are comprised of cash on hand, demand deposits
and time deposits maintained at various financial institutions.
We have funded our operations
primarily through equity and debt financings and revenue from product sales and our commissioned research and development pursuant to
contractual arrangements with third parties. In June and September 2022, we received ¥2,178,760 thousand ($16,021 thousand) in gross
proceeds from our sale of 1,153,800 shares of Series C convertible preferred stock. In August 2023, we completed an initial public offering
(“IPO”) of our common shares, pursuant to which we issued and sold 1,666,667 common shares represented by American Depositary
Shares (“ADSs”) at a public offering price of $9.00 per ADS, for aggregate net proceeds of approximately
$11.2 million. Each ADS represents one common share. We received approximately ¥1,471,085 thousand ($9,713 thousand) in
net proceeds after deducting offering costs. Additionally, we have outstanding loans from two Japanese financial institutions: (i) The
Shoko Chukin Bank, Ltd. and (ii) Resona Bank Limited. See “—Credit Facilities” below for more information on these loans.
Our commissioned research and development pursuant
to contractual arrangements with third parties and our collaboration arrangements aimed at developing, testing and validating our products
and product candidates with collaboration partners was historically a substantial source of revenue for our business. While commissioned
research and development services will remain as a source of revenue for us, we expect to gain more revenue from commercializing and expanding
sales of our own products. During the six months ended October 31, 2023, product sales and service revenue were the main sources of our
total revenue, with our product sales accounting for approximately 75 % of our total revenue for the six months ended October 31, 2023.
As such, cash inflows from operations and total revenue can be negatively impacted by potential decreases in demands for our products
and services which could result from adverse economic conditions or changes in consumer preferences.
Uses of Capital Resources
We have incurred significant operating losses and
negative cash flows since our inception. We incurred net losses of ¥1,150,027 thousand ($7,593 thousand) and negative cash flows from
operations of ¥1,385,065 thousand ($9,145 thousand) for the six months ended October 31, 2023. As of October 31, 2023, we had an accumulated
deficit of ¥5,532,279 thousand ($36,526 thousand). Our primary use of capital resources has been to conduct research and development
activities, expand our marketing and sales efforts for our products, organize and staff our Company, develop our business plan, secure
related intellectual property rights and raise capital.
Operating Capital Requirements
Our ability to achieve profitability depends on
the successful development and commercialization of our technology and our products. We expect to incur significant costs for at least
the next several years to develop, manufacture and distribute our products, and we expect our expenses to increase in connection with
our ongoing activities, particularly as we continue our research and development and seek marketing approval for our Personal Care &
Diversity products and related products as needed. As a result, we will require significant capital to support our ongoing operations
and to drive our business strategy before we can generate significant revenues.
Going Concern and Management Plans
We do not expect that our
cash and cash equivalents as of October 31, 2023 will enable us to fund our operating expenses, debt obligations and capital expenditures
for the next 12 months following the date of issuance of the unaudited condensed interim financial statements for the six months ended
October 31, 2023 included in this interim report. Therefore, it is likely we will require additional capital over the next 12 months.
Furthermore, the outstanding principal borrowings of ¥1,000,000 thousand ($6,602 thousand) will mature on February 29, 2024. These
conditions, among others, raise substantial doubt about our ability to continue as a going concern. Management plans to alleviate the
conditions that raise substantial doubt to our ability to continue as a going concern by raising additional capital through the issuance
of common shares, including a follow-on public offering, other equity or debt financings or refinancing of existing debt obligations.
Additionally, management plans to manage liquidity through the timing and extent of spending related to research and development, advertising
and other discretionary operating expenses. However, there can be no assurances that we will be successful in securing any equity or debt
financing on terms favorable to us, or at all, and it is not possible to predict whether any financing efforts will be successful or if
we will obtain the necessary financing. Our unaudited condensed interim financial statements are prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of obligations in the normal course of business. Such condensed interim financial
statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might result from the outcome of the uncertainties described above.
For more information, see “Liquidity and
Going Concern” in Note 2: Summary of Significant Accounting Policies to our unaudited condensed interim financial statements
for the six months ended October 31, 2023 included elsewhere in this interim report.
Until we are able to generate significant revenues
from the sale of our products, we expect to finance our operations through equity or debt financing or other sources, including revenue
from third-party collaborations, strategic partnerships, marketing, distribution and licensing agreements. We do not expect to generate
cash flow from operating activities sufficient to fund our operating expenses and capital expenditure requirements for the next two to
three years.
Our future funding requirements will depend on
many factors, including:
| ● | our ability to achieve revenue growth; |
| ● | our ability to secure any required regulatory clearance or approval for our technology, products and services; |
| ● | our rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of our technology,
products and services; |
| ● | commercial manufacturing, shipping, installation and deployment of our products and sufficient inventory to support commercial launch
and expansion; |
| ● | the cost of expanding our research and development, manufacturing and laboratory operations and products and services offerings, including
the hiring of operational, financial and management personnel; |
| ● | the effect of competing technological and market developments; |
| ● | our ability to maintain, expand and protect our intellectual property portfolio; |
| ● | market acceptance of our technology, products and services; |
| ● | the ability to establish and maintain collaborations on favorable terms, if at all; |
| ● | costs related to international expansion; and |
| ● | the potential cost of, and delays in, product development as a result of regulatory oversight. |
Additionally, a change in any of the above or other
factors with respect to the development and commercialization of any of our products could significantly change the costs and timing associated
with the development and commercialization of that product. Further, our operating plans may change in the future, and we may need additional
funds to meet operational needs and capital requirements associated with such operating plans. If we are unable to raise the capital we
need when we need it or enter into such agreements, we may have to significantly delay, scale back or discontinue the development and
commercialization of one or more of our products.
We expect to incur additional costs associated
with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur
as a private company.
Cash Flows
Comparison of the six months ended October
31, 2022 and 2023
| |
Six Months Ended October 31, | |
(in thousands) | |
2022(¥) | | |
2023(¥) | | |
2023($) | |
Statements of Cash Flows Data: | |
| | |
| | |
| |
Net cash used in operating activities | |
¥ | (861,666 | ) | |
¥ | (1,385,065 | ) | |
$ | (9,145 | ) |
Net cash used in investing activities | |
| (49,321 | ) | |
| (68,760 | ) | |
| (454 | ) |
Net cash provided by financing activities | |
| 2,389,980 | | |
| 1,698,030 | | |
| 11,211 | |
Net Cash used in Operating Activities
During the six months ended October 31, 2022 and
2023, our net cash used in operating activities was ¥861,666 thousand and ¥1,385,065 thousand ($9,145 thousand), respectively,
primarily resulting from our net loss of ¥885,000 thousand and ¥1,150,027 thousand ($7,593 thousand) for the six months ended
October 31, 2022 and 2023, respectively, in each case further adjusted for non-cash charges. Non-cash charges were primarily comprised
of depreciation and amortization of ¥38,896 thousand and ¥101,331 thousand ($669 thousand) for the six months ended October 31,
2022 and 2023, respectively, and stock-based compensation of ¥32,768 thousand and ¥3,355 thousand ($22 thousand) for the six months
ended October 31, 2022 and 2023, respectively. Foreign exchange losses of ¥4,043 thousand and foreign exchange gains of ¥35,940
thousand ($237 thousand) were also included for the six months ended October 31, 2022 and 2023, respectively. The increase in depreciation
and amortization was primarily due to change in estimate for the original lease term in connection with our move to the new headquarters.
The increase in cash used in operating activities was primarily due to activities related to our business expansion and our increased
marketing and sales activities.
Net Cash used in Investing Activities
During the six months ended October 31, 2022 and
2023, our net cash used in investing activities was ¥49,321 thousand and ¥68,760 thousand ($454 thousand), respectively. The increase
in net cash used in investing activities was primarily due to the advance payment for lease improvement of our new headquarters during
the six months ended October 31, 2023 and an increase in acquisitions of property and equipment including molds for iwasemi and kikippa.
Net Cash provided by Financing Activities
During the six months ended October 31, 2022 and
2023, our net cash provided by financing activities was ¥2,389,980 thousand and ¥1,698,030 thousand ($11,211 thousand), respectively,
primarily due to net proceeds from the issuance of Series C convertible preferred stock in June and September 2022 and net proceeds from
our completed initial public offering in August 2023.
Credit Facilities
As of October 31, 2023, we have outstanding loans
(the “Bank Loans”) from two Japanese financial institutions: (i) The Shoko Chukin Bank, Ltd. and (ii) Resona Bank Limited
which totaled ¥1,027,779 thousand ($6,785 thousand). The main purpose of obtaining the Bank Loans has been to fund our operations.
On
March 22, 2019, we entered into a loan agreement with The Shoko Chukin Bank, Ltd. The agreement provides for four loans to be advanced
to us in March 2019, July 2020, July 2021 and July 2022, respectively, each in the amount of ¥250,000 thousand, provided that we meet
certain financial performance targets. The loans under this facility carry an interest rate of 3% per annum and will mature in a lump
sum on February 29, 2024. The outstanding principal balance as of October 31, 2023 was ¥1,000,000 thousand ($6,602 thousand).
We plan to seek new debt financing or refinancing of existing debt obligations.
On November 30, 2020, we entered into a loan agreement
with Resona Bank Limited for a principal amount of ¥40,000 thousand. The loan agreement was amended on the same date. Pursuant to
the loan agreement, as amended, the loan carries an interest of 1.475% per annum; however, the loan is exempt from interest payment for
the period from November 30, 2020 to November 29, 2023. In addition, we shall make a monthly repayment of ¥1,111 thousand and the
last payment shall be made on November 30, 2025. This loan is guaranteed by Tokyo Credit Guarantee Corporation, an unaffiliated guarantee
service provider. The outstanding principal balance as of October 31, 2023 was ¥27,779 thousand ($183 thousand).
Cash Commitments from Contractual Obligations
The following table summarizes our contractual
obligations as of October 31, 2023 and the effects that such obligations are expected to have on our liquidity and cash flows in future
periods:
| |
Payment Due by Period | |
| |
(in thousands) | |
Year ending April 30, | |
Total | | |
2024 (remainder) | | |
2025-2026 | | |
2027-2028 | |
Long-term debt principal payments | |
¥ | 1,027,779 | | |
¥ | 1,006,666 | | |
¥ | 21,113 | | |
¥ | — | |
Long-term debt interest payments | |
| 10,355 | | |
| 10,122 | | |
| 233 | | |
| — | |
Finance Lease Obligations | |
| 32,875 | | |
| 7,435 | | |
| 24,870 | | |
| 570 | |
Operating Lease Obligation | |
| 548,469 | | |
| 17,031 | | |
| 257,425 | | |
| 274,013 | |
Total | |
¥ | 1,619,478 | | |
¥ | 1,041,254 | | |
¥ | 303,641 | | |
¥ | 274,583 | |
We have entered into contracts in the normal course
of business with third parties. These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior notice
and, as a result, are not included in the table of contractual obligations and commitments above. Payments due upon cancellation consist
only of payments for services provided and expenses incurred, including non-cancelable obligations of our service providers, up to the
date of cancellation.
Off-Balance Sheet Arrangements
As of October 31, 2023, we were not party to any
material off-balance sheet financial arrangements that are reasonably likely to have a current or future effect on our financial condition
or operating results. We do not have any relationship with unconsolidated entities or financial partnerships for the purpose of facilitating
off-balance sheet arrangements or for other contractually narrow or limited purposes.
Research and Development, Patents and Licenses
Our goal is to continue to develop and commercialize
innovative and practical products by applying our control wave technology. We continue to develop and leverage our collaborative relationships
with academia and the industry in R&D and marketing our products. We have benefited from our collaborations with academic institutions
and industry collaborators and commissioned research and development were historically a substantial source of our revenue. We discuss
with our collaboration partners what areas to perform research and development. Through trials and tests, we and our collaboration partners
have found some results which we believe can be commercialized. We have developed and released our products such as SonoRepro, kikippa,
VUEVO and iwasemi under these collaborations. We have made a substantial investment in research and development including incurring personnel-related
expenses and facility costs. We plan to continue investing in research and development to bring innovative products and solutions to the
market.
Trend Information
Other than as disclosed in this interim report,
we are not aware of any trends, uncertainties, demands, commitments or events for the current interim period that are reasonably likely
to have a material effect on our net revenues, income, profitability, liquidity or capital reserves, or that caused the disclosed financial
information to be not necessarily indicative of future operating results or financial conditions.
Critical Accounting Policies and Estimates
Our condensed interim financial statements are
prepared in accordance with U.S. GAAP, which requires us to make a number of estimates and assumptions that affect the reported amounts
and disclosures in the condensed interim financial statements. These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the condensed interim financial statements, and the reported
amounts of revenues and expenses during the reporting period. We base our accounting estimates and assumptions on historical experience
and other factors that we believe to be reasonable under the circumstances. However, actual results may differ from those estimates.
Except for the Recently Adopted Accounting
Pronouncements, which is further described below, there have been no changes to our critical accounting policies and estimates as
described in our Annual Report on Form 20-F for the year ended April 30, 2023, which was filed with the SEC on November 16, 2023.
For a description of our significant accounting policies and recently issued accounting pronouncements, see Note 2: Summary of
Significant Accounting Policies to our unaudited condensed interim financial statements for the six months ended October 31, 2023
included elsewhere in this interim report.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU
2016-13 introduced a new credit loss methodology, the Current Expected Credit Losses (“CECL”) methodology, which requires
earlier recognition of credit losses, while also providing additional transparency about credit risk. The CECL methodology utilizes a
lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to maturity debt
securities, trade receivables and other receivables measured at amortized cost at the time the financial asset is originated or acquired.
Subsequent to the issuance of ASU 2016-13, the FASB issued several additional ASUs to clarify implementation guidance, provide narrow-scope
improvements and provide additional disclosure guidance. We adopted this ASU on May 1, 2023 and have applied the guidance prospectively.
Our expected loss allowance methodology is developed using an aging method and historical loss rates, as well as current economic conditions
and expectations of future economic conditions considering economic variables such as gross domestic product and interest rates. We have
determined that ASU 2016-13 had no material impact on our unaudited condensed interim financial statements and related disclosures.
Pixie Dust Technologies, Inc.
Condensed Balance Sheets (Unaudited)
| |
As of | |
| |
April 30, 2023 | | |
October 31, 2023 | |
| |
JPY | | |
JPY | | |
US$
(Note 2) | |
| |
(in thousands, except share data) | |
Assets | |
| | |
| | |
| |
Current assets: | |
| | |
| | |
| |
Cash and cash equivalents | |
¥ | 2,135,513 | | |
¥ | 2,420,667 | | |
$ | 15,982 | |
Accounts receivable – trade | |
| 198,892 | | |
| 13,614 | | |
| 90 | |
Inventories | |
| 123,119 | | |
| 180,022 | | |
| 1,189 | |
Deferred offering costs | |
| 260,689 | | |
| - | | |
| - | |
Prepaid expenses and other current assets | |
| 326,202 | | |
| 355,076 | | |
| 2,344 | |
Total current assets | |
| 3,044,415 | | |
| 2,969,379 | | |
| 19,605 | |
Property and equipment, net | |
| 507,778 | | |
| 490,358 | | |
| 3,238 | |
Intangible assets, net | |
| 14,068 | | |
| 15,212 | | |
| 100 | |
Operating lease right-of-use assets, net (Note 5) | |
| 46,046 | | |
| 466,432 | | |
| 3,080 | |
Other
assets | |
| 105,347 | | |
| 141,026 | | |
| 931 | |
Total assets | |
¥ | 3,717,654 | | |
¥ | 4,082,407 | | |
$ | 26,954 | |
Liabilities and stockholders’ equity | |
| | | |
| | | |
| | |
Current liabilities: | |
| | | |
| | | |
| | |
Accounts payable | |
¥ | 549,449 | | |
¥ | 156,194 | | |
$ | 1,031 | |
Accrued expenses and other current liabilities | |
| 203,842 | | |
| 194,890 | | |
| 1,287 | |
Current portion of long-term borrowings | |
| 1,013,332 | | |
| 1,013,332 | | |
| 6,690 | |
Total current liabilities | |
| 1,766,623 | | |
| 1,364,416 | | |
| 9,008 | |
Long-term borrowings, net of current portion | |
| 21,113 | | |
| 14,447 | | |
| 95 | |
Operating lease liabilities, net of current portion (Note 5) | |
| 5,956 | | |
| 459,071 | | |
| 3,031 | |
Other
liabilities | |
| 25,536 | | |
| 18,400 | | |
| 122 | |
Total liabilities | |
| 1,819,228 | | |
| 1,856,334 | | |
| 12,256 | |
Commitments and contingencies (Note 7) | |
| | | |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | | |
| | |
Common stock, no par value; 52,142,400 shares authorized; 13,035,600 shares issued and outstanding at April 30, 2023, and 14,702,267 shares issued and outstanding at October 31, 2023 | |
| 100,000 | | |
| 1,074,970 | | |
| 7,097 | |
Additional paid-in capital | |
| 6,180,678 | | |
| 6,683,382 | | |
| 44,127 | |
Accumulated
deficit | |
| (4,382,252 | ) | |
| (5,532,279 | ) | |
| (36,526 | ) |
Total stockholders’ equity | |
| 1,898,426 | | |
| 2,226,073 | | |
| 14,698 | |
Total liabilities and stockholders’ equity | |
¥ | 3,717,654 | | |
¥ | 4,082,407 | | |
$ | 26,954 | |
The accompanying notes are an integral part of these unaudited condensed
interim financial statements.
Pixie Dust Technologies, Inc.
Condensed Statements of Operations (Unaudited)
|
|
Six Months Ended October 31, |
|
|
|
2022 |
|
|
2023 |
|
|
|
JPY |
|
|
JPY |
|
|
US$
(Note 2) |
|
|
|
(in thousands, except share and per share data) |
|
Revenue: |
|
|
|
|
|
|
|
|
|
Services |
|
¥ |
121,866 |
|
|
¥ |
73,430 |
|
|
$ |
485 |
|
Products |
|
|
36,773 |
|
|
|
225,709 |
|
|
|
1,490 |
|
Total revenue |
|
|
158,639 |
|
|
|
299,139 |
|
|
|
1,975 |
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
|
23,121 |
|
|
|
16,710 |
|
|
|
111 |
|
Cost of products |
|
|
24,053 |
|
|
|
126,820 |
|
|
|
837 |
|
Research and development |
|
|
339,283 |
|
|
|
279,436 |
|
|
|
1,845 |
|
Selling, general and administrative expenses |
|
|
643,892 |
|
|
|
1,051,796 |
|
|
|
6,944 |
|
Total costs and expenses |
|
|
1,030,349 |
|
|
|
1,474,762 |
|
|
|
9,737 |
|
Loss from operations |
|
|
(871,710 |
) |
|
|
(1,175,623 |
) |
|
|
(7,762 |
) |
Interest expense |
|
|
(13,423 |
) |
|
|
(15,811 |
) |
|
|
(104 |
) |
Other income, net |
|
|
133 |
|
|
|
41,407 |
|
|
|
273 |
|
Loss before income taxes |
|
|
(885,000 |
) |
|
|
(1,150,027 |
) |
|
|
(7,593 |
) |
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
¥ |
(885,000 |
) |
|
¥ |
(1,150,027 |
) |
|
$ |
(7,593 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding used to compute net loss per share, basic and diluted |
|
|
6,000,000 |
|
|
|
13,455,691 |
|
|
|
13,455,691 |
|
Net loss per share attributable to common stockholders, basic and diluted |
|
¥ |
(147.50 |
) |
|
¥ |
(85.47 |
) |
|
$ |
(0.56 |
) |
The accompanying notes are an integral part of these unaudited condensed
interim financial statements.
Pixie Dust Technologies, Inc.
Condensed Statements of Stockholders’
Equity (Unaudited)
|
|
Series
C
convertible
preferred stock |
|
|
Series
B
convertible
preferred stock |
|
|
Series
BB
convertible
preferred stock |
|
|
Series
A
convertible
preferred stock |
|
|
Series
AA
convertible
preferred stock |
|
|
Common stock |
|
|
Additional
Paid-In |
|
|
Accumulated |
|
|
Total
Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|
|
|
|
|
JPY |
|
|
|
|
|
JPY |
|
|
|
|
|
JPY |
|
|
|
|
|
JPY |
|
|
|
|
|
JPY |
|
|
|
|
|
JPY |
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2022 |
|
|
— |
|
|
¥ |
— |
|
|
|
2,212,800 |
|
|
¥ |
— |
|
|
|
242,400 |
|
|
¥ |
— |
|
|
|
2,760,000 |
|
|
¥ |
— |
|
|
|
666,600 |
|
|
¥ |
— |
|
|
|
6,000,000 |
|
|
¥ |
100,000 |
|
|
¥ |
3,946,038 |
|
|
¥ |
(2,416,761 |
) |
|
¥ |
1,629,277 |
|
Issuance of convertible preferred stock, net |
|
|
1,153,800 |
|
|
|
1,089,380 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,079,724 |
|
|
|
— |
|
|
|
2,169,104 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
65,537 |
|
|
|
— |
|
|
|
65,537 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(885,000 |
) |
|
|
(885,000 |
) |
Balance, October 31, 2022 |
|
|
1,153,800 |
|
|
¥ |
1,089,380 |
|
|
|
2,212,800 |
|
|
¥ |
— |
|
|
|
242,400 |
|
|
¥ |
— |
|
|
|
2,760,000 |
|
|
¥ |
— |
|
|
|
666,600 |
|
|
¥ |
— |
|
|
|
6,000,000 |
|
|
¥ |
100,000 |
|
|
¥ |
5,091,299 |
|
|
¥ |
(3,301,761 |
) |
|
¥ |
2,978,918 |
|
|
|
Common
stock |
|
|
Additional Paid-In |
|
|
Accumulated |
|
|
Total Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|
|
|
|
|
JPY |
|
|
JPY |
|
|
JPY |
|
|
JPY |
|
Balance, April
30, 2023 |
|
|
13,035,600 |
|
|
¥ |
100,000 |
|
|
¥ |
6,180,678 |
|
|
¥ |
(4,382,252 |
) |
|
¥ |
1,898,426 |
|
Issuance of common stock upon
initial public offering, net of offering costs (Note 1) |
|
|
1,666,667 |
|
|
|
974,970 |
|
|
|
496,115 |
|
|
|
— |
|
|
|
1,471,085 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
3,355 |
|
|
|
— |
|
|
|
3,355 |
|
Vesting of option purchase
consideration |
|
|
— |
|
|
|
— |
|
|
|
3,234 |
|
|
|
— |
|
|
|
3,234 |
|
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,150,027 |
) |
|
|
(1,150,027 |
) |
Balance,
October 31 2023 |
|
|
14,702,267 |
|
|
¥ |
1,074,970 |
|
|
¥ |
6,683,382 |
|
|
¥ |
(5,532,279 |
) |
|
¥ |
2,226,073 |
|
Balance,
October 31 2023-Convenience translation into US dollars (Note 2) -Thousand USD |
|
|
|
|
|
$ |
7,097 |
|
|
$ |
44,127 |
|
|
$ |
(36,526 |
) |
|
$ |
14,698 |
|
The accompanying notes are an integral part of these unaudited condensed
interim financial statements.
Pixie Dust Technologies, Inc.
Condensed Statements of Cash Flows (Unaudited)
|
|
Six Months Ended October 31, |
|
|
|
2022 |
|
|
2023 |
|
|
|
JPY |
|
|
JPY |
|
|
US$ (Note 2) |
|
|
|
(in thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
¥ |
(885,000 |
) |
|
¥ |
(1,150,027 |
) |
|
$ |
(7,593 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
38,896 |
|
|
|
101,331 |
|
|
|
669 |
|
Stock-based compensation |
|
|
32,768 |
|
|
|
3,355 |
|
|
|
22 |
|
Foreign exchange losses (gains) |
|
|
4,043 |
|
|
|
(35,940 |
) |
|
|
(237 |
) |
Asset retirement obligation accretion |
|
|
332 |
|
|
|
490 |
|
|
|
3 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable-trade |
|
|
(39,831 |
) |
|
|
185,278 |
|
|
|
1,223 |
|
Inventories |
|
|
(30,511 |
) |
|
|
(56,903 |
) |
|
|
(376 |
) |
Prepaid expenses and other current assets |
|
|
(13,250 |
) |
|
|
(25,179 |
) |
|
|
(166 |
) |
Operating lease right-of-use assets, net |
|
|
30,909 |
|
|
|
66,973 |
|
|
|
442 |
|
Other assets |
|
|
(1,678 |
) |
|
|
(35,681 |
) |
|
|
(236 |
) |
Accounts payable |
|
|
24,123 |
|
|
|
(382,095 |
) |
|
|
(2,523 |
) |
Accrued expenses and other current liabilities |
|
|
9,501 |
|
|
|
(16,123 |
) |
|
|
(105 |
) |
Operating lease liabilities |
|
|
(31,968 |
) |
|
|
(40,544 |
) |
|
|
(268 |
) |
Net cash used in operating activities |
|
|
(861,666 |
) |
|
|
(1,385,065 |
) |
|
|
(9,145 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(47,351 |
) |
|
|
(64,797 |
) |
|
|
(428 |
) |
Purchases of intangible assets |
|
|
(1,970 |
) |
|
|
(3,963 |
) |
|
|
(26 |
) |
Net cash used in investing activities |
|
|
(49,321 |
) |
|
|
(68,760 |
) |
|
|
(454 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
250,000 |
|
|
|
— |
|
|
|
— |
|
Repayments of borrowings |
|
|
— |
|
|
|
(6,666 |
) |
|
|
(44 |
) |
Repayments of finance lease liabilities |
|
|
(6,972 |
) |
|
|
(8,022 |
) |
|
|
(53 |
) |
Payments of offering costs |
|
|
(24,151 |
) |
|
|
(237,222 |
) |
|
|
(1,566 |
) |
Proceeds from issuance of convertible preferred stock |
|
|
2,171,103 |
|
|
|
— |
|
|
|
— |
|
Proceeds from issuance of common stock upon initial public offering - net of underwriting discounts and commissions |
|
|
— |
|
|
|
1,949,940 |
|
|
|
12,874 |
|
Net cash provided by financing activities |
|
|
2,389,980 |
|
|
|
1,698,030 |
|
|
|
11,211 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
— |
|
|
|
40,949 |
|
|
|
270 |
|
Net increase in cash and cash equivalents |
|
|
1,478,993 |
|
|
|
285,154 |
|
|
|
1,882 |
|
Cash and cash equivalents at beginning of period |
|
|
1,795,963 |
|
|
|
2,135,513 |
|
|
|
14,100 |
|
Cash and cash equivalents at end of period |
|
¥ |
3,274,956 |
|
|
¥ |
2,420,667 |
|
|
$ |
15,982 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets obtained in exchange for lease liabilities |
|
¥ |
2,716 |
|
|
¥ |
487,359 |
|
|
$ |
3,218 |
|
Property and equipment acquired under finance leases |
|
|
3,996 |
|
|
|
— |
|
|
|
— |
|
Purchases of property and equipment included in accounts payable |
|
|
8,332 |
|
|
|
21,089 |
|
|
|
139 |
|
Offering costs included in accounts payable and, accrued expenses and other current liabilities |
|
|
23,417 |
|
|
|
23,025 |
|
|
|
152 |
|
The accompanying notes are an integral part of these unaudited condensed
interim financial statements.
Pixie Dust Technologies, Inc.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited)
| 1. | Description of Business |
Pixie Dust Technologies, Inc. (the “Company”) was incorporated
in Japan in May 2017. Since its inception, the Company has conducted research, technology development and business development based on
research created through industry-academic collaborations. Additionally, the Company builds mechanisms for continuous social implementation
in response to the issues and needs that exist in society.
The core technology of the Company is “wave control technology”
that has the potential for a variety of applications, including technologies to enhance personal care and quality of life, and for sensing
and controlling space. The Company continuously performs research and development activities, and then manufactures and sells the products
resulting from that research and development.
The Company’s fiscal year-end is April 30.
The Company is headquartered in Japan and operates in one segment. For the six months ended October 31, 2022 and 2023, there are no subsidiaries
consolidated within the Company.
| ● | Initial Public Offering (“IPO”) |
On August 3, 2023, the Company completed its IPO,
in which the Company issued and sold 1,666,667 shares of common stock represented by American Depositary Shares (ADSs) at a price to the
public of $9.00 per ADS. Each ADS represents one common stock. The Company’s ADSs are traded on the Nasdaq Capital Market under
the symbol “PXDT”. The Company received aggregate net proceeds of ¥1,471,085 thousand ($9,713 thousand) after deducting
underwriting discounts, commissions and other offering costs.
On July 31, 2023, the Company executed a contract
agreeing to issue warrants to the Representative of the underwriters to purchase 50,000 ADSs, which is equal to 3% of the 1,666,667 ADSs
sold in the Offering (“Representative's Warrants”). The Representative’s Warrant
is exercisable for five years from the commencement of sales of the offering. The initial exercise price of warrants is $11.25 per
ADS. The fair value of the warrants has been estimated using the Black-Scholes Option Pricing Model, which requires assumptions including
the Company’s estimate of expected volatility of 42% and risk-free interest rate of 4.3% at the time of valuation. The Company estimated
the fair value of the warrants at the IPO date to be ¥23,025 thousand ($152 thousand)
which was included in the offering costs as a reduction from the proceeds of the offering.
The Representative’s Warrants are recorded in the accrued expenses and other current liabilities in the Condensed Balance Sheets.
These estimates involve inherent uncertainties and the application of management’s judgment and classified as Level 3 of the fair
value hierarchy. The Representative’s Warrants are recorded as liabilities measured at fair value at each reporting date, with change
in fair value recorded in earnings. There was no significant change in the assumptions and the change in fair value of the Representative’s
Warrants from the IPO date to October 31, 2023 was immaterial.
The issuance of the Representative’s
Warrants is subject to certain required procedures and approval under Japanese law, which has not been completed as of the date of this
interim report, and none of the Representative’s Warrants were legally issued or outstanding
as of October 31, 2023.
| 2. | Summary of Significant Accounting Policies |
| ● | Basis of Presentation and Preparation |
The accompanying condensed interim financial statements for the six
months ended October 31, 2022 and 2023 have been prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
The Condensed Balance Sheet as of April 30, 2023 has been derived from the audited financial statements at that date but does not include
all of the information and footnotes required by U.S. GAAP for complete financial statements. Certain information and footnote disclosures
typically included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules
and regulations. The Company believes that the disclosures are adequate to make the disclosed information not misleading. These unaudited
condensed interim financial statements should be read in conjunction with the Company's audited financial statements and the notes thereto
included in its Annual Report on Form 20-F as of and for the year ended April 30, 2023, which was filed with the SEC on November 16, 2023.
The condensed interim financial statements and the accompanying notes
have been prepared on the same basis as the annual financial statements, and management believes that these condensed interim financial
statements include all adjustments, normal and recurring in nature, that are necessary to present fairly the financial position of the
Company as of October 31, 2023, the results of operations for the six months ended October 31, 2022 and 2023 and cash flows for the six
months ended October 31, 2022 and 2023. The results of operations for the interim period are not necessarily indicative of the results
to be expected for the fiscal year ending April 30, 2024 or for any other future annual or interim period.
Service Revenue:
Commissioned research and development
The Company derives its service revenue primarily by providing commissioned
research and development services. For the commissioned research and development service contracts with the customers contain an acceptance
right, which is considered a requirement to conclude the customer has obtained control of the submitted deliverables such as reports,
prototypes and digital source code, the revenue is recognized at a point in time, when the deliverables are delivered, and acceptance
is completed. For other service contracts, revenue is recognized over time using the “as invoiced” practical expedient and
thereby recognized in the amount to which the entity has a right to invoice.
Solution Services
The Company receives compensation from customers through providing
its solution services, primarily hackke services and VUEVO service. For these services, the Company identifies two performance obligations
which are sales of dedicated devices and providing the system usage service to the customer. The transaction price is allocated among
the performance obligations based on the estimated standalone selling price (“SSP”) of each obligation. For hackke service,
the Company determines the SSP by using the adjusted market assessment approach utilizing similar equipment for the dedicated device and
the residual approach for the system usage service. For VUEVO service, the SSP is determined using the cost plus margin approach. For
the sales of dedicated devices, the revenue is recognized at a point in time when the devices are delivered and acceptance is completed
and included in product revenue. For system usage services, revenue is recognized on a monthly basis as access rights are granted on a
monthly basis and included in service revenue.
Guest Speaker Services
Guest speaker services are provided by the
Company’s management for several media and external events managed by a third party. This service helps the Company promote its
business. Revenue from guest speaker services is recognized at a point in time when the service is delivered.
Product Revenue:
Product sales are primarily comprised of kikippa, SonoRepro and
iwasemi. Products are either sold directly to customers through e-commerce platforms, to intermediaries or directly to businesses. The
Company’s product sale contracts only offer standard assurance-type warranties which are not accounted for as a separate performance
obligation and do not contain acceptance clauses.
The standard terms and conditions of sale do not allow for product
returns other than warranty, with the exception of limited rights of return through certain e-commerce platforms. Sales returns are
recorded as a reduction of revenue and cost of sales and are estimated and recorded based on historical sales and returns information.
An estimated refund liability along with a right to recover assets are recorded for future product returns. As of October 31, 2023,
the Company had a refund liability of ¥1,324 thousand ($9 thousand) included in accrued expense and other current liabilities
in the Condensed Balance Sheets. The Company generally does not provide discounts and sales incentives that are contingent on future events.
Revenue from e-commerce sales is recognized either at the time of shipment
or at the time of delivery of the product to the end customer, depending on the terms of the contracts. The Company elected the practical
expedient to account for shipping and handling activities that occur after the customer has obtained control of goods as a fulfillment
activity.
For products sold directly to businesses, the Company recognizes revenue
from product sales to businesses at the point of delivery of the product to the business. All contracts with businesses have fixed consideration.
The revenue generated from certain product rental arrangements were
immaterial.
During the six months ended October 31, 2023, the Company recognized
first product sales of kikippa. The kikippa products are first sold to an intermediary which is identified as the Company’s customer.
The Company recognizes product revenue at the time of delivery of the product to the intermediary, upon transferring control of the goods.
The intermediary resells kikippa to the end user; however, control is transferred to the intermediary upon delivery of the product to
the intermediary as evidenced by the intermediary’s ability to direct the use of and obtain substantially all of the remaining benefits
from the performance obligation. The Company is the principal for the transactions with the intermediary and recognizes revenue on a gross
basis. Additionally, there is no right of return for delivered products to the intermediary and payment to the Company is not contingent
on sales to an end user.
| ● | Liquidity and Going Concern |
The Company has incurred recurring loss from operations and negative
cash flows from operating activities since inception. The Company incurred net losses of ¥1,150,027 thousand ($7,593 thousand) and
negative cash flows from operations of ¥1,385,065 thousand ($9,145 thousand) for the six months ended October 31, 2023. As of October
31, 2023, the Company had an accumulated deficit of ¥5,532,279 thousand ($36,526 thousand) and cash and cash equivalents of ¥2,420,667
thousand ($15,982 thousand).
The Company does not expect that its cash and
cash equivalents as of October 31, 2023 will enable it to fund its operating expenses, debt obligations and capital expenditures for at
least 12 months following the date of issuance of these condensed interim financial statements. As the Company focuses on developing and
commercializing its own products, the Company has devoted substantial resources to research and development testing, and commercialization
of its products. These operating costs have adversely affected and may continue to adversely impact financial performance. Furthermore,
the outstanding principal borrowings of ¥1,000,000 thousand ($6,602 thousand) will mature on February 29, 2024. These conditions,
among others, raise substantial doubt about the ability of the Company to continue as a going concern. The continuation as a going concern
is dependent upon the Company’s ability to meet its financial requirements, raise additional capital and the success of its future
operations.
Management plans to alleviate the conditions that raise substantial
doubt by raising additional capital through the issuance of common stock, including a follow-on public offering, other equity or debt
financings or refinancing of existing debt obligations. Lastly, management has the ability to manage liquidity through the timing and
extent of spending related to research and development, advertising and other discretionary operating expenses. However, the Company’s
ability to issue equity securities or obtain debt financing on acceptable terms, or at all, will depend on, among other things, its financial
performance, general economic factors, including inflation and then-current interest rates, the condition of the credit and capital markets
and other events, some of which may be beyond the Company’s control. There are currently no written agreements in place for such
funding or issuance of securities and there can be no assurance that such plans will be effectively implemented. Accordingly, the Company
has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least
12 months following the issuance date of these condensed interim financial statements.
The Company’s condensed interim financial statements are prepared
on a going concern basis, which contemplates the realization of assets and the satisfaction of obligations in the normal course of business.
The condensed interim financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.
The functional and reporting currency of the Company is the Japanese
yen (JPY), the currency of the country in which the Company is incorporated and principally operates. Translations of the Condensed Balance
Sheets, the Condensed Statements of Operations, Stockholders’ Equity and Cash Flows from JPY into US$ as of and for the six-month
periods ended October 31, 2023 are solely for the convenience of the readers and were calculated at the rate of US$1.00=JPY151.46, representing
the index rates stipulated by the federal reserve board the noon buying rate set forth in the H.10 statistical release of the U.S. Federal
Reserve Board on October 31, 2023. No representation is made that the JPY amounts could have been, or could be, converted, realized or
settled into US$ at that rate on October 31, 2023, or at any other rate.
The preparation of these condensed interim financial statements in
conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the condensed interim financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in the condensed interim
financial statements include, but are not limited to, impairment of long-lived assets, revenue recognition, measuring the fair value of
warrant liabilities, measuring operating lease right-of-use assets and operating lease liabilities and valuation of deferred tax assets.
Actual results could materially differ from the Company’s estimates, and there may be changes to the estimates in future periods.
Management bases these estimates and assumptions that it believes reasonable under the circumstances.
The Company is subject to a number of risks similar to other companies
in the development stage, including, but not limited to, its limited operating history, competition from other companies, limited access
to additional funds, dependence on key personnel and management of potential rapid growth. To address these risks, the Company must, among
other things, develop its customer base, implement and successfully execute its business and marketing strategy, develop follow-on products,
provide superior customer service and attract, retain, and motivate qualified personnel. There can be no guarantee that the Company will
be successful in addressing these or other such risks.
The Company generated 55% and 15% of its total revenue from commissioned
research and development fees from its partners for the six months ended October 31, 2022 and 2023 respectively. The Company launched
multiple products from the second half of the fiscal year 2023 and on, which resulted in product sales accounting for 75% of the Company’s
total revenue in the year ended October 31, 2023. For the six months ended October 31, 2023, one customer accounted for approximately
48.3% of our total revenue. The Company’s customers are primarily located in Japan.
| ● | Recently Adopted Accounting Pronouncements |
In June 2016, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduced
a new credit loss methodology, the Current Expected Credit Losses (“CECL”) methodology, which requires earlier recognition
of credit losses, while also providing additional transparency about credit risk. The CECL methodology utilizes a lifetime “expected
credit loss” measurement objective for the recognition of credit losses for loans, held-to maturity debt securities, trade receivables
and other receivables measured at amortized cost at the time the financial asset is originated or acquired. Subsequent to the issuance
of ASU 2016-13, the FASB issued several additional ASUs to clarify implementation guidance, provide narrow-scope improvements and
provide additional disclosure guidance. The Company adopted this ASU on May 1, 2023 and has applied the guidance prospectively.
The Company’s expected loss allowance methodology is developed using an aging method and historical loss rates, as well as current
economic conditions and expectations of future economic conditions considering economic variables such as gross domestic product and interest
rates. The Company has determined that ASU 2016-13 had no material impact on the Company’s unaudited condensed interim financial
statements and related disclosures.
| 3. | Fair Value Measurements |
The Company applies the provisions of Accounting
Standards Codification (“ASC”) Topic 820, Fair Value Measurement, for fair value measurements of financial assets
and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value in the
condensed interim financial statements.
Assets and liabilities are categorized based upon the level of judgment
associated with the inputs used to measure their fair values.
Fair value is defined as the exchange price that would be received
for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the use
of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a
three-tier fair value hierarchy for disclosure of fair value measurements as follows:
Level 1 — Observable inputs such as unadjusted, quoted prices
in active markets for identical assets or liabilities at the measurement date;
Level 2 — Inputs (other than quoted prices included in Level
1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities
in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active;
Level 3 — Unobservable inputs that are supported by little or
no market activity and that are significant to the fair value of the assets or liabilities.
Certain assets, including the right-of-use assets, property and equipment
and intangible assets are also subject to measurement at fair value on a non-recurring basis if they are deemed to be impaired as a result
of an impairment review. For the six months ended October 31, 2022 and 2023, no impairments were identified on those assets required to
be measured at fair value on a non-recurring basis.
| ● | Fair Value of Financial Instruments |
The Company’s financial instruments include
cash equivalents, accounts receivable-trade, accounts payable, accrued expenses, accrued warrants and long-term borrowings. The carrying
values of the Company’s financial instruments, excluding long-term borrowings, approximate their fair value due to the short-term
nature of those instruments. The carrying value of time deposits of ¥50,002 thousand and ¥500,436 thousand ($3,304 thousand) as
of April 30, 2023 and October 31, 2023, respectively, which approximates the fair value, was included in the cash and cash equivalents
in the Condensed Balance Sheets. The fair value of time deposits is based on the discounted value of contractual cash flows discounted
at a rate currently offered for deposits of similar remaining maturities and is considered Level 2. The fair value of long-term borrowings
is determined using the present value of future cash flows based on the borrowing rates currently available for debt with similar terms
and maturities and is considered Level 2. The carrying value of long-term borrowings approximates the fair value at each balance sheet
date because the contractual interest rate of the debt approximates the market interest rate at which the Company can borrow similar debt.
For discussion of the Representative’s Warrants, see Note 1.
Inventories are comprised as follows as of April 30, 2023 and October
31, 2023: Finished goods include iwasemi products, the dedicated location measurement devices required to provide hackke services, SonoRepro
devices and VUEVO devices. Work in process mainly consists of items related to the assembly of the devices. Raw materials include components
related to hackke and SonoRepro. There is no reserve as of April 30, 2023 and October 31, 2023.
| |
As of | |
| |
April 30, 2023 | | |
October 31, 2023 | |
| |
JPY | | |
JPY | | |
US$ | |
| |
(in thousands) | |
Finished goods | |
¥ | 118,984 | | |
¥ | 175,018 | | |
$ | 1,156 | |
Work-in-process | |
| 37 | | |
| 37 | | |
| 0 | |
Raw materials | |
| 4,098 | | |
| 4,967 | | |
| 33 | |
Total | |
¥ | 123,119 | | |
¥ | 180,022 | | |
$ | 1,189 | |
New Office Lease
On February 28, 2023, the Company signed a lease agreement for the
new head office with a commencement date of June 1, 2023 and an expiration date of May 31, 2028, without an option to renew. This resulted
in increases to the operating lease ROU asset of ¥485,848 thousand ($3,208 thousand) and operating lease liability of ¥485,848
thousand ($3,208 thousand) on June 1, 2023, which was measured using the Company’s incremental borrowing rate of 2.95%. The security
deposit of ¥137,562 thousand ($908 thousand) was also recorded to the other assets, non-current, on the Condensed Balance Sheets as
of October 31, 2023. The previous lease contract for the existing office will terminate on December 31, 2023.
The components of the operating lease expenses reflected in the condensed
statements of operations for the six months ended October 31, 2022 and 2023 were as follows:
| |
Six Months Ended October 31, | |
| |
2022 | | |
2023 | |
| |
JPY | | |
JPY | | |
US$ | |
| |
(in thousands) | |
Fixed lease cost | |
¥ | 46,193 | | |
¥ | 74,275 | | |
$ | 490 | |
Variable lease cost | |
| 2,231 | | |
| 2,381 | | |
| 17 | |
Short-term cost | |
| 32 | | |
| 60 | | |
| 0 | |
Total | |
¥ | 48,456 | | |
¥ | 76,716 | | |
$ | 507 | |
Supplemental information related to operating leases is as follows:
| | Six Months Ended October 31, | |
| | 2022 | | | 2023 | |
| | JPY | | | JPY | | | US$ | |
| | (in thousands) | |
Cash paid for amounts included in the measurement of lease liabilities | | ¥ | 46,193 | | | ¥ | 74,275 | | | $ | 490 | |
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities | | | 2,716 | | | | 487,359 | | | | 3,218 | |
Weighted average remaining lease term (in years) | | | 13.6 | | | | 4.5 | | | | N/A | |
Weighted average discount rate-operating lease | | | 2.25 | % | | | 2.95 | % | | | N/A | |
Maturity analysis of future minimum lease payments under non-cancellable
operating leases subsequent to October 31, 2023 are as follows:
| |
JPY | | |
US$ | |
| |
(in thousands) | |
Year ending April 30, | |
| | |
| |
2024 (remainder) | |
¥ | 17,031 | | |
$ | 112 | |
2025 | |
| 117,810 | | |
| 778 | |
2026 | |
| 139,615 | | |
| 922 | |
2027 | |
| 137,057 | | |
| 905 | |
2028 | |
| 136,956 | | |
| 904 | |
Total | |
| 548,469 | | |
| 3,621 | |
Less: Interest component | |
| (39,171 | ) | |
| (258 | ) |
Present value of minimum less payments | |
¥ | 509,298 | | |
$ | 3,363 | |
Long-term borrowings consisted of the following as of April 30, 2023
and October 31, 2023:
| |
As of | |
| |
April 30, 2023 | | |
October 31, 2023 | |
| |
JPY | | |
JPY | | |
US$ | |
| |
(in thousands) | |
Long term borrowings, unsecured, maturing serially through 2023-2026, (weighted average: April 2023 — 2.95%, October 2023 — 2.95%) | |
¥ | 1,034,445 | | |
¥ | 1,027,779 | | |
$ | 6,785 | |
Less: current portion | |
| (1,013,332 | ) | |
| (1,013,332 | ) | |
| (6,690 | ) |
Long-term
borrowings, net of current portion | |
¥ | 21,113 | | |
¥ | 14,447 | | |
$ | 95 | |
The long-term borrowings accrue interest using fixed interest rates
of 1.70% - 3.00% per annum as of April 30, 2023 and October 31, 2023. However, a certain borrowing is exempt from interest payments until
November 29, 2023, due to the Tokyo Metropolitan Government’s interest subsidy policy for COVID-19.
The Company has an unsecured borrowing which allows it to borrow up
to ¥1,000,000 thousand ($6,602 thousand) in installments, provided that the Company meets certain financial performance targets. As
of April 30, 2023 and October 31, 2023, the Company was fully funded under the borrowing facility. Debt issuance costs related to these
borrowings are immaterial.
Annual maturities for the years subsequent to October 31, 2023 are
as follows:
| |
JPY | | |
US$ | |
| |
(in thousands) | |
Year ending April 30, | |
| | |
| |
2024 (remainder)(1) | |
¥ | 1,006,666 | | |
$ | 6,646 | |
2025 | |
| 13,332 | | |
| 88 | |
2026 | |
| 7,781 | | |
| 51 | |
Total | |
¥ | 1,027,779 | | |
$ | 6,785 | |
| 7. | Commitments and Contingencies |
From time to time, the Company may be involved in litigation related
to claims that arise in the ordinary course of its business activities. The Company accrues for these matters when it is probable that
losses will be incurred and these losses can be reasonably estimated. Management does not expect any liabilities from claims to have a
material adverse effect on its financial position or the results of operations.
Disaggregation of Revenue
The following table provides disaggregated revenue by major source
for the following periods:
| |
Six Months Ended October 31, | |
| |
2022 | | |
2023 | |
| |
JPY | | |
JPY | | |
US$ | |
| |
(in thousands) | |
Commissioned research and development | |
¥ | 86,980 | | |
¥ | 45,699 | | |
$ | 302 | |
Solution services | |
| 14,186 | | |
| 12,595 | | |
| 83 | |
Guest speaker services | |
| 16,603 | | |
| 15,136 | | |
| 100 | |
Membership services | |
| 4,097 | | |
| — | | |
| — | |
Product sales | |
| 36,773 | | |
| 225,709 | | |
| 1,490 | |
Total revenue | |
¥ | 158,639 | | |
¥ | 299,139 | | |
$ | 1,975 | |
Contract Balance
Contract balances typically arise when there
is a timing difference between the transfer of control to the customer and the receipt of consideration. The Company records accounts
receivable when it has the unconditional right to issue an invoice and receive payment. With respect to payment terms, payments for all service revenue
streams are generally collected in the following month from the invoice date. For product sales directly to businesses, the payment
term is typically thirty days. For e-commerce product sales, the payment term is within a month. Certain product and service contracts
require nonrefundable advance payments from the customer. If the Company receives payments before the performance obligation is satisfied,
contract liabilities are recorded. Contract liabilities are included in accrued expenses and other current liabilities on the Condensed
Balance Sheets and are expected to be recognized as revenue within one year. There are no significant financing components because the
period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service
is short-term. The Company applied the practical expedient available under ASC 606 that permits the Company not to disclose the value
of unsatisfied performance obligations for contracts with an original expected length of one year or less.
The following table summarizes the change in contract liabilities for
the six months ended October 31, 2022 and 2023:
| |
Six Months Ended October 31, | |
| |
2022 | | |
2023 | |
| |
JPY | | |
JPY | | |
US$ | |
| |
(in thousands) | |
Beginning balance | |
¥ | 12,572 | | |
¥ | 4,668 | | |
$ | 31 | |
Revenue earned | |
| (7,673 | ) | |
| (9,657 | ) | |
| (64 | ) |
Deferral of revenue | |
| 22,982 | | |
| 11,901 | | |
| 79 | |
Ending balance | |
¥ | 27,881 | | |
¥ | 6,912 | | |
$ | 46 | |
The Company did not incur any sales commission
plans and third-party referrals that meet the requirements to be capitalized, and therefore, there were no capitalized contract costs
as of October 31, 2022 and 2023.
Other income consists of the following:
| |
Six Months Ended October 31, | |
| |
2022 | | |
2023 | |
| |
JPY | | |
JPY | | |
US$ | |
| |
(in thousands) | |
Interest income | |
¥ | 11 | | |
¥ | 2,557 | | |
$ | 17 | |
Subsidy income | |
| 1,364 | | |
| 1,980 | | |
| 13 | |
Foreign exchange (losses) gains, net | |
| (4,043 | ) | |
| 35,940 | | |
| 237 | |
Other, net | |
| 2,801 | | |
| 930 | | |
| 6 | |
Total other income | |
¥ | 133 | | |
¥ | 41,407 | | |
$ | 273 | |
The Company calculates the tax expense (benefit) for condensed interim
financial statement periods using an estimated annual effective tax rate. The Company recorded no income tax expense for the six months
ended October 31, 2022 and 2023 because the estimated annual effective tax rate was zero. As of October 31, 2023, the Company continues
to maintain a valuation allowance against its net deferred tax assets. The Company intends to maintain this valuation allowance until
sufficient evidence exists to support the reversal of the valuation allowance. The Company has recognized no uncertain tax benefit.
The following table sets forth the computation of basic and diluted
net loss per share attributable to common stockholders:
| |
Six Months Ended October 31, | |
| |
2022 | | |
2023 | |
| |
JPY | | |
JPY | | |
US$ | |
| |
(in thousands, except share and per share data) | |
Common Stock | |
| | |
| | |
| |
Numerator: | |
| | |
| | |
| |
Net loss | |
¥ | (885,000 | ) | |
¥ | (1,150,027 | ) | |
$ | (7,593 | ) |
Net loss attributable to stockholders | |
| (885,000 | ) | |
| (1,150,027 | ) | |
| (7,593 | ) |
Denominator: | |
| | | |
| | | |
| | |
Weighted average shares outstanding used to compute net loss per share, basic and diluted | |
| 6,000,000 | | |
| 13,455,691 | | |
| 13,455,691 | |
Basic and diluted | |
¥ | (147.50 | ) | |
¥ | (85.47 | ) | |
$ | (0.56 | ) |
The following potentially dilutive securities have been excluded from
the calculation of diluted net loss per share due to their anti-dilutive effect.
| |
As of October 31, | |
| |
2022 | | |
2023 | |
Options and warrants | |
| 1,282,800 | | |
| 1,302,800 | |
Series C convertible preferred stock* | |
| 1,153,800 | | |
| — | |
Series B convertible preferred stock* | |
| 2,212,800 | | |
| — | |
Series BB convertible preferred stock* | |
| 242,400 | | |
| — | |
Series A convertible preferred stock* | |
| 2,760,000 | | |
| — | |
Series AA convertible preferred stock* | |
| 666,600 | | |
| — | |
12. Subsequent Events
The subsequent events were evaluated through January 31, 2024, the
date the condensed interim financial statements were issued.
On November 22, 2023, the Company issued 162,600 shares of common stock
related to the exercise of stock options for proceeds of ¥29,814 thousands ($197 thousand).
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